It seems like all the talk today Yesterday and the days in between has Been all about inflation rates et cetera As an equity investor equity manager uh Here do you worry at all about this Elevation that we've seen so far I think the markets have already equity Markets have already priced in Obviously a steepening of the yield Curve we like the rest of the street Expect a 50 basis point hike tomorrow For us kind of bigger picture um what We're really worried about for our Clients is the 60 40 portfolio and its Future from here because it is 64 60 40 That's still a thing yeah well it is Because most assets around the world Including a lot of people at this Conference are allocated against that Portfolio right and just quickly it Returned eight percent real compound Return in the last cycle that was Incredible yeah and you could just Follow that and do quite well right um That number is five percent over the Last hundred years it's negative eight Percent year-to-date and so you know We're a lot of clients are wondering do We are we on the precipice of a lost Decade for a balanced asset allocation Do you think you abandoned that the 40 Side of that now even though we're only What four or five months into the year i Think actually and equities can perform
Against an inflationary backdrop so we Would be overweight equities versus Bonds for example There is a difficult setup in general For risk assets because while equities Are down 13 valuations are still at their 90th Percentile most expensive we have Slowing growth and inflation picking up So some people think stagflation is a Real risk and we know that we have the Removal of the central bank put in other Words we could depend when things were Tough like they are now that we would Get a rate cut and and everything would Be fine that's no longer the case Because we know the central bank needs To fight inflation so it's a tough set Up but i would just end by saying we Don't think this is the lost decade of The 1970s just returns are going to be a Lot lower and we're going to have to Work really hard for our clients to find Those opportunities with regards to the Central bank we don't believe uh that The fed If markets i guess fell enough would Step in at some point to try to Stabilize That's obviously always a possibility if We go into a deeper session which isn't Our base case our base case is that We're going to be the fed's going to be Focused on fighting inflation growth is
Going to be moderating returns therefore Are going to be more scarce and we're Going to have to be looking um across The markets for opportunities for Clients in places like tech for example Climate transition or two areas that We're looking at really hard now well Let's talk about tech for example i mean We know that they're sort of kind of the Short-term growth momentum tech names Out there they're also sort of Structural names and structural sectors Out there that reflect a lot of secular Shifts in the economy here are you Focused on those and if so where i think Uh tech is down obviously but not out That's my my big headline around tech And if you look at what's happened in The space tech market's down 20 percent On average um the software part of the Market's down 30 to 50 percent depending On names why because for this sector for The first time the state is facing the Facts or first time in a long time that Capital actually cost something Inflation is here eyeballs are going to Tick-tock it's been a tough operating Environment i would just offset that by Saying that ultimately when you step Into this sector you're actually Believing in something that's quite Secular not cyclical and satya nadella Said this really well on the microsoft Earnings last week um someone was
Pushing him on this very point um how Bad are these macro challenges can you Operate through this and he had this Observation that i'm not so focused on That because when i look out 10 years Tech as a percentage of gdp is going to Double and we want a piece of that for Our clients so we're really trying to Allocate them against that monster tam Or total addressable market but break Down tech into i guess something a Little bit more bite-sized because there Are the microsofts and apples of the World with a ton of cash in their Balance sheet relatively low debt Service that one way or another are Probably going to find a way to thrive Yeah then there's sort of these Second-tier tech companies where i think There's still a question mark around Their longer-term viability in a Potentially lower economic environment i Actually think if you can find in that Middle category so below the fangs if You will but these emerging tech leaders That have the ability to get through This difficult operating environment and You can access them at these valuations That's where there's actually some Really interesting opportunities in the U.s and around the world and here's why I think that i spent a lot of time Talking to ceos so does my team goldman Sachs asset management we meet with over
10 000 companies a year i have yet to Meet a ceo that's telling me they want To cut their enterprise fence and i like To buy things that i know my ceos are Investing in so i like digitalization of Businesses that's what we're invested in As a team and you can find a lot of Companies in small and mid-cap space Specifically take software Robert smith has a great quote on this Which is software is even better than First lien debt because if you depend on That software for running your business You are paying that software fee before You even think about servicing your debt And we can find a company like qualtrex Which is in that space right a lot of Companies depended on a small cap not Well covered uh compounding at a very High rate while the stock is off 50 so There should be great opportunities here Don't give up on growth okay in a world Where growth gets more scarce it should Re-raise It should be rate and it has re-rated There's some concern it could re-rate Further yeah well in other words it's Full it's obviously sold off a lot but We would stick with growth here in Portfolios selectively because it will Recover and re-rate from these levels That's our view so we would not give up On growth in a world where actually it Might be scarce we would just have
Balance in the portfolio own that along For example some stuff in the Commodities space because there is going To be heightened inflation right and you Want to own assets that can actually Benefit from that too so balance will Also be key here and one of the other Big secular trends we've seen a lot is The move to renewable energy alternative Sources of fuel um where do you look for Opportunities there is is there just Sort of the traditional names you know The teslas of the world maybe a couple Of other oil companies that have made The transition or do you look a little Bit deeper we really do believe that We're on the precipice of a major Revolution here in climate transition And i want to be clear that we're Allocated to that in two ways we Actually continue to own some of the Traditional hydrocarbon companies but we Engage with them so we don't believe in Divestment we believe in engagement Because 85 percent of the world's fuel Is traditional hydrocarbons so the path To sustainability actually runs through The oil patch and we'd rather those when You say engagement in your role you're Not necessarily talking activism in the Traditional sense yeah it's a good Clarification we all adjust we engage With companies to make sure that they're Running those assets responsibly because
If 85 of the world's fuel source is Still traditional hydrocarbons we Believe that those are better run in the Scrutiny of public markets and we just Work with those management teams to make Sure that those assets are being run Responsibly because we need to just Transition so we do that and then we Also are allocated to alternative energy And probably our favorite space right Now is actually in the materials and Owning the green metals because this Decarbonization move that's going to Happen over the next decade is actually Highly mineral intensive copper for Example is something that we own across All of our portfolios which is the base Metal for electrification so you've got Good demand And then i would say on the supply side Because of esg concerns you have Inelastic supply growth it's actually Really hard to bring supply to the Market in these minerals so that's a for Us been a great area to focus on we only Have about 30 seconds left here but i do Want to just get your quick thoughts Here on the competition between public Equity versus uh private investment and Private equity that's really kind of Honed in in your space at least for Clients looking for better sources of Yield i think clients that are able to Should access both private and public
Markets At the moment now particularly in some Of the spaces we just talked about tech In particular a lot of the pain has Already been discounted into public Markets and the reality is that you can Access some of these great innovation Opportunities and technological Disruptions at a 50 discount to what it They've just priced in private markets I'm biased i'm a public market investor But i'd welcome people to look in that Space
