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P&L: Trump Can't Micromanage a Manufacturing Revival · Bloomberg Intelligence

• 0:04
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim
• 0:07
  Speaker 1: Fox along with my co host Lisa Abramowitz. Each day
• 0:11
  Speaker 1: we bring you the most important, noteworthy, and useful interviews
• 0:14
  Speaker 1: for you and your money, whether at the grocery store
• 0:16
  Speaker 1: or the trading floor. Find the Bloomberg P L Podcast
• 0:20
  Speaker 1: on iTunes, SoundCloud and at Bloomberg dot com. I want
• 0:28
  Speaker 1: to bring in my colleague Brook Sutherland, a Bloomberg Gadfly
• 0:32
  Speaker 1: columnist who wrote a piece that was really terrific yesterday
• 0:36
  Speaker 1: about President elect Donald trumps celebration of a decision that
• 0:41
  Speaker 1: he says he reached with Carrier UH to keep with
• 0:46
  Speaker 1: Carriers Heating and air Conditioning unit to save about one
• 0:49
  Speaker 1: thousand Indiana jobs. Brooke, thank you so much for being
• 0:52
  Speaker 1: with us. So can you just talk first a little
• 0:55
  Speaker 1: bit about what this agreement was and what this really
• 0:58
  Speaker 1: does with respect to saving jobs in the US. Sure,
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  Speaker 1: you know, I think we're still waiting for all of
• 1:04
  Speaker 1: the details. But United Technologies announced the decision earlier this
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  Speaker 1: year to shut down to Indiana plants actually and move
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  Speaker 1: the jobs to Mexico. So the agreement that Trump is
• 1:15
  Speaker 1: talking about has to do with the facility in Indianapolis,
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  Speaker 1: um and they are planning on saving about a thousand
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  Speaker 1: jobs there. We don't know yet what's going to happen
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  Speaker 1: to the other Indiana factory, which was in Huntington's uh So,
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  Speaker 1: you know, at best, this is sort of a stop gap,
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  Speaker 1: half measure that maybe save some jobs, but not all
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  Speaker 1: of them. And it's just not really clear if it
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  Speaker 1: does much more beyond that. Um So, just real quick,
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  Speaker 1: what what exactly what kinds of jobs are we talking
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  Speaker 1: about that? Uh? United Technology was going to move to
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  Speaker 1: Mexico and you know, how long will they actually stay here?
• 1:52
  Speaker 1: Why were they thinking of moving to Mexico? Sure? You know,
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  Speaker 1: so these are manufacturing jobs that typically play pay pretty all.
• 2:00
  Speaker 1: I mean, you're talking about about twenty five dollars an hour,
• 2:02
  Speaker 1: which is a lot more than somebody can make working
• 2:05
  Speaker 1: in the service industry. But you can have those same
• 2:08
  Speaker 1: jobs done in Mexico for a lot less, and so
• 2:11
  Speaker 1: that's part of the appeal. The other part is that,
• 2:13
  Speaker 1: you know, there have been significant regulations in the air
• 2:16
  Speaker 1: conditioning and h VAC industry in terms of making the
• 2:19
  Speaker 1: products more efficient, living up to sort of environmental standards,
• 2:23
  Speaker 1: and those have a cost, and so to be competitive.
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  Speaker 1: What United Technologies has said is they need to lower
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  Speaker 1: labor costs, and a lot of its competitors have already
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  Speaker 1: made these moves to Mexico. And so that's really where
• 2:34
  Speaker 1: it's coming from, not you know, we don't want to
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  Speaker 1: support America. Is it also the case that while these
• 2:40
  Speaker 1: jobs may be saved, other factory jobs in Indiana in
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  Speaker 1: the geographical location where this United Technologies carrier plant is located,
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  Speaker 1: those layoffs and those moves to Mexico they're continuing exactly.
