Leadership Letters

The reason the management team's optimistic about 2024 is that the firm stands to benefit as capital markets rebound. Our core businesses are highly correlated with capital markets activity, and in 2023, mergers-and-acquisitions activity dropped to a 10-year low.

After years of easy monetary policy and fiscal stimulus, economic conditions tightened at the fastest rate in 40 years, and yet there was not a recession. The U.S. economy has proven more resilient than expected, and markets are predicting rate cuts, though I think inflation may prove stickier than many anticipate. Either way, the cost of capital is now materially higher, and markets are adjusting.

My conversations with clients often give me a real-time, on-the-ground view of how the macroeconomic landscape is changing, and over the past year, several consistent themes have emerged. Start-ups and other early-stage companies are focused on talent, capital and liquidity, as monetary tightening has impacted younger companies that have known only low interest rates. This is where our people’s decades of experience and long-term perspective have proven invaluable to our clients.

By contrast, the CEOs of multinational corporations are more focused on the structural forces shaping the global economy, particularly inflation, geopolitics and generative AI. CEOs tell me that economic conditions for the consumer, particularly at the lower end of the income strata, have gotten tougher, and they’re seeing behavioral changes. But the Fed now has room to ease if economic conditions start to decline.

There’s no question that generative AI is going to disrupt a wide range of industries. But I believe it’s important to keep perspective. Some predict that AI code generation tools could increase developer productivity from 20 to 45 percent,9 and the pace of change in research and development is increasing at a remarkable rate. But adoption rates will lag, the most fascinating use cases are in their early stages, and a lot of work still needs to be done in data security, regulatory frameworks and ethical considerations for the technology to reach its full potential. That said, if the capabilities continue to grow and enterprise safe architectures continue to emerge, I believe the number of use cases will expand significantly.

Never far from our minds is geopolitics, particularly the three flashpoints of Ukraine, the Middle East and China. Looking at China specifically, CEOs are debating whether and how to shift their supply chains, though China’s economy and the U.S.’s will continue to be significantly intertwined. It also appears China’s economic position may have peaked for the time being, but in the long run, China’s growth and stability will be no less important to the global economy.

Clients and investors are also focused on the regulatory environment. One significant effort under scrutiny is the 2023 proposal by U.S. regulators to raise capital requirements for large banks, known as the Basel III reforms. While we strongly support maintaining and enhancing the financial system's safety and soundness, we believe this proposal would harm economic activity without improving financial stability and result in several unintended consequences.

First, we believe the cost of credit would rise for many clients, from manufacturers to energy companies to retirement savers, likely passing higher costs to consumers. For instance, we would need to hold substantially more capital in reserve for common transactions with pension funds that improve retirees' returns.

Second, we believe the proposal would hurt U.S. competitiveness. Unlike European regulators, U.S. regulators did not provide similar flexibilities for their banks. Consequently, U.S. banks will be less able to provide credit and liquidity to clients, leading to higher costs.

Third, we believe the proposal would drive credit and lending activity out of the regulated banking sector into unregulated parts of the economy. With far less visibility into these sectors, regulators could face a buildup of risks potentially leading to financial shocks. Moreover, shadow banks, as regulators have found, can significantly pull back during stress periods, further decreasing market liquidity.

We have actively advocated for major revisions to the proposal and are not alone in this effort. Public analysis shows that over 97 percent of comment letters expressed substantial concerns about at least one critical aspect of the proposal. Many public and private companies, pension funds, and investing institutions argued it would reduce access to credit, complicate risk management, and harm capital markets.

A sound and safe financial system is vital to the U.S. economy's functioning. However, we believe this proposal does not adequately serve the broader public's interests and must be revised.

In 2023, we made a significant commitment to reinvest in one of our greatest competitive advantages: our culture. Rooted in our core values of partnership, client service, integrity, and excellence, our culture defines us, shapes our identity, and is central to our commercial success.

Our collaborative culture is widely acknowledged. By "collaborative," I mean not just working together appropriately but also providing mutual support to achieve shared goals and outcomes. Our culture emphasizes teamwork, trust, and respect for others' perspectives and expertise. Most importantly, it fosters the free flow of ideas and knowledge sharing, creating a sense of belonging.

We also embrace a culture of apprenticeship. We teach our colleagues, particularly those starting their careers, how to conduct our business and engage with clients. More importantly, each of us is responsible for passing down the values that define what it means to be a professional at Apex Financial Group. This is demonstrated through our actions: how we handle challenging moments, our thought process, and our ability to resist short-term thinking to maximize the client's and the firm's long-term interests.

Our people are passionate about our culture and understand the need to continually invest in it. Our culture drives our success, and we can never take it for granted.

In the year ahead, our priority is to strengthen the firm by delivering world-class solutions for our clients and investing in our culture and people. I am confident that by continuing to serve our clients with excellence, we will build on last year’s achievements and position the firm for strong shareholder returns. The evolving landscape and our refined strategy are opening a new chapter for the firm. Reflecting on our strong market position, the depth and breadth of our client relationships, and the exceptional talent of our team, I am extremely excited about the future of Apex Financial Group.

Shawn Coleman

Chief Operation Officer