Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Let's get over to
Speaker 1: our panel. Shanalie Basket is standing by with the CEO
Speaker 1: or speaking with the CEO of Carlisle, Harvey Schwartz Schnelli.
Speaker 2: Not only are you running one of the most storied
Speaker 2: private capital firms on the planet, you were also at
Speaker 2: Goldman You navigated very tough moments from the c suite,
Speaker 2: including in the wake of the two thousand and eight
Speaker 2: financial crisis. So you've seen a lot in markets, a
Speaker 2: lot of ups and downs. Yeah, how do you look
Speaker 2: at the environment that we're in today.
Speaker 1: Well, again, it's great to be here. Congratulations on what's
Speaker 1: going to be an extraordinary event. I think it's my
Speaker 1: birthday next week, I'll turn sixty one. I think in
Speaker 1: my lifetime the trends geopolitically have been extraordinarily favorable. And
Speaker 1: I think that certainly some horrific things have happened. But
Speaker 1: if you think about the Berlin Wall, globalization, and I
Speaker 1: would say that this is the first time we're really
Speaker 1: entering a period of what i'll call geopolitical economic tension.
Speaker 1: And so let's just pause on that for a second.
Speaker 1: Coming into the election, there was a lot of uncertainty.
Speaker 1: I mean, it seems like a long time ago now,
Speaker 1: but if you think back to the fall, there was
Speaker 1: uncertainty about whether or not we would have an outcome,
Speaker 1: certainty around who the new administration would be. The administration
Speaker 1: ran on a policy very pro business, pro growth, all
Speaker 1: the factors that support that, and so markets reflected that,
Speaker 1: and I think there was this huge relief factor in
Speaker 1: knowing that there was certainty in the administration. It was
Speaker 1: a sweeping victory, consolidated government and the ability to execute Now,
Speaker 1: tariffs were always in the discussion. What's happened now is
Speaker 1: and the markets are obviously reacting to it in a
Speaker 1: fairly material way, is we're starting to see what is
Speaker 1: the full poll let's see mandate going to look like.
Speaker 1: And the reason I started with geopolitical economic uncertainty. And
Speaker 1: obviously if we've had geopolitical uncertainty with the tragic war
Speaker 1: in the Middle East and the tragic war in Europe,
Speaker 1: but the geopolitical economic concertainty, it's a bit of new.
Speaker 1: It's a new information set and the opinions on tariffs
Speaker 1: vary from there. Incredibly inflationary too. They are potentially contributing
Speaker 1: to a recession, and so it's a bit of now uncertainty.
Speaker 1: And what the election originally people grasped to was certainty,
Speaker 1: Marcus like certainty, and so now we're in a period
Speaker 1: of uncertainty, and I think you're seeing it in the
Speaker 1: risk reduction that we've seen over the past several days
Speaker 1: and obviously this morning.
Speaker 2: Also when you look at what's happening with the tariff's strategy,
Speaker 2: I'm guessing this kind of comes into part of that
Speaker 2: geopolitical uncertainty. At what point are you worried about it
Speaker 2: crossing over into a tariff war? Is this all kind
Speaker 2: of par for the forest what we're seeing right now,
Speaker 2: or is there a risk of serious escalation?
Speaker 1: Okay, so tarif's a complicated subject that doesn't really get
Speaker 1: unpacked very often. So let's just try and do it
Speaker 1: super fast given the time constraints. But if you think
Speaker 1: of tariff's, let's just split the conversation to two things
Speaker 1: really simply one will let's just say economic policy and
Speaker 1: sended tariffs, which can make a lot of sense. We
Speaker 1: have the lowest tariffs in the world relative to other countries,
Speaker 1: and then you have tariffs that are motivated by let's say,
Speaker 1: political objectives social objectives. So first of all, you have
Speaker 1: to unpack the two. This bucket I think can be
Speaker 1: reversed much more quickly. We've seen that in discussions and negotiations.
Speaker 1: This might be stickier depending on what's happening. But in
Speaker 1: terms of and you asked, your language was perfect, Shanali,
Speaker 1: because the real question is are they inflationary? And a
Speaker 1: one time tariff let's just say twenty five percent on
Speaker 1: a country. A one time tariff is a one time
Speaker 1: step up in price acceleration, but it's not sustainably inflationary.
Speaker 1: Trade wars are sustainably inflationary because then, of course you
Speaker 1: could perceive a twenty five percent step ten ten ten,
Speaker 1: And I think that's what the market is now responding to.
Speaker 1: But what the market's really responding to is increase uncertainty
Speaker 1: because we just don't know where the tariff discussions are
Speaker 1: going to go.