• 2:54
  Speaker 1: I mean, it's not even that all of the United
• 2:56
  Speaker 1: Technologies jobs are going to be saved, they're only saving
• 2:59
  Speaker 1: some of them. So but there are you know, other
• 3:02
  Speaker 1: manufacturers who have had to make these same decisions. And
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  Speaker 1: I don't think that manufacturers like making these decisions, but
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  Speaker 1: a lot of times it's just sort of the reality
• 3:09
  Speaker 1: of the economic situation they find themselves in. And to
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  Speaker 1: your point, Rex Nerd, which is another industrial manufacturer, is
• 3:15
  Speaker 1: also in Indiana, not too far from where the United
• 3:18
  Speaker 1: Technologies plant is actually, and they are looking at shutting
• 3:21
  Speaker 1: down that facility and moving those jobs to Mexico. And
• 3:24
  Speaker 1: we haven't really heard as much about rex Nerd, and
• 3:26
  Speaker 1: I have to wonder if that's because there's no viral
• 3:29
  Speaker 1: video about the rex nerd layoffs the way that there
• 3:31
  Speaker 1: was with Carrier. It hasn't gotten as much public attention,
• 3:34
  Speaker 1: It hasn't drawn as much pushback, it hasn't really been
• 3:37
  Speaker 1: talked about about by President Trump. Um So I just
• 3:42
  Speaker 1: sort of wonder if we're going to see anything there,
• 3:44
  Speaker 1: if he's just sort of picking and choosing the ones
• 3:46
  Speaker 1: that might bring good publicity. I love the lead Donald
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  Speaker 1: Trump can't micromanage his way to a man manufacturing revival
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  Speaker 1: in America. Perhaps he can't micromanage his way to a
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  Speaker 1: manufacturing revival. But is there something on a policy level
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  Speaker 1: that he could do to keep manufacturing jobs in the
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  Speaker 1: US or these jobs just going away because of automation. Well,
• 4:08
  Speaker 1: I think that's sort of a tough question. You know,
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  Speaker 1: he's talked about leveling hefty tariffs at these companies that
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  Speaker 1: manufacture products in Mexico and then bring them back to
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  Speaker 1: the US. He's talked about doing this on an individual basis,
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  Speaker 1: which I think would be very hard to implement without
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  Speaker 1: looking like you're picking and choosing who wins in this country.
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  Speaker 1: And you know which businesses do well and if they
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  Speaker 1: don't do exactly what you tell them to do, you're
• 4:29
  Speaker 1: going to punish them. That's a very dangerous precedent to set.
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  Speaker 1: I don't know if you want to have a mass
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  Speaker 1: tariff because that could spark trade war. So I don't
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  Speaker 1: really know what you do on a national scale to
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  Speaker 1: stop this from happening. And even if you put those
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  Speaker 1: types of policies in place, you're not going to change
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  Speaker 1: sort of the broader trends that are driving this momentum.
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  Speaker 1: A lot of it is technology. You know, these jobs
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  Speaker 1: are being replaced by machines because they don't need people
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  Speaker 1: to do them, or there's excess manufacturing capacity because these
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  Speaker 1: companies have merged, or their products just aren't into and anymore.
• 5:00
  Speaker 1: If you're Caterpillar or Joy Global. People just aren't buying
• 5:03
  Speaker 1: mining equipment right now because commodity prices have eroded so much.
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  Speaker 1: I just want to note that another new store. You
• 5:09
  Speaker 1: mentioned technology, but something called the Internet Archive. They preserve
• 5:13
  Speaker 1: the digital records of billions of web pages, indeed, even
• 5:16
  Speaker 1: cash pages of websites that no longer exist. They are
• 5:20
  Speaker 1: moving their backup data to Canada because they fear potential
• 5:23
  Speaker 1: changes in legislation due to a Trump administration could maybe
• 5:27
  Speaker 1: put the archives at at risk. All different a lot
• 5:29
  Speaker 1: of moving pieces there is, and you know, I think
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  Speaker 1: that's what makes it hard to tackle these sort of
• 5:35
  Speaker 1: job decisions on a national level. And that's one of
• 5:37
  Speaker 1: the points I was trying to make is that typically
• 5:39
  Speaker 1: this is a conversation that happens on the state level,
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  Speaker 1: where you have state governors or legislators talking to companies
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  Speaker 1: about specific facilities within their state and what they can
• 5:48
  Speaker 1: do to preserve jobs. But it's hard to translate that
• 5:50
  Speaker 1: on the national level. I want to bring in Eric Marshall,
• 6:04
  Speaker 1: portfolio manager with Hodges Funds, to talk a little bit
• 6:08
  Speaker 1: about what to look for in small cap stocks. And
• 6:12
  Speaker 1: we've just seen an amazing run in the Russell two
• 6:15
  Speaker 1: thousand and other small small cap indexes, the Russell two
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  Speaker 1: thousand gaining almost eleven percent since the US election. Thank
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  Speaker 1: you for being with us, Eric. Do you think that
• 6:25
  Speaker 1: this can continue? We think that there's a good case
• 6:29
  Speaker 1: that we'll see the bull market and small caps continue,
• 6:32
  Speaker 1: and there's a couple of things that make us encouraged
• 6:34
  Speaker 1: in this space. You know, it's been a very bifurcated
• 6:37
  Speaker 1: market within small caps. This year where a lot of
• 6:40
  Speaker 1: the things having to do with reads and utilities and
• 6:44
  Speaker 1: a lot of the defensive areas have really carried very
• 6:47
  Speaker 1: high multiples, while a lot of areas within consumer discretionary
• 6:52
  Speaker 1: industrials have not. And you know, as we look at
• 6:56
  Speaker 1: the prospects for higher interest rates, lower taxes, US regulation
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  Speaker 1: and it continued pick up in merger and acquisition activity,
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  Speaker 1: we think you could still see room to run in
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  Speaker 1: this bull market for small cap stocks. All right, can
• 7:11
  Speaker 1: you give us some specific industry groups or even names?
