The Monetary Matters podcast, co-founded and hosted by Jack Farley, explores the most salient issues in macroeconomics and finance.
ICG’s Head of Economic and Investment Research, Nicholas Brooks, joined Farley to discuss the current macroeconomic landscape, drawing on ICG’s proprietary private market data to explore market resilience and corporate balance sheets.
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Key moments
Nicholas Brooks, 2min 34:
“So far, the impact [of geopolitics] on economies has been quite manageable. So, we’ve seen a bit of a dip in the growth in some sectors and in some countries. We’ve obviously seen interest rates expectations change. So there have been real impacts on areas that will affect financial markets.
At the heart of it is earnings growth. If you look at EPS growth in the public markets or if you look in the private markets, where we tend to operate, and where I tend to track fundamentals, EBITDA growth has held up very well over the last few years. Underlying company fundamentals are strong and have been resilient to all of this [geopolitical] noise and these shocks and I think that is at the heart of why markets have continued to perform well.”
Nicholas Brooks, 10min 51:
“The US has started to see a pick-up in the median private company interest coverage ratio and Europe’s has stabilised at a pretty comfortable level. At the moment, interest coverage ratios look solid at a systemic level. The somewhat panicked [news] reporting on what’s going on in private markets and private credit – I look at the data and I don’t see this at a structural, systemic level.
There may be funds that have issues. There are certainly companies that are having issues. But when I look at it from a systemic point of view – from an economist’s point of view looking for systemic risks à la 2008-9 – I just don’t see it in our data.”
Nicholas Brooks, 18min 21:
“Debt service ratios for the private sector have been trending down since 2008-9 and they are much lower now than then. Based on [Bank for International Settlements] analysis, corporate balance sheets and household balance sheets in aggregate are pretty strong. Debt service ratios are one of the better early warning signals of a systemic crisis and this is corroborated by other bottom-up analysis of the corporate sector, including our data and Fed data. I think that partially explains the resilience of markets and economies to these external shocks. That doesn’t mean there’s not dispersion in there and that we don’t have segments of markets where we might have some bad things happening, but from a systemic point of view, the risks appear relatively low.”
Key topics explained and expanded on in the podcast
- Market resilience and private company performance, including EBITDA growth despite geopolitical uncertainty and external shocks
- The role of software exposure in private markets and how it is shaping portfolio performance
- Improving corporate fundamentals, with interest coverage ratios stabilising in Europe and strengthening in the US
- Rising government debt and whether investors may be underestimating the longer-term risks
- The structural outlook for the US dollar and what it could mean for global markets
- AI’s impact on the global macro economy, including investment in artificial intelligence-related infrastructure
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Go deeper
- Explore Nicholas’ US and Europe Private Company Trends report: executive summary on the ICG website, full report on the ICG Client Lounge
- Listen to Nicholas on CNBC’s Squawk Box
- Read Nicholas’ latest analysis on recent developments in the Middle East
- Listen to the Flow of Funds podcast, featuring ICG’s CFO and its Head of North American Credit
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