Sister publication Private Debt Investor caught up with Steven Rattner, chairman and chief executive officer of Willett Advisors – which manages the personal and philanthropic investment assets of Michael Bloomberg – at the PDI New York Forum. Rattner previously served as Counselor to the Secretary of the Treasury and led the Obama administration’s successful restructuring of the automobile industry.
Looking on the pro side as we sit here today the economy is doing quite well. We’ve had steady growth really since the bottom of the recession about nine years ago. It’s now the longest expansion in post-war history. It is actually accelerating at the moment in large part due to the tax cuts and things like that. Inflation remains low, wage pressures remain low and so that’s all on the pro side. The negative side is that we are in the late stage of an expansion and expansions do sometimes die of old age. Imbalances build up, things we haven’t seen. The so-called trade war could easily have a negative economic effect on us. Inflationary pressures could begin to build up, forcing the Fed to raise rates more quickly and the state of the credit markets is a bit scary: how tight the spreads are, how high the leverage ratios are, particularly in private equity deals. And that could all unwind. The covenant-lite ratio has gone up substantially. The debt ratios in private equity deals have gone up substantially. There’s also the whole shadow lending industry out there of firms that are unregulated that have mass pools of capital to [commit to] direct lending and where we really don’t know all the credit metrics about how they’re set up. That could also be scary. So if you look at the spreads between investment grade and high yield to treasuries they are not quite but almost as low as they were before the Great Financial Crisis.