LET'S TALK ABOUT WHERE YOU ARE PUTTING YOUR MONEY
WHERE IS THE OPPORTUNITY WHERE EVERYONE ELSE IS FOCUSED ON AN
ECONOMIC SLOWDOWN. ARE YOU PUTTING MONEY TO WORK
RIGHT NOW?
>> WE ARE.
I DO NOT WANT TO OVERDO IT, BUT IN CONTEXT, WE INVEST 6, 7, 8 BILLION
DOLLARS A YEAR.
LAST 9 MONTHS IN 2022 WE INVESTED MORE THAN $1 BILLION.
THE FIRST FOUR MONTHS OF THIS YEAR, IT STARTED.
WE INVESTED $1 BILLION IN FOUR MONTHS.
NOT AT THE SAME BASE AT ALL FROM BEFORE.
FOR US, THIS GRINDING MARKET WE'VE BEEN IN, IT IS STARTING
TO OPEN THE OPPORTUNITY PIPELINE AND IT IS ALL ACROSS
MA -- M&A. IT'S NOT THE DEBT YOU CAN BUY
IN A GOOD PRICE IT IS ALSO ASSETS. IT IS MUCH BROADER.
ROMAINE: YOU RUN THE TYPE OF BUSINESS
THAT IS SUPPOSED TO DO WELL AND FIND GOOD OPPORTUNITY -- IN
DOWN MARKET. HOW IS WHAT WE ARE IN RIGHT NOW
COMPARE TO SOME OF THE OTHER RECESSIONARY CYCLES WE HAVE
BEEN THROUGH?
>> I'VE BEEN IN THIS BUSINESS 30 YEARS.
I'VE BEEN THROUGH SIX DIFFERENT CYCLES AND ALL THE CYCLES ARE A
LITTLE DIFFERENT.
I THINK THIS CYCLE IS CLOSER TO 2002.
EVEN AFTER 2008, THE RECOVERY WAS A SHOCK.
OIL AND GAS CRASH, COVID IT IS LIKE WE TOUCHED THE BOTTOM
BRIEFLY. VERY SHORT RECOVERIES.
THE ONE WE ARE IN TODAY FEELS IT'S RAISING
RATES TO FIGHT INFLATION.
THE ECB WHICH IS MUCH MORE DOVISH IS DOING THE SAME EXACT
THING. I THINK FROM OUR POINT OF VIEW,
THIS IS A GRINDING DOWN AND GRINDING UP, IT'S A THREE TO FOUR YEAR
CYCLE MUCH LIKE 2002. ANY OF THE THINGS WE'VE
EXPERIENCED SINCE THEN. ROMAINE: WITH THAT LIGHT OF A CYCLE
THERE ARE A LOT OF INDIVIDUALS THAT WILL SURVIVE BUT THEY ARE
NOT BUILT TO GO THAT LONG WITH THOSE TYPES OF CONDITIONS >>
WHAT AREAS WOULD YOU AVOID?
>> WE ARE NOT ALL THAT BRILLIANT.
WHEN WE LOOK AT THE WORLD, A WHOLE BUNCH OF STUFF IN THE
EMERGING MARKETS. JUST THE WAY BANKRUPTCIES AND
RESTRUCTURING IS NOT FOR US, WE HAVE 40% OF OUR BUSINESSES IN
EUROPE.
BUT THERE ARE LARGE PARTS OF EUROPE LIKE ITALY, EASTERN EUROPE, NOT
REALLY FOR US. AND THEN THERE ARE A FEW
INDUSTRIES WE DO NOT REALLY CARE ABOUT.
SO YOU TAKE A BUSINESS IN SECULAR DECLINE LIKE THE PAPER BUSINESS,
YELLOW PAGES BUSINESS, NOT FOR US. WE ARE NOT THAT BRAND.
ROMAINE: THE NEWS BUSINESS? DON'T ANSWER THAT.
>> [LAUGHTER] ROMAINE: WHEN WE TALK ABOUT OPPORTUNITIES
FROM A STRUCTURAL LEVEL THERE IS STICKINESS IN SOFTWARE AND
REVENUE STREAMS. THERE'S BEEN A LOT OF TALK ABOUT ARTIFICIAL
INTELLIGENCE AND WHETHER THAT HAS BECOME AND INVESTABLE
SPACE -- NOT JUST A PLACE FOR HYPE. >> WE ARE A MODERN OLD ECONOMY
HOT ASSET INVESTOR. THE SORT OF STUFF WE LOOK AT IS
DIFFERENT THAN THE SECTORS YOU TALKED ABOUT.
A LOT OF THAT STUFF NEVER REALLY BECOMES SO DISTRESSED HE
REQUIRES A LOT OF INTERVENTION OPERATION.
THE STUFF THAT WE FOCUS ON OUR INDUSTRIAL BUSINESSES,
PACKAGING BUSINESSES, TMG BUSINESSES, SERVICE BUSINESSES.
IT IS MUCH MORE THAT INCOME INVESTMENT IN THIS COMING BUST
-- SUCH AS OFFICE PROPERTY BUT IT IS MUCH THAT WORLD WE ARE
FOCUSED ON. ROMAINE: WHAT RETURNS DO YOU EXPECT OUT
OF THOSE AREAS GIVEN THEIR ECONOMIC CONDITIONS?
>> WE DO NOT REALLY GET OUT OF BED UNLESS WE THINK WE CAN
MAKE 20% PLUS ILR'S. ROMAINE: AND HAS GONE UP GIVEN THAT WE
HAVE GONE UP FROM 0% OF THE FED FUNDS RATE TO 4.75%?
>> ABSOLUTELY. BUT EVEN WITH THE SCIENCE OF
LOOKING AT THOSE KIND OF RETURNS, THE OTHER THING WHICH
IS IMPORTANT TO US IS THE MULTIPLE.
YOU KNOW 20% ILR FOR TWO YEARS IS A 1.3 NET MULTIPLE.
IT IS NOT THAT INTERESTING. WHAT WE DO, WE TAKE ONE THIRD
OF OUR BUSINESS TAKING CONTROL OF BUSINESSES, INTERVENING,
FIXING THEM, IMPROVING THEM, AND WHEN WE DO THAT, WE CAN
MAKE MANY MULTIPLES OFF OF IT. SO FOR US, THE FOCUS IS SHORT
IN A CYCLE LIKE RIGHT NOW WE DO 20% RATE OF RETURN DEALS,
BUT IT IS THE OTHER STUFF WHICH ALSO REALLY BOTHERS OUR RETURNS.
ROMAINE: IS YOUR BUSINESS, THE BUSINESS
ITSELF OF STRATEGIC VENTURE PARTNERS IS THAT EXPANDING?
ARE YOU HIRING? WHAT IS GOING ON INTERNALLY?
>> WE HAVE BEEN HIRING. WE HAD 40 OR SO INVESTMENT
PROFESSIONALS THREE YEARS AGO. WE HAVE 80 NOW.
WE HAVE HIRED A LOT MORE OPERATING AS WE TAKE CONTROL OF
BUSINESSES TO INTERVENE AND HELP FIX THEM.
THAT HAS BEEN ONE PLACE IN PARTICULAR WHERE WE HAVE HIRED.
OUR ASSETS UNDER MANAGEMENT HAVE ALMOST DOUBLED.
HALF OF IT IS PROFITS, OK? IT IS NOT JUST THE
GATHERING, BUT WE HAVE GOOD GROWTH.