You're listening to Bloomberg Business Week with Carol Messer and Tim Stenevic on Bloomberg Radio. Well, we spent a ton of time talking about the public markets, how they fared in, how they're faring in. I mean that's what we do here at Bloomberg, we talk markets. But what about private markets? We do spend a good time talking about them, but we really want to get into it with Scott Sperling,
the co CEO at Thomas h Lee Partners. He's a great voice when it comes to everything that's happening when it comes to privates alternatives. He's been a decade with the Harvard Management Company overseeing alternative assets for Harvard's endowment. He's joining us now with an outlook on private equity. It's good to have you with us, Scott. How are you? Thank you? Good, good but beautiful day in Boston. What
more can we ask for? I mean, I guess what more we could ask for is I don't know, you know, a decade of near zero rates, But that's neither here nor there. I think that that that prayer was already answered. Okay, we got that. The question is now what? So now what ine and beyond as the FED looks at a guest traders look at a terminal rate of five percent, which you know when you look historically, is not all that high. That's what everybody keeps saying, Scott, it is.
It is if you're under forty the truth. That's the truth. And I don't mean that in a funny way. I just I truly mean that. What you know, look at the percentage of people you have on Wall Street now who have never lived in an interest rate environment. You know that we saw in like the seventies, eighties or nineties, and an amazing percentage actually didn't live through the Great financial recession in two thousand and eight now, fortunately or unfortunately.
I still remember the first mortgage that my wife and I got back in night can I guess was seventeen and a half. I was going to say, fifth team, I mean, this is That's the thing. So okay, So does that mean we have a repeat of the nineteen eighties? Yeah,
So I don't think so. I think that that the world has evolved the nature of the business models that are prevalent, uh in the preponderance of the value in the in the public markets and also in the private markets is much better than the nature of the business models that existed back in the eighties. I think the ability um to better control inflation does exist relative to where we were in the late seventies and early eighties,
given the enormity of the pop and energy prices. But what we are losing is the benefit of twenty to thirty years of strong anti inflationary forces, such as technologies that allowed us to produce much more energy at much lower pricing UH technology, GE's and H, the ability to move manufacturing globally to places that could do it much less expensively, and we are in a period where the
cost of regulation is going up. Those three very anti inflationary forces that predominated for most of the last two to three decades allowed the FED and then more recently fiscal authorities to pump enormous amounts of liquidity into the system without causing inflation, and that resulted in that zero interest rate environment that we refer to that we've we've already had the benefit of as we look forward, because those anti inflationary forces have been reversed or at least
a run out of steam, and we are looking at a series of things that will be a challenge from an inflationary perspective in terms of putting it back in a tube most um uh, I guess most forcefully, let's look at at wage price inflation and um the need for people to get ever higher wages to deal with the ever higher cost of living. Um. The FED is going to be very focused on trying to do whatever it takes to not put us back into a situation that we experienced in the eighties, and I think there's
a high probability they will succeed. The bigger question is what's the new normal when we get there. Is it four or five percent interest rates or three and a half percent interest rates? Can they get to two percent inflation or will we be back in a world of about three to four percent inflation? That would have been nirvana as we thought about it for most of the nine seventies, eighties and even into the nineties, but seems
very high today. And the implication for that is what we've been talking about, which is it has a very significant impact on the way that we price the value of companies in the public markets and also in the private markets for those of us in private equity. Well, Scott, let's bring it back to to your point the private markets. I'm curious what the bowl cases for private markets at a time when I think it's widely understood that private
lags the public markets. And if there's still a lot of pain in store for the public markets, then by definition doesn't mean there still want to be a lot of pain in the private market. So what is the incentive, uh, to to pursue that. Well, I think that there are
two sets of opportunities. And you know, interestingly, if you look at the data over the course of the last thirty years, it has been periods of economic turmoil where you have the most attractive investing opportunities for private equity because of the nature of of the patients that we can have as an investor, and because of the ability, um at least for firms like ours who can help
companies better navigate difficult financial situations. Uh, when we see this kind of disruption and valuation, that tends to be an attractive time to invest. You're exactly correct, though about the lag time. So the public markets have corrected. Uh, maybe a lot of things aren't cheap, but there's certainly a lot lower price than they were six, twelve, eighteen months ago, and there are a lot of companies that,
again have very good business models. Think about some of the technology companies, particularly things that have high recovering revenues, good models to invest in. Well, let's talk about what's the right what's the right multiple level Well, let's talk about some of these companies. Definitely interested in hearing about your thoughts about some of your portfolio companies. UM, let's just go with auction dot Com, for example, the company
sells foreclosed homes. I would love to hear what you're seeing when it comes to the pipeline for or closures and and bids for these properties because it can kind of tell us about the broader economy. Sure, so UM. To be clear, auction dot Com itself is not involved in the foreclosure process or UH chain of ownership of
foreclosed properties. So it's a technology platform that is a automated marketplace that allows the folks who own that mortgage paper or the actual foreclosed property too much more efficiently and hopefully with many fewer fewer errors, go through the process it's necessary of foreclosure and then be able to put that property back into the market UH at the
lowest possible cost, most efficiently. So auction dot com. UM is a technology company that serves UM the folks who are involved in UM the mortgage market more broadly, but specifically UM to help ensure that the for closure process UH is as UM accurate as possible, and that the folks like Fannie and Freddie who often own that paper and take those properties, can then UM put it that property back into the market as efficiently. So what are
you guys seeing in that business right now? You know, I would say that there's certainly a turn up in the number of foreclosures, but you know, we were nowhere near UM. Uh. What happened during the Great Financial Recession. Obviously, as we anticipate a more difficult macro economic environment, UM that that that may change a bit the higher volume of core closures. Hey, Scott, we gotta run thirty seconds left? Just a comment on high tower advisors wealth management given
market plunge, how's that in a business? Thirty seconds? So, Uh, These R I A H advisory businesses are good, strong businesses. UM. We've seen continued significant growth, very strong secular forces driving towards the r I A from the wire house, UM and UM. What we've tried to do is build the industry leading platform again using technology and the ability to scale services to the individual advisors. Scott Spilling, we love talking to you. You've got to come back and join
us again soon. He's coach CEO of Thomas h. Lee Partners. He spent years at Harvard Management overseeing privates for Harvard's endowment private equity. Really good to have you with us, Scott Spilling. This is Bloomberg