“The need to increase productivity, allow employees to see their compensation levels rise and also to be able to produce products at prices that do not create significant inflation can only be solved with increasing automation.”
Scott M. Sperling is the co-CEO of Thomas H. Lee Partners, a private equity firm specializing in middle market growth companies. His current and past directorships include Thermo Fisher Scientific, Madison Square Garden Company, iHeartMedia, Wyndham Hotels and many others. Sperling is also chairman of Mass General Brigham, the Parent of the Harvard teaching hospitals, Massachusetts General Hospital and Brigham & Women’s Hospital.
Sperling discusses the shift away from investments in consumer retail and towards technology companies focused on automation. He explains how automation is necessary in driving efficiency and increasing workers’ wages while also keeping product prices low in the face of inflation concerns. Sperling discusses the major growth opportunities in healthcare, biotech and pharma. He explains the role scientific breakthroughs like genetic sequencing and mRNA technology will play in tackling some of the world’s most devastating diseases.
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SPEAKER
Scott Sperling
Co-Chief Executive Officer
Thomas H. Lee Partners
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these salt talks the same as our goal at our salt conferences, which we're excited to resume here in September of 2021 in our home city of New York. Uh, but our goal at the conferences and on these talks is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome Scott Sperling to salt talks. Uh, Scott is the co CEO of Thomas H. Lee partners and a member of the firm's management and investment committees.
John Darcie: (00:55)
Uh, Mr. Sperling's current and prior directorships include Thermo Fisher scientific Corp, uh, the Madison square garden company, Experian Warner music group huffed and Mifflin Univision communications, iHeart media, the learning company, Wyndham hotels, and many, many more private companies prior to joining Thomas H. Lee partners. Mr. Sperling was a managing partner and of the affiliate of Harvard management company that managed all alternative asset classes for Harvard university's endowment fund. Uh, he is the chairman of mass general Brigham the parent of the Harvard teaching hospitals, uh, Massachusetts general hospital and Brigham and women's hospital, as well as a number of leading specialty and community hospitals and physicians practice groups. Uh, he's a chairman emeritus of the city center for performing arts and Wang theater is also a member of each of Harvard business school, board of Dean's advisors. Um, uh, the Harvard university committee on university resources and the Harvard business school's rock center for entrepreneurship. He holds an MBA from Harvard business school and a bachelor's degree from Purdue university and hosting today's talk is Anthony Scaramucci. Who's the founder and managing partner of SkyBridge capital, which is a global alternative investment firm. And with that, I'll turn it over to Anthony for the interview.
Anthony Scaramucci: (02:12)
Well, first of all, it's a, it's a great pleasure to have you on with us, Scott. I apologize for my attire. I feel like I don't have the standard uniform on, uh, maybe, maybe, uh, next time, although I probably can't fit into my suit anymore. I didn't get COVID 19 scat, but I got the 19 pounds. I got the, I got the 19 pounds associated with COVID-19. Um, so you had this amazing career, um, and for congratulations, but I want you, if you don't mind, we have a lot of young listeners and I want you to go back to the early days of what you were thinking about before your career started, and then how did it manifest itself pursuant to that arc of your plans and how did it deviate? Well, I would say
Scott Sperling: (02:57)
That, you know, one that I found to be a useful characteristic personally, and I know other people have a different view on this is I don't really plan ahead very much. And so it's hard to get disappointed. Uh, and I would have to say that, um, you know, I was very fortunate, uh, to, um, find some really interesting, interesting opportunities with, uh, great leaders, uh, early in my career. Uh, and that really helped guide me to where I am today. Um, I haven't worked for very many firms in my life, uh, so it's, I will acknowledge it to small sample set, but, um, uh, I started off coming out of business school BCG, which was a great experience in days when strategy consulting was still very young. This was 40 years ago. Uh, and then, uh, I was given the opportunity at a young age to, um, to start and then manage all of the alternative asset classes for the firm that manages Harvard's endowment fund and, uh, you know, being involved in venture capital and buyouts and, uh, real estate and commodities back in the mid, early eighties, all the way through the mid nineties was, uh, you know, uh, an opportunity to see a lot of really smart, uh, and energetic people do some amazing things in areas that had not yet been exploited.
