WEBVTT - Bloomberg Wall Street Week - May 26, 2023 0:00:00.560 --> 0:00:02.880 This is Bloomberg Wall Street Week. 0:00:02.920 --> 0:00:04.520 We turn our attention to the markets. 0:00:04.519 --> 0:00:04.840 This week. 0:00:05.000 --> 0:00:08.760 USCPI nembers reinforcing concerns about inflation. 0:00:08.480 --> 0:00:10.840 The financial stories that shape our worth, a. 0:00:10.880 --> 0:00:13.560 Really different reaction to the market. Some more indications of 0:00:13.800 --> 0:00:16.079 just how hot the US economy really is. 0:00:16.079 --> 0:00:18.760 Through the eyes of the most influential voices. 0:00:18.720 --> 0:00:21.639 Katherine Keating, CEO of B and Y Moan, Ryan Winnahan, 0:00:21.760 --> 0:00:24.520 a Bank of America, Sam Zell Sharman and founder of 0:00:24.520 --> 0:00:26.960 Atrey Group Investments, Bloomberg. 0:00:26.560 --> 0:00:31.200 Wall Street with David Weston from Bloomberg Radio this week. 0:00:31.240 --> 0:00:33.400 There may have been a lot going on, but it 0:00:33.440 --> 0:00:36.199 seemed like all Global Wall Street could talk about were 0:00:36.360 --> 0:00:39.000 those on again, off again talks at the White House 0:00:39.080 --> 0:00:42.040 of the dead Ceiling I Speaker McCarthy kept insisting there 0:00:42.080 --> 0:00:45.280 would be no default provided there were spending guts. We're 0:00:45.320 --> 0:00:48.640 not going to default, but we have to spend less 0:00:48.960 --> 0:00:52.400 than we spent last year. House Minority Leader Hakim Jefferies 0:00:52.440 --> 0:00:56.240 responded that the cuts McCarthy was demanding just go too far. 0:00:56.880 --> 0:01:04.680 House Republicans are determined to either extract deep, painful cuts 0:01:05.280 --> 0:01:08.440 that will hurt the health, the safety, or the well 0:01:08.480 --> 0:01:12.679 being of everyday Americans or crash the economy, and. 0:01:12.680 --> 0:01:15.080 President Biden conceded that there would have to be some 0:01:15.319 --> 0:01:18.760 spending cuts, but that there had to be revenue increases 0:01:18.840 --> 0:01:19.360 as well. 0:01:19.520 --> 0:01:21.920 We've got to get something you can sell to both sides, 0:01:22.560 --> 0:01:24.240 and we need to cut spending. 0:01:24.319 --> 0:01:25.720 But are they revenue matters? 0:01:26.080 --> 0:01:28.880 And through it all, Wall Street insiders like Steve Schwartzman 0:01:29.040 --> 0:01:31.960 continue to insist that in the end they'll work it out. 0:01:32.000 --> 0:01:37.760 Tomhow this is someone of micheal wills and desire to 0:01:37.880 --> 0:01:40.440 not blink in the whole world is watching. 0:01:40.920 --> 0:01:44.400 But despite all the budgets, storm and drawing, there were 0:01:44.480 --> 0:01:47.320 some other things worth paying attention to this week, like 0:01:47.400 --> 0:01:50.400 China's move against Micron selling its chips there. 0:01:50.840 --> 0:01:55.120 Broadly, this action appears inconsistent with the PRC's assertions that 0:01:55.200 --> 0:01:58.160 it is open for business and committed to a transparent 0:01:58.200 --> 0:01:59.200 regulatory framework. 0:01:59.360 --> 0:02:02.040 FED minutes from the last meeting showed how uncertain the 0:02:02.080 --> 0:02:04.600 Central Bank is about where it is heading next. 0:02:04.840 --> 0:02:07.960 But mined show FED officials were more divided than usual 0:02:08.040 --> 0:02:13.200 at their May meeting as they debated uncertainties about bank problems, inflation, 0:02:13.680 --> 0:02:14.840 and the debt limit. 0:02:15.080 --> 0:02:18.240 And Nvidia shot the lights out with revenue projections as 0:02:18.280 --> 0:02:20.320 the world stampedes to AI. 0:02:20.720 --> 0:02:23.040 When you look at the data center market, it is 0:02:23.280 --> 0:02:26.600 white hot. People that are developing data centers don't even 0:02:26.639 --> 0:02:29.800 get them developed before one of the fangs leases for 0:02:29.880 --> 0:02:30.560 thirty years. 