• 7:15
  Speaker 1: I know, for example, we're looking at a potential infrastructure
• 7:18
  Speaker 1: spending plan coming from President elect Donald Trump administration. Is
• 7:23
  Speaker 1: that going to help small cap stocks? Yeah, And that's
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  Speaker 1: one of the areas in the Hodges Small Cap Fund
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  Speaker 1: that we've really been focused on is companies that can
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  Speaker 1: benefit from that infrastructure spend and it leads us to
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  Speaker 1: own a lot of the materials, uh, including concrete and
• 7:39
  Speaker 1: cement companies. One that we like is a relatively new
• 7:43
  Speaker 1: I p o Ra and this is a company that
• 7:47
  Speaker 1: makes large diameter concrete pipes and so forth that are
• 7:51
  Speaker 1: used for water infrastructure, which is UH, there's a huge
• 7:55
  Speaker 1: upgrade cycle going on. The stock trades at a very
• 7:58
  Speaker 1: reasonable valuation and very much still underneath the radar. They
• 8:02
  Speaker 1: went public a couple of months ago, and uh, not
• 8:05
  Speaker 1: exactly a great time for small cap I p o s,
• 8:08
  Speaker 1: but we like things like that. We're seeing opportunities in
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  Speaker 1: some of the steel companies and a lot of these
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  Speaker 1: material companies that will benefit from a multi year spending
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  Speaker 1: cycle for infrastructure. Just tell us the name of the company. Again,
• 8:22
  Speaker 1: people may not have heard, uh, Fonterra Fontera indeed. And
• 8:26
  Speaker 1: did you buy it at the IP or did you
• 8:27
  Speaker 1: wait for it to come out? We bought some of
• 8:30
  Speaker 1: the I p O and it broke that I p
• 8:31
  Speaker 1: O price and actually traded off and we've added to
• 8:34
  Speaker 1: it since. Um, you have a fund, the Pure Contrarian Fund.
• 8:40
  Speaker 1: What's your most contrarian bet within that fund? Um Our
• 8:45
  Speaker 1: founder of our firm, Craig Hodges, manages that fund, and
• 8:48
  Speaker 1: I would say one of the pure contrarian funds. UH
• 8:52
  Speaker 1: biggest moves was in some of the steel and iron
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  Speaker 1: ore companies which were kind of left for dead, probably
• 9:00
  Speaker 1: doably a year or two ago, and we found some
• 9:04
  Speaker 1: very deep value opportunities and several companies there that have
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  Speaker 1: done very well so you know, when US Steel got
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  Speaker 1: down to eight dollars of share, that fund took a
• 9:14
  Speaker 1: large position in that stock, as well as things like
• 9:17
  Speaker 1: Cleveland Cliffs and some of the those more commodity type
• 9:21
  Speaker 1: companies that people had really just kind of thrown away
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  Speaker 1: with the bathwater. Do you think that, given the rally
• 9:27
  Speaker 1: that we've seen recently, that there's still more room to
• 9:29
  Speaker 1: run with the steel and metals companies. I think that
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  Speaker 1: there is. When you look at overall consumption of steel
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  Speaker 1: in in the United States, Uh, it's relicatively good. The
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  Speaker 1: capacity utilization of a lot of domestic steel companies has
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  Speaker 1: been running in the sixty six percent area now for
• 9:50
  Speaker 1: the past couple of years because of so much cheap
• 9:54
  Speaker 1: imports of steel coming out of Southeast Asia and Turkey,
• 9:58
  Speaker 1: places like this. And I think as you see some
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  Speaker 1: of the trade regulations tighten up a little bit, if
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  Speaker 1: you mean tariffs, I mean, because that's what's not the
• 10:08
  Speaker 1: steel industry, right. I mean, they put sanctions on imported steel,
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  Speaker 1: making it more expensive and or more competitive with US
• 10:16
  Speaker 1: produced products. And you've seen US steel new core all
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  Speaker 1: move higher, absolutely and PIM A lot of people don't
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  Speaker 1: realize we don't have enough steel capacity in our country.
