Infrastructure financing amid shifting Fed rate policy

Jeffrey Scruggs, Head of Public Sector and Infrastructure Group at Goldman Sachs, sits down with Bond Buyer Executive Editor Lynne Fun

Transcription:

Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.

Lynne Funk (00:09):
Hello everyone and welcome to this Bond Buyer Leaders Forum. I’m Lynn Funk, executive editor at the Bond Buyer, and today I am delighted to welcome to the show Jeff Scruggs. Jeff is a head of public sector and Infrastructure Group and PSI operating committee with investment banking at Goldman Sachs From 2008 to 2020, he served as co-head of the PS IPSI group and PSI operating committee. Jeff joined Goldman as a managing director in 2008. Prior to joining the firm, Jeff was a managing director at UBS Securities where he was head of the public finance banking department within the Municipal Securities Group. He began his career at Payne Weber Incorporated in 1985 as a municipal banker in the municipal finance department. Now Jeff has a wonderful bio that is much longer than this, but we’ll probably get into some of his past history during the conversation. So welcome Jeff. Let’s get to it.

Jeffrey Scruggs (01:07):
Thank you, Lynn. It’s only because I’ve been in the industry so long that I have a wonderful bio.

Lynne Funk (01:13):
Well, there’s, it is a really nice thread throughout our conversation for sure. So delighted to have you. Let’s get into the market. The muni market has had kind of been through a lot the past few years. A lot of it, not even, it’s more affected by macro economic concerns, fed policymaking, macroeconomic conditions, geopolitical turmoil, shifts in investor demands, whatever rate environment I think that the industry thought we were coming into last year into this year has once again shifted. And us treasuries are still volatile as investors react to day-to-day swings in surprising economic data. Again Friday, the jobs report. So the muni market’s being affected by this as well. So what does it mean for the muni market? What should this market expect in what appears to be much different rate environment and central bank policy environment in 2024?

Jeffrey Scruggs (02:15):
Well, thank you Lynn, and it’s great to be here. Appreciate it. The last five years have just been really dynamic. If you would’ve asked any of us going into 2020, would all the issues would’ve been with COD with rates going just tremendously lower. And again, I’ve been in the industry 40 years and it seems like it’s been one nonstop slope down, but I don’t think anybody would’ve anticipated how far down it would’ve gone in 2020 and 21. And then just such a sudden reversal. And I know a lot of US industry veterans said, well, that was 1993 to 1994, and it’s almost embarrassing when I’m saying that around some of my analysts and associates that weren’t even born then. But that’s a different issue entirely. I think what we’ve seen, again, coming into 2024, obviously the big theme was supposed to be how many rate cuts was the Fed going to do?

(03:05):

And so the first couple of months fantastic in terms of the stability of the rates, just generally speaking, going down. And I think so many people just anticipated it was just going to be a one-way ticket down. Obviously, as you noted over the past several weeks, it’s gotten a little rocky. And I would say if you ask people within Goldman who know better than me and probably ask people all around Wall Street, they would say, well, now we’re just trying to figure out how many rate cuts. Exactly. And so you’ve seen some of that instability kind of just affect the municipal market as one would anticipate. So if you’re asking for me to kind of predict what happens, I have absolutely no idea what’s going to happen because I think the thing that we thought was the safe ticket, IE, how many rate cuts is no longer safe in terms of how many rate cuts, but again, the market has performed extraordinarily well. There’s demand back in the market. So we’ve seen inflows, which wasn’t the case in 2022. Of course, we’ve seen very orderly pricings. We’ve seen large transactions, small transactions. So again, it’s all been handled in an orderly fashion, but now it’s probably just going to test the metal of the market in terms of what we see over the next however many weeks or months before the market gets a grip on where exactly inflation is going here.

Lynne Funk (04:23):
Right, and I think it’s interesting from after coming off of 22 and 23 with such poultry supply that the bond volume that has ticked up so far in 24 has been digested quite well. The demands there, a lot of cash on the sidelines. What do you expect going forward? The increase has been actually quite a few more refundings, the Babs refundings, but with federal cash drying up from the Covid funding, will there be more issuance? Do you think issuers are confident to come more to the market now?

