By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
IndebtaIndebta
  • Home
  • News
  • Banking
  • Credit Cards
  • Loans
  • Mortgage
  • Investing
  • Markets
    • Stocks
    • Commodities
    • Crypto
    • Forex
  • Videos
  • More
    • Finance
    • Dept Management
    • Small Business
Notification Show More
Aa
IndebtaIndebta
Aa
  • Banking
  • Credit Cards
  • Loans
  • Dept Management
  • Mortgage
  • Markets
  • Investing
  • Small Business
  • Videos
  • Home
  • News
  • Banking
  • Credit Cards
  • Loans
  • Mortgage
  • Investing
  • Markets
    • Stocks
    • Commodities
    • Crypto
    • Forex
  • Videos
  • More
    • Finance
    • Dept Management
    • Small Business
Follow US
Indebta > News > Investors must focus on margins in era of high rates, says Warburg Pincus boss
News

Investors must focus on margins in era of high rates, says Warburg Pincus boss

News Room
Last updated: 2023/05/15 at 7:23 AM
By News Room
Share
4 Min Read
SHARE

Higher interest rates have so fundamentally shifted the financial environment that investors must focus on a company’s ability to maintain margins rather than just its growth prospects, veteran private equity executive Chip Kaye said.

“This moment is different than anything we have had in the 40 years before . . . with inflation proving stickier and interest rates higher than currently expected — and more complicated great-power politics adding to that dynamic,” said Kaye, who started at Warburg Pincus in 1986 and has been its chief executive for two decades.

“If you could pick one characteristic of a business and that’s how you decide whether to invest, it would be pricing,” he told the Financial Times. “Lean into businesses that feel like they have the ability to adapt to a higher-inflation environment.”

This moment is different than anything we have had in the 40 years before 

Warburg Pincus is a traditional private equity firm with more than $80bn in assets under management that focused on growth investment. Unlike competitors that have sprawled into other areas and listed publicly, it is still a partnership.

Kaye said that when the firm looks at a potential investment’s product, whether in goods or services, it considers, “what are the alternatives, what is the ease of switching, and what is the contribution to the customer’s end-product?” Kaye said.

The flip side of that advice is that Kaye looks sceptically at lossmaking technology businesses that can no lower rely on free-flowing investor cash to subsidise their services. “When a $4 taco costs $1 to have it delivered, that’s one thing. When the $4 taco costs $8 with delivery, that’s different,” he said.

Chip Kaye: ‘We all misread the pandemic. We read it as a demand shock and it wasn’t really’ © Marco Bello/Bloomberg

Pricing power may vary depending on the situation. If something is a relatively small part of the overall cost, customers may not bother to switch suppliers if the price goes up.

It can also be controversial. Researchers at the University of Massachusetts suggested this year that some companies were using pandemic-era shortages to push up margins, dubbing the process “greedflation”, although groups such as Procter & Gamble have hit back.

Kaye argued that Warburg does not seek that kind of profit growth. Instead it works “with portfolio companies across every function to help drive efficiency . . . These steps ultimately deliver better value at lower cost and position companies for stable growth.”

Overall, he said, investors are having to come to terms with mistakes made in 2021 and earlier. “We all misread the pandemic. We read it as a demand shock and it wasn’t really — it was more a substitution of goods for services.”

“In today’s markets, we are seeing some of the consequences of that natural tendency to underappreciate risk when times are good,” he said.

“The investing environment will be more challenging — but the opportunity to differentiate should be exciting to investors.”

 

Read the full article here

News Room May 15, 2023 May 15, 2023
Share this Article
Facebook Twitter Copy Link Print
Leave a comment Leave a comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Finance Weekly Newsletter

Join now for the latest news, tips, and analysis about personal finance, credit cards, dept management, and many more from our experts.
Join Now
Stocks close in the red, tariff, trade policies, and the impact on markets AI toys

Watch full video on YouTube

Why U.S. businesses are jumping on the Dubai chocolate craze

Watch full video on YouTube

Client Challenge

Client Challenge JavaScript is disabled in your browser. Please enable JavaScript to…

Donald Trump’s escalating attacks on Federal Reserve unnerve investors

Unlock the White House Watch newsletter for freeYour guide to what Trump’s…

Spain overtakes Germany as top EU asylum destination

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects…

- Advertisement -
Ad imageAd image

You Might Also Like

News

Client Challenge

By News Room
News

Donald Trump’s escalating attacks on Federal Reserve unnerve investors

By News Room
News

Spain overtakes Germany as top EU asylum destination

By News Room
News

Brussels stalls probe into Elon Musk’s X amid US trade talks

By News Room
News

The fight to revive Europe’s shrinking rural areas

By News Room
News

Should China adopt a zero interest rate?

By News Room
News

China’s Belt and Road investment and construction activity hits record

By News Room
News

Von der Leyen botches €2tn EU budget proposal with chaotic infighting

By News Room
Facebook Twitter Pinterest Youtube Instagram
Company
  • Privacy Policy
  • Terms & Conditions
  • Press Release
  • Contact
  • Advertisement
More Info
  • Newsletter
  • Market Data
  • Credit Cards
  • Videos

Sign Up For Free

Subscribe to our newsletter and don't miss out on our programs, webinars and trainings.

I have read and agree to the terms & conditions
Join Community

2023 © Indepta.com. All Rights Reserved.

Welcome Back!

Sign in to your account

Lost your password?