September 21, 2020 • 36 mins
We get the Businessweek Agenda with Bloomberg Intelligence Chief Equity Strategist Gina Martin Adams and Bloomberg Stocks Editor Dave Wilson. Bloomberg Businessweek Editor Joel Weber and Bloomberg News Managing Diversity Reporter Jeff Green discuss trying to change financial habits in the land of payday lenders. We get Businessweek Economics with Bloomberg New Economy Editorial Director Andy Browne. He breaks down Oracle and Walmart’s deal for TikTok. Browne also shares his insight on why China is winning the trade war with President Trump. Peter Stavros, Co-Head of Americas Private Equity at KKR, talks about giving equity to workers at portfolio company Ingersoll Rand. And we Drive to the Close with Dave Donabedian, CIO of CIBC Private Wealth Management.
Hosts: Carol Massar and Jason Kelly. Producer: Doni Holloway.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is Bloomberg Business Week. I'm Carol Masser and I'm
Jason Kelly. We're right here every day bringing you the
latest news from the world's of business and finance, plus technology, politics, economics,
all harnessing the power of Business Week reporters and editors.
And of course Carol that's part of a team of
twenty seven hundred journalists and analysts the more than a
hundred and twenty countries and Jason. You can download Bloomberg
(00:22):
Business Week on iTunes, SoundCloud, bl Bloomberg dot com. You
can also listen to our radio show at two pm
Eastern on Bloomberg Radio every weekday, or watch us on
YouTube by searching Bloomberg Global News. Let's set the Business
Week agenda, now a lot on it. Gina Martin Adams,
Chief Equity Strategies for Bloomberg Intelligence. She's in New Jersey,
as is Stave Wilson, Stocks Editor, author of the Chart
(00:44):
and Stock of the Day. Gina, I want to start
with you because it's a pretty gloomy picture across all
the major indices. What are you seeing as you and
your team really break it down? What's the big driver here? Yeah?
I think it's have to articulate one driver or another.
The SMP five opened this week testing key levels. We
(01:06):
saw the index crush through its fifty day moving average
as of Friday, so we knew we were in for
some continuation of the corrective process when we woke up
this morning. Irrespective of some of the news, in particular
the news on Financial Spector and maybe some dubious nefarious
behavior among participants being potentially pretty dangerous for that space,
(01:27):
has been the big news of today, and that may
have contributed to a broader a broader sell off than
would have been likely otherwise. But I'd say the technicals
were set up for a rough day to continue today.
Now we may be looking at finally a capitulation point,
which you know, for the first time since the end
of August, we can say the index is nearing over
(01:47):
soul levels. Um, so we want to watch through the
clothes to see how broad the correction is. If we
get to a fourteen day moving average or a fourteen
day rs I back near over souled levels, that could
represent a buying point for capital that's been looking to
get into this market but waiting for an appropriate time
to do so. Dave Wilson come on in on what
(02:08):
you're seeing in the trade today. You know, there are
a couple of things that jump out besides what's going
on with the banks. You know, after this report from
the International Consortium of Investigative Journalists talking about you know,
how they may be handling or not handling suspicious transactions properly. So,
uh that that's a piece of it. Beyond that, I mean,
(02:29):
you look at what's going on with hospitals and with
health insurers. All this so tied up with what happens
to the Affordable Care Act now that the Supreme Court
Justice Ruth Bader Ginsburg has passed, and you know, we
may get a successor before election day, which would mean
we'd have a successor when a week after election day
(02:49):
the High Court here's arguments by the states trying to
get rid of Obamacare. So you know, those stocks are
especially weak in today's trading. And then there's the saga
of Nicola, the electric truck developer, and yeah, the do
you wonder they're sitting at General Motors saying whose the
idea was this? I mean, they're still they're still more
(03:10):
to know and I don't want to, you know, kind
of they aren't doing it at GM. I can assure
you GM shareholders at least some of them are asking
that question. Because while Nichola is down nineteen percent, GM's
off more than five and a half percent. And there's
another company that's already working with Nicholas, c NH Industrial.
Now they're big in two tractors and you know other
types of sort of industrial machines. CNH is down almost
(03:33):
eight percent. So there's definitely a toll being taken that
goes beyond you know, this development stage company. And and
so that's another one that jumps out, especially because Nicola
is the product of, you know, a deal with one
of these special persents, acquisition companies, backs, blank check companies,
calling what you will, real black eye. Absolutely, we've been
(03:54):
talking about those a ton uh Gina Martin Adams before
we let you go the election, Paul Ticks, Is that
starting to weigh on this market in a more meaningful way? Yeah, well, politics,
I think they've already highlighted the Ginsburg passing and what
that may mean for the Supreme Court and the a
c a um sort of battle upcoming. So there certainly
(04:17):
is a portion of politics. I would also say, though
the election is absolutely getting priced into Vic's futures. I mean,
we've seen over the last month VIX futures for November
getting even more expensive than October, which says to me
the market is trying to price for a very uncertain
or highly followtile election season lasting right through the end
of November, which would be very unusual. So I do
(04:39):
you think it's part of this? But obviously there are
a lot of moving parts, and it all started with
the deflation of a mini tech bubble which is now
extending into other issues. Right, all right, well, good, good
context as always, Thank you so much. Gina Martin Adams,
chief equity strategist for Bloomberg Intelligence, along with Dave Wilson,
Stocks editor for Bloomberg, both joining us from New Jersey.
(05:01):
This is Bloomberg Business Week with Carol Masser and Jason
Kelly on Bloomberg Radio. One of the best stories and
one of the best reporters. Candidly, I just love talking
to him, love reading his stuff. Jeff Green, Managing Diversity
reporter for Bloomberg. He joins us on the phone for
Michigan to talk about a story it's in the upcoming
edition of the magazine. It's about Southern Bank Corps. It's
(05:24):
CEO named Darren Williams. He joins me as well as
Joel Webber, the editor of Bloomberg Business Week. So Joel
part of the equality issue, I believe, and this is
a really really important piece of the puzzle when it
comes to undoing a lot of the systemic racism, candidly
going after the wealth gap and the lending gap to
(05:47):
a large extent, that's right. And so Darren Williams um
one of finances only black CEOs, and he's a CEO
of of Southern Bank Corps, which Jeff is gonna tell
about more in a second. What I found so interesting
about this was it's like there's this void um in
the country, uh, in the South in particular, where there
(06:10):
are thousands of underbanked people and that has obviously limited
their ability to not only get capital but also you know,
move up in society. And that's a problem that UM
UH Darren has sort of recognized and that UH Southern
Bank work has moved to solve UM. And Jeff how
(06:32):
I talked to us about how he's going about addressing
this problem. Yeah, Well, it's it's really interesting that you know,
it's the under underbanked about a quarter of the population,
and they're predominantly they tend to skew heavily black UM
and people of color in general, but mostly black UM.
And it's the kind of thing that's somewhat hidden and
(06:53):
it's a little bit intractable attractable because these are people
that banks really can't lend money to, and thus they
in up going to payday lenders, which makes them even
higher credit risk because they have they have so much debt.
So what there in and Southern we're trying to do,
even before the pandemic, was a figure out a way
to sort of bridge this, to bring these people into
the banking system, help them to trust the banks, give
(07:14):
them some sense that what they're doing with the payday lenders,
they're never going to gain sort of the wealth that
you get. You can't get a house, you can't get
a mortgage until you kind of straighten that stuff out.
So like that's his big goal is to put more
people in a position to be able to have a
bank account, gang credit and ultimately have a mortgage and
have something we're wealth as accrued. And it was interesting
(07:35):
because we started doing this a year ago, prior to
the pandemic and the big frustrating thing for him was
it was sort of in the background, and it was like,
you knew this was a problem, you knew it was
sucking the life out of people, but it was really
hard for people to sort of understand just how momentous
it was. And you know, then the pandemic hits, and
you know, front and center are people dying at three
(07:57):
times the rate in black communities, and it's like you
start to say, Wow, this is not just esoteric philosophical discussion.
This is life and death, and the death is really
stunning to a lot of a lot of Americans. Well,
and Jeff, I think then on top of that, in
the aftermath of the killing of George Floyd and and
this reckoning, this long overdue reckoning around all of those
(08:20):
issues that you described, around the wealth gap that's been
brought to the foe by the likes of John Rodgers
over at Ariel and others. And I do wonder, you
know how Darren Williams sees this and sort of to
your point, like this has been hiding in plain sight
for a long time. He's happy for the attention, but
(08:41):
what do we do about What does he say we
should be doing. What is he doing to sort of
help the cause. Well, the solution that both you know,
he sees because he is his bank is called the
Consumer Development Financial Institution, which is sort of a specially
chartered bank that is designed to try and bring money
and you know, loans and financial wherewithal to the poorest
(09:02):
people in the country. Um. It was something actually created
by President Clinton in ninety four and the and Southern
was the model for Hillary. Clinton was on the first
version of the the Southern Board when it was formed, you know,
more than a quarter century ago, so it's like a
long standing pieces. This is not a new struggle. But
his idea is to use the c d fys more effectively.
In fact, Bank of America and Goldman Sachs were on
(09:24):
a call with him and President Trump basically saying we
need to do this, we need to do more of this.
And it led to a big infusion of money to
the c d f ies. And that is sort of
the question is will discontinue. I mean, it was in
a crisis moment, the paycheck Protection Plan was not getting
to the people that needed to because the big banks
didn't have the infrastructure. Meanwhile, here's Darren Williams working on
the weekend with his staff getting you know, wrote fifty
(09:46):
checks when other people hadn't even got an application yet.
So that's sort of his hope is that now people
know the c d I fis are, they're the big
banks have kind of thrown some money their way. Netflix
is involved, Google's involved. Will you get this to contin
new so the focus stays on the c d fys.
More money is available so they can do more loans.
I mean that's the only way it works is they
need basically below market rate money that they can then
(10:10):
lend out to keep this moving. So Jeff, there there's
a thousand of the c d f I s um
out there that are in a position to help UM,
and it's all been modeled on on on basically Williams
and sort of in the model that they've adapted. I'm
also curious what other ideas he has for how we
(10:31):
could be helping UM vulnerable Americans right now. Well, I
mean one of the key things is credit education. They
were doing this. I mean I went with them to
a class in this little town site in uh, you know,
just off a cotton field, just you know, middle of nowhere.
But twenty people. They're learning about credit and how it
works and how interest cruise and debt and all those
(10:53):
sorts of things. Basically just right at the grassroots level,
trying to teach people, um, you know, how to get
their finances in order. And then at the end of that,
they would give them this nine percent loan, which you know,
keep in mind, a payday loan is around, you know
if you don't pay it off right away. So this
nine percent loan at the time UM that they would keep,
(11:15):
they would pay half of it, half of it would
be available for them to pay bills and half to
be held in sort of like a certificate of deposit.
And that was like one of the tools. I mean,
there's lots of things that he's basically saying, you need
to just do the block and tackling UM in the
communities to keep this going. And a lot of the
big banks have pulled out, and he's like, great, you
don't want to deal with it, Give me more money
so that I can deal with this, so I can
get the money to the people that needed, I can
(11:37):
focus on the hardest hit communities UM with more effectiveness,
right right, Well, And it's interesting and I highly recommend
people read this story because there's an aspect of this
and you alluded to this, Jeff, around the payday lenders.
That's a really important piece to understand. The delta in
the interest rates there is massive and game changing in
(11:58):
a lot of ways. It's a terrific piece to reporting.
As always from Jeff Green, Managing Diversity reporter for Bloomberg.
He joined me on the phone from Michigan. Check out
that story in the upcoming issue of Bloomberg Business Week.
Can read it now on the Bloomberg and Bloomberg dot Com.
My thanks as well to Joel Webber, the editor of
Bloomberg Business Week. He joined from Massachusetts. This is Bloomberg
(12:20):
Business Week with GARYL. Masser and Jason Kelly on Bloomberg Radio.
All right, you are listening to Bloomberg Business Week, kicking
off the three pm Wall Street time. Our Let's do
a little business week economics if we can. Andy Brown
is with this, editorial director for Bloomberg New Economy, joining
us on the phone from New Hampshire, picking up where
(12:41):
Doug Chrisner just left off. When it comes to TikTok
Man this deal, and we've talked about it before, Andy
is just headspinning, head scratching, however you want to put it.
It's nothing like we've ever seen before, and it ain't
over when it comes to getting done. What's the most
important thing we need to understand about this because as
(13:05):
I look at it at least, and I think you
may agree, it's kind of a mess. It is a
complete debacle and has been really right from the very beginning.
And stuck in the middle of this U S China
geo political tug of war is a company and investors
(13:26):
that are desperately trying to figure a way out. On
the one hand, they this is TikTok and its parent
bike Dance. On the one hand, they've got the Chinese government,
which essentially looks at what's happening as a politically inspired
smash and grab raid by the Trump administration, and on
the other hand by the Trump administration UM which is
(13:50):
using the TikTok issue and we chat as a chip
or as a bargaining chip in uh in in domestic politics,
essentially beating up on China as a vote getting vote,
vote getting ploy. And so they've been twisting this way
and that way, and it now looks like this deal
(14:11):
that they stitched together, which by the way, gets Trump
almost nothing of what he wanted in the first place
out of it. Um, and even that deal now looks shaky.
It's not at all sure that the Chinese side are
going to sign off on it, or whether Trump himself
is satisfied with it, and so, knowing the intricacies of
(14:32):
the governments and that nexus between the national governments and
the national champions as it were, both of which I
think you can argue you have on either side here.
What went wrong? Was this just sort of too hard,
too fast, or was everybody not on board to begin with?
(14:53):
Like what do you make of it again, especially knowing
some of the nuances of how each side interacts with
the other. Well, it just the whole deal is is unprecedented. Um.
We've never had a company caught up in this way
before with kind of m and a UM being dictated
literally out of the out of the Oval office. Um.
(15:16):
So it's it's incredibly it's incredibly difficult. There are so
many constituencies that need to be satisfied. Um. And in
the end it looks like nobody is gonna be so.
So Trump came into this, he said, look, I've got
three things. Number One, this TikTok has got to be
owned by a US company. Number Two, we have to
make the data secure UM so that doesn't foll into
(15:38):
the hands of the Chinese companist party and they have
all this personal data on on on the US population.
And three we want to have a big chunk of change.
They're going to make a big payment to the U. S. Treasury. Well, actually,
even under this new deal, any percent of the company
after the I p O if it i p O
S is still going to be owned by by byke
Dance UM. The algorithm UM are going to be open
(16:02):
to inspection by Oracle, the trusted technology partner. But it
won't they won't in that sense sort of belong to
any U S entity. Bite does has them and asked
for this five billion dollar payment that Trump talks about. Um.
You know, it turns out that this is kind of
tax that they were going to be paying anyway to
(16:22):
the U. S. Government. And there's some sort of vague,
nebulous promise that they'll come up with a kind of
some kind of patriotic education program, whatever that may mean
for for US kids. UM. So, so he's got he's
got actually very little of what he pushed for. So
if if your concern with national security, this deal doesn't
(16:43):
really do it for you, And so as you widen
the aperture a little bit and think about this from
the context of ongoing tensions, ongoing negotiations around trade and
the broader relationship when the U with between the U
S and China, what does this tell you? You know,
if you're a Chinese company and you're thinking about making
(17:04):
an investment in the US, um you're thinking strategically indeed
about your global position. Or if you're an American company
now and you're thinking about, you know, the China market
and how you should be positioned there. This should really
worry you because because it has been so unpredictable. I mean,
we're in we're in uncharted territory. Um, there are no
(17:27):
there are no real rules, at least under the old system,
the CIFIERS system, this sort of you know, the screening process. Um,
it was somewhat predictable. You knew what you were getting into.
A lot of deals didn't get done because companies thought
to themselves, well, it's not going to get through the
U S screening committee, so we won't bother. This one
just came right out of left field in surprise, surprise everybody.
(17:48):
And so on the other side, if you're a US
tech company, what do you think about this? Well? So,
and actually it's not just tech right now, there's there's uh,
there's a lot of talk about an entities list. So
the Chinese could actually come up with a list of
companies that could be subject to retribution, not necessarily US companies,
(18:11):
So that could include tech companies, but banks, um, trading companies. Um.
You know, China hasn't retaliated so far because it really
needs foreign investment, it needs foreign technology. Um. But but
you know, pushed, pushed far enough, they actually could start
to take action against US companies, international companies in China. Wow.
(18:34):
All right, Andy Brown, thank you so much. Andy Brown,
of course is the editorial director for Bloomberg New Economy.
He has been breaking down this deal trying to make
sense of it alongside the rest of us. I have
to say, Uh, this is something we've watched incredibly closely.
We've had a global team working on it from all angles, corporate, dealmaking, political, international.
(18:57):
It has touched all boxes and cantinues to evolve and
change in this week. Seems like it will be a
big week when it comes to that deal happening or
not happening, And obviously a lot of it just comes
down to the President United States and what he decides
to do when it comes to TikTok our. Thanks to
Andy Brown. This is Bloomberg Business Week with Carol Masser
(19:19):
and Jason Kelly on Bloomberg Radio. Happy to welcome to
this program. Pete Stavros, he's co head of America's for
Private Equity for KKR. Heard of it. It's one of
the best known private equity firms, and it's a firm
that has been talking a lot over the past years
about its various stakeholders, and that includes employees. At a
(19:41):
time when we're more and more concerned about all of
the constituencies involved in a company. Pete, you've got some
news today to share with us about what you're doing
with some of your portfolio companies. First, welcome, tell us
what's going on at Ingersol RAMD. Thanks for having me, Jason.
(20:02):
So today we celebrated a hundred and fifty million dollar
equity award to non members of management. So these are
mostly hourly employees who work in our factories and our
distribution centers and earning ourly hourly wage. This is on
top of a hundred million dollar grant we did at
our I p O in two thousand and seventeen, which
(20:24):
because the stock has performed so well, is now worth
about a hundred and seventy eight million dollars. So you
add both those up, it's more than three hundred million
dollars of equity in the hands of hourly workers, and
so very meaningful financially. And you know, we've got lots
of kind of personal stories we've been able to to
hear firsthand in terms of what it's meant for them,
(20:46):
and then just as importantly in terms of outcomes for
companies and for our investors. You know, we see higher
employee engagement, better returns, better results, and better outcomes for
our investors. Well, and let's talk about the personal side
of this, and I'm going to start with you, because
part of the genesis of this, I think is your
own history and sort of growing up and understanding the
(21:09):
industrial landscape, not just as now an investor, but as
a kid from from your dad. Yeah, that's right. My
my dad was a construction worker. He operated a road
grader for his whole career in Chicago earned an hourly wage,
and you know, I just saw firsthand the lack of
incentive alignment. And if you think about it, if you're
(21:30):
an hourly employee, really all you care about are getting
more hours, so that can be at the expense of efficiency.
If you're too efficient, you may work fewer hours and
earn less money. And there was just constant conflict around hours.
And my dad always dreamt about, you know, shared ownership
or profit sharing at his um construction company with his union,
(21:50):
and you know, unfortunately never happened, but that's certainly really
stuck with me. And then as a graduate student, you know,
years later, this is not still twenty years ago, but
as as a young adult in graduate school, you get
a lot of flexibility to study what interests you. And
I had an opportunity to study broad based ownership for
my second year in business school. And there was a
(22:10):
hot topic in the nineteen seventies around ESOPs had really
kind of cooled and I was interested to learn why
it interest dissipated. Could it still be relevant today, could
it be relevant to private equity? And then when I
joined KKR back in oh five and and was fortunate
enough to step into a leadership position running industrials. That
was when I was able to kind of first put
these ideas into action. And it's fascinating too because this,
(22:34):
and I'm just gonna say it out loud, this cuts
against candidly that the public profile of private equity uh
in many ways that tends to enrich a few and
and not think about the rest in many ways. So
I do wonder what the conversations are like as you
engage companies around this. Are they looking at you like,
(22:55):
I don't know about this? Yeah, we do encounter some
some skepticism, you know, maybe even some cynicism. Some of
our companies we are buying from other private equity firms,
and so we do get a little bit of I've
been around the block. I've seen this before, you know,
and I just don't believe that we're going to share
an ownership and you're gonna do all these things you're
telling us around investing in the facilities and investing in employees.
(23:18):
So there is some uh, you've got some wood to
chop at the outset. We overcome it by bringing in
c e o s from companies that have run businesses
for us before and telling them that this is this
is real, We really mean it. We also do a
lot to make that ownership feel real. So we print
physical stock certificates. Often we will open up Fidelity accounts
(23:39):
for people, even though the stock of their company might
be private and not publicly traded. You know, we we
do as our valuations internally changed for that company, we
flow it through Fidelity and then they see value being
created in their portfolio. So but but I have to say,
even public companies Inger saw Ran, the predecessor company Gardner
Denver when we took it, is a public company. In
(24:02):
six thousand employees, eighty six people had ownership, which is
very typical. One to two of a company typically takes
up all the ownership. And so you know, even in
public companies, we do come up up against the skepticism
you're talking about. And so talk about other elements of this,
because obviously the financial element is super important. But one
(24:23):
of the things that we're increasingly talking about. We talked
about it earlier on today, and it's part of the
Business Week issue this week is not just about shared ownership,
but basically sort of a holistic view of someone's finances
and creating wealth and and I believe you've done some
work with Operation Hope. John Brian Hope, John Hope Briant
(24:43):
excuse me, has been a guest on this program. Uh,
tell me a little bit more about what you're doing there.
You're right, it does have to be broader than just ownership,
because if it's just ownership and you just hand out
the ownership and that's the end of the conversation, that's
just compensation. And if what you're after is a better
employee experience, more engaged employees, and better ultimate performance in
(25:06):
the company, you've you've got to be broader than that.
So even as it relates to ownership, the CEOs who
do this well in our CEO of ingersoll Rand is
exceptionally good at this, Vicentia Reynal. You've got to treat
people like owners So you've got to share the business plan,
share the vision where we headed, how are we going
to get there? How are is everyone going to participate
in the upside, you know, assuming we achieve our plans.
(25:29):
But then beyond ownership, we do things around investing in
the workforce, um improving the work environment, which starts with
the basics like employee safety, but also we've extended to
you know, we've brought in healthier food options to our
manufacturing plants. Right now, we're building an on site medical
clinic at one of our facilities because the employees have
(25:49):
complained about having to drive so far for you know,
basic um medical care you mentioned John Bryant. We work
closely with Operation Hope to do first personal financial training.
I mean, if you're gonna get about ownership and have
people really have a shot at wealth creation, they're going
to have to understand what, you know, get some basic
training on what to do with it um, and that
ranges from debt repayment to understanding the earned income tax
(26:13):
credit to you know, how to invest money, you know,
once they have some wealth. So um. The last part,
by the way, is our companies also, I think do
a nice job of engaging with the community. And this
is all about building pride in the organization, showing employees, hey,
this is about more than just making money. And so
we've we've struck a number of really exciting partnerships with
(26:33):
nonprofits as well. So, Pete, I would be journalistically negligent
if I didn't ask you about the broader private equity world.
You guys at KKR have been exceedingly busy. I think
it's fair to say, putting a lot of money to work,
doing a lot of deals during a time when the
world is, to say the least, topsy turvy. What are
you seeing out there now? Six months into a work
(26:54):
from home environment where the economy remains a little uncertain.
The stock market remains pretty resilient today, notwithstanding what are
you seeing out there? Yeah, we were. We have remained
active both on the investment side and on the distribution side,
returning capital to our investors, and we're proud of having
(27:15):
been able to accomplish both during this this COVID period
of time. In terms of what we're seeing right now,
you know, in the economy itself, it's as you would expect.
There are some things doing well. Um, some aspects of
retail are actually surprisingly doing quite well. Anything around housing,
if you look at the exodus from urban areas to
suburban areas, low interest rates, strong housing prices, anything touching that,
(27:39):
building products, etcetera doing really well. Anything around travel, leisure, aerospace,
people making manufacturing aerospace components. Obviously a much tougher environment
in terms of what we're looking for. We're looking for
either secular trends and themes we really believe in health
and wellness, E commerce, etcetera. Or areas that are really
(28:00):
in the crosshairs of COVID that if you've got a
ten year horizon, you know you're gonna there's a lot
of growth from here. Might not recover all the way back,
but there's a lot of growth from here. So things
like we invested in US Foods, great business that serves
restaurants as a distributor. That's something that with the fullness
of time, is going to come back. And so as
you look at the end of this year and into
(28:22):
twenty one, what's the biggest challenge for you as an investor?
The biggest challenge I would say is just the lack
of visibility. I mean, everything is changing so quickly, and
there's so much going on between you know, you've got
a potential spike and COVID coming, you know this fall,
(28:42):
you've got the election, You've got trade issues with China.
I mean, there's just a little bit. It's coming at
you so fast it can be hard to separate the
signal from the noise. I would say that's the biggest issue,
and investor's got is the amount coming at you is
a little bit, you know, unprecedented and more to come
on this program where equity continues to go uh in
(29:04):
deeper into the organizations you own. Definitely, this is something
we're continuing to expand experiment with, try and constantly improve.
You know, we we understand that this is not a
perfect fit for every sector. You know, if you take
retail as an example, average employee turnovers ad percent a year.
(29:25):
If you walk in and start talking about a five
year business plan, that's not going to be effective. So
so yes, it's this is here to stay for us.
We are going to be expanding it and continue to
experiment with it. But again we're you know, we we
understand that it's not going to be right for every situation. Alright,
Pete stavrog is really good to catch up with you,
cohead of America's Private equity for KKR. A novel solution
(29:47):
to spreading the compensation and the ownership throughout the economy.
My thanks to him. Journal. Yeah, but you let me
do oh no, no, no no, no, home an please, I'll
do the right vel. Ex I want to drive, just
(30:10):
drive the question trying. This is the drive to the
globe Commune. Thanks, we'll drying us down on Bloomberg Radio.
It is time for the Drive to the close with
(30:32):
us as Dave dona Vide and he's chief Investment Officer
of CIBC Private Wealth Management roughly seventy four billion in
assets under management, on the phone from Baltimore. Hey Dave,
nice to have you here with Jason and myself. How
do you explain the selling today? How do you see it? Well,
I'll tell you it brings back bad memories from the
COVID bear market of Februarrian March, not just because of
(30:54):
the market down, but um, you know, we've got about
of the stocks in the S and P five under
it her up and it's the old stay at home stocks.
It's e commerce, it's comfort foods, at home, entertainment, video gaming,
even testing labs. That's about all that's up. And if
you look at what's kind of getting crushed today, it's airlines, casinos,
cruise lines. It's UH again rings very familiar to the
(31:17):
dark days of Feborrian March, and so in some of
that obviously emanates from the UH concerns coming out of
Europe about a resurgence of of COVID nineteen and the
notion that maybe again what hits there first will we'll
we'll come here next. Right, a reminder we're not out
of the woods yet. But having said that, we are
off our loads of the session, our investors still out
(31:38):
there thinking, okay, when there's a pullback, it's an opportunity
for me to get in. I do, I do think
that there there is definitely a significant you know, by
the dip constituency out there, and the support behind that
is liquidity, liquidity, liquidity. Right, there's the usual wall of
worry in the market, what you know, what to worry about,
like COVID and the economy and and so on, um,
(32:01):
but the onslaught of liquidity provided by the Federal Reserve
another central bank is kind of a constant reason to
want to look to buy the dips. And so when
you think about the election, it's forty three days away,
as we keep reminding people today and we'll probably remind
(32:21):
people as it gets to forty two and all the
way down. How much does that figure into your calculus
here and how much pause does it give you in
terms of making any big moves. Dave, Yeah, I think that,
you know, maybe the most important investor trait when you're
considering marrying election implications to the market, maybe humility, simply
(32:44):
because it is so difficult to forecast all the variables correctly.
You know, wh who's going to win the White House,
who's going to control the Senate, what will the immediate
market reaction be, which sectors will will be, you know,
kind of winners and losers. Threading that needle is ext
really difficult, so we tend not to do a lot
of positioning around election results. I will say, though, that
(33:07):
the interplay between this Supreme Court battle and the election,
I think does ramp up the potential volatility here. And
that's because I think that the the fight over this
Supreme Court seat is going to suck all the air
out of Washington for the rest of the year. And
I think it's now very unlikely that we see a
significant fiscal support package. It's just been pushed to the side,
(33:31):
and and that that is in the short term anyways,
somewhat troubling to me, because I think the economy needs
some of that to sustain his momentum through the fourth quarter. Yeah,
I mean, it's interesting. Every economist we talked to it's
not a matter of like, well, maybe you can make
an argument against it. Just about every economist will tell
you something more needs to happen. And I think we
(33:52):
also worry, as you said at the top of the conversation,
about a second wave, and if we see you know,
furloughs or layoffs or slow down in spending, you know
that's only going to become more pressing. Yeah, I think
that's right. There's still an incredible amount of impairment in
the economy. You just look at the number of of
unemployed and a trend towards you know, the percentage of
(34:14):
unemployed essentially being long term unemployed instead of just furloughed.
And um, you know, we have this remarkable situation now
where you know, g d P has been clabored, but
disposable income is still up. That's all because of government support.
Without that, um, you know, we would we would still
be in a in a recession. That was what was
(34:35):
getting worse as opposed to the beginning of a recovery.
So this is a bit of a going to be
a bit of a high wire act for the fourth quarter. Okay, yikes,
So the potential to stay in recession, go back into
recession I don't know what's the scenario. What are you
what are the scenarios that you guys are playing out
at your office. Well, the way I view it is,
(34:56):
we were not in recession anymore. We're we're in recovery.
And we'll see that, you know, kind of verified with
third quarter, big jump in third quarter gdp UM. The
question is when can we get to expansion? You know,
when when? When? How long do we have to go
before we just recover what was lost from COVID nineteen.
I think that is probably you know, sometime late into
(35:18):
one and and if things don't go well, you know,
in the fourth quarter, you know, we're probably looking at
two before we can even think about um an economic expansion.
And that leads me to think that some of the
quick upward revisions that have been having to corporate earnings
maybe maybe ahead of themselves. Well, the Feds already told
us right that they're going to keep rates low, and
of course that can change, but they've said low for
(35:39):
a long time. I mean, it's just kind of more
of what we've had, you know, post financial crisis, but
it just potentially continues for even longer. Yeah, I think
that's right. I mean you can't ask too much more
of the Fed in terms of clarity over not just
the months, but the years. But I think there was
the assumption that there would be some some fiscal support
(35:59):
along away here, and that's what's really come into question now. Well,
it seems like there was that assumption from j. Powell
and his pals, So you know, they've been sort of
saying it, whether it's in his testimony or whether it's
in his statements or his statements to the press and
his colleagues as they've talked to reporters and given speeches, etcetera.
All Right, Dave Donavidian, thank you so much, Chief Investment
(36:21):
Officer for c IBC Private Wealth Management, joining us on
the phone from Baltimore. Thanks so much for listening to
Bloomberg Business Week. Download the podcast on iTunes, South Cloud,
Bloomberg dot com, but wherever you get your podcasts, and
of course you can always listen to our radio show
at two pm Eastern on Bloomberg Radio or watch us
on YouTube by searching Bloomberg Global News.
This is Bloomberg Business Week. I'm Carol Masser and I'm
Jason Kelly. We're right here every day bringing you the
latest news from the world's of business and finance, plus technology, politics, economics,
all harnessing the power of Business Week reporters and editors.
And of course Carol that's part of a team of
twenty seven hundred journalists and analysts the more than a
hundred and twenty countries and Jason. You can download Bloomberg
(00:22):
Business Week on iTunes, SoundCloud, bl Bloomberg dot com. You
can also listen to our radio show at two pm
Eastern on Bloomberg Radio every weekday, or watch us on
YouTube by searching Bloomberg Global News. Let's set the Business
Week agenda, now a lot on it. Gina Martin Adams,
Chief Equity Strategies for Bloomberg Intelligence. She's in New Jersey,
as is Stave Wilson, Stocks Editor, author of the Chart
(00:44):
and Stock of the Day. Gina, I want to start
with you because it's a pretty gloomy picture across all
the major indices. What are you seeing as you and
your team really break it down? What's the big driver here? Yeah?
I think it's have to articulate one driver or another.
The SMP five opened this week testing key levels. We
(01:06):
saw the index crush through its fifty day moving average
as of Friday, so we knew we were in for
some continuation of the corrective process when we woke up
this morning. Irrespective of some of the news, in particular
the news on Financial Spector and maybe some dubious nefarious
behavior among participants being potentially pretty dangerous for that space,
(01:27):
has been the big news of today, and that may
have contributed to a broader a broader sell off than
would have been likely otherwise. But I'd say the technicals
were set up for a rough day to continue today.
Now we may be looking at finally a capitulation point,
which you know, for the first time since the end
of August, we can say the index is nearing over
(01:47):
soul levels. Um, so we want to watch through the
clothes to see how broad the correction is. If we
get to a fourteen day moving average or a fourteen
day rs I back near over souled levels, that could
represent a buying point for capital that's been looking to
get into this market but waiting for an appropriate time
to do so. Dave Wilson come on in on what
(02:08):
you're seeing in the trade today. You know, there are
a couple of things that jump out besides what's going
on with the banks. You know, after this report from
the International Consortium of Investigative Journalists talking about you know,
how they may be handling or not handling suspicious transactions properly. So,
uh that that's a piece of it. Beyond that, I mean,
(02:29):
you look at what's going on with hospitals and with
health insurers. All this so tied up with what happens
to the Affordable Care Act now that the Supreme Court
Justice Ruth Bader Ginsburg has passed, and you know, we
may get a successor before election day, which would mean
we'd have a successor when a week after election day
(02:49):
the High Court here's arguments by the states trying to
get rid of Obamacare. So you know, those stocks are
especially weak in today's trading. And then there's the saga
of Nicola, the electric truck developer, and yeah, the do
you wonder they're sitting at General Motors saying whose the
idea was this? I mean, they're still they're still more
(03:10):
to know and I don't want to, you know, kind
of they aren't doing it at GM. I can assure
you GM shareholders at least some of them are asking
that question. Because while Nichola is down nineteen percent, GM's
off more than five and a half percent. And there's
another company that's already working with Nicholas, c NH Industrial.
Now they're big in two tractors and you know other
types of sort of industrial machines. CNH is down almost
(03:33):
eight percent. So there's definitely a toll being taken that
goes beyond you know, this development stage company. And and
so that's another one that jumps out, especially because Nicola
is the product of, you know, a deal with one
of these special persents, acquisition companies, backs, blank check companies,
calling what you will, real black eye. Absolutely, we've been
(03:54):
talking about those a ton uh Gina Martin Adams before
we let you go the election, Paul Ticks, Is that
starting to weigh on this market in a more meaningful way? Yeah, well, politics,
I think they've already highlighted the Ginsburg passing and what
that may mean for the Supreme Court and the a
c a um sort of battle upcoming. So there certainly
(04:17):
is a portion of politics. I would also say, though
the election is absolutely getting priced into Vic's futures. I mean,
we've seen over the last month VIX futures for November
getting even more expensive than October, which says to me
the market is trying to price for a very uncertain
or highly followtile election season lasting right through the end
of November, which would be very unusual. So I do
(04:39):
you think it's part of this? But obviously there are
a lot of moving parts, and it all started with
the deflation of a mini tech bubble which is now
extending into other issues. Right, all right, well, good, good
context as always, Thank you so much. Gina Martin Adams,
chief equity strategist for Bloomberg Intelligence, along with Dave Wilson,
Stocks editor for Bloomberg, both joining us from New Jersey.
(05:01):
This is Bloomberg Business Week with Carol Masser and Jason
Kelly on Bloomberg Radio. One of the best stories and
one of the best reporters. Candidly, I just love talking
to him, love reading his stuff. Jeff Green, Managing Diversity
reporter for Bloomberg. He joins us on the phone for
Michigan to talk about a story it's in the upcoming
edition of the magazine. It's about Southern Bank Corps. It's
(05:24):
CEO named Darren Williams. He joins me as well as
Joel Webber, the editor of Bloomberg Business Week. So Joel
part of the equality issue, I believe, and this is
a really really important piece of the puzzle when it
comes to undoing a lot of the systemic racism, candidly
going after the wealth gap and the lending gap to
(05:47):
a large extent, that's right. And so Darren Williams um
one of finances only black CEOs, and he's a CEO
of of Southern Bank Corps, which Jeff is gonna tell
about more in a second. What I found so interesting
about this was it's like there's this void um in
the country, uh, in the South in particular, where there
(06:10):
are thousands of underbanked people and that has obviously limited
their ability to not only get capital but also you know,
move up in society. And that's a problem that UM
UH Darren has sort of recognized and that UH Southern
Bank work has moved to solve UM. And Jeff how
(06:32):
I talked to us about how he's going about addressing
this problem. Yeah, Well, it's it's really interesting that you know,
it's the under underbanked about a quarter of the population,
and they're predominantly they tend to skew heavily black UM
and people of color in general, but mostly black UM.
And it's the kind of thing that's somewhat hidden and
(06:53):
it's a little bit intractable attractable because these are people
that banks really can't lend money to, and thus they
in up going to payday lenders, which makes them even
higher credit risk because they have they have so much debt.
So what there in and Southern we're trying to do,
even before the pandemic, was a figure out a way
to sort of bridge this, to bring these people into
the banking system, help them to trust the banks, give
(07:14):
them some sense that what they're doing with the payday lenders,
they're never going to gain sort of the wealth that
you get. You can't get a house, you can't get
a mortgage until you kind of straighten that stuff out.
So like that's his big goal is to put more
people in a position to be able to have a
bank account, gang credit and ultimately have a mortgage and
have something we're wealth as accrued. And it was interesting
(07:35):
because we started doing this a year ago, prior to
the pandemic and the big frustrating thing for him was
it was sort of in the background, and it was like,
you knew this was a problem, you knew it was
sucking the life out of people, but it was really
hard for people to sort of understand just how momentous
it was. And you know, then the pandemic hits, and
you know, front and center are people dying at three
(07:57):
times the rate in black communities, and it's like you
start to say, Wow, this is not just esoteric philosophical discussion.
This is life and death, and the death is really
stunning to a lot of a lot of Americans. Well,
and Jeff, I think then on top of that, in
the aftermath of the killing of George Floyd and and
this reckoning, this long overdue reckoning around all of those
(08:20):
issues that you described, around the wealth gap that's been
brought to the foe by the likes of John Rodgers
over at Ariel and others. And I do wonder, you
know how Darren Williams sees this and sort of to
your point, like this has been hiding in plain sight
for a long time. He's happy for the attention, but
(08:41):
what do we do about What does he say we
should be doing. What is he doing to sort of
help the cause. Well, the solution that both you know,
he sees because he is his bank is called the
Consumer Development Financial Institution, which is sort of a specially
chartered bank that is designed to try and bring money
and you know, loans and financial wherewithal to the poorest
(09:02):
people in the country. Um. It was something actually created
by President Clinton in ninety four and the and Southern
was the model for Hillary. Clinton was on the first
version of the the Southern Board when it was formed, you know,
more than a quarter century ago, so it's like a
long standing pieces. This is not a new struggle. But
his idea is to use the c d fys more effectively.
In fact, Bank of America and Goldman Sachs were on
(09:24):
a call with him and President Trump basically saying we
need to do this, we need to do more of this.
And it led to a big infusion of money to
the c d f ies. And that is sort of
the question is will discontinue. I mean, it was in
a crisis moment, the paycheck Protection Plan was not getting
to the people that needed to because the big banks
didn't have the infrastructure. Meanwhile, here's Darren Williams working on
the weekend with his staff getting you know, wrote fifty
(09:46):
checks when other people hadn't even got an application yet.
So that's sort of his hope is that now people
know the c d I fis are, they're the big
banks have kind of thrown some money their way. Netflix
is involved, Google's involved. Will you get this to contin
new so the focus stays on the c d fys.
More money is available so they can do more loans.
I mean that's the only way it works is they
need basically below market rate money that they can then
(10:10):
lend out to keep this moving. So Jeff, there there's
a thousand of the c d f I s um
out there that are in a position to help UM,
and it's all been modeled on on on basically Williams
and sort of in the model that they've adapted. I'm
also curious what other ideas he has for how we
(10:31):
could be helping UM vulnerable Americans right now. Well, I
mean one of the key things is credit education. They
were doing this. I mean I went with them to
a class in this little town site in uh, you know,
just off a cotton field, just you know, middle of nowhere.
But twenty people. They're learning about credit and how it
works and how interest cruise and debt and all those
(10:53):
sorts of things. Basically just right at the grassroots level,
trying to teach people, um, you know, how to get
their finances in order. And then at the end of that,
they would give them this nine percent loan, which you know,
keep in mind, a payday loan is around, you know
if you don't pay it off right away. So this
nine percent loan at the time UM that they would keep,
(11:15):
they would pay half of it, half of it would
be available for them to pay bills and half to
be held in sort of like a certificate of deposit.
And that was like one of the tools. I mean,
there's lots of things that he's basically saying, you need
to just do the block and tackling UM in the
communities to keep this going. And a lot of the
big banks have pulled out, and he's like, great, you
don't want to deal with it, Give me more money
so that I can deal with this, so I can
get the money to the people that needed, I can
(11:37):
focus on the hardest hit communities UM with more effectiveness,
right right, Well, And it's interesting and I highly recommend
people read this story because there's an aspect of this
and you alluded to this, Jeff, around the payday lenders.
That's a really important piece to understand. The delta in
the interest rates there is massive and game changing in
(11:58):
a lot of ways. It's a terrific piece to reporting.
As always from Jeff Green, Managing Diversity reporter for Bloomberg.
He joined me on the phone from Michigan. Check out
that story in the upcoming issue of Bloomberg Business Week.
Can read it now on the Bloomberg and Bloomberg dot Com.
My thanks as well to Joel Webber, the editor of
Bloomberg Business Week. He joined from Massachusetts. This is Bloomberg
(12:20):
Business Week with GARYL. Masser and Jason Kelly on Bloomberg Radio.
All right, you are listening to Bloomberg Business Week, kicking
off the three pm Wall Street time. Our Let's do
a little business week economics if we can. Andy Brown
is with this, editorial director for Bloomberg New Economy, joining
us on the phone from New Hampshire, picking up where
(12:41):
Doug Chrisner just left off. When it comes to TikTok
Man this deal, and we've talked about it before, Andy
is just headspinning, head scratching, however you want to put it.
It's nothing like we've ever seen before, and it ain't
over when it comes to getting done. What's the most
important thing we need to understand about this because as
(13:05):
I look at it at least, and I think you
may agree, it's kind of a mess. It is a
complete debacle and has been really right from the very beginning.
And stuck in the middle of this U S China
geo political tug of war is a company and investors
(13:26):
that are desperately trying to figure a way out. On
the one hand, they this is TikTok and its parent
bike Dance. On the one hand, they've got the Chinese government,
which essentially looks at what's happening as a politically inspired
smash and grab raid by the Trump administration, and on
the other hand by the Trump administration UM which is
(13:50):
using the TikTok issue and we chat as a chip
or as a bargaining chip in uh in in domestic politics,
essentially beating up on China as a vote getting vote,
vote getting ploy. And so they've been twisting this way
and that way, and it now looks like this deal
(14:11):
that they stitched together, which by the way, gets Trump
almost nothing of what he wanted in the first place
out of it. Um, and even that deal now looks shaky.
It's not at all sure that the Chinese side are
going to sign off on it, or whether Trump himself
is satisfied with it, and so, knowing the intricacies of
(14:32):
the governments and that nexus between the national governments and
the national champions as it were, both of which I
think you can argue you have on either side here.
What went wrong? Was this just sort of too hard,
too fast, or was everybody not on board to begin with?
(14:53):
Like what do you make of it again, especially knowing
some of the nuances of how each side interacts with
the other. Well, it just the whole deal is is unprecedented. Um.
We've never had a company caught up in this way
before with kind of m and a UM being dictated
literally out of the out of the Oval office. Um.
(15:16):
So it's it's incredibly it's incredibly difficult. There are so
many constituencies that need to be satisfied. Um. And in
the end it looks like nobody is gonna be so.
So Trump came into this, he said, look, I've got
three things. Number One, this TikTok has got to be
owned by a US company. Number Two, we have to
make the data secure UM so that doesn't foll into
(15:38):
the hands of the Chinese companist party and they have
all this personal data on on on the US population.
And three we want to have a big chunk of change.
They're going to make a big payment to the U. S. Treasury. Well, actually,
even under this new deal, any percent of the company
after the I p O if it i p O
S is still going to be owned by by byke
Dance UM. The algorithm UM are going to be open
(16:02):
to inspection by Oracle, the trusted technology partner. But it
won't they won't in that sense sort of belong to
any U S entity. Bite does has them and asked
for this five billion dollar payment that Trump talks about. Um.
You know, it turns out that this is kind of
tax that they were going to be paying anyway to
(16:22):
the U. S. Government. And there's some sort of vague,
nebulous promise that they'll come up with a kind of
some kind of patriotic education program, whatever that may mean
for for US kids. UM. So, so he's got he's
got actually very little of what he pushed for. So
if if your concern with national security, this deal doesn't
(16:43):
really do it for you, And so as you widen
the aperture a little bit and think about this from
the context of ongoing tensions, ongoing negotiations around trade and
the broader relationship when the U with between the U
S and China, what does this tell you? You know,
if you're a Chinese company and you're thinking about making
(17:04):
an investment in the US, um you're thinking strategically indeed
about your global position. Or if you're an American company
now and you're thinking about, you know, the China market
and how you should be positioned there. This should really
worry you because because it has been so unpredictable. I mean,
we're in we're in uncharted territory. Um, there are no
(17:27):
there are no real rules, at least under the old system,
the CIFIERS system, this sort of you know, the screening process. Um,
it was somewhat predictable. You knew what you were getting into.
A lot of deals didn't get done because companies thought
to themselves, well, it's not going to get through the
U S screening committee, so we won't bother. This one
just came right out of left field in surprise, surprise everybody.
(17:48):
And so on the other side, if you're a US
tech company, what do you think about this? Well? So,
and actually it's not just tech right now, there's there's uh,
there's a lot of talk about an entities list. So
the Chinese could actually come up with a list of
companies that could be subject to retribution, not necessarily US companies,
(18:11):
So that could include tech companies, but banks, um, trading companies. Um.
You know, China hasn't retaliated so far because it really
needs foreign investment, it needs foreign technology. Um. But but
you know, pushed, pushed far enough, they actually could start
to take action against US companies, international companies in China. Wow.
(18:34):
All right, Andy Brown, thank you so much. Andy Brown,
of course is the editorial director for Bloomberg New Economy.
He has been breaking down this deal trying to make
sense of it alongside the rest of us. I have
to say, Uh, this is something we've watched incredibly closely.
We've had a global team working on it from all angles, corporate, dealmaking, political, international.
(18:57):
It has touched all boxes and cantinues to evolve and
change in this week. Seems like it will be a
big week when it comes to that deal happening or
not happening, And obviously a lot of it just comes
down to the President United States and what he decides
to do when it comes to TikTok our. Thanks to
Andy Brown. This is Bloomberg Business Week with Carol Masser
(19:19):
and Jason Kelly on Bloomberg Radio. Happy to welcome to
this program. Pete Stavros, he's co head of America's for
Private Equity for KKR. Heard of it. It's one of
the best known private equity firms, and it's a firm
that has been talking a lot over the past years
about its various stakeholders, and that includes employees. At a
(19:41):
time when we're more and more concerned about all of
the constituencies involved in a company. Pete, you've got some
news today to share with us about what you're doing
with some of your portfolio companies. First, welcome, tell us
what's going on at Ingersol RAMD. Thanks for having me, Jason.
(20:02):
So today we celebrated a hundred and fifty million dollar
equity award to non members of management. So these are
mostly hourly employees who work in our factories and our
distribution centers and earning ourly hourly wage. This is on
top of a hundred million dollar grant we did at
our I p O in two thousand and seventeen, which
(20:24):
because the stock has performed so well, is now worth
about a hundred and seventy eight million dollars. So you
add both those up, it's more than three hundred million
dollars of equity in the hands of hourly workers, and
so very meaningful financially. And you know, we've got lots
of kind of personal stories we've been able to to
hear firsthand in terms of what it's meant for them,
(20:46):
and then just as importantly in terms of outcomes for
companies and for our investors. You know, we see higher
employee engagement, better returns, better results, and better outcomes for
our investors. Well, and let's talk about the personal side
of this, and I'm going to start with you, because
part of the genesis of this, I think is your
own history and sort of growing up and understanding the
(21:09):
industrial landscape, not just as now an investor, but as
a kid from from your dad. Yeah, that's right. My
my dad was a construction worker. He operated a road
grader for his whole career in Chicago earned an hourly wage,
and you know, I just saw firsthand the lack of
incentive alignment. And if you think about it, if you're
(21:30):
an hourly employee, really all you care about are getting
more hours, so that can be at the expense of efficiency.
If you're too efficient, you may work fewer hours and
earn less money. And there was just constant conflict around hours.
And my dad always dreamt about, you know, shared ownership
or profit sharing at his um construction company with his union,
(21:50):
and you know, unfortunately never happened, but that's certainly really
stuck with me. And then as a graduate student, you know,
years later, this is not still twenty years ago, but
as as a young adult in graduate school, you get
a lot of flexibility to study what interests you. And
I had an opportunity to study broad based ownership for
my second year in business school. And there was a
(22:10):
hot topic in the nineteen seventies around ESOPs had really
kind of cooled and I was interested to learn why
it interest dissipated. Could it still be relevant today, could
it be relevant to private equity? And then when I
joined KKR back in oh five and and was fortunate
enough to step into a leadership position running industrials. That
was when I was able to kind of first put
these ideas into action. And it's fascinating too because this,
(22:34):
and I'm just gonna say it out loud, this cuts
against candidly that the public profile of private equity uh
in many ways that tends to enrich a few and
and not think about the rest in many ways. So
I do wonder what the conversations are like as you
engage companies around this. Are they looking at you like,
(22:55):
I don't know about this? Yeah, we do encounter some
some skepticism, you know, maybe even some cynicism. Some of
our companies we are buying from other private equity firms,
and so we do get a little bit of I've
been around the block. I've seen this before, you know,
and I just don't believe that we're going to share
an ownership and you're gonna do all these things you're
telling us around investing in the facilities and investing in employees.
(23:18):
So there is some uh, you've got some wood to
chop at the outset. We overcome it by bringing in
c e o s from companies that have run businesses
for us before and telling them that this is this
is real, We really mean it. We also do a
lot to make that ownership feel real. So we print
physical stock certificates. Often we will open up Fidelity accounts
(23:39):
for people, even though the stock of their company might
be private and not publicly traded. You know, we we
do as our valuations internally changed for that company, we
flow it through Fidelity and then they see value being
created in their portfolio. So but but I have to say,
even public companies Inger saw Ran, the predecessor company Gardner
Denver when we took it, is a public company. In
(24:02):
six thousand employees, eighty six people had ownership, which is
very typical. One to two of a company typically takes
up all the ownership. And so you know, even in
public companies, we do come up up against the skepticism
you're talking about. And so talk about other elements of this,
because obviously the financial element is super important. But one
(24:23):
of the things that we're increasingly talking about. We talked
about it earlier on today, and it's part of the
Business Week issue this week is not just about shared ownership,
but basically sort of a holistic view of someone's finances
and creating wealth and and I believe you've done some
work with Operation Hope. John Brian Hope, John Hope Briant
(24:43):
excuse me, has been a guest on this program. Uh,
tell me a little bit more about what you're doing there.
You're right, it does have to be broader than just ownership,
because if it's just ownership and you just hand out
the ownership and that's the end of the conversation, that's
just compensation. And if what you're after is a better
employee experience, more engaged employees, and better ultimate performance in
(25:06):
the company, you've you've got to be broader than that.
So even as it relates to ownership, the CEOs who
do this well in our CEO of ingersoll Rand is
exceptionally good at this, Vicentia Reynal. You've got to treat
people like owners So you've got to share the business plan,
share the vision where we headed, how are we going
to get there? How are is everyone going to participate
in the upside, you know, assuming we achieve our plans.
(25:29):
But then beyond ownership, we do things around investing in
the workforce, um improving the work environment, which starts with
the basics like employee safety, but also we've extended to
you know, we've brought in healthier food options to our
manufacturing plants. Right now, we're building an on site medical
clinic at one of our facilities because the employees have
(25:49):
complained about having to drive so far for you know,
basic um medical care you mentioned John Bryant. We work
closely with Operation Hope to do first personal financial training.
I mean, if you're gonna get about ownership and have
people really have a shot at wealth creation, they're going
to have to understand what, you know, get some basic
training on what to do with it um, and that
ranges from debt repayment to understanding the earned income tax
(26:13):
credit to you know, how to invest money, you know,
once they have some wealth. So um. The last part,
by the way, is our companies also, I think do
a nice job of engaging with the community. And this
is all about building pride in the organization, showing employees, hey,
this is about more than just making money. And so
we've we've struck a number of really exciting partnerships with
(26:33):
nonprofits as well. So, Pete, I would be journalistically negligent
if I didn't ask you about the broader private equity world.
You guys at KKR have been exceedingly busy. I think
it's fair to say, putting a lot of money to work,
doing a lot of deals during a time when the
world is, to say the least, topsy turvy. What are
you seeing out there now? Six months into a work
(26:54):
from home environment where the economy remains a little uncertain.
The stock market remains pretty resilient today, notwithstanding what are
you seeing out there? Yeah, we were. We have remained
active both on the investment side and on the distribution side,
returning capital to our investors, and we're proud of having
(27:15):
been able to accomplish both during this this COVID period
of time. In terms of what we're seeing right now,
you know, in the economy itself, it's as you would expect.
There are some things doing well. Um, some aspects of
retail are actually surprisingly doing quite well. Anything around housing,
if you look at the exodus from urban areas to
suburban areas, low interest rates, strong housing prices, anything touching that,
(27:39):
building products, etcetera doing really well. Anything around travel, leisure, aerospace,
people making manufacturing aerospace components. Obviously a much tougher environment
in terms of what we're looking for. We're looking for
either secular trends and themes we really believe in health
and wellness, E commerce, etcetera. Or areas that are really
(28:00):
in the crosshairs of COVID that if you've got a
ten year horizon, you know you're gonna there's a lot
of growth from here. Might not recover all the way back,
but there's a lot of growth from here. So things
like we invested in US Foods, great business that serves
restaurants as a distributor. That's something that with the fullness
of time, is going to come back. And so as
you look at the end of this year and into
(28:22):
twenty one, what's the biggest challenge for you as an investor?
The biggest challenge I would say is just the lack
of visibility. I mean, everything is changing so quickly, and
there's so much going on between you know, you've got
a potential spike and COVID coming, you know this fall,
(28:42):
you've got the election, You've got trade issues with China.
I mean, there's just a little bit. It's coming at
you so fast it can be hard to separate the
signal from the noise. I would say that's the biggest issue,
and investor's got is the amount coming at you is
a little bit, you know, unprecedented and more to come
on this program where equity continues to go uh in
(29:04):
deeper into the organizations you own. Definitely, this is something
we're continuing to expand experiment with, try and constantly improve.
You know, we we understand that this is not a
perfect fit for every sector. You know, if you take
retail as an example, average employee turnovers ad percent a year.
(29:25):
If you walk in and start talking about a five
year business plan, that's not going to be effective. So
so yes, it's this is here to stay for us.
We are going to be expanding it and continue to
experiment with it. But again we're you know, we we
understand that it's not going to be right for every situation. Alright,
Pete stavrog is really good to catch up with you,
cohead of America's Private equity for KKR. A novel solution
(29:47):
to spreading the compensation and the ownership throughout the economy.
My thanks to him. Journal. Yeah, but you let me
do oh no, no, no no, no, home an please, I'll
do the right vel. Ex I want to drive, just
(30:10):
drive the question trying. This is the drive to the
globe Commune. Thanks, we'll drying us down on Bloomberg Radio.
It is time for the Drive to the close with
(30:32):
us as Dave dona Vide and he's chief Investment Officer
of CIBC Private Wealth Management roughly seventy four billion in
assets under management, on the phone from Baltimore. Hey Dave,
nice to have you here with Jason and myself. How
do you explain the selling today? How do you see it? Well,
I'll tell you it brings back bad memories from the
COVID bear market of Februarrian March, not just because of
(30:54):
the market down, but um, you know, we've got about
of the stocks in the S and P five under
it her up and it's the old stay at home stocks.
It's e commerce, it's comfort foods, at home, entertainment, video gaming,
even testing labs. That's about all that's up. And if
you look at what's kind of getting crushed today, it's airlines, casinos,
cruise lines. It's UH again rings very familiar to the
(31:17):
dark days of Feborrian March, and so in some of
that obviously emanates from the UH concerns coming out of
Europe about a resurgence of of COVID nineteen and the
notion that maybe again what hits there first will we'll
we'll come here next. Right, a reminder we're not out
of the woods yet. But having said that, we are
off our loads of the session, our investors still out
(31:38):
there thinking, okay, when there's a pullback, it's an opportunity
for me to get in. I do, I do think
that there there is definitely a significant you know, by
the dip constituency out there, and the support behind that
is liquidity, liquidity, liquidity. Right, there's the usual wall of
worry in the market, what you know, what to worry about,
like COVID and the economy and and so on, um,
(32:01):
but the onslaught of liquidity provided by the Federal Reserve
another central bank is kind of a constant reason to
want to look to buy the dips. And so when
you think about the election, it's forty three days away,
as we keep reminding people today and we'll probably remind
(32:21):
people as it gets to forty two and all the
way down. How much does that figure into your calculus
here and how much pause does it give you in
terms of making any big moves. Dave, Yeah, I think that,
you know, maybe the most important investor trait when you're
considering marrying election implications to the market, maybe humility, simply
(32:44):
because it is so difficult to forecast all the variables correctly.
You know, wh who's going to win the White House,
who's going to control the Senate, what will the immediate
market reaction be, which sectors will will be, you know,
kind of winners and losers. Threading that needle is ext
really difficult, so we tend not to do a lot
of positioning around election results. I will say, though, that
(33:07):
the interplay between this Supreme Court battle and the election,
I think does ramp up the potential volatility here. And
that's because I think that the the fight over this
Supreme Court seat is going to suck all the air
out of Washington for the rest of the year. And
I think it's now very unlikely that we see a
significant fiscal support package. It's just been pushed to the side,
(33:31):
and and that that is in the short term anyways,
somewhat troubling to me, because I think the economy needs
some of that to sustain his momentum through the fourth quarter. Yeah,
I mean, it's interesting. Every economist we talked to it's
not a matter of like, well, maybe you can make
an argument against it. Just about every economist will tell
you something more needs to happen. And I think we
(33:52):
also worry, as you said at the top of the conversation,
about a second wave, and if we see you know,
furloughs or layoffs or slow down in spending, you know
that's only going to become more pressing. Yeah, I think
that's right. There's still an incredible amount of impairment in
the economy. You just look at the number of of
unemployed and a trend towards you know, the percentage of
(34:14):
unemployed essentially being long term unemployed instead of just furloughed.
And um, you know, we have this remarkable situation now
where you know, g d P has been clabored, but
disposable income is still up. That's all because of government support.
Without that, um, you know, we would we would still
be in a in a recession. That was what was
(34:35):
getting worse as opposed to the beginning of a recovery.
So this is a bit of a going to be
a bit of a high wire act for the fourth quarter. Okay, yikes,
So the potential to stay in recession, go back into
recession I don't know what's the scenario. What are you
what are the scenarios that you guys are playing out
at your office. Well, the way I view it is,
(34:56):
we were not in recession anymore. We're we're in recovery.
And we'll see that, you know, kind of verified with
third quarter, big jump in third quarter gdp UM. The
question is when can we get to expansion? You know,
when when? When? How long do we have to go
before we just recover what was lost from COVID nineteen.
I think that is probably you know, sometime late into
(35:18):
one and and if things don't go well, you know,
in the fourth quarter, you know, we're probably looking at
two before we can even think about um an economic expansion.
And that leads me to think that some of the
quick upward revisions that have been having to corporate earnings
maybe maybe ahead of themselves. Well, the Feds already told
us right that they're going to keep rates low, and
of course that can change, but they've said low for
(35:39):
a long time. I mean, it's just kind of more
of what we've had, you know, post financial crisis, but
it just potentially continues for even longer. Yeah, I think
that's right. I mean you can't ask too much more
of the Fed in terms of clarity over not just
the months, but the years. But I think there was
the assumption that there would be some some fiscal support
(35:59):
along away here, and that's what's really come into question now. Well,
it seems like there was that assumption from j. Powell
and his pals, So you know, they've been sort of
saying it, whether it's in his testimony or whether it's
in his statements or his statements to the press and
his colleagues as they've talked to reporters and given speeches, etcetera.
All Right, Dave Donavidian, thank you so much, Chief Investment
(36:21):
Officer for c IBC Private Wealth Management, joining us on
the phone from Baltimore. Thanks so much for listening to
Bloomberg Business Week. Download the podcast on iTunes, South Cloud,
Bloomberg dot com, but wherever you get your podcasts, and
of course you can always listen to our radio show
at two pm Eastern on Bloomberg Radio or watch us
on YouTube by searching Bloomberg Global News.
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
The Nikki Glaser Podcast
Every week comedian and infamous roaster Nikki Glaser provides a fun, fast-paced, and brutally honest look into current pop-culture and her own personal life.