Jim Ortlip, Wiehan Pieper and I were in New York City last week meeting with five companies that are on the AOG platform, or under consideration. As sports enthusiasts, we couldn’t resist taking a picture (see below) in front of the check-in desk for the National Football League (which we didn’t visit), while we were really in the building visiting with executives of Blackstone.
Many people don’t realize that Blackstone, with almost $450B in assets under management is quite a bit larger than Warren Buffet’s Berkshire Hathaway at $285B. One of our meetings at Blackstone was with Karen Sprogis, the Managing Director of Real Estate. We had a thorough briefing from her, discussing Capitalization Rates and other factors on various real estate sub asset classes, both in the United States and in other developed countries where Blackstone operates. Karen will be presenting to select AOG clients in October, so it was a great preview from a consummate commercial real estate professional. For those of you who can attend, it will be an excellent presentation.
Two of our most informative sessions were meetings with senior executives that oversee global strategy for both Blackstone and Goldman Sachs. Jim, Wiehan and I were able to test our foundational premises and ask detailed questions about their assumptions on investments and the global economy. Wiehan utilizes information and analysis from Blackstone, Goldman Sachs and J.P Morgan to inform our investment committee meetings and analyze our portfolio performance, so he particularly enjoyed meeting them in person.
One of the most compelling pieces we have reviewed is a publication by Goldman Sachs entitled Market Know-How. Under the heading “Walking the Tightrope”, the piece opines that “Late-cycle experiences are often associated with elevated equity valuations, tight credit spreads, and financial excesses. These conditions can create vulnerability even when the operating environment is sound. History also demonstrates that late-cycle equity returns can be robust, rewarding a disciplined approach.” The piece further declares that balance, agility and focus are the critical elements of this “tight-rope” strategy.
I didn’t realize that the proper name for “tight-rope” walkers is funambulists. It took me a couple of times to properly pronounce the name fu·nam·bu·list [fyo?o?namby?l?st]. As I thought about the metaphor, I realized that they picked an excellent example. The current bull market run is in the tenth year, and if it lasts through November of this year, it will become the longest in US history. It may well last for a couple more years. However, it is definitely “late stage”, and I think will continue to bring significant volatility. One can see daily dangers to the market expansion in turbulent tariff negotiations that could lead to all-out trade wars. The North Korean situation is far from settled. The Federal Reserve is still balancing future rate hikes against potential rising inflation. The US job market has for the first time in history produced more job openings than people searching for jobs. The President is challenging the core assumptions of NATO, which has operated for 70 years. The US is facing the most contentious mid-term election in decades. Balance….Agility….Focus. Onward the funambulists!
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