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Please welcome the panel on Asset Management in incalculable
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times moderated by CNBC news.
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Anchor Sara Eisen.
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Hello, welcome everybody.
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I feel like we need cocktails at four not water. But thank you
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all for being here. And I don't think I need to introduce our steam panelists their
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names are going to be behind them. They're all very famous. If you follow the
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asset management industry in the world of Finance,
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so it's an honor for me to be here and to be talking about Asset Management
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in incalculable times.
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So speaking of the times that we're in today's a really interesting day
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to start a conversation about the environment
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given we had another bank failure this morning
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And rescue from JP Morgan we are in
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this weird Waiting for Godot recession period
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we're trying to figure out if we're in
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a bear Market or something else. So a lot of interesting questions. I'm hoping
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to tackle with some of you guys and what you're telling your clients. Maybe
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maybe Harvey you could just kick it off because you
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you've been through the trenches back at
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Goldman Sachs in 2008 2009 you're now Carlisle and
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New on the job. I should say. Congratulations. Thank you.
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so
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how big 65?
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Just 11 pounding.
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This is your coming out. So welcome. Thank you.
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How sturdy is our banking system right now?
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Do you think well for Sarah? It's great to be here and it's great to be here with
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the panel. I've known a number of them for many many years and it's
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great to see everybody out here in the audience.
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I think you know the question you really asking is.
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How resilient and how safe is the system yes today.
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And if you think about it versus 2008.
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Personally, I don't think this feels like 2008 at all.
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That's not the minimize how acute it feels or
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is and the fear that has
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been stimulated by the last couple of months.
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But if you really think about 2000 a verses today.
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leverage in the system was significantly different interconnectedness of
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major financial institutions was tremendously different
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asset concentration was different and
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the regulatory toolkit and the response
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much more limited versus today. So I think when you talk about the
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system the system to me particularly for large financials
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Fields, very very different.
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now
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the investing environment from the environment broadly
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I think this is one of the most complex times we've been in.
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And by that what I'm really talking about is if you zoom out and it's
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hard to zoom out. We have all these events happening when you
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zoom out.
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I think trends that many of us have lived with certainly my
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generation.
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in my lifetime
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interest rates have come down inflations. Come down globalizations occurred technology
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is been extraordinary that may
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be the only Trend that is still locked in place
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and
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many of the trends that we've lived with are certainly slowing
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if not reversing and I think that sets up an incredibly
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interesting backdrop both economically globally
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and in terms of an opportunity set.
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And when I think about for those of us on this panel over the
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next couple of years.
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I think that opportunity set to deploy Capital will be
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Unique, I think this recalibration of interest rates
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is just changing the cost of capital around the world
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and I think for our clients and
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our partners, there'll be very interesting opportunities, which
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will be a Tailwind for our industry. But I
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also think we'll be solution providers for capital in terms
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of helping fix the system.
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and I think today was a
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today was a good day for the system.
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And part of this process. Okay, because I what I really wanted to
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know if anyone else thinks that there's going to be more bank
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failures in this country. See I didn't hear the question
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that way.
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But I would have answered it which is what I
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think there could be more acute issues. But again,
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I think the resiliency of the system has been proven to
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be very very solid. I mean, we've had three bank failures in a couple
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of months and the system continues to prove that it can handle them.
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Even if we sometimes critique everybody involved
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and I think we sort of misunderstand the complexity
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of the solutions, but I think the system is demonstrating that
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it can handle and digest problems in a way that in the past
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wouldn't have been the case. You shouldn't do you feel better about
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the system after today.
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Well, you know, it's very interesting because obviously you've identified
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a lot of issues that are coming out all of us
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so fast.
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Yet when you look at, you know, the first quarter of this
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year, the vix has been incredibly low, right and
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the S&P 500 posted very solid results.
