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All right, so it's in thick of earning season and there's a lot of interesting company stories coming out. What we want to highlight right now is Baker Hughes. It's an oil field services company with really two main businesses. One is legitimately just oil field services. You're helping oil producers make more oil out of the ground offshore and onshore. The other one is called Industrial and Energy Technology. That's new energy, that's LNG, it's export facilities, two big businesses.
Revenue came in for the fourth quarter at about six point eight four billion dollars. Earnings came in a fifty one cents a share. And we're joined now by Lorenzo Simonelli. He's chairman, president and CEO of Baker Hughes. Lorenzo, it's so good to see you. Thanks for joining us today.
Alex. Good to be with you as always.
So listen.
The stock is down three percent. The commentary from analyst is your outlook isn't as rosy as your peers like Halliburton and Slumberge.
What do you say to that?
I would say, first of all, we're coming off some great results in twenty twenty three, and also we've laid out a clear strategy, as Baker hughes, over the coming years. As you look at twenty twenty four, we've given a guidance that is the balanced approach with all of the
geopolitical and also uncertainty that's happening around the globe. So we stick to our guidance and we think that we're executing and as you look at the guidance, we've got considerable growth in twenty twenty four and great performance as well.
So what's the biggest question mark? I guess so if you're more conservative than your peers, where is the question mark? Is it going to be the new energy orders? Is it going to be on shore demand or is it going to be offshore? Is it domestic or international that has you thinking questioning the most?
You know, you look at what's happening around the world, and you see the geopolitics, you see what's happening from the OPEC cuts, you see what's happening from the consolidation in North America, and that leads some uncertainty relative to
the activity levels within North America Land. We still see that North America should be flatish, but US Land will likely be negative for the year given some of the consolidation, and also some of the activity international again will be in the high single digits, So we still see that
being robust. And I think again, as we look at giving guidance, we're taking a balanced approach to what's taking place around the world at this moment and also giving a predictability to our investors on what can be achieved and also confidence in what we can achieve.
Lorenzo, I just looking at your business here, and I see that about three quarters of your revenue as comes from outside of the United States, So obviously you are attuned as much as anyone to the geopolitical risks around the world. What are you telling your investors about what's happening in Eastern or if it's happening in the Middle East, and how that may impact your business.
We're telling them that we've taken every caution and also we're managing the situation. We haven't seen any impact and we don't anticipate a big impact, but we do think some of the development plans may be delayed slightly over the long term. No change in what the NOCs and also large customers are laying out from a capital spend,
but there may be some I would say delays. Again, as we look at the outlook internationally, we're still anticipating high single digit growth and we think that internationally is a key place for us to be and we look to perform there over the coming years.
Lorenzo, what's your take on the demand side? I guess that would focus more on oil and it does also hit on the red sea issue. But what's the man going to look like for twenty twenty four? I'm getting notes about twenty twenty five, but I have no idea what's going to happen this year?
Wow, Alex, it's so always difficult to predict some of these elements, just like it is oil price and you know this space well. I think demand continues to be robust. A lot of it's going to depend on the economic situation as you look at some of the events unfolding also globally, and we anticipate that again demand will increase this year and continue to be strong, especially in the developing world.
What are your customers telling you here I know obviously close contact with them. What are they telling you about their spending plans over the next couple of years.
Again, it varies. You've seen in North America obviously some consolidation, so people are going through that consolidation and they'll be looking to adjust some of their spending plans in the short term, but again continuing to be robust on the long term as you continue to see the demand be there on the international side, these NOCs have more year
projects that they're executing. There'll be some variation in the timing of those, but again the long term continues to be solid, and as you look at our guidance, again we're anticipating that maybe there's some tempered view on some of the case of the development, but the developments are going to happen.
OC Paul just you know, national oil companies just pull up with the oil jargon there. Lorenzo, you mentioned the M and A situation, and I find that so interesting because that was one of my questions to all these CEOs when they announce these big mergers, is are you actually going to be slowing your oil production growth over time, and they're all like, no, no, no, no, no, it's going to be really good. It's going to keep growing. What
do you think that timeline actually looks like? In the beginning their synergies, they get more out of the ground, but then that tapers off.
What do you notice?