0:02:32.120 --> 0:02:35.160 The US economic numbers came in stronger than anticipated, with 0:02:35.200 --> 0:02:38.239 personal and business spending up and the year over your 0:02:38.280 --> 0:02:42.320 PCE core deflators stubbornly up at four point seven percent. 0:02:42.680 --> 0:02:44.680 But the markets for the week pretty much reacted to 0:02:44.720 --> 0:02:47.520 those two other stories, the debt, ceialing negotiations and what 0:02:47.600 --> 0:02:49.720 AI means for tech, with the S and P five 0:02:49.800 --> 0:02:52.320 hundred upo point three two percent for the week ending 0:02:52.360 --> 0:02:54.640 of just over that forty two hundred number of people 0:02:54.720 --> 0:02:57.040 have been focused on and two hundred points above our 0:02:57.080 --> 0:02:59.720 Bloomberg Elves median estimate for the end of the year 0:03:00.160 --> 0:03:04.160 four thousand. Vanasak was up a whopping two point five percent, 0:03:04.480 --> 0:03:07.040 while the yield on the tenure added another twelve basis 0:03:07.080 --> 0:03:09.880 points and in the week just under three point eight percent. 0:03:10.160 --> 0:03:11.960 To take us through the week. In the markets, Welcome 0:03:12.040 --> 0:03:15.200 now Lori Kalvacinas, she's RBC Capital Markets Head of US 0:03:15.240 --> 0:03:18.840 Equity Strategy, and Jillian Teent Financial Times chair of the 0:03:18.919 --> 0:03:21.680 editorial board and editor at large US. So welcome back 0:03:21.680 --> 0:03:22.079 to both of you. 0:03:22.160 --> 0:03:22.359 Laurie. 0:03:22.400 --> 0:03:23.720 Let me start with you and what's going on with 0:03:23.760 --> 0:03:27.320 the markets. Given all of the nervousness on some front 0:03:27.440 --> 0:03:30.000 about the debt, it's surprising, least to me, the equity 0:03:30.040 --> 0:03:32.239 markets didn't really react all that much, did they. 0:03:32.720 --> 0:03:35.360 They didn't. I would say the market's generally been reacting 0:03:35.400 --> 0:03:37.920 by rotating as opposed to pulling money out. And if 0:03:37.960 --> 0:03:40.640 you talk to US based equity investors, they'll tell you, hey, look, 0:03:40.640 --> 0:03:43.160 we've seen this story before. The stakes are high, but 0:03:43.200 --> 0:03:44.560 we think a deal is going to get done. So 0:03:44.600 --> 0:03:47.360 they've moved out of cyclicals and into things like tech 0:03:47.400 --> 0:03:50.080 and defensives, which is generally what you see in debt 0:03:50.120 --> 0:03:53.280 sealing drawdowns. But at the same time, we're hearing from 0:03:53.280 --> 0:03:55.400 the big kind of non US investors that they've been 0:03:55.480 --> 0:03:57.840 very worried about this. They don't know our politics as well, 0:03:58.400 --> 0:04:00.480 So I would say kind of the steadier and the 0:04:00.520 --> 0:04:03.720 more kind of even keeled local investors are taking it 0:04:03.760 --> 0:04:05.560 in stride. That doesn't mean they don't care, that doesn't 0:04:05.600 --> 0:04:07.360 mean the markets won't react if we don't end up 0:04:07.360 --> 0:04:09.560 getting a deal. But there is a patience here that 0:04:09.640 --> 0:04:10.200 makes sense. 0:04:10.600 --> 0:04:13.560 So so, Laurie, what about that recession question, because we 0:04:13.640 --> 0:04:16.479 have been hearing these predictions of a recession in twenty 0:04:16.520 --> 0:04:18.080 twenty three, it was going to be the second quarter, 0:04:18.080 --> 0:04:19.359 it's going to be the third quarter, and it's a 0:04:19.360 --> 0:04:21.919 fourth quarter. Is it just a matter of timing or 0:04:22.000 --> 0:04:24.360 is there a question even whether there will be a recession. 0:04:24.400 --> 0:04:26.479 I think there's a question, a legitimate one, about whether 0:04:26.520 --> 0:04:27.880 or not we're even going to get it, or if 0:04:27.880 --> 0:04:30.640 you end up getting something similar to twenty fifteen twenty sixteen, 0:04:30.680 --> 0:04:33.320 which was pretty close but not quite. And I think 0:04:33.400 --> 0:04:35.359 what's interesting, and I see this more from the lens 0:04:35.360 --> 0:04:38.240 of earnings, is that we're in an asynchronous cycle in 0:04:38.279 --> 0:04:40.960 terms of the economy. There are different industries and different sectors. 