Your firm, Davis Polk, appears to do a lot of international restructuring work. With turmoil in emerging markets lately, what are some things that distressed investors should be focused on? A previous commentator highlighted US-denominated debt in a strong dollar environment...
I would highlight the recent retreat from globalism and the increase in nationalism happening around the world. Knock-on effects of a trade war with China will show up in many other countries. Take South Korea as an example. There has been plenty of press coverage asserting that South Korea would be one of the big losers in a trade war as a large supplier of products to China that then get exported to the US. Less well covered is that rising nationalism in China may continue to put independent downward pressure on South Korean businesses operating in China. The combination could create a tipping point for at-risk companies.
More generally, increasing nationalism could hurt the value of foreign IP in countries where consumers associate that IP with “disfavored” countries. Distressed investors relying on foreign IP of US companies to sell at high valuations beware.
Dovetailing off of the previous question, what is one notable trend that you expect to see in Q4 of this year that not enough people are talking about? What about the beginning of 2019?
I don’t know about Q4 or the beginning of 2019, but not enough people are talking about batteries. Every year, computers get smaller and faster. Every year, Amazon can deliver more products almost instantaneously. Yet every year, my smartphone battery gets worse. Five years ago, my phone could go several days between charges, now my new phone doesn’t even make it a full day. The lack of disruption in the battery industry is troubling. Whichever company figures out how to disrupt the battery industry is going to chase Apple and Amazon to a trillion dollar market cap.
In fact, I think this could make an interesting regular coverage piece in Petition. You are great at spotting disruption in an industry. I especially enjoy your retail coverage showing the story is more complicated than an “Amazon effect.” But you are missing an opportunity to showcase the disturbing lack of disruption over time in certain industries. Where is my my battery 2.0?
PETITION Response: Perhaps you had one of those faulty Apple batteries? Did you get it swapped out? In any event, yes, batteries are a big deal. Tesla’s valuation is a testament to that. Do you value it as a car company or as a battery company? The stock market seems to be stuck in a perpetual catatonic state of confusion on the subject.
What is the best piece of advice that you’ve been given in your career?
When I was a junior associate, a mentor told me that the most precious asset a lawyer possesses is his or her reputation. It is very true advice, especially in our small restructuring community. A reputation takes a career to build and can be squandered in a moment.
What is the best book you’ve read that’s helped guide you in your career?
“Oh, the Places You’ll Go!” by Dr. Seuss. The book has a deep message. Life will not always go the way you would like, but you should never give up. You should keep working hard and focus on controlling the things within your control. The genius of Dr. Seuss is that he delivers an important message in a way that my young children can understand and want to hear again (and again . . . and again). If only more lawyers could draft that way!