So as you look at the normal evolution of consolidation we've seen this cycle before, you are going to continue to see a production increases, but you're also going to see synergies between the consolidation and as they go through their integration activities, I think you'll likely see some temperate measures relative to some of their procurement, but again production, they're going to seize the opportunity to continue to increase production as the demand is there.
Yeah, I mean, you know, I'm not an expert in this unlike Alex. But a term I you see here a lot and I don't hear it that much anymore is peak oil? When are we going to be at peak oil? Are we at peak? I don't hear that discussion anymore. So when you're talking to investors, how do you talk to them about the long term kind of demand for oil?
You've got to look at it from a standpoint of the energy transition is going to be multi decades and it's going to require an energy mix that is abundant of providing as clean as possible fuel sources to the public, and that means oil is going to have a role to play. And we see oil and gas in particular having a strong robust outlook as we go forward. And the question on pea coil has been asked many times.
There will be a time when pea coil comes. I think it's not at this stage, and we continue to focus very much on gas and also LNG.
Well i'm speaking of so Llen G. Paul is huge for Baker Hughes.
So they helped to build the export terminals that you get and that has been a humongous driver here in the US. And just to focus on that for a second, they booked about one hundred and sixty nine million dollars worth of new energy orders in the quarter and overall for the year seven hundred and fifty million. Like that's growing at a very rapid clip, Lorenzo. Somehow, restricting ler G exports in the US is becoming something people are talking about. The permit process has gotten a lot slower.
What is going on, Alex.
It has gotten slower, and again we're monitoring the situation, and I'm disappointed because as you look at the benefits of USLNG not only for the US but also for the world, and also what's been achieved with the geopolitical uncertainty and also providing to Europe, there's been commitments that have been made and we should continue the USLNG exports
and also the permitting of these projects. That being said, international projects are continuing to move forward, and we have an expectation that again in twenty twenty four there'll be sixty five mtpa FIDD, and we're again seeing about thirty to sixty mtpa FIDD in twenty five and twenty six, and by twenty thirty there'll be a global capacity in place of eight hundred mtpa. So, you know, we'll monitor the US situation. It's disappointing. I think it will sort
itself out. There's been a lot of commitments that have been made to international partners.
Because you know, again, Lorenzo, I've learned so much just from talking to Alex about the energy business. Now that we're the US is a net energy exporter, it just seems like the natural gas part of the liquified natural gas part of.
It has to grow, you know.
So I guess my question is if I wanted to go down to Corpus Christy and hire you guys to build me a LNG facility, could you do it?
Yeah, you have to wait a while. Their backlogs really deep, Lorenzo.
We have a very good backlog and we continue to grow our backlog in LNG, and yes, we can build. We have the most versatile portfolio of solutions around LNG, small scale, large scale, stick modular, onshore, offshore floating. So you're coming to the right place, Baker Hughes for LNG, and I.
Should point out MTPA million tons per annum, So it just basically means the capacity, like how much you can actually process an export because you got a cool natural gas down before you export. Lorenzo, I am going to see you next week for the annual meeting. In your annual meeting in Florence, the talk will definitely be Italy.
Really, I know you are to me right.
Not Florence, South Carolina, Florence, Italy. They hate Lorenz nice.
And the talk is definitely going to be revolving a lot around that LNG story for investors. Just looking at the numbers today, the stock doown three percent. What's your main message before we get to the broader outlook next week.
The main message is we're coming off a terrific twenty twenty three where we posted some record results. Our strategy is very clear. We set out guidance that continues to grow. The business continues to post improvements in our embat homogen rates. We're expecting OFSC to be a twenty percent for twenty twenty five, it to be a twenty percent by twenty twenty six. We're not changing those expectations and we're taking
a balanced approach to twenty twenty four. But when you look at the guidance, it continues to move the company forward and also posts very good results.
Lorenzo, I really appreciate that the conservative approach and then sort of moving a lot faster in the next couple of years.
Thanks a lot.
I look forward to seeing you next week in Florence, Italy. Thank you, Lorenzo Semonelli. He's chairman, CEO and president of Baker Hughes. Now we're going to do something that only Paul and I can do. Talk to a CEO, then bring a Bloomberg Intelligence analyst who's been covering the company for years on to then talk about it. This is what we can offer you on the Bloomberg Intelligence Show every day, Scott Levine, he covers oil services for Bloomberg Intelligence.
What did you make of the move today the numbers and just talking with Lorenzo in the last ten minutes.
