Jonathan Gray: I’ll just add Glenn to your question on, can the firm operate in real estate and private equity maybe more broadly and a higher rate environment. And I would just point to over decades this firm has delivered for customers in higher rate environments and lower rate environments. And the reason is, what we do at our core is what creates the incremental return. So if you buy a business or asset, you improve the management, you allocate capital in the right way. You can generate higher returns even if borrowing costs are higher. And so we have a lot of confidence that we can do that. The other thing I would point out is, when you get to an environment of higher rates as we’re seeing on the screen, asset prices can come down.
So your entry point in at a higher rate environment allows you to set up transactions better over time as rates come back down, maybe we then see some more multiple expansions. So there’s more opportunities for deployment and I would also add that at a moment like this, dislocation comes about. And so when you’re sitting on $201 billion of dry powder, there can be situations where people need to raise capital in a hurry, need to sell something quickly. And again, that’s advantageous for our model because if you think about what we do, we’re not for sellers of assets on the one side and yet we have the ability to move very quickly when there is dislocation to take advantage of an opportunity. And then more broadly, a bunch of our capital solutions business is related to private credit certainly, tactical opportunities which I think will be super helpful and people deleveraging their portfolios are secondaries business which provides liquidity as well, they’re well positioned in this environment, so the environment changes.
We move from low rates to high rates, but it doesn’t mean the basic business of delivering better returns has gone away and the clients’ desire for this continues to be extremely high.
Glenn Schorr: Thank you both for all that.
Operator: We’ll go next to Michael Cyprys with Morgan Stanley with Morgan Stanley.
Michael Cyprys: Good morning. Thanks so much for taking the question. I was hoping you might be able to elaborate on the deployment and realization of environment activity. It seemed like activity levels were starting to pick up in August, but then slowed a bit in September as yields went higher. So what will it take for the green shoots that we were seeing just a couple of months ago to convert to sustained capital markets activity? And if current levels of rates persist for the next year or two, what sort of impact might that have broadly on activity levels perhaps for sales and real estate, but also what sort of impact might higher rates have on the broader system and the potential for credit losses?
Jonathan Gray: Okay, Mike, there’s a lot embedded there. Let me go. On transaction activity, it’s not a surprise when you see in the third quarter and now in the fourth quarter long rates moving as rapidly as they are that market participants pause, and you see a suppressing of transaction volume. And we’ve seen this in the past in moments of market volatility and instability. And so until you get some settling out of that, I think it will mute the transaction activity on all sides. I think the positives here are the Fed, I believe, is pretty close to done. We believe that based on the progress they’re making against inflation also the long end, I think, will start to do a fair amount of work for them as it drives up mortgage rates, as it drives up consumer loans like auto loans.
And so I think getting stability in the rate environment, starting with the Fed on the short end and some settling here on the long end will be important. What’s important to remember, of course, is there is cyclicality to the transaction environment, but there’s ultimately underlying demand for people to buy and sell businesses, could be a company that needs to sell a division, could be a family, could be somebody who needs to refinance because of a maturity. And you look back over the long history of the firm again over four decades, there are periods, certainly after the financial crisis where things were slow, very slow for a few weeks, of course, during COVID, you could go back to other periods of time. But eventually it comes back, because people need to transact.
So it’s hard to put a date on this, but I would say as a predicate for transaction activity to pick up, you want to see a little bit of settling of rates. If we get that, I do think you will, our pipelines and our various businesses actually are reasonable today. We’ve got some transactions we’re doing. It’s certainly not an elevated level, but I do think we need a little settling in the environment. And so, I would say, we have extremely high long-term confidence that there’ll be plenty of opportunities to deploy the capital we’ve raised. It’s very hard to put your finger on exactly when that’s going to happen. You also asked about, I guess the financial system and so forth. Whenever you have sharp movements, that does create some additional risk.
So far we haven’t seen anything out there, but there are incremental risks given the sharp movement we’ve seen in rates. I think the Fed and the fiscal authorities did a good job in March, handling that banking issue. It’s hard to predict where the next spot may be. The good news is the underlying U.S. economy has shown remarkable resilience that’s provided some ballast. And then I would say the financial system overall is so much less leveraged than what we experienced in the 2006, 2007 period. Consumers don’t have nearly the same kind of leverage they did in housing businesses are so much less leveraged. So there’s always a risk that something, there could be some bump out there, but the system just is healthier as we go into this more dislocated time in the markets.
Michael Cyprys: Great, thanks so much. I appreciate the thoughts.
Operator: Thank you. We’ll take our next question from Alex Blostein with Goldman Sachs.
Alex Blostein:
tenure:
Jonathan Gray:
tenure: It’s hard to predict where things are going to sit a couple of months from now, what’s going to happen over time. Higher rates do have an impact across valuations, but obviously there’s an interplay with cash flow. So, I certainly don’t want to get in the business of predicting what it’s going to be, but this is a headwind out there in markets and you’re seeing it on the screen right now.
Alex Blostein: Thank you.
Operator: We’ll go next to Craig Siegenthaler with Bank of America.