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  Speaker 1: We need to import of our steel just to meet
• 10:28
  Speaker 1: our needs. The problem is we've been importing thirty percent
• 10:32
  Speaker 1: or thirty five percent of that steel and that's really
• 10:35
  Speaker 1: caused pricing not to recover while demand has recovered for
• 10:40
  Speaker 1: things like auto and infrastructure and construction. Let me just
• 10:43
  Speaker 1: turn your attention Hodges small cap fund. Right, you're up
• 10:45
  Speaker 1: more than thirteen and a half percent so far this year.
• 10:49
  Speaker 1: Good on't you? U? J C. Penny is in the
• 10:52
  Speaker 1: portfolio small cap? How does that end up being? What's
• 10:56
  Speaker 1: your definition of small cap? It seems to change no
• 10:58
  Speaker 1: matter you know who portfolio manager. Well, believe it or not.
• 11:01
  Speaker 1: J C. Penny's is down to about a three billion
• 11:04
  Speaker 1: dollar market cap, and when we bought the stock, I
• 11:07
  Speaker 1: think it was about two and a half billion dollar
• 11:08
  Speaker 1: market cap, so well within the definition of the Russell
• 11:12
  Speaker 1: two thousand market cap range. But it's really a turnaround
• 11:15
  Speaker 1: situation where we see, uh, some good underlying assets in
• 11:21
  Speaker 1: the former real estate and so forth, and we think
• 11:23
  Speaker 1: that the management's new plan to kind of reinvent the
• 11:26
  Speaker 1: business through the house wares and Sephora brand, some of
• 11:30
  Speaker 1: these new things that they're doing and kind of cater
• 11:32
  Speaker 1: to a younger generation as well as gain back some
• 11:35
  Speaker 1: of those core customers. We think that there's a very
• 11:38
  Speaker 1: good risk award there. What's your concern about the rise
• 11:43
  Speaker 1: in benchmark borrowing costs and how that could affect some
• 11:46
  Speaker 1: of these smaller companies which are going to need to
• 11:50
  Speaker 1: borrow and might not be able to borrow at higher rates. Well,
• 11:55
  Speaker 1: I think if you look at um, you know, corporate
• 11:58
  Speaker 1: balance sheets in general roll uh, they're in really relatively
• 12:02
  Speaker 1: good good shape right now. And I do think that
• 12:06
  Speaker 1: you definitely need to be more aware in a higher
• 12:10
  Speaker 1: interest rate environment about the uh, you know, interest burden
• 12:15
  Speaker 1: that smaller companies have with their balance sheets as the
• 12:18
  Speaker 1: cost of capital goes up. But I think, you know,
• 12:22
  Speaker 1: everybody's had a very long period of time of low
• 12:26
  Speaker 1: interest rates to refinance get their balance sheets in order.
• 12:30
  Speaker 1: And I think that the in general, um, you know,
• 12:35
  Speaker 1: that a lot of the concerns there could be offset
• 12:39
  Speaker 1: by you know, a lower lower tax corporate tax rate. Transports,
• 12:44
  Speaker 1: I noticed you got a Jet Blue holding in there.
• 12:46
  Speaker 1: I mean Warren Buffett recently going in and buying shares
• 12:50
  Speaker 1: of airline companies Delta United, you know, and that that's
• 12:56
  Speaker 1: another one. You missed our Kntrian fund earlier. That's one
• 12:59
  Speaker 1: of the big bets we made a couple of years ago,
• 13:01
  Speaker 1: and no one liked airlines. We were buying airlines, and
• 13:04
  Speaker 1: we what we see going on in the airline industry
• 13:07
  Speaker 1: is not that much different than what happened in the
• 13:10
  Speaker 1: railroad industry ten years ago, where they had kind of
• 13:13
  Speaker 1: come out of a decade's worth of consolidation and you
• 13:17
  Speaker 1: started to see an environment where now I think the
• 13:20
  Speaker 1: top four airlines control about seventy of the domestic capacity,
• 13:25
  Speaker 1: so you're getting a more rational pricing environment. People are
• 13:29
  Speaker 1: being more careful about how they add capacity, how they
• 13:32
  Speaker 1: manage that, and we think that we're in an environment
• 13:36
  Speaker 1: now where airlines, for the first time in about thirty years,
• 13:39
  Speaker 1: will actually generate respectable shareholder returns. So I want to
• 13:43
  Speaker 1: thank you there. Eric Marshall, portfolio manager Hodges Funds. Two
• 13:59
  Speaker 1: asset classes want to focus on right now our private
• 14:01
  Speaker 1: equity and venture capital, and joining us is Greg Stento.