Scott Sperling: (04:19)
And then for the last, uh, 26, 27 years, uh, to, uh, lead a organization like THL has been, uh, a real blessing. So it's been a very fortunate set of circumstances,
Anthony Scaramucci: (04:34)
Your portfolio, like everybody's got impacted by COVID-19. So tell us what happened, tell us what you guys did to adapt and pivot and tell us what your outlook is during this recovery. So
Scott Sperling: (04:49)
We we've been fortunate that our strategy involves identifying very specific sub sectors within three broad areas, financial services and FinTech, uh, uh, healthcare and what we call technology and business solutions that have a very strong secular growth drivers to them. And there are a lot of people out there doing similar sorts of things, of what, you know, maybe called thematic investing. We try to drill down and just become incredibly expert in a few handful of areas within those three broad sectors. And those areas again are typified by very strong, sustainable, secular growth, interesting, uh, return on invested capital characteristics and, uh, tend to be larger addressable markets. And the benefit of that during the downturn was that we didn't see as much negative impact as, um, you might see with a more broadly constructed portfolio. So we were fortunate in that regard and like many others, we have, um, significant operating capability, resonant our firm.
Scott Sperling: (05:58)
We have a team of operating experts that were able to go to the portfolio companies and help them manage through what could have been a difficult period. So, um, we were generally in a pretty good spot to start with, and as the world, um, got better pretty quickly, as we all know, uh, from a business perspective, even though it has been horrific in terms of the impact on, uh, lots and lots of, um, uh, of people, uh, both in this country and around the world from a business perspective, we saw a very significant growth return reasonably quickly, um, and are fortunate again, to be in areas, um, that are tending to be much stronger growers, uh, then, um, uh, the broad economy,
Anthony Scaramucci: (06:45)
Well, I want you to react to this. Would it be fair to say that private equity now and specifically to T H Lee is focusing more on growth areas and less sort of on what I would call unlocking synergies due to consolidation, or where do you see the vision for your firm and private equity in general, going forward from here?
Scott Sperling: (07:09)
There's definitely been a shift over the course of the last 20 years to growth the spaces. Now, our firm's heritage was always middle market growth. So it fits reasonably well with, with what we're doing, but where there is growth is different. So years ago, we were very big players in consumer and retail, and it was a great space for us. We don't find that same set of strong secular growth drivers in more traditional consumer and retail, uh, anymore. And so the shift has been to more technology-based companies that serve those markets. And I think there are a lot of firms, uh, in our industry that, that, um, have, uh, focused in on those kinds of areas. And we're always trying to look for spaces, um, where there's a dynamic of change that can lead to relatively explosive growth. Uh, so automation is a space that we've been a major player in, uh, for quite a while.
Scott Sperling: (08:06)
Um, you know, it is a space that, that plays to the, um, need of companies in the United States and around the globe to help support their, uh, existing employees take away the more mundane and labor intensive tasks that don't require high skillsets and allow their employees to focus on other areas while increasing productivity. And as we, uh, uh, are in a period where there are projected labor shortages and lots of different places, um, automation is gonna play a key role in bridging the gap between, uh, where we are today and where we might be in terms of the demand for labor that, that can't be met.
Anthony Scaramucci: (08:53)
So, you know, I'm, I'm of the theory that automation and technological innovation is always good long-term for the economy and also for the working class, because you just improve the quality of life and you scale up, it's the same reason why the horseless carriage replacing the people that had labor associated with horses, they seem to have also done better. Uh, am I right about that? Uh, should we be optimistic about the further and some automation or pessimistic?
Scott Sperling: (09:25)
I think you're exactly right about the impact of automation long-term and even in the intermediate term, because, uh, the need to increase productivity and allow employees to see their, um, compensation levels rise, and also be able to produce products or prices that do not create significant inflation can only be solved with increasing automation. And that automation, uh, takes place in lots of different spheres, certainly on the factory floor, in, uh, uh, distribution and warehouse centers. Uh, we've seen a significant bump in the amount of automation that is being utilized again, in most cases, it, it takes the place of that, uh, labor that can't be found in allows existing employees to both get higher hourly wages, as well as focus on higher value added tasks, all of which contribute to productivity, but we're also seeing automation in, uh, offices, uh, in healthcare that allow for much more productive output, uh, that again allows us to manage the cost of providing goods and services in ways, uh, that, uh, can in, uh, avoid inflationary prices as well as come up with many better solutions in areas where the automation actually provides functionality, uh, that doesn't exist or can't exist, um, uh, without it.
