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A headline earlier with South Korea declares marshall law. However, lawmakers have now voted to request the lifting of the marshal law. The president says that marshal law those necessary because of political deadlock over the budget. It's confusing, it's moving the FX market. We want to get more for you joining us now as Dan Daniel ten Kate joining us, he's Asia ecogov Executive Editor, Economic Government Executive Editor. Hey Dan, can you just help us understand the last twelve hours.
Yeah, I mean we're still trying to figure it out. But essentially the President kind of stunned the nation with this late night power grab where he declared martial law for the first time in decades and careers a long history of that and essentially banned all political activity, banned parliament, etc. Claiming there were North Korea sympathizers that he had to
take down. In reality, he lost the parliament election in April, and ever since then he hasn't had a majority in Parliament, and the opposition party is doing what opposition parties do around the world, which is, you know, try and block his initiatives and push their own initiatives through. So he's had a bit of divided government there. It sort of came to a head with a vote on the budget.
They were demanding different things and then he just pulled this move which even his own party is condemning at the moment. So you had opposition and lawmakers race to Parliament. They voted to ask him to withdraw the requests from martial law. According to the constitution, that means he must comply with the request. There is some legal ambiguity now that they're trying to work through. We haven't heard from him since parliament voted, so we're not sure if he'll comply.
But people are coming on the streets. There was some clashes with police. Overall fairly calm on the streets that we could see right now. But the big question now is whether he'll comply and drop this whole thing.
I have to ask the question, Danielle, but who has the support of the armed forces of South Korea.
Well, that's a big question right now. You know, it's unclear if the army is going to back him to the extent if you get mass protests, are they going to you know, started shooting in the streets or something like that. I mean, that's that's a big question. And we've seen in Asia a couple other places where the army has refused to do that. This year. Bangladesh in particular, was was one. It doesn't appear like it's coming to
that yet. Well, we'll have to see with the next and a few hours in days spring, but that that's an open question.
So I guess okay, let's just pretend that the president says, okay, you guys are repealing martial law. Fine, then what happens because we're still clearly at a standstill, and clearly this is a big negotiating tactic that the president was using to get his agenda passed. So then what happens if the government is in paralysis? What gives.
Well, I mean they were, they were negotiating about it, so you know, his his his view of paralysis and and what's actually taking place on the ground. There are two different things it looks. So you know, there's already people calling for him to be impeached after this. His own ruling party is condemning his move. He's very unpopular anyway, so you know, it's very likely we could see support and tun and he could be impeached and turn out
of office that way. That looks the way it's going, unless the army worked to back him and he worked to kind of bend the constitution, which you know, so far we haven't seen that. We're pariously on the brink of that.
My gosh, all right, Daniel, thank you so much for your reporting.
Really appreciate it.
Daniel ten Kate he is Asia Economic and Government Executive editor for Bloomberg News.
He is based in Hong Kong.
For those of you that have a terminal, Top go and you kind of get t live and boy, this top Live blog is kind of that's where we're getting all information, real up to date information from reporters on the ground in that part of the world here, so we will certainly keep you off the time date on that.
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All right, let's get the market. Then take here with Nancy Tangler, CEO and CIO of Laffler Tangler Laffer Tangler Investments. Nancy, I keep reading about how there's so much money in stocks. We're still in a US exceptionalism kind of situation, but no one wants to pull the trigger and like sell and go somewhere else. What are you guys doing?
Yeah, well, we still like the US best best house on the block in terms of earning's growth, in terms of productivity, in terms of technological innovation, and the valuations despite all the handwringing, are not super out of line. I mean, you've got look at the equal weighted pees eighteen times forward earnings. Historically it's average seventeen and a half.
So we keep going back to our analogy, which we've been taking about for almost two years, which is this market, this economy is analogous to the nineteen nineties, and we
see so many similarities. I mean, no analogy is perfect, right, but we see so many analogies that line up, and that was a time when you had, you know, an inverted yield curve of labor shortage, geopolitical tension, you know a number of the things that we have today as well as high interest rates ten years between five and eight percent, fed funds rate above five percent, yet you had robust stock returns coexisting with that. So we still think you want to be long this market for some time.
And you know, Europe has dramatically underperformed. The rest of world has dramatically underperformed for the last twenty years, and I think a lot of that has to do with technology.
So what is your technology call?
Here?
These days? We still like it.
I mean, you know, I think the MAG seven is the MAG seven. But we are still exposed to the chip sector and we have been we had been shifting to software, so we still like a number of those names. Largest holding reports tomorrow which is Oracle, but we own Service now Microsoft, we own some Adobe, so we're in the space and we think that continues to be where you want to be.
What do you do with the super popular AI plays, like like in Nvidia, if you didn't own it, actually do you own it? And if you didn't know what would do? Okay, would you add or do you just kind of put it in there and say, all right, you're good, I'm going to go look elsewhere.