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But you know when you peer below the surface, it does
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appear that not all is well and good and it's not necessarily
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benign and there are three three key
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things that I would point to I think the first is that investors
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are not necessarily betting on the
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economy or the ultimate resiliency of the
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banking sector, although I think the news from JPMorgan actually boosted
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that
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But in many respects I think investors are betting on just the
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FED continuing to Fed cutting rates and we
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saw that pretty much with the most interest rate
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sensitive sector in the first quarter, which is Tech which
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posted what 20% plus returns and had
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it not done that the S&P 500 would have been instead of
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seven percent closer to 2.7 percent.
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Number two, I think this banking turmoil has
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had the effect and the FED has said as much as
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being equivalent to an interest rate hike and then
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some and then I think more to your point Sarah is
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when you look away from the financial sector and
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look at the business sector in general.
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And I think this is where the the impact of what
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is happening in the banking sector is impacted the broader
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economy.
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Because banking standards credit standards have gone up
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dramatically and they're today. It's something like
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2/3 of historical Peak cycles. And then
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seperately if you look at just balance sheets what you see
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is that short-term liabilities are well in excess of
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liquid assets and it is a gap that exceeds
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what we saw going into the great financial crisis. And
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so that's where I think the actual concern
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should be despite what it seems like the market is absorbing
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everything that's coming its way and sort of moving on from today's
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news to probably the debt ceiling and
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whatever else may come our way but in the end, I think
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there is more underneath the surface. It's potentially worrying and
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investors should be wary as we move forward.
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Katie, you know, I've conversations today at milk and
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a lot of a lot of especially with private Equity folks say
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this is a great opportunity because banks are
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going to pull back on lending especially to small and mid-sized businesses
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and private credit is going to play a really important
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role in our economy and and save all these businesses.
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Is that true
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I think
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private credit has a very important role to play here
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and we think it could be an incredible opportunity over
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the next decade. If you deploy the
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capital appropriately at the same time, I think
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that there is a possibility that we we have some bad accidents
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actually in the in the private credit space. So just as
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brief backdrop and content and context we would
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be at TCW we would be more in the camp of medium
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to hard Landing. I wish
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that wasn't the case because like Harvey I just started as
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a CEO and I'd like a better environment but doesn't look
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like we're going to have that in our first year.
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We can see as we like that smooth Landing. Yeah.
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I think we're going to get it, but you're also.
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You know TCW is a big bond shop and bond investors are always more pessimistic.
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Yeah. I know I'm learning that because I used to
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be such an optimist before but I'm optimistic
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that credit will perform. So I feel like from a career perspective that's been
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good timing. But really when you look at the
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future here, it's it's pretty it's
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pretty challenging. So just say something quickly on that and then I'll answer the question
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on private credit. We think, you know just a
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few things to point out. We've had a 15 year recovery. And
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so I think you'd agree like in the context
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of an investing career the longer that recovery and expansion usually
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the worst the correction because there's so much excess to work out
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of the system and last week for people who follow this money supply
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contracted the most that it has since the Great Depression, which is
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one way of looking at how much that has to contract the second
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thing. That's that's happening or we think it's gonna happen is a very
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sadly because there's a human impact that is
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a lot of job destruction and the locus for
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that's probably going to come through the regional Banks.
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Harvey pointed out the smaller and Regional Banks which could face trouble
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and the best way to explain that is that
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the gsids which we've talked about before and the
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one that bailed out a regional bank today. They're in a really good position. They
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actually are much better capitalized as
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Harvey pointed out than they were going into the last financial crisis and that's
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good news. And hopefully they'll be able to step up and act
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counter cyclically, but the regional and small banks are
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in a very tough spot because of the deposit flight
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and one thing that people here should really be aware of
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is that small Banks and Regional banks
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are incredibly important to small businesses and who are small
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businesses important to an America they contribute to half the
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GDP and half the employment and so when you get credit
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taken out of that part of the market, there's a very negative feedback towards
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towards job destruction. And then the third thing and I'll
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end with the common on private credit is that correct? The price
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of capital has been reprice very aggressively in
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a short period of time and whenever that happens stuff breaks.