Scott Sperling: (10:56)
And so in healthcare, uh, automation, whether it's in, um, surgical robots or in, uh, pathology and radiology will have a significant impact on our ability to come up with better solutions for patients.
John Darcie: (11:14)
So, Scott, I want to follow up on the healthcare piece, cause that's something that we're keenly interested here at salts and at SkyBridge, we we've launched an early stage and not just biotechnology fund, but investing in earlier stages in private healthcare oriented companies. And I know it's something that you guys focus on a lot over there at THL that you mentioned a couple of examples of technology, but how has technology and private investment really accelerated a lot of these advances that we've seen in the healthcare sector coming out of the pandemic and even in the pandemic. And what part of those changes do you think are permanent, uh, that are going to come out of the pandemic? Long-term?
Scott Sperling: (11:50)
So, you know, one of the things that's really crucial, um, in healthcare, um, is, uh, the ability to reduce total medical expense, uh, of the cost of care provision while providing greater access to a patient for patients to advanced therapeutics, uh, to be able to more easily reach their, uh, primary care provider and certainly, um, high specialty care providers, um, things like tele-health the use of digital technologies is one of the obvious things that we've seen. Um, there was an explosion of growth, uh, in that during the pandemic by necessity. I think it's important, uh, that the government continues to support the utilization of those technologies, because it's the way that people want to receive, um, uh, uh, care in many circumstances. Uh, and when you look at the cost of, uh, care overall, it's really people who are, uh, uh, of tertiary or coronary acuity, the really sick patients that cost the system the most.
Scott Sperling: (13:01)
And if we get better compliance, because people can use digital and tele-health, uh, capabilities, uh, that would be a, uh, significant improvement and can hold down the overall cost of total net, uh, of the total medical expense. The other area that you're seeing a growth in science are the, uh, uh, capabilities that you see, whether it's a next generation, uh, sequencing, uh, technologies, lots of technologies that, uh, continue to be developed, uh, in ways that dramatically reduce the cost of drug development and the ability to, um, uh, again, provide therapeutics and diagnostics to patients, uh, at ever lower costs. And you're going to see opportunities, uh, in lots of different ways, um, in order to accomplish, uh, what I've just described, uh, back in the 1990s, um, we knew that science was growing. Um, we weren't sure at THL that we were that good at, at, uh, being able to predict which biotechnology company or which specific therapeutic a pharma, uh, was developing would be a winner, but we knew it was all growing.
Scott Sperling: (14:15)
And so, you know, we, we, um, decided to buy a company called Fisher scientific, which was the largest provider of stuff to the world of science, clinical research, industrial in the world. And we paid, I don't know about a billion and a half dollars for it in those days. And today Thermo Fisher, where I'm still on the board probably has a, uh, enterprise value in excess of $200 billion because it really grew. And it really grew because it brought together a set of technologies and capabilities that really met the needs of its customer base. Today, when you look at private, we're continuing to look for ways to support companies and buy companies that can help, uh, the pharma and biotech innovators do their job better and more effectively. So you've seen, uh, uh, CRS, the clinical, uh, research organizations that do a lot of the testing grow, uh, in terms of, um, revenues, profits, and, um, uh, market caps. Uh, you see a lot of other players who provide tools and capabilities, um, to both healthcare providers, but also to the developers of these, um, uh, therapeutics and diagnostics. And those are opportunities that, uh, you know, uh, really, um, have become very attractive to people in our industry. And that we've been a major player in.
