What's Happening: Q4 2024

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Good morning everyone, and welcome.

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Looks like we are just gathering

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for the what's happening, Q4 2024 Webinar from Kinad Wealth.

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, my name is Chris Perry.

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I'm a wealth counselor at Kinad, and some of you may know me

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and I'm sure everyone here knows our chief investment

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Officer, Brent Smith.

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Brent, how are you doing? I'm doing great, thanks, Chris.

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Fantastic, fantastic.

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, so let's maybe just jump into it

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and we are, we're going to get into questions later.

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, I'll just touch on the agenda today.

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, so first off, we're going to do a review of 2024

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do a performance update on the pools.

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, then we're going to look ahead to 2025.

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, we've got a little bit of a special US equities

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, deep dive, I guess you could say.

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, and then Brent's going to get into the private markets.

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, as you know, that's a, a large focus of ours.

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, talk about some recent events

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and then take some q and a.

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, so Brent, maybe if you wanna jump into just some

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of the key drivers of what happened in 2024.

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Yeah, sure. Chris, I, you know, it's, we're near the end

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of January, and probably most

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of us have already forgotten about 2024.

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But I, but I think it's important to just kind of

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review some of the, some of the things that, that

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drove the, the capital markets last year,

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because some of those things that were po probably

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tailwinds last year,

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may be turning into headwinds over the next

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over the next year or so.

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So, first off, you know, global monetary policy shifts.

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I mean, if you go back a year ago, inflation was, was still,

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, still a concern.

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So central banks were around the world were grappling

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with, with trying to tame inflation while, while trying

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to avoid a hard landing.

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And in many regions interest rates reached levels

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that had not been seen in, in over a decade,

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and which, which led to some slowing economic activity.

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, but, but that did provide a bit of a, you know,

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anchor against price instability.

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We saw the Bank of Canada was one of the first ones

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to raise, to cut rates, the us

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federal reserve cut rates as well.

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I saw that the Bank

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of Canada cut another 25 basis points today, so that,

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that had a big impact on capital markets last year.

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Same time

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you can't get away from geopolitical tensions.

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There's, there's always going to be some, some geopolitical

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risks on the horizon,

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and that had a pretty heavy impact to a certain degree

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on, on the energy markets, you know, ongoing conflicts,

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, around the globe, especially in the Middle East had

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certainly that's where you, you tend to see a, a lot

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of impacts on, on energy prices more in the Ukraine and,

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and Russia continue.

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So that certainly had had an impact as well last year.

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I think on, on, on another so end the, the massive

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in improvement or advancements in artificial intelligence

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and the AI boom

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reached really new heights in 2024.

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It's hard, it's hard to believe

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that the chat GPT did not exist two years ago.

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Yeah. And the, the massive

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advancement in there is just having such a huge impact on

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from streamlining business operations to,

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to breakthroughs in healthcare and education and so on.

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And it had such a massive impact on the

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capital markets last year.

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You know, all you have to do is look at the poster child

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for, for, for artificial intelligence beneficiary.

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And that is Nvidia.

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Nvidia was, was just off the charts last year

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and really drove the s and p 500

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and many of the other top

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market cap stocks in the us in the us a lot of focus, a lot

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of optimism on, on artificial intelligence.

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And that really drove the s and p 500 last year.

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And finally, you know, there was, you know,

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it is four years, five years,

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or I guess four years past

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you know, the pandemic.

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And we've, you know, we've,

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we've seen supply chains obviously have,

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I think they've normalized consumer behavior

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has normalized further.

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And, and we've seen many economies really focus or,

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or found themselves adapting.

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And I'm sure a lot of people on this call have,

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have recognized that the, the,

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the workforce has become more hybrid as

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remote work has become more of a permanent fixture

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as opposed to a temporary fixture.

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And so there's a lot of really interesting dynamics

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that have happened last year that had an impact on,

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on, on performance.

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And some of those, we think,

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and we've talked about this over the past year, especially

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with, with the stock market and,

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and how overvalued we believe anyway, especially the s

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and p 500 is,

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and I think that if you, we start seeing some of this

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you know, the, the AI boom, if, if that turns into a bit

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of a kind of a headwind, we're going to see

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definite some impact on the s and p 500 going forward.

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Yeah. And we'll get into that more later.

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Yeah for sure.

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Let's let's just do a quick review

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of the pool performance.

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Yeah. We're, I'm

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not going to ask you to run through the numbers.

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No, you know what, we're not going to spend a lot of time,

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I know every quarter that we do this, we focus on each pool

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and how they did for the quarter and,

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and talk about some of the things that drove performance.

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And, and this one is this, this presentation

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or this webinar is more about

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where we see things going forward, right?

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And so not going to focus a great deal upon, you know,

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what drove performance.

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But, but just go one, one step back. Sorry, Chris.

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But over the year, if we just focus on one year returns,

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you know, we're, we're very, very happy with the performance

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of most of our pools especially on,

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on the private side.

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They were, they delivered, you know, in our opinion,

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pretty solid returns with,

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with the key is very, very little volatility.

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So happy with the performance, any

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of our clients would've experienced a pr pretty nice returns

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over the past 12 months.

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Awesome. Awesome. Okay.

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Well yeah, as, as you mentioned, I mean,

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we can get back into more granularity later.

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Mm-hmm. , let's, you know, we talked about 2024.

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Let's talk about 2025, shall we?

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, so just looking at you know, starting from the top,

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what the outlook looks like.

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, as everyone is most likely aware you know, we have

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what we call an asynchronous recovery where

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everything was down and out during the pandemic,

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and then they dropped rates to zero.

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, then there was a pullback when they

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started actually cutting rates again.

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, but the US essentially led

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the global economy out of recession.

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As, as Brent's touched on.

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, you know, the global economy

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grew 2.4% last year.

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Looking forward, that number is expected

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to sort of stay flat, right?

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So we're expecting you know, no real change in,

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in overall productivity globally,

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but what we're going to see is different sectors,

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, sort of normalize.

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And so, you know, the us , grew it above trend.

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Most expectations are that it's going to normalize closer to

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that 2% number that we keep hearing about.

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It's, it's running hot, so to speak.

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, the Euro area is, is a laggard unfortunately.

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 Europe's had a lot of issues, a lot of it driven by,

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, its proximity to the, the conflict in Ukraine

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and heightened energy pricing.

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, you know, we all know the stories.

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You know, Europe has just been a bit of a, a sluggish,

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, a sluggish economy.

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, but, you know, you know, expectations are

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that it's going to, you know, kind of stay flat way

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below their 2% target.

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, China's one that's again, you know, seeing some issues.

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The Chinese economy has been, you know, kind

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of the growth engine of the,

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of the world for the past two decades.

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, and it's kind of coming back.

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I mean, still, still definitely running hotter than

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than most of the, the developed mar

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developed market economies.

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, but we're seeing a little bit of a slowdown in China

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and some secular headwinds o over there you know,

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the Chinese government's actually trying

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to stimulate right now.

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, and then on the other side of the coin, you know,

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Japan is, is an economy that's had decades

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of stagnation, interest rates near zero.

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, they haven't had interest rates above 1% for, I believe,

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you know, 20 years, I think, I think something like that.

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, and we've started to see Japan start hiking.

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, so that's another interesting data point.

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As you can see their economy would shrink in 2024,

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is actually expected to increase, you know, the highest

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the highest increase on this list.

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, which, which, you know, should be interesting.

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And we're looking at some very interesting opportunities out

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there, India as people are calling, you know,

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the new China growing at nearly 7%, a little bit

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of a slowdown here, but still,

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still firing on all cylinders.

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, and last, but not, not least,

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of course, we gotta talk about home.

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, Canada's been sluggish, I think, coming out of, out of,

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out of the pandemic growth about 1%.

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but we're actually expecting the Canadian economy to,

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to grow, you know, still below target.

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Still not something that you know,

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nothing to write home about.

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, but we're starting to see productivity increases,

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, go forward.

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Now, again, there's a lot of

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interesting stuff on the horizon, as we all know.

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, and we can touch more on that later,

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but that's just a little overview of

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what the global economic picture.

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Brett, anything? Yeah.

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Yeah, I was just going to say, well, you know, you,

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you look at some of these numbers like 2.8 for the US

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or globally, or China, 4.9, India, 6.7, it's a, well,

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those are still really, really strong

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strong growth numbers.

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The thing you really have to focus on is

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the estimated change.

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No one cares about what you did last year.

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Everyone cares about what you're going to do next year.

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And if, if there, it, it's like a, a company that's grow,

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grew, its earnings phenomenally one year,

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and the next year it declined by 3%,

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the stock is going to sell off.

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So basically what if I look at the estimated changes change,

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most of these US is expect it to slow down.

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China's going to slow down, India is going to slow down.

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You know, that, that's, that's not a great in indicator

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for overall global economic growth, right?

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So if you, if you look at the global economy

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and say in aggregate that the, the growth it corresponds to,

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to revenue, corporate revenue growth in aggregate,

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we're going to get zero growth, right?

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Yeah. And, and, and stock markets don't like zero growth.

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No. So that, that's a thing to focus on. Yeah. Yeah.

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Skate to where the puck's going, right? Yeah. Yeah. Exactly.

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, fantastic. Okay.

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, you can't, you can't have a webinar

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in the 2020s without talking about inflation.

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, you know, it still seems to be the boogeyman

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that they can't quite put that genie back in the bottle.

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, this is just a chart of US

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and Canada, CPI, I mean, they all kind

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of follow the same trend where as we all know,

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inflation took off in the pandemic.

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, there was a hiking cycle,

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and then there was a cutting cycle that we were able

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00:12:04.185 --> 00:12:06.685
to actually, you know, tame inflation somewhat.

256
00:12:06.945 --> 00:12:09.005
But what I wanna highlight that's very important is,

257
00:12:09.025 --> 00:12:11.325
is the trend, you know, since 2023,

258
00:12:11.935 --> 00:12:15.365
where they're just having very tough time closing it out.

259
00:12:15.625 --> 00:12:18.205
, I, you know, we're still not 2%.

260
00:12:18.665 --> 00:12:21.965
, the stickier parts of inflation are, are persisting.

261
00:12:21.965 --> 00:12:26.085
That PCE core number they still can't get quite to 2%.

262
00:12:26.665 --> 00:12:29.205
, they've already started cutting in anticipation,

263
00:12:29.425 --> 00:12:32.325
but you know, this kind of lends

264
00:12:32.385 --> 00:12:34.485
to our longer term thesis of higher for longer.

265
00:12:34.985 --> 00:12:37.445
You know, it's very unlikely that they're going to be able

266
00:12:37.445 --> 00:12:40.285
to drop interest rates back to zero anytime soon, just

267
00:12:40.285 --> 00:12:43.325
because you know, inflation is a thing that hasn't been

268
00:12:43.325 --> 00:12:44.525
around for 15 years.

269
00:12:44.525 --> 00:12:46.525
Brent, am I reading that right? Yeah.

270
00:12:46.805 --> 00:12:49.845
I mean, I think that the biggest one to focus on is,

271
00:12:49.945 --> 00:12:52.645
is the US, US CPI, and,

272
00:12:52.705 --> 00:12:56.205
and this chart shows it, you know, I, I mean, there's a lot

273
00:12:56.205 --> 00:12:59.445
of, there's a lot of volatility in this number, but,

274
00:12:59.505 --> 00:13:02.125
but it, it, it's starting to creep higher.

275
00:13:02.145 --> 00:13:05.805
And that's why there's a lot of analysts out there

276
00:13:06.265 --> 00:13:09.805
who believe that the US Federal Reserve will be forced

277
00:13:10.185 --> 00:13:12.605
to increase rates going forward.

278
00:13:13.105 --> 00:13:17.205
And stock markets don't like seeing rates increased.

279
00:13:17.825 --> 00:13:20.965
And you might go, well, that, that's fine for the us,

280
00:13:21.145 --> 00:13:24.765
but the US stock market represents about 70%

281
00:13:24.765 --> 00:13:26.125
of the global stock market.

282
00:13:26.345 --> 00:13:30.645
So how the US goes really impacts the rest of the

283
00:13:30.645 --> 00:13:31.685
global stock market.

284
00:13:31.875 --> 00:13:33.405
Hundred percent, a hundred percent.