0:04:40.960 --> 0:04:43.760 They're going through different processes at different points in time. 0:04:44.080 --> 0:04:46.479 If you think about sort of your inflation, you know 0:04:46.560 --> 0:04:50.640 sort of beneficiaries, the beneficiaries of higher interest rates, things 0:04:50.680 --> 0:04:53.720 like financials and energy they saw big upward revisions last year, 0:04:53.960 --> 0:04:57.240 while tech companies, growth companies, supply chain centric sectors were 0:04:57.240 --> 0:05:00.279 all seen downward revisions. Now the tables have turned everything 0:05:00.320 --> 0:05:02.240 that was getting hurt last year as in a recovery, 0:05:02.440 --> 0:05:04.760 and things that were benefiting from inflation and interest rates 0:05:04.760 --> 0:05:07.760 stramping are seen their downward revision cycle. That's a very 0:05:07.880 --> 0:05:10.239 very confusing cross current, but if you spread the pain 0:05:10.400 --> 0:05:13.040 out a bit, you could actually skate by without a 0:05:13.040 --> 0:05:14.600 true sort of recession happening. 0:05:15.040 --> 0:05:17.200 One more before we turn to everybody's favorite topic, which 0:05:17.240 --> 0:05:19.479 is of course artificial intelligence. But Jillian, to you, you 0:05:19.560 --> 0:05:21.480 mentioned the FED and what the FED is likely to do. 0:05:21.880 --> 0:05:24.520 We got some strong numbers in this week, actually indicating 0:05:24.520 --> 0:05:26.839 both on the inflation staying up but also the economy 0:05:26.920 --> 0:05:30.040 being quite strong. Where do you think the FED is heading? 0:05:30.120 --> 0:05:32.000 Do you think they're going to continue to rise at all? 0:05:32.120 --> 0:05:33.280 And by the way, if you want to, you can 0:05:33.320 --> 0:05:35.520 give us the job's number for next Friday. It's okay. 0:05:36.640 --> 0:05:38.480 Well, if I did that, i'd be a trader. 0:05:40.279 --> 0:05:42.839 I think the FED is under pressure to keep raising, 0:05:42.920 --> 0:05:46.240 keep tightening. It may skip that for this coming meeting 0:05:46.279 --> 0:05:48.320 and do a wait and see stance, but I certainly 0:05:48.360 --> 0:05:50.000 don't think it's going to cut any time soon. And 0:05:50.040 --> 0:05:53.040 I'm actually think the market projections of twenty five bases 0:05:53.080 --> 0:05:56.520 point rise now is quite reasonable given the fat that 0:05:56.560 --> 0:05:59.960 we still haven't seen a significant decline in the inflation rate, 0:06:00.200 --> 0:06:03.279 and the economy hasn't yet shown signs of being in recession. 0:06:03.640 --> 0:06:05.440 I think in many ways, a more interesting issue that 0:06:05.480 --> 0:06:08.200 the Fed's also facing, though, is, you know, is it 0:06:08.240 --> 0:06:11.480 going to give any hint of rethinking the inflation target 0:06:11.480 --> 0:06:14.680 going forward again. One of the messages that came back 0:06:14.720 --> 0:06:17.560 from being down in the South earlier this week and 0:06:17.640 --> 0:06:19.560 talking to people is that a lot of the commercial 0:06:19.560 --> 0:06:23.680 real estate sector are constantly asking FED officials, you know, 0:06:23.760 --> 0:06:26.000 are you going to change the inflation target. There's a 0:06:26.040 --> 0:06:29.240 kind of desperate hope amongst many in that sector that 0:06:29.400 --> 0:06:33.320 actually the rate rises will stop because the inflation target changes. Now, 0:06:33.360 --> 0:06:36.680 the fled's been very keen to squash that quite forcefully, 0:06:37.240 --> 0:06:39.760 but that question is going to liner and linger, particularly 0:06:39.760 --> 0:06:43.120 if the inflation keeps coming in higher than people had expected. 