Jeffrey Scruggs (05:05):
Well, it’s interesting you say that, and some of it’s, you have to look at the composition of what the market was in 2020 and 21, 2020. Of course Covid came and there was by many market participants, particularly in the higher ed and the healthcare sector, there was really a fear of, boy, I need to get as much cash as I can because I just don’t know what’s going to happen. And to some extent, the infrastructure folks as well. And then obviously rates started going down tremendously and the market was very orderly. I think if you would’ve asked me in March of 2020 how orderly did I think the market was going to be, we were just worried about how we were going to function on Zoom because we had never done that before, but it ended up being very, very orderly. And so when rates were going down significantly, people were stocking up, issuers were stocking up on cash, and they were also doing refinancings.

(05:52):
Obviously it continued into 2021, and that’s something that was noticeable terms of the number of refundings, particularly in a taxable marketplace. But if you look at what the composition of the market was last year, there was more new money than there had been in previous years. And I think some of that is, to your point, what came out of Covid was a lot of free federal dollars, a lot of deferral of new money projects because there was fear about what the budget situation was going to be for many, the budget situation tended to be very good. Now let’s see what happens over the next couple of years, but a lot of those new money projects were delayed. And so over the past, call it 12 to 18 months or so, we’ve seen a number of these new money projects come back. It’s not just the typical road repairs and streetlights and that sort of thing, but some of the big projects, the convention centers, the sports arenas, the big buildings, things that were probably postponed during the Covid era and during the couple of years after that, because you know what? We need to get our arms around our budget situation or so many issuers probably thought,

Lynne Funk (07:00):
Do you think there will be more refundings? Is it still economic makes sense for an issuer at this point in the next few months?

Jeffrey Scruggs (07:08):
Well, let’s break down the refundings. There’s the typical refundings, which is just high coupon, the low coupon, and that’s either done in current refunding format or you’re doing a forward refunding format. Again, going back almost as long as I can remember, Lynn, for the past 20 years, we’ve been a 5% coupon market. So when those 5% coupons have come due in terms of current refunding dates, we’re still well below that. So it still makes economic sense, albeit it may not make the 25% savings sense. Listen, when I started in the market, 3% was the level that you had to achieve. And that’s not to say that’s what somebody should or shouldn’t do, but it’s to say there’s a lot of room in between three and 25% for economic value. The other part are tenders and tender refundings and those, a number of issuers, and again, the trend really started a couple of years ago with certain issuers doing it, and then it’s really caught on quite a bit.

(08:05):
And now just the format and the way of doing it has almost become standard and commonplace where it doesn’t seem like it’s such an incredible amount of work and effort to do it. And what we really see now is a number of issuers, not many will do standalone tender refundings. I’ve done one or two of those, and those can be harrowing because you never know how much volume you’re going to get, but just putting ’em in addition to a new money transaction or another plan, refunding is something that’s pretty commonplace. And so you had mentioned the large deals that were happening in the marketplace, a number of ’em are medium to decent sized deals that have been enhanced because of tender refinancing or other things that have been added on. And that’s something I do think will continue going forward. And yes, you mentioned the Babs refundings and we’ll see how long those go on. But again, those are additional refunding opportunities, whether they’re standalone or whether they’re added onto things.

Lynne Funk (09:00):
Okay. Now we know that taxable issuance when it did skyrocket up to what 30% of the market and 2021, those were refundings obviously the loss of advanced tax exempt fundings, but do you still see taxable issuance having a place in the muni market in terms of is it issuer dependent? There’s demand out there, right? I mean, there’s investors who are pushing back on these Babs fundings is the reason because they want their taxable paper, so scarce, so what do you see taxable issuance? Yeah,

Jeffrey Scruggs (09:32):
I think in 20 and 21, there’s probably an artificial high just in terms of the type of issuers that were issuing taxable bonds. Again, given my years in industry, there are various reasons why conventional municipal bond issuers, I’ll call it just kind of the infrastructure issuers would issue taxable bonds from time to time, private use. They were refinancing previous taxable bonds, things along those lines, but they were pretty limited. Where you really saw the taxable issuance kind of accelerate over the past, call it 10 plus years, was in the healthcare, in the higher ed space, in the higher ed space, in the private higher eds. I don’t mean the for-profits, but the private higher eds, the Harvards, the Yales, et cetera, and then healthcare, because it gave them such great flexibility in terms of just being able to use the money as they want, the same as the higher ed folks.