Yeah, now, I think so. The stock is down a bit today, and we've seen Halliburton and SLB up on earnings over the past week. Frankly, the guidance that Baker gave today for mid teens EBIT dog growth is almost
identical to what SLB gave. I think the difference here is probably the conservatism around the messaging number one, certainly the mid load to mid single digital client that they're calling for, spending growth in North America, high single digit growth in international trails what we saw out of both
of those two companies. And then secondarily, you know, LNG, as you mentioned, is a really big driver for Baker that's unique to them, certainly much more so for them as a producer of modules for LNG plants, which neither SLB and Hell do and I would say that the commentary there was maybe a little bit more downbeat as well. They're looking for modest growth and FID capacity this year they focused more on some of the businesses outside of that.
So I think it's probably more so the tone out of Baker being a bit more sober than the guidance per se, which was in line with consensus, and the growth outlooks similar to what we saw at the piers there.
So I'm looking at the A n R function for Baker, Hughes, Halibert, all the comps.
Street likes this stuff. They like these oil services companies. What's the bull call on this?
Is this?
People? You're going to need oil forever?
Yeah, well they're you know, they are investing in the future with the energy transition and the new energy business as well.
But I think, you.
Know, so look two years ago twenty twenty two, this group was outstanding, right, you know, the group was up sixty percent, the market was down closed to twenty percent. Last year the group performed okay in a much stronger market, and the growth expectations for the group have moderated and
are moderating still in twenty twenty four. I think within that context, Folks are still comfortable with large cap globally diversified oil field service companies like Baker Hues, like SLB to a lesser extent, Haliburton because they're more focused on
North America. But they're still comfortable with these companies. They're large, they're global, the balance sheets are in good shape, that we're turning more than fifty percent of the free cash to investors, and so that appeals to investors that kind of are attuned to this new energy environment where it's discipline, growth and capital returns rather than the wildcatter mentality. So I think it's what I like.
I like the wildcatter.
I like that.
Yeah, I called SLB slummers. I'm definitely gonna hear from them later, but SLB.
So to that point, though, I feel like if you talk to SLB, they'll talk a lot about digitalization and all that kind of stuff, whereas Baker Hughes talks really about LNG and they build these big terminals they help to do that, like with the likes of Bechtel, for example, do you feel like at some point these guys are gonna be you can really bet on them different ways, Like I'm gonna bet On Baker Hughes for LNG. I'm gonna bet an SLB for an AI component and digitalization, like can I do that yet?
You can?
And I think those are accurate depictions of the business. But I wouldn't overstate their signs magnificance, like I feel like Halliburton gets maligned a lot for the North American exposure.
And they're all some solid international.
It's over half their business.
I totally didn't know that until yeah no the other day.
But SLB is eighty percent international, and these guys are closer to SLB than they are to HOL in terms of that geographic split. So, you know, while the statement is true, I think it's it's equal parts branding as it is the business mix, and investors are naturally going to look for ways to differentiate between the companies, and so they'll, you know, they'll gravitate towards the differences more than they will the similarities. But I think there are
a lot of similarities in the balance sheet. All the companies are focused on global markets to more or lesser extent, and so with with Baker, the LNG emphasis is a differentiator. For sure, they have a much bigger equipment business than either SLB or Halliburton does. And so it's natural folks to focus on that specifically. And and some of the weakness and demand out of Europe maybe is weighing on that story a little bit, but it's still a very strong business for them.
And if I were an investor, I would prefer my oil field services and equipment companies to be more international rather than less, given how tough it is to get stuff done here in the US.
Is that right?
Yeah?
I think certainly there's much more visibility.
On it years ago statement.
Yeah, I guess it depends what time we're talking about. And and and you know, look, shale had the year that the energy you know, blew the lights out twenty twenty two. Shale came back much stronger from COVID than international markets did they get tough faster, but they got crushed more significantly, And so that was a little bit of a one year snap back and shale and and
so you know, we've now we're now past that. International really reaccelerated and overtook shale toward the middle of last year, and the expectation is that they'll they'll do so again this year. So I still think there's much more of a multi year growth visibility on international including.
Offshore energy is definitely going to be a talking point in the presidential election.
The reality is a little different.
When we say, drill, baby, drill, We're gonna unleash American energy independence. My question is is that not happening? And then my other question is are we going to see restrictions or any sort of slowing down of LNG exports.