0:06:43.360 --> 0:06:45.400 I'm going to turn to that subject, which is everyone's 0:06:45.400 --> 0:06:48.400 favorite subject and now is generative AI. And if it 0:06:48.400 --> 0:06:51.200 weren't our favorite preessional subject before. When Vidio came out 0:06:51.240 --> 0:06:54.120 with those earnings projections, it was really pretty extraordinary. We 0:06:54.160 --> 0:06:56.839 have people saying this is as big as electricity or 0:06:56.960 --> 0:07:01.599 fire or the invention of the wheel overestimating what this 0:07:01.720 --> 0:07:03.600 generative AI mean for us all. 0:07:03.839 --> 0:07:07.120 Well, the reason why the Navidio stot hoped sodomatically and 0:07:07.200 --> 0:07:09.600 came up with the extordy ownings is very much down 0:07:09.600 --> 0:07:13.239 to the dazzle factor, but also the confusion factor. Because 0:07:13.360 --> 0:07:16.360 investors know that something big is happening, they don't really 0:07:16.440 --> 0:07:19.280 understand the technology. They don't understand the degree to which 0:07:19.280 --> 0:07:22.440 companies that our AI companies actually have a moat that 0:07:22.560 --> 0:07:25.800 can defend them from you know, new rivals, and so 0:07:25.840 --> 0:07:27.680 there's a lot of uncertaintly there. The one thing that's 0:07:27.680 --> 0:07:30.200 crystal clear though, is that this is going to require 0:07:30.240 --> 0:07:32.080 a lot of computing power and a lot of chips. 0:07:32.600 --> 0:07:35.440 So people are grasping on anything they can see the 0:07:35.480 --> 0:07:38.720 shiny new thing to try and have a play at 0:07:38.720 --> 0:07:41.800 this whole wave. In terms of the significance of generative 0:07:41.880 --> 0:07:46.160 AI is obviously very significant. You know, we've had AI 0:07:46.240 --> 0:07:48.120 for a very long time. It's all part of our 0:07:48.400 --> 0:07:51.680 everyday experience. But you know, for me, one of the 0:07:51.680 --> 0:07:54.800 ways to explain what's going on is that as an anthropologist, 0:07:54.880 --> 0:07:57.360 I always used to joke that the one thing that 0:07:57.440 --> 0:08:00.400 AI couldn't do is have a sense of human and 0:08:00.440 --> 0:08:04.680 tell jokes, because jokes are fundamentally rooted in culture, which 0:08:04.760 --> 0:08:07.000 is hard to describe and hard to define and often 0:08:07.120 --> 0:08:12.120 very contradictory. And most of the traditional platforms inside computers 0:08:12.240 --> 0:08:16.000 looked for logic and patterns and things like that. What 0:08:16.080 --> 0:08:19.080 you'll start to see with platforms like Generator of AI 0:08:19.520 --> 0:08:21.920 are machines that are so sophisticated and so good at 0:08:21.960 --> 0:08:26.680 watching people and replicating human behavior even if it's not logical, 0:08:27.040 --> 0:08:30.080 and behaving like an anthropologist not a scientist, that you're 0:08:30.080 --> 0:08:33.440 starting to get AI platforms which are almost beginning to 0:08:33.480 --> 0:08:37.040 tell jokes. So it's really quite a big change in 0:08:37.160 --> 0:08:39.640 terms of what's happening. The big question though, is what 0:08:39.679 --> 0:08:43.760 it means in terms of real world applications and company valuations. 0:08:43.880 --> 0:08:46.480 So as a loyal turn to you here and how 0:08:46.480 --> 0:08:48.720 big this could be? Is this a new lease on 0:08:48.760 --> 0:08:50.040 life for all of tech essentially? 0:08:50.200 --> 0:08:51.840 So, look, I think this is another thing you can 0:08:51.840 --> 0:08:54.000 put in the category of rallies that have been deserved. 0:08:54.040 --> 0:08:55.960 I know it's sort of trendy to go out and say, 0:08:56.000 --> 0:08:57.840 you know, the market is toppy and this is just 0:08:57.880 --> 0:09:01.040 all this AI hype and it's not deserved. I think 0:09:01.080 --> 0:09:03.360 there's a paucity of growth stories out there right now, 0:09:03.360 --> 0:09:05.960 and when you think about the conversation on reshoring that's 0:09:05.960 --> 0:09:08.000 been going on and talking to a lot of investors 0:09:08.040 --> 0:09:09.760 about that in recent months, is kind of the only 0:09:09.840 --> 0:09:12.640 big interesting growth narrative out there. Well, now we've got 0:09:12.640 --> 0:09:15.800 something to keep it company, which is AI. Ultimately, my 0:09:15.880 --> 