SPACs Capitalize on Private Market Boom: Evercore's Schlosstein

history on Wall Street. See was co founder of black Rock black In. He was an investment banker at Lehman, started the firm's investment or at least interest rate swap business, and so much more so, we're thrilled to have Ralph Schlastin joining us now. Ralph, thanks some Bollian for joining. Talk to us about the deal landscape. But we've seen so many SPACs raised since the beginning of the year, and so many sort of deals that we haven't seen in a long time, you know, not your regular mergers

and acquisitions. What's going an other? Well, there are two things. Number one uh m and a activity is back. Uh It went on pause from the beginning of March until probably the beginning of July with only very sporadic activity, and over the last three months. Uh, if you look today at the level of activity and dialogue between CEOs, it's quite a bit higher than and more intense than it was a month ago. And a month ago it was higher and more intense than a month before, and

the same would have been true two months ago. So there's no question, uh that activity is starting to return. And with respect to the SPACs, UH, you know, they have become essentially another way. Who are companies become public? H they're really three alternatives now that a company can become public. One is a direct listing where they don't raise additional capital, they just list their stock. The second is a traditional I p O. And the third is

to merge into a spact and become a public company. UH. That way and spacts have been uh you know, a lot of money has been raised. Uh. They have to do a transaction within a two year period of time. There's some very qualified uh business leaders who have raised this capital and many cases they will be helpful to the companies that they buy to help them grow. Ralph

typically in an m N a scenario. UH. You know, a CEO and his or her board need presumably have a fair amount of confidence in their business model, in their sector, and their economy. So as I saw the sixty nine billion dollars worth of deals announced on Monday, I kind of said to myself, where can that confidence come from? Given what's going on in the world. What are you hearing from some of your clients as they

think about h M and A activity. Yeah, Well, first of all, the transactions that were done this week, we're in sectors that were either largely or completely unaffected by the pandemic. UH. The Navidia arm deal in technology, the Guilelead deal in biopharma. UH. Those are two sectors that, if anything, and certainly in technology has benefited moderately from this stay at home or work at home environment, and

biotech is a long term growth sector. So there's been you know, the pickup and activity has been to a greater degree in sectors that have pretty clear visibility as to the future uh, economic and revenues and profits of their business. You haven't seen as much pick up yet in things like industrials, where there's a lot more uncertainty.

We are speaking with Ralph Sholstein of Ever Court, Ralph, are there enough private companies out there that would look to go public in this kind of environment to take advantage of all these books? Well, the thing that people don't realize is, uh, you look back twenty years ago there were roughly undred public companies h and about thirty five hundred private companies of some scale, and I think it's a billion dollars or more in revenues. Today the

reverse is true. There are seventy five hundred or so maybe eight thousand private companies uh and four thousand public companies. There aren't even enough companies to populate the Russell five thousand uh. So Uh. The answer is the ratio of opportunity in the private company world has literally reversed from one to two to two to one, and SPACs are

taking advantage of that. So there's some concern in the marketplace that SPACs uh, combined with maybe kind of the robin Hood retail investor the day trader, suggesting speculation is creeping into this market it may not be healthy. How do you view that? Well, there's uh, no question in my mind. At least two things are true. Number One, the stock market is a bit ahead of the real economy. It's anticipating a v shaped recovery, which we certainly don't

have yet. We're not back to where we were pre covid by any stretch of the imagination. Uh So one of the two one is wrong, the stock market is wrong, or the economy will catch up to the stock market. Um. I tend to think that the econom me is going to continue to do well. I'm not sure it's quite where the stock market will get to. Quite where the stock market is, so I think there's some vulnerability there.