285
00:13:33.865 --> 00:13:36.965
And just chatting about interest rates you know,

286
00:13:36.965 --> 00:13:38.245
we're talking about the mean reversion

287
00:13:38.245 --> 00:13:40.925
before you know, the, the economies

288
00:13:40.925 --> 00:13:41.805
that we're doing better, kind of

289
00:13:41.805 --> 00:13:43.045
slowing down the economies that we're doing.

290
00:13:43.055 --> 00:13:44.325
We're kind of catching up.

291
00:13:44.655 --> 00:13:46.565
We're seeing that you know, the, the,

292
00:13:46.585 --> 00:13:49.645
the central banks across the globe are, you know, trying

293
00:13:49.645 --> 00:13:51.805
to get ahead of it, trying to, to

294
00:13:52.165 --> 00:13:53.285
engineer that soft landing.

295
00:13:53.825 --> 00:13:55.885
, you know, are we there yet? Who knows?

296
00:13:56.065 --> 00:13:59.245
, but what you're seeing is, is rates that were high

297
00:13:59.425 --> 00:14:02.125
are now coming down and rates that were lower now coming up,

298
00:14:02.625 --> 00:14:05.725
, specifically in Japan, you know, so we're probably going

299
00:14:05.725 --> 00:14:08.245
to end up with you know, a,

300
00:14:08.365 --> 00:14:09.965
a more normal interest rate environment

301
00:14:09.965 --> 00:14:13.885
where you don't have significant differences between

302
00:14:14.225 --> 00:14:17.645
you know Japan versus China versus India.

303
00:14:17.985 --> 00:14:19.085
, the us you know, we're,

304
00:14:19.085 --> 00:14:20.325
we're kind of going to see a normalization.

305
00:14:20.325 --> 00:14:23.085
There's always going to be little changes in the trend.

306
00:14:23.585 --> 00:14:26.845
, but that's you know, we're kind,

307
00:14:26.905 --> 00:14:30.005
it looks like we're kind of normalizing towards a common,

308
00:14:30.405 --> 00:14:31.405
a common ground, Brent.

309
00:14:32.105 --> 00:14:36.755
Yeah. , my only comment on this, on this chart

310
00:14:36.845 --> 00:14:39.835
Chris, is that you know, take it with a grain of salt,

311
00:14:39.835 --> 00:14:42.235
because forecasts sometimes, yeah.

312
00:14:42.515 --> 00:14:44.395
Economic forecasts are about as accurate

313
00:14:44.415 --> 00:14:46.715
as meteorologists at times, for sure.

314
00:14:46.975 --> 00:14:48.875
No, that's you're absolutely correct on that.

315
00:14:49.375 --> 00:14:51.965
And, and just on you know, a question

316
00:14:51.965 --> 00:14:56.285
that we always get the US dollar this is one

317
00:14:56.285 --> 00:14:57.805
that's, you know, been top of mind.

318
00:14:58.005 --> 00:15:00.925
I mean, the US has been dominating the headlines

319
00:15:01.025 --> 00:15:04.085
for many obvious reasons, which we can get into more later.

320
00:15:04.505 --> 00:15:06.445
, but this is the forecast of

321
00:15:06.445 --> 00:15:07.885
what the US dollar's going to look like.

322
00:15:08.145 --> 00:15:11.925
So this is you know, there's, there's a lot

323
00:15:11.925 --> 00:15:14.325
of bullishness, there's a lot of positive sentiments

324
00:15:14.325 --> 00:15:16.205
around the us, the US dollar.

325
00:15:16.705 --> 00:15:19.405
, this is a chart of the US dollar versus a CAD

326
00:15:19.405 --> 00:15:20.445
for last 20 years.

327
00:15:21.025 --> 00:15:23.765
, historically range bound between, you know,

328
00:15:23.765 --> 00:15:27.165
trading at parody as we know you know, 10 years ago to,

329
00:15:27.385 --> 00:15:28.765
you know, a, a buck 40.

330
00:15:28.865 --> 00:15:30.965
That's kind of, that's kind of the range that

331
00:15:31.035 --> 00:15:33.005
that the US dollar has been at.

332
00:15:33.225 --> 00:15:35.205
, but if you look at it

333
00:15:35.385 --> 00:15:37.885
the greenbacks rallied meaningfully against the Looney on

334
00:15:37.885 --> 00:15:41.125
the back of the strong economy, higher interest rates

335
00:15:41.125 --> 00:15:42.805
reserve currency status, as we know.

336
00:15:43.265 --> 00:15:47.485
, but it is trading at its highest level in over 20 years.

337
00:15:47.905 --> 00:15:50.805
, we know that currencies are generally mean reverting.

338
00:15:51.425 --> 00:15:53.925
, you know, we expect the USD

339
00:15:53.925 --> 00:15:57.445
to continue structural strength due to its, you know,

340
00:15:57.465 --> 00:15:59.725
the economy interest rates, reserve status, of course.

341
00:16:00.265 --> 00:16:04.885
, but as we start to see a little slow down in growth

342
00:16:05.045 --> 00:16:08.125
inflationary forces, you know, this could be a signal

343
00:16:08.185 --> 00:16:10.925
for the USD to start to kind of come back to earth.

344
00:16:11.625 --> 00:16:14.525
, both of, you know, things that are negative for

345
00:16:15.045 --> 00:16:17.085
currencies which are inflation.

346
00:16:17.705 --> 00:16:20.845
, and interest rates could be exacerbated by tariffs.

347
00:16:21.215 --> 00:16:26.125
Right? So Brent, any any thoughts on the USDI?

348
00:16:26.245 --> 00:16:28.765
I mean, there's, there's so many dynamics at play when

349
00:16:28.765 --> 00:16:30.045
you're looking at currencies.

350
00:16:30.225 --> 00:16:34.205
And, you know, the, I I, I think one of the biggest in

351
00:16:35.345 --> 00:16:37.925
one of the areas to really focus on, if you're,

352
00:16:37.945 --> 00:16:40.405
you're trying to determine the, the direction of the

353
00:16:41.365 --> 00:16:43.325
Canadian dollar versus US dollar is,

354
00:16:43.385 --> 00:16:44.965
is interest rate differentials.

355
00:16:45.505 --> 00:16:48.165
And we just saw that Canadian, you know, the Bank

356
00:16:48.165 --> 00:16:50.885
of Canada cut rates today, if the Fed

357
00:16:51.465 --> 00:16:54.565
US fed increases rates at some point, I mean,

358
00:16:54.565 --> 00:16:56.005
they're coming out today, I doubt

359
00:16:56.005 --> 00:16:57.765
that they're going to raise rates today,

360
00:16:57.765 --> 00:16:59.485
they probably won't do anything.

361
00:16:59.905 --> 00:17:04.205
But if they do or are forced to increase rates,

362
00:17:04.705 --> 00:17:07.685
you know, that interest rate differential gets even bigger,

363
00:17:07.815 --> 00:17:09.925
which will put more downward

364
00:17:10.245 --> 00:17:11.325
pressure on the Canadian dollar.

365
00:17:11.435 --> 00:17:13.445
Yeah. From a short term perspective,

366
00:17:13.825 --> 00:17:15.565
but longer term, I agree with you, Chris.

367
00:17:16.005 --> 00:17:17.645
I mean, I don't think a 1.4,

368
00:17:17.785 --> 00:17:20.045
1.5 is sustainable long, long-term.

369
00:17:20.465 --> 00:17:23.485
No. Yeah. And you know, this isn't just my forecast.

370
00:17:23.645 --> 00:17:25.925
I just I didn't just write this, this is, this is,

371
00:17:25.925 --> 00:17:28.285
you know, consensus market forecast

372
00:17:28.785 --> 00:17:31.325
and this is a five-year timeline to get back to 1 35.

373
00:17:31.505 --> 00:17:34.405
So we're not expecting, you know, the, the loony to,

374
00:17:34.505 --> 00:17:36.605
to strengthen meaningfully against the green back at all.

375
00:17:37.185 --> 00:17:40.205
, but it's, it's, we get the question a lot, you know,

376
00:17:40.205 --> 00:17:43.005
when to sell, and as you said, I mean,

377
00:17:43.005 --> 00:17:44.885
in the short term, who knows?

378
00:17:45.105 --> 00:17:47.325
, but structurally

379
00:17:47.515 --> 00:17:52.165
just looking at the secular trends we're trading it at,

380
00:17:52.225 --> 00:17:53.965
, at, at valuations that,

381
00:17:53.965 --> 00:17:55.245
that generally haven't been seen.

382
00:17:55.345 --> 00:17:56.965
So we'll see if Canada can catch up.

383
00:17:58.595 --> 00:17:59.695
, and then last

384
00:17:59.715 --> 00:18:03.375
but not least, on just on the geopolitical risks.

385
00:18:03.575 --> 00:18:04.655
I mean

386
00:18:05.995 --> 00:18:08.495
you can't turn anywhere without hearing about the Donald,

387
00:18:08.875 --> 00:18:11.135
, tariffs taxes in Taiwan.

388
00:18:11.415 --> 00:18:12.935
I mean, his return to the presidency

389
00:18:13.635 --> 00:18:15.215
is absolutely a risk factor.

390
00:18:15.395 --> 00:18:17.535
, I don't mean that necessarily in a negative way.

391
00:18:17.875 --> 00:18:19.215
, but there's going to be change.

392
00:18:19.355 --> 00:18:20.775
And the market does not like change.

393
00:18:21.355 --> 00:18:25.095
, trade policies, tariffs you know,

394
00:18:25.325 --> 00:18:27.895
they're generally inflationary in nature.

395
00:18:28.515 --> 00:18:31.055
, there's expectation on the other side of the coin

396
00:18:31.115 --> 00:18:35.575
of more pro-business policies, reducing corporate taxes

397
00:18:35.955 --> 00:18:37.015
you know, fiscal policy.

398
00:18:37.115 --> 00:18:40.255
We don't know if he's going to be stimulating or, or cutting,

399
00:18:40.475 --> 00:18:42.215
or, you know, what, that's all going to look like.

400
00:18:42.515 --> 00:18:45.705
, you know, they're just trying to figure that out.

401
00:18:45.825 --> 00:18:47.705
I mean, he's only been in power for, what, nine days,

402
00:18:48.205 --> 00:18:49.305
, and already done a lot.

403
00:18:49.485 --> 00:18:52.385
, but, but the other side of it is, is what's going to happen

404
00:18:52.385 --> 00:18:54.585
with us China relations?

405
00:18:55.245 --> 00:18:58.625
 you know, as Stephen Harper said,

406
00:18:58.835 --> 00:19:01.505
Trump should be taken seriously not literally.

407
00:19:02.165 --> 00:19:04.505
, so we have no idea what he's going to do.

408
00:19:04.845 --> 00:19:06.985
, but that's, you know, a massive, it,

409
00:19:07.415 --> 00:19:08.585
it's a massive risk factor

410
00:19:08.885 --> 00:19:12.145
and very interesting that one man can kind of, you know,

411
00:19:13.385 --> 00:19:15.165
denote policy for the entire globe.

412
00:19:15.785 --> 00:19:17.045


413
00:19:17.705 --> 00:19:20.205
the next geopolitical risk I wanted to talk about is energy.

414
00:19:20.745 --> 00:19:22.885
, Brent, you touched on this.

415
00:19:23.265 --> 00:19:26.525
, what, what, what I find so interesting is this drive

416
00:19:26.525 --> 00:19:29.285
to net zero that's been, everyone's been talking about,

417
00:19:29.715 --> 00:19:32.285
well, for the last 20 years it's kind

418
00:19:32.285 --> 00:19:33.685
of being disrupted by the tech sector.

419
00:19:34.105 --> 00:19:35.845
, we'll get a little bit more into that later.

420
00:19:36.025 --> 00:19:40.485
But the AI boom the, the compute required

421
00:19:40.705 --> 00:19:43.445
for these to run these LLMs, these large language models,

422
00:19:43.545 --> 00:19:45.245
excuse me is massive.

423
00:19:45.745 --> 00:19:48.765
And it's going to take significant investment

424
00:19:48.785 --> 00:19:53.325
across the board, you know, nuclear, green, fossil fuels,

425
00:19:53.585 --> 00:19:57.085
, just to power this, this new technology.