(10:24):
And you saw a lot of that in 2020, again, particularly in the higher ed space, a number of the higher ed institutions were stockpiling money and they could stockpile at such significantly low rates that it was almost a why not. They needed either for operations or for capital. And you kind of saw that market dry up because so many of them had already borrowed in 20. But now what you’re seeing, Lynn, is you’re seeing this year a number of the higher eds coming back in significant volume. You’ve seen that with the Harvards, the Cornells, a number of others coming back in volume. You’ve seen it also in the healthcare space, and a lot of it is in conjunction with m and a transactions that have become very commonplace now in the 5 0 1 C3, not-for-profit healthcare market. But again, there’s a rationale there. What I don’t think you’ll see as much of, but again, been around a long time, so you never know. I’m not quite sure You’ll go back to an era when the infrastructure folks will do a lot of taxable refundings and those sort of things. Again, who knows? You never know when you have a dive in interest rates and it comes back again. But that wasn’t something that we were counting on coming into this year. We were thinking we would see a decent pickup in healthcare in higher ed, and it’s probably exceeded what we thought so far.

Lynne Funk (11:42):
Okay. Let’s get into higher ed a bit more. For our viewers who don’t know, it’s a sector you’re close to. You are also chairman of the board of trustees Syracuse University, so you have a pretty good understanding of higher ed. Can you talk about what is the atmosphere in higher ed generally? Give us a background. The trajectory since 20 and 21,

Jeffrey Scruggs (12:06):
I’d like to call it my night job there, but I very much enjoy, it’s a sector I very much like and I think I have a much greater appreciation now for how the whole higher ed market works. Listen, it’s a challenging time in higher ed. I was reading an article yesterday, Lynn, on tuition for next year, and I’m intimately familiar with what Syracuse is going to be, but it was an article on tuition with the IVs, and I’m not going to name individual universities, but it was saying that the all in next year for a host of them was expected to be as high as $93,000. Boy, that sucks the oxygen out of the room. When you think about having to pay $93,000 for one year of education, and again, I’m a huge believer in education, the value of it, but your question being a good one, which is what’s kind the state of the market?

(12:58):
What are people worried about who are top administrators in these higher ed institutions? It’s value for the dollar. Quite honestly. When you’re charging $93,000 or 90 or ad pick your number, you’re in the same range. You have to justify that there is value for that dollar and oh, that’s right. You have to multiply it by four. So you actually have to, if you’re paying the full price, which again, fortunately, a number of these institutions can augment individuals that do not have the ability, families did not have the ability to pay because they should absolutely not be shut out of higher education because the market has become so expensive. But it just makes it challenging to the higher ed institutions, it’s how much financial aid can you give out what type of financial aid? So there’s been a lot of pressure on higher education institutions to operate as efficiently as they can.

(13:50):
You still have to have excellent facilities, wide coursework, things that appeal and attract kids to come to your institution. And oh, by the way, I forgot to mention that one of the reasons it’s so challenging is we’ve hit what everybody in higher ed knows is this cliff. It’s the enrollment cliff. And people say, what’s the enrollment cliff? The enrollment cliff was widely predicted years ago to happen around 2026 because the number of school age kids is going to go down. Then if you think back what happened 18 years from 2026, it was the great recession. And so the number of the amount of childbirth has declined. And there are also some people really questioning the value of a four year higher education. And there are different ways online and certification ways of achieving value and education, but it’s something that has just made it that much more competitive.

(14:46):
So the ripple effect is that you have seen, particularly with some of the private institutions, you’ve seen some of them go out of business. I think there will be more that will happen. You’ve seen a number of state education systems doing some consolidation, and that’s probably something that will continue as well, but it makes it challenging, but it means that you really have to think about what your strategy is going to be and how you appeal to certain students. And you really have, I say you have to double down on what you do well and make sure that people know that’s what you’re doing well.

Lynne Funk (15:25):
So it’s kind of become a really bifurcated market, right, of smaller versus larger institutions.

