1
00:00:02,440 --> 00:00:08,319
Speaker 1: Bloomberg Audio Studios, podcasts, radio news. The perfect person say

2
00:00:08,480 --> 00:00:10,680
Speaker 1: to talk to us about it choice on set this morning,

3
00:00:10,760 --> 00:00:11,360
Speaker 1: Ken can Sell.

4
00:00:11,560 --> 00:00:12,600
Speaker 2: Lovely to see you in London.

5
00:00:12,640 --> 00:00:16,799
Speaker 1: By the way, welcome President's CEO of Churchill Asset Management. Look,

6
00:00:17,360 --> 00:00:19,560
Speaker 1: we're obsessed in terms of trying to find a narrative

7
00:00:19,600 --> 00:00:21,240
Speaker 1: here and there's a million things going on. So I'm

8
00:00:21,239 --> 00:00:24,560
Speaker 1: going to go big picture with you first when we're

9
00:00:24,600 --> 00:00:27,160
Speaker 1: talking about the volatility in this market and this consumer

10
00:00:27,240 --> 00:00:29,960
Speaker 1: resilience that just doesn't quit coming out of the States.

11
00:00:31,080 --> 00:00:34,040
Speaker 1: Is the Nvidia story, Is the FED story? Ultimately at

12
00:00:34,080 --> 00:00:36,479
Speaker 1: its core just a question of liquidity and when does

13
00:00:36,520 --> 00:00:37,040
Speaker 1: that snap?

14
00:00:37,720 --> 00:00:40,000
Speaker 3: Well, look, you know, I think you know, as we

15
00:00:40,040 --> 00:00:43,120
Speaker 3: look at the markets, we're seeing a long term trend

16
00:00:43,320 --> 00:00:47,319
Speaker 3: of rates ultimately normalizing. It's taking longer, right, So we're

17
00:00:47,360 --> 00:00:50,360
Speaker 3: definitely in a in a higher for longer environment. But

18
00:00:50,760 --> 00:00:53,800
Speaker 3: as rates normalize, the opportunity for companies to go to

19
00:00:53,880 --> 00:00:57,440
Speaker 3: the capital markets and raise financing is opening up. I mean,

20
00:00:57,440 --> 00:00:59,840
Speaker 3: we had the broadly syndicated loan market that the liquid

21
00:01:00,240 --> 00:01:03,440
Speaker 3: markets essentially closed for the last eighteen to twenty four months,

22
00:01:03,520 --> 00:01:06,839
Speaker 3: so you know they've opened up. The Empire strikes back.

23
00:01:07,160 --> 00:01:10,480
Speaker 3: You know, we're seeing the large liquid markets open for companies.

24
00:01:10,520 --> 00:01:13,679
Speaker 3: So I think that all bodes well for liquidity, the

25
00:01:13,720 --> 00:01:16,560
Speaker 3: ability of companies to raise capital, the ability to start

26
00:01:16,560 --> 00:01:19,000
Speaker 3: investing in businesses, and frankly, the return of M and

27
00:01:19,000 --> 00:01:19,640
Speaker 3: A activity.

28
00:01:20,200 --> 00:01:23,160
Speaker 1: Is that just a function though, of money sitting on

29
00:01:23,200 --> 00:01:26,480
Speaker 1: the sidelines that has been for years now, it's kind

30
00:01:26,480 --> 00:01:28,160
Speaker 1: of dipping their toe back in the water, getting a

31
00:01:28,200 --> 00:01:31,160
Speaker 1: little bit more comfortable here to actively participate in this

32
00:01:31,240 --> 00:01:33,600
Speaker 1: market as opposed to sitting say on front and heelds

33
00:01:33,680 --> 00:01:35,520
Speaker 1: or in private equity. And we'll circle back to the

34
00:01:35,560 --> 00:01:37,840
Speaker 1: alternative story in a moment, But is that what this

35
00:01:37,920 --> 00:01:41,040
Speaker 1: story is as opposed to real confidence in the fundamentals?

