00:00I am curious about the push that Ariel has been making into alternatives, deeper into that private
00:05space, and how you see, if at all, any parallels between when you started this business 40 years
00:11ago. Well, it's really exciting for us to get involved in the private markets. Our newest
00:18effort is project level. And it's, you know, it's really interesting. It's to support women's sports,
00:24women's sports teams, women's sports leagues, and women's sports products, wherever you think
00:29there are opportunities. And it's been something that we often compare to what we've done in public
00:36equities. You know, finding smaller companies that are not well-followed, not well-researched,
00:40that have enormous upside. We think that's where women's sports has been. You know, it's been often
00:45neglected relative to men's sports. It's just started to take off in the last two or three years.
00:51So we think it's really in the early innings of a really productive time for women's sports-related
00:56businesses. That's Melody Hobson's vision, my business partner, who has really worked hard to
01:00bring this to fruition. Yeah. And I mean, we should point out, I mean, we were lucky enough
01:05to speak with Jason, who helps to run that business back around the Super Bowl. And I remember when we
01:11were speaking with him, and just kind of this idea of why we're seeing so much investor interest in
01:16that, and for that matter, consumer interest or the consumption of it as well. What do you think
01:21change over the last few years that allowed for that to become a much bigger investment opportunity
01:26relative to 10, 20 years ago? I think some of the superstars are just shining so brightly.
01:33You look at the WNBA, and you see folks like Caitlin Clark and Angel Reese and some of these folks
01:40that are just absolutely extraordinary players doing extraordinary things on the court. You know,
01:44there are some really big names in volleyball, big names in soccer. And I think as people just see
01:50how talented these women are, how hardworking they are, the effort they're putting into their
01:54greatness, I think it's just taken off. But you needed a few of those big names. Back, you know,
01:59a while ago, the NBA wasn't as successful. But when you had Michael Jordan and Magic Johnson and Larry
02:05Bird, it helped bring the league to a whole new level. And I think that's what's happening with
02:10these women today. Yeah, and it's interesting. And, you know, I am always curious, how do you pick
02:16which sports that you're going to target here? Because you think about, you know, the big sports
02:20in the U.S. market. I have to imagine that there's maybe some bargain opportunities when you
02:26move past, you know, basketball. And this doesn't apply to women's sports, but football, for example.
02:33That's true. And there are different opportunities. We're not going to invest in everything or every
02:38league or every team or every product. We're going to look and make that analysis. Jason Wright has really
02:43led that effort and has great experience from his time as the head of the commanders and his time
02:49as a professional football player. But, you know, we've been early, we think, with the women's
02:54women's volleyball league and with a Denver team in the women's soccer league. And as we're looking
03:01at all the other things happening with flag football, et cetera, there are lots of opportunities
03:05out there, as well as some that maybe won't be so successful. And I think we have the team in
03:10place
03:10to be able to make those types of judgments. You know, back when we had that conversation
03:14about project level back in the fall, you know, the notion that women's sports are sort of the
03:19small caps of the sports world came up. And I do want to talk just directly about small caps,
03:26because you think about all the cross currents in the global economy right now and, you know,
03:31what this could all mean for Federal Reserve policy. We've seen small caps really see a lot of
03:37volatility. And I wonder, you know, John, where you currently stand on the outlook for some of
03:42those smaller stocks. We still think the small stocks are really well positioned relative to large
03:48cap growth. The valuation measures are still significant. Again, large cap growth is so much
03:55more expensive than small cap value. Of course, they've had this enormous run of outperformance for
04:00large cap. But when that happens, everyone starts to fixate just on those large cap growth stocks
04:05and are neglecting a lot of misunderstood smaller companies that are not as well followed,
04:10where you can do the research and find some companies that are just truly these
04:14orphan stocks, I like to call them, where you can find some great value, some great bargain in the
04:19small cap sector. I mean, I know you're bottom up, but how much of some of those bets are sort
04:24of
04:24reliant on economic conditions holding up? We've been talking about that a lot on this show over the
04:29last few weeks, particularly with the war in Iran and some concerns about whether there would be
04:33some material disruption to economic growth or further increase in inflation. How much do you
04:38have to keep an eye on that, John? And what do you actually make of what has actually transpired over
04:42the last few weeks? Well, I think it's predictable that we would be finding a way to come to end
04:51with
04:51this war. I think that President Trump and the Republican Party realize that they won't be able to be
04:56competitive in the midterms if they don't get this war over and get our economy back on track and get
05:01these
05:02oil prices lower. But at the same time, as we work in the small cap sector, we're looking at those
05:07kind
05:07of companies that we think can live in a volatile environment and still do well. Tomorrow, we're going
05:12to visit Smucker's company, you know, Jelly and Jam and Uncrustables. We're going to go to see Scott's
05:19Miracle Grow, you know, the fertilizer, things that, yeah. And so those are kind of businesses that are
05:25smaller, not as well followed, but also have great economic promise, great growth prospects,
05:30but nice and solid, steady kind of patient stocks that we like to invest in at Ariel.
05:35Yeah, I actually have a box of the Uncrustables in my freezer right now. I have for years.
05:41You wouldn't necessarily. Not the same box. No, no, no. Trust me. I cycle through them. But you
05:46wouldn't necessarily know that by taking a look at the, you know, the shares of JM Smucker because it's
05:51been a rough couple of years. And John, you know, you think about your value investing experience.
05:55I wonder, you know, what your sort of checklist looks like. How do you avoid value traps? And do
06:01you think that there are more or less of them in the market right now? Well, I think what's helping
06:08with the value traps is that, you know, some companies, they're struggling to show growth in
06:13this economic climate and what's been going on in the economy. But I think what's going to be
06:18happening now, and as you know this, the regulatory environment has completely shifted.
06:22So companies that haven't been able to grow, now they're kind of bite-sized opportunities for
06:26private equity to come in and buy them or to buy a subsidiary or to have a company spin off
06:33companies. You know, there's all kinds of things that investment bankers can help companies realize
06:38value in this environment, even if they haven't been able to grow with the traditional way that
06:42they have. That's why a favorite stock of ours is a company like Lazard, you know, big time
06:47investment bankers. And Carlyle, we were meeting with them yesterday, you know, big time in private
06:52equity. We think those are kind of businesses that are going to help these smaller stocks
06:56show real value, sometimes through economic engineering.
07:00So have we seen that shift? I mean, because, I mean, I think about the names that you have
07:05invested in over the years through public markets, and we think about sort of the explosion
07:10of private credit and the direct lending, which is effectively attacking that same kind of
07:14middle market, if you will, if I can use that phrase, that you have been a part of. So what
07:19does
07:19that sort of rubbing of shoulders of the public side of that and the private side of that, what
07:24does that end up being? Is one just going to morph into the other, or can they coexist?
07:28I think they can definitely, definitely coexist. And sometimes you get these excesses that we
07:35sometimes see, and maybe too many people were getting into the private area and getting into
07:41private credit. Everyone thought that was a way to get rich quick and become a billionaire. And
07:45everyone's going to business school and jumping into those industries. But ultimately, at the end
07:49of the day, we think the, as some of those start to filter out and get weeded out in this
07:53more
07:53difficult climate for the private world, the big guys will be successful. We think the KKRs and the
07:59Carlyles, the Apollos, the others will be able to do really well, have the best people, have the cash to
08:05take advantage of the bargains that are out there, both in the public markets and the private markets.
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