You have a particular viewpoint from investors point of view.
You represent a lot of high net worth and ultra high net worth individuals.
Start with geopolitics because they're very much in the news right now.
To what extent are those investors focused on geopolitical uncertainty?
And if so, what do they do about it? Well, you know, investors, David, have a
hard time measuring geopolitical risk. And history would suggest that a lot of
the immediate downturn that occurs on the back of different geopolitical
events tends to reverse over the following months.
So the big issue in a place like the Middle East today for investors is does
it expand? Will it move into a regional conflict,
bringing in nation states like Iran and then ultimately impacting things like
the price of oil that would have an impact on the global economy?
You know, if you look at local markets in the Middle East today, they've had a
fairly moderate reaction down a little bit.
The Israeli stock market and Tel Aviv was off the first day, but hasn't been
in a range since. So that even the local players so far
are measured in response. But our investors here in the US, no
fundamental change at this point in time other than the, you know, sitting here
witnessing these unimaginable horrors that the rest of us are watching.
From an investment standpoint, they're similar to where they were before this.
When you talk about fundamental change, we've seen a fundamental change in the
rate structure. We were essentially it was the free
money for an awful long time, essentially zero rates.
Those days are gone. It looks like we're going to have higher
rates for some time to come. How do your investors take that into
account? That's a big impact on investors and
that's something that they're all digesting.
So, you know, at the outset, when you look at stocks and stock markets, the
risk premium that stocks bring today now over other attractive alternatives, even
cash, but munis, treasuries, things like private credit, which is a big growth
area for us within our alternative business.
That risk premium is down on equities. The reality is with higher rates, growth
companies, you're discounting back cash flows that are out there in the future
that are going to grow between here and there.
You're discounting them back at higher rates.
So from an equity market standpoint, the higher rates are a serious headwind,
particularly when you have the kind of alternative uses of investor dollars
that we're seeing. And as I said, even cash, you know, if
you can get 5% on a risk free basis and something that liquid that presents a
positive alternative for investors. The other thing I would say about higher
rates is the impact from a fiscal standpoint, which I know you spent a lot
of time looking at on the current trajectory.
Interest payments on the federal budget will exceed military expenditures by
2027. So higher for longer has a big impact on
the fiscal side of the equation, which is relevant to all investors because the
US debt situation is definitely a concern.
And what overhang might that have for growth?
Because your investors must be thinking about what are our growth patterns, What
are we looking at over the next five, ten, 20 years?
We know the US economy is held in remarkably well.
There's a number of reasons for that, including the fiscal spending.
And we're running a federal budget deficit now of 8% of GDP, and there is
no recession. Typically, deficits go up.
When you have a recession, we have a recession.
You could see a double digit deficit as a percentage of the federal budget.
So with that kind of fiscal spending already embedded in the economy, will
there be enough growth for investors in the US market?
So it's a real concern that the fiscal side of the equation could be a headwind
for investors going forward. So you have that that investors are
focused on. And then you have the Fed, who's
obviously been raising rates to try to deal with inflation.
Those higher rates are also working their way into the fiscal situation.
So you have a headwind on the monetary policy side.
You're likely to have an increasing head, one on the fiscal policy side.
So investors look more cautiously at the medium term outlook for the US.
You're a high net and ultra high net worth.
Investors must be thinking about taxation.
And when you talk about the fiscal challenges we have in front of us, one
possibility is higher taxes to raise more revenue.
How do you invest around that potential? You know, one of the things that we do
with our investors is we work with them on a comprehensive basis across all of
their needs. So we're helping them with generational
work. We're helping them with estate planning.
And already, even if taxes don't go up at some point in the future here already
you have tax cuts in 2017 that are scheduled to expire at the end of 2025.
So we're spending a lot of money in the estate deduction,
the ability to leave money with without paying an estate tax.
That amount is coming down if those taxes are rolled back.
So already spending a ton of time with clients on a longer term basis looking
at tax policy from that vantage point. So taxes are.
Big part of the work that we do. We have a group called our Wealth
Strategies Effort that works very closely with our private advisors and
our clients on pre and post tax planning.
Talk to us about geography, both in terms of your customers, your clients,
the money coming in for you to manage as well as your investments going out.
I know you have offices all around the world at this point.
How much of it is us based? Our our client base is almost entirely
US based and our offices that work with high net worth and ultra high net worth
clients are all in the US. We have a London office that is focused
on distributing our asset management products through different
intermediaries in Europe. So the Rockefeller Global Family Office
business is really a US business with US clients.
The reason that we've stayed focused on the US, even though we have this name
Rockefeller, which resonates not just in the US but around the world, and we
could be expanding outside the US with that name.
More is because the opportunity has been so significant for us here.
The breadth and depth of wealth in the American market, the number of cities
that we can open an office in higher private advisors and start to build a
business around is significant. So it used to be, David, if you went
back ten or 20 years, there were 30 or so markets in the US that would be quite
attractive for helping high net worth clients.
Today we're in 47 and we could end up with over 50.
There are relatively new markets that are quite strong from a growth
standpoint, creating a lot of wealth for different families in places like
Nashville and Austin and Charlotte. So we've really expanded the footprint
to include some of these real growth areas within the American American
financial market. And what about investment opportunities?
Mean, at this point, for example, China is not as attractive for many investors
as it once was. If you look at direct foreign
investment, it's really gone down substantially.
What are you looking at globally, United States versus Europe versus Asia?
Well, first of all, the US continues to outperform on a lot of
bases and the economy has been very resilient in the face of, you know, 500
basis points of Fed increases. Now, part of that again goes back to the
fiscal stimulus that's embedded in the system, the payments to individuals
during the pandemic. And that's still in the system a little
bit. So the US remains an attractive base for
a lot of our investors on international basis.
The rivalry between the US and China has created some other markets that are more
attractive. When you look at emerging markets,
including places like Vietnam and Indonesia, and there are going to be
markets that are kind of in Mexico where, you know, more things are being
made there again. And some of the the restrictions that
have been applied to China have benefited the Mexican Mexican economy.
So, you know, as the US and China continue to face off against each other
in different ways, there will be economies around the world that benefit
from that. You know, some of the places that have
been challenged for a while are still challenge.
I mean, Europe is probably the most difficult place in terms of growth and
investing for for our clients.