It's such a great question because if you're trained like I was as a value investor, you're always waiting for the pullback. But if you go back and look at Amazon, for example, since IPO in May of ninety seven May fifteenth, it's up two hundred and seventy thousand percent. So when was it too late to get involved with Amazon? We added Nvidia in the summer during the tech the summer tech swound, so we missed, you know, a big chunk of it. But I think, like Tesla, these are stocks
that are driving in. You can go back and look at Walmart. I mean that stock outperformed for many, many years, and so I think this again is where you want to be. We owned the and still own the poor man's Nvidia, which is Broadcom in our twelve Best Ideas portfolio, along with Service now, Microsoft and some of the names I already mentioned.
You mentioned the chip Space have had Intel in the news. With mister Gelsinger, we now blim we're reporting that he was forced out by the board here. What's your take on Intel, because we all grew up with Intel as being a leader.
Now obviously they are not. Can they get the mojo back at all?
Do you think, Paul, I'm not optimistic. I think go back to Xerox, who developed the mouse but did not commercialize it. So Microsoft and Apple commercialized it and then they lost their innovative edge. I think Intel is so far behind at this point. We sold it about three years ago because it was clear to me that he didn't have the leadership chops to turn the thing around. Instead, he went to Washington with his in hand and got
you attempted to get money, which he did. But now you've got to deliver and the foundry business is losing money. But the money from Washington is contingent on having a foundry business. It wasn't just Pat, I mean, Bob Swan ran the company sort of as a placeholder for a couple three years, and there was a time when we used to joke that AMD existed simply to ensure that Microsoft didn't have a monopoly. And look how that has
shifted with the right leadership. So I think in a bull market there are much better places to be and you're not even getting paid to wait via the dividend any longer.
So that's sort of your call on tech. You mentioned Walmart a couple of times. What other stocks are on your radar right now?
We like a lot.
We're overweight industrial and industrials and consumer discretionary, and our theme is old economy companies that have pivoted to the right technologies.
So in.
I'm sorry, in industrials, think of Quantus Services, which is PWR and Emerson Electric. Those are names that we own, along with a number of the fence names. But that's that's where we're focused in that space. In consumer discretionary, we like, you know, some of the usual suspects, but included in that is home Depot and Chipotle, which are both in our twelve Best Ideas portfolio, as well as Amazon, which is in our twelve Best Ideas portfolio.
Did you guys change your investment outlook approach the day after the election last month?
Did anything change?
No?
We anticipated, I mean as much as you could. And you know, I always tell our clients because we've got on both sides of the spectrum, right, don't invest your politics by great companies that you can own for a lifetime. So we've been kind of shifting in the summer during the second summer tech swoon in a two years in a row, and then broadening out over the last year. And I think, you know, we run a clean energy
infrastructure strategy, but we had it with oil. So I think there's there's a you know, it's a little cynical that you need that bridge. And so I think there are a lot of ways to make money no matter who's in office, and so that that's been our.
Focus for consumer discretionary in particular. Do tariffs raise your eyebrows at all?
I think, Alex, I think it's mostly rhetoric. I mean, I know that he uses this as a negotiating tactic. We know that from last administration. Could it be problematic? I mean, I think the costs just get passed along to the consumer, so that has its own implications for inflation. But I just don't I just don't see this president is so this elect president elect is so focused on the markets. I don't think there are going to be policies that are designed to cause problems for US companies.
So that's speculation.
Folks on the East coast, This is what some folks on East coast do they winter in Florida and they summer you know, in New Hampton's or.
Something like nor If you're on't a west, Oh yeah, you summer Lake Tahoe and winter in Lake Scottsdale. That's how it's done.
Out o It doesn't it get cold in Scottsdale?
Yeah, does a little bit.
But what has cold mean? It doesn't mean this.
It means, oh, it's forty five degrees outside. I better put on another down jacket over my.
Downvest because you're like fifteen minutes.
You're wrecked for every other climate when you live in Scottsdale.
Yeah, yeah, Scotstdale. Isn't it like? You know, you start out the morning in a thirty degrees and then it gets to be eighty and then it goes back to fifty. I can't it's too much. You know, as a woman, you already carry a big person. It's heavy, and now you got to carry layers, layers, that's what it's too hard.
Nancy, thank you so much for joining us here in our studio. Nancy Tangler, she's the CEOP and she's investment officer Laffert Tangler Investments again coming in from the West to bring us some of her thoughts on you're.
Listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple card Playing and Broyd Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Joining us now in studio is Sarah Samuels, head of Investment Manager Research over at n EPC. She's a partner over there and oversees the firm's forty five person investment manager selection team across private equity, private debt, private real estate, real assets, hedge funds, and public markets. Sarah, it's great to have you in studio. Thank you for joining us.
Thank you very much. It's a pleasure to see you again.
You too, So little see public markets side for a sec because we get plenty of guys with their calls blah blah blah. Let's talk about the private market. What do you think is going to the hotspots are going to be for next year?
Well, you know, just to set the stage for what's on limited partners minds, institutional investors' minds today. They're really not seeing the distribution activity that they typically have, so distribution to paid in capital is not coming back at the pace that they had modeled out, and what that means is that there are fewer dollars to commit to future funds because it's an equation, it's a closed loop system.