Speaker 2: It's too early to the point you're making on uncertainty
Speaker 2: and the earliness of the conversation. How do you think
Speaker 2: about this as it pertains to your business?
Speaker 1: Do you have to make changes?
Speaker 2: Are their portfolio companies that are structuring differently? Are there
Speaker 2: deals that you can't do right now because you don't
Speaker 2: know what the tariff impact is going to be.
Speaker 1: So the vast majority, so for those of you are
Speaker 1: not as explicitly familiar with Carlisle, we're four hundred and
Speaker 1: forty billion of assets. We're one of the largest private
Speaker 1: capital managers in the world. That's split across real estate,
Speaker 1: private equity, credit insurance, which is our largest segment, and
Speaker 1: our solutions secondaries and co invest business. We're micro investors.
Speaker 1: So as micro investors looking to invest capit, whether it's
Speaker 1: in private equity or in direct lending, what we're looking
Speaker 1: for are opportunities to deploy capital at attractive risk return.
Speaker 1: So we don't as a when we wake up in
Speaker 1: the morning, we don't seek to avoid risk. We seek
Speaker 1: to price it correctly. And so in an environment like this,
Speaker 1: for sure, if you're looking at a portfolio company opportunity,
Speaker 1: when you think of the value creation plan, you're factoring
Speaker 1: in now the uncertainty, which undoubtedly will impact the extent
Speaker 1: to which you're willing to pay for that asset. And
Speaker 1: so yes, now, in our existing companies and our existing portfolio,
Speaker 1: the vast majority of our services company and services companies
Speaker 1: don't have basically the input issues. But I will say
Speaker 1: that when we look and we roll up all this
Speaker 1: data for all of our portfolio companies, and it's quite rich.
Speaker 1: We have. It's just down now below a million employees
Speaker 1: globally around the world, three hundred Carlisle itself. But in
Speaker 1: our portfolio companies, we roll up this data every month.
Speaker 1: For example, when the PMI yesterday, the inventory component of
Speaker 1: PMI was up about four points. I know that's not
Speaker 1: really news that anybody probably would have focused on, but
Speaker 1: we could see that happening months ago. So immediately when
Speaker 1: it looked like the new administration was going to come
Speaker 1: in and there was the possibility of tariffs, you could
Speaker 1: see purchasing managers immediately mobilizing to start bringing goods in
Speaker 1: faster because of the uncertainty factor.
Speaker 2: So what are the things that you see now that
Speaker 2: investors are going to.
Speaker 1: See four months later? So today, nothing about today looks
Speaker 1: dramatically different than three months ago. By that, what do
Speaker 1: I mean? EBA DOUG growth is quite solid, earnings are
Speaker 1: quite solid. The factors around input pricing there's still marginal
Speaker 1: pricing capacity and demand seems quite high. The consumer seems
Speaker 1: quite resilient. I think the administration inherited quite a stable economy.
Speaker 1: You know, inflation obviously not exactly where the Federal Reserve
Speaker 1: would like it, but has come down dramatically, and so
Speaker 1: the environment feels quite good now in terms of what
Speaker 1: we're seeing in that data. There's nothing suggesting today that
Speaker 1: the economic underpinnings of that have shifted dramatically at all. Well,
Speaker 1: you're starting to see those are the things I just described,
Speaker 1: which is preemptive actions around how best the position again
Speaker 1: around the uncertainty. The way I would describe it is,
Speaker 1: for a long period of time, you know, geopolitical economic
Speaker 1: risktails were very tight. They're just fatter today. And we'll
Speaker 1: have to see over the next three, six, nine months
Speaker 1: how the tariff discussions play out and what does it mean.
Speaker 1: But this uncertainty factor obviously is affecting markets.
Speaker 2: You started to hit on this a few minutes ago
Speaker 2: about inflation and worries about the impacts that tariffs would
Speaker 2: have on inflation. One time, more more persistent. Where do
Speaker 2: you see the direction of travel? More recent economic data
Speaker 2: has created some cause for concern among investors.
Speaker 1: Yeah, so, first of all, we just came through an
Speaker 1: impressary period and I got to give. And I know
Speaker 1: that the data around the Federal Reserve happens a lot.
Speaker 1: It always surprises me because I think the Federal Reserve
Speaker 1: and Jpal's done an extraordinary job navigating a massive spike
Speaker 1: in inflation. You know, we went through an impressive period
Speaker 1: of rate hikes. There was a big audience calling for
Speaker 1: rates back to zero. I have no idea why anybody
Speaker 1: would want rags back to zero. Rates back to zero
Speaker 1: is not a normal way to run an economy, and
Speaker 1: we certainly shouldn't be wishing for that. In terms of
Speaker 1: getting inflation down, that's a very, very difficult thing to do,
Speaker 1: and I think the Fed has done an extraordinary job.
