Transcript
0:00 why don't you walk us through this chart here because everybody's wondering what's happening with the markets given the war given interest rate hikes and the repricing of stocks i don't know how you would look at what happened in november december january brad how do you contextualize well certainly a repricing is certainly repricing but i i think of it more as normalization okay all right chamoth was saying it november i was i was on cnbc talking about the
0:24 fact that when when we got to a post coveted world rates were going to normalize go back to where they were in january 2020 that was around 2 percent and that growth multiples would have to come off of this historic red bull high that we were on during most of 2020 and 2021 so we were 30 to 50 depending upon the index above the five-year average growth multiple pre-covet so that just needed to happen like we should be
0:50 celebrating in one sense that that happened because that means that we overcame a global pandemic the downside is we couldn't play with artificial money zero percent rates trillions of dollars you know of of of congressional and fed injection in order to prop up valuations and when it happened in and of itself that was going to be extraordinarily painful what i didn't anticipate and what most people didn't anticipate is that on top of that we're going to
1:18 have increasing fears of hyperinflation not just getting back to normal rates and that we were going to find ourselves in the middle of an incredibly devastating war in ukraine those two things added to the uncertainty the risk premiums added to uncertainty around future inflation the dot plot exploded higher and expectations of forward rates went higher now why the hell does this matter it matters because when you take you know if you're looking
1:48 at that chart the five year average the ten year was two and a half percent like we all got comfortable investing in this period of time the markets hate uncertainty we had a predictable way for us to estimate where we thought our wax should be in our discounted cash flow models all of a sudden that was thrown into thrown into the air oh my god look what we got going on i can't believe it look at this oh yeah i never compete with
2:15 babies or animals yeah no chance no chance this is talita talita look at this little look at this little butterball oh my goodness lord look at that so so good sex that's called a child it's you have three of them those are babies and what you're seeing there is affection from a father and a child look at how cute this little baby is going to eat sax is like this is taken from my time get that baby out of here
2:42 so cute so brad i guess what everybody wants to know now that we see this repricing occur is what do you think is going to happen in 2022 and then into 2023 so we're now multiples are now below the five-year average for for software we're about at the five-year average for internet we're well below the five year average i said on twitter that the rate path last week became a lot more certain the fed said something last week that i
3:12 think is still not well reported well understood the fed said at the end of the year we're going to have two percent negative real rates they said we expect inflation exiting the year to be 4.3 and we expect the tenure to be around 2.3 the reason the market exploded higher is because under the fed's prior protocol a four percent a four percent inflationary rate would mean that rates would have to go to four and a half and
3:43 if you take rates to four and a half then growth multiples need to be about 30 below the five year average okay so as investors whether we're investing in mid-stage venture late stage venture whether we're investing in the public markets like we need to know what exit multiples are and it was bad enough that we had to bear the drawdown coming off of you know this this red bull high of 2020 and 21. but if you think we're durably going to
4:13 an inflation rate of three percent or four percent and an interest rate environment of three percent or four percent then you simply have to adjust what you're willing to pay for growth assets and so as i look ahead right we don't we don't know with certainty the question is what's the distribution of probabilities and you know just this morning city goldman sachs raised their exit year their their exit tenure for 2022 to 2.7
4:44 and took it as high as three and a half percent for 2023. i think it's gonna this period is going to be marked by a lot of uncertainty around inflation and rates till we have more clarity and what that means is allocators of capital are going to allocate less to risk assets and they're going to pay less for risk assets but you know listen if i look out over the 5-10 year horizon i don't believe in
5:05 global stagflation i don't believe that we're in this new hyperinflation environment but we're going to have to get through this next 6 12 18 months and it's going to be filled with a lot of volatility and a lot of uncertainty