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Had a few major things break. There's going to be more things that break
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ahead and two areas that we would really look at that were
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concerned about that. We're keeping a lot of dry powder because
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eventually there be an opportunity. But before that there's going to be accidents would
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be the commercial real estate market sadly also
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a problem for the regional Banks because they're large owners of it and the
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second would be private credit and I'll just end by saying like, yes,
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it's exciting. I know there's for the LPS and
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the audience there's a lot of people trying to sell you. I'm sure a private
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credit now, but what I would really think about is that do
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these managers, here's the questions, I would ask your manager are
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they using strong covenants covenants is
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what gives you a seat at the table when things go sideways and
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they're going to go sideways. So you want to see it at the table. The second
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is have they done a lot of diligence. We ran into a lot
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of deals where people were using the term diligence light
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that was fun five five years the last five
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years that's not going to be fun in the next five years for people that
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did diligent light under writing. These are really
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important things for making sure that you're going to be able to
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navigate this this next part of the cycle. But if you underwrite correctly,
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there should be great opportunities ahead. We're
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sitting on a lot of dry powder. We're going to deploy that and we're
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actually going to close on one of our largest direct lending closes yet
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in the history, but just remember that 96%
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of private credit managers started post Global financial
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crisis
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So there are many managers in this space that have only
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invested in a zero and low rate environment and we can
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all be Geniuses in a zero rate environment. Just ask us.
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We'll tell you.
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No, it's interesting because I've heard a lot of positive things about private credit today.
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And this is the first warning that I've gotten on it. Come all
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what about you? How how are you navigating? Especially some
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of these problems with banks which it sounds like from
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the panel everyone thinks. Okay. Today was today was helpful, but
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not necessarily feeling like everything's taken
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care of. Sure before I go there. Can I come
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to the rescue of my fixed income colleagues? I think you
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ask Katie that they are pessimistic lot. They might be pessimistic
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but they're a smart Bunch too. So that's fixed
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income for sure. Mike will agree with me. I appreciate that. I
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link up
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your questions because I think there is
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There's a commonality in your initial question on
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Banks and the credit cycle and I'll
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approach it from two standpoints one's a
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question you asked about the system. And then the
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other one is about what is really Lost in Translation in
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this Bank turmoil.
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So the first one on system I would say is we actually
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have structured the system in a very smart way you particularly look
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at the news today and the FDIC structure
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at the very simplest level is a co-op
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Insurance structure of Banks. And the reason
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that structure works. Well is obviously there tend
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to be bank failures, but the remaining cohort
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pays the future premium that
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doesn't really Force the pressure on
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taxpayers. So I think as a nation as a
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society, I think we've all that thinking around bank failures
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and I think I do give credit to how we've evolved
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it now do bank failures happen or not. But the more seminal question
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of the time is historic bank failures have
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been really failures of credit.
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And what has happened? I think in the last
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10 15 years is when rates were low.
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We really trained a lot of people to become credit
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experts in private credits an example of that.
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What we have really lost is the art of asset liability
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management. The failure of banks is
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the Lost Art of Alm management
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not an art of credit management and
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that's the skill set. We need to look towards in
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the market environment ahead of us.
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Like what about you? And by the way, I just want to remind everybody that please
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participate in the conversation. You can ask questions. I
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get them live with the QR code.
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Keep them coming in.
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Yeah, so I I guess I would say broadly about
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the markets right now one of the and bond folks are
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normally quite pessimistic. That is true. Although I would claim
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realism is a little better term. But but
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I would say right now there's a lot that we
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know.
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So if you ask us all what's troubling we'll say
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Russia and Ukraine.
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We'll say inflation is sticky.
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Commercial real estate is a concern.
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The consumers fading in their strength will say a
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lot of things in we know those.
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What we'd also say is there is so much cash on the
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sidelines.
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There if you ask the largest wealth managers 15 to
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20% of their system is in cash. If you
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look at money funds there's five trillion dollars in cash
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now.
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Four and a half percent as a heck of a lot better than zero. So there's their earning
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money on cash. But when you have that much cash on
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the sidelines and that much pessimism built into the
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system, you can tell why markets are somewhat resilient
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right now and there's going to be a lot of opportunities for cash in the
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bond markets in particular. You can look at one two,
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three year duration high quality fixed income and earn five
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and a quarter five and a half percent.
