Private Equity, Slow Economic Recovery and Low Interest Rates Dominate Discussion at 2016 BoyarMiller Capital Markets Forum

BoyarMiller Breakfast Forum: The Current State of the Capital Markets 2016 Chris Hanslik of BoyarMiller; Drew Kanaly with Kanaly Trust, Cliff Atherton with GulfStar Group, John Sarvadi with Texas Capital Bank, LLC.; Bill Boyar of BoyarMiller.

HOUSTON (Oct. 11, 2016) – Portfolio performance, market bifurcation and low interest rates were among the topics discussed at the Capital Markets Forum hosted by BoyarMiller, a Houston-based business and litigation law firm. With about 200 business executives in attendance, three Houston-area experts in financial services provided an overview of their perspectives and what may be expected in the coming year.

“We heard informed insights about the effects of the long economic recovery and learned that while capital is still available, it is a bifurcated market,” said Chris Hanslik, BoyarMiller chairman. “Our goal in hosting the forum is to bring relevant information to our clients that could help them make better decisions for their businesses. Our expert panelists certainly delivered on that promise.”

The forum panelists included Drew Kanaly, chairman of Kanaly Trust; Cliff Atherton, managing director of GulfStar Group; and John Sarvadi, president of Texas Capital Bank.

Portfolio Volatility

Kanaly began with a world tour of the markets and said developed markets are not overpriced and emerging markets are undervalued currently compared to their historical average.

“Emerging markets have been undervalued for quite some time so even though something is a bargain, it doesn’t mean it is going to appreciate in value anytime soon,” said Kanaly.

Regarding the stock market, Kanaly said with the 10-year treasury at about 1.6 percent, stocks are enjoying success. However, there are fewer shares available today than in 2004 because of buybacks or privatization. “Your ability to buy shares in the stock market has been reduced by more than four and half trillion dollars over time. It’s amazing that price earnings multiples are as reasonable as they are.”

But Kanaly had some disappointing advice for anyone planning to retire soon.

“Keep working,” he said. “The problem facing retirees today is the portfolio’s volatility. We now have negative interest rates, so what risk must you assume to get an expected seven percent return and a standard deviation of six? It’s about a 17 percent standard deviation and that, for the average retiree, is an unacceptable rate. Mathematically you’re not as likely going to make it.”

He concluded stating that traditional modern portfolio theory is going to be on hold for a while.

Deals and Dry Powder

Atherton of GulfStar described the growth of the private equity market since 1992 as “phenomenal.” However private equity firms think the current market is rough because it is bifurcated.

“There are a handful of good deals that everybody chases and then there are some mediocre deals that have a difficult time attracting interest,” said Atherton. “There is a real quality differential going on.”

He believes there is about a trillion dollars in private capital available called “dry powder” – the amount of capital that is committed but does not flow until an investment transaction is closed. “By tracking the amount of dry powder, we know really what’s going on in terms of the availability of capital in the marketplace,” said Atherton.

Another highlight of Atherton’s presentation addressed the capital-intensive nature of the oil and gas industry. “In the oil business, you have to keep raising money,” he said. “It’s not always about how much oil you find, but how much money can you raise. So when there is cheap money raised in the capital markets, and the industry suffers, we see the bankruptcies and restructurings that are now occurring because of over-leverage.”

Lastly, Atherton told the audience that the value destruction in the energy industry has not been as large as anticipated with both E&P companies and service companies about half the value they were before the industry downturn.

Low- for-Long Rates

Texas Capital Bank’s Sarvadi addressed interest rates and said that for the last 16 years, rates have been lower than the 30-year average, only peaking right before the recession.

“The level of short- and medium-term interest rates is exceedingly low,” said Sarvadi. “So when the Feds raised interest rates last December, it was the first time in 10 years. That suggests we’re in a low-for-long rate environment which means senior debt is the cheapest cost of capital, so I advise borrowers to take advantage of the current market conditions.”

He also addressed the recovery and described it as “long in the tooth.”

“The poor rate environment is being driven by stagnant growth in the world economy, especially in the U.S.,” said Sarvadi. “We have had sub-par economic growth since the recession ended Q2 of 2009. Other recessions ended with robust economic growth; not this one.”

Sarvadi’s advice: raise debt or raise capital opportunistically when you can, not when you need to raise it.

“Watch the trends, but always make sure that you’re extending your maturities,” said Sarvadi. “Re-price the deal when it is attractive to do it and amend covenants in a favorable way when you can. Don’t wait for an event to trigger that action.”

Presentations are available for viewing on the BoyarMiller website at


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