Industrial Automation
Francis Gannon: One of the areas that I think you've been focusing on has been automation within the industrial space. Why are you attracted to that particular area or have been over the past couple of years?
Chuck Royce: We like the industrial space. We think that has been where we get a good intersection of quality to value. We've been overweighted in industrials for some time. Now, industrials are not your old-fashioned steel mill necessarily.
These are much more up-to-date, more modern; they are seeking automation, they are seeking productivity gains, they are actively buying automation types equations and this is a very important part of their success, and we are investing in both industrials in a more pure sense and the people who are delivering automation to industrials.
Alternative Asset Managers
Francis: So another area of interest for you has been some of the alternative areas within financials, financial services specifically. Do you want to talk about your thoughts about that particular area of the market?
Most of the alternatives space, private equity, venture etc., are relatively recent public vehicles, certainly in the last half a dozen years, whereas their companies, the companies they've been affiliated with really go back decades and the market hasn't quite come to grips with the benefits in this alternative space. I think there are many benefits and it's a very exciting area that we are using.
Francis: It is a complex area, though, you have to admit, right, they're not easy businesses to understand.
Chuck: They are complex, confusing, and cyclical. The cyclicality and the complexity relates to how they pay out their benefits.
They have both fees, perhaps an investment portfolio, and they have performance fees usually based on a hurdle or a cycle where they are in their investment cycle, so it gets tricky. But as a total return vehicle, I think they're very interesting.
Independent Investment Banks
Francis: Within financial services, you have had a focus on capital markets businesses in general, but specifically on some of the independent investment banks, which is kind of a play relating back to your thoughts on alternatives as well. What are your thoughts about that industry?
Chuck: Sure, it's an evolving sort of a new wing of investment banking, the independents. It started somewhat before the financial crisis, but after the financial crisis it has certainly accelerated.
We've liked the industry, they are providing independent advice, they can do it in a more cost-effective way than the large banks, they can do it with providing more custom services, and we find it a very attractive area.
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