0:09:18.920 gut is that this is going to be another productivity enhancer, 0:09:19.000 --> 0:09:22.360 something very cool, something very interesting that enhances productivity. Is 0:09:22.400 --> 0:09:24.679 it going to completely transform society? I'm not quite sure. 0:09:24.720 --> 0:09:26.400 I'm in that camp, But in terms of the market 0:09:26.440 --> 0:09:28.800 and why it's getting so excited, I think it's because 0:09:28.800 --> 0:09:31.080 there hasn't been a lot of other things in this 0:09:31.160 --> 0:09:33.480 kind of category of secular growth stories to get excited 0:09:33.520 --> 0:09:34.120 about recently. 0:09:34.240 --> 0:09:36.040 Julian, I'm going to ask you to do something very unfair. 0:09:36.080 --> 0:09:39.199 You have a terrific column in the Financial Times ABOUTIA 0:09:39.240 --> 0:09:41.400 I believe it's called in Ukraine. Could you just give 0:09:41.480 --> 0:09:43.199 us thirty or forty five seconds of that because I 0:09:43.360 --> 0:09:45.160 thought it was really extraordinary. I'd love you to come 0:09:45.200 --> 0:09:46.520 back and really explain it more detail. 0:09:46.640 --> 0:09:49.520 As an Idea is an app that Ukrainians thought three 0:09:49.600 --> 0:09:52.680 years ago to enable Ukrainian citizens to do all the 0:09:52.800 --> 0:09:55.320 usual government functions that any of us ever have to do, 0:09:56.080 --> 0:09:58.600 not by going to an office and filling in paper storms, 0:09:58.840 --> 0:10:01.640 but on your phone with app. And initially it seemed 0:10:01.679 --> 0:10:03.800 like just a very minor tool that a few people 0:10:03.880 --> 0:10:07.960 might use for things like vaccinations, status in COVID. But 0:10:08.040 --> 0:10:11.120 these days seventy percent of Ukrainian phones have this app. 0:10:11.240 --> 0:10:14.120 Half the population is using it. They're doing almost everything 0:10:14.160 --> 0:10:16.400 to do with the government on this cell phone app. 0:10:16.440 --> 0:10:18.400 And the key point is that not only has it 0:10:18.440 --> 0:10:22.160 meant that Ukraine's kept functioning even as refugees have flooded 0:10:22.240 --> 0:10:25.120 everywhere because they've all got their passports and stuff on 0:10:25.120 --> 0:10:27.320 their phone, but it's also meant that they have one 0:10:27.360 --> 0:10:30.320 way potentially to try and cut down in corruption. And 0:10:30.360 --> 0:10:32.480 the crucial thing to understand, the reason why it's so 0:10:32.520 --> 0:10:34.920 important this week is because they're trying to take it. 0:10:34.920 --> 0:10:37.640 The USAID is trying to take it and export it 0:10:37.679 --> 0:10:38.520 to other countries. 0:10:38.800 --> 0:10:41.160 A tech export from Ukraine. How about that, and particularly 0:10:41.160 --> 0:10:43.240 if it deals with DMV, I'd be all for it. 0:10:43.440 --> 0:10:46.440 Many Thanks to Lori Calvascino of RBC Cattle Markets and 0:10:46.520 --> 0:10:49.120 Julian tat Has, the Financial Times coming up could your 0:10:49.200 --> 0:10:53.000 friendly neighborhood chat Ai beat the stock market. We're going 0:10:53.040 --> 0:10:56.640 to hear from investing guru David Booth's Dimensional Fund ad Advisors. 0:10:56.760 --> 0:10:58.800 He has some doubts about it. He's not sure that 0:10:58.840 --> 0:11:01.000 you can beat the market within. That's going to come 0:11:01.040 --> 0:11:05.640 up next on Wall Street Weeedons. 0:11:07.080 --> 0:11:11.240 This is Bloomberg Wall Street Week with David Weston from 0:11:11.400 --> 0:11:12.319 Bloomberg Radio. 0:11:12.520 --> 0:11:15.640 Private equity, it's come a long way since Henry Cravis 0:11:15.720 --> 0:11:17.760 and George Roberts put it on the map with that 0:11:17.840 --> 0:11:21.040 twenty five billion dollar buyout of R JR. Nabisco back 0:11:21.080 --> 0:11:24.600 in nineteen eighty eight, made famous in Barbarians at the Gate. 0:11:24.880 --> 0:11:27.880 I'm talking about putting a mountain of money into everybody's 0:11:27.920 --> 0:11:29.040 pocket right now. 0:11:29.200 --> 0:11:32.000 And it has evolved since Democrats tried to make Mitt 0:11:32.040 --> 0:11:35.160 Romney's role in running Bain Capital and issue in the 0:11:35.200 --> 0:11:37.520 twenty twelve presidential campaign. 