36
00:01:41,400 --> 00:01:44,200
Speaker 3: Well, I think you are seeing some confidence returned. You know,

37
00:01:44,520 --> 00:01:48,040
Speaker 3: we had a reasonably long period there of price discovery

38
00:01:48,040 --> 00:01:50,559
Speaker 3: in the M and A markets. G Our company's really

39
00:01:50,600 --> 00:01:53,720
Speaker 3: worth eighteen twenty times cash flow? You know, are we

40
00:01:53,840 --> 00:01:57,680
Speaker 3: overpaying for businesses? And was the financing markets were they

41
00:01:57,680 --> 00:01:59,960
Speaker 3: in aberration in terms of funding deals that were made

42
00:02:00,080 --> 00:02:04,400
Speaker 3: be over levered or or or under capitalized. I think

43
00:02:04,480 --> 00:02:06,720
Speaker 3: that things are moving in the right direction. You know,

44
00:02:06,760 --> 00:02:10,560
Speaker 3: we saw a significant return to normalcy in the financing

45
00:02:10,600 --> 00:02:12,560
Speaker 3: markets in the world that we live in, which is

46
00:02:12,600 --> 00:02:16,280
Speaker 3: private credit and private equity. Deal activity was actually quite

47
00:02:16,280 --> 00:02:18,680
Speaker 3: good in the core middal market, you know, which is

48
00:02:18,840 --> 00:02:21,680
Speaker 3: the third largest global economy. If you kind of look

49
00:02:21,720 --> 00:02:25,679
Speaker 3: at the overall US market, we saw a significant resurgence

50
00:02:25,760 --> 00:02:28,800
Speaker 3: and am an activity, deal activity, private equity coming off

51
00:02:28,840 --> 00:02:31,520
Speaker 3: the sideline. So you know, we are for example, our

52
00:02:31,680 --> 00:02:34,960
Speaker 3: our m and A activity, our deal investing activity was

53
00:02:35,040 --> 00:02:37,240
Speaker 3: up eighty percent core of a quarter from twenty three

54
00:02:37,320 --> 00:02:40,040
Speaker 3: to twenty four, and was up sixty percent in the

55
00:02:40,040 --> 00:02:44,119
Speaker 3: fourth quarter. So we're seeing a gradual return to normalcy

56
00:02:44,120 --> 00:02:47,760
Speaker 3: against a backdrop obviously of political uncertainty. Well here and

57
00:02:47,880 --> 00:02:48,480
Speaker 3: in the US.

58
00:02:48,680 --> 00:02:50,280
Speaker 4: Yes, I want to come to that in just a moment.

59
00:02:50,720 --> 00:02:54,000
Speaker 4: But you were just talking there about the deveolp of

60
00:02:54,000 --> 00:02:55,760
Speaker 4: private equity, and I wonder what the move's like in

61
00:02:55,760 --> 00:02:58,560
Speaker 4: that sector, because if you can't exit, you can't buy

62
00:02:58,720 --> 00:03:00,720
Speaker 4: it seems and that we were there for We were

63
00:03:00,720 --> 00:03:02,480
Speaker 4: there for quite a while, weren't we And now things

64
00:03:02,480 --> 00:03:04,480
Speaker 4: are changing. I mean, is it just in time for

65
00:03:04,520 --> 00:03:05,560
Speaker 4: the private equity space?

66
00:03:05,560 --> 00:03:06,320
Speaker 2: What's the mood there?

