Opportunity For Value In Private Equity

attract tremendous amounts of capital is private equity. And in a world where you've got a ten year yielding one point five percent um, people are looking for returns, looking for yield, and the asset class of private equities one of those areas that continues to generate superior returns. Glenn Mincy. He's a national sector leader for private equity at KPMG. He joins us here. Glenn, thanks so much for joining

us here. I'd love to get your maybe thirty thousand foot view of the private equity space, and I'd love to get it into context of pre pandemic and maybe kind of where we are now. Give us your thoughts. Thanks, Paul. Yeah, and you know, in the area of impact investing specifically in E s G. I'd say that before the pandemic,

private equity had been active and responsible investing. But looking back, I think there was maybe the naive sentiment that COVID was going to stall or halt progress in the space. But the social impact of the pandemic really accelerated the industry's awareness of environmental and social issues, and it really pushed that intersection of E s G related issues with financial return. And if you look at the driver's oh sorry, Paul, Um, go ahead, Glenn, this is Kayleie. Nice to speak with you.

So if we're they're pushing more towards E s G, where specifically, where are investments being made, Well, it's you know, if we're talking about the new economy, you know, we're all looking at angels on the head of a pen to determine what that new account m is going to look like. And we often we often say that, you know, COVID um that after COVID tech was a horizontal across

all asset classes. And there's no question that impact investing in the s G are going to be integrated across the other asset classes as a horizontal future and the you know, the area is that, UM, if you think about it, they're changing, you know, there the p funds are they're actively looking at E s G and and it's it's you know, a question for your energy funds, for example, do you shift your focus from traditional oil and gas oil its services to you know, the so

called transition companies companies that support transition to cleaner, more affordable energy like storage and renewables. UM. You know, you guys have looked at totally for example, UM and other plant based products. You know that that continue to attract mainstream investor attention. UM and Totally is actually, you know, it's doing well, and it's it's a good ample of uh work, consumers willing to pay more for your product

for the beneficial impact that it has on society. Glenn, give us a sense of kind of private equity, what percentage of their invested funds are are targeting E s G types of investments. It just doesn't seem like I'm not even sure a how you define it be how you measure it. UM, give us a sense of how private equity is approaching that. Well, yeah, yeah, your point about measurement is actually a good one. The you know,

the perception, mostly in the US. I guess is that private markets have been slow to pick up on the s G monitoring and reporting because I figured, you know, getting that meaningful data from portfolio companies was a little too difficult, and there were skeptical their skepticism about whether the market was ready to accept the costs associated with measurement reporting. But that information is really so vital to being able to determine not only where you stand, but

what you need to do in the future. And let's let's face it, right, doing the right things, it's it's imprecise. You need verifiable metrics and data and the uniform standard, and there's been right now, there isn't a uniform standard.

There's no one standard to rule them all. But you know, there's an opportunity to change that, and that you know, as a percentage, each of the you know, the largest UM, some of the some of the largest funds you know, whether it's UM, whether it's TPG, Bang, KKR, black Stone, Carlisle, Apollo, they all over whether before COVID or over that period of time, they all really invested significantly. They know they their funds are in excess of the billion dollars each

and they're putting that money to work right there. They have a lot of cash to deploy, right. Are there enough targets out there? You know? I think and as I said, you know, before the pandemic, they've been active in responsible investing. And yeah, I'd say that, I'd say almost every day it you look and there is you know, there's a two hundred million dollar investment here, there's a

billion dollar investment there. Um, you know totally was was a terrific example just in the past what two weeks of the IDA um and yes, so yeah, Cley, I'd say there are there, there's a plethora of targets. Talk to us about returns, Glenn E. S G. I keep hearing how E s G provides superior returns. I'm just I'm very skeptical. What are you finding in the PE space? Um, the you're you're touching on greenwashing, right, Paul, and here let's let's let's talk about the elephant round far and not.

It's probably accurate to say that p suffered in the past from reputational issues, and not just in p but but across all industries. There's a concern that companies are just going to do impact in e s G by press release, right, the company has will announced they're going to the carbonized and you buy any credits to fulfill that commitment, and you haven't really changed anything. Um. But I think I'd say the P he really sees value here and and the desire to contribute to a better

world is is certainly a motivator. That's truly a motivator on a personal level. I know many of these heads of funds and it's really clear to me that each of them fervently and passionately believes it was the moment in time to really make the world a better place. But they're in the business of making money. And what's made the P industry successful in the past is the ability to future trends. But you know, they need to

say they need to stay ahead of the game. And all right, Glenn, I just have to leave it there just in case, just because of the time we really

appreciated Glenn Mincy, National Sector leader for Private Equity at KPMG. Well, the metrics for vaccinations are have been very, very impressive here uh in the United States, and now we're starting to see supply outstrip demand and so we'll starting to see Um, you know, the US sending extra vaccines globally, I think beginning in August, and that's a good thing. Let's bring in Lauren Sour she's Associate Professor of Emergency