John Darcie: (15:43)
Yeah, we, we had a Walter Isaacson recently on assault talk who wrote the book called the Codebreakers about Jennifer Doudna and her team that developed the CRISPR technology and continues to lead the genomics revolution. So from an investment perspective, and, and maybe it's, it's a comparable, but are you more excited about more of the, the tele-health preventative medicine type trends or more interested in some of those more moonshot oriented goals? And I know you guys are investing a lot in the infrastructure around companies that are supporting, uh, that genomics revolution, but what, what types of companies is it more the pharma biotech oriented companies that you guys get most excited about and in supporting the infrastructure around that? Or is it more of the tele-health and just the remaking of the, uh, you know, the healthcare system? I
Scott Sperling: (16:28)
Would say that we're, you know, we, when we identify these sub sectors within healthcare, um, again, our, uh, focuses on, um, things that can have that strong secular growth. And I'd say you, you've identified two areas that fall into, um, those sub sectors. And so, um, we're really, uh, uh, very active in both spaces. Um, and, you know, we're looking for ways that we can help, uh, providers of care, reduce total medical expense and reduce the cost to the entire system of providing high quality care from birth through, uh, end of life. And there are lots of different opportunities that the industry has, um, uh, been able to, uh, support, uh, in those spaces, uh, again, bringing down the cost of care while, uh, improving access for patients, um, or broadly to that care. Uh, but we're also very interested in, uh, supporting the growth of science broadly defined as it helps develop, uh, better, uh, therapeutics, better diagnostics, uh, better medical devices. And there are lots of different, uh, areas that flow into providing that in ways that allow, uh, the pharma companies and the biotech companies to focus on their most important value added, which is, um, the innovation itself, uh, of these phenomenal, um, uh, therapeutic and diagnostic, uh, drugs and, uh, capabilities.
Anthony Scaramucci: (18:12)
I want to step back, take you up to 30,000 feet for a second. And I want you to think about the next killer technology, the next killer drug. And so, you know, the invention of stat, the introduction of penicillin, the what is next on the horizon? Is it a immunotherapy that can be delivered? Is it a, is it a vaccine like the ones that Walter Isaacson was talking about? And Codebreakers what, in your mind, you sit at an interesting seat, cause you've got private companies, public companies, and you're sitting on the board of a hospital. What, what, what's the next killer app for medicine?
Scott Sperling: (18:53)
So one of the things, um, that, uh, has been great about chairing the board of the mass general bourbon, which is the largest research, uh, uh, system in the country, uh, largest recipient of NIH,
Anthony Scaramucci: (19:07)
John and I are coming to you when we get sick. There you go. I just want to make sure you know, that Scott, that's what we're, we're asking the question, we're digging it. And, and,
Scott Sperling: (19:16)
You know, also because we, you know, are, uh, so, uh, such a large provider of high-end clinical care, you can see not only the, the, the, the flow of basic science that develops in these areas, but I've just been amazed at the translation, you know, what they call the translational research. That's done taking it from those basic ideas to things that actually can work in patients, uh, and the nature of how the care has evolved. And, you know, you've, you've mentioned some key areas, um, cell and gene therapies of all sorts is going to be an enormous space. Um, the, uh, development of these vaccines, um, uh, particularly the MRN based ones, uh, that we've seen from Madonna and Pfizer. And there are a couple of other players out there working on that. Uh, you know, it's not only amazing that they were developed as quickly as they were, but perhaps even more, uh, uh, impressed.
Scott Sperling: (20:18)
I was gonna say more importantly, but I'm not sure you can say more importantly when it came to dealing with the COVID vaccines, but, you know, in terms of longer-term benefit, these are platforms that can be utilized to develop many other, uh, uh, effective vaccines and therapeutics remembering that the original target for most of the MRN, uh, pioneers was cancer. And so we're looking at ways, um, that we can utilize a range of different technologies to deal with some of the most devastating diseases that we have. And so, um, you know, there's the, uh, using the MRI and a platform to help the body, either through vaccine or effectively immunotherapies on things like cancer and a number of other, um, a number of other difficult, uh, uh, conditions. Um, then you have the ability to use other forms of immunotherapies, uh, that are continuing to evolve, uh, in ways that become more effective, uh, longer, um, by bringing cocktails of, uh, capability to bear again against cancers and potentially some other, um, uh, disease states.
