Chris Adair: Welcome to another episode of “Three in Five,” this is Chris Adair, head of our strategic partnerships here at SLC Management. This is our annual holiday tradition, where I get to turn the tables and actually interview Steve Peacher, president of SLC.
Steve Peacher: Well, Chris, thanks for having me. It's much easier to ask questions then answer, so I’m little nervous about what you're going to throw at me, but...
Chris Adair: It is, it is Steve. I have to tell you I've been. I've been looking forward to this to this session. So, Steve. Wow! What a year we've had in terms of capital markets. Unprecedented rate hikes from the fed, inflation, coming out of the heels of Covid and what we've seen both across all risk assets. So maybe you could just spend a little time, reflect on your thoughts of 2022 and where you see we're going in 2,023.
Steve Peacher: Sure I I’ll tell you what my overarching conclusion is, although looking back, not just at 2020 to the last couple of years. You know who would have guessed that in late 2019, that we are months away from going to a global pandemic, and then on March 13th, 2020, we would all go immediately to work from home. Who would have guessed that, given that, the economy, after a few months of turbulence, would have actually done really well, and markets would have taken off. Who would have expected that we would now be looking at a war in Europe that, you know, you see scenes that feel like you're looking at World War II videos sometimes. Who would have expected that we would be seeing inflation at double digit rates? Who would have thought that, you know, on the back of a pandemic you'd have a Federal Reserve that was cranking rates up at these to these levels. And the overarching lesson that I take away from that is that no matter how hard we're all, we all try to predict the future none of us know. None of us would have predicted those things. And even if you had the foresight to get one of those variables right, even if you could look into the crystal ball and say, Yup! I know for sure that we're going to have a pandemic. You probably couldn't have guessed with certainty what the market was going to do. You know, you probably wouldn't have guessed that the market would have done as well coming, you know, in the teeth the pandemic as it has. So I think what it made me, what it reinforces with me, is just while you've always got to be looking forward and trying to take lessons from the past, the world is complicated and the world's unpredictable. And you've constantly got to respect that as you're trying to invest money.
Chris Adair: I think, Steve the important thing is that with volatility creates opportunity, right? So I think it's easy for all of us to sit back and say it's doom and gloom in the marketplace, everyone is seeing both their personal you know portfolio statements as well as our institutional clients, and everybody have felt some pain in 2022. But out of that I firmly believe that that there is opportunities. What are your thoughts on that?
Steve Peacher: Well, let me, maybe I’ll. I'll first start by saying, you know, you mentioned 2023 what's an outlook? And I think I think there's a lot that you can be nervous about, always nerve racking when the Fed is raising rates and talking about the potential for recession. Never feels good. Inflation is seemingly topping out, but still very high, not feeling good. Still got this war in Europe. Still working through issues related to Brexit. We've got geopolitical issues with China U.S. So there's all kind of stuff to feel nervous about and there are probably, we could probably play multiple, realistic negative scenarios that will be problematic from a market environment next year. But I also think it's important to realize that there always is a positive scenario to at least one, if not multiple. And I do think that it's important to think about what could go right. I’m certainly not predicting this, and you probably say it was being pollyannaish if I did, but you know what if next year we look up and there is a resolution to what's happening in Ukraine? What if, as a result, oil prices continue to come off even more and price at the pump come off. What if inflation actually settles in, core inflation around 3-4%, that actually might feel a lot better than 1.5 percent where deflation was a concern, 3-4 might be a really good level. And even though the Fed talks about a 2% target, they might be happy with that. You know it might feel pretty good if the Fed stops raising rates, to know that the Feds got ammunition again in case there's a downturn to cut rates. And so a scenario like that might actually be pretty good as a backdrop for markets. So, I think there are many scenarios. In an environment like this it's easy to think about the ugly ones. They're not all we need to think about that.