0:11:37.880 --> 0:11:39.880 It's a very healthy and positive debate. 0:11:39.920 --> 0:11:42.000 That doesn't mean the private equity world is going to 0:11:42.080 --> 0:11:42.800 enjoy it very much. 0:11:42.960 --> 0:11:46.240 Today, private equity is a massive asset class with over 0:11:46.320 --> 0:11:50.240 eleven trillion dollars invested and another three trillion dollars and 0:11:50.280 --> 0:11:54.679 so called dry powder waiting to be deployed. Although higher 0:11:54.800 --> 0:11:57.280 rates slowed things down at the end of last year, 0:11:57.559 --> 0:12:00.240 it's just beginning to show signs of coming back. 0:12:00.559 --> 0:12:03.920 Fourth quarter of twenty two you had nothing today, you 0:12:04.040 --> 0:12:07.319 actually had the markets loosening out for the right deals. 0:12:07.400 --> 0:12:13.160 Leaving us all to look for that right deal and 0:12:13.240 --> 0:12:15.320 to take us into the world of private equity. We 0:12:15.320 --> 0:12:18.480 welcome to people who are in it from HGGC. We have, 0:12:18.559 --> 0:12:21.880 first of all Steve Young, who's the chairman of HGGC 0:12:22.360 --> 0:12:24.560 as well as the co founder, and we also have 0:12:24.679 --> 0:12:28.319 Rich Lawson who's the CEO and also co founder of HGGC. 0:12:28.600 --> 0:12:31.000 So welcome, gentlemen. It's great to have you here. First 0:12:31.040 --> 0:12:33.840 of all, give us a sense of how HGGC fits 0:12:33.880 --> 0:12:35.760 into this world of private equity. Steve, if you want 0:12:35.760 --> 0:12:36.959 to go first, from. 0:12:36.760 --> 0:12:40.240 The very beginning, from our roots, we decided that we 0:12:40.280 --> 0:12:43.080 wanted to do private equity differently, and we believe that 0:12:43.120 --> 0:12:48.400 across the table were people that were founders, you know, 0:12:48.880 --> 0:12:53.680 financial sponsors, management teams. Across the table as somebody who 0:12:53.720 --> 0:12:56.720 cares more about who I am than the last dollar 0:12:57.000 --> 0:12:59.120 and what I bring to the table than. 0:12:59.000 --> 0:12:59.679 The last dollar. 0:13:00.160 --> 0:13:03.000 Fundamental principle is that partnership investing. 0:13:02.800 --> 0:13:04.320 Will we'll wile of the world. 0:13:04.400 --> 0:13:07.040 And fifteen years ago that was a little bit of 0:13:07.080 --> 0:13:10.000 a bet. Today partnership investing has taken over the world. 0:13:10.320 --> 0:13:13.400 And so for us, the differentiation that we make is 0:13:13.400 --> 0:13:17.760 that we live here, we seek your reference across the table. 0:13:17.840 --> 0:13:20.119 We need your reference at the end of this engagement 0:13:20.520 --> 0:13:22.920 where because that's how we're going to go forward, because 0:13:22.920 --> 0:13:25.240 that's all we do is partnership investing. Where others will 0:13:25.280 --> 0:13:28.080 say we're partnership investors, but they rent here, they rent 0:13:28.080 --> 0:13:30.160 here for the time, and they don't really it's not 0:13:30.240 --> 0:13:31.480 rooted to who they are rich. 0:13:31.559 --> 0:13:34.440 This partnership investing sounds really nice, and like I understand 0:13:34.440 --> 0:13:36.480 why you might attract a lot of heels that way, 0:13:36.679 --> 0:13:38.640 can you make as much money? Because that's not, let's 0:13:38.640 --> 0:13:41.720 be frank, the model historically associated with private equity. We 0:13:41.760 --> 0:13:43.520 think it was coming in and buying it, tripping a 0:13:43.520 --> 0:13:45.120 lot of costs out and reselling it. 0:13:45.440 --> 0:13:47.840 Where we focus is in the middle market, so medium 0:13:47.920 --> 0:13:51.080 sized businesses. So for us, as a seven billion dollar 0:13:51.160 --> 0:13:54.640 private equity firm, where we tend to see the opportunity 0:13:54.640 --> 0:13:57.760 to create real appha is buying good businesses in the 0:13:57.800 --> 0:14:01.439 middle market as traditionally defined with the goal of transforming 0:14:01.440 --> 0:14:03.040 them into great companies. 