There isn't unlimited capital. And so we're really hoping that we see deal activity and distributions and transaction activity begin to pick up in twenty twenty five, and I think that it will. We are seeing lower interest rate, which helps with the deal economics. We are seeing better valuations, and you know, we may see some simulative policy and.
It looks like from a I guess just maybe from a tax perspective, there may be some easier tax treatment for some of these gains that some of the limited partners have.
Do you expect this new administration to foster more deal flow?
We have seen some reporting on that, do you, guys, from your perspective, expectancy increase deal flow, whether it's IPOs, whether it's and a emdeon.
Yes. So there are a number of ways that these things can happen, that these deals can can actually be executed. There's obviously the IPO market which is open today but not being tapped broadly because buyers and sellers are not the meeting in the middle on price. There are strategic investments, so selling to corporations, and we are still seeing a lot of that. And then there's sponsored a sponsor, which is a private markets firm buying something from another private
markets firm. And so if we see the more favorable tax treatment, if we see lower interest rates, more easy antitrust stances as well as regulatory then I think that it could be quite a bit easier for smaller companies in particular, to either go public or to grow their earnings.
So typically when I talk to someone in private equity, they're like, oh, well, you know it's a vintage, so it's a long term, right, So you're gonna give us money now, you don't get it back for ten years. Like it's fine, Like everything will sort itself out in ten years. And then we get to today and then I want my money back. It's been ten years and
it's hard to get that cash back. Does that interrupt the popularity of private equity or even a private credit at this point, or are these things that are just managed.
It's a great question. There's a lot to it, So it doesn't interrupt the popularity because there is still a pretty meaningful premium for private market investments over public markets, and public markets alone are not going to get institutions
to where they need to be. Many institutions haven't expect a return of six seven eight percent nomenal, and we're expecting, you know, mid single digit returns for US equities, for example, over the next ten years, whereas in the private markets, we're expecting double digit returns.
Double digit like ten eleven, twelve percent, or like more than that. Orpends on the area.
So for something like private debt, and there are a variety of different flavors in there. There's subordinated capital, there's you know, direct lending, which is a lower returning asset today, there's a lot of capital in there, there's distress, and then there's opportunistic which we're really excited about. And that's a catch all term for really creative financing solutions. So that's either providing so being a liquidity provider is what we are most excited about, both in this year, in
twenty twenty four and next year. That could be providing creative financing solutions for GPS to get capital back to LPs. It could be being a lender to real estate, you know, with real estate debt through private debt, or by investing in secondaries and providing liquidity to GPS and LPs alike.
Are you surprised we haven't had more IPO activity in twenty twenty four and the S and p's of twenty five percent back in the day, I would have been ripping companies.
Out of look into the marketplaces.
I mean, we get a ten percent move in the market, we're on the phone straight for thirty six hours calling everybody.
So I have IPO activity has honestly not historically been the line's share of exits, so but it is very important and it is open. So I think it's really interesting that we haven't seen more companies price and go public.
Many cases, especially in venture capital, the last round financing is the valu valuation methodology that is used, and that last round of financing won't reset until they price another round, and so we are seeing lots of companies that are held at valuations that are not actually reasonable and there will need to be a reconing.
Where in say, private credit is the most interesting, and how do you look at it? Is it like industry based is in how do you break it down into buckets?
Yeah, so we are looking at things like distressed debt, which is really looking to take advantage of the type of financially not necessarily like sector based right now. Well, and then we're also you know, pretty interested in as a backed lending, so abl investing, and so there are there are a number of other areas and ways to play this, but I would say that direct blending is becoming more and more mainstream and less of a premium there.
When I got to the board at a large university, I was shocked to see how much is allocated to private getting in private alternatives broadly defined, not the ten to fifteen percent that I grew up with, forty yes and more.
And I've been in that set. I've worked at an endowment and like, so.
In twenty twenty two comes along twenty twenty three, I'm like, we're the marks down.
Kids.
Didn't get a mark down.
It's such a scam that private business they don't mark That's why I'm so shocked that they allocate so.
Much to that.
Is that A Are you surprised that universities have taken such an aggressive.
View of their portfolios of really its alternatives.
I'm not surprised. As I mentioned earlier, the return premium is there over public markets. You do need a chief investment officer mindset when you're allocating capital to private equity. So you don't want to lock up your capital in just any investment. You want to make sure that you're being paid to lock up your capital, and you can do that looking at public market equivalents or other measures.
And you know, these universities and public pensions for that matter, have pretty lofty return targets and they need to get there. The thing to look at is how much of the operating budget is the institution supporting? Is it thirty forty fifty percent? And if it is, then be really careful with your liquidity guardrails. And that's something that we do for our clients at ANYPC. It's a number of simple
but very powerful metrics. Understand if we get out over our skis, and if we had those in place prior to two thousand and eight, a lot of heartache would have been avoided.
That's really interesting, Hey, Sarah, really great stuff. I really appreciate you. How you coming in, Sarah Samuels. We will definitely be seeing you soon joining us from an EPC. Thank you so very much.
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