Scott Sperling: (21:33)
Uh, and then you have, um, things like car T that again are breakthrough technologies, um, that are going to have a big impact on a number of the, of the most difficult, um, uh, cancers, uh, in terms of the nature of, um, of, uh, treatment, um, uh, out there. And so, you know, I'm very encouraged that the pace of innovation is going to continue to increase, and the nature of what we're innovating is going to continue to have ever greater impact on a number of, um, the most devastating, uh, uh, diseases. Now, um, one of the issues with all of this is that particularly early on the cost of these, uh, particularly therapeutics isn't incredibly high. And so, um, while I'm highly encouraged by the, um, the advent of, uh, and the accelerated, uh, introduction, uh, of, um, new therapeutics, um, you know, as a system, we also have to think about the long-term costs, not necessarily that sticker shock when somebody says, you know, that's a 250,000 or million dollar bill for that solving that particular, uh, uh, disease. Um, and, you know, we saw that with, um, with Hep-C, for example,
Anthony Scaramucci: (22:58)
No, it's fascinating. I want to, I want to shift gears for a second. What I love about th Lee and your work is you're keeping us healthy, and then you're also making us rich through financial services. And so I, now I want to, I want to, now I want to put that hat on for a second, and I want you to talk about the future of financial services. Uh, Jamie diamond recently says, he's worried about Neo banking. He's worried about the FinTech space, uh, you know, the costs associated with FinTech relative to the old school bricks and mortar. Uh, they sort of feel like they're getting assaulted the way book polishing did as an example or other, uh, industries, uh, where do you see financial services going? Where's the puck going? And where's th Lee going to be.
Scott Sperling: (23:44)
So, um, I bring into a couple of different areas. Um, the first is the, um, application of technology, um, uh, you know, the so-called FinTech, um, in many of the traditional banking, um, mortgage servicing mortgage origination spaces. And, you know, as you know, we've been involved, it's publicly known and a number of the leading companies in that space, whether it's FIS, fidelity, national information services, or, uh, black Knight financial and a number of others. Um, and, um, you know, these are companies that, uh, provide, um, uh, a set of services broadly to the industry, um, uh, through, uh, FinTech platforms, uh, that even people like Jamie use because they, um, uh, can do it, uh, uh, at a much lower cost, uh, with greater functionality. And, and you have a number of companies out there, uh, in the industry, you know, these are now large, publicly traded companies that, um, you know, continue to grow reasonably rapidly.
Scott Sperling: (24:54)
Um, you then have other spaces that, uh, have not had that form of technology brought to bear on the value chain as much. I think in insurance, there are lots of opportunities in the insurance industry when you look at that, uh, very in, uh, uh, uh, involved at any evolving, uh, value chain, uh, where you have underwriters and, uh, agents and lots of people in between where you can increase the efficiency and delivery of the service, uh, to both customers, uh, and to, uh, all of the players along that value chain. And so I think there's going to be a lot of opportunities there. You know, you were talking about wealth management, and obviously we've seen evolution, uh, in the wealth management space, somewhat due to regulatory changes, uh, somewhat due to the ability, again, to utilize technology in ways that remove administrative costs and burden from, uh, wealth advisors, uh, and allow them to focus again on the highest value added part of what they do.
Scott Sperling: (26:00)
So I think you're going to continue to see a lot of opportunity, um, in, uh, the financial services sector, uh, to apply technology, uh, all along the various value chains and in ways that, um, uh, you know, will improve, uh, the performance, uh, and delivery of services, uh, to customers and clients. Um, you know, at the same time, you have a lot of other things going on, uh, particularly in the, uh, digital currency world, um, that I'm not sure we've gotten our arms around. Uh, yet I note the commentary from, uh, uh, coming out of the Berkshire annual meeting, um, about, uh, Bitcoin being one of the worst things that ever happened. And, uh, lots of comments about
Anthony Scaramucci: (26:48)
Dosing. It seemed a little angry. I mean, I just, I mean, you know, I, I actually don't know enough just saying Scott. I mean, you know, you know, uh, Charlie Munger wrote a book, poor Charlie's Almanac. He thinks he's reincarnated from Ben Franklin. And in the book, he says, be dispassionate about your investing, but he seems upset about Bitcoin, you know, sort of, sort of, you know, I don't know, but we'll, we'll, we'll, we'll see who's right. There'll be a big tug of war. I'm going to turn it over to John Dorsey, U S questions from our audience, which he's collected. But I want to ask you this question, and I want you to put your evaluation hat on. Um, things seem pretty rich. I mean, now we both know that interest rates are the financial, they're the physical gravity of financial assets. So they're at zero they're propelling assets higher. Uh, but in your expertise, your decades of doing this, um, are they, are the valuations too high? Did they give you pause? Did they give you pause in financial services? I've been in financial services for 30 years, 33 to be exact, I've never seen valuations like this, so are we okay here? Or are you aware?
