Please welcome Harvey Schwartz, CEO of Carlyle, and interviewer Steve Forbes, chairman and editor-in-chief of Forbes.
Well, thank you very much Harvey for joining us today. Well, it's great to be back. Congratulations on a fantastic event you and...
So, I have to lead off with a critical question about civilization. NBA finals, Knicks or the Spurs?
It's definitively clear. It's another sweep for the Knicks. Although, my girlfriend lives in Texas and her kids are big Spurs fans, so I hope we're not as brutal as we otherwise might be. How's that for an answer? But, it's all Knicks all the way. Come on.
So there's hope for civilization, but we look around the world. You're in a catbird seat, so to speak, and seeing a lot. Quickly give us what you see as the macro trends in the world, but also are markets, bond markets, equity markets mispricing risk, not realizing risk? The reason I ask is we ran into Ray Dalio before we came here. He relates the story back in 1971 when he was young. We were once all young. And August 15th, Nixon announces on a Sunday night blowing up the global monetary system, imposing wage and price controls, peacetime first time, putting on tariffs. Dalio goes to markets Monday morning, figures it's going to be chaos. Instead, the markets think it's happy days are here again. The markets boom. So, macro trends and are the markets pricing in black swans? What are the risks out there? First, the trends and then the risks.
Well, Steve, thank you and again, it's great to be back and it's good to see everybody. Lots of familiar faces. I think we're actually in the early stages of the most significant inflection point in recent financial history. And if I say that, and that sounds a little dramatic, it's because I think it is a little bit dramatic, but it doesn't necessarily mean that it's negative. And what I mean by that is we just pick a moment in time. Like, for example, I was born at a very lucky time. 1964, I'm 62 years old, born white guy in America. Pretty good launching point. And during my lifetime, Steve, the trends that really defined everything economically for the most part are slowing or reversing other than technology, which continues to accelerate. And the bedrock of those trends really was around whatever language you want to use, Steve, globalization, geopolitical cooperation, post-World War II. I'm not going to bore everybody with a history lesson here. You all know the history. But that underlying trend of reducing barriers to trade, that created basically a more frictionless mobility of capital and labor. Some of that not good. Some of that quite good. Billions of people came out of poverty around the world. But the Berlin Wall came down in '89, and then in this century, you've had some material events. 9/11, 2008 financial crisis, pandemic, which when you actually now take a step back, interest rates declined, now not for the most part stickier, maybe rising, deflation, not... All those trends and geopolitical cooperation that set the bedrock for that, Steve, that really began again in World War II. So, you're talking about 80 years of foundation, which then gave rise to an economic model, which right now is being rewired. And if you just look at, for example, all the discussions we have with leaders around the world around energy. All the discussion mostly around the world was around energy going from conventional energy to energy transition. Now it's all about energy diversification. Why? Because everything about energy is around national security. If we were sitting here at this conference in the '90s, we would all be talking about just-in-time inventory and the need to be globally competitive through efficiency and supply chain efficiency, which then led to capital efficiency and all forms of efficiency and labor efficiency. Well, you can unwind geopolitical cooperation very quickly. It's much harder to unwind and redo all that supply chain work and all that means in terms of cooperation. So, when I go around the world, the trends that dominate and I think will dominate for the foreseeable future. By that, I mean 5 years, 10 years. And at Carlyle today, we manage about 500 billion of assets. We commit capital for 5, 10 years on behalf of our clients across private equity, real estate, private credit, insurance, secondaries, energy platforms, all of it. National security, onshoring, which is really code for local economic growth and lack of international dependency. These are the topics that dominate the conversation. Government deficits are too big, as we all know. So, all that capital has to come from somewhere. That capital has to come from banks, firms like ourselves, wealthy people around the world, but the demand for capital to support all of this is enormous and will be enormous for the next 10, 15 years. I also, by the way, as a backdrop, I'm generally very optimistic. And while some of these shifts can be unsettling, I think that we should all feel pretty optimistic about the fact that everyone really at the end is focused on economic growth, although this transition is not without its complexities.
Well, you hit on what happened after World War II, and despite all the bad raps that globalization has had, there is a phenomenal increase in the standard of living. Dire poverty fell by 2/3 in that period of time. We all prospered from it. We're in a rough period now. Are we backsliding?
Well, I don't know necessarily if I'd say we're backsliding. I do think this K-shaped economy, you know...
And how is that reflected in the market prices? I'll just give you a quick example. You've cited this. You look at Japan. On paper, that should be a disaster. Financial institutions loaded with underwater bonds, huge deficits, no growth for a long period of time, yet the stock market is booming, money's coming in, looks like it's on the rise. Europe, no growth in the last virtual no growth, some exceptions like Poland and others, but Europe is way lagged the United States. So, to get capital, you need growth. So, where are the barriers that are going to stand in the way of growth? So, how do we get the growth? And what's happening in the markets? Is this like 1971 happy times we're not realizing the black swans out there?