• 14:05
  Speaker 1: He is managing director at Harbor Vest Are based in Boston,
• 14:09
  Speaker 1: home to Bloomberg. Greg, thanks very much for being here much.
• 14:12
  Speaker 1: I appreciate it. Let me just give you a headline
• 14:14
  Speaker 1: though that Brent crude is rising to the highest this
• 14:17
  Speaker 1: year after the agreement in Vienna by OPEC to hold
• 14:21
  Speaker 1: production levels flat. And one if you could speak a
• 14:24
  Speaker 1: little bit about increases in the price of almost everything,
• 14:28
  Speaker 1: including money, and what would that do to private equity
• 14:31
  Speaker 1: and venture capital markets. Sure well. Harbor Vest is a
• 14:35
  Speaker 1: global private equity asset manager focused on providing solutions to
• 14:40
  Speaker 1: investors around the globe seeking to access the private markets.
• 14:45
  Speaker 1: Solutions being money like a lot of mezzanine financing, solutions
• 14:49
  Speaker 1: being uh, ways in which investors can access the asset class,
• 14:53
  Speaker 1: whether that be through a co mingle fund, through a
• 14:57
  Speaker 1: dedicated account, or through some type of a specialized vehicle. Uh.
• 15:01
  Speaker 1: And so that those are ways in which investors are
• 15:03
  Speaker 1: coming into the asset class. You know, with regards to
• 15:06
  Speaker 1: the pricing environment that you speak about, uh, you know,
• 15:11
  Speaker 1: we're focused on long term investing and so uh, no question,
• 15:14
  Speaker 1: the valuations over the past year have been pretty full
• 15:17
  Speaker 1: around the board, but you know, in all parts of
• 15:19
  Speaker 1: the business, uh, And so investors have got to work
• 15:23
  Speaker 1: hard to find those special opportunities where there's growth, where
• 15:26
  Speaker 1: there's very strong secular long term trends to be able
• 15:29
  Speaker 1: to overcome the full prices that that folks have had
• 15:32
  Speaker 1: to pay here in the short term. But again, this
• 15:33
  Speaker 1: is all about long term investing, uh, And that's what
• 15:36
  Speaker 1: you know, brings it back to our firms that we've
• 15:39
  Speaker 1: been doing this for thirty five years and have the
• 15:42
  Speaker 1: access to those types of opportunities where we can see
• 15:45
  Speaker 1: long term value and long term creation of growth. You know, Greg,
• 15:48
  Speaker 1: there's been a lot of discussion about how pensions and
• 15:52
  Speaker 1: insurance companies have moved away from hedge funds um just
• 15:56
  Speaker 1: because of how high the fees are. I'm one ring
• 16:00
  Speaker 1: whether that holds in the private equity world as well.
• 16:02
  Speaker 1: I saw a story in the Boston Globe last night
• 16:05
  Speaker 1: about the Massachusetts State pension fund paying one point five
• 16:08
  Speaker 1: billion dollars to more than one hundred private equity firms
• 16:10
  Speaker 1: of the past five years, and that that's sort of
• 16:13
  Speaker 1: that's the headline, even though the returns were, uh, we're
• 16:16
  Speaker 1: remarkable eighteen percent annualized from two thousand elements. So no question,
• 16:22
  Speaker 1: there's a focus on fees within the private markets that
• 16:24
  Speaker 1: are being paid. But what we think is that the
• 16:26
  Speaker 1: real focus needs to be on the net returns. As
• 16:28
  Speaker 1: you just talked about. I mean that has been the
• 16:30
  Speaker 1: best performing part of the Massachusetts State portfolio. Um, the
• 16:35
  Speaker 1: returns that you can earn in the private markets have
• 16:39
  Speaker 1: consistently exceeded what you can earn in the private the
• 16:42
  Speaker 1: public equity markets, or other other asset classes over a
• 16:46
  Speaker 1: long period of time. Why can you demystify that for us? Sure?