Jeffrey Scruggs (15:33):
The way I’d put it, Lynn, is yeah, there’s a bifurcation on size, but there are a lot of smaller institutions doing extraordinarily well either. Number one, their endowments are very, very large for their size. Number two, they do some specific things very, very well, whether it’s the liberal arts or whether it’s the STEM areas or whether it’s the arts areas. But they have a very specific area that they do particularly well in a very particular set of kids that they appeal to and get. There are larger institutions that aren’t doing as well because it takes a lot of money to run a larger institution and the number of larger institutions are having to think about, do I need to be all things to all people or should I really be thinking about what I’m offering to folks and what my appeal is and try to cut down accordingly? So again, we’ve seen a lot of variation in there, but the one thing that’s commonplace to all of them is once they’re doing well, their administrations and administrators have figured out what they need to do to run well, and you have to live within your means and figure out how do you maximize the amount of revenue that you get and deliver a premium product.

Lynne Funk (16:48):
How much do you think of demographic changes? Is that also playing a role, not just fewer students, but the shifting of especially during covid, finding out that, oh, I don’t have to go here or there, I can work remotely, I can go to school remotely, or

Jeffrey Scruggs (17:01):
It’s Yeah, there are variables that have been inserted since covid that higher education institutions didn’t have to think about, right? The work from home, the study from home, the zoom, everything that happened in 2020 and 21, boy, that was challenging for higher ed institutions. How do you do it? How do you keep students engaged? How do you justify still charging full freight? The other thing is what the higher ed institutions know is the test optional, the SATs and the acts, the number of institutions that have gone to test optional is significant. There weren’t an incredible number pre 2020. It’s a little bit of the keep up with the Joneses, follow the Joneses. If your primary competitors or your competitive set is all going test optional, well then it allows you to go test optional because it increases also the number of kids that apply and increases the diversity, the overall diversity, whether it’s the socioeconomic, the ethnic, the gender, any diversity you can name. If you go test optional, you probably have a greater chance of achieving a certain level of diversity.

Lynne Funk (18:11):
Thinking about, it’s interesting how you talked about the taxable component of the muni market and how higher ed and healthcare have always been somewhat of a constant. When does that help also sort of with foreign investment in Munis, is that just Harvard prices if it’s taxable? European investors, Asian investors can know that, okay, this is a muni credit, I can put my money behind.

Jeffrey Scruggs (18:37):
Yeah, I think you’re right for certain names that foreign investors know and they have a level of comfort with. And if they have to go to their pension fund and say, well, why do you own this kind of quasi muni nonprofit in the United States? Well, it’s Harvard or it’s Stanford or whatever, Chicago, whatever it may be, it is not limited to only two or three. And also it has to come in size. So as you know, Lynn, that’s one of the things in the investment grade market, there’s a $300 million minimum level for liquidity. And so that’s something that only a certain number of institutions in the United States are going to issue 300 plus million at a clip. So by nature there you’re already self-selecting the number of potential bonds or number of potential transactions that a foreign buyer will find attractive. And again, there have been those type of offerings.

(19:31):
This year, we anticipate there will be more once the competitive stat starts coming to the market. By nature, it somewhat encourages the others to take a hard look at the market and say, wow, yeah, the spreads are really tight. Okay, fine. We talked about the fact that absolute rates have kind of bumped back up again in the last couple of weeks, but relative speaking, over the course of decades, there’s still a low interest rate environment and maybe this is a good time to get back into the market and we anticipate there’ll be others that will be doing it.

Lynne Funk (20:01):
It was so interesting to me, particularly when in 20 and 21 when taxable issuance went up and how much foreign investment interest was a talking point, at least in general, not just for higher ed and how healthcare and how the muni market could use more buyers. And it’s always something I like to think about. What is the foreign market for this market? I guess somewhat similar, but before I move on, is there anything else that I didn’t ask you about the healthcare sector that you think you wanted to highlight that we should be thinking about? No,

Jeffrey Scruggs (20:39):
I mean, I think that the higher ed sector and the healthcare sector, there are a lot of similarities there just in terms of their predisposition toward taxable issuance for the flexibility reasons, both sectors are going through their own set of challenges. And again, whether it’s consolidation, you see more of that in the healthcare sector with the big systems or in the university sector. Again, you’re not going to get the same type of consolidation in the university sector. I’ve had people come up to me and say, well, what about the possibility of the m and a market in the university sector? No, it is simply not like that. You’re not going to have one university go out and buy another. Now you’ve seen some of the for-profits, the University of Phoenix’s, the world, think about consolidating with a, not-for-profit to achieve efficiency. So are there those type of transactions, but they’re fewer and further between.