67
00:03:06,639 --> 00:03:09,320
Speaker 3: Well, you know, look, I think you've had private equity

68
00:03:09,360 --> 00:03:14,200
Speaker 3: firms unable to deliver distributions for you know, a reasonable

69
00:03:14,200 --> 00:03:17,840
Speaker 3: time here, distributions on our private equity fund commitments and

70
00:03:17,880 --> 00:03:20,600
Speaker 3: our and our co investments. You know, we're down significantly

71
00:03:20,639 --> 00:03:23,160
Speaker 3: last year, so I think private equity is beginning to

72
00:03:23,160 --> 00:03:25,600
Speaker 3: come off the sidelines. I think we were coming through

73
00:03:25,600 --> 00:03:29,040
Speaker 3: a period of price discovery and I think we're you know,

74
00:03:29,080 --> 00:03:31,960
Speaker 3: we're certain to see buyers and sellers match up in

75
00:03:32,000 --> 00:03:35,360
Speaker 3: a better way. So I'm pretty optimistic about the you know,

76
00:03:35,400 --> 00:03:38,880
Speaker 3: the economic environment, deal environment and emine activity. And as

77
00:03:38,880 --> 00:03:40,880
Speaker 3: we move through the course of twenty four I think

78
00:03:40,960 --> 00:03:45,920
Speaker 3: rates you know, will come down obviously slower higher for longer,

79
00:03:46,080 --> 00:03:49,000
Speaker 3: they will come down slowly, and I think that'll drive better,

80
00:03:49,080 --> 00:03:50,240
Speaker 3: better investment activity.

81
00:03:50,360 --> 00:03:52,960
Speaker 4: You mentioned the link with politics and political uncertainty, so

82
00:03:53,160 --> 00:03:55,160
Speaker 4: you know, I don't need you to comment specifically on

83
00:03:55,360 --> 00:03:57,360
Speaker 4: National Grid and its plans. But we've got this bit,

84
00:03:57,440 --> 00:04:00,560
Speaker 4: this big UK business with a big each you today

85
00:04:00,680 --> 00:04:03,440
Speaker 4: issuing shares who invest in the National Grid, all about

86
00:04:03,440 --> 00:04:06,000
Speaker 4: the electroification story here in the UK, and this comes

87
00:04:06,040 --> 00:04:08,880
Speaker 4: just a day after we had an election called does

88
00:04:09,000 --> 00:04:11,360
Speaker 4: politics not get in the way of some of this

89
00:04:11,440 --> 00:04:14,920
Speaker 4: capital markets activity? Is it much more about the rates story.

90
00:04:15,160 --> 00:04:19,240
Speaker 3: Now, I think it's more about the rates story, although

91
00:04:19,360 --> 00:04:24,080
Speaker 3: the backdrop of the political dynamics will increasingly come to bear.

92
00:04:24,360 --> 00:04:26,760
Speaker 3: I think you'll see the FED back away a bit

93
00:04:27,000 --> 00:04:31,240
Speaker 3: from interjecting themselves into the election. So at some point

94
00:04:31,279 --> 00:04:34,040
Speaker 3: in July or August, you'll see the Fed, you know,

95
00:04:34,360 --> 00:04:37,159
Speaker 3: try to stay out of it and allow hopefully the

96
00:04:37,160 --> 00:04:40,040
Speaker 3: people to make that decision. But I do think that

97
00:04:40,080 --> 00:04:44,760
Speaker 3: the underlying backdrop is a move toward normalcy and rates.

98
00:04:45,480 --> 00:04:47,560
Speaker 3: I think the new normal will be higher the where

99
00:04:47,560 --> 00:04:49,920
Speaker 3: it's been historically, but I think, you know, I think

100
00:04:49,960 --> 00:04:54,160
Speaker 3: businesses and companies are getting used to that, and hopefully

101
00:04:54,279 --> 00:04:57,200
Speaker 3: post election will start to see some certainty around of

102
00:04:57,200 --> 00:05:00,880
Speaker 3: our own business conditions and improvement of continuing proven of activity.

103
00:05:01,040 --> 00:05:01,280
Speaker 1: One A.

