Let's bring in Ted Neild, a man who I believe is making his taking stock debut.
Welcome to the show, Ted!
Ted is the CEO and CIO at Gresham Partners.
With markets as they are right now, let's take a step back.
We're pretty close to all-time highs, but we're dealing with a fair bit of uncertainty.
How are you advising clients in this particular environment?
Ironically, we sit in this global crucible of price discovering liquidity.
And one of the most important things we do for clients is try to cut through the noise.
I mean, this place embeds every piece of news every second real time.
And sometimes that's not the signal, that's just the noise on top of it.
And so we have to cut through all this and take our clients who are ultra high net worth families and start thinking about this in long term generational perspectives.
So the point of long-term, let's talk long-term yields.
Still at about multi-decade highs, your 10s, your 20s, your 30s.
Do you see this as a new rate regime or just kind of short-term chop?
Yeah, that's the real question.
So can we look through this and say, is this an inflationary regime change?
Are we starting to feel inflationary pressures?
And instead of focusing on will the Fed tighten interest rates, we have to look through this and take some sort of perspective or gauge on that.
If you put a broader context or broader time horizon on this, what we're doing right now, the 30-year is actually getting close to back to where we were in 2007, right before the global financial crisis.
And so some people would tell you that the recent interest rate regime is actually the anomaly, and that pre-global financial crisis may be more close to what we should expect going forward.
We're coming out of this period of interest rate repression.
And so maybe the prior 15, 20 years are not normal.
The period before that is actually the normal.
That's really good big picture context.
I appreciate that.
Just getting through earnings season, stock valuations elevated.
We know that story.
But earnings at the same time, arguably pretty strong.
How do you think investors should approach that reality they're contending with today?
Yeah, I think we should start with the simple fact that high valuations are not necessarily a predictor of a pending market correction.
A little calm on top of this.
And then earnings, I think people look at earnings and say, well, they've been spectacular.
I think the S&P 500 earnings are going to close up over 50 percent.
The flip side of that, though, is if we take away a couple of what I'll call other categories, what is today the investment earnings from Amazon and Apple and Those are, when we strip that out, we get to earnings numbers that are closer to 25 or 30%.
And if you actually normalize that for the median company, we're down to about 12%.
So that's not to say that earnings are some sort of false flag.
In fact, that's actually reasonably strong.
But there are really two sides of this story.
So we have to look through this and we have to normalize in trying to answer that question.
Ted, there are a lot of great companies that trade publicly.
It does not mean they are always great investments, given where they trade, how their valuations are.
How do you separate that distinction between the two?
Really good question.
I think AI is probably the quintessential element of this question.
When you look at the companies today and the valuations they're trading at, these can be great companies.
But the floor or the hurdle they have to cross keeps going higher and higher.
And we can believe that AI is a transformative technology and these are wonderful companies.
But at some point, high prices start to lead to disappointing or even negative returns on invested capital.
So price is actually one of the more important idiosyncratic drivers of risk in markets today.
And people discount that.
So they really have to look at what they're paying today.
I got less than a minute left.
Private equity.
We talked an awful lot about the blue owls, the KKRs of the world the last 18 months or so.
Does it deserve a place in portfolios?
How are you thinking about that sector of stocks?
The answer is yes.
And here we are sitting in sort of the center of public markets and one of the interesting things that's happening with private equity over the last 10 years is public markets have actually outperformed private markets.
And so This is no longer the easy button of increasing returns by taking on illiquidity.
What we're finding, though, is that most people, when they quote a statistic like that, are talking about the median private equity returns.
And in fact, there are really some great people in the market who are actually doing real value-added stuff.
And if you can get to those managers, it's still worth making allocations into that space.
It's just the sort of common median manager that most people know of, the big brand names, are not doing what they used to do.
Ted Neild does the CEO and CIO at Gresham Partners making his taking stock debut.
This will not be the first time or the only time I should say he's on the show.
You crushed it, man.
Come back anytime.
Absolutely.
Thank you.