(21:38):
And yes, there are some joint ventures that occur, particularly when you get higher ed institutions in the same geographical area that may be able to offer similar or complimentary offerings that may achieve some efficiencies, if you will talk about cost efficiency. But it’s also just efficiencies in terms of the type of offerings that are given to the student base, but it’s not the same type of m and a that you think about or that is really going through in the healthcare market. So again, there’ll be a few of those things happening in the higher ed, but I don’t think it’s a big, huge trend.

Lynne Funk (22:15):
Got it. Got it. So I would like to turn over to public private partnerships. P threes always having their moment in the sun, but given just the dramatic need of infrastructure funding and that there’s a lot of private capital out there, do you think there is more room for P three growth? Will more state and local governments turn to them? Will there be smaller P threes? Is there potential for that kind of growth in this market, or is the tax exemption just way too valuable and nobody wants to go down that rabbit hole?

Jeffrey Scruggs (22:54):
Well, I think you always have to ask yourself what’s the rationale for p threes? I think P threes will always have a role. There’s a lot of money still out there as a lot of funds have been raised. A lot of the money hasn’t been deployed yet. So whether it’s return to investors or whether they’re the capitalist patient right now, you look out at Kennedy Airport and a LaGuardia airport, those are prime examples of excellent P three opportunities. They just offered the opportunity for whether it was costly financing or cost effective financing, whether it was just being able to deliver in a certain timeframe and offering the incentive to be able to do it. There are opportunities there, and I think there’ll be those type of opportunities. And again, Lynn, you particularly see it in a transportation space where you can kind of realize how do you get repaid here?

(23:45):
Because in order for a P three investor to invest, they have to consider how am I going to get repaid and get whatever return I’m really looking for? And so you have to have a revenue source, obviously in what’s broadly called the social infrastructure. It is just more an availability payment that comes from that particular municipality. You’ve seen some instances, particularly down in areas like Prince George’s County, Maryland where they’re doing P three for a program of K through 12 schools. Again, that’s an availability payment transaction. It’s being done for very specific reasons, and that program is moving forward. Will you see more of those? I don’t know. I think it’ll be situation specific. So actually just kind of summing it for you, P threes I always think are very situation specific. I think there are certain states that are more predisposed to it because either they’ve seen the successes of it, and I think there are certain areas that are more predisposed to it. Toll roads, probably airport expansions, those type of programs. But the money’s out there. There’s no doubt that the money is out there. And I do think that there’ll be a long-term availability of this type of financing program. The question is whether it ever explodes in the way that people were thinking, maybe some people hoping 15 plus years ago, and again, that hasn’t happened to date, but there’s still the money that’s searching for a home right now.

Lynne Funk (25:10):
Right? I am not the first person to say, this probably won’t be the last, but I feel in this market, not a financing problem or concern, it’s a funding problem in general. And always any banker can find a way to finance something. But

Jeffrey Scruggs (25:28):
How do you, yeah, there’s particularly for these type of projects that you’re talking about that are revenue generating, obviously I’m talking about the ones that are in prime markets, it is what’s the most effective way of financing it for that municipal entity, whether it’s just financing it because there’s a financial reason why or a bonding reason why they don’t want to use their bond capacity. Or more often it’s whether there’s an efficiency reason in terms of being able to efficiently construct a project and to maintain a project, and therefore, why don’t we bring the private sector in, not just with respect to their shovels and pick axis, but with respect to their money and for them taking a risk on it, which tends to really hone the efficiency of being able to build it and operate it.

Lynne Funk (26:16):
Are there any ways in which private capital private equity is coming into this market in a non P three manner? This is kind of a very out there question. I’m thinking in terms of the Waltons have some money that they want to spend in a way. Is there room for that in this market?