104
00:05:01,320 --> 00:05:03,800
Speaker 2: Can you talk about the fact that companies are getting

105
00:05:03,839 --> 00:05:06,799
Speaker 2: used to the high for longer environment. What's happening inside

106
00:05:06,839 --> 00:05:09,279
Speaker 2: portfolio companies right now? Are they really getting used to

107
00:05:09,320 --> 00:05:12,719
Speaker 2: higher for longer Private equity is very good at financial engineering,

108
00:05:12,760 --> 00:05:15,159
Speaker 2: and it's figuring out various ways to make the debt

109
00:05:15,200 --> 00:05:17,320
Speaker 2: loads that some of the companies it has within its

110
00:05:17,360 --> 00:05:22,760
Speaker 2: portfolio can be managed, and the duration effectively being pushed

111
00:05:22,760 --> 00:05:25,360
Speaker 2: out to allow these companies to continue to operate if

112
00:05:25,440 --> 00:05:28,680
Speaker 2: rates stay higher for much longer, are we at some

113
00:05:28,800 --> 00:05:31,000
Speaker 2: point going to see the end of the road in

114
00:05:31,120 --> 00:05:33,719
Speaker 2: the ability of private equity to kind of push that

115
00:05:33,760 --> 00:05:34,520
Speaker 2: process forward.

116
00:05:35,040 --> 00:05:37,320
Speaker 3: So there's good and bad there. So I would say

117
00:05:37,480 --> 00:05:42,320
Speaker 3: from a portfolio perspective, there are companies that were aggressively

118
00:05:42,360 --> 00:05:44,680
Speaker 3: financed over the last several years that are going to

119
00:05:44,720 --> 00:05:47,160
Speaker 3: continue to have issues, and you are starting to see

120
00:05:47,560 --> 00:05:51,840
Speaker 3: cracks in portfolios of certain lenders and certain managers. I

121
00:05:51,839 --> 00:05:54,480
Speaker 3: would say from our perspective, we have a portfolio of

122
00:05:55,680 --> 00:05:59,039
Speaker 3: four hundred and fifty US mid size companies that we

123
00:05:59,080 --> 00:06:02,240
Speaker 3: are watching very care We're not seeing it, but I

124
00:06:02,240 --> 00:06:04,080
Speaker 3: can tell you that other lenders that it may have

125
00:06:04,120 --> 00:06:06,640
Speaker 3: been a bit more aggressive than us, are starting to

126
00:06:06,640 --> 00:06:09,480
Speaker 3: see it. So I think the longer the higher rate

127
00:06:09,600 --> 00:06:12,040
Speaker 3: environment goes, the more you're going to see companies that

128
00:06:12,120 --> 00:06:15,720
Speaker 3: simply can't sustain themselves at the higher leverage and at

129
00:06:15,800 --> 00:06:18,919
Speaker 3: the higher price of financing. If your interest coverage rasos

130
00:06:18,920 --> 00:06:21,240
Speaker 3: are less than one, you know you have an issue.

131
00:06:21,360 --> 00:06:23,479
Speaker 3: So in that sense, I think you're starting to see it.

132
00:06:23,760 --> 00:06:26,159
Speaker 3: On the other hand, I would say the opening of

133
00:06:26,200 --> 00:06:28,800
Speaker 3: the large liquid loan markets has given them a bit

134
00:06:28,839 --> 00:06:32,200
Speaker 3: of a reprieve in the sense that companies that couldn't

135
00:06:32,240 --> 00:06:35,760
Speaker 3: finance themselves didn't have an alternative in the liquid markets

136
00:06:36,000 --> 00:06:39,640
Speaker 3: are now coming to market, frankly at record numbers in

137
00:06:39,680 --> 00:06:43,520
Speaker 3: the first quarter. So what you're seeing is refinancing activity,

138
00:06:43,960 --> 00:06:47,039
Speaker 3: deals being done to kind of deal with maturity walls

139
00:06:47,120 --> 00:06:50,480
Speaker 3: in companies that have to refinance or otherwise have issues.

