The article below is from our BRIEFINGS newsletter of 09 July 2021
As one of the longest-tenured CEOs on Wall Street, Jefferies Financial Group CEO Rich Handler has seen his share of market cycles, crises and technological changes. In a recent conversation with Katie Koch, co-head of Goldman Sachs Asset Management’s Fundamental Equity business, Handler shared his thoughts on the economy, capital markets activity and innovation across sectors.
Katie Koch: Rich, we last spoke more than a year ago when we were in the depths of the pandemic. Today, with economies in various stages of reopening, can you share your macro outlook on the strength of the recovery?
Rich Handler: The economic recovery is closely tied to the actual vaccine rollout. But given that it is likely we will need booster shots to fight against variants, the road to full recovery is going to be longer than most people expect. It’s not like a light switch—it will be more of a dimmer switch slowly being turned on. So while we are bullish on the recovery overall, there’s also a pacing component of how long it will take to eventually get to herd immunity and how we will deal with ongoing variants. Unfortunately, we will be dealing with COVID for years and we’re trying to figure out how to prepare our people for that perspective.
Katie Koch: You’ve expressed concern that the government’s fiscal stimulus could worsen income inequality in the U.S. In fact, we did see rapid wealth creation in the capital markets over the last year which has left part of American society behind. But we’ve also effectively seen an increase in minimum wages through this stimulus, which is resulting in higher wages. From our perspective, we believe we could be on the precipice of a redistribution cycle from capital to labor that could result in inflationary pressures. What’s your view on income inequality, and how do you think the Federal Reserve will take that into account in its policymaking?
Rich Handler: I think the world’s in a dangerous place right now. Income inequality has worsened for a variety of reasons. That will have implications on the political landscape in terms of how policymakers try to redistribute wealth. I think the Fed is going to try to keep unemployment as low as possible and not worry as much about inflation as higher prices start to seep into the system. The Fed will want to be as accommodative as possible to keep our society functioning, but while we’ve tried to address systemic issues, we’ve left a lot of people out of the recovery and that’s going to be one of the biggest issues we’re going to have to deal with going forward.
Katie Koch: Let’s talk about the capital markets. The industry has just posted one of its strongest quarters of M&A activity, with special-purpose acquisition companies, or SPACs, playing a key role. What do you think about the sustainability of M&A and SPACs?
Rich Handler: So I think SPACs are here to stay, but they aren’t a panacea that can solve all of companies’ problems. At the same time, SPACs are also not something to be feared—they're just like any other financial structure to take a company public. SPACs have become popular because the traditional IPO process is still cumbersome, complicated and can take nine months to a year to complete, during which a company might end up missing the window to go public. SPACs, on the other hand, are quiet negotiations and a much quicker way to go public. But there can be issues with SPACs that are looking for acquisitions given that we’re increasingly seeing retail investors bid up the stocks of potential targets.
Katie Koch: Jefferies is deeply involved in the healthcare markets where there’s been a tremendous amount of innovation. What’s your current outlook on innovation in this space?
Rich Handler: The technological change that we’ve seen has been years and decades in the making. Developing the COVID vaccine in the last year was a truly remarkable achievement. But we’re going to have to build upon that going forward. Bioterrorism is a real issue, and the world has seen how fragile it really is. So we’re going to see the U.S. start to onshore healthcare capabilities that we had previously outsourced from a cost perspective in order to better protect ourselves. The innovation has been remarkable in everything from cancer treatments to the integration of big data into healthcare technologies. I’m very optimistic about all of that, but there’s still so much to do. But there’s a lot of capital going into the space now, which is a great thing.
Katie Koch: So as Wall Street’s longest-tenured CEO, what advice would you have for people who are just starting out in their careers? What do you wish someone had told you when you were starting out on your own journey?
Rich Handler: The most important thing in your career is developing relationships. If you can actually get people to trust you and if you can have empathy for other people, I think you will have a remarkably successful career, and you will have a much more fun life. And it’s a long race.