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If the Fed does cut in the next couple of years by
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150 or 200 basis points you get a Tailwind of
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owning duration and your total return over two years could be something like 13
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14 percent that's for owning high quality short
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duration paper. So there's there's a lot of concern out
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there, but there's also a lot of opportunity
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Well, which which brings us to another question that we wanted to tackle here,
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which is first of all should you be in cash right now? Should you
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band fixed income should you be an equities sounds
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like some of you are pretty worried about the equity
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Market
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yishun, what are you what do you think?
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Well, you know, I do think this is one of the most difficult environments to
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try to predict where we're going to go or to forecast. You know,
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what the future looks like, you know, one thing that we've been
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paying attention to is similar to what Mike
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you've been talking about our how our investors postured and
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you know, we see that individual investors having
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plowed tons into the market in the
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beginning half of February almost a record levels have
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really pulled back ever since the class of Silicon
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Valley bank, and they have really nowhere to be seen
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today.
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And then if you look at the Institutional Investor universe and we have really good
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visibility into it because State Street is
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one of the largest custodians in the world. And so we're able
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to see we're investors Holdings are largely
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where flows are going. And in fact tomorrow. I
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think we're launching two new indicators one is
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institutional Holdings indicator, and then the other is risk
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appetite.
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And so what we're seeing on the ground versus maybe where
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you know where we suggest investors should go
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it's number one. I would say there's not a lot of panic in
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the investors Holdings. They have
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sold off financials. But only about a quarter
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of what they did and prior Peak
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cycles and then similarly we're seeing
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them still stay invested in equities. They're just transitioning
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to more defensive heart quality.
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Um companies secondly to Mike's Point.
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There is an enormous amount of cash. We see it. But the
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difference is back in 2020 the
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onset of the pandemic we saw institutions drawing down
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on that excess cash and buying into the market supporting
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the rally. We don't see any of that activity today.
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And then lastly looking at investor flows, which
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is really what supports are sort of risk
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appetite indicator.
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And what we've seen is that investors have moved away from risk seeking
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to risk aversion and they've been in this posture
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for something close to 80 days, which is the longest
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that we've seen really since 2015.
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And typically when this indicator is as red as it
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is, you would see the vix somewhere closer to 2x
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what it is today.
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And so what I would say is that, you know investors on
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balance are staying invested in the market, but whatever
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Capital they may have on the sidelines are willingness
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to move into areas. It's much more reticent. And
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so that's something to watch as we go along as to
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what that behavior will be is as things unfold.
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Mike what do you think the mountain of cash? I mean,
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it does make sense you're getting paid for it. Yeah, I think
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if you had to choose between cash and
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Short to intermediate duration high quality bonds. I would
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choose the latter because you can pick up income and you can also position
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yourself to benefit from the rally and duration. So
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I would own active short duration fixed income
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instead.
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The other thing I'd say is you that's not three month two bills. They're
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not having a good run right now. We can do
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better. Yeah, and then the other the other thing I'd
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say is
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you know last year if you looked at every headline it would talk about
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the death of 60 40 and I would argue that
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death has been greatly exaggerated. If you
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look at something like our Flagship balance strategy
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American balance fund. It's returned over eight percent over
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10 years annualized and over 8% 20 years annualized last
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year was a terrible year for fixed income inequities.
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It was the first year both asset classes were down at the same
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time in 40 years.
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Is 60/40 as just a general concept of balance
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going to be a good strategy for the next five years, I'd argue
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it will be so I I would we talked a
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lot about short duration fixed income in lieu of cash. I would also
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suggest think back to balance.
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And then the last thing I think Katie had a really good point on private credit
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I think of it is one of the very few islands.
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That only has tourists.
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And it's you know, there's actually I have to
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just say that because I see my head of private credit sitting back
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there and he's been doing this since 2001 so there is one. Okay,
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but but your stat is there Rick Miller
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you can meet him after this but when your stat is right the vast
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majority of participants are new to the asset class.
