Blackstone conducts a survey of private equity companies in their portfolio, focusing on challenges and opportunities CEOs are facing. Prakash Melwani, a chief investment officer of Blackstone’s private equity group, along with Chief Investment Strategist Joe Zidle discuss their findings in this podcast.
• First, growth is decelerating globally. They attribute this to a reduction in capital spending by firms, especially the industrial sector, because of trade frictions between the US and China.
• Second, profit margins in the US are exhibiting a downward trend mainly driven by higher wage costs.
• Third, finding and retaining qualified workers was cited as the number one risk by CEOs in the US.
• Finally, Melwani and Zidle believe US corporate has a stable outlook. Unlike prior cycles, liabilities are sustainable and spreads are appropriately penalizing the firms with higher risk and weaker fundamentals.
Why does this matter? The signs coming out of the Blackstone survey resemble a late-cycle economy characterized by slowing growth, rising inflation due to a tighter labour market, and profit margins falling. This indicates a risk of higher-than-anticipated inflation currently priced in by the markets.
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