140
00:06:50,760 --> 00:06:53,359
Speaker 3: So I think it's a mixed bag. But overall, the

141
00:06:53,400 --> 00:06:55,680
Speaker 3: opening at the larger markets, you know, has been been

142
00:06:55,720 --> 00:06:59,120
Speaker 3: a positive for availability of financing and company's ability to

143
00:06:59,600 --> 00:07:01,480
Speaker 3: kind of re do their balance sheet or redo their

144
00:07:01,520 --> 00:07:02,240
Speaker 3: capital structure.

145
00:07:02,480 --> 00:07:05,480
Speaker 2: How much of a difference therefore, is there between the

146
00:07:05,560 --> 00:07:08,280
Speaker 2: United States and what's happening in Europe. And we're still

147
00:07:08,320 --> 00:07:10,440
Speaker 2: not giving about a capital markets union here in Europe.

148
00:07:10,480 --> 00:07:12,560
Speaker 2: We still don't have the capacity to finance in the

149
00:07:12,560 --> 00:07:14,640
Speaker 2: same way. We still don't have the number of options

150
00:07:14,920 --> 00:07:17,320
Speaker 2: the US companies have in terms of their ability to

151
00:07:17,360 --> 00:07:21,760
Speaker 2: seek financing. And I'm wondering, therefore, when you being here

152
00:07:21,760 --> 00:07:25,360
Speaker 2: in London, how you see the different story in Europe

153
00:07:25,520 --> 00:07:30,520
Speaker 2: versus the United States, and how companies are therefore going

154
00:07:30,560 --> 00:07:32,880
Speaker 2: to navigate how portfolio companies are going to navigate this

155
00:07:32,960 --> 00:07:35,800
Speaker 2: process given that difference in the financing options that they have.

156
00:07:36,120 --> 00:07:39,080
Speaker 3: Sure, well, I think as a direct lender, as a

157
00:07:39,120 --> 00:07:43,640
Speaker 3: private credit investor, I would say both markets are actually

158
00:07:43,720 --> 00:07:45,640
Speaker 3: quite appealing, but for different reasons.

159
00:07:45,720 --> 00:07:45,840
Speaker 1: Right.

160
00:07:46,240 --> 00:07:49,400
Speaker 3: So, if you're a direct lender in Europe, for example,

161
00:07:49,640 --> 00:07:53,720
Speaker 3: you have less large scale competitors, and you've got significant

162
00:07:53,760 --> 00:07:57,440
Speaker 3: barriers to entry given all the local currencies and local laws. Right,

163
00:07:57,520 --> 00:08:00,000
Speaker 3: so you've got different bankruptcy laws, You've got different dynamic.

164
00:08:00,440 --> 00:08:03,120
Speaker 3: You really need to be local in Europe and that

165
00:08:03,160 --> 00:08:05,640
Speaker 3: really creates barriers to entry. And so there are a

166
00:08:05,720 --> 00:08:08,720
Speaker 3: limited number of larger players in the market. So as

167
00:08:08,760 --> 00:08:11,560
Speaker 3: a lender, that's a good thing. I'd say As a borrower,

168
00:08:11,840 --> 00:08:15,480
Speaker 3: it tends to raise costs, so you're generally paying more.

169
00:08:15,720 --> 00:08:19,360
Speaker 3: The capital markets are less efficient, there's more, you know,

170
00:08:19,400 --> 00:08:23,520
Speaker 3: the the liquid markets are smaller. Overall in the US

171
00:08:23,520 --> 00:08:29,720
Speaker 3: market larger, more competition, uh, capital markets more efficient, and

172
00:08:29,760 --> 00:08:32,959
Speaker 3: so I would say from an investment perspective, different dynamics.