426
00:19:57.105 --> 00:20:00.365
So I find it interesting that the tech sector is the one

427
00:20:00.365 --> 00:20:03.245
that's now clamoring for, for, for us to,

428
00:20:03.265 --> 00:20:04.445
to burn energy again.

429
00:20:04.745 --> 00:20:05.965
But but here we are.

430
00:20:06.385 --> 00:20:08.845
, so, so how that all, all going to play out is,

431
00:20:08.865 --> 00:20:10.085
is going to be very interesting.

432
00:20:10.425 --> 00:20:15.405
 debt, that's another huge risk factor.

433
00:20:15.625 --> 00:20:17.365
, we just got through the pandemic.

434
00:20:18.475 --> 00:20:21.825
Government debt, especially in developed markets

435
00:20:21.965 --> 00:20:26.305
has, has ballooned of the G seven nations, only Germany

436
00:20:26.925 --> 00:20:29.465
has a debt to GDP ratio of less than a hundred percent.

437
00:20:30.005 --> 00:20:31.865
, the US is actually higher than Canada.

438
00:20:32.015 --> 00:20:33.105
Well, not a lot of people know that.

439
00:20:33.325 --> 00:20:36.305
, Canada's just about over a hundred percent debt to GDP,

440
00:20:36.805 --> 00:20:39.025
the US at 123% of GDP.

441
00:20:39.195 --> 00:20:40.465
These numbers are unsustainable.

442
00:20:40.845 --> 00:20:43.785
, if anything bad happens, again, you're not going

443
00:20:43.785 --> 00:20:45.905
to be able to see the government step in and,

444
00:20:45.965 --> 00:20:48.645
and sort of finance, finance the future.

445
00:20:49.545 --> 00:20:53.765
, so, so, you know, again, right now it's kind of okay,

446
00:20:53.905 --> 00:20:55.725
you know, the markets have kind of stabilized.

447
00:20:55.805 --> 00:20:58.925
I think we can return, but if something does happen

448
00:20:58.925 --> 00:21:01.885
to black swan events which there's always a threat of,

449
00:21:02.185 --> 00:21:04.365
, that's a significant risk factor going forward.

450
00:21:04.745 --> 00:21:06.885
And then last but not least inflation.

451
00:21:07.695 --> 00:21:09.485
Brent talked, you talked about

452
00:21:09.905 --> 00:21:11.605
it doesn't look like we've conquered it yet.

453
00:21:12.185 --> 00:21:15.285
, you know, if the US economy continues to grow,

454
00:21:15.285 --> 00:21:17.565
like we expect and tariffs are in, in place,

455
00:21:17.895 --> 00:21:19.245
these are all inflationary forces.

456
00:21:19.665 --> 00:21:23.085
, and it would be very, very disastrous

457
00:21:23.915 --> 00:21:26.615
for the central banks, the Fed

458
00:21:26.765 --> 00:21:28.775
that if inflation rears its ugly head again,

459
00:21:28.775 --> 00:21:31.695
and all of this hard work, these last two years of, of

460
00:21:32.315 --> 00:21:35.615
stress and strain trying to engineer this soft landing

461
00:21:35.615 --> 00:21:36.775
if inflation bounces back

462
00:21:36.775 --> 00:21:37.935
up again like it did in the seventies.

463
00:21:38.355 --> 00:21:41.375
, so yeah, we're, we're trying

464
00:21:41.375 --> 00:21:42.815
to keep our finger on that one.

465
00:21:42.815 --> 00:21:45.895
The market's keeping, keeping its eye on, on CPI

466
00:21:46.415 --> 00:21:48.535
watching for any sort of uptick in the trends.

467
00:21:48.745 --> 00:21:52.695
Brent, any, any comments on my only comment is that,

468
00:21:52.695 --> 00:21:56.175
that, you know, we, we haven't really seen a, a, a normal,

469
00:21:57.035 --> 00:21:59.495
normal economic cycles in about 25 years.

470
00:22:00.235 --> 00:22:04.575
And, and, you know, central banks prevented,

471
00:22:05.475 --> 00:22:08.255
, prevented recessions in the past

472
00:22:08.285 --> 00:22:11.215
because, you know, they, they didn't have

473
00:22:11.215 --> 00:22:13.695
to worry about inflation since 2000,

474
00:22:13.845 --> 00:22:16.215
basically 2000 when China joined the

475
00:22:16.215 --> 00:22:17.295
World Trade Organization.

476
00:22:17.345 --> 00:22:20.775
Right. You know globalization has taken off.

477
00:22:20.775 --> 00:22:23.135
Globalization was inherently deflationary.

478
00:22:23.195 --> 00:22:24.975
So if central banks did not have

479
00:22:24.975 --> 00:22:28.415
to worry about cutting rates, which would lead to inflation,

480
00:22:29.125 --> 00:22:30.415
it's a different story today.

481
00:22:30.625 --> 00:22:34.615
Right? Right. Central banks are concerned about inflation.

482
00:22:35.085 --> 00:22:37.135
Yeah. But the biggest one,

483
00:22:37.275 --> 00:22:40.215
and you talked about this, this is, is debt

484
00:22:40.715 --> 00:22:42.095
and it is unsustainable.

485
00:22:42.935 --> 00:22:47.255
I don't know what the impact on GDP growth is being

486
00:22:48.045 --> 00:22:50.215
from the massive amount of government debt

487
00:22:50.215 --> 00:22:51.375
that's being taken on.

488
00:22:51.395 --> 00:22:53.975
Mm-hmm. But that is just not sustainable going forward.

489
00:22:54.555 --> 00:22:56.975
And what impact will that have

490
00:22:57.555 --> 00:22:59.975
on GDP growth longer term?

491
00:23:00.455 --> 00:23:02.775
I think it could be pretty substantial for sure.

492
00:23:02.955 --> 00:23:04.535
And with higher interest rates

493
00:23:04.635 --> 00:23:06.295
and higher debt load

494
00:23:06.535 --> 00:23:08.215
interest payments are going to start creeping up

495
00:23:08.215 --> 00:23:09.335
as, as part of the budget.

496
00:23:09.675 --> 00:23:12.695
And that's you know, there's worries of a debt spiral.

497
00:23:12.875 --> 00:23:15.935
So, again, we'll see how it all plays out. Yep.

498
00:23:16.355 --> 00:23:18.175
But very interesting stuff. Okay.

499
00:23:18.555 --> 00:23:22.175
, next up, we've got a very short little deep dive

500
00:23:22.245 --> 00:23:25.455
special, special feature into the US equity markets.

501
00:23:25.715 --> 00:23:27.815
, just a very couple interesting charts here.

502
00:23:28.395 --> 00:23:32.775
 so what we're looking at here on the left is,

503
00:23:33.475 --> 00:23:35.735
, the current valuation of the s

504
00:23:35.735 --> 00:23:37.535
and p 500, which is the blue line.

505
00:23:37.555 --> 00:23:39.855
So that's where we are on the, on that, on the X axi there.

506
00:23:40.435 --> 00:23:43.615
And then on the left, we've got one year forward returns.

507
00:23:44.115 --> 00:23:47.165
And on the right we've got 10 year forward returns.

508
00:23:47.425 --> 00:23:48.805
Now, as you'll notice,

509
00:23:48.945 --> 00:23:51.725
the one year chart doesn't tell you a whole lot.

510
00:23:51.725 --> 00:23:53.725
Right. And what that tells us in is, in the short term,

511
00:23:54.305 --> 00:23:56.285
we don't really know what's going to happen.

512
00:23:56.545 --> 00:23:58.445
The one year forward returns kind of bounce around

513
00:23:58.465 --> 00:23:59.805
and, you know, things can persist.

514
00:23:59.955 --> 00:24:02.245
However, if you look at the right chart here,

515
00:24:03.025 --> 00:24:04.765
you see a definite trend develop.

516
00:24:04.765 --> 00:24:06.725
Brent, can you tell us a little more about this trend?

517
00:24:06.835 --> 00:24:09.565
Yeah, I mean, to your point, one year, you know,

518
00:24:09.785 --> 00:24:13.165
pe current PE ratios have zero predictability

519
00:24:13.305 --> 00:24:17.285
for over short term periods, but over longer term periods.

520
00:24:17.945 --> 00:24:19.885
, it is very, very predictable.

521
00:24:20.105 --> 00:24:22.325
And as, if you look at this, basically

522
00:24:22.475 --> 00:24:25.845
what this is saying today, that where the,

523
00:24:26.095 --> 00:24:29.325
where the current valuations are on the s

524
00:24:29.325 --> 00:24:33.805
and p 500, that the it it is, it is saying that

525
00:24:34.385 --> 00:24:36.925
10 year future returns are going to be

526
00:24:38.145 --> 00:24:41.045
pretty mediocre anywhere from, you know,

527
00:24:41.185 --> 00:24:43.605
but they have never, they have never been good.

528
00:24:44.105 --> 00:24:45.445
No, no.

529
00:24:45.445 --> 00:24:47.485
There has never been a period in history

530
00:24:48.095 --> 00:24:52.805
where 10 year returns with a, with a current PE of o

531
00:24:52.805 --> 00:24:56.405
of whatever, 22 times have led to a 10 year rate of return

532
00:24:57.065 --> 00:24:58.765
of over three or 4%.

533
00:24:59.035 --> 00:25:02.245
Most of them were negative returns. Mm-hmm.

534
00:25:02.385 --> 00:25:05.675
So that's, that's where we are today.

535
00:25:06.185 --> 00:25:07.955
Take that with a grain of salt, but, and,

536
00:25:07.955 --> 00:25:11.435
and what do they say that, well, history doesn't repeat it,

537
00:25:11.495 --> 00:25:13.035
it, it, it definitely rhymes.

538
00:25:13.105 --> 00:25:15.715
Yeah. Something like that. It rhymes. Yeah. Yeah.

539
00:25:15.915 --> 00:25:17.395
I yeah, I appreciate it.

540
00:25:17.395 --> 00:25:19.315
And that's, that's kinda what we're looking at.

541
00:25:19.455 --> 00:25:22.115
So again, you never know,

542
00:25:22.215 --> 00:25:24.035
but this this chart is, you know,

543
00:25:24.035 --> 00:25:25.635
there's a very significant trend here.

544
00:25:25.855 --> 00:25:29.115
, and something that we're keeping an eye on

545
00:25:29.185 --> 00:25:30.675
doesn't mean there's not money to be made.

546
00:25:31.015 --> 00:25:33.075
And by the, by the way, I, I should point out

547
00:25:33.075 --> 00:25:37.395
that this does not mean that s and p or or

548
00:25:37.455 --> 00:25:40.755
or US stocks are in, in for a, a,

549
00:25:40.915 --> 00:25:42.915
a rude awakening over the next decade.

550
00:25:43.505 --> 00:25:47.795
This is focused on the s and p 500 index, right.

551
00:25:47.795 --> 00:25:52.355
Which is very top heavy with 30 to 40% in technology.

552
00:25:52.415 --> 00:25:55.435
And these stocks are trading at elevated multiples.

553
00:25:55.735 --> 00:25:56.955
If you look at the s

554
00:25:56.955 --> 00:25:58.755
and p, probably 490,

555
00:25:59.385 --> 00:26:01.755
they're trading on more reasonable valuation.

556
00:26:01.755 --> 00:26:05.755
Exactly. So I think what this chart is saying is that

557
00:26:06.415 --> 00:26:10.835
active management in the future is where you probably want

558
00:26:10.835 --> 00:26:11.875
to be, right?

559
00:26:12.345 --> 00:26:14.555
Yeah, I hear that. Absolutely.

560
00:26:15.015 --> 00:26:17.715
, just another little fun chart

561
00:26:17.745 --> 00:26:20.635
talking about valuations seems

562
00:26:20.635 --> 00:26:22.475
that we can't do anything but talk about it,

563
00:26:22.495 --> 00:26:25.115
but I mean, it is the, the name of the day, this is,

564
00:26:25.115 --> 00:26:26.235
, the price to book ratio.

565
00:26:26.235 --> 00:26:28.235
So it's a valuation metric of the s and p 500.

566
00:26:28.735 --> 00:26:32.075
, the last time we've seen price to book ratios this high

567
00:26:32.815 --> 00:26:35.595
was right at the end of 1999.