And then you have a uh tremendous concentration of the gains in the stock market in a handful of stocks which happened to be particularly appealing to retail investors. So these are great companies there. It's not it's not like the dot com bubble where anybody with forty three eyeballs to go public. But these are phenomenal companies that are going to be long term winners. But they're trading it,

you know, reasonably stemming multiples compared to history. There's some talk of pivots at the moment, pivot to value and so on, and then there's also a concern about everything the Federal Reserve is doing in the longer term impacts. What concerns you out there, elephant, And do you see pivots in the stock market? Well, I think the right now we have a stock market and an economy UH that are definitely supported, you could say, propped up by

UH monetary and fiscal policy. I mean, people don't realize both the magnitude and the speed of what was done by both the Congress and the President and by the Federal Reserve. You know, first fiscal policy, we had two and a half trillion dollars of UH stimulus passed before

the first down quarter of g d P was reported officially. UH. In the financial crisis in two thousand and eight, we had eight hundred and fifty million billion dollars of stimulus and it didn't get passed by the Congress must much less implemented until the third quarter of decline. So this came much more quickly and three times the scale monetary policy. The first week, our first day, the Federal Reserve brought a hundred billion dollars of treasuries and mortgage backed securities.

The most that they bought in the fiscal fiscal financial crisis was a hundred billion in a month, So this is huge. The Federal Reserve has been there, Roth Slaustein, We've got to leave it there because the time. Thank you so much for joining us. We really appreciate your time. Roth Slaustein, co chairman co CEO of ever Corps, giving us his thoughts on the markets UH equity markets, including M and A. It is time for Bloomer Opinion today.

We're joined by Claude Gussam, director of macro economic Policy for the Washington Center for Equitable Growth, also a Bloomberg Opinion columnist. Claudia is a former Federal Reserve economists and creator of the SOM Rule, a recession indicator. Claudia, thanks so much for joining us here. You have a fascinating column out widening education gap may tear the economy apart. What did you find in your reporting? Well, first of all,

thank you for having me on today. I really appreciate the chance to talk through the piece in a little more detail. Yeah, so, I think the biggest thing I want to draw people's attention to is back to school. What's happening right now in our elementary schools, in our colleges. This is a pivotal moment for the inequalities that we've been living with and have increased over time in the United States, and we know this from the Great Recession.

We are seeing this train wreck all over again, and we have to pay attention to those who are less fortunate, lower income, not in the fancy Harvards and Ivy League schools. They need our support right now. Yeah, I mean some of us, I'm sure have seen those really horrific and really sad pictures on Twitter and elsewhere of kids gathered outside places like Walmart and Target in order to try to use free internet because they just don't have it at home. This isn't just one problem, It's a money

headed problem, Caudia. Is there any kind of even partial solution that could be implemented immediately the such a situation that we are in is not inevitable, it is not set in stone, and yet it will take money. The federal government needs to get money out to state and local governments. Those are the primary funding sources of education United States, particularly our public schools, are public colleges and our community colleges, which are so important, are always underfunded.

And right now the municipal just don't have the money for Congress can send the money, and they haven't yet, and they absolutely have to if we are going to get to a better place because really here, uh, it's interesting, a lot of these state and city colleges, they rely very heavily upon that kind of state and city funding. So what are they doing right for this academic year?

How stretched are they? Well, so if you think about just broadly, what's happening at state and local governments, and the vast majority of them have balanced budget requirements, right, so they have to make what comes in meet what

goes out. Tax revenues plunged during the crisis. There are estimates that they state and local governments are facing a twenty percent shortfall in their budgets for this fiscal year we're in now, Like that is incomprehensible, right, So a lot of the adjustments are just getting started, and what we've already seen is very painful, and the funding cuts again for places like community colleges that already had pretty tight funding, like, it's going to get worse, and that

that has repercussions of us for those students, and it has repercussions for all of us. Education is a big driver of shared prosperity. Right, So if you hit another generation with um less educational opportunities, a massive amount of student debt that doesn't you know, come along with a great degree, then like you're we're going to destroy a generation of students and we're really going to step back

the potential of the whole economy. So all students are affected, as our old teachers, but presumably those in lower income areas and also those in public schools as opposed to private schools are worse affected. Clodia. So as you say, the inequality of this is just so you know, unfair, What will it take? Will it take protests on the streets?

