One of things we've seen is apparently a pulling back by the banks in making
loans. What does that mean?
As an opportunity potentially for private credit.
Sure. I mean, one of the reasons the banks are
being forced to pullback right now is concerns around their own liquidity
situation. Liquidity kills banks and not solvency
generally. Now, you look at the private credit
market, somebody was asking me about this the other day.
You know what? What's going on with these shadow
lenders? And I said this wasn't a shadow banking
problem. This was a banking problem.
Classic asset liability mismatch problem.
The private credit market very definitely generally the participants in
that market have very long dated liabilities.
So they have the ability to be consistent and thoughtful about the way
they deploy capital. They're not subject to redemptions.
They can be a consistent relationship lender to private equity firms.
So when they see an opportunity where the market step back, capital markets
are closed, they can come in and be a provider of choice and enable private
equity transactions to take place. So it's an attractive asset class.
It's defensive in nature. It's floating right in nature.
And at a time like this, you can extract a particularly attractive credit and
illiquidity premium. Is there any transparency risk in
private markets? That is to say, in public markets, you
sort of know where the value is. Private markets, you're not quite sure.
And right now we've seen some hidden liabilities we didn't know were out
there. Look, it's a it's a great question.
And I do think the discipline of being held to account minute by minute in the
public markets is a great discipline. But there are you know, there are also
certain types of businesses that benefit from growing and scaling outside the
home without being subject to, you know, the day to day scorecard.
Essentially, you know, certain types of businesses that are profitable for a
long period of time sometimes are better off being built and compounded in a
private market format. So, look, it's a it's a great question.
But I think generally what you find is these are large, sophisticated investors
managing this. This just these pools of money.
And, you know, there's there's upsides to that as well, because you're not
forced out of the trade. You can carry the trade so you can take
a long term view of value rather than thinking what's going to happen over the
next one week, three months or six months.
Laurie, there's some debate about whether we should call this a banking
crisis was a crisis for Silicon Valley banks, and that cleared for a crisis for
the banking industry overall. But it certainly was a lot of turmoil.
I know that you have a specific that looked back in the past at some similar
crises or turning points of turmoil. And you actually took a look at the
Nasdaq 100 during solos. Take us through that.
We have a chart to show. Yes.
So, you know, I'm a great student of history when it comes to markets.
And I think this is going to end up having its own name.
It's going to be its own unique crisis. But to me, this is more like WorldCom
than it was like Bear Lehman. And we took notice of the fact that the
banks were trying to stabilize recently. And so we went back and essentially
looked at kind of the problem industries in both that 2000, 2003 period and the
financial crisis. And what we found was that after both
Bradley Manning basically saw the banks continue to act really, really poorly.
If you go back, though, to the tech bubble period, we saw that after
WorldCom, Nasdaq 100 actually stabilized and kind of entered this very long,
lengthy bottoming process. So it wasn't quite a clearing event.
It was something close to it. But it did sort of you know, it's sort
of cathartic in a sense that, you know, some of these excesses were exposed and
dealt with. And then the market, you know, took some
time to heal, but ultimately was able to move on.
So, Laura, help us make a little money here.
As you look at the equity market right now, were things you think underpriced,
in fact, that you might be able to make you find some bargains?
So, you know, I've been hoping that industrials would get cheap and all this
and it didn't. We're neutral, that sector.
But one area we've been watching really closely is the small caps.
Now, obviously, the banks and financials are a big drag there.
But that's not the only part of small cap that's been underperforming in here.
Consumer stocks have been underperforming tech stocks, energy
stocks within that small cap landscape. So we would say, you know, if you don't
want to just sort of go all in on the small cap space, generally try to look
at some of those non-financial sectors to find some babies that have been
thrown out with the bathwater during the same question to you more broadly, not
just equities, but including debt, including alternatives.
Other possibilities where there are bargains are that you're looking at.
Yeah, I think we're on the public credit side.
I think investment grade credit is an attractive areas right now.
You're getting paid a pretty, you know, getting paid 5 percent plus nominal
rates of return for owning pretty low risk credit.
You know, given some concerns about the softening economic environment, saying
higher inequality, pushing out duration a little bit, benefiting from what's
likely to be eventually a rollover and the rate curve.
So I think that's one area. And then I said on that on the on the
private side, it's more of the credit like products, private credit for
corporates, private credit for real estate is where we're seeing the biggest
opportunity set right now. Really quite extraordinary, especially
on the real estate side. We're still seeing limited, more limited
opportunities to deploy capital on the private equity primary side and in the
growth equity side, where we're still seeing back to this point about the
discipline of the public markets that's starting to roll through into the
private growth equity. But that value.
Asian reset hasn't fully happened. I think that's going to roll through and
we'll start to see great opportunities six and 12 months from now.
But we're where we are seeing is on the secondary private equity side.
So this is owners of private equity assets, the little looking to
essentially rebalance their portfolio because they suffer the denominator
effect. They found themselves longer than they
would like to be because the bonds and equities went down.
The did not mark to market private assets stayed where they were.
So, yeah, we're seeing interest in people investing in private equity
secondaries. Laurie, if you go in the Wayback Machine
all the way back to the beginning of March 30 years ago, we were worried
about inflation and what the Fed was going to have to do.
And would we go into recession? Are we getting a little complacent on
the question of what the Fed is going to do in the possibly real possibility of a
recession? Well, look, I think that the word
accelerant is what's really stuck in my head from the past week.
And I really worried when I put my year ahead outlook out that we were gonna get
to September, October and still be debating whether or not we were about to
tip into a recession. I think that, you know, when we talk
about lending, for example, slowing down, we already knew that was gonna
happen. Did this crisis sort of accelerate that
trend? Our businesses that were already
starting to lay people off are going to bring that forward.
It's not fun. It's not something we want to see.
But frankly, from a market pricing perspective, I think you're a little bit
better off having that damage contained in 2023 than 20 20.
Bleeding in. So I don't think we're complacent, but I
think, you know, I've talked to a lot of people this past week.
You know the question. What's changed in your view?
I don't think a lot of thing has really. Things have really changed.
And people's longer term views, maybe just the path to how we get there is a
little bit different.