Regarding the latter, I don't think so, no, and I don't you know, yes, we've already heard some of the drill baby drill mantra, and I think you know, they're.
Ten million barrels a day and good.
Enough that hearkens back to a different time. That's you know, I think the intent there is is for for voters to see that messaging, right. But the area where you think you probably see the most difference, frankly, is in
the energy transition technologies. And you know, for example, we you know, plug Power yesterday was a thirty percent as a you know, based on enthusiasm for them getting a loan from the Department of Energy, and so you know, there's been some concern and pushback regarding the incentives around
hydrogen development, et cetera. And so if we were to see a change anywhere, I think, you know, if indeed we see a change in the Republican Party getting the president presidency in twenty four, it'll be with regard to the er the incentives for the energy transition, and maybe that getting some throat cold water thrown on it. But as far as US oil, you know, during the Biden administration,
production has grown fine. Despite some of the tough talk you heard about cracking down on leases in the Gulf of Mexico, offshore is done just fine, and I don't think it's much of a difference factor in terms of conventional oil and gas.
So great, Scott, thank you so much. I appreciate it.
Thanks for all answering all my emails with my chickens running too earlier in the day. It Scott of being a Bloomberg intelligency covers all the oil field services.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station just say Alexa playing Bloomberg eleven thirty.
Annett Rathbund cio at CBIZ maybe SEBIZ Investment Advisory Services, Independence, Ohio. That sounds like really right smack in the middle of Ahio. If I had to guess, I don't know.
And thanks so much for joining us here.
Again, I thought we might take a meaningful pause here in the first quarter with these markets, given the real rip we had in November and December. What do you make of this market here as we you know, kind of get into the back half of January and twenty twenty four.
Sure, thanks for having me. And actually, Independence, Ohio is ten minutes south of cleveland'srection we go, so they should really said Cleveland, Ohio. But anyway, you know, SMP, it's kind of surprising after all the bearish talk last year that we would be reaching record highs multiple days in a row. It looks like today might be another one of those days. But it's important to remember what's driving this, right.
I mean, everyone's talked about tech driving this magnificent seven becoming even more magnificent, But you know, there may be a reason why if you look at the underlying trends in the SMP five hundred you do have tech leading, but how many stocks and how many sectors or sub industries are actually hitting those record highs along with the SMP five hundred, the cyclical parts of the sectors that represent the cyclical parts of the economy, they're not reaching
record highs, right, So this is a reflection of some of the changes or the bifurcation that we see in the economy being reflected here. So do I think that tech can continue to run?
Well?
Look, I mean I think that tech is a part of utilities. The pandemic has taught us that it is a part of infrastructure. We can't live without it. It is part of our daily lives. It's I mean, some people might say Netflix is a part of their you know, social infrastructure as we thought today. I don't think tech is going away, and there's a reason why they're doing so well during the earning season. So I don't know if it can continue to run at such high valuations.
We might be expecting more than perfection from them for the rest of the year. But certainly this isn't some kind of a bubble. That's for me.
Well, So I love your idea that tech is safety like it's utility. From that end, because I've wondered that over the last six to eight months, and I do wonder if earnings then matter. I know that's like sacrilege and earning season.
But then if that's the case, just buy the dip.
And that's why basically the market just doesn't want to go down.
Right.
And also, you know, if you think about how far we've come with tech, I mean, they're taking up so much of that. So if there is buying the dip, it's actually also magnified. Now one risk is if we do hit a soft landing patch where you know, we may we're maybe pricing in a soft landing, but maybe
there is actually growth happening. If the FED lowers rates maybe March, probably not, maybe in May, then we may have recurrence of m and a activity some more exciting opportunities that can be financed at a cheaper of cost. If that happens, then then there is a risk that some of the money that went into the by the dip may be going back into some of the cyclical sectors because they are so cheap.
Speaking of technology, meta platforms formerly known as Facebook, it is up about one point eight percent today, all time high. Now has a market cap once again of one point zero one trillion dollars, So the tech play is still in play.
Netflix up fourteen percent as well, not.
Even that, but asml yep a tech playover in Europe is also set for a record close like it's sort of encompassing many different types of tech it is.
It's kind of a cross the board. Hey, and what do you think?
What do you think or what are you guys discounting in terms of FED cuts in twenty twenty four. I mean, the market is anywhere from five to six and a lot of folks are saying, whoa, whoa, whoa, that's a little too much.