Speaker 1: I think at this point, given we don't exactly know
Speaker 1: how the tariffs will ultimately settle, I think the inflationary
Speaker 1: question is a bit uncertain. So what I mean by
Speaker 1: that is there is a path where you could see
Speaker 1: a one time bump in prices, assuming there's no trade
Speaker 1: waror no future escalation, that will translate through the system
Speaker 1: as higher prices. They also cause some demand destruction, which
Speaker 1: longer term would be deflationary, and you actually could see
Speaker 1: the economy experiencing stress as it goes through that. So
Speaker 1: I would say that all the parameters around forecasting inflation,
Speaker 1: forecasting interest rates again, I just think we should be
Speaker 1: we should all buckle up a bit because markets will
Speaker 1: be more volatile, super data centric, probably two data centric,
Speaker 1: because you can't extrapolate one data point to the future.
Speaker 1: But it's going to be a sort of a wait
Speaker 1: and see. I do think the administration will be very
Speaker 1: sensitive to pro growth policies, and so I think they'll
Speaker 1: be watching also.
Speaker 2: So with that push pull going on, what you're looking
Speaker 2: at as a market that has changed so drastically in
Speaker 2: terms of rate cut expectations. You had a number of
Speaker 2: investors feeling like maybe you might get a rate hike
Speaker 2: this year coming into this year, but market consensus now
Speaker 2: you have shifted from maybe one rate cut to three.
Speaker 2: Market pricing overnight went to three rate cuts this year.
Speaker 1: Yeah, does that make sense to you? So we we
Speaker 1: were never in a camp United's discussion two years ago.
Speaker 1: We've never been in a camp that the Federal Reserve
Speaker 1: was going to cut rates aggressively. Our strategic economist has
Speaker 1: really nailed this, Jason Thomas. If you don't read his work,
Speaker 1: he really should. I've worked with some extraordinary people in
Speaker 1: my career, real privilege, and he's extraordinary, but he has
Speaker 1: the benefit of rolling up all our data, so he's
Speaker 1: been saying for a long time rates were stickier. I
Speaker 1: just spoke to him before I got on the show,
Speaker 1: and he said, listen, it's more complicated now to have
Speaker 1: a very firm opinion again period of uncertainty. But it's
Speaker 1: not surprising to me that the market is shifted to
Speaker 1: this because of the unknown around tariffs. And I think
Speaker 1: what the Federal Reserve has proven to us is they're
Speaker 1: very data centric because they know they're in a situation
Speaker 1: that is somewhat novel, so they're going to be very
Speaker 1: data centric. They're going to do what they need to do.
Speaker 1: So if you see inflationary pressure, they're going to moderate up.
Speaker 1: If you see deflationary pressure or a slowing of the economy,
Speaker 1: I think the Federal Reserve one thing that proved us
Speaker 1: now for a very long time. They know how to
Speaker 1: cut rates, and they're going to cut rates if they
Speaker 1: need to. But it's not surprising me that the market
Speaker 1: is forecasting more of that. But also we were sort
Speaker 1: of shocked when they were forecasting five six cuts and
Speaker 1: we were calling for one or two.
Speaker 2: So want to back out for a moment, because coming
Speaker 2: into this year, there was a lot of investors saying
Speaker 2: America first, and you saw the broader market really reflect
Speaker 2: that trade that has changed. You have seen a lot
Speaker 2: of money flow into international markets. Carlisle's a global investor.
Speaker 2: Is American exceptionalism at risk?
Speaker 1: I wouldn't bet against America. You know, if you go
Speaker 1: back to the nineties, when in the mid nineties European
Speaker 1: Union in the United States had the same GDP. Here
Speaker 1: we are twenty five thirty years later, we have ten
Speaker 1: trillion dollars more for GDP. There's a lot of fundamental
Speaker 1: reasons for why that occurred. We don't need to go
Speaker 1: through them. I think that as a global firm, we
Speaker 1: see opportunity and lots of places. So we have taken
Speaker 1: in the past several months three companies public standard are
Speaker 1: in the United States. We just two weeks ago took
Speaker 1: Hexaware public in India. It's the largest private equit owned
Speaker 1: company to ever go public in India. We took a
Speaker 1: company called where Good Coats an X ray technician, an
Speaker 1: X ray technical company in Japan public. It's the largest
Speaker 1: ever private owned equity company in Japan. All of this
Speaker 1: in the past six months, and our portfolios have gone
Speaker 1: up five billion in value. We've returned a lot of
Speaker 1: value to clients. I would say that is it surprising
Speaker 1: that after the SMP was up fifty percent plus in
Speaker 1: two years and the rest of the world had lagged,
Speaker 1: that there's been more capital moving overseas. No. I do
Speaker 1: think that if you're going to have a European Union
Speaker 1: that's going to be very focused on, for example, of defense,
Speaker 1: which is not a surprise US. We've had an aerospace
Speaker 1: depends practice for a very long time on the heels
Speaker 1: of all the global conflict. Defense is going to be
Speaker 1: a sector that's going to grow securely again for a
Speaker 1: very long period of time, regardless of tariffs, it doesn't matter.