Scott Sperling: (27:58)
I, you know, I'm always worried, uh, and I've been worried, you know, for six years, I've thought were within a couple of years of
Anthony Scaramucci: (28:05)
A recession, I'm going to call you out on that. You don't really, you're not really that worried Sperling because you would have lost your hair a long time ago. Okay. You can tell that John and I are not that worried, but the truth is that valuations are, are, I mean, I don't know, they seem stratosphere.
Scott Sperling: (28:24)
Yeah. So, you know, we've seen continued increase in valuation now. Um, you know, I would say that in our view, in my view value, valuations need to be tethered on two things. One is what is a sustainable growth rate, and there are lots of businesses in the market has clearly shifted in terms of the, the, uh, proportion of market cap in companies that are growing reasonably fast versus, you know, the slower growing more industrial kind of companies that have had historically made up a larger percentage of the market cap. And so when you look overall, you know, if you can anchor, um, uh, uh, a multiple against first and foremost against sustainable growth rates, you know, that's probably analytically, what, what makes sense? Um, and, uh, it's certainly the case that, um, you know, we have lots of potential fast-growing opportunities in the stock market today.
Scott Sperling: (29:25)
Uh, but it's also true that there are lots of things that are getting valued, uh, well above what would be justified analytically by, uh, true sustainable growth rates. So you have to worry a bit about that. And the second is clearly interest rates because everything has to be tethered to some form of, uh, of, uh, dis uh, discount rate, uh, which, you know, we have been in low, longer than anybody had ever expected. Um, one of the potentially worrisome aspects about, um, the direction that our, um, fiscal policy is going, um, is that, um, you know, that might change, uh, the, uh, interest rate formulation in ways, um, that are, uh, somewhat unpredictable. Um, you know, we all like to believe we can manage the soft landings, uh, as they used to say, or we can manage to a two to two and a half percent inflation rate.
Scott Sperling: (30:22)
Uh, but it's not clear. I mean, I, I have the unfortunate history of, uh, having lived through, uh, in my business career, I think six recessions, and they're all always, you're, you're always taken by surprise, uh, by how bad they can be. Uh, and there is a point in the recession where you're always taken by surprise about how good it could be on, on the way out. We're, um, certainly in that point where, you know, we'd like to believe we can manage any negative that happens including potentially inflation and keep it under control. Um, and I hope that's the case, but, um, you know, one needs to be a little bit wary, I think given, uh, uh, we're in somewhat unprecedented territory here, uh, in terms of, um, fiscal, um, uh, stimulus, uh, um, all of this goes through, um, and, um, you know, we're, we're already seeing, uh, enormous inflation at the basic and intermediate goods level. Um, and, um, that eventually is going to get passed through to, um, uh, to consumers.
Anthony Scaramucci: (31:39)
I'm gonna turn it over to Darcie, but I promise you this, when you turn 97 Sperling, I'm going to be asking you the steri same question. I just want to see how emotional you're going to be when you're 97. And you're a great, great grandfather, man, if I can get to a right now, you use very dispassionate. I was impressed with your very dispassionate analysis, but go ahead, Mr. Dorsey, well,
John Darcie: (32:02)
Using all those advanced therapeutics that, uh, Scott is helping to unlock their, his investing. I think he has a good chance to live to 97 and beyond. And also it looks like he's in great shape. He's taken care of himself. Let's pray. I was born in October of
Scott Sperling: (32:18)
My entire career, the prayer,
John Darcie: (32:21)
Amen. Most important thing. I mean, I was born in October of 1987. So I like to think worrying about financial markets is somehow ingrained in my DNA, given the timing of my birth around that crash. But I want to go back to Bitcoin for a second because, you know, it's something that
Anthony Scaramucci: (32:35)
He just, he just attacked you and me, right? Because Scott know exactly where you were on the 87 crash as DUI. This guy was like in a neonatal facility that was literally a karate that was like he's in the center box on the zoom call. That was like taking a karate chop at both of us at the same time. Go ahead. Dorsey. So definitely so nicely. Come on. I'm on the ground bleeding. Okay. Scott's pamphlets setting. Now, go ahead, Doris.