How do you guys think about that?
Yeah? I do think that five to six is probably too much. When it was really pricing in six, I thought, way, maybe something might go wrong if we need six rate cuts. But here's the thing. The FED officials have been slowly walking things back right, so I feel like they're trying to set us up or set the expectations so that it wouldn't be such a surprise if they don't cut rates. They don't wait until the second half of the year
to start cutting rates. So maybe in March, maybe we don't get a rate cut, but maybe we get a repositioning of the where the FED might be. I think the biggest surprise is going to be if the FED actually says we're revisiting the two percent target. Maybe it's two and a half, maybe it's three.
Well, but that would be here.
Okay.
If they came out and said we want to revisit and go to three, that would be huge.
That would be huge, right. But the thing is FED super core, which is services minus food, energy and shelter. Month of our month has been at zero point three percent. That is not a two percent. So if the FED wants to start and that's been there for a while, So if the FED wants to start earlier than the second half of the year, they're going to have to come up with some reason. Because they've been telling us services, services, service is super core. We're not seeing any easing there.
And actually the PMI today right that came out, service is still very strong and that's a larger part of the economy and inflation and services tends to be stickier. So we're gonna have to see some concessions somewhere to justify an early cut. But certainly the expectations have been heading in that direction.
All right, and I thanks so much for joining us and a Rath, but Cio, it's ce Busy Investment Advice Services Independence Ohio.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple card Playing and broud Otto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Wait, I'm looking at Netflix Olex really good quarter in terms of subscribers last night. They're also talking up a big advertising game over the next couple of years. Stocks up thirteen percent at a fifty two week high. Here, it's not at its all time high, but it's very close over the last I guess twelve months is a fifty three percent, So nice move for the folks at Netflixt. Check in with somebody who knows this digital advertising digital
media business really really well. Front of the show, Mark Douglas. He's a founder and CEO of Mountain. He's zooming in from Miami. I mean, nobody zooms in from like Cleveland. In January, they zoom in from Miami. So we literally just had something from Cleveland. But these these you know, these media types. Mark, thanks so much for joining us here. Boy,
let's just start with Netflix. A couple of things. One love to get your thoughts about kind of what the results from last night, and then two love to get your thoughts on getting into wrestling.
Well, let's start with the wrestling. I think that's the that's the most interesting part of it. You know, the thing about Netflix is with every other streaming network, you have to have a show you want to watch to go there. With Netflix, you just go because it's Netflix. And then they make the shows popular just because they
have this massive audience. And they essentially did that for Formula one, and obviously Formula one was already a big popular sport, but they made it, you know much really expand the audience and increase the value of Formula one. I think they're going to do the exact same thing for WWE. Like, what was the likelihood I was going to watch a WWE event, you know, yesterday? Very small likelihood? Now very large.
I agree with you, Like I don't necessarily want to watch WWE, but like if they did a documentary of it, one hundred percent I'd be in on that. Are you worried about content spend, like is all that just going to cost too much for what Netflix is promising?
The street?
Well, I mean they that used to be a huge problem with Netflix, meaning you know, on Wall Street, people are like, this company will never make money, and then they focused on profitability and they prove them wrong. And so I think they have that pretty much under control. And then obviously the app business is just pure profit, like every dollar revenue they bring in there, you know, net of like you know, paying their sales reps commission
is just more profit than Netflix. So I think they have that formula very tight, and it's reflected in how the stock market is responded, you know, the value of the company right now.
So you know, Mark, let's just step back a little bit because one of the growth drivers for Netflix, in addition to wrestling, I guess, is advertising. Now, this is something a business that but Netflix has said repeatedly and pointedly that they're not going to get into the advertising business. Well, now they're into the advertising business. Can you And this is your Balily book, this is where you guys operated Mountain and how do you think they're gonna do here?
And then what's that mean for the industry?
I think they'll do well in the long term, but I think in the short term they're struggling, still struggling a bit there. And the reason why is it coming into the television advertising market with a very traditional kind of revenue model like that like upfront and go, let's sell only to the thousand largest advertisers. Meanwhile, you have companies that are treating advertising like a digital advertising market, and that's my own company, Mountain, that's Amazon in particular.