Medicine the Johns Hopkins School of Medicine. And I should know that the Bloomberg School of Public Health is supported by Michael Bloomberg, founder Bloomberg LP, Bloomberg Philanthropies and this radio and TV operation. Lauren, thanks so much again for joining us year. We always appreciate getting your thoughts and input as we try to navigate through this pandemic and

now through the vaccines and the reopening. Talk to us about how important it is for the US to be uh, you know, kind of a leader here and exporting some of its vaccines globally. Yeah. Absolutely. Um. The w h O has a campaign, Um. I believe it's called Nobody's Takes Till Everybody is Safe, and I think that really speaks to the fundamentals of live vaccine sharing is important. We have to make sure that we have global reach of these vaccinations, especially because you know, we're such a

easy to travel globe right now. Right travel has never been easier, There's never been more people traveling, I mean

prior to the pandemic. Of course, UM. Globalization continues to grow and we can continues to get easier and easier for more and more people to travel UM and so borders sort of become a thing of the past, especially when you when you're talking about infectious diseases like COVID and so sharing vaccines create schobal equity, it creates a healthier planet, and it also allows us to reopen globally quicker. I've been sitting here talking to Paul about my travel

plants for the summer, and I'm going to Europe. But what a place that will let us in if we're vaccinated. But at the same time, I look over at the UK where the delta variant cases have tripled. Should that make me worried even if I'm fully vaccinated. I think you're going to want to pay attention to what happens with the sciences that you, you know, you get closer

to your travel. We're hearing that the vaccines are still very protective UM, and I think we'll see more about some of these new variants, like the delta variant UM and how how the vaccines work against them. Vaccine is going to give you protection. So perhaps you'll get if you were to get infected, you might get a more

mild illness or have a symptomatic infection. But the vaccines are protective, and that is a really important point that you know, when you're considering travel, you need to continue to remember. And again, the more people that get vaccinated in those countries, even if they see the variants in that space, that the protection grows exponentially, you know. So we see more and more people get vaccinated, we are more and more protected, Lauren. One of the other big

issues is getting folks back to work. I mean, Kaylee has been coming she's been here the whole time. This is my fifth week of coming back. And uh, you know, we're starting to hear more and more companies, even a Goldman Saxes requiring employees to report their vaccination status. How do you think, what do you think it is the most responsible way for companies or what have you heard or seeing about bringing people back into the office. Yeah,

I think it's been really mixed. I would love to see some more BBC guidance and stronger CDC guidance around office workplaces um and bringing people back I think they've done a lot of work in the last few months on various areas that we needed guidance, and I think the workplaces a place where we could use some more information, some more you know, guidance as support. I do think we're going to see more and more places move towards

what Goldman is doing. We're seeing a lot of higher education institutions doing this, a lot of academic medical centers doing this. UM. We're seeing more and more places move towards requiring vaccination to come back UM. And you know, I think there is arguments to be made on both sides of of the coin for this. So we're not we don't have an approved vaccine. We have some really great emergency use authorization vaccines with tons of clinical data

now that show that they're safe and effective. UM. And I think we have vaccines moving towards approval. It'll be easier to require them when once approval happens. But we have to give sort of space for people to make choices. I mean, that's that is what you know this country is built on, is that choice piece and that autonomy, and so weighing those risks and benefits very carefully along with the autonomy of individuals and their ability to decide.

It's going to be a really challenging space in the next few years, and we are gonna look, we're going to need to look to the CDC and the federal government to provide guidance in this space, Lauren. A lot of companies are targeting September for their return to office, and there isn't so much worry about how the summer is going to go. People seem pretty optimistic, but then people talk about what could come in the fall and the winter. Are we going to have to send people

home again? Yeah, I think it's really the hope that we don't. Um, It is definitely a possibility. I would say, we don't know what's going to happen as um. You know, as we move back into fall, we're still trying to understand the potential seasonality of this disease, um of this pathogen, and so looking towards the fall, this will be sort of our first real experience of what a season might look like with with a highly vaccinated population. So it's kind of a wait and see, which I know is

not a particularly satisfying answer. Um, But I think the hope is that we get enough people vaccinated. Perhaps we've developed boosters if necessary, um, but we build the foundation so that we can keep things safely open and and that is one of the goals of getting more and more people vaccinated. Lauren, thank you so much for joining us once again. We always appreciate your weekly uh discussions with us as we try to get more educated on this pandemic and on the vaccines and on the reopening.