John Darcie: (33:02)
So, so back in millennial mode, I want to ask you about Bitcoin Scott and you indicated that, that you don't necessarily have huge depth of knowledge in the area. And I think a lot of people have been on a crash course to learn more about it over the last year. And you've seen people like Jamie diamond that Anthony referenced earlier across David Solomon, you named every big bank. CEO has been forced to go from, you know, dismissing this technology to saying so many people are asking for it. We have to figure out what our approach is as a company to delivering these solutions to clients. You mentioned FIS as an investment of yours. They partnered recently with one of our, uh, close friends and partners, NY dig, uh, to basically they're, they're bringing the ability for traditional banks to offer a digital asset integration into their core, uh, custodial offering. So as a firm, what do you guys think about this massive rise that we've seen in Bitcoin most recently, Ethereum and smart contracts have been exploding, uh, at even a faster rate than Bitcoin. What do you guys make of, of the digital asset ecosystem as a firm? And do you think you'll ever make investments into that space or you'll focus more tangentially on firms like FIS that are powering the infrastructure in the same way that you're investing in infrastructure around the biotechnology and pharmaceutical boom.
Scott Sperling: (34:14)
I, I think, uh, the quick answer to your last question is we will focus on the infrastructure pieces. And again, you know, partly because I just don't think we're always smart enough to pick specific winners in some of these other kinds of areas, but, uh, you know, by serving everyone, you, you actually can participate in what is a strong area of dramatic growth. Um, you know, it, again, it, uh, blockchain technology is definitely an important technology and that has application that goes well beyond Bitcoin or any other digital currency. I, uh, you know, I think people wonder about digital currencies because we haven't seen anything like it in the sense that, you know, we're used to sovereigns having control of currency and sovereign does not have control. And, um, when it doesn't have control of, uh, of a currency, um, there are lots of potential, I guess I would call them unintended consequences that can occur.
Scott Sperling: (35:22)
Um, and, um, we've already seen a couple of countries, Turkey, India, for example, basically say, we're going to outlaw this because we can't have that. That is, uh, undercutting our ability to manage, uh, the monetary policy at the very least our economy and maybe, you know, um, beyond. Um, and so I, you know, I wonder at some point, will we have unlimited digital currencies that are posing as alternatives to our sovereign currency. Now that's particularly important for the United States because as you know, one of the reasons we're able to do what, what we can do in terms of borrowing is that we are, uh, the reserve currency of the world. Um, and that's a position that is already going to be under challenged by the Chinese. And I think the European union and they meet, and they, um, will use their own digital technologies, um, in ways that allow them to challenge the status of the United States as the only true reserve currency right now.
Scott Sperling: (36:26)
And so I think we have to watch that carefully, but, um, as Bitcoin becomes more important and, um, it is more important to control, um, the data flow of who owns it and how they're transacting. It may change the underlying value of that. Or perhaps, you know, there is a stroke of the pen risk that says it just has to go away. Certainly when you go to, you know, the, the ones that you know is, um, um, many people have commented on like doge coin, where there is, there is no limit on supply, it was done as a joke, you know, you just wonder, are we in tulip bulb territory with things like that? So, um, you know, again, I'm, I'm, I'm speaking, uh, but I don't know enough to be, uh, to be relied upon on any of those. I'm just raising some of the issues that would occur when you have this kind of situation. Uh, uh, generally, so maybe
John Darcie: (37:25)
That's what Charlie Munger should have said at the Berkshire Hathaway annual meeting, um, and had been a little bit more dispassionate about it, but it's a conversation for another day. So we've talked about some sectors that you're very enthusiastic about things in the healthcare space, certain areas of financial services, automation. Generally, there's been an explosion in, in tons of different asset classes, mostly focused on technology, frankly, but, uh, some that, you know, there's some suspicion from wary investors that, uh, the current rate of growth is not sustainable and that there there's pockets of the market. And we've already seen sort of steep pullbacks and even a lot of public companies that exploded, uh, during the pandemic. But are there any specific sectors or sub-sectors that you're most concerned about that, that as an investor you've come across deals and said, this makes absolutely no sense. And if I, if I could add a mechanism to do it, I would be short this sector. What areas are you most concerned about or skeptical
Scott Sperling: (38:16)
About, uh, you know, the pressure, uh, on, uh, the industrial sector given, again, the move in Rama to the pricing of raw materials and intermediate goods is something that, you know, I, I, I know it's becoming a popular play in the markets now, as we see a return to normalcy from the pandemic, because those areas were most adversely affected. Um, but I, I think it's, it's worth watching what happens to the cost structure and the ability to sustain, um, strong margin, uh, in those areas. Uh, the, uh, you know, again, I, I think, uh, looking at the impact, uh, on their margins because of the increasing, in fact, in many cases, dramatically increase cost of raw materials and intermediate goods, but, you know, offsetting that is the more rapid adoption of automation and software tools that actually reduce overall system, uh, cost in sometimes dramatic ways.