And you see Amazon's ad business for TV. They had the confidence that next week they're just flipping their entire customer base over to an ad supporting model. That's because they have tremendous confidence on the ability to monetize it. And the reason for that is they have all of these digital app buyers on their search business on the Amazon dot Com website. So I think Netflix to really grow the app business, they have to stop operating in the past on the business, you know, using an old
kind of traditional media business model. They have to enter the future. That's what Amazon's doing, That's what Mountain has led the way up. And if they do that, they're going to be very successful. As a matter fact, I think if they do that, the stock the company can double in size. I think Netflix is almost a start when you look at you know, in terms of like they Jef's IPO, when you look at the potential on the app business if they if they do it right.
So walk me through the amount of Okay, so if if I'm going to advertise on CBS and I'm going to advertise on Netflix, how much am my pan for each? Like, how is that calculus going to change? And also would I put ads on both?
Yeah?
And so as a traditional we'll call it brand media buyer, you will definitely you'll just go where the audience that you're trying the reaches, you know, and and in traditional media it's age and it's it's very traditionally targeted, and you're happy to do both. The problem that you're kind of alluding to is the brand advertising market is not growing grows half a percent a year, So if you enter that segment of the market, you are in a
market share war from day one. And you're seeing that in Netflix growth rate on advertising it's growing relatively slow. But if you go over the digital market where Google and Meta and Amazon Mound operate, you know, there it's it's like millions of e commerce companies who are eager to be on Netflix, who are eager to be on every TV network, and there's a lot more growth there. So Netflix, Amazon's doing it right. I think my general thing is Netflix will have a good year on advertising.
Amazon will have a great year, and I think eventually Netflix will see, you know, see where the real growth is and and pivot over to there. And that that's how it works.
Mark.
I mean, if if you know anybody who's looked at broadcaster cable television over the last several years, in terms of the advertising.
It's pretty much all healthcare.
You know, it's basically letting you know of all the conditions you're probably suffering from or could be suffering from. And here's the little acronym we're going to put to it, so you can remember the name. You can go ask your doctor for this or that drug or you know, procedure. Yeah, I mean there's no Yeah, I don't see general motors. I don't see Coca cola anymore. I don't you know all that kind of stuff. What is the future of advertising for broadcasting cable television?
Is there one be well that that's what we essentially, that's what we've been talking about. Now, compare that to looking at ads on meta you know, on Instagram, it's all e commerce, it's all products you may be interested in, and you know, disruptive companies and things like that. So the TV industry is in a transition. You know, NBC made an interesting announcement at cs cs IS at the
start of the year in Vegas. It's a big, big part of the show is advertising is all these big advertising companies, and they announced that sixty percent of the ads that run on NBC linear, you know, cable and streaming, they expect to be targeted against people's interests and not just their age. And that's a big, big difference because now that starts to enable e commerce companies and other companies
to treat television like they're treating Instagram. And so that's a transition from traditional media to digital media for television and that that that that is happening, and you know, going back to Netflix. Netflix kind of sees easy money in the old way, but I think the long term they have to be part of that. And the answer your question is all of those TV networks are going to adapt, They're going to go where all the emerging companies are with the emerging ad dollars.
So anecdotally, we cut the core when my daughter was really little, right, but we're watching Hulu and we have as on Hulu, and she literally is like what is this?
Like why am I w And she's like what's with all the car commercials? She's like who's buying all these cars? Like what do I care about that? Like she literally like blew her little brain about, like what actually was happening?
I thod that that was quite funny, But I think it's a deeper point to what you're saying on like how to reach younger people who have like no concept of traditional television and what advertising actually is.
Yeah, I mean it's the death of Another way to stated is we're going to watch the death of broadcasting and broadcast ads and see the you know, the growth of you know, match dads, so to say, ads that are really tuned to your household and to your daughter's interests and your interests and things like that, and all the advertisers want the ladder and they're slowly amandoning forma. They're moving away from the broadcasting and moving more in the digitally targeted television advertising.
All right, Mark, Always good to touch base with you. Mark dougas founder and CEO of Mountain.
Listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
Andrew Auerbach she joins us. She's head of private investments at Cambridge Associates.
I guess we're a little located at Boston. There you go, Andrew, Thanks so much for joining us here.
I love you to just kind of give us a lay of the land about the private equity venture capital marketplace here today. Is the money still flowing there, our deals still getting done.
What's the lay of the land look like.
