Advent International Managing Partner & Chairman David Mussafer joins Yahoo Finance Live to discuss how private equity is shifting amid economic uncertainty, creating a balanced environment for investors, global monetary policy, inflationary pressures, supply chain woes, and the outlook for Lululemon.

Video Transcript

JULIE HYMAN: Is private equity feeling as gloomy about the world as most central bankers and politicians and economists seem to be? Maybe not, according to a recent report from EY. It says the sector is buoyant with cash being deployed just a little less perhaps than last year. So is a choppy backdrop creating opportunities, and where could they be?

Advent International, one of the biggest PE firms in the world, its latest fundraising took its assets under management to over $100 billion. And we are joined by its chairman and managing partner, David Mussafer, here with us in the office in the studio. It's good to see you, David. Thanks for being here.

DAVID MUSSAFER: Thanks so much for having me.

JULIE HYMAN: So I guess I would ask you that question, first of all. Sort of, how are you feeling about the world and the opportunities that you're seeing right now?

DAVID MUSSAFER: Well, when you look at the world today, it's hard to not see some of the problems. But in our business, because we're investing over a little longer stretch, we're able to zoom out. And when you zoom out, you can see with a little more clarity.

And so when we think of this as an opportunity, you've got the fact that the economic cycle is closer to the bottom than the top. You've already got some of the movements and resets and bringing rates off of 0 back up, and that to address inflation issues. And the multiples in the marketplace have come from scorchingly high levels to more reasonable levels.

All of those create a more balanced environment for investment. The last couple of years, we had a market that had no fear. And it's really hard to be an equity investor when you're fighting with a very low cost of capital. Today, there's much more balance, and I think that's the backdrop as we begin to think about investing over this next cycle.

JULIE HYMAN: Now you've been leading the firm since 1990-- or you've been with the firm since 1990, excuse me. And so you've seen a lot of different cycles here. One of the other things that your business depends on is having access to capital, having access to liquidity out there in order to do the deals that you do. How does right now compare to other periods of stress that we've seen?

DAVID MUSSAFER: Well, obviously, it's not the first time that we've had a big reset in the markets. This happened not that long ago in the '08, '09 time frame. And that was one of the bigger shocks in the market, where we were really concerned when you were worried about where your cash was sitting. If you think back to that time, it was a really scary time. Today, the banks are much better capitalized. So we're in a big contrast position.

The real issue today is that we're coming out of COVID. So this time frame with monetary policy globally, that created some of the imbalance and inflationary pressures. The other issues are supply chain, inventory. Last year at this time, when I spoke to my CEOs and you asked them, what are you worried about, they're worried about supply chain. And each one, to a person, said, I'm worried about supply chain, but I've got myself covered.

The compound effect of all-- everyone covering themselves was a massive imbalance that we went into this year with. And it was part of the reset that you began to see in the markets. Today, our CEOs are still worried, but it's different. They're worried about inflation. They're worried about energy costs. They're worried about a slowdown in the economic environment.

JULIE HYMAN: Well, now they have too much stuff.

DAVID MUSSAFER: They've got--

JULIE HYMAN: It's the other side of that coin, right?

DAVID MUSSAFER: Exactly, and but all of that, in my opinion, people now understand and they're moving beyond that. And so in some cases, you might have too much of the-- too much stuff, but it's going well, like in the case of Lululemon, where you're able to work through it. In other cases, you're going to have a little bit of a bumpy road, as you're working your way through those inventory challenges.

But those are near term. And so we're looking a little bit beyond that and see some of the silver lining beginning to emerge that are going to be the seeds of a more prosperous environment.

BRIAN SOZZI: I imagine part of what you do, there is still a feel component. And of course, you have lots of experience in this industry. What does the buy signal? What are you looking for to say, you know what? Valuations are officially cheap enough. Let's go all in here.

DAVID MUSSAFER: Well, I mean, we're, again, fortunate that our business model isn't solely predicated around buying low, and then trying to sell at a higher price. We're really thinking about, what can we do to help our companies prosper? And when we think about the environment, are we going to have headwinds to that or tailwinds? And that's the way we begin to think about the environment. So knowing that you're going to have headwinds, as today, you're likely to have some headwinds that will persist for the next 6 to 12 months.

But that's the outlook that we expect that it's going to be something that you're going to be able to manage through in an investment environment where for private equity, we're thinking in a three, five, seven-year type of horizon.

JULIE HYMAN: You guys just did a fundraise, $25 billion. So you got some money to spend. Where are you going to be spending it?

DAVID MUSSAFER: Well, we're global, so we've got an incredible team across Europe, Asia, Latin America, as well as here in the states. And we're also diversified by sector. So we're really active in the software technology. In particular, cybersecurity is one of our biggest areas of investment. But we invest in healthcare, retail and consumer, and we think in industrial.

So we're investing across a broad spectrum globally. And that allows us to really be selective. We want to find the very best opportunity where we think we can help make an impact and where this is a company that's going to be-- we're going to be able to build a global leader, something that really becomes more attractive during that investment environment.

BRIAN SOZZI: And David, you mentioned Lululemon. You're on the board at Lululemon. You, in many respects, saved Lululemon many years ago when they were going through a lot of challenges. What does the next five years look like for that company?

DAVID MUSSAFER: First of all, the management team saved it. So as an investor--

BRIAN SOZZI: That's very of you.

DAVID MUSSAFER: --they make investors look great. And that's really the core. When we think about it, what we try to do is set the right environment. So we're able to create alignment where we can say the board is aligned with management, which is aligned with the shareholders. And now reset the table. The important thing that I think we helped with Lululemon is that we said, let's get out of the penny a share game, and make some investments for the long-term.

And what you're really seeing are the fruits and the benefits of a little longer term strategy. So on a micro basis, they're outperforming some of their peers because they're growing internationally. They're growing in men's. They're growing with their e-comm site. And those are some of the things that we were able to help set those priorities and strategies in place and now see the fruits of that for, hopefully, many, many years to come.

JULIE HYMAN: So Lululemon, obviously, has been a pretty good success story, I think it's safe to say. I'm curious about exits and what the next year is going to look like because, as we frequently talk about, the class of 2021-- whew-- had it rough, which is now meaning that there's not much action in 2022. When does that start to change?

DAVID MUSSAFER: I think that's a great point, Julie. What you had last year was a pull forward. So a lot of exits that might have otherwise been planned for '22 or '23 were able to happen in '21. '21 was an amazing year for liquidity and exits. And so you've pulled that forward. No question distributions will probably be slower this year, but the outlook for a more balanced environment is what we're seeing.

So you're going to begin-- already, great assets are coming to market, and they're receiving a warm welcome in the private markets, even while the public markets. It's interesting that I can't remember during my career, many times, maybe once or twice, when we've said the value is in the public markets, which is the case today. The public markets have completely revalued where you've got a lag in the private markets.

JULIE HYMAN: Hmm, interesting. All right, we'll be watching closely to see where are you going to find those opportunities.

BRIAN SOZZI: Indeed. Advent managing partner and chairman, David Mussafer, good to see you. Have a good weekend.

DAVID MUSSAFER: Thanks so much for having me.