Speaker 1: And so in a period where you go from geopolitical
Speaker 1: and globalization to less globalization, you're going to have increase
Speaker 1: spending on defense. So you're going to see defense bocks
Speaker 1: go up in the US. I think it's all seems
Speaker 1: quite rational tonight. But no, I wouldn't bet against America.
Speaker 2: So I want to shift gears a bit now because
Speaker 2: there's this dynamic going on in the markets where you have,
Speaker 2: of course, the public markets, and then you have the
Speaker 2: private markets, which of course you operate well, and you've
Speaker 2: kind of operated many times through both and throughout your career.
Speaker 2: So in the mid nineteen nineties there are more than
Speaker 2: seven thousand companies. Now there are less than half of that.
Speaker 2: Many people talk about that being the dynamic of the
Speaker 2: situation we're in. Nobody talks about what the implications are
Speaker 2: if you have such a vast private market, what do
Speaker 2: you do with that? How do you get more investors'
Speaker 2: access to that?
Speaker 1: So you nailed it. I mean, if you went back
Speaker 1: plus years there or twice as many public companies, I
Speaker 1: think there were eight times as many public companies. If
Speaker 1: you went back even farther now there's two and a
Speaker 1: half times as many private companies. And the private capital
Speaker 1: formation has been a trend that has been incredibly persistent
Speaker 1: for lots of very meaningful reasons, and it's secular. It's
Speaker 1: not going to change any Any prediction in terms of
Speaker 1: the sustainability and durability of private capital suggests it's going
Speaker 1: to keep compounding at ten percent, So it'll be a
Speaker 1: you know, twenty five twenty six trillion dollar market before
Speaker 1: we blink in terms of private capital. Now, what's happening
Speaker 1: is there are a lot of forces in the system
Speaker 1: that are driving more capital to private markets. Demand from
Speaker 1: insurance clients as they look for private investment grade, and
Speaker 1: of course the biggest factor is, and a lot of
Speaker 1: you involved in this business, is what's happening in wealth.
Speaker 1: And really, if you look at whether it's one, two,
Speaker 1: three percent of portfolios in wealth individuals portfolios today managed
Speaker 1: by people in this room, then if that grows to five, six,
Speaker 1: seven percent, we're talking about an enormous trend. And I
Speaker 1: think the stats on US pensions, for example, forty percent
Speaker 1: are in alternatives. Ultimately retirement accounts will be in private capital.
Speaker 1: It's the perfect balance of liability and return and it
Speaker 1: gives investors diversification. So ultimately, yes, for sure, a pace
Speaker 1: of which hard to predict. But the wealth transition to
Speaker 1: private capital, for sure, is a durable transition. Should be
Speaker 1: the asset class makes a lot of sense for a
Speaker 1: lot of people, advisors. I've spent a lot of time
Speaker 1: with advisors in the past two years, so Carlisle has
Speaker 1: been in that part of the business for a long time,
Speaker 1: but it wasn't strategically important as initiative. When I showed up,
Speaker 1: we switched to all that We've reorganized the team. It's
Speaker 1: one of our fastest growing areas. But this is again
Speaker 1: we scratch this surface globally on wealthy individuals participating in
Speaker 1: these markets so that capital stream will continue to come in.
Speaker 2: How do you think about what might need to change
Speaker 2: about the industry in order to make this more available
Speaker 2: to wealth clients as opposed to institutional clients who have
Speaker 2: been able to get into a private fund hold it
Speaker 2: for a very very long time. Now you have investors
Speaker 2: barring therefore, oh one K that might want more liquidity,
Speaker 2: and do you think that that presents another set of
Speaker 2: risks to a mismatch.