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It's going to be a fine asset class over the long term in
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the short term. Some of the older vintages have some
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real Covenant challenges and a lot of the participants haven't
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worked themself through a real Financial challenging period
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of time.
401
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Come on, what 60 40 still work?
402
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Yeah, I worked really well last year did not work last
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year. Yeah, so it's working this year. Yeah, that's
404
00:21:08,500 --> 00:21:10,200
exactly the point which is
405
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So first, I think we had made it almost painful
406
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to hold cash.
407
00:21:17,200 --> 00:21:20,300
Which is just a bad idea, you know, I think everybody should have
408
00:21:20,200 --> 00:21:24,100
some amount of cash and we systematically over the
409
00:21:23,500 --> 00:21:26,400
last decade made it almost painful to hold cash.
410
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So I'm glad what we have done is the Pain's gone
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00:21:30,600 --> 00:21:34,400
away. It's there's a little bit of joy in holding cash, which is good. But let
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me go to the 60/40 question because that's a really good way to think
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about it Sarah.
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So so take a step back and imagine we work
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with a lot of investors globally and over 80 countries.
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And most of these investors who control where money
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is in motion.
418
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on average most of these people want a seven to
419
00:21:54,500 --> 00:21:56,400
eight percent return over a long period
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and
421
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what we had done is for them to get seven or eight
422
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percent and if cash or short
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duration fixed income was 0%
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We almost force them to go seek something that
425
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generated 20% return because how do you
426
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get to a blend of eight percent?
427
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And what that did was they was an absolute
428
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boom in the growth of venture capital not just
429
00:22:22,800 --> 00:22:26,400
in America, but in Asia and Europe, there was an absolute
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00:22:26,000 --> 00:22:29,000
boom in all forms of private Equity across the world.
431
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This acceleration to those asset classes was explicitly
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before because they wanted to get to 8% and
433
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zero was anchoring it.
434
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Now think about it today that zero has become
435
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5%
436
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their need for eight percent hasn't changed. So what does
437
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that mean? They don't need to chase 20% They could
438
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do 10% And so the
439
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the second order thinking you have to bring in is
440
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where does the tide received and where can
441
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the tide stay now? And I would argue in the
442
00:23:05,300 --> 00:23:09,000
world we live in the tide is going to recede in
443
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things like Venture Capital. It's receding in private
444
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equity.
445
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It may actually come to some form of private credit because
446
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the net return of private credit and obviously
447
00:23:19,700 --> 00:23:23,100
you have to do your credit work. You can paint it with a broad
448
00:23:22,800 --> 00:23:26,000
brush, but that seems to be in the right zip code of
449
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what these investors want. I would argue public equities
450
00:23:29,100 --> 00:23:32,600
General Global public equities with an
451
00:23:32,200 --> 00:23:35,900
eight to ten percent risk profile are in the perfect zip
452
00:23:35,500 --> 00:23:39,300
code for these clients. So I think the 60/40
453
00:23:38,500 --> 00:23:42,000
concept has to be thought in terms of what these
454
00:23:41,800 --> 00:23:45,300
investors want and where they want to where they were
455
00:23:45,000 --> 00:23:48,700
where they don't want to be and where they're going to park their money. So my
456
00:23:48,400 --> 00:23:51,500
view would be public equities are in cash is in
457
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For certain forms of credit board public and private are
458
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in the real issue is long duration
459
00:23:58,700 --> 00:24:02,100
highly leveraged Equity is the real
460
00:24:01,700 --> 00:24:03,000
issue in the economy.
461
00:24:03,700 --> 00:24:06,800
I feel like he invoked private Equity not in the best way.
462
00:24:07,800 --> 00:24:12,000
Harvey not it wasn't in it wasn't one of the inn and well the
463
00:24:11,300 --> 00:24:14,500
first thing I feel they need to defend my team only because you
464
00:24:14,400 --> 00:24:17,700
pointed out your team but Marc Jenkins Mark. Jacob
465
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is doing this for 20 years. So I don't know where the tourists are.
466
00:24:20,400 --> 00:24:23,400
We have a lot of respect but that's