I mean, what what can be done in order to get some help, some funding, even just some support, whether it's from their schools, you know, other communities, to these kids that are just going to get lost in the system. So, as I said before, money from Congress would go a really long way. I don't expect that money to come. It has been extremely frustrating to see that get mayred down in partisan politics, but that is it is what it is. So I think at this point it's going

to take a lot of creative solutions. People being like thinking blue guy, like, how do we pull this off? I'm actually speaking tomorrow at a conference of mayors, and one of my tasks is to come exactly what's the question you asked? Okay, so given where we are, what do we do, like, how how do we get through this situation in the best way possible? And and it's tough, right, So it's blue sky thinking. It is trying to find ways to be more effective, efficient, making sure that you

target the resources. Just said in the very beginning, there are students who don't they lack the ability to go online, to go hybrid, you know, their connectivity issues, there's access to high speed WiFi. There's also a lot of issues with parents who have to get back to work, right and so they're just there's a lot of complexity, there's a lot of need um, you know. But local governments they know what their people need best like and how

to implement it. It It ought to becoming local instead of federal. But the federal government should be getting them the money they need to do these blue sky creative Well, let's hope something happens very soon because we're already into the school year. It's a great peace Scaldia, thank you for writing it. It all needs to be said. Some of course is former Federal Reserve economist, creator of the recession indicator of the some rule, and we appreciate her coming

on well. When I was in business school many moons ago, we were taught that the purpose of a corporation, particularly public corporation, is that maximize profits for shareholders. Now, in the age of E s G investing, where there's focused on environmental, social, and governance, I think that's being expanded upon to maybe include more stakeholders. To talk more about that, we welcome Michael O. Leary, former economic policy advisor in the United States Senate and a founding team member of

Bane Capital Social Impact Fund UH. Michael's also the co author of a new book entitled Accountable, The Rise of Citizen Capitalism. Michael, thanks so much for joining us here. So again, maximize profits for shareholders or corporations need to think about broadening that out to other stakeholders. I think you're seeing right now or just changing focus from I think we've had fifty years of this focus on the

corporation's purposes to maximize profits for shareholders. And with the Business Roundtable statement, last summer, the Davos Manifesto coming out of the World Economics Forum last winter. You're seeing business leaders investors starting to recognize that the purpose of a corporation can extend beyond just maximized share price. How about furthering that? What what would be the best way to

go about things like that? Well, the problem right now is that if this sort of stakeholder capitalism mindset is winning the battle of ideas, it's losing the war stuffs into action. And so at the same time that you'd be hard pressed to find many business leaders today who don't at least pay lip service to this idea of serving their communities, their workers, the environment. You're not seeing the sort of substant action they'll ast you push that forward.

And I think the the response to the pandemic was a good example where at first you saw a lot of companies pulling together, shifting from manufacturing perfume to manufacturing hand sanitizer, from luxury gowns to hospital gowns. But you're seeing all that start to pull back, and I think that kind of the the decoupling of the financial markets from the real economy. It's just forcing a lot of people to question whether or not these pronouncements of stakeholder

capitalism are actually showing up in their lives. Well, Michael, I remember thinking when I first saw that Business Roundtable letter or statement from last year, my first thought was, unless you align executive compensation to these goals, some of these e s G goals stakeholder goals, you're not gonna get any substant action. How do you go about that?

It's a great point, I mean, business leaders, CEOs are the largest corporations, are compensated mainly on stock price, and so to extend their compensation still requires them to maximize their stock price. Their incentive structure is not going to

change just by changing their rhetoric. Now, what I think business leaders are recognizing is that today employees, customers, government's regulators are expecting more out of corporations, and so the best way to maximize share price over the long term is by focusing on things like a deeper purpose, on

serving your stakeholders. But but following the Roundtable statement, you had this kind of horrible PostScript, which was the Council of Institutional Investors, which represents a lot of the largest asset owners in the country, released the statement of their own reminding the business roundtable which represents CEOs, Reminding those CEOs that CEOs work for shareholders, you know, and the shareholders mocks do we have where shareholders elect boards and

boards appoint CEOs. CEOs ultimately have to to reflect the interests of their underlying shareholders. And and uh, the statement said accountability to everyoneted accountability to no one, and and reminding CEOs that they work for shareholders. And so, I mean that's part of what's gonna hold back real action here is and tell shareholders investors get on board with this sort of stakeholder approach to running companies, you're not going to see a sort of change. So actually show

up in the lives the stakeholders. Yeah, the sentence are not aligned. I mean, it's partially why Jeff Alben went his own way and sort of after all these years, started as you know, another of his own shops in order to do E. S G. The way he wanted to,