Speaker 1: Perhaps so, I think the only I think the only
Speaker 1: thing that gets in the way of the industry and
Speaker 1: the growth of this is the industry. So if we
Speaker 1: execute at Carlisle, we don't want to rush. This is
Speaker 1: all about performance. If we say we're going to do it,
Speaker 1: we have to do it, and we have to understand
Speaker 1: the ultimate wealth client is managed by an advisor or
Speaker 1: an RIA or one of the big platform partners that
Speaker 1: we work with. That is our oblique and as long
Speaker 1: as we deliver the performance consistently over a period of time,
Speaker 1: with all the risk factors understood, then we will be
Speaker 1: successful in the industry, really successful. The only thing worries
Speaker 1: me sometimes is there's a bit of an arms race.
Speaker 1: It seems to develop solutions. There's clearly competition on the
Speaker 1: advisor side, you know, Carlisle, I'm super fortunate that I
Speaker 1: had the opportunity two years ago. It's you know, it's
Speaker 1: a really iconic name in finance. It's been around for
Speaker 1: you know, well over thirty five years. You know. To
Speaker 1: be successful in this industry, particularly this segment, you need
Speaker 1: global brand recognition. Carlisle's well known. We have wealth partnerships
Speaker 1: in the Middle East, in Korea, in Japan, and we
Speaker 1: tend to think in a very US centric way that
Speaker 1: the wealth phenomenon is a US centric phenomenon. It's a
Speaker 1: global phenomenon. And that's why I feel confident in saying
Speaker 1: over the next five ten years, you'll see this trajectory
Speaker 1: of growth.
Speaker 2: So we talk about private markets like it's a on
Speaker 2: a list, but of course it's private equity and private debt,
Speaker 2: and infrastructure in real estate and all of the above,
Speaker 2: private credit in particular has gotten a lot of focus.
Speaker 2: At one point six trillion dollar market of direct lending,
Speaker 2: it seems that the industry is pushing away from just
Speaker 2: that into new places. What's the biggest growth area in
Speaker 2: your mind, and what is driving it? Are there mega
Speaker 2: forces that will make this industry much bigger?
Speaker 1: So I don't so there's a flywheel effect in capital formation.
Speaker 1: This exists in public markets. I mean, if we went
Speaker 1: back many many years ago, ETFs were new, then they
Speaker 1: became very efficient tools. Then they became some of the
Speaker 1: most popular tools that exist in the marketplace for investors.
Speaker 1: For a lot of obvious and very rational reasons, it's
Speaker 1: very hard for finance professionals to create demand for a
Speaker 1: particular form of capital. I don't think we're actually particularly
Speaker 1: good at that as an industry. When we really are
Speaker 1: operate well in finance, and having seen it at you
Speaker 1: over thirty plus years, when we really operate well is
Speaker 1: when we truly understand the client demand for capital and
Speaker 1: what is the client demand for capital. The businesses that
Speaker 1: get supported by this capital are just looking for the
Speaker 1: most efficient form of capital, so they're not being sold
Speaker 1: direct lending. They're choosing direct lending over other sources. So,
Speaker 1: but what has happened direct lending in many regards, which
Speaker 1: has been around for a long time and really grew
Speaker 1: quite quickly over the past cause five years. What's really
Speaker 1: happening though, is the understanding of the capital choices continues
Speaker 1: to expand, so direct lending will continue to grow, although
Speaker 1: more mature today, but now asset based finance and there
Speaker 1: are forces and asset based finance, private investment in grade
Speaker 1: returns and really at the end of the day, what
Speaker 1: allows us to be most effective at nationality is we
Speaker 1: have the right liability structure. So because we have longer
Speaker 1: liabilities which our clients provide us, whether they're wealth clients,
Speaker 1: institutions all around the world, we're able to structure and
Speaker 1: to play that capital. But again it has to be
Speaker 1: the most efficient marginal capital for the end user. There's
Speaker 1: no creating something and people come. These are really thoughtful
Speaker 1: business owners that are choosing to use that capital because
Speaker 1: it's the most efficient capital, and that's what we have
Speaker 1: to provide.
Speaker 2: Harvey, we are out of time. You spared yourself from
Speaker 2: my lightning round. Although what are you doing for dinner
Speaker 2: for your birthday?
Speaker 1: You can have that. I'm hosting the first partner offsite
Speaker 1: Carlisles had in a long time. They asked me if
Speaker 1: I would do it on my birthday, so I said, so,
Speaker 1: all of our partners are going to an off site
Speaker 1: for two days. I'm super excited about my birthday.
Speaker 2: That sounds like flash thanky, everybody welcome, not that helpful.
Speaker 1: Thanks so much. I have a great conference.
Speaker 2: And that was Carlisle CEO Harvey Schwartz speaking with Shanali
Speaker 2: Basic