Lauren sour Associate Professor of Emergency Medicine that JOHNS Hopkins School of Medicine, and of course the Bloomer School of Public Health is supported by Michael Bloomberg, founder of Bloomberg LP and Bloomberg Philanthropies. Alright, folks, on the trading desk of Wall Street, this is how it works. You get a trader out there who's making money. He's got a

hot hand, maybe a unique positioning and unique strategy. You give that trader more capital to make more money for you less you risk losing that said trader to a hedge fund where they can gen even more returns. And that's what Credit Swiss was doing until decided to pull back. And so again Credit Swiss back in the news, maybe not for the reasons it likes. Laura Benitez, Leverage finance markets reporter for Bloomberg, joins us lard give us the story at what happened at Credit Swiss with one of

its star traders. Well, we tracked the story of HANSA. Lusinger who wrote to prominence very very quickly from a very young age. Um. So he started off at the on the trading desk and the high trading desk out Credit Swie in London and very quickly was promoted to head up that desk. Um and actually said I had a very unique strategy, made a lot of money for the bank and it was just a very very big name in the market. Um. It was a very attractive proposition for others as well, hence why he was sick

to Citadel. But obviously you know, Credits we supported him back. Um. So there's a bit of a tug of war there which was quite interesting at the end of last year and the beginning of this year. However, the tables turned slightly in the last few months because of the situation that Credits weee at the moment and all the crisis they're facing. Um, the patter dial backs and risk and Therefore, you know, hands a petty basically go alone. Now, would this have happened had the r K goes blow up

not happened. Um, It's difficult to say, because overall the strategy at the bank seems to be that they're just diving back risk across the businesses, especially on the asset management side. So obviously, you know, the hands of fund and what he was trading in was in that time very liquid, very very high risk, and therefore that would be a fund that would just be deemed too high risk for the bank to even consider at the momentum. Would that the other crises developing. It's very hard to

say how that fund would have played out. I mean, as we nursed my reporting, he was fundraising throughout January and February UM, and he was poised to launched that funding March. So UM, it's yeah, it remains to be seen how that would have gone otherwise. You know, it's really interesting, Um, Laura. You know again, I used to work at Credit Swiss and then still know some folks there, and it just seems like they stumble from from one

issue to the next. Here and now you know we're seeing some reporting earlier this week about offering retention bonuses to managing directors as well as some rank and file people. How difficult, you know, when you look at a story like you're reporting on here with your team, it must be very difficult for them to attract talent if they can't, you know, really reward them and allow their their traitors to take a certain amount of risk to generate a

certain amount of return. What's going on at credits with absolutely they're dealing with huge reputational risk right now. And on one hand, they have to preserve preserved that and they have to dial back at their risk and make sure that everything is you know, white and they're white in terms of their compliance strateges. On the other hand,

like you said, they do have to retain talent. They've been leaking talent for the last three or four months and they've been bringing in these retention bonuses to keep the very top and see new talent in place. UM. But like you said, it's very very tricky for them to balance that. I think it is the balancing that going forward. UM. As we know from the story, Hanson was able to take on a huge amount of risk. He was given it up to a hundred million to trade on and that would that was just way wed.

But what other traders and his peers were doing, um And therefore, you know, that's one of the reasons why he was so successful. He had an edge on everyone else because he was able to take you know, twice the risk um. So to be able to continue that performance while also riding back in the riskier parts of why that happened I think will be very interesting go forward. So even if he's no longer there to take on that kind of risk as credits, he's going to allow

allow other traders to do that going forward? Are we looking at a huge dial back here of the risks that they're willing to take. It's difficult to say because they haven't actually communicated anything specifically about this, but it would be hard to understand I think, you know, if if that kind of risk appetite was to continue from here, because like I said, he was the only trader on you know, especially in Europe and London who was able

to take on that amount of risk. And the last few months is really I think demonstrated, um, you know, some of the pitfalls of I mean, even any middlet of money for the bank, there was also a huge risk attached and obviously you know there was a lot of controversy behind some of his techniques too, So um, yes, I think it's um it's definitely an interesting one going forward. Laura, thank you so much for joining us. Really appreciate this story.

It's fascinating, a story about kind of the rise and somewhat of a fall of a star trader at Credit Swiss, and it's also a tale of, you know, pulling back on risk that we're seeing at certain firms, particularly Credit Swiss again trying to navigate some reputational issues there. La Benita, she's a leverage finance markets reporter for Bloomberg Editorial based in London, and you know, it just kind of goes to that issue. We see it on Wall Street a lot.

You know, a firm takes a hit, whether it's financial reputational, and they pulled back in on the risk profile on their trading desks, on some of their investment banking operations as they try to reassess their risk and their credit. Looking at the markets again, a little bit of green on the skate and not much going on, but certainly

we have markets at or near all time highs. And that's despite some concerns about inflation coming into this market that may prove a challenge for this economy in this market. Christopher Wolf, he's a chief investment officer First Republic Private Wealth Management. They have about two nineteen billion dollars in assets under management. Christopher joins us. Chris, thanks so much for joining us here. Love to get your thoughts on this inflation question, which is certainly an area area of

debate for investors. Is its transitory as FED chairman Power would suggest, or is it something more that we need to be concerned about. What do you think? Well, I think there's a couple of things. Uh. You know, first, it's really hard to disagree with the FED and all their pH d economists and how they think about transitory. I think the market's interpretation of transitory is what's gonna matter.