Jeffrey Scruggs (26:37):
That’s an interesting question. You think about are there muni hedge fund types and there are those that are out there and they’re very important to the marketplace. So from an investor point of view, yeah, we always think about how do we expand the investor base? And so there have been a number of muni investors that have expanded it that I would consider kind of muni private equity hedge fund type entities. You always think about it when you’re in the project finance space, like, okay, how are we going to get the money for this? Now, whether that’s equity money to coincide with debt money or whether that is high yield debt money, we’re always out there looking for it. And Lynn, when we are in these ultra low interest rate environments, that’s not terribly conducive. It’s not very attractive for these crossover investors. I would say last year when we were reaching our peaks of interest rates, and if you did it on a tax effective basis, started to get more interesting. Now, is it interesting enough to get somebody to come down from a 12, 15, 18% return? The answer to that is no. So far it has not been, don’t know about that. But we’re always looking for additional participants that are a traditional to the marketplace, whether they’re on the investor side or as you indicated, whether they’re foundations that want to support certain areas, whether that’s the 5 0 1 C3 market, the university market, the healthcare market. You see those type of things occasionally, but it’s not commonplace.

Lynne Funk (28:09):
Right, right. Okay. Well, I think I’d like to talk, you’ve been in the business, as you said, for 40 years. There’s been some shifts, right? There’s been some folks, there’s city exited, it’s UBS to a certain extent left the negotiated space. Obviously they’re still in the competitive and in a retail space, but just give me your sense overall how this has impacted the market.

Jeffrey Scruggs (28:42):
We were talking about this before we came on today, and one of my longtime colleagues had a tombstone, one of those old tombstones that you put on a wall after a deal was done. And it was from a transaction that was done 40 years ago. And he always pointed out when you had relatively new people come into the industry, this is what the industry looked like 40 years ago, and there are like 70 names on there because there’s a full syndicates selling group. Everybody, and I think we got it down to two firms, still had the same name. Goldman Sachs was one of them, and then there was another firm that had the same name and every other firm had either disappeared from the industry or consolidated with others. And that’s the environment that I grew up in. I was saying earlier that my first year as a summer intern, it was 40 years ago, and now people are probably trying to do the calculus.

(29:32):
How old is that guy right now? But it was 40 years ago, and I worked for Blythe Eastman Pain Weber. Well, Mr. Blythe and Mr. Eastman are no longer around, and Pain Weber disappeared when I was on, purchased by UBS in 2000. So constant change is something that we’ve seen, but we’ve seen a lot of additional participants come in and replace those that were around 30, 40 years ago. Now. You asked about Citi. As long as I’ve been in the industry, Citi has been a major player. I grew up with Citi being kind of the number one in the industry and paying wherever and UBS. We are always seemingly chasing them at number two. So it’s hard for me to digest an industry without Citi as a primary player. They’re primary player in terms of the primary market. They add a lot of liquidity in the secondary market.

(30:21):
That’s the part that I think if you are really focusing on what is missing or what the market may miss, it’s the liquidity. Now. I’ll be the first to say, again, I was head of the public finance department that UBS we say the first time around, and UBS decided to go out of the business. So I saw that movie before and I didn’t particularly like the ending of it. And the thing that always hits me first and foremost is the jobs that get impacted. It was that way back in 2008 with UBS and a few other firms. It’s that way with Citi, and I know people like to say, yeah, but a lot of them are being rehired. Okay, number one, that’s not necessarily everybody. And number two, people had careers that they liked. They liked working with the colleagues they have. And I can tell you from experience that it’s worked out fine.

(31:07):
It’s worked out great for me. But again, you are separated from colleagues that you work with for decades, and it’s not a fun experience. It’s a tumultuous experience. And I’ve seen articles in the Bombay and other places that have said a number of the city folks have been hired. We’ve hired several as well. But again, it’s something that it’s tumultuous for the people involved and for the industry overall. I don’t think fewer participants is something to celebrate at all. You don’t celebrate people losing their jobs and you don’t celebrate liquidity going down in the marketplace. That’s never good for any participants, not good for investors. It’s ultimately not good for issuers, and it’s not good for the personnel in the industry.