• 16:50
  Speaker 1: So there's a number of reasons. UM. First of all,
• 16:52
  Speaker 1: when you operate in the private markets, you haven't you
• 16:54
  Speaker 1: operate out of the glare of the public investors, and
• 16:58
  Speaker 1: you have an opportunity to really think long term about
• 17:00
  Speaker 1: building a business and growing a business. You know, in
• 17:03
  Speaker 1: the venture capital space, for instance, UH, there's the creation
• 17:07
  Speaker 1: of new business ideas, you know, something like an uber
• 17:09
  Speaker 1: that never existed ten years ago, that when you have
• 17:13
  Speaker 1: the right entrepreneur um, the right product market fit, in
• 17:17
  Speaker 1: the right risk capital, you can bring that together to
• 17:20
  Speaker 1: create solutions to to meet unmet needs and create very
• 17:23
  Speaker 1: scale businesses. As a company that's been you know, UH
• 17:26
  Speaker 1: quoted in the press is being worth more than sixty
• 17:28
  Speaker 1: billion dollars today, UH and UH I land up. So
• 17:31
  Speaker 1: there are those opportunities to develop um UH solutions for
• 17:36
  Speaker 1: unmet needs, whether they be in technology or in healthcare
• 17:40
  Speaker 1: or other markets. Uh, and finding those right globally diversified
• 17:45
  Speaker 1: ideas or what we what we're focused on at Harper Ust.
• 17:48
  Speaker 1: You've got a lot of investments in Canada. I understand
• 17:51
  Speaker 1: also it's global, right. I wonder if you could just
• 17:53
  Speaker 1: speak a little bit about how the change in the
• 17:55
  Speaker 1: price of energy affects the decision making process for places
• 18:00
  Speaker 1: is like Canada, Because if you've got an overall economy
• 18:02
  Speaker 1: that is driven by commodity prices, what is that? How
• 18:05
  Speaker 1: does that sort of inform your view? Sure? So we
• 18:09
  Speaker 1: have a specialized fund that we put in place in
• 18:11
  Speaker 1: Canada in conjunction with a Kittian government, and I think
• 18:14
  Speaker 1: it was very much to diversify away from what you're discussing.
• 18:18
  Speaker 1: So the idea was to generate new business formation in
• 18:21
  Speaker 1: Canada's focused on the venture capital market. So it's trying
• 18:24
  Speaker 1: to find those Canadian venture capital firms and other other
• 18:28
  Speaker 1: global investment firms investing in Canada that can help drive
• 18:32
  Speaker 1: new business creation and new industries in Canada to to
• 18:35
  Speaker 1: somewhat diversify away from an economy that has written its
• 18:39
  Speaker 1: natural resource base. How has fundraising been so far this
• 18:43
  Speaker 1: year and what do you expect it to be like
• 18:44
  Speaker 1: next year? Well, for Harvarvest, it's been a it's been
• 18:47
  Speaker 1: a record year. For us, We've had a phenomenal year
• 18:49
  Speaker 1: in terms of the reception that we've had from investors
• 18:52
  Speaker 1: seeking UM commingle funds, UH, specialized funds like our Canadian
• 18:58
  Speaker 1: fund or are messing income fund or also looking at
• 19:02
  Speaker 1: you know, dedicated separate accounts that want a very specific
• 19:04
  Speaker 1: and bespoke solution. So for US has been a record year.
• 19:07
  Speaker 1: It's been, it's been, it's been quite good at invest
• 19:09
  Speaker 1: in the history UM Broadly across the industry, fundraising is
• 19:13
  Speaker 1: up mildly over last year. Uh, it's something that we watch,
• 19:17
  Speaker 1: you know, because those imbalances of capital in the market
• 19:20
  Speaker 1: are are of concern in any market, but also in
• 19:24
  Speaker 1: the private markets. Importantly, the reassuring thing has been that
• 19:28
  Speaker 1: there hasn't been a proliferation of the number of new
• 19:32
  Speaker 1: funds and the new managers coming into the business. So
• 19:35
  Speaker 1: while the capital is up slightly year over year, the
• 19:38
  Speaker 1: number of market participants is relatively steady h and so
• 19:42
  Speaker 1: that keeps the competitive dynamic and the competitive balance in place.
• 19:45
  Speaker 1: And again those are the types of things that are
• 19:47
  Speaker 1: investors seek from us to try to make sure that
• 19:50
  Speaker 1: we're finding those opportunities that despite the market environment, we're
• 19:53
  Speaker 1: going to have good, good potential for long term success.
• 19:56
  Speaker 1: We're speaking with Greg Stento, he is managing director at
• 19:58
  Speaker 1: Harbor Vest the topic of an equity and venture capital.
