The Takeaway with Troy Gayeski: Embrace alternatives or be left behind?

Our Chief Market Strategist dives into the latest mega trends, including why exploring alternatives could be essential to staying competitive.

About this episode

Join Chief Market Strategist Troy A. Gayeski as he dives into the latest mega trends. Troy sits down with Content Strategist Harrison Beck to examine what’s driving growth in private credit markets, the reason investors are embracing middle market private equity and why exploring alternatives could be essential to staying competitive for financial professionals.

“There’s a reason why large institutions in some cases have 80% of their capital in alternatives. They’re not doing it for their health. They’re doing it because in certain areas there are meaningful alpha propositions or excess return above and beyond what you can get in public markets.”—Troy Gayeski

Transcript excerpt

Harrison Beck: This is The Takeaway with Troy Gayeski, a podcast from FS Investments. We sit down with Chief Market Strategist Troy Gayeski to get the latest on what’s happening in the economy and what investors may want to do about it. I’m Harrison Beck, FS Investments’ Content Strategist. I’ll take Troy through today’s top questions so that you can get the takeaway. Welcome Troy.

Troy Gayeski: Hey, Harrison. Great to join you again for, I guess this is our second official—“vodcast” is the term now.

Harrison Beck: The second vodcast, that’s right, “video podcast.” Well, Troy, you’ve been traveling around the country. You were just telling me—a day here and two days there, and it sounds like a lot of traveling—but you’re talking to advisors, you’re talking to financial professionals: What’s a conversation you’ve had this week that, that really stood out to you?

Troy Gayeski: There’s a variety of mega trends going on right now in asset management. One of them affects private credit, which is a strategy of ours, as you know, and also affects a short term theme—Let’s call it a medium-term theme. And that, that is just the fact that we have 10,000 fewer banks in the United States right now than we did in 1990. We had 14,000—We’re at roughly 4,000 now. And there are a lot of reasons for that.
But when you step back and you look at that chart and you see, wow, think about the secular trend—how many fewer banks there are today. And that is really the basis for why private credit is flourishing. That on top of the fact that regulatory capital charges for the banking industry make it very difficult for them to lend to nonpublic middle market companies.

Another conversation—a different secular trend, somewhat tied to the rise of private credit—is also just this willingness and desire for companies to stay private. So that is another chart that blows one’s mind, that we have 35-ish percent more, I think it’s 42% more, private companies and 36 percent less public. And one of the advisors actually shared with the audience that there are only a little over 4,000 publicly traded companies left.

So those are two mega trends in capital markets. And it’s really important as an investor, not only tactically, but strategically to figure out how you can benefit from those.

Harrison Beck: Well, and let’s dig into both. So, going back to companies staying private, walk us through the reasons why more companies are staying private today than did maybe 10 years ago?

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Troy A. Gayeski, CFA

Chief Market Strategist

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