Yeah, it's great to be here again and check in with you all on the state of the private markets today. And the lay of the land is wintry and a little baron.
If I might.
Transaction volumes have been pretty low for most of twenty three. We're hoping it picks up a little.
Bit more in twenty four. But to just give you.
One one indicator of how tumbleweeds are rolling through the town square. The rate of distributions back to limited partners, right, they're the investors in private investment funds, private credit funds, what have you. Distributions back to LPs are at their lowest point in about twenty five years. That's relative to the market size. The market's grown, but that is that's
a heavy statistic in a January, you know. And so there's more work to be done here, and the gps are getting at that work well.
I mean, is it primarily been driven by this interest rate environment we've been in here? It's tough to get deals done, to get liquidity for the LPs if I'm sitting on an investment here.
Is it primarily driven by the interest rate environment?
Exactly? Exactly? With the with the zero interest rate environment exiting stage left and interest costs doubling overnight, it's definitely created a throttle back in GP's ability to work with our companies to generate attractive exit opportunities. And then buyers like there's a big there's a big bid ask gap right now and you're observing this all over the place, as are we. Because the next buyer can't borrow the same amount of debt to buy the company, and so
they won't and they won't pay for that. They won't they won't pay as much either, And so we're waiting for a bit of a capitulation moment maybe to unlock a little bit of of the pent up demand for exits right now that the LPs are waiting for.
I mean, Andrew, I think the market would love that. In the meantime, it does feel though there's been lots of different ways to access money to give it back to LPs, and LP's going to private equity be and like, I'm not going to invest more money until you giving my old money back and then leverage upon leverage upon leverage. Is there trouble brewing here? Like, what's an unintended consequence?
Yeah? So you're absolutely right, and so transaction volumes are down.
Fundraising for twenty three.
I think you'd have to go back about eight years to find another year that matched in terms of volumes are down, Right, We have to look back eight years to find another year that had this much capital coming in. And you're right about the leverage on leverage, Alex's the risk here is that gps are feeling the pressure and they're looking for ways to deliver some kind of distributions to LPs, and there's certain things they're doing. I'll do anything for a distribution, but I won't do that is
sort of the environment we're in. LPs aren't liking some of the financial engineering efforts that are going on, navloans being one of the hotter topics, if you will, in the LP and GP community right now.
All right, talk to us about what has been one of the most amazing growth stories I've seen in financial services over the last a dozen years, which has been private credit. What's your thoughts on that marketplace, that asset class and kind of the deals that are getting done there.
Yeah, I mean, so as we said, you know, we were just talking about going from fourth to first gear
in the private equity markets. Because of interest rates increasing as significantly as they have, it's really created a moment for private credit, if you will, to shine, and in that sense, the returns available for private credit investors because interest rates are now what they are, because the transaction environment is slower, private credit may be able to put more bells and whistles in the forms of covenant actual covenants on certain tiers of the market, and so things
are looking things are looking up from a private credit perspective, while interest rates are staying at the levels that they are, and in some ways, think about mezzanine think about private middle return private credit strategies, they could deliver a thirteen percent return to an investor. It's kind of knocking on the door of certain private equity firms that might not be measuring up right now. So there's we're watching some stuff unfold this year that's going to be very interesting.
How much what do you like right now? If I was gonna put money to work? How much should I be putting into work?
And where.
Wonderful questions And actually there's a lot of tech. There's a lot of discussion around this right because the public markets, as we know, have recovered quite strongly, and you've been talking about that, and where those pockets of opportunity are private markets take anywhere from let's argue five, seven, ten years to really watch those absolute returns roll in. And so part of the debate right now, alex is should we keep it in publics or should we move to privates?
Now I live in private, I live in privates, and so within privates, depending on what you're looking for. That private credit that Paul's talking about very interesting. If you have a fixed income allocation you'd like to offset with a little bit more of a return in the private credit realm, I'll give you some. I'll give you an
interesting a spec from private equity. You know, venture valuations have been coming down significantly and we're watching the returns come down and it's definitely a lot of capitals cleared out of that particular market. And as we talk about it here at Cambridge Associates, venture is looking very interesting right now, precisely because capital has been coming off to the sidelines.
All right, Andrew, always a fascinating discussion. You always appreciate getting some of your time.
Andrew Hourback, Head of Private Investments at Cambridge Associates.
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