Lynne Funk (31:49):
Right. Did you want to touch on maybe, I mean, I’m curious. A lot of folks have talked about particularly secondary market liquidity challenges. I mean, are you seeing anything there? Has the industry come together to handle that?

Jeffrey Scruggs (32:04):
I always say asking a banker about secondary market is you’re really rolling the dice on it. So for me to chime in with my opinion, I’m sure a number of the people in your audience would say he is absolutely full of it. So I will say that overall though, Citi was a big participant in the secondary market, it’s been noted by many people along those lines, when you take one big participant, just take him right out of the industry completely, you’re going to have less liquidity. Now, you hope. What the industry always hopes, it kind of gets spread around that. Whether it’s some of the people that were working in Citi, some of their leaders, they go to other places. Liquidity is added, but usually you think about the number of significant players in the market, the more you have, the more liquidity there is, the better it is for primary issuance because investors feel like they have an outlet for their bonds in the secondary market.

Lynne Funk (32:58):
Well, I guess I want to ask you this. Is that the question? That’s always a fun one to hear an answer to, which is what keeps you up at night risks, opportunities? What are you thinking about this industry? Yeah,

Jeffrey Scruggs (33:16):
I would say Lynn, for 40 years, I’ve lived a life where I worry about interest rates and sometimes I scratch my head and wonder how healthy is that? But I would tell you that the thing that keeps me up at night is just the overall industry future, and it’s really related to the younger bankers. We have a tremendous number of talented younger bankers at Goldman Sachs. I know that, and I would presume others would say the same thing in the industry. And one of the things that keeps me up at night is to think about what is it that we can do, some of us older veterans to make sure their experience is one where they want to stay around the industry. Every industry is only as good as the people that are in it. We haven’t been replaced by AI just yet. Yeah, we

Lynne Funk (33:58):
Don’t have to talk about that.

Jeffrey Scruggs (33:58):
Yeah, that’s a different topic for a different day. But I will tell you that you’re only as good as the junior people that you bring into the industry and that you keep in the industry. And so making sure that the challenges there for them to grow their careers and for them to want to stay in the industry, that’s not easy. Whether it’s just giving them the challenge or whether it’s the financial remuneration that’s a combination of things, but having them want to stay around and continue to develop their careers and to be creative and to help our issuer clients, which defacto helps our investor clients, that’s something that does keep me up at night. And there’s no easy answer to it, but it’s something that I know we work at every single day, and it’s not an easy situation.

Lynne Funk (34:42):
Okay. Well, Jeff, is there anything else you think that I should have asked you that I didn’t?

Jeffrey Scruggs (34:49):
If I gave you a quick No, would that be

Lynne Funk (34:50):
Sufficient? It be, it wouldn’t be. No, no,

Jeffrey Scruggs (34:52):
No. I mean, again, the one thing that I will emphasize is the industry retains its dynamism. There’s a number of the things that you asked me about. Again, if you would’ve asked me five years ago what direction did I think the industry was going to take, clearly I didn’t think about Covid clearly, I didn’t think about one and a half percent, 30 year treasury rates, and just a number of the things the industry has done. It’s a constantly evolving industry, and sometimes I’m really just amazed by the creativity in the industry. And that’s the thing that’s going to keep the industry going. It’s the thing that’s going to keep people coming into the industry, and hopefully, as I just mentioned, it’s the thing that makes junior bankers say, wow, I’m going to stay around and I’m going to make this a career and hopefully do very well and see it as a opportunity.

Lynne Funk (35:38):
Excellent. Jeff, it’s been a great conversation. Thank you so much for coming and for your time. We really appreciate it. Thank you to everyone who tuned in to listen to our conversation. I just would do a little quick housekeeping before I close up here. A quick reminder that the Bon Buyer Texas Public Finance Conference is in Austin, Texas, just a week away. And we’re also excited to introduce the Bon Buyer Southeast Public Finance Conference in Hollywood, Florida, May 6th and seventh. I hope to see you all there. Jeff Scruggs, thank you again. It was a pleasure. Thank you to everyone, and we’ll see you soon.

Jeffrey Scruggs (36:16):
Thank you, Lynn. Alright.