Best sector to be in
Have heard tech, healthcare and business services are considered to be the best performing. Tech and healthcare seem to be dominated by a few players so biz services seems interesting to me. Thoughts?
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Healthcare is definitely not dominated by a few players lol
The best sector is hooking up with your mom bro
I do think business services is a great sector for PE investment. Very broad sector by definition but all the businesses share similar characteristics (and powerful macro tailwinds) that are attractive to sponsors leading to a pretty competitive market among sponsors. This is offset by how fragmented the industry is though, which also leads to a ton of value creation potential through roll-ups / buy and builds.
Industrials
Energy
Why energy? That’s where I am and didn’t know this
Above poster gotta be trolling (said as a former energy banker)
Given the current environment of the industry I think you’ll see solid deal flow throughout your analyst years if you’re at a reputable shop. Obviously renewable energy isn’t a quick fix and O&G has decades of runway left before we can fully transition, but if you were to make a career of energy I think it’d be cool to have first hand experience in the transformation of an industry that has huge macro implications. This past summer I was able to work on sizable deals in both the traditional O&G and renewables space, and i think that trend will continue as both verticals are vying to gain government / consumer support during the current crisis. There’s no doubt the industry will change, but energy is one of the most capital intensive industries as I’m sure you already know, so as a banker you’ll be along for the ride.
I could also just be a naive intern ready to go into IB and hate my life for the next few years so feel free to disregard anything i said lol
Remember investment returns are a combination of underlying business performance and valuation. A good company combined with an overly-high valuation can result in a very bad investment. An average company combined with an attractive (low) valuation can be a homerun. Problem with HC and Tech as I see it is that while the industry tailwinds are good, the valuations are way too high - in many cases paying 15-20x cash flows for a business in the hopes that it will continue growing.
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Agree it's popular but I think it's still TBD whether LPs will meaningfully increase allocation here. It's an odd fit in a portfolio - illiquid but lower returns than buyout/VC. Upside is obviously the shorter duration.
There is definitely some value to entering further along the J curve. Total IRR may be lower, but on a risk adjusted basis these deals can be very attractive.
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Tech, healthcare, real estate, and infra. All have good tailwinds going for them in the future (not just the next year or two) in terms of fundamentals, LP investment appetite, etc. One way to filter best industries to be in can be lo look at the Forbes list and see what they did to get their wealth. A lot come from finance, real estate, and tech.
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Nah. I see the concern. Even though higher rates impacts all assets, it can hit real estate harder given how closely linked it is to capital markets. However, real estate is the largest sector in the global economy. You can make a killing being a generalist or honing in on a specialized area (ex. buying up industrial warehouses back in 2010 and holding until now would surely have been one of the best investments you could have made). Rates, the economy, etc. ebbs and flows. But people will always need to live in a home.
Software, healthcare, and infrastructure are the best "core" sectors in my opinion. Huge amounts of investment are needed to continue meeting the needs of a more globalized population and we are seeing massive breakthroughs in all of them. I do think Crypto will also become very lucrative (it's been a drop in the bucket so far) as modern governments continue to debase their currencies and allow the broader global financial system to be dictated more and more by the whim of central banks. I believe we will see more of a parallel economy step up as things like "cancel culture" and un-banking of individuals/groups is used as a political cudgel. As governments push for more control and oversight of populations (e.g. digital health passports, CBDCs, etc.) more groups of people will elect to simply not participate in the system and find ways to more all of their commercial activities to a medium that isn't as easily policed, whether legal or explicitly illegal is less relevant.
Curious about opinions on industrials going forward. Obviously won’t see the same investment as spaces like tech but any insight would be appreciated!
Was listening to a podcast where the guest made a point that industrials in the best sector to learn investing in. His point was that you get the full range of industry lifecycles in industrials (emergent tech related to IoT applications all the way to decaying industries such as fossil fuel value chain), as opposed to something like tech where everything is much more growth oriented by design of a more nascent sector.
Can you share the Podcast please? Thank you!
Hey! If you have a free moment, would you mind sharing the Podcast with me? I'd love to give it a listen - thanks so much!
-1 for high churn / high-growth businesses (WeWork)
-0.5 for Tech
+1 for Infra
+2 for Distressed/SS
IMO PE and HF are cyclical (when one performs, the other doesn't). Think by far the biggest beneficiaries of zero interest rates and expanding multiples has been tech / tech-esque. Stands therefore they should experience the biggest draw-downs in the next decade. Many popular tech products are yet to be FCF-positive / barely are and doubt they get to consistent profitability within the next decade w/ more difficulty in capital raising. Great firms, especially software-driven one, can still perform w/ high ARR businesses but think the "home-run" projects / Ubers of the world are unlikely to come to formation anytime soon w/o a unique, resilient angle
Infra with massive tailwinds & LP interest. Fundraising gets larger YoY and was mostly untapped from risk appetite POV (ex. firms like Sidewalk did not exist) with many investable opportunities outstanding. Lots of core/core+ done pre-2010, energy was still considered very distinct from infra then. Boundary lines have since merged
Distressed self-explanatory. Lots of good deals to be had in the next 24-36 months I expect. Great time to be an RX banker
Uber is a great business that has been hamstrung by governments protecting their taxi lobbies or their massive borderline redundant public transport investments through punishing regulations like in nyc.
I like Uber. I agree that it's a great business. I am referencing it as an example of a business that strung along higher and higher post-money valuations into IPOing (2019) into very only recently posting its first quarterly operating profit (2021). Just don't think the pursuit of game-defying, cash-sucking unicorn will be the angle of attack moving forward into a likely recession. It's grown to become a ubiquitous service now, but took immense time to grow traction and cultivate what was ultimately seen as discretionary near its inception
How about consumer sector?
I think anything discretionary comes to mind as being non-performing, but consumer could go either way. Ironically chains that have really not performed (BBB, Sears, etc) - big box chains - would actually probably do better N10Y than L10Y given their use case in a recession vs its more premium counterparts that have eaten market share (fashion consignment, Whole Foods)
Mining
I unequivocally agree. Mining is, without a single doubt, the best sector to be in historically, currently, and for the future. It offers unparalleled exit opportunities due to the modelling done in the group, as well as the business models, being so diverse and applicable to a wide variety of industries. The pay is unmatched, and they work the least number of hours, particularly within Toronto. Everyone should try a stint at BMO Capital Markets (top mining group in the world btw). I hear they have amazing culture.
Structural underinvestment, visible supply concerns, sector ripe for M&A and everyone on this platform MS' the space ... say less imho
Agree. Folks have kind of made it seem to be that minint is at the forefront of geopolitics, technical innovation (esp these days) and has quite robust dealflow at the moment. Would also add FIG here though
Energy — start of next 30 yr super cycle
Healthcare if you're able to get deals that aren't auction/off-market. Know of a few LMM funds whose had arguably the best returns in their market range for healthcare (largely due to the network of the rockstar operating partners).
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