To say that Glenn Hutchins is a tireless bundle of high-energy ambition coupled with a deep need to engage in all manner of weighty and topical public debate would be a bit of an understatement.
Hyperbole aside, as Hutchins has dialed back from Silver Lake Partners, the now massive private equity firm he co-founded 16 years ago which has $26 billion of assets, he’s taken on a full buffet of other gigs. And we’re not talking about volunteering down at the local Y, although he might be doing that too. Hutchins’ high-end endeavors and projects give him a singular perspective on the economy, which makes him an interesting conversation the week the Federal Reserve decides whether to finally give the economy a reverse turn of the screw and raise interest rates.
Before we get to that though, let’s look at exactly what Hutch—as his friends call him—is up to.
He’s chairman of the board of software company SunGard Data Systems and a director of AT&T and NASDAQ OMX. He’s a director of the Federal Reserve Bank of New York, vice chairman of both the Brookings Institution—where he has created the Hutchins Center on Fiscal and Monetary Policy, and the Economic Club of New York, and a member of the executive committee of the New York Presbyterian Hospital. He’s also an owner and member of the executive committee of the Boston Celtics. He’s a director of the Harvard Management Company, which is responsible for the Harvard University endowment, and co-chairman of the university’s capital campaign. He’s also created the Hutchins Center for African and African-American Research at Harvard. And he’s a board member of the Center for American Progress as well as a Fellow of the American Academy of Arts and Sciences.
Whew! Type A much?
So Hutchins must know exactly what the Federal Reserve is going to do, right? Wrong. But here's what he did have to tell us about the path of interest rates, China and more.
Will the Fed raise rates this week?
“I have no idea,” he says with a chuckle. “I don’t speak for the Fed. And I’m not involved in that decision.” Having said that, Hutchins said he thinks the Fed could raise rates without imparting harm. “We’re in a situation where there’s a very good market and economy… so the big issue is less about interaction between interest rates and the economy than it is about interaction between interest rates and the market.”
Hutchins also suggests that the notion that higher rates would drive the dollar up and hurt U.S. exports is off because “there’s no real impact historically until the Fed 10-year rate gets to 5%. We’re a long way from there.”
When asked if the Fed should raise rates this week, Hutchins avoided giving a direct answer but said “it will be important to get back to a normal interest rate regime so you then have interest rate management as a tool for future crises that need to be dealt with. I think that the overall economy is strong enough to absorb that.”
On the Chinese economy
With regard to the Chinese economy, Hutchins accentuated the position that that country’s economic relationship to the U.S. is relatively small in direct terms, suggesting that China alone should not be a reason not to raise rates now. “Only fools predict equity prices and interest rates, but will there be some sort of degree of a reaction to changing trajectory and composition of Chinese growth in the world economy? Of course.”
So is China a major worry for Hutchins? "I don’t think it’s a scary part of the global economy but it’s unlikely to contribute to GDP growth the way it has," he said. "In other words if you look at what’s happening in the emerging markets, a very good example is Brazil, a huge exporter of raw materials to China during its boom period, the props have been knocked out under that. On the other hand, you’re thinking about your retailer and you’re thinking about serving the emerging middle class in China, which is expected to grow potentially by a factor of 10 over the next 5-10 years that’s a good opportunity."
On income inequality
As a lifelong Democrat who served in the Clinton administration as a special advisor on economic and health-care policy, Hutchins has concerns about income inequality. “Because we’re in a global economy and there’s a large reserve of long-term unemployed and people who have dropped out of the labor force, there’s not a lot of pressure on employers to increase wages,” he says. “So wage growth has been anemic during this time period and that should be a cause of concern for policy makers and for all of us. And because during that time period equity markets and other asset markets have grown substantially and people who are exposed to equity markets have made a lot of money from that, there is this sense that it’s not fair.”
Hutchins believes that “the underlying problem is an economy that’s operating in different ways than it has in the past largely because of global economic trends but also in no part because of technology.” Addressing this problem will require new thinking: “Our whole regime of labor laws that go after employment, unemployment, OSHA, workman’s compensation, even private market things like insurance don’t address the way in which people work today,” he said. “So I think there’s a really interesting way to go after the things that arise in the workforce without trying to stand before history and saying stop and seeing the modern technologies as an opportunity.”
On the 2016 presidential election
And whom does Hutchins support for president? No surprise there. “I think Hillary Clinton would be a great president. I’m not allowed to be involved in her campaign because of my position at the NY Fed but as a person I can endorse her and think that she’d be a great president of the United States and I’m very supportive of her.” (Hutchins wouldn’t comment if he was interested in serving in a Clinton administration.)
As for the other side of the aisle: “I’m not sure if anybody on the Republican side has the wherewithal to beat Donald Trump,” he says with a grin.
On investing
When asked about investing, Hutchins launched into a mini-macro discourse: “I think that in the world in which I operate I always see risk and reward coupled with each other. Who would have thought we’d be at some of the lowest energy prices we’ve ever seen and expect that to happen for a very long time? That is just in very large part because of American shale. There are some very good pieces of this and some negative pieces. Overall it’s almost all a net positive for the United States.”
But it’s potentially destabilizing to other countries around the globe that depend on stable oil prices, I point out. “So are we supposed to feel sorry now for Venezuela, Russia and Iran,” Hutchins responds rhetorically.
As for the stock market and tech investing, which has been the core business of Silver Lake: “Equity prices as measured publicly are not cheap. It’s not something I would say time to dive in, like 2009. They don’t look wildly out of whack to me on the upside either. So I feel sanguine about equity market levels and direction. If there’s a place that I look at the prices and feel concern it’s in late-stage pre-IPO ventures. [But] if you look at some of these companies they have a huge potential in front of them by disrupting parts of the global economy and creating great growth rates. Apple products came out during some of the worst economic times we’ve experienced in our lifetime and set records for units in dollars sold so there’s always a market for innovation.”
A market no doubt in which Hutchins will somehow participate.