John Darcie: (39:23)
So the last question I have for you is I think people look at the returns for a middle market PE firm and say, man, that looks like fun to, to invest like that and achieve that level of returns, but there's so much operational expertise that goes into the execution of a lot of these business turnarounds and growth investments that you guys make. How important is that and what type of value do you guys offer as investors on an operating capacity to companies that you invest in?
Scott Sperling: (39:49)
So, you know, and we've talked a lot about this publicly over time. Uh, but, um, our strategy has been to be able to provide a significant level of operating expertise that's particularly valuable to middle market companies. And, um, you know, there are a number of, uh, of folks in private equity, um, who are oriented in the same way, um, of being able to provide operating experts onsite at companies in ways that, um, allow us to improve the key business processes of these companies. And we have found that, that, you know, particularly in the world of, of, um, of, uh, rising prices and multiples that that is a very important driver of value. Um, and I think for the industry, uh, the private equity industry, uh, it's an important value added that we bring to the economy. Now, there are some firms that will focus on, um, not growth companies, but areas where there are significant headwinds, uh, and in order to, um, uh, to help reposition companies, whether they're retailers, bricks, and mortar retailers, or other, um, uh, maybe older, uh, industrial type companies, you know, they'll bring their own expertise to bear in those areas.
Scott Sperling: (41:04)
Um, ours is in helping more, uh, rapidly growing companies really be able to, uh, sustain and in fact, increase their growth rates in ways that are sustainable over the longterm.
John Darcie: (41:17)
Right. And, uh, you know, I think a lot of people that aren't as familiar with the industry, they, they hear the word private equity, and they think of Gordon gecko, but you guys are truly, you know, helping to spur innovation and growth, uh, in a way that, that doesn't fit with necessarily some people's archetype of what a private, private equity looks like. So
Scott Sperling: (41:35)
We don't always get it right. Uh, and, um, you know, particularly as you're, uh, you may try to help transform an old economy company into a new one. You know, there been lots of challenges, um, but there's really nobody else stepping up to try to do those things. Um, so, um, you know, I think the industry overall, uh, you know, is, um, trying to, uh, provide value, uh, in ways that are not otherwise available to a broad set of companies that, um, in this very dynamic world are perhaps have been on the wrong side of technological change in innovation, uh, but still have, um, lots of employees and lots of reasons to, um, uh, try to survive. And, uh, and in fact thrive
John Darcie: (42:23)
Well, Scott, congratulations on all the work you guys are doing and all the success you've had. Thanks so much for joining us here on salt talks. Anthony, do you have any final word for Scott before we let him? No.
Anthony Scaramucci: (42:31)
Listen, it's a, it's a pleasure to hear you talk. I'm, uh, I'm coming to you when I get sick. I'm coming to you. What I need to read for a long time. Hopefully not for a lot of them. It comes to you when I re re need to reinvent my financial services business. Uh, you're sort of stuck with us now. Okay. It's too bad. All right. All right. Well, we appreciate it. It was good to have you on and duct. I found the conversation. Fascinating. Thank you again, Scott.
Scott Sperling: (42:58)
Thanks so much. Take care. Thank
John Darcie: (43:00)
You everybody for tuning into today's salt. Talk with Scott Sperling of Thomas H. Lee partners. Just a reminder, if you missed any part of this talk or any of our previous salt talks, you can access them all on our website@sault.org backslash talks or on our YouTube channel, which is called salt tube. We're on social media. Please follow us. If you're on the various channels, Twitter is where we're most active at salt conference is our handle. We're also on LinkedIn, Instagram, and Facebook. And please spread the word about these salt talks. We love educating a broader audience of people, as opposed to just being able to speak to 2000 plus people at our annual conferences that we do in the U S and abroad. Uh, we've really enjoyed this salt talk series. So please spread the word. And on behalf of Anthony and the entire salt team, this is John Darcie signing off from salt talks for today. We hope to see you back here again. So.