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Sarah-Marie Martin Discusses Trends in Private Equity Capital Structure and Financial Sponsors - YouTube
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hi this is Aaron Fernstrom director of
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the Mayo Center for asset management at
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the Darden School of Business we're here
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with sarah marie martin at the 2020
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academic and practitioner symposium on
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mutual funds and ETFs sarah marie thank
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you for being with us fabulous panel and
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so I thought maybe where we could start
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is just giving us kind of a high level
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understanding of you know what your
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day-to-day looks like so I am a
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financial sponsors coverage banker I
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work at Goldman Sachs my day-to-day
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consists of throwing a thousand balls in
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the air and trying to catch nine hundred
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of them sometimes successfully sometimes
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not my clients generally speaking are
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large private equity firms like Carlin
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Apollo I cover some sovereign wealth
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funds like GIC I'm involved in covering
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the private equity side of Blackrock so
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it's it is not only private equity firms
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it's private capital broadly defined
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which in our parlance includes sovereign
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wealth funds pension funds
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infrastructure funds energy funds large
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family offices basically anyone who has
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a pool of capital and a staff that can
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move quickly to participate in one of
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our Southside processes so my job is to
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work with those clients help them buy
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companies help them finance the
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companies they buy help them build those
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businesses over time which may involve
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M&A and might involve some debt
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financing and then when it's time to
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sell those businesses I will help them
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either sell the business IPO the
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business or a few other kind of
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strategies in between maybe we look at
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both that that's where I spend the
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majority of my time what I also do
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because some of our clients have become
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so large and are quite institutionalized
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we refer to them as the alternative
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asset managers so firms generally that
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are public Carlyle Apollo Blackstone etc
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we cover them very much like large
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corporate clients because they are large
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and complicated they're in multiple
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business lines and that relationship is
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much more of a CEO CFO senior management
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relationship thinking about strategy and
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M&A perhaps financing for the GP for the
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top of the house for the business
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overall sure that's so interesting
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that you cover both asset owners and
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asset managers do you see
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there any trends or differences in kind
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of how they review opportunities or
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interact with you folks or how you
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interact with them depending on kind of
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which camp they fall in or you know or
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is everybody very similar or there are
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there big differences I would say there
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are a lot of differences and probably
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like any company it so it comes down to
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the individuals that you're interacting
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with one of I guess I would say one of
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my favorite types of clients to cover
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our would be funds that are successful
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and growing but tend to have a focus so
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one example in my world is clean dubler
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in rice and they're an extremely
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successful very well established firm
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they've actually just recently like many
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private equity firms gone through a
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generational transition and a management
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transition quite smoothly but what I
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think about covering them is they know
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exactly what they do they have a
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strategy they're one firm their us and
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emia focused they know what industries
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they invest in they their strategy
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involves having a suite of the most
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incredible operating executives in the
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world a lot of whom started with jack
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welch source from GE and other
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incredible places but find businesses
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that they can in the industries that
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they cover in the geographies that they
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care about that they can operate better
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it makes sense and I mean or we think
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like when when there's a transaction is
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it equity is it debt is it a blend of
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both I mean you hear so much about this
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like explosion of private credit does
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that work its way into your work or
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something yes all of the above our
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business is you know as we talked about
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the panel our business is changing so
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dramatically given the proliferation of
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capital equity and debt and you know for
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someone like me who's been a banker for
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25 years and focused on private equity
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firms and private capital for the last
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15 it's an exciting time to be there
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because our industry is growing or you
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know percentage of revenues to Goldman
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as investment bank are growing and
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there's just a lot of exciting change
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that we can be a part of so yes yes to
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equity and I with what I would say on
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the death side is you know I read that
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in the last few years the size of the
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private debt market has grown 350
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percentage that's pitchbook stat and the
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reason for that is partially the banks
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such as where I work are being
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disintermediated by really aggressive
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private capital sources and part of that
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is that we have some regulations we call
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them snake fed and OCC regulations that
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these other private lenders are not
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subject to so they can be very
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competitive in the middle market
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generally speaking they also their
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companies also know voter the rating
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agency so there's some structural
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reasons why this particular where these
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particular providers providers of debt
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can be very attractive I would say I
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benefit from working at Goldman because
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whereas we can do regular wage debt
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financing in the leverage advanced
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markets or certainly investment-grade
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markets but that's not the world that I
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live in we also have very large private
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debt funds mez and loan funds that we
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can offer we can offer our clients in
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menu of alternatives and therefore
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partake and any and all of the
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activities but it is it is a very
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dynamic time in the world of private
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temperature do you see bubbles forming I
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wonder you know either in private equity
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or private debt just you know being so
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active at such an important intersection
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of these capital markets it's a very
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good question it was a hotly debated
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topic on the panel I think maybe the
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best answer that was given which was not
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my own was there's a bubble in
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everything right now and all assets are
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expensive and my reaction to is there a
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bubble in private equity was no I don't
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think there's a bubble in private equity
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I do think prices are expensive the
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average lbo last year went for 11 times
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from and with the giant equity check as
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well associated it wasn't all debt
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funded it was you know probably five to
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six times debt funded so assets are
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expensive on the other hand assets are
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expensive in the public markets and
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assets are sort of in all markets so and
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interest rates are very low so I think
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you could argue if you did a you know a
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fundamental valuation analysis that the
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prices people are paying are fair and
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generally what we're seeing is our
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clients are garnering the returns as
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they exit their investments that they
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would typically expect which would be
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like a 15 to 20 percent rose IRR so in
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my and you know we're also seeing our
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clients act very carefully we're seeing
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them stand aside when they think things
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are getting too for all things it is a
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very competitive environment for our
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client
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as well so I I am not sensing a bubble
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but I can also I also agree with you
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know our panelists who said you know
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there's there may be evaluation bubble
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and everything right now
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I certainly hope I mean there's there's
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always concerns but I I guess right now
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I'm saying no there's no bubble Sarah
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Marie Martin thank you so much thank you
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for having so it's great to be with you
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