0:14:02.760 --> 0:14:03.120 So rich. 0:14:03.160 --> 0:14:05.000 It sounds like when you come in, it's not the 0:14:05.040 --> 0:14:08.520 management team that you're replacing. You don't come in by definition. 0:14:08.600 --> 0:14:10.840 You've picked companies that have good management teams. So what 0:14:10.920 --> 0:14:13.880 is it you're providing? Is it capital? Basically, and typically 0:14:13.880 --> 0:14:16.400 in private equity, we think of leveraging up your capital 0:14:16.480 --> 0:14:18.000 is equity as I understand. 0:14:17.600 --> 0:14:19.560 It, we would think about it in sort of three 0:14:19.560 --> 0:14:22.720 different deal market types. One is buy and built with 0:14:22.920 --> 0:14:26.200 very important in this type of macro environment. The second 0:14:26.240 --> 0:14:31.240 would be in business transformation, helping up upgrading core capabilities 0:14:31.240 --> 0:14:34.880 and processes. And third is growth enablement, maybe changing the 0:14:34.880 --> 0:14:38.000 go to market process, the go to market motion, helping 0:14:38.040 --> 0:14:42.240 businesses called global But again we're taking very distinctly medium 0:14:42.280 --> 0:14:46.240 sized companies call it a billion dollars of enterprise value below, 0:14:46.640 --> 0:14:50.560 and we're creating multi billion dollar enterprises over the course 0:14:50.600 --> 0:14:53.680 of a partnership with the owners of that business. 0:14:54.120 --> 0:14:56.600 Steve, I understand you focus on the middle market, if 0:14:56.640 --> 0:14:59.120 I can call it that. Are there particular sectors that 0:14:59.200 --> 0:15:02.720 you tend to be attracted to or see deals from. 0:15:03.360 --> 0:15:05.800 We live in Palo Alto, California. That's our that's our 0:15:06.400 --> 0:15:08.920 our base of operations. So we've been in technology for 0:15:09.000 --> 0:15:11.720 twenty five thirty years. So we're going to do some technology, 0:15:11.720 --> 0:15:15.000 no question. But how tech has informed places like business services, 0:15:15.600 --> 0:15:19.440 financial services, and even some consumer in particular places is 0:15:19.440 --> 0:15:21.920 where we will kind of trade. We won't go further 0:15:22.000 --> 0:15:24.360 than that, but that's a pretty wide swath, but we 0:15:24.440 --> 0:15:27.960 are gaining, uh through our thematic sourcing efforts, uh, some 0:15:27.960 --> 0:15:31.120 real expertise in our shop and uh, you know, we'll 0:15:31.600 --> 0:15:32.120 we are. 0:15:32.000 --> 0:15:33.840 Now trying for the first time. 0:15:33.880 --> 0:15:35.920 You think I've been in kind of working to do 0:15:35.960 --> 0:15:39.120 a sports angle and sports investing from the very beginn 0:15:39.120 --> 0:15:42.040 income my previous life, but I I took my my heroes, 0:15:42.120 --> 0:15:45.640 Roger Staubach's uh uh he told me that, you know 0:15:45.640 --> 0:15:47.400 when I when I first retired, So what should I do? 0:15:47.440 --> 0:15:49.920 What's your what your recommendation is just run? And so 0:15:49.960 --> 0:15:52.680 I ran. And so I felt a little bit awkward, 0:15:53.200 --> 0:15:55.520 you know, reinvesting back into sports. But now I've kind 0:15:55.520 --> 0:15:57.760 of matured in my private equity life that I've been 0:15:57.800 --> 0:15:59.240 in longer than I played football. 0:15:59.400 --> 0:16:01.280 Well, I was going to ask you that, Steve, obviously, 0:16:01.360 --> 0:16:03.200 given we all think of you as a forty nine 0:16:03.280 --> 0:16:05.600 ers hold on. That's the way we know Steve Young. 0:16:06.120 --> 0:16:09.040 Given that do you get more deal flow out of sports? 0:16:09.040 --> 0:16:10.240 So people tend to come to you. And I know 0:16:10.280 --> 0:16:12.840 you've done a lot of work actually with other former 0:16:12.880 --> 0:16:15.320 professional athletes to help them in their business ventures. 