And I think the narrative is shifting a little bit, even though the a data to digest in the last couple of days, and in particular what we saw for the you know, the five prints on CPI yesterday. UM, I think the market is going to shift towards defining how long is transitory? The market started with the narrative that was transitory means it'll be over in one and I sent that's going to shift into two. And that's

the problem. If the market thinks that inflation around longer, you get pressure, um at least from the markets on should the Fed be acting? And why would I believe that? Mostly because break evens and inflation expectations for market participants are a lot higher than where the Fed says. So that's setting up this dynamic. Yeah, we're looking at something like two percent on the two year break even. Of

course the shortest term expectation. They're all that said, Should I be looking at a ten year yield higher than one point four six percent right now? Uh? You know in a normal world, yes, you know. You haven't seen this kind of extreme penalty phase for savers until you go back to like the seventies and early part of the eighties, and even then way beyond that in the hundreds. So why is this important? It's because there's some things

going on that are likely to stay in place. The first we've talked about with inflation, they should sticky tends to be around a little bit longer than you want, and in order to get rid of it, you've got to do harder things than you thought in the first place to get rid of it. The second piece, though, is that there's just a lot of cash around. The reboil markets are full of it, bank balance sheets are full of it, and you know what, they buy lots

of treasury. So the idea here is that the excess cashets and system is going to get put back into treasury markets. And that's a little disconnected from fundamentals. Normally, I would say that if you have inflation and economic growth in the four or five or six range, the tenor bond should be about that as well. But we're not going there anytime soon, as long as all this cash sitting on the sidelines needs to be put back

into the treasury market. So, Chris, you know, a bunch of my business school buddies and I we were chatting just recently about our kids. How are they going to generate the returns on their savings and on their investments that we've enjoyed since we graduated business school on And it's really really tough to think of an environment where they can achieve what we were able to achieve as

we look at our four oh one case. Now, what are you suggesting to your clients here as a longer term portfolio construction to generate returns that can support them, you know, for years. Hence, Yeah, and I'll use that phrase again. It's the extreme penalty phase for savers globally um and there's a lot of kind of economic work that goes into the how do we define, say, an excess of savings? The economists call it a savings glut

and what happens with that? But I think the simple answer to your question, Paul is we're gonna need to be much more thoughtful about how we invest. Savings is not the path forward, unfortunately, at least for the next ten years, maybe more. It's going to be more about

investing and choosing how you invest. And from our perspective, I think the big shift that's underway is, you know, a stay at home, stay in the US only strategy has worked well in the last several years, but a more global strategy is going to be I think more appropriate for investors over a period of time. That's item number one. Number two is what's happening, which I think is a benefit for investors is that private markets are

now mirroring public markets very well. Public equity, private equity, public credit, private credit, public real estate, private real estate. You get the picture. There are so many opportunities in private markets, and they're democratizing reasonably quickly that I think that opportunity set is going to become much more of the area that investors are going to explore, and not just public markets. I think the last piece of this puzzle is, um, we're gonna look for diversification now to

go beyond just traditional stocks, jns and alternatives. It's going to be global, it's going to be uh structural, and that really means that we have to be focused just to bring this all back on what is it you want to do over what time period? That's really the key. What are their goals? So is a sixty forty dead? You know, I don't think it's dead. I do think that it has to be augmented. I think the sixty

forty has worked out very well. This is an era of I think, as Rhinehart and rogue Off called it, financial repression, that the healthy bas for savers equities tend to do well in that environment. So we are in no way abandoning equities, but you're in a position of strength for many people, and that position of strength is

usually the best time to act. And this action, from my perspective, looks like being more globally diversified and looking more at those alternates, more private investments, more things that are interesting and new, even even things in the cryptocurrency and blockchains. Baby, yeah, interesting. My kids will be fired up about that, I know, all right, Christopher, thanks so much for joining us. Christopher Wolf, He's a chief investment

officer First Republic Private Wealth Management. Again, that discussion, uh kayleie that I'm having with my kids that are entering the or have entered the workforce, and I'm telling them to invest in their for one case max out if they can think about being, you know, all into stocks here at their age. Because you look at the fixed ticle markets, what are you gonna do. You're not gonna do much. You're not going to You're not gonna do

You're not gonna get much of anything. So again, we really appreciate Christoper's comments there about you know, how to to invest for the long term. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three, at on Ball Sweeney, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio