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For more on private equity markets. We're joined by Troy Gieski, FS Investment's chief market strategy at FS Investments. He's known for a campaign called.

For more on private equity markets. We're joined by Troy Gieski, FS Investment's chief market strategy at FS Investments. He's known for a campaign called.

The Time for Alts is Now.

The Time for Alts is Now.

Troy, great to have you with us here on this day after Christmas approach New Year's Let me ask you just to pick up on what we heard there from Bruce Richard's talking about private credit. Would love to get your sense of sort of where the runway goes from here. We've seen such enthusiasm and excitement about it in twenty twenty four game out for us. What you think twenty twenty five looks like in terms of where private credit goes from here?

Troy, great to have you with us here on this day after Christmas approach New Year's Let me ask you just to pick up on what we heard there from Bruce Richard's talking about private credit. Would love to get your sense of sort of where the runway goes from here. We've seen such enthusiasm and excitement about it in twenty twenty four game out for us. What you think twenty twenty five looks like in terms of where private credit goes from here?

Yeah, so private credit is one of our key strategies for as Bruce is articulating, solving for that forty fixed income has been a rather strategic place to be.

Yeah, so private credit is one of our key strategies for as Bruce is articulating, solving for that forty fixed income has been a rather strategic place to be.

Yet again this year you're going to earn your yield and have some capital depreciation as the back end the curve is sold off.

Yet again this year you're going to earn your yield and have some capital depreciation as the back end the curve is sold off.

And so if you think about the last several years, to Bruce's point, a lot of the lending was focused on creative financing, receivable financing, also known as asset based lending, you know, helping really high quality yet pass strap companies make it through a tough patch where we had exceptionally high rates at the short end of the curve and their primarily folding rate borrowers lifting assets off bank balance sheets, other creative financing sources to keep that yield very attractive for investors relatively passion fixed income. You know, what we've seen and we expected this regardless of election. Outcome of what we've really seen since the election is an enthusiasm for both private to private takeouts, merger and acquisition financings coming back, and just as standard lbls, you know, public to privates come back really strong. So you know, the outlook is very robust both over the short and the long term. The one factor we're really focused on on the supply of credit because their demand for credit, which is clearly taking off, but on the supply side is how aggressive banks get back to lending. You know, bank lending completely stagnated for roughly two years, particularly after bank failures, so that was really really good for private lenders because you had massive GP growth and stagnating lending. You start and see that pick back up it's still at a relatively placid pace, so to speak.

And so if you think about the last several years, to Bruce's point, a lot of the lending was focused on creative financing, receivable financing, also known as asset based lending, you know, helping really high quality yet pass strap companies make it through a tough patch where we had exceptionally high rates at the short end of the curve and their primarily folding rate borrowers lifting assets off bank balance sheets, other creative financing sources to keep that yield very attractive for investors relatively passion fixed income. You know, what we've seen and we expected this regardless of election. Outcome of what we've really seen since the election is an enthusiasm for both private to private takeouts, merger and acquisition financings coming back, and just as standard lbls, you know, public to privates come back really strong. So you know, the outlook is very robust both over the short and the long term. The one factor we're really focused on on the supply of credit because their demand for credit, which is clearly taking off, but on the supply side is how aggressive banks get back to lending. You know, bank lending completely stagnated for roughly two years, particularly after bank failures, so that was really really good for private lenders because you had massive GP growth and stagnating lending. You start and see that pick back up it's still at a relatively placid pace, so to speak.

So we're hoping that banks continue to lend through lenders as first articulated and allow private lenders to provide financing to the broader US economy, particularly middle market corporations.

So we're hoping that banks continue to lend through lenders as first articulated and allow private lenders to provide financing to the broader US economy, particularly middle market corporations.

Yeah, and Troy.

Yeah, and Troy.

Early in my career, I was at the Chase Manhattan Bank at the TMT Group, and we were lending against air. There were no assets, there was no inventory. We lent. We lent money to fleet call, which was some frequencies that didn't even exist. Why did they walk away from that business, that leverage lending business. We made a fortune in that stuff. Why did the banks walk away from that and then create the demand from private credit? Yeah?

Early in my career, I was at the Chase Manhattan Bank at the TMT Group, and we were lending against air. There were no assets, there was no inventory. We lent. We lent money to fleet call, which was some frequencies that didn't even exist. Why did they walk away from that business, that leverage lending business. We made a fortune in that stuff. Why did the banks walk away from that and then create the demand from private credit? Yeah?

So, I mean, look so much of what of the opportunities that were created for alternative managers, including ourselves, from driven by regulatory reform.

So, I mean, look so much of what of the opportunities that were created for alternative managers, including ourselves, from driven by regulatory reform.

If you look at private equity, you can go back further.

If you look at private equity, you can go back further.

It was really Starving's oxity that started the trend of companies preferring to stay private because of all the additional regulatory oversight.

It was really Starving's oxity that started the trend of companies preferring to stay private because of all the additional regulatory oversight.

And now you have really a private economy in the US.

And now you have really a private economy in the US.

Ninety six percent of the companies that have one hundred more employees or private and only four percent of public. So you've had this mega trend for companies staying private that created demand on private credit.

Ninety six percent of the companies that have one hundred more employees or private and only four percent of public. So you've had this mega trend for companies staying private that created demand on private credit.

Now to your point on banks, it was really the hangover from the Global.

Now to your point on banks, it was really the hangover from the Global.

Financial Crisis where Boss three started getting implemented Dot Frank, et cetera. And so that created a long period of banks for trenching from core businesses. For instance, one of our core strategies senior secret commercial real estate lending that was completely a bank domain prior to the GFC. Completely is a strong term, but primarily and they really stepped back from acquisition, development and transitional lending, which allowed private credit to step in now more locally.

Financial Crisis where Boss three started getting implemented Dot Frank, et cetera. And so that created a long period of banks for trenching from core businesses. For instance, one of our core strategies senior secret commercial real estate lending that was completely a bank domain prior to the GFC. Completely is a strong term, but primarily and they really stepped back from acquisition, development and transitional lending, which allowed private credit to step in now more locally.

You know, people forget this.

You know, people forget this.

The banks lent very aggressively coming out of the pandemic. They were growing their home books that sometimes two to three times to pace the nominal GDP growth, which is historic. Then you had the financial condition tightened in twenty two. Then you had the bank failures and that completely arrested while nominal GDP grew by over two trillion dollars, which created this great window.

The banks lent very aggressively coming out of the pandemic. They were growing their home books that sometimes two to three times to pace the nominal GDP growth, which is historic. Then you had the financial condition tightened in twenty two. Then you had the bank failures and that completely arrested while nominal GDP grew by over two trillion dollars, which created this great window.

And then with mergers.

And then with mergers.

Coming back, acquisitions coming back, private private transactions, and longer term close to two trillion of dry powder and private equity. That needs to be a fin answer with atturn of debt. Every unit of equality needs the unit of debt. Yeah, we think the outlooks here, I robust.

Coming back, acquisitions coming back, private private transactions, and longer term close to two trillion of dry powder and private equity. That needs to be a fin answer with atturn of debt. Every unit of equality needs the unit of debt. Yeah, we think the outlooks here, I robust.

We've spent some time this morning talking about this moment of political transition, talked about the President elect and his appointments and nominations. Let me ask you sort of how you and others in the deal making space are kind of looking at this period of transition before the new administration comes in. I know, there's a lot of optimism about what the deal making environment is going to look like in the latter part of January going into twenty twenty five. What are you watching fore most closely and what about that environment are you most happy with or optimistic about? Is likely to change and we get President Electrum back in office once again.

We've spent some time this morning talking about this moment of political transition, talked about the President elect and his appointments and nominations. Let me ask you sort of how you and others in the deal making space are kind of looking at this period of transition before the new administration comes in. I know, there's a lot of optimism about what the deal making environment is going to look like in the latter part of January going into twenty twenty five. What are you watching fore most closely and what about that environment are you most happy with or optimistic about? Is likely to change and we get President Electrum back in office once again.

Yeah, so there's a whole host of policy issues that still need to be addressed. I mean, the most important is the extension that Tax Cut and Jobs Act that looks highly highly likely, but is lurking as a left tail if we have political dysfunction. You know, the one negative I think would be, you know, higher yields to the back end of the curve through more expansionary fiscal policy tied to that, But in terms of excitement, I mean, if you think about what really pulled up next year, you have unusual period where capital markets, particularly public equities, have reflated dramatically pre election and post election.

Yeah, so there's a whole host of policy issues that still need to be addressed. I mean, the most important is the extension that Tax Cut and Jobs Act that looks highly highly likely, but is lurking as a left tail if we have political dysfunction. You know, the one negative I think would be, you know, higher yields to the back end of the curve through more expansionary fiscal policy tied to that, But in terms of excitement, I mean, if you think about what really pulled up next year, you have unusual period where capital markets, particularly public equities, have reflated dramatically pre election and post election.

Now, I know some of the stem has come out of.

Now, I know some of the stem has come out of.

The Russell for instance, which you know really has poor earnings and cash flow properties.

The Russell for instance, which you know really has poor earnings and cash flow properties.

Where you've had this huge expansion in.

Where you've had this huge expansion in.

Valuations in public equities, Yet in private equity we had two years of real multiple compression.

Valuations in public equities, Yet in private equity we had two years of real multiple compression.

So we think we're due for a catch up there.

So we think we're due for a catch up there.

And then if you look at it at a deeper level, you know, we always remind people if you're investing in equity, you want to invest for growth and where do you get growth?

And then if you look at it at a deeper level, you know, we always remind people if you're investing in equity, you want to invest for growth and where do you get growth?

Right? Well, the US you have really strong normal GDP growth.

Right? Well, the US you have really strong normal GDP growth.

If you look across different sectors of the US, you had over twelve percent consistent revenue growth in middle market private equity, you've.

If you look across different sectors of the US, you had over twelve percent consistent revenue growth in middle market private equity, you've.

Had about six in the S and P.

Had about six in the S and P.

You've only had about two percent in the rustle And when you go internationally it's actually been negative over a long period of time. You're getting revenue growth, you're getting earnings or even dog growth, and you're at a much more reasonable valuation in mid market pee relative to the Russell in particular. So there's this whole concept of growth at a reasonable price. It used to be a thing back in the day. When you look at public equities, you have growth at elevated or a reasonable prices, and you look at middle market private equity, you have growth at reasonable prices. Growth is the most important part, which you'd rather paid less for it than.

You've only had about two percent in the rustle And when you go internationally it's actually been negative over a long period of time. You're getting revenue growth, you're getting earnings or even dog growth, and you're at a much more reasonable valuation in mid market pee relative to the Russell in particular. So there's this whole concept of growth at a reasonable price. It used to be a thing back in the day. When you look at public equities, you have growth at elevated or a reasonable prices, and you look at middle market private equity, you have growth at reasonable prices. Growth is the most important part, which you'd rather paid less for it than.

More, so, Trey.

More, so, Trey.

One of the things I think a lot of deal makers are thinking about what the Trump administration is boy the regulations, and you know, whether it's the part of a justice or the Federal Trade communication, it's going to be a lot easier to get deals done. Do you buy into that, Oh.

One of the things I think a lot of deal makers are thinking about what the Trump administration is boy the regulations, and you know, whether it's the part of a justice or the Federal Trade communication, it's going to be a lot easier to get deals done. Do you buy into that, Oh.

Yeah, one hundred percent.

Yeah, one hundred percent.

I mean that's pretty mainstream I think at this point. And again everyone was expecting mergers to come back regardless of election outcome, but because of much more business friendly, much more FCC friendly towards acquisitions. When we look at the landscape, you know, other than megacap Tech, which is going to be under pressure from an acquisition standpoint pretty much forever, it's one of the few areas of bipartisan consensus.

I mean that's pretty mainstream I think at this point. And again everyone was expecting mergers to come back regardless of election outcome, but because of much more business friendly, much more FCC friendly towards acquisitions. When we look at the landscape, you know, other than megacap Tech, which is going to be under pressure from an acquisition standpoint pretty much forever, it's one of the few areas of bipartisan consensus.

In DC right one is you know, to take a hard line in China.

In DC right one is you know, to take a hard line in China.

The second is megacap tech is not going to be allowed to buy anything ever again. But if you look at other sectors, whether it's airlines or manufacturing, you know it's clear that M and A is going to come back very strong.

The second is megacap tech is not going to be allowed to buy anything ever again. But if you look at other sectors, whether it's airlines or manufacturing, you know it's clear that M and A is going to come back very strong.

And again that affects different strategies and different ways.

And again that affects different strategies and different ways.

In private equity, it allows you to have exits right at reasonable prices or higher valuations than even more past two years. In private credit, it creates a lot of deal flow for financing, and then on more.

In private equity, it allows you to have exits right at reasonable prices or higher valuations than even more past two years. In private credit, it creates a lot of deal flow for financing, and then on more.

Liquid strategies, it should create a robust environment for merger arbitrage, which was one of the few strategies that struggled mightily last year because of the very aggressive intervention.

Liquid strategies, it should create a robust environment for merger arbitrage, which was one of the few strategies that struggled mightily last year because of the very aggressive intervention.

And they put some numbers around that typically five percent of merger's break for whatever reason. You know, during peak FCC intervention it was around around nine percent. So you know, we're very optimistic about that driver of alpha. And this is a reminder sometimes you know the best time to invest in strategies is active had a tough patch and.

And they put some numbers around that typically five percent of merger's break for whatever reason. You know, during peak FCC intervention it was around around nine percent. So you know, we're very optimistic about that driver of alpha. And this is a reminder sometimes you know the best time to invest in strategies is active had a tough patch and.

You had a very transformational outcome.

You had a very transformational outcome.

In this case, you know, a much more friendly government approach towards mergers and acquisitions.

In this case, you know, a much more friendly government approach towards mergers and acquisitions.

Troey, we got about thirty seconds left. I'm going to steal a question from Paulie's been asking everybody that is, what's your theme for the year ahead, if you could put it in a shortened sweet way.

Troey, we got about thirty seconds left. I'm going to steal a question from Paulie's been asking everybody that is, what's your theme for the year ahead, if you could put it in a shortened sweet way.

Yes, the seeing put cash to work, right, that was our theme coming in last year. It's still our theme today. Cash balances are extremely high. You have multiple choices for putting that cashtowork. One is in private aquity, one is in private credit. You have liquid multi strategy fonds that are viable solution, so put.

Yes, the seeing put cash to work, right, that was our theme coming in last year. It's still our theme today. Cash balances are extremely high. You have multiple choices for putting that cashtowork. One is in private aquity, one is in private credit. You have liquid multi strategy fonds that are viable solution, so put.

Cash to work.

Cash to work.

The second, you know, don't expect materially better fixed income returns, so again you can rotate some of.

The second, you know, don't expect materially better fixed income returns, so again you can rotate some of.

That capital into private credit.

That capital into private credit.

And then lastly, you know, when you think of alternatives, right, there's a big difference between large and mega cap private equity and middle market, just like there's a big difference between a clean vintage private credit strategy and those that lent rather aggressively in twenty twenty one, which is one of the worst vintages ever in mind so.

And then lastly, you know, when you think of alternatives, right, there's a big difference between large and mega cap private equity and middle market, just like there's a big difference between a clean vintage private credit strategy and those that lent rather aggressively in twenty twenty one, which is one of the worst vintages ever in mind so.

To speak, or minted in private credit states.

To speak, or minted in private credit states.

Troy always great to talk to you. Appreciate your time here on this the twenty sixth of December. Troy Gieski is FS Investment's Chief market strategist and I've known for his campaign The Time for Alts is now joining us here on Bloomberg. Great to speak with you.

Troy always great to talk to you. Appreciate your time here on this the twenty sixth of December. Troy Gieski is FS Investment's Chief market strategist and I've known for his campaign The Time for Alts is now joining us here on Bloomberg. Great to speak with you.