• 20:01
  Speaker 1: I believe it early in November, right, you just closed
• 20:03
  Speaker 1: on a on a fund. I believe this was, what
• 20:07
  Speaker 1: about a four point seven seven billion dollar fund? Tell
• 20:12
  Speaker 1: us a little bit about this. This is a secondaries fund,
• 20:15
  Speaker 1: it is, and that's correct. Secondaries is something that we've
• 20:18
  Speaker 1: been doing since so we celebrated over thirty years of
• 20:21
  Speaker 1: having been active in the market. Just to be clear,
• 20:23
  Speaker 1: secondaries means people who want to sell their stake in
• 20:26
  Speaker 1: a private equity fund can sell it to somebody else
• 20:28
  Speaker 1: through this type of fund. Correct. That's right. It's an
• 20:30
  Speaker 1: ill liquid market and it's it's done through private transactions,
• 20:34
  Speaker 1: whether it be a fund position or a position in companies. UH.
• 20:38
  Speaker 1: And again we've been one of the pioneers in that space,
• 20:39
  Speaker 1: having done it now for more than thirty years, and
• 20:41
  Speaker 1: we closed a close to fund in early November that
• 20:44
  Speaker 1: is focused on that market, dedicated to that market. UH.
• 20:47
  Speaker 1: In particular, I think where we've carved out a niche
• 20:50
  Speaker 1: in the secondary market and is what we call the
• 20:52
  Speaker 1: complex transactions. So um these are doing things that UM
• 20:57
  Speaker 1: again we that are a little bit off the beaten
• 21:00
  Speaker 1: half of the typical commodity like lp UM purchase. So
• 21:05
  Speaker 1: these could be an end of fund life solution where
• 21:07
  Speaker 1: a private equity fund has reached near the end of
• 21:09
  Speaker 1: its life. The general partner still feels as though they've
• 21:13
  Speaker 1: got assets that they like to manage and continue to
• 21:15
  Speaker 1: grow for the next three to five years. But at
• 21:18
  Speaker 1: the same point, their investors are tired and maybe want
• 21:20
  Speaker 1: to some of them want to get out. So we
• 21:21
  Speaker 1: can provide a special vehicle to bridge that solution. Greg Stento,
• 21:25
  Speaker 1: managing director at Harbor Fest, speaking to us about the
• 21:28
  Speaker 1: outlook for private equity and venture capital. This is Bloomberg
• 21:46
  Speaker 1: Americans just loving their trucks. General Motors, Ford and other
• 21:50
  Speaker 1: major automakers beat analysts estimates for US sales y because
• 21:56
  Speaker 1: Americans just can't get enough pickups and SUVs. I want
• 21:59
  Speaker 1: to bringing Kevin Tynan, senior auto analysts for Bloomberg Intelligence,
• 22:04
  Speaker 1: talk a little bit about, uh, just how good these
• 22:07
  Speaker 1: sales numbers really were, and whether they can last. So, Kevin,
• 22:10
  Speaker 1: thanks so much for joining us, Hi Lisa. UM. Yeah,
• 22:14
  Speaker 1: so very good numbers in the sense that UM, you know,
• 22:19
  Speaker 1: consumer buying frenzy, end of the year, Black Friday through
• 22:23
  Speaker 1: the end of the year, clearance sales UM incentives obviously
• 22:27
  Speaker 1: higher and and very aggressive. UM. But I think the
• 22:30
  Speaker 1: concern there is if incentives don't work, which obviously they
• 22:34
  Speaker 1: are UM, and then what happens come January February you
• 22:40
  Speaker 1: have a little bit of a hangover? UM. You know,
• 22:43
  Speaker 1: the automakers are not as aggressive on on the incentive
• 22:46
  Speaker 1: and lease deals because there's no real demand left. UM.
• 22:50
  Speaker 1: So very good here and now today. The question is
• 22:53
  Speaker 1: what happens in If you care about what happens in
• 22:57
  Speaker 1: at this point for now, you'll take this. There's there's
• 23:01
  Speaker 1: talk of an eighteen point three seasonally adjusted rate, which
• 23:03
  Speaker 1: would be the best since UM employee pricing programs of
• 23:07
  Speaker 1: two thousand five h So all all things are coming
• 23:11
  Speaker 1: along here, Hey, Kevin, what about all things coming along
• 23:14
  Speaker 1: in the auto loan business? Yeah, I think there would be. Uh.