0:16:15.680 --> 0:16:18.160 So one of my passions is to try to pay 0:16:18.200 --> 0:16:21.640 it forward and trying to create trying to create a 0:16:21.680 --> 0:16:26.360 repository of transition stories from professional life into the next 0:16:26.400 --> 0:16:28.400 phase of their lives. And I've always talked about that 0:16:28.480 --> 0:16:33.080 as a hard ending to a passion for people and 0:16:33.120 --> 0:16:34.960 then finding out that they're middle aged and they. 0:16:34.840 --> 0:16:35.280 Don't have it. 0:16:35.360 --> 0:16:37.520 You know, I was great at something and the next 0:16:37.560 --> 0:16:40.040 day I'm not good at anything. And so how do 0:16:40.120 --> 0:16:42.080 those transition stories and how to pay it forward for 0:16:42.160 --> 0:16:45.360 other athletes Today, I'm really passionate about trying to figure 0:16:45.360 --> 0:16:47.720 out how to tell those stories about people who have 0:16:47.800 --> 0:16:48.920 transition good and bad. 0:16:49.600 --> 0:16:51.960 Rich Palin, the last time I checked is in Silicon Valley. 0:16:52.080 --> 0:16:54.800 We had Silicon Valley Bank has the failure of Silicon 0:16:54.880 --> 0:16:56.400 Value Bank and some of the other regional banks. Has 0:16:56.400 --> 0:16:58.560 it affected your business. 0:16:58.560 --> 0:17:01.160 In a way, It's sort of excel rated the opportunity 0:17:01.200 --> 0:17:05.520 around this tilt towards partnership, we find that that really 0:17:05.640 --> 0:17:10.600 large and growing ecosystem of venture backed businesses are looking 0:17:10.680 --> 0:17:14.040 for outcomes. Right, you have an ecosystem of venture capital 0:17:14.080 --> 0:17:18.080 and growth equity investors. You have wonderful entrepreneurs that are 0:17:18.119 --> 0:17:20.640 around these businesses. But if you think about what Steve 0:17:20.680 --> 0:17:24.040 had mentioned, the essence of what we do, we're looking 0:17:24.160 --> 0:17:26.520 for folks that in the kind of businesses that we're 0:17:26.560 --> 0:17:30.080 transforming from good companies or good businesses to great companies 0:17:31.240 --> 0:17:34.919 is numerous owners. And so what we found, David, is 0:17:34.960 --> 0:17:39.359 that because of what's happened with the macro environment with 0:17:39.480 --> 0:17:43.480 SVB and others, you have this really large universe of 0:17:43.840 --> 0:17:48.280 smaller companies that would have typically raised a series CDF 0:17:48.560 --> 0:17:51.280 and gone public that have now said, maybe it might 0:17:51.320 --> 0:17:53.720 be better to join forces with one of our core 0:17:54.520 --> 0:17:56.000 active portfolio companies. 0:17:56.280 --> 0:17:56.440 Rich. 0:17:56.480 --> 0:17:59.359 One of the precipitating causes of what happened at Silico 0:17:59.400 --> 0:18:02.480 ELI back the higher interest rates that really took down 0:18:02.520 --> 0:18:05.080 the valuations of a lot of private equity companies. Is 0:18:05.119 --> 0:18:06.160 it affecting your business? 0:18:06.200 --> 0:18:06.400 Rich? 0:18:06.760 --> 0:18:10.640 The diminishment I assume of the valuations given what's going 0:18:10.880 --> 0:18:11.680 with a discount rate. 0:18:11.960 --> 0:18:16.160 In uncertain macro environments, business quality becomes more important than ever. 0:18:16.680 --> 0:18:19.119 And because these companies tend to be more resilient in 0:18:19.160 --> 0:18:22.159 the face of macro pressures, the type of businesses that 0:18:22.200 --> 0:18:27.400 we look for invest in and help support transform. Even 0:18:27.440 --> 0:18:30.000 if they do get impacted in the near term, you 0:18:30.040 --> 0:18:31.600 will see them rebound quickly. 0:18:32.640 --> 0:18:36.080 Steve, I can't let a Super Bowl Most Valuable Player 0:18:36.160 --> 0:18:38.879 quarterback go without asking one question about valuations and professional 0:18:38.880 --> 0:18:41.240 sports teams. They are through the roof as we talk 0:18:41.280 --> 0:18:43.280 to people. It is just extraordinary. And I talked to 0:18:43.320 --> 0:18:45.400