568
00:26:35.735 --> 00:26:37.955
Now, Brent, I wasn't really investing around then,

569
00:26:37.955 --> 00:26:39.075
but do you remember what happened?

570
00:26:40.355 --> 00:26:43.525
Yeah, I, if I, if I can go back 25 years ago.

571
00:26:45.195 --> 00:26:46.565
Yeah. It was a pretty, any,

572
00:26:46.665 --> 00:26:50.685
and I'm sure a lot of our, our clients experienced

573
00:26:50.985 --> 00:26:53.685
you know, the, the technology bubble and burst

574
00:26:54.385 --> 00:26:57.445
and anyone who owned Nortel back in,

575
00:26:57.475 --> 00:26:59.565
back in the day, which represented 30%

576
00:26:59.565 --> 00:27:02.125
of the TSX knows what happened.

577
00:27:02.305 --> 00:27:03.485
But yeah.

578
00:27:03.625 --> 00:27:05.925
Any, anytime, you know

579
00:27:07.425 --> 00:27:09.565
all we're all we're saying is, is that

580
00:27:10.495 --> 00:27:13.075
the valuations currently on the s

581
00:27:13.075 --> 00:27:17.035
and p 500 pr, pr sustain?

582
00:27:17.225 --> 00:27:21.235
Yeah. We're, we're, we're near all time highs in everything.

583
00:27:21.655 --> 00:27:25.785
And usually there, there's two ways that you,

584
00:27:25.785 --> 00:27:29.185
that valuations can become normalized, where

585
00:27:30.225 --> 00:27:33.295
stock prices don't do anything for a decade, and,

586
00:27:33.355 --> 00:27:37.815
and stock price and earnings kind of go up.

587
00:27:38.435 --> 00:27:40.375
And the other is you get a very,

588
00:27:40.445 --> 00:27:43.095
very sharp decline in the price of stocks,

589
00:27:43.095 --> 00:27:45.215
which resets valuation, right?

590
00:27:45.285 --> 00:27:48.215
Yeah. One of the two is going to happen. Yeah, I hear you.

591
00:27:48.315 --> 00:27:50.655
Not sure which one. Not sure which one. Yeah.

592
00:27:51.475 --> 00:27:53.535
, and then this is the other

593
00:27:53.675 --> 00:27:55.495
the other interesting chart that we wanted to show

594
00:27:55.725 --> 00:27:57.375
that is very telling actually,

595
00:27:57.455 --> 00:28:01.735
because one of the names of the game is tariffs,

596
00:28:02.195 --> 00:28:04.175
, and, you know, so there's talk

597
00:28:04.175 --> 00:28:07.255
of all this US exceptionalism, but this is very interesting

598
00:28:07.255 --> 00:28:08.695
because this is the share of s

599
00:28:08.695 --> 00:28:13.335
and p 500 revenues derived from outside the us IE trade,

600
00:28:13.895 --> 00:28:18.815
IE cross border, IE potentially affected by tariffs.

601
00:28:19.395 --> 00:28:23.375
, the only time they've been this high is what?

602
00:28:23.375 --> 00:28:25.095
Just after the, the

603
00:28:25.245 --> 00:28:26.815
financial crisis, little financial crisis.

604
00:28:26.885 --> 00:28:28.015
Yeah. Yeah. Yeah.

605
00:28:28.035 --> 00:28:30.055
So, again, another very interesting chart, Brent,

606
00:28:30.055 --> 00:28:31.375
you got any anything else to add?

607
00:28:31.885 --> 00:28:35.775
Yeah, it's just that, you know, while e even, even if,

608
00:28:35.875 --> 00:28:38.695
if we all, all, you know, argument's sake,

609
00:28:38.715 --> 00:28:40.655
say the US economy is going to continue

610
00:28:41.035 --> 00:28:43.715
to fire on all cylinders

611
00:28:43.975 --> 00:28:47.195
but what happens if the global economy, the rest

612
00:28:47.215 --> 00:28:49.235
of the globe, goes into a recession?

613
00:28:49.235 --> 00:28:53.455
Well, there's 40%, over 40% of revenue

614
00:28:54.395 --> 00:28:56.975
of the s and p 500 companies is derived from

615
00:28:57.165 --> 00:28:58.295
outside of the us.

616
00:28:58.395 --> 00:29:00.895
So that would certainly be impacted as well.

617
00:29:01.875 --> 00:29:05.215
So I, I, I think the, the, the, the story we're trying

618
00:29:05.235 --> 00:29:09.695
to craft here is that, you know, while the us, the s

619
00:29:09.695 --> 00:29:12.935
and p 500 has done phenomenally well over the past decade

620
00:29:13.485 --> 00:29:15.095
with some of these headwinds

621
00:29:15.095 --> 00:29:18.855
that we're seeing from valuations to, you know

622
00:29:19.365 --> 00:29:23.655
potential tariffs on, on outside of the us, you know,

623
00:29:24.095 --> 00:29:26.135
I, I think we have to pause and, and,

624
00:29:26.235 --> 00:29:30.815
and look at, you know, how much risk is there currently in,

625
00:29:30.895 --> 00:29:32.015
in s and p 500?

626
00:29:32.125 --> 00:29:34.975
Yeah. And I think this is an important chart, mainly just

627
00:29:34.975 --> 00:29:37.895
because it talks about the fact that, you know, we,

628
00:29:37.915 --> 00:29:39.215
we all talk about US exceptionalism,

629
00:29:39.355 --> 00:29:42.085
but the US benefits from globalization, right?

630
00:29:42.105 --> 00:29:44.245
Almost half the revenues derived from abroad

631
00:29:44.665 --> 00:29:48.325
and a trade war would be bad, would be very bad, very bad

632
00:29:48.325 --> 00:29:50.245
for most of the companies in the s and b 500.

633
00:29:51.185 --> 00:29:53.525
, that concludes our little special feature.

634
00:29:54.035 --> 00:29:56.045
Very, very positive, very upbeat for sure.

635
00:29:56.305 --> 00:29:59.645
, do you want to talk about the, the outlook

636
00:29:59.645 --> 00:30:00.845
that we have for the private markets?

637
00:30:01.355 --> 00:30:05.875
Yeah. , you know, obviously all

638
00:30:05.875 --> 00:30:10.195
of our clients know that, that we're, I think our,

639
00:30:10.195 --> 00:30:12.555
our value proposition lies within private,

640
00:30:13.135 --> 00:30:17.315
the private areas you know, private equity

641
00:30:17.315 --> 00:30:19.395
infrastructure, real estate, et cetera.

642
00:30:19.695 --> 00:30:22.795
And I thought it's, it's important to provide a bit

643
00:30:22.795 --> 00:30:25.875
of an outlook on, and this is not necessarily just

644
00:30:25.975 --> 00:30:27.675
for the next 12 months,

645
00:30:27.935 --> 00:30:30.035
but I think that this is going forward.

646
00:30:30.695 --> 00:30:34.595
And I mean, in, you know, we we're, we're,

647
00:30:34.595 --> 00:30:36.635
I'm just going to talk a bit about, about

648
00:30:36.665 --> 00:30:38.315
data centers here in a second,

649
00:30:38.375 --> 00:30:42.355
but I, I just wanted to mention that if you look,

650
00:30:42.355 --> 00:30:46.035
and I, I, I've read about articles on, you know,

651
00:30:46.175 --> 00:30:48.075
how much spending has

652
00:30:48.075 --> 00:30:51.315
to be done over the next 20 years on infrastructure,

653
00:30:51.375 --> 00:30:55.635
and it, it's like in the 25 to $30 trillion,

654
00:30:56.655 --> 00:31:00.425
and governments don't have the ability

655
00:31:00.845 --> 00:31:02.585
to spend money on infrastructure.

656
00:31:02.925 --> 00:31:04.025
So it's going to be,

657
00:31:04.035 --> 00:31:07.905
we're going to be relying on the private sector to,

658
00:31:08.245 --> 00:31:10.265
to do those infrastructure projects.

659
00:31:10.325 --> 00:31:12.225
So, outside of what I'm going to mention,

660
00:31:12.635 --> 00:31:16.585
there are still massive opportunities in infrastructure,

661
00:31:16.685 --> 00:31:19.425
but I thought I would just, just focus

662
00:31:20.735 --> 00:31:23.155
on one area of, of infrastructure,

663
00:31:23.165 --> 00:31:25.155
which is becoming a massive area.

664
00:31:25.375 --> 00:31:28.075
And, and that is, that is data centers, you know,

665
00:31:28.295 --> 00:31:30.995
we talked about, about artificial intelligence

666
00:31:30.995 --> 00:31:33.835
and the way it's transforming the world around us.

667
00:31:34.535 --> 00:31:35.955
And, you know, and,

668
00:31:36.015 --> 00:31:38.235
and all you have to look at is the demand

669
00:31:38.235 --> 00:31:43.115
that it's a surging demand for, for data centers, which is

670
00:31:43.935 --> 00:31:48.595
really the backbone of AI housing, these immense

671
00:31:49.195 --> 00:31:53.115
computer you know, or the amount of computing power

672
00:31:53.295 --> 00:31:57.395
and storage needed for AI is staggering.

673
00:31:58.135 --> 00:31:59.675
And so that's where we see this,

674
00:31:59.745 --> 00:32:03.355
this massive opportunity is just in data centers.

675
00:32:03.415 --> 00:32:06.235
And one article I read by 2030,

676
00:32:06.655 --> 00:32:10.235
global spending on data center infrastructure

677
00:32:10.455 --> 00:32:12.035
is expected to exceed.

678
00:32:12.335 --> 00:32:16.115
So 2030 is just five years from now is expected

679
00:32:16.115 --> 00:32:19.475
to exceed $1.5 trillion.

680
00:32:19.695 --> 00:32:22.675
So massive opportunities there.

681
00:32:23.135 --> 00:32:25.675
, and, and not, not only is it for data centers,

682
00:32:25.735 --> 00:32:28.835
and you talked about the amount of power consumption

683
00:32:29.355 --> 00:32:30.555
required, so which is leading

684
00:32:30.935 --> 00:32:35.355
to other opportunities within infrastructure, a nuclear

685
00:32:35.895 --> 00:32:38.755
gas, and anyone in Alberta has probably read about,

686
00:32:39.145 --> 00:32:42.125
you know, bringing data centers here

687
00:32:42.125 --> 00:32:44.005
because of our, our cheap energy.

688
00:32:44.025 --> 00:32:46.605
So there, there's just going to be massive opportunities

689
00:32:46.905 --> 00:32:49.485
within within infrastructure in general,

690
00:32:49.825 --> 00:32:52.485
and in particularly data centers driven

691
00:32:52.585 --> 00:32:55.445
by artificial intelligence build Dupixent troubles.

692
00:32:55.535 --> 00:32:58.845
Right? Yep. That's that's a great idea.

693
00:32:59.025 --> 00:33:00.885
If we go through the, the, you know, private,

694
00:33:00.995 --> 00:33:04.685
private credit, it, it's come,

695
00:33:04.835 --> 00:33:08.205
it's certainly come a long way over the past 10 or 15 years

696
00:33:08.205 --> 00:33:11.805
because private credit, probably even, even six

697
00:33:11.805 --> 00:33:14.405
or seven years ago was one, essentially one thing

698
00:33:14.945 --> 00:33:18.325
direct lending, well, direct lending still today,

699
00:33:18.405 --> 00:33:20.525
I think remains a, a, a cornerstone.

700
00:33:21.185 --> 00:33:25.195
, when you look at private credit in general, it has

701
00:33:25.835 --> 00:33:26.995
expanded significantly.

702
00:33:27.665 --> 00:33:29.115
It's just not private lending.

703
00:33:29.215 --> 00:33:30.635
It includes distressed debt,

704
00:33:30.695 --> 00:33:34.795
it includes mezzanine financing, asset backed lending,

705
00:33:34.935 --> 00:33:38.035
as well as other niche areas like, like royalties

706
00:33:38.135 --> 00:33:39.475
and infrastructure debt.

707
00:33:39.495 --> 00:33:42.435
And, and here at Kin State, we, we happen to have exposure

708
00:33:42.495 --> 00:33:45.675
to all of these areas, but these developments are really

709
00:33:45.675 --> 00:33:49.755
driven by a growing, growing demand, in particular

710
00:33:49.895 --> 00:33:51.555
for flexible financing.

711
00:33:52.215 --> 00:33:57.115
, solutions given banks really exited lending

712
00:33:58.145 --> 00:34:02.035
back just post financial crisis.

713
00:34:02.255 --> 00:34:05.795
As a result, private credit has, has really evolved,

714
00:34:06.175 --> 00:34:08.235
and it offers incredible income,

715
00:34:08.705 --> 00:34:12.315
potential diversification opportunities, as well as

716
00:34:12.695 --> 00:34:16.155
as great capital appreciation opportunities as well.

717
00:34:16.855 --> 00:34:20.595
So, very excited about the prospects within private credit

718
00:34:21.215 --> 00:34:23.355
for sure, as you can tell.

719
00:34:23.945 --> 00:34:28.355
Yeah. And, you know, private equity, obviously,

720
00:34:29.105 --> 00:34:33.475
private equity has had probably three

721
00:34:33.655 --> 00:34:37.765
of its worst years over the past 25 years.

722
00:34:38.025 --> 00:34:41.125
Mm-hmm. The, the past three, it's been a bit of a, a, a bit

723
00:34:41.125 --> 00:34:44.085
of a struggle for private equity venture capital over the

724
00:34:44.085 --> 00:34:45.085
past several years.

725
00:34:45.525 --> 00:34:48.645
A lot of that was due to ri to

726
00:34:48.905 --> 00:34:50.725
the rise in interest rates.

727
00:34:50.875 --> 00:34:55.525
Private equity is, is an asset class that, that you,

728
00:34:55.555 --> 00:34:58.605
that needs private equity, either for acquisitions

729
00:34:58.785 --> 00:34:59.845
or for, for growth.

730
00:34:59.945 --> 00:35:03.125
And, and the higher interest rates certainly had an impact

731
00:35:03.125 --> 00:35:04.125
over the past several years.

732
00:35:04.195 --> 00:35:07.805
That said, we do think we're starting,

733
00:35:07.935 --> 00:35:11.485
we're going to start seeing much more m

734
00:35:11.485 --> 00:35:14.925
and a activity over the next, you know, 12

735
00:35:14.985 --> 00:35:16.365
to 18 months Yeah.

736
00:35:16.435 --> 00:35:20.845
More IPOs, et cetera, given that financing costs have, have,

737
00:35:20.905 --> 00:35:23.845
or financing conditions have certainly improved over the

738
00:35:23.845 --> 00:35:25.005
little past a while.

739
00:35:25.505 --> 00:35:30.245
And credit availability makes it more

740
00:35:30.385 --> 00:35:33.485
easier to support cer certain, you know, deal making

741
00:35:33.545 --> 00:35:35.325
and driving transactions forward.

742
00:35:35.585 --> 00:35:37.325
So I think

743
00:35:37.325 --> 00:35:40.125
that the buyers are in a very strong positions

744
00:35:40.125 --> 00:35:41.165
with discounts.

745
00:35:41.625 --> 00:35:45.445
You know, if you're going to buy a secondary fund discounts,

746
00:35:46.265 --> 00:35:50.125
you can buy, you know, great quality private equity funds

747
00:35:50.125 --> 00:35:54.045
that probably 10 to 20% discounts versus it's fair value.

748
00:35:54.185 --> 00:35:56.205
So we think there's going to be a lot

749
00:35:56.225 --> 00:35:58.285
of opportunities within private equity

750
00:35:58.285 --> 00:35:59.365
over the next little while.

751
00:36:00.355 --> 00:36:02.365
Well, and as you mentioned

752
00:36:02.505 --> 00:36:05.405
as we talked about the normalization in, you know,

753
00:36:05.405 --> 00:36:07.605
the economy a little bit more certainty a little bit,

754
00:36:07.705 --> 00:36:09.405
you know, everyone kind of going, okay, we've kind

755
00:36:09.405 --> 00:36:10.845
of figured this out potentially.

756
00:36:11.305 --> 00:36:14.805
, that's, that opens the environment up for m

757
00:36:14.805 --> 00:36:16.605
and a IPOs and exits.

758
00:36:16.905 --> 00:36:18.605
And, and I should point out as this chart,

759
00:36:18.685 --> 00:36:19.725
I didn't mention this, but,

760
00:36:20.025 --> 00:36:22.765
but valuations in private equity

761
00:36:23.305 --> 00:36:25.805
are certainly much more attractive than they are

762
00:36:25.905 --> 00:36:26.925
in the public markets.

763
00:36:27.035 --> 00:36:28.645
Just this, this chart here

764
00:36:29.215 --> 00:36:33.965
using enterprise value over e EBITDA a shows

765
00:36:34.035 --> 00:36:37.525
that they're the private markets are selling at about a

766
00:36:37.525 --> 00:36:41.445
3.8 multiple lower than the public market.

767
00:36:41.665 --> 00:36:45.005
So lots of, lots of I, I, I think there's lots

768
00:36:45.005 --> 00:36:46.005
of opportunities there.

769
00:36:46.225 --> 00:36:48.245
And we're, we're going to get into a couple here in a moment.

770
00:36:48.725 --> 00:36:50.325
I was going to say. Yeah. Okay.

771
00:36:50.715 --> 00:36:54.285
Last but not least, and, and private real estate. Sorry.

772
00:36:54.545 --> 00:36:59.215
, you know, we're, we're starting to see

773
00:36:59.355 --> 00:37:04.215
as, as this chart shows here, let me just, that, that

774
00:37:04.715 --> 00:37:06.775
you bottom me out, obviously real estate took a,

775
00:37:06.775 --> 00:37:10.335
took a beating over the past number of years, again,

776
00:37:10.445 --> 00:37:12.375
because of rising interest rates.

777
00:37:12.715 --> 00:37:15.095
But we've seen things starting

778
00:37:15.155 --> 00:37:17.015
to flatten out and to improve.

779
00:37:17.395 --> 00:37:19.415
That's not to say that all areas

780
00:37:19.635 --> 00:37:21.015
of real estate have suffered

781
00:37:21.085 --> 00:37:22.375
over the past three to four years.

782
00:37:22.375 --> 00:37:25.775
Certain areas, office buildings has been the one area

783
00:37:25.775 --> 00:37:28.015
that has taken the biggest Yeah.

784
00:37:28.235 --> 00:37:29.575
, biggest hit.

785
00:37:29.995 --> 00:37:34.985
And, you know, I, I don't know if there's any, I I, I, I'm,

786
00:37:34.995 --> 00:37:36.985
we're not sure if that is bottomed out yet,

787
00:37:36.985 --> 00:37:40.785
but other areas like industrials and multi residentials and

788
00:37:40.805 --> 00:37:44.105
and logistics, all offer pretty,

789
00:37:44.525 --> 00:37:47.465
pretty compelling investment opportunities going forward.

790
00:37:48.055 --> 00:37:50.345
Yeah. Well, and what we've seen you know,

791
00:37:50.365 --> 00:37:53.705
the market reacts is you know, we we're seeing more

792
00:37:53.705 --> 00:37:54.745
and more it's happening just

793
00:37:54.745 --> 00:37:57.105
outside office conversions, right?

794
00:37:57.105 --> 00:38:00.465
There's a lack of housing and we've got a glut of office.

795
00:38:00.775 --> 00:38:02.745
Well, why don't we take that building

796
00:38:02.765 --> 00:38:03.945
and turn it into a residential?

797
00:38:04.325 --> 00:38:07.985
, you know, so as we see these opportunities arise

798
00:38:08.255 --> 00:38:10.385
with every door closing, a new one opens.

799
00:38:10.805 --> 00:38:13.065
, so that's another area that we're looking at,

800
00:38:13.565 --> 00:38:14.905
, has bottomed out.

801
00:38:15.045 --> 00:38:16.505
It certainly appears so.

802
00:38:16.605 --> 00:38:18.905
But you know, again, you never,

803
00:38:19.475 --> 00:38:21.785
never dive in head first

804
00:38:21.845 --> 00:38:22.945
you know, dip a toe in the water.

805
00:38:22.945 --> 00:38:23.985
Before, before we,

806
00:38:23.985 --> 00:38:28.655
before we jump in we were talking about some stories,

807
00:38:28.925 --> 00:38:30.815
some interesting events that happened.

808
00:38:31.315 --> 00:38:34.335
, Brent, can you walk us through some of the exits

809
00:38:34.335 --> 00:38:35.725
that have, are happening or, yeah.

810
00:38:35.745 --> 00:38:39.565
You know, I'm going to go through these relatively quickly just

811
00:38:39.565 --> 00:38:41.965
to leave some time, hopefully for some, some q and a.

812
00:38:42.425 --> 00:38:44.925
But, you know, if you've heard me talk for the past couple

813
00:38:44.925 --> 00:38:48.775
of years, even going back four years, five years ago, one

814
00:38:48.775 --> 00:38:50.215
of the things I've always said is that we,

815
00:38:50.215 --> 00:38:53.175
when you're investing in private assets, you need patients.

816
00:38:54.235 --> 00:38:58.455
We, we do have a lot of exposure to, to primary funds.

817
00:38:58.675 --> 00:38:59.815
And, and what does that mean?

818
00:38:59.975 --> 00:39:03.855
A primary fund is where that manager could take up to four

819
00:39:03.855 --> 00:39:06.455
to five years to build up that portfolio.

820
00:39:06.995 --> 00:39:09.895
And usually they will, they will buy an asset,

821
00:39:10.445 --> 00:39:14.535
they will nurture that asset until they believe it's fair.

822
00:39:14.685 --> 00:39:16.495
It's, it's, they, they've grown it to

823
00:39:16.495 --> 00:39:18.575
where they believe it's, it's fully valued,

824
00:39:18.755 --> 00:39:20.495
and then they will sell that business.

825
00:39:20.715 --> 00:39:25.295
Mm-hmm. And so we're now just at the cusp of starting to see

826
00:39:26.045 --> 00:39:29.415
some of our managers exiting

827
00:39:29.475 --> 00:39:31.415
or selling some of their assets.

828
00:39:31.795 --> 00:39:34.975
And in fact, the next three I'm going to mention are three

829
00:39:34.975 --> 00:39:35.975
of the funds we own.

830
00:39:36.505 --> 00:39:39.215
These were the first exits for some of these funds,

831
00:39:39.275 --> 00:39:41.655
and we expect to see a lot more of this going forward.

832
00:39:42.035 --> 00:39:46.055
So here's one, it's , called Hoag,

833
00:39:46.335 --> 00:39:47.335
LNG Partners.

834
00:39:47.365 --> 00:39:48.535
It's a lead.

835
00:39:48.535 --> 00:39:51.175
It was a leading owner operator of floating storage

836
00:39:51.235 --> 00:39:53.255
and regasification units over in Europe.

837
00:39:54.495 --> 00:39:57.155
And through our partnership with North Haven,

838
00:39:57.155 --> 00:40:00.715
which is a Morgan Stanley firm we acquired a,

839
00:40:00.875 --> 00:40:04.555
a 50% stake in the business in 2021 at a value

840
00:40:04.575 --> 00:40:06.795
of $201 million.

841
00:40:06.945 --> 00:40:09.035
Well, at the end of December,

842
00:40:09.255 --> 00:40:12.795
or in December, they, they signed a deal to sell

843
00:40:12.795 --> 00:40:17.115
that business for 512 $0.9 million.

844
00:40:17.535 --> 00:40:20.555
And over that period that holding

845
00:40:20.855 --> 00:40:22.515
or that partnership with North Haven,

846
00:40:23.135 --> 00:40:26.475
the companies EBITDA grew by over 40%.

847
00:40:26.895 --> 00:40:28.035
And I should point out

848
00:40:28.065 --> 00:40:32.915
that this transaction was done at a 34.5%

849
00:40:32.915 --> 00:40:36.515
premium to its valuation in September.

850
00:40:36.935 --> 00:40:40.715
So this, this December valuation on this particular holding

851
00:40:40.715 --> 00:40:44.195
will be 34.5 0.5% higher than it was in September.

852
00:40:44.655 --> 00:40:48.515
If we go to the next the next one,

853
00:40:48.905 --> 00:40:50.155
this is Sila services.

854
00:40:50.265 --> 00:40:52.915
This, this is through the,

855
00:40:52.935 --> 00:40:54.635
the prior one was infrastructure.

856
00:40:54.945 --> 00:40:56.275
This is private equity.

857
00:40:56.545 --> 00:40:59.355
They were a leading provider of, of as you could see,

858
00:40:59.355 --> 00:41:02.675
residential and commercial HVAC in certain areas.

859
00:41:02.875 --> 00:41:04.355
A boring, boring business,

860
00:41:04.415 --> 00:41:06.355
boring business, absolutely boring.

861
00:41:06.495 --> 00:41:08.235
No one wants to have anything to do with it.

862
00:41:08.455 --> 00:41:11.395
But these are the businesses that a lot of the firms

863
00:41:11.465 --> 00:41:14.315
that we deal with love,

864
00:41:14.385 --> 00:41:18.075
because they are very low risk, low volatile assets,

865
00:41:18.705 --> 00:41:21.035
they'll, you know, north Haven goes in there,

866
00:41:22.185 --> 00:41:26.055
buys the business adds their value,

867
00:41:26.225 --> 00:41:27.655
their private equity value.

868
00:41:27.955 --> 00:41:31.935
And as you can see in 0.4, over a three year period, three

869
00:41:31.935 --> 00:41:35.045
and a half year period, they increased ebitda a from

870
00:41:35.045 --> 00:41:37.085
15 million to a hundred million dollars.

871
00:41:37.795 --> 00:41:40.005
This so they made

872
00:41:40.475 --> 00:41:44.605
they sold this again in the fourth quarter at 3.4 times

873
00:41:45.035 --> 00:41:48.245
what they bought it for in 2021,

874
00:41:48.675 --> 00:41:52.765
this was sold at a 21 point half percent premium to its

875
00:41:53.285 --> 00:41:54.525
September valuation.

876
00:41:55.145 --> 00:42:00.045
And the last one I'm going to talk about is ECOS is,

877
00:42:00.145 --> 00:42:03.885
, is a digital infrastructure

878
00:42:04.275 --> 00:42:05.525
firm out of Europe.

879
00:42:06.225 --> 00:42:07.805
Our partnership with Schroeders.

880
00:42:08.075 --> 00:42:11.205
Schroders is a very, very large European firm

881
00:42:11.205 --> 00:42:13.045
that many people have not ever heard of,

882
00:42:13.065 --> 00:42:16.245
but I think they have about $700 billion under management.

883
00:42:16.865 --> 00:42:19.525
, they bought this one in 2022.

884
00:42:19.745 --> 00:42:22.805
It was sold at the beginning of the fourth quarter,

885
00:42:23.385 --> 00:42:26.245
and it was sold at a 36% premium

886
00:42:27.225 --> 00:42:28.645
to its last valuation.

887
00:42:29.065 --> 00:42:33.375
So the takeaway is from this is that

888
00:42:33.555 --> 00:42:37.975
if you talk to a lot of these managers, they forget about

889
00:42:37.975 --> 00:42:41.015
what you read on LinkedIn, forget about what you read on,

890
00:42:41.115 --> 00:42:44.535
in, in the news is about the lack of transparency

891
00:42:44.755 --> 00:42:48.015
or these, these assets are trading at, you know, they're,

892
00:42:48.035 --> 00:42:50.135
no one knows how they value these things.

893
00:42:50.675 --> 00:42:53.255
The reality is most managers

894
00:42:54.225 --> 00:42:57.695
value their assets very, very conservatively.

895
00:42:58.435 --> 00:43:01.015
And we're starting to see, when I,

896
00:43:01.015 --> 00:43:02.255
when I talk about conservative

897
00:43:02.395 --> 00:43:04.415
and they're sold at a 30% premium

898
00:43:04.515 --> 00:43:08.495
or a 20% premium, that's, that's a fact that a lot

899
00:43:08.495 --> 00:43:11.535
of these assets that they are, we are holding currently

900
00:43:12.155 --> 00:43:16.415
in our funds are probably being held at a much lower

901
00:43:16.605 --> 00:43:18.095
valuation than what they,

902
00:43:18.155 --> 00:43:20.855
we will get when they are eventually sold.

903
00:43:21.195 --> 00:43:23.975
And that should turn into performance

904
00:43:24.155 --> 00:43:25.575
for our funds going forward.

905
00:43:26.575 --> 00:43:28.415
Absolutely. Awesome. Awesome.

906
00:43:28.595 --> 00:43:31.535
So yeah, we're coming up on q and a time here.

907
00:43:31.635 --> 00:43:33.215
So just, just a quick summary.

908
00:43:33.555 --> 00:43:38.215
, you know, key points the higher our thesis of hire

909
00:43:38.215 --> 00:43:41.735
for longer still staying intact honestly,

910
00:43:41.735 --> 00:43:45.255
hopefully it does, because hire for longer means growth.

911
00:43:45.675 --> 00:43:47.215
, you know, a return

912
00:43:47.215 --> 00:43:49.975
to a zero interest rate environment would be predicated on

913
00:43:49.975 --> 00:43:51.775
recession, and no one wants to see that.

914
00:43:52.315 --> 00:43:55.575
, we do expect potential challenges in the US equity

915
00:43:55.575 --> 00:43:58.775
market, pri not because the companies are bad necessarily,

916
00:43:58.995 --> 00:44:00.335
but it's driven by valuation.

917
00:44:00.635 --> 00:44:04.335
, you know, euphoria just like the.com bubble

918
00:44:04.595 --> 00:44:07.055
you know, kind of getting over our skis a little bit.

919
00:44:07.355 --> 00:44:09.895
, that's, that's been a consistent worry of ours.

920
00:44:10.395 --> 00:44:13.175
 well for the last, you know, kind

921
00:44:13.175 --> 00:44:16.175
of two years at this point geopolitical tensions,

922
00:44:16.175 --> 00:44:17.415
there's always geopolitical tensions,

923
00:44:17.435 --> 00:44:21.335
but with the new guy in the White House, I mean,

924
00:44:21.335 --> 00:44:23.815
we're sitting here rudderless without a,

925
00:44:23.815 --> 00:44:25.455
without a captain up in Canada here,

926
00:44:25.455 --> 00:44:26.735
we don't have anyone running the country.

927
00:44:27.235 --> 00:44:31.645
, you know, there's potential, you know, Taiwan, China,

928
00:44:32.425 --> 00:44:34.525
, we got two major wars going on.

929
00:44:34.565 --> 00:44:36.005
I mean, there's a lot of stuff going on.

930
00:44:36.005 --> 00:44:37.005
There always will be.

931
00:44:37.225 --> 00:44:39.925
, but these are kind of existential

932
00:44:40.225 --> 00:44:41.885
crises waiting to happen.

933
00:44:41.945 --> 00:44:43.725
And so we gotta keep our eyes on that

934
00:44:43.745 --> 00:44:45.165
and try to, to make sure that we're,

935
00:44:45.455 --> 00:44:46.805
we're not over leveraging a little bit,

936
00:44:47.065 --> 00:44:48.165
, too much into those.

937
00:44:48.985 --> 00:44:51.325
, and the key points

938
00:44:51.395 --> 00:44:54.005
that Brent talked about here is we are going to ex,

939
00:44:54.025 --> 00:44:56.165
you know, we expect to see higher deal activity in private

940
00:44:56.165 --> 00:44:57.165
markets and public markets.

941
00:44:57.745 --> 00:45:00.445
, but as we return to this normalized world,

942
00:45:01.085 --> 00:45:02.985
things should, you know, we should start being able

943
00:45:02.985 --> 00:45:04.985
to see exits, valuations, return to normal.

944
00:45:05.485 --> 00:45:09.505
, and just, you know, hopefully it's going to be

945
00:45:10.545 --> 00:45:14.705
a kind of a golden age of, of, you know, normal rates,

946
00:45:15.325 --> 00:45:18.425
normal growth, and just kind of a return

947
00:45:18.485 --> 00:45:19.705
to, to normalcy.

948
00:45:20.285 --> 00:45:22.985
, Brent, anything add on that?

949
00:45:24.285 --> 00:45:26.655
Yeah, we're, we're, we're pretty excited about, you know,

950
00:45:26.935 --> 00:45:30.175
when, when listen, I, I'm just excited about a lot

951
00:45:30.235 --> 00:45:32.615
of the areas that we're currently invested in.

952
00:45:32.615 --> 00:45:33.855
And when you mentioned about hire

953
00:45:33.915 --> 00:45:36.135
for longer higher interest rates, you know,

954
00:45:36.135 --> 00:45:40.745
when I talked about private credit, private credit as you,

955
00:45:40.745 --> 00:45:44.545
if, if you think back to 2022 when traditional bonds sold

956
00:45:44.545 --> 00:45:46.545
off pretty significantly

957
00:45:46.585 --> 00:45:48.265
private credit did exceptionally well,

958
00:45:48.455 --> 00:45:49.545
it's one of their better years.

959
00:45:49.565 --> 00:45:52.785
And you go, well, how can, how can private credit,

960
00:45:52.835 --> 00:45:57.825
which is like a private bond, do do well when public,

961
00:45:58.045 --> 00:45:59.985
you know, traditional bonds sold off.

962
00:45:59.985 --> 00:46:04.065
And that's because most private credit is floating.

963
00:46:04.415 --> 00:46:05.825
Yeah. A floating rate,

964
00:46:06.085 --> 00:46:08.865
and there's a base rate, it's called SOFR,

965
00:46:08.885 --> 00:46:10.625
the secured overnight funding rate.

966
00:46:10.645 --> 00:46:12.345
And, and that, that is the base rate.

967
00:46:12.765 --> 00:46:16.305
And so you, you do get this fixed rate over

968
00:46:17.165 --> 00:46:20.185
the floating rate, and if the floating rate goes up, which,

969
00:46:20.185 --> 00:46:22.905
which happened over the past couple of years, that that loan

970
00:46:22.905 --> 00:46:26.865
that you were, you were getting that was yielding,

971
00:46:27.165 --> 00:46:30.705
you know, let's call it 6.5% three years ago,

972
00:46:30.765 --> 00:46:32.585
is now yielding you 10 point a half percent.

973
00:46:32.585 --> 00:46:34.345
Right. Because the base rate had gone up.

974
00:46:34.405 --> 00:46:36.665
So if it's higher for longer, that means

975
00:46:36.665 --> 00:46:39.505
that the base rate will remain higher for longer.

976
00:46:39.675 --> 00:46:42.225
Right. Which means private credit will continue

977
00:46:42.385 --> 00:46:44.705
to pay higher yields over the longer term.

978
00:46:44.855 --> 00:46:47.505
Yeah. And that's we do have a question.

979
00:46:48.355 --> 00:46:49.375
, it's on rates.

980
00:46:49.635 --> 00:46:53.095
, so what does the current trend in the bond market

981
00:46:53.615 --> 00:46:55.095
indicate from an investment perspective?

982
00:46:55.155 --> 00:46:57.135
And I'm, I'm guessing the current trend he is talking about

983
00:46:57.135 --> 00:47:01.095
is a steepening in the yield

984
00:47:01.095 --> 00:47:04.435
curve, right?

985
00:47:05.135 --> 00:47:07.955
Oh what does it indicate

986
00:47:08.105 --> 00:47:09.395
from an investment perspective?

987
00:47:10.405 --> 00:47:13.415
Yeah. Well, can I talk about the US and you could talk

988
00:47:14.205 --> 00:47:16.095
because Chris and Yeah, yeah.

989
00:47:16.585 --> 00:47:18.335
Chris and I, were, we're, we're, we're,

990
00:47:18.335 --> 00:47:20.215
we're talking about this and we, we had a chart

991
00:47:20.215 --> 00:47:22.215
that we were going to going to highlight,

992
00:47:22.515 --> 00:47:25.375
and it's it, which is a really interesting chart.

993
00:47:25.655 --> 00:47:30.205
'cause historically, when central banks start cutting rates,

994
00:47:31.895 --> 00:47:33.885
right, why do they cut rates?

995
00:47:34.345 --> 00:47:38.645
Is because economic activity is beginning to slow

996
00:47:38.745 --> 00:47:40.885
and they wanna engineer a soft landing,

997
00:47:40.895 --> 00:47:42.005
which, which never happens.

998
00:47:42.315 --> 00:47:45.645
Yeah. But what's very interesting, historically in the us,

999
00:47:45.785 --> 00:47:49.645
you cut rates over the past, I think it's 25

1000
00:47:49.665 --> 00:47:53.605
or 30 years, that once they began to cut rates,

1001
00:47:54.605 --> 00:47:56.735
bond yields longer and longer.

1002
00:47:56.955 --> 00:47:58.855
End of the yield curve, let's call it 10 year bonds,

1003
00:47:59.375 --> 00:48:00.815
their yields went down as well.

1004
00:48:01.685 --> 00:48:03.585
But interesting, over the past,

1005
00:48:04.195 --> 00:48:07.385
since the feds started cutting rates back in the fall,

1006
00:48:08.285 --> 00:48:10.265
the long end has actually gone up.

1007
00:48:10.365 --> 00:48:12.065
So they've cut short term rates,

1008
00:48:13.125 --> 00:48:16.025
but longer 10 year bond rates have gone off.

1009
00:48:16.135 --> 00:48:18.705
Have gone up. And, and, and why is that?

1010
00:48:19.015 --> 00:48:20.505
Well, I think the market is sending,

1011
00:48:20.685 --> 00:48:22.025
is sending a couple messages.

1012
00:48:22.125 --> 00:48:26.185
One is, okay, you've got full employment, economic

1013
00:48:26.745 --> 00:48:27.785
activity is still strong.

1014
00:48:28.095 --> 00:48:31.185
What was the rationale for cutting rates? Yeah. Right.

1015
00:48:31.405 --> 00:48:33.225
And I think the market was concerned

1016
00:48:33.225 --> 00:48:36.105
that cutting rates too soon in, in, in a,

1017
00:48:36.105 --> 00:48:39.345
in a strong economic environment, could be,

1018
00:48:39.925 --> 00:48:41.545
, could be inflationary.

1019
00:48:41.545 --> 00:48:43.665
And that's why the long end of the yield curve is,

1020
00:48:43.805 --> 00:48:45.025
has, has gone up.

1021
00:48:45.025 --> 00:48:47.545
Mm-hmm. And I think there's another part that's, that

1022
00:48:48.245 --> 00:48:52.305
may start to be, be leaking into pricing of bonds,

1023
00:48:52.525 --> 00:48:54.625
and that is fiscal stability

1024
00:48:54.725 --> 00:48:59.265
or the amount of debt that is, is there, is there a a,

1025
00:48:59.505 --> 00:49:03.025
a debt premium being being thrown in there or,

1026
00:49:03.105 --> 00:49:06.705
or premium or, or however you wanna frame it?

1027
00:49:06.885 --> 00:49:10.225
So I don't, did you wanna tackle the,

1028
00:49:10.225 --> 00:49:13.065
because I tend to look at more more of the US

1029
00:49:13.205 --> 00:49:14.505
as opposed to Canadian bonds?

1030
00:49:14.895 --> 00:49:17.465
Yeah, I mean, you know, you're still seeing a bit

1031
00:49:17.465 --> 00:49:19.905
of normalization that un inversion

1032
00:49:19.905 --> 00:49:21.985
of the yield curve as, as we say.

1033
00:49:22.125 --> 00:49:23.545
, the, the question is

1034
00:49:23.545 --> 00:49:25.345
what does it indicate from an investment perspective?

1035
00:49:25.965 --> 00:49:28.745
, we, what we believe is that thesis

1036
00:49:28.845 --> 00:49:30.025
of higher for longer, right?

1037
00:49:30.025 --> 00:49:32.825
With interest rates normalizing, you get a flatter curve,

1038
00:49:32.845 --> 00:49:35.265
you get a return of term pre what we call term premium.

1039
00:49:35.565 --> 00:49:37.345
So that's longer rates

1040
00:49:37.525 --> 00:49:39.225
are higher than short term rates,

1041
00:49:39.565 --> 00:49:40.865
and you get compensated for,

1042
00:49:40.865 --> 00:49:43.465
for holding those longer tenor bonds.

1043
00:49:44.045 --> 00:49:47.225
, from an investment perspective, we think, you know,

1044
00:49:47.405 --> 00:49:51.425
it just means income is here to stay, bonds are,

1045
00:49:51.765 --> 00:49:55.305
are going to be you know, nice, provide nice cushion

1046
00:49:55.485 --> 00:49:56.705
you know, the, the overall income

1047
00:49:56.705 --> 00:49:58.145
environment is very strong.

1048
00:49:58.805 --> 00:50:01.265
, the growth environment, you know, could pose,

1049
00:50:01.795 --> 00:50:04.505
could pose weaker, I guess, you know, for the next,

1050
00:50:04.725 --> 00:50:06.865
in the short term as valuations come back to normal.

1051
00:50:07.325 --> 00:50:10.425
, but overall, we aren't leaning heavily into anything.

1052
00:50:10.645 --> 00:50:12.545
, we got diversified portfolios here

1053
00:50:12.545 --> 00:50:15.265
and we're, we're not trying to try, trying to play

1054
00:50:15.815 --> 00:50:17.065
play a yield curve play.

1055
00:50:17.535 --> 00:50:21.025
Yeah. Yeah. I think what's the 10 year yielding right

1056
00:50:21.025 --> 00:50:22.225
now, Chris?

1057
00:50:22.425 --> 00:50:26.825
I didn't check. Today it's over 4%. Over 4%. So yeah.

1058
00:50:27.705 --> 00:50:28.715
Yeah. Canada is three

1059
00:50:28.715 --> 00:50:30.075
and a half, I think, somewhere in the, okay.

1060
00:50:30.075 --> 00:50:31.475
So three and half, let's call it

1061
00:50:31.475 --> 00:50:32.555
three and a half percent in Canada.

1062
00:50:32.715 --> 00:50:34.715
I can't, I, I haven't looked at it recently, but three

1063
00:50:34.715 --> 00:50:36.315
and a half percent in Canada 10 year.

1064
00:50:36.345 --> 00:50:39.155
That means if you hold it for the next 10 years, you,

1065
00:50:39.215 --> 00:50:40.595
you are will have made three

1066
00:50:40.595 --> 00:50:44.035
and half percent utilize over, over a decade.

1067
00:50:44.935 --> 00:50:49.155
, now it are, are people buying bonds today

1068
00:50:49.155 --> 00:50:51.555
because of that amazing three and a half percent yield?

1069
00:50:51.695 --> 00:50:53.715
Or is it because of the expectations

1070
00:50:53.815 --> 00:50:57.955
of a weakening economic environment driving sh ,

1071
00:50:57.985 --> 00:51:01.315
inflation lower driving interest rates lower,

1072
00:51:01.695 --> 00:51:05.955
and then that 10 year bond will, you know, we'll trade at,

1073
00:51:05.975 --> 00:51:07.235
at, at a much higher rate.

1074
00:51:07.235 --> 00:51:08.795
So you, you'll be capturing some of

1075
00:51:08.795 --> 00:51:11.435
that capital appreciation Yeah.

1076
00:51:11.615 --> 00:51:12.995
Of it short term. And

1077
00:51:12.995 --> 00:51:15.635
that's if only if you actually sell it at some point.

1078
00:51:15.635 --> 00:51:19.115
Yeah. So we, we don't wanna play that, that game of,

1079
00:51:19.655 --> 00:51:21.355
we anticipate we're going to buy a,

1080
00:51:21.635 --> 00:51:23.835
a 10 year bond at a 4% yield

1081
00:51:23.835 --> 00:51:27.435
because we think we can do 10% for animal

1082
00:51:27.775 --> 00:51:31.235
10% on it next year as interest rates go down, we're we,

1083
00:51:31.235 --> 00:51:32.595
we try not to play that game.

1084
00:51:35.675 --> 00:51:40.175
Alright. Any other questions? Looks like that's all.

1085
00:51:40.805 --> 00:51:41.935
Yeah. ,

1086
00:51:42.105 --> 00:51:45.205
we must have answered everything people wanted, I guess, so.

1087
00:51:45.895 --> 00:51:47.465
Well that's, that's good for us. All right.

1088
00:51:47.465 --> 00:51:49.905
Well yeah, thank you everyone for joining.

1089
00:51:50.125 --> 00:51:52.785
, there will be a recorded version sent out.

1090
00:51:53.325 --> 00:51:54.825
, please, if you have any questions

1091
00:51:54.825 --> 00:51:58.105
and you're, you know, shy don't hesitate to reach out

1092
00:51:58.165 --> 00:52:01.545
to your wealth counselor or, or Brent directly.

1093
00:52:01.565 --> 00:52:04.865
He loves that. , I do. Yeah, I know, I know he does.

1094
00:52:05.645 --> 00:52:08.385
But yeah, thank you for taking the time

1095
00:52:08.605 --> 00:52:09.625
to be with us today.

1096
00:52:10.285 --> 00:52:13.705
, and we'll give you eight minutes back.

1097
00:52:14.565 --> 00:52:17.305
Oh, oh, sorry. We just got one last one on.

1098
00:52:17.925 --> 00:52:19.105
Oh, you, here we go.

1099
00:52:20.255 --> 00:52:24.225
Bitcoin and welcome your thoughts on Bitcoin. Bitcoin ETFs.

1100
00:52:24.245 --> 00:52:26.585
How about anonymous attendee? Brent, did you write that?

1101
00:52:28.445 --> 00:52:31.105
That's for you, Chris. I think it was directed at you.

1102
00:52:31.605 --> 00:52:34.705
Oh, boy. , so yeah, Bitcoin, right?

1103
00:52:34.735 --> 00:52:38.305
It's the we have not taken

1104
00:52:39.595 --> 00:52:42.545
large stances in the cryptocurrency market

1105
00:52:43.285 --> 00:52:44.345
for a number of reasons.

1106
00:52:44.965 --> 00:52:46.825
, you know, the, the primary

1107
00:52:46.925 --> 00:52:49.705
and most easily explainable one is valuation

1108
00:52:50.085 --> 00:52:53.065
of these instruments, these smart contracts

1109
00:52:53.685 --> 00:52:56.625
is nearly impossible because you're buying something

1110
00:52:56.625 --> 00:53:00.425
and you are only, you know, it's only as good

1111
00:53:00.425 --> 00:53:01.785
as being able to sell it to someone else.

1112
00:53:02.445 --> 00:53:05.625
, historically it's done, you know, it's done really well

1113
00:53:05.655 --> 00:53:07.585
because it's, it's a new technology,

1114
00:53:08.205 --> 00:53:12.065
but most of the portfolios that we operate

1115
00:53:12.325 --> 00:53:15.385
and our job is to make sure that we are

1116
00:53:15.905 --> 00:53:18.785
maintaining capital preservation with responsible growth.

1117
00:53:19.605 --> 00:53:21.545
And you've got an asset class here

1118
00:53:21.735 --> 00:53:22.785
just talking about Bitcoin.

1119
00:53:22.885 --> 00:53:25.525
Not even the, the other stuff that we, you know,

1120
00:53:25.525 --> 00:53:27.325
don't even need to get into like the Trump coins

1121
00:53:27.325 --> 00:53:29.085
and the meme coins, but just Bitcoin itself,

1122
00:53:29.585 --> 00:53:30.965
, has volatility.

1123
00:53:31.105 --> 00:53:32.685
That's I believe two

1124
00:53:32.685 --> 00:53:34.525
or three times as much as the stock market.

1125
00:53:35.025 --> 00:53:37.245
That's that's a dangerous game to play.

1126
00:53:37.785 --> 00:53:41.365
, you know, we invest not really in a casino environment.

1127
00:53:41.905 --> 00:53:46.125
, you know, as, as the smart contract,

1128
00:53:46.225 --> 00:53:48.285
the Bitcoin blockchain world evolves.

1129
00:53:48.625 --> 00:53:50.925
We are looking at it, we are aware of it.

1130
00:53:51.265 --> 00:53:53.125
, trust me, we're, we're paying attention,

1131
00:53:53.625 --> 00:53:55.765
but we need to have a lot more certainty

1132
00:53:55.765 --> 00:53:57.365
around long-term valuations

1133
00:53:57.425 --> 00:54:00.045
and, you know, decrease volatility

1134
00:54:00.545 --> 00:54:03.165
before we start to invest in it in client

1135
00:54:03.175 --> 00:54:04.805
portfolios, if that makes sense.

1136
00:54:05.525 --> 00:54:08.925
I would mention that, that anyone who's been on these calls

1137
00:54:08.945 --> 00:54:13.395
for a number of years knows that we, we do have exposure

1138
00:54:13.495 --> 00:54:16.795
to a private company that is a crypto exchange.

1139
00:54:17.305 --> 00:54:20.075
Yeah. , so they will make money regardless

1140
00:54:20.175 --> 00:54:22.875
of the direction of cryptocurrencies.

1141
00:54:23.145 --> 00:54:25.075
Yeah. And, and we do believe,

1142
00:54:25.175 --> 00:54:28.875
or we're hoping that that company does go public over

1143
00:54:28.875 --> 00:54:32.195
that we, we do know that it has filed to

1144
00:54:33.215 --> 00:54:34.635
its initial public offering.

1145
00:54:35.085 --> 00:54:37.275
We're hoping it's going to be in the first half of this year,

1146
00:54:37.295 --> 00:54:39.555
and we're very optimistic on the outlook.

1147
00:54:39.735 --> 00:54:43.915
So that's how we, how we get our exposure to Bitcoin.

1148
00:54:44.015 --> 00:54:47.555
And, and I do know that this particular company at last I

1149
00:54:47.555 --> 00:54:51.055
checked, had about $1.5 billion of bit

1150
00:54:51.115 --> 00:54:52.575
of Bitcoin in its treasury.

1151
00:54:52.795 --> 00:54:54.815
So that's, that's how we're getting exposure.

1152
00:54:54.955 --> 00:54:57.375
But to, you know, to echo Chris's,

1153
00:54:58.465 --> 00:55:00.845
and it is a very small portion of the portfolio, again,

1154
00:55:00.845 --> 00:55:03.405
because we have risk budgets to meet and

1155
00:55:03.905 --> 00:55:08.215
and you know, the risk, the risk of,

1156
00:55:08.275 --> 00:55:11.175
of these instruments where it could fall you know,

1157
00:55:11.175 --> 00:55:14.175
we just don't know is, is is dangerous

1158
00:55:14.175 --> 00:55:16.495
and not within the, the confines

1159
00:55:16.495 --> 00:55:18.015
of fiduciaries such as ourselves.

1160
00:55:18.325 --> 00:55:21.055
Yeah. Conrad had a question on the Canadian dollar versus

1161
00:55:21.275 --> 00:55:24.995
us, and I think we, we did answer that earlier that

1162
00:55:25.455 --> 00:55:26.795
you know, I think

1163
00:55:27.365 --> 00:55:30.675
Chris mentioned structurally over the long term

1164
00:55:30.685 --> 00:55:32.835
there tends to be a reversion to the means.

1165
00:55:32.855 --> 00:55:37.355
So we do think that we, we just don't think that a 1.4

1166
00:55:37.495 --> 00:55:40.435
to 1.5 is sustainable longer term.

1167
00:55:40.855 --> 00:55:44.075
But from a short term perspective, you know,

1168
00:55:44.955 --> 00:55:47.355
currency is a big, big part of pricing or,

1169
00:55:47.375 --> 00:55:50.155
or foreign exchange is interest rate differentials.

1170
00:55:50.155 --> 00:55:52.395
And right now the differentials certainly favor

1171
00:55:52.535 --> 00:55:53.555
the US dollar.

1172
00:55:53.945 --> 00:55:55.395
Yeah. The, the Bank

1173
00:55:55.395 --> 00:55:57.435
of Canada cut rates a quarter percent today,

1174
00:55:57.535 --> 00:55:59.395
the US will probably not cut.

1175
00:55:59.975 --> 00:56:03.315
, but if we do see the us if,

1176
00:56:03.335 --> 00:56:05.755
if inflation remains sticky

1177
00:56:05.775 --> 00:56:09.875
and maybe even increases in the us you know,

1178
00:56:10.115 --> 00:56:14.155
interest rates, the Fed may have to, in increase rates,

1179
00:56:14.165 --> 00:56:17.355
which will expand that, that interest rate differential.

1180
00:56:17.455 --> 00:56:19.035
So I think over the, you know,

1181
00:56:19.085 --> 00:56:21.835
let's call it cyclically over the next year

1182
00:56:21.835 --> 00:56:24.805
or two, there, there could still be a bit

1183
00:56:24.945 --> 00:56:26.925
bit more strength in the US versus,

1184
00:56:27.305 --> 00:56:30.565
versus the CAD based on just solely on

1185
00:56:30.725 --> 00:56:31.805
interest rate differentials.

1186
00:56:31.865 --> 00:56:35.565
Now, if oil goes to $140, all bets are off.

1187
00:56:35.725 --> 00:56:38.125
I mean, we, we tend to be, Canadian dollar tends

1188
00:56:38.125 --> 00:56:41.925
to be viewed as a cryptocurrency , not a curr

1189
00:56:42.105 --> 00:56:44.965
, energy or oil oil ,

1190
00:56:45.415 --> 00:56:47.285
petro currency is what I was looking for.

1191
00:56:47.435 --> 00:56:51.165
It's funny how crypto is, how crypto is replaced Petro.

1192
00:56:51.345 --> 00:56:56.215
, anyway, a as far as as far as the euro, we,

1193
00:56:56.215 --> 00:57:00.835
we don't really, you know, we, we have, we don't have, well,

1194
00:57:00.835 --> 00:57:05.075
we do have some exposure to European funds.

1195
00:57:05.375 --> 00:57:06.835
We, we tend to hedge those.

1196
00:57:07.735 --> 00:57:12.515
And so we're not we don't really look at the u

1197
00:57:13.295 --> 00:57:15.475
CAD versus Euro, so apologies for that.

1198
00:57:16.325 --> 00:57:17.825
, well, the, the, yeah.

1199
00:57:17.965 --> 00:57:21.745
CAD versus Euro, I mean, again, structurally speaking

1200
00:57:22.155 --> 00:57:23.865
we've got stagnant growth in Europe.

1201
00:57:24.395 --> 00:57:26.385
We've got, you know, some inflation.

1202
00:57:26.635 --> 00:57:28.185
We've got, you know

1203
00:57:28.585 --> 00:57:29.865
interest rates coming down in Europe.

1204
00:57:30.525 --> 00:57:32.225
, you know, the outlook isn't,

1205
00:57:32.595 --> 00:57:34.105
isn't rosy, I'll tell you that.

1206
00:57:34.465 --> 00:57:35.785
Hmm. , you know,

1207
00:57:35.925 --> 00:57:39.265
but with some normalization, with a little bit of,

1208
00:57:39.265 --> 00:57:42.425
of an uptick, hopefully, you know, Europe can kind of get,

1209
00:57:43.125 --> 00:57:44.145
get their ducks in a row.

1210
00:57:44.405 --> 00:57:46.265
, and we could see a little bit more strength.

1211
00:57:46.265 --> 00:57:49.025
But, you know, in the short term, I, I don't expect,

1212
00:57:49.025 --> 00:57:51.785
you know, we're not, we're not running a, a, you know,

1213
00:57:51.785 --> 00:57:54.585
long USD short euro carry trade or anything like that.

1214
00:57:54.835 --> 00:57:57.745
We're, we're just going to you know, try to try

1215
00:57:57.745 --> 00:57:59.225
to hedge our bets

1216
00:57:59.285 --> 00:58:01.825
and focus on, on, you know, what we're good at.

1217
00:58:02.165 --> 00:58:04.665
, if that makes, Chris, we got two minutes. Yeah.

1218
00:58:04.665 --> 00:58:07.705
And we got one more thoughts on, given your deal, the,

1219
00:58:07.705 --> 00:58:09.505
the local oil and gas expert,

1220
00:58:09.665 --> 00:58:10.705
I thought I'd have that one over to you.

1221
00:58:10.975 --> 00:58:12.065
Sure. Well, yeah.

1222
00:58:12.065 --> 00:58:16.305
Experts, I guess , sentiment, do you,

1223
00:58:16.365 --> 00:58:17.945
so the question is, what are your thoughts on

1224
00:58:17.945 --> 00:58:18.985
oil and gas in Canada?

1225
00:58:19.485 --> 00:58:21.065
Do you believe sentiment is changing?

1226
00:58:21.685 --> 00:58:25.225
, I'm not sure if you mean sentiment politically

1227
00:58:25.285 --> 00:58:27.105
or sentiment economically.

1228
00:58:27.145 --> 00:58:28.185
I can talk about both. I mean,

1229
00:58:28.225 --> 00:58:30.345
I think sentiment politically is changing

1230
00:58:30.485 --> 00:58:34.225
and that we're starting to realize that oil

1231
00:58:34.225 --> 00:58:37.665
and gas is part of the, part of the system

1232
00:58:37.695 --> 00:58:38.945
part of the program here.

1233
00:58:39.205 --> 00:58:43.985
, and with the energy demands

1234
00:58:44.485 --> 00:58:45.865
as we've talked about at length,

1235
00:58:45.865 --> 00:58:48.865
and I'm sure you've heard about there, you know,

1236
00:58:48.865 --> 00:58:50.665
we're not going to look at it as Scott Beon said,

1237
00:58:50.665 --> 00:58:52.025
there isn't a clean energy, race,

1238
00:58:52.225 --> 00:58:54.505
anywhere there's an energy race, we're looking at oil,

1239
00:58:54.595 --> 00:58:56.545
we're looking at gas, we're looking at nuclear,

1240
00:58:56.555 --> 00:58:58.465
we're looking at green, we're looking at solar, wind.

1241
00:58:58.495 --> 00:58:59.665
Doesn't matter what it is,

1242
00:59:00.285 --> 00:59:02.345
the the world is becoming more power hungry.

1243
00:59:02.565 --> 00:59:05.305
And so that is a definite, definite tailwind for Canada.

1244
00:59:05.885 --> 00:59:10.505
, the fact that we are not going to be the 51st states,

1245
00:59:10.765 --> 00:59:13.825
but you've got a significant you know, one

1246
00:59:13.825 --> 00:59:16.665
of the largest oil, oil and gas reserves in the world

1247
00:59:16.735 --> 00:59:19.705
sitting in our backyard right beside the right,

1248
00:59:19.705 --> 00:59:20.825
you know, right beside our, our

1249
00:59:20.825 --> 00:59:22.045
power hungry neighbor of the us.

1250
00:59:22.285 --> 00:59:23.885
I think that is structurally positive.

1251
00:59:24.385 --> 00:59:27.445
, the big question is what tariffs are going to look like,

1252
00:59:27.865 --> 00:59:29.165
but overall structurally

1253
00:59:29.265 --> 00:59:32.525
and secularly on a, you know, on a longer term basis, I'm,

1254
00:59:32.925 --> 00:59:34.805
I, I believe the basin is back.

1255
00:59:35.045 --> 00:59:38.565
I think that there's, there's a lot of positive things to,

1256
00:59:38.705 --> 00:59:40.645
to look for in Canadian oil and gas.

1257
00:59:41.185 --> 00:59:45.845
, and with this nearshoring, you know, worries about

1258
00:59:46.395 --> 00:59:47.765
wars in, in Russia

1259
00:59:47.905 --> 00:59:51.205
and the Middle East you know, we got it right here.

1260
00:59:51.505 --> 00:59:55.445
, let's, let's try to, try to capitalize on,

1261
00:59:55.705 --> 00:59:58.205
on it while we can and use it as a transition bridge fuel,

1262
00:59:58.625 --> 01:00:00.005
, regardless of your view.

1263
01:00:00.205 --> 01:00:01.325
I hope that answers your question,

1264
01:00:02.785 --> 01:00:04.845
and I think we're, I think we've hit our time, everyone.

1265
01:00:04.945 --> 01:00:09.285
So thanks again. , again, there will be a recording.

1266
01:00:09.585 --> 01:00:11.165
, appreciate your time

1267
01:00:11.905 --> 01:00:14.845
and , yeah, everyone have a great day.

1268
01:00:14.985 --> 01:00:17.045
All right. Thanks everyone for attending. Thanks, Chris.

1269
01:00:17.145 --> 01:00:19.045
Thanks. Bye. Alright, bye.