• 23:20
  Speaker 1: Delinquencies are rising, yeah, right, supprise right, I mean? And
• 23:26
  Speaker 1: third quarter of subprime auto loan balances became at least
• 23:30
  Speaker 1: ninety days delinquent. That's up from one point six percent
• 23:33
  Speaker 1: in the third quarter of four. And this is this
• 23:36
  Speaker 1: a significant concern? Yeah, these are these are concerns. The
• 23:40
  Speaker 1: length of the the average term getting longer, and the
• 23:44
  Speaker 1: amount uh financed, you know, the loan to asset ratio,
• 23:48
  Speaker 1: all those things are trending probably where where they would
• 23:52
  Speaker 1: cause concern. Um. The other issue is that as long
• 23:55
  Speaker 1: as money is cheap and easy, what you get is
• 24:00
  Speaker 1: that negative equity of those longer loans flowing into new
• 24:04
  Speaker 1: loans and people get more and more upside down, and
• 24:07
  Speaker 1: that's really what crashed in you know that two periods.
• 24:12
  Speaker 1: So what happens is you get consumers are drivers basically
• 24:16
  Speaker 1: having to hold onto those vehicles till the term until
• 24:20
  Speaker 1: there's at least close to some equity because they can't
• 24:22
  Speaker 1: roll that that negative equity anymore. And aren't they longer
• 24:25
  Speaker 1: term loans? Yeah, absolutely right, if not more so, the
• 24:31
  Speaker 1: average is probably a little bit higher. But if you
• 24:32
  Speaker 1: get people taken seventy two months loans, you don't have
• 24:35
  Speaker 1: equity in that vehicle. Um, which is okay if there
• 24:38
  Speaker 1: if if the finance company is gonna let you roll
• 24:40
  Speaker 1: that negative equity into the next loan. Once they stop that,
• 24:43
  Speaker 1: then that's where the real trouble starts. You know. I
• 24:45
  Speaker 1: do have to think that one thing that a number
• 24:47
  Speaker 1: of analysts have told us is that, UM, the auto
• 24:50
  Speaker 1: companies have captive finance companies, so they can afford to
• 24:55
  Speaker 1: take a little bit of a bigger risk keep extending
• 24:58
  Speaker 1: loans to even sub prime borrowers because they're earning so
• 25:02
  Speaker 1: much from selling the cars. How much does it put
• 25:05
  Speaker 1: the captive financing companies of these auto companies at risk
• 25:10
  Speaker 1: of making too many loans that are too speculative. Well,
• 25:14
  Speaker 1: that's certainly a big risk lease to the Other thing
• 25:17
  Speaker 1: you have to remember is um the leasing part of it,
• 25:20
  Speaker 1: where the automakers rather than if you think about a
• 25:23
  Speaker 1: cash or a finance deal with with cash incentive across
• 25:27
  Speaker 1: the table, you're getting these sort of subsidized residual values
• 25:31
  Speaker 1: that are being propped up. You know. And now those
• 25:33
  Speaker 1: vehicles come back, which we've been leasing at record rates,
• 25:37
  Speaker 1: starting to come down a little bit. UM. But as
• 25:40
  Speaker 1: those off lease vehicles come back in the market, there's
• 25:42
  Speaker 1: gonna be downward pressure on new price uh, new vehicle
• 25:45
  Speaker 1: prices because you're gonna have this flood of low mileage
• 25:48
  Speaker 1: off lease vehicles coming back to the market. It's not
• 25:51
  Speaker 1: an industry that really looks too far into the future
• 25:54
  Speaker 1: to worry about these things. But it's out there and
• 25:56
  Speaker 1: it's coming all right. Just gonna give you ten seconds.
• 25:58
  Speaker 1: The environmental protection age, see leaving in place those CEO
• 26:01
  Speaker 1: two standards. Is that going to hurt the industry? You
• 26:04
  Speaker 1: know what's going to happen PIM in ten seconds, is
• 26:06
  Speaker 1: that they will produce the fuel efficient vehicles. Those will
• 26:09
  Speaker 1: go into fleets, things like Lift Duber. There'll be really
• 26:12
  Speaker 1: aggressive lease deals for those companies. They'll hit their marks
• 26:15
  Speaker 1: and then they'll go ahead and turn around and sell
• 26:16
  Speaker 1: what they want. Thanks for listening to the Bloomberg pen
• 26:24
  Speaker 1: L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud,
• 26:29
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 26:33
  Speaker 1: out there on Twitter at pim Fox. I'm out there
• 26:36
  Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
• 26:39
  Speaker 1: You can always catch us worldwide on Bloomberg Radio.