The world economy will grow this year and there will be positive GDP growth most likely next year, says George Siguler, managing director and founder partner of private equity investment firm, Siguler Guff.
Speaking ahead of his appearance at the Conference of the Major Superannuation Funds (CMSF) in Brisbane this week, Siguler said there are systemic problems that have been “a long time in creating and probably a long time in solving”.
“That really is about budget deficits and about overleveraged institutions and about restructuring and deleveraging, and irrational tax policy and regulatory policy that doesn’t stifle business,” he says. “[And] we’re not in a mood yet where prices are excessive, that there’s still reasonable value out there to invest in.”
Great global growth companies
Siguler thinks the industry should be positive, highlighting some “great global growth companies” as sustainable opportunities and a “reasonable place to be”.
“Any one country or region may give us a negative surprise, [but] if you look across major consumer companies, European companies like a Unilever or a Nestlé, [or] US airline manufacturer Boeing… those are pretty nice companies and I think they will be probably as resilient an asset as you can own.”
However, an “extraordinarily loose” approach to monetary policy in order to stimulate growth is “the most frightening thing” right now, according to Siguler.
“At some point in time, we’re going to have to go through a process of letting interest rates go back to real rates, as they should be, without destroying the banking system or all those who hold that paper,” he says.
Siguler notes the challenge of low interest rates in the US, Japan, Germany and England. In France, the only rates that appeared real – and the risks are quite different – are the southern European countries. But post the huge amounts of guarantees provided by the European Central Bank, the interest rates in Spain and Italy are probably lower than they should be as well.”
Siguler says that while Australia hasn’t escaped the global financial crisis, it never had a “real recession”. “I think it has a strong, well-positioned economy. Your banks never got into anywhere near the trouble that US banks got into.”
|A Siguler approach to investment|
|Siguler Guff’s major activity is in distressed investing, which can be liquid securities but primarily relate to participation in business restructures or loans.“The preponderance of those assets are in US investments, although Europe is ever-more offering us distressed opportunities,” Siguler says.“I think that given the whole process of global deleveraging and the impact and residuals of the global financial crisis, the work out of distressed assets still have three or four years to run – maybe more – and they’ve taken on different characteristics.”The firm likes to undertake buyouts of small and medium-sized enterprises – companies with around $50 million in sales and $10 million of pre-tax profits.“They generally have grown up as family businesses, but they’re now at a point where a generational or an ownership change is necessary,” he says.“We’ve got about $500 million invested in that space and hold them for a while and buy them with a little bit of leverage, try and grow them, try and make them a better business.”
The focus is primarily in the US, but says it would be a similar model in Australia. The firm isn’t investing in Australia at the moment, but Siguler says it could be a consideration.
“The issue is that the Australian market is a little less than 10 per cent of the US market. And you have some very good small buyout-type firms in the country doing it already,” he says.
“The competitive situation in the US allows us to do this outside of our biggest metropolitan areas. So we might do this in Indianapolis, Indiana or Birmingham, Alabama, or cities of that size, as well as New York and Los Angeles and Miami.”
“People look at Brazil and think of it as a largely natural resource play, with its energy assets and its iron ore assets and such. But it’s 180 [to] 190 million people are moving into the middle class for the first time,” he says.
“As you think about what kinds of things are unmet needs there, there’s lots of little interesting businesses to participate in.”