Buyouts East Interview with George Siguler: “AIG Is A Lesson To Everyone”

George Siguler isn’t too fond of Wall Streeters who complain that they’re the target of populist rage. In a keynote interview at today’s Buyouts East conference, he told the crowd, “The AIG concumstance ought to be a lesson to everyone in this room. There is a big part of America that doesn’t think very highly of us.”

He later said of AIG, “When you look at the amount of wealth destruction, it’s just out of whack. People in Detroit or St. Louis don’t understand it, and they might work just as hard as we do, they just didn’t have the same opportunities presented to them as we did. If the system feels unfair, sooner or later, people are doing to do something about it.”

Other highlights of his interview, which was conducted by Frank Morgan of Coller Capital, are below, including his thoughts on LP defaults, what GE is worth, LPA terms and the ideal investment.

On LPA terms:

“GPs think that once you sign the document they have an entitlement to to what they will and that’s not the way it should be.”

On LP liquidity issues:

“I think people will end up with more liquidity than they think. The Harvard endowment is talking about liquidity issues, but back in the 70s, they had the same issue, yet spending rates sustained themselves. Their liquidity issues of today aren’t nearly as bad as they were back then, if that’s any indication.”

On LP defaults:

“It’s case by case. We’ve had, from our 350 clients, only 2 LP secondary sales in 15 years. No one’s called to say they’re cutting back, but if they do, you try and work with them. People aren’t calling money that fast and we’ll work through this…”

On public equities:

“We will never see great companies at this price again in our lifetimes. When you could buy Boeing for $20 billion, and its a two-party dominated industry and your competitor is controlled by the French government… Likewise, GE is a very interesting company right now from many, many different angles. GE China is worth more than the market cap of GE.”

On commercial real estate:

“We are just beginning the crisis in commerical real estate. The cycle we are in now is going to be worse than the 90’s RTC epidemic. All the co-mingled real estate funds have no value. The model has to be totally recast, over two trillion worth of assets.”

On regional banks:

“We haven’t really begun to feel the failures of regional banks. Banks don’t have very diversified portfolios anymore. Securitizations took credit cards and mortgages off their balance sheets, so now they are havhily invested in commercial and construction loans.”

Advice to investment professionals:

“The ideal investment is an unregulated, life-essential monopoly. You’re going to have to make a compromise to that standard but try to make it as little a compromise as possible. Past performance is no longer the metric to go by. If this is an bad as we all think it will be, the secondary and tertiary players will be the worst ones to survive, and yet those are the most typical targets of LBOs. “