173
00:08:33,160 --> 00:08:35,880
Speaker 3: But but overall, the US I would say, is running

174
00:08:35,960 --> 00:08:39,640
Speaker 3: ahead of Europe in terms of the economy and overall,

175
00:08:39,840 --> 00:08:42,560
Speaker 3: you know, economic dynamics. I would say, if you look

176
00:08:42,600 --> 00:08:48,000
Speaker 3: at the various industries. Software technology UH in the US

177
00:08:48,200 --> 00:08:53,280
Speaker 3: doing extremely well. Pockets of challenges in healthcare, particularly dealing

178
00:08:53,320 --> 00:08:57,720
Speaker 3: with reimbursement pressures. Certain healthcare businesses are having having a

179
00:08:57,720 --> 00:09:02,040
Speaker 3: difficult time, but but overall, business services, you know, faring

180
00:09:02,080 --> 00:09:02,920
Speaker 3: quite well through this.

181
00:09:03,440 --> 00:09:04,760
Speaker 1: Ken, I'm going to put you on the spot here

182
00:09:05,000 --> 00:09:08,040
Speaker 1: twenty thirty seconds if you can sure are the public

183
00:09:08,440 --> 00:09:10,960
Speaker 1: market in the private market. Are the valuations you're seeing

184
00:09:10,960 --> 00:09:12,200
Speaker 1: in both justified?

185
00:09:14,720 --> 00:09:16,800
Speaker 3: I think that, you know, we deal mostly in the

186
00:09:16,840 --> 00:09:19,560
Speaker 3: private markets, right, although obviously there's a knock on effect,

187
00:09:19,800 --> 00:09:22,720
Speaker 3: you know, In terms of public valuations, I would say

188
00:09:22,760 --> 00:09:27,880
Speaker 3: that they are increasingly finding their level. They're down roughly

189
00:09:29,000 --> 00:09:31,760
Speaker 3: three to four turns from where they were eighteen to

190
00:09:31,800 --> 00:09:34,760
Speaker 3: twenty four months ago. So at a very very high

191
00:09:34,840 --> 00:09:39,440
Speaker 3: quality company, mid market private markets company could easily trade

192
00:09:39,440 --> 00:09:43,320
Speaker 3: for fifteen, sixteen, seventeen times cash flow. In today's environment,

193
00:09:43,360 --> 00:09:46,240
Speaker 3: that same company is probably trading at eleven to twelve

194
00:09:46,320 --> 00:09:50,360
Speaker 3: times cash flow, so still good by historical standards, but

195
00:09:50,840 --> 00:09:52,680
Speaker 3: the edge has been taken off a bit. So I

196
00:09:52,720 --> 00:09:55,360
Speaker 3: think they are justified today. I think I think they

197
00:09:55,440 --> 00:09:57,760
Speaker 3: found their level. Obviously, the financing markets have come in

198
00:09:57,840 --> 00:10:01,000
Speaker 3: dramatically just with the cost of les average, you simply

199
00:10:01,040 --> 00:10:03,839
Speaker 3: can't put six or seven times leverage on a business today.

200
00:10:03,880 --> 00:10:06,920
Speaker 3: So as a result of that, leverage and pricing have

201
00:10:07,000 --> 00:10:09,240
Speaker 3: come in. But I would say they are finding their

202
00:10:09,320 --> 00:10:11,719
Speaker 3: levels and as they find their levels, deal activity has

203
00:10:11,720 --> 00:10:12,720
Speaker 3: picked up a fair amount.

204
00:10:12,960 --> 00:10:15,199
Speaker 2: Can go to see. It's interesting that the FED noticed

205
00:10:15,520 --> 00:10:18,520
Speaker 2: noted yesterday in the minutes several members commented on the

206
00:10:18,600 --> 00:10:21,559
Speaker 2: rapid growth of private credit market. So the Fed serney

207
00:10:21,559 --> 00:10:23,840
Speaker 2: sitting up and paying attention to what you guys are up,

208
00:10:23,840 --> 00:10:25,400
Speaker 2: so you can't can still nice to see you in London,

209
00:10:25,440 --> 00:10:27,480
Speaker 2: thank you very much. They've still being by President CEO

210
00:10:27,480 --> 00:10:28,840
Speaker 2: of Churchill Asset Management,