Staying Resilient in Today’s Economy: A Sit Down with PJ Bain and Scott Clemons

Transcript:

There’s just an overwhelming number of things that are going on right now. If you think about what we were talking about last year, what we’re dealing with today, we’ve got the potential of geopolitical conflict. We’ve got climate crises in different parts of the world. We’ve got this high interest rate environments, the consumer spending, the debt, et cetera.

The thing that I’m encouraged by given the scary things is how very resilient people are. Ukrainian GDP grew in 2023. That’s astonishing. I mean, people find a way to build and run businesses and run economies. So there is something about economic stress that forces creativity. And as long as we have a vibrant and open enough economy here in other parts of the world, that kind of creativity is going to flourish every single human through the pandemic has lost a little bit of that discipline.

And the reality is it takes adversity and it takes challenge for people to sort of rise to the energy level that’s required sometimes to be able to reinstill or to instill the levels of discipline that are absolutely mandatory. And I love that because resiliency and innovation require cash and we have an answer for that. I still love cash because the option value that cash creates the ability to respond to an external environment or an internal opportunity that cash provides, that is the hallmark of a good business.

But the one factor that I always looked at as an analyst is how does a company manages cash flow? Because that really tells you all, you need to know about the ability and the discipline of management, their ability to respond, the challenges, their ability to take advantage of opportunities.

One of the lessons that I’ve learned over the course of the last 18 months or so, is that the interest rate is one measurement? But the relative feeling of what the interest rate feels like is something completely different. We’ve operated in a very low interest rate environment for a very, very long period of time and that puts downward pressure on our pricing. It compresses our pricing over time. So having some degree of interest rate that’s not zero, but that feels lower than what it was a year or so ago is very positive.

And I think as we think about lowering and that that lowering starts to trickle through the economy and our clients thinking of how they’re gonna make investments. It represents a lot of upside positivity for our, our commercial and that’s already happening if you were advising and I know that you do Brown Brothers portfolio companies or the partner companies or the companies that you lend to about when is the time to think about getting serious about unlocking the investment into the business, we’re likely headed into an environment of a lot more economic backdrop.

There’s going to be more M and A activities, interest rates come down. So there’s more liquidity in the markets in general. That’s a more benign backdrop for making capital allocation decisions either at the portfolio level, which is what I do or at the corporate level. which which you and other companies do as well.

Do you have any concerns or thoughts on the banking industry today, whether that’s regionally nationally or internationally as regional banking is the lifeblood of small business. What I read now is that supply chains have become at least more predictable. We’re certainly not back to where we were in February of 2020 prior to the pandemic.