Chris Adair: Yeah, I agree. I look at the fixed income markets today, and I think about just the whole capital market structure where if you've got front part of the curve, you know you got one year key bills and almost 5% now. you're looking at, 5-year corporate credit I don't know 6 and a half, almost 7% in some instances, still, investment grade. I think about what that means just in terms of opportunity sets for our clients. I’m not necessarily sure you need to go up the risk spectrum to reach your investment returns like you used to. But having said that, I think you know what what's unique about the SLC platform is that you know we have a lot of strategies and a lot of tools in our toolkit to take advantage of some of these opportunities. When you think about that, you think about, we've got obviously, we have our big fixed income pillar. We've got Crescent with our private credit strategies, we have InfaRed and the renewable and sustainable energy efforts that that team is investing in. What are your thoughts about? the various different affiliates and opportunity set?
Steve Peacher: Yeah, I think it's a good question. It's the reason why we like to have a broadcast platform, because everything is not attractive all the time. And so we wanted to build a platform where in most market environments we, you know, we had some strategies that were could be really favorable in those market environments. So if I think about that right now you mentioned fixed income, I mean, I think for the first time in a long time, and I know you see this day in and day out, we're finally, we're now starting to see institutional investors say, Gee, I’m interested in fixed income again because I got a 10 year around% 4 and maybe my pension funding is improved with the rising rates. So maybe I want to allocate back to fixed income. So I think investment grade fixed income, which was offering nothing in terms of yield, felt like for years, it's now kind of back on the radar screen in a big way. So, I think that's really interesting to us. If you extend that into credit, or some of the spread sectors, you know you take higher risk-free rates with some spread that have widened. I mean you mentioned some levels in the high single digits, feels pretty good, you know, especially if you end up in an environment possibly like I described earlier. I think a great place to be a lender right now, to have fresh money to lend against real estate. I think that right now you're seeing commercial mortgage rates actually above cap rates, and I think if you're a flexible lender in the real estate markets you're going to see a lot of opportunities to lend money on attractive terms against good properties where the owner may be facing a maturity with an existing loan it needs to refinance. So I think there's some real opportunities there. You know you mentioned infrastructure, you know we think this wave of investment that needs to happen in renewable energy is just, we're in the early innings of that, and we think that's gonna be huge, and we think it's gonna be an opportunity next year and for many years beyond that, so that's something we're thinking about. And even on the real estate side, where there's certainly some sectors that are challenged right now, like the office sector. But there's some other areas that continue to be, to roll along. You know, industrial’s the poster child, you know, given the focus on online shopping, etc. Cold storage is another example of that. So, if you look at the markets we invest in, we think that there are a number of sub sectors right now that look really attractive going into 2023.
Chris Adair: Well speaking to online shopping, I understand that this is a pretty special year for you. You are now a grandfather. Congratulations.
Steve Peacher: Thank you.
Chris Adair: And so with that and with the holidays, can you maybe talk a little bit about what that means to you and Anne and your family. First time, grandfather. And really, I think about the holidays and what it means for everybody. And it's about spending time of family, so can you spend a little time and talk to us about how you're planning to spend the holidays?
Steve Peacher: Oh my gosh, well you know, as anyone who has kids or grandkids knows, there’s nothing better. You know we have a grandson that’s now 3 months old, and it from brings back all these great memories from when our kids were that young, and you all avoid all the bad memories, because when it's time to go to bed you hand them to their parents, and then they deal with it, and you don't have to. So that all feels really good. And you know you mentioned the holidays and thinking about gifts. Unfortunately, this is, you know we've got a grandson that hasn't even let you learn to roll over yet, and I’m looking at like buying him a football, or can I get him a lacrosse stick? So, I gotta readjust my expectations for gifts for the holiday, but it's definitely a special time for my wife and I. So I appreciate you asking.
Chris Adair: Well, that’s great Steve, congratulations. So on that note, just wanted to let everyone know, from all of us at SLC, we wanted to wish everyone a happy holiday and all the best in 2023, and we look forward to continuing working with you as our partners.
Steve Peacher: Let me reiterate that and same to you, Chris. Happy holidays and happy holidays to all of you who support us with our “Three in Five” podcasts over the last couple of years.
Chris Adair: Thanks, Steve.
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