the way he thought it should be done. We need more of that, because if people are worried about having enough of a return so they can retire someday, which is probably already going to be later than they ever thought before, then why should social justice come out of their retirement if you like, that's the way they're going to look at it, right. This is kind of the traditional view that that any focus on society the environment must come at the cost, come at the expense of

shareholder returns. That there is this trade off, and I think what up and is doing with inclusive Capital Partners, but a lot of major prova equity funds are now doing and launching impact funds like a TVG or being Capital Ride Work or KKR if they're saying we can actually generate alpha by focusing on these areas because the sorts of companies are gonna succeed in the long term are sorts of companies that are focused on the material

financial risks and opportunities that come from looking at social environmental issues. This is what you saw with the French food giant dan On that put social purpose into its corporate charter. It became the equivalent of a benefit corporation in France. And they weren't doing that to say this is going to come at the expensive profits. They're making assessment that this is what was best for shareholders in

long term. Is we've seen this this crazy transition, where at the same time that average holding period for a stock has declined from eight years in the sixties to eight months today. The needs, as you said, of future retirees has elongated. You know, the media shareholder in America is fifty years old. They can't even access their frore

owen K accounts for the next fifteen years. And so when they need capital marks to be thinking longer term, not shorter term, and I think inclusive Happita Partners, Jeff up and spawned a lot of these impact funds are recognizing that the best way to do that, the best way to focus on the long term, is by focusing on stakeholders. So, Michael, I guess I first heard about E s G investing in was from Europe, maybe ten or fifteen years ago, years before I really heard about

it from UH. US. Institutional investors. Are other parts of the world incorporating the stakeholder approach better than perhaps the US. I think you are c that you're seeing that Europe for sure is leading. Japan has always taken a slightly different approach. UH Germany, you'll have more companies that are owned by majority shareholder, less of the sort of intermediated capitalism we have in the U S where most companies are not owned by a majority shareholder, Europe and many ways.

He's been leading the charge from the investing front. So United Nations Principles for Responsible Investing, which is a set of six principles saying that you're going to incorporate E s G in some way into investing philosophy, is now aggregated ninety trillion dollars of asset, many assets coming from the US or Asia, but for the most part of these are focused in Europe, in the Nordics and the

major pension funds, sovereign wealth funds. And the problem is that at the same time that you're seeing that sort of commitment to these principles of I'm going to integrate E s G into my investing philosophy, there's been some recent research coming from air In Unit Kellogg and others that shows that there's not much difference between investors who investors who have signed onto these principles and investors who have not. There's not much difference between investors before and

after they saw to this principle. So what we're seeing is we're seeing a lot of commitment, which is a good first step we're not seeing that falls through into a different wage of actually investing divested being one one particular exception to that where the divestment movement where university damads are divested from oil and gas. Michael, that's really we have to talk about this again very soon. Michael O'Leary joining us, their author of Accountable The Rise of

Citizen Capitalism. Well, as we know, it's only a few hours to d time, and that is the f O m C meeting and press conference. Jerry J. Powell be getting up there along with all of a Zoom companions and talking about the economy. Let's bringing somebody who can give us a bit of a an insight into what we might hear today, because there does seem to be

no consensus about what that might be. For were the first time in a long time, Daniel D. Martineau Booth, the CEO of Quill Intelligence and of course a columnist for Bloomberg Opinion, former advisor to the Dallas Fed as well, danielle for the first time in a long time, I'm hearing different interpretations as to what might happen today. It seems like it's it's been forever since fed water has got into the details, and and you know, try to

forecast what the FED chair might say. Yeah, I'm not sure we have daniel She might have dropped off the line by should be back in just a moment. But well,

paul I, I'll ask you the same thing. Yeah, but it'll be you know, it'll be interesting to see kind of what tone we get from a chairman, pal, because I think the market, you know, as we heard from some uh Elena Letia from Bloomberg Economics this morning, maybe a little bit more explanation on what they thinking was behind that inflation policy, i e. The Fed might allow the UH go above two percent, right, And of course there's always a statement, and there's always a comparison of

this statement and the previous statement. Will this statement have a whole new template to it? I mean it's very unlikely, but there are likely to be different phrases, different you know, wording about the mondays, you know, and what the Fed will do. As you say, yeah, we now have Danielle. Danielle de Martino Booth. She's back with us. Danielle, thanks so much for joining us here again. The FED today two o'clock with the statement to thirty press Conference, Virtual

Zoom Conference. I guess what are you expecting? So um And in terms of the verbiage, we're gonna look for Chair Powell to to to kind of solidify what he said on August twenty seven and Jackson Hole, and that is we're gonna be seeing the deletion of the words symmetric, and we're going to see the replacement with the word average. And that's going to nod to the fact that it's

comfortable going forward. At least it's the narrative that they have with inflation running harder for for a period of time, as opposed to bouncing about that two target just a tenth up up or down around it. Again, they're gonna look at us being an average over time such that they can say, you know what if it's three for a while, We're okay with that. So, Danielle, will the statement change radically? Will Will there be a whole new template for FED statements going forward? You know, I'm not

so sure about a whole new template. I wouldn't look to any major language changes. We have to bear in mind that this is the last F one C meeting before the election. I think Chapel wants to try and

stay away from being too terribly political. That being said, we do get the summary of economic projections today, we do get the dot plot, So there's a lot more richness in the information that we're going to be getting from the Fed in terms of where it sees the unemployment rate headed looking out all the way to three. I think the bond market is anticipating that they see these extra additive data sets coming from the Fed to validate their their view that we're not going to see

interest rates rise for four years. Danielle, what kind of language do you expect to here today, if any, about the Fed, you know, prompting for more fiscal stigmas out

of Washington. Well, you know, I think that if you look at the other facilities that have been created, whether it's the commercial paper facility or the main street lending program, there's been some great Bloomberg reporting on that this week, the take up has been anemic at best, and the Fed is trying to communicate that what they really can do,

the tool that the most effective is quantitative easing. So in order for them to deploy this tool, a sure would help if if we could get a couple of trillion dollars in stimulus pass, and I think that Cheer Powell is going to as discreetly as possible convey his continued plead to Congress to get back into negotiations and pass that next round of stimulus legislation so that the Fed can effectively monetize it. Danielle, when do we see inflation?

And will we get any kind of a suggestion from the third today that that they have an idea of when that might be. You know, we've been tracking at Quill Intelligence. We've been tracking rental inflation, which is of course housing inflation, the largest input to CPI. That's decreased from a three point four percent year over your rate to a two point eight percent you over your rate as we're seeing rents decline and evictions can increase despite

the CDC theoretically covering rents. So I think the bigger issue that's going to be talked about behind closed doors is the risk that we have disinflationary pressures building in the marketplace as we see this continued, persistent nearly thirty million Americans collecting unemployment. So again we have to bear in mind since January two thousand twelve on BERNANKEI first imposed the two percent targets that that has only hit that in eleven months. That's quite a quite a long

time without everything that two percent. So I think that that is trying to talk up the inflation narrative, but I think they're greater concerns is disinflation at this juncture. Danielle, about thirty seconds left, How concerned are you about this? You mentioned unemployment becoming, you know, a permanent sense of unemployment for a larger number of people than maybe we initially thought. Well, I think that that is what the August payrolls report dictated to us. We had a twelve

point four percent increase. We haven't seen anything like that since the since the Great Recession. So the permanence is definitely sitting in. The longevity of people staying on unemployment, even though they're technically classified as temporary, has also increased. So these are things that chirpoell have to know and they have to be discussing. All right, Danielle, thank you. That is Danielle di Martino Booth, Bloomberg opinion columnist, and

of course Danielle is of Quill Intelligence as well. We'll hear from Danielle post thefo OC meeting as well. Don't forget that you can listen live to the news conference at two thirty eastern pol And of course we will be doing that. Yeah, absolutely, we'll have that covered here. And is daniel suggesting looking for just some subtle changes

in language. It'll be also interesting to see, uh, you know, to what extent uh the chairman will you know, kind of make some comments about fiscal stimulus, the need for another round of fiscal stimulus. It seems like our good friends in Washington have kind of stalled here in getting that next round of fiscal you know, it's funny with with Nancy Pelosi saying that they will leave in Hill there is another round of stimulus and yet no talks inside.

Yet no talks inside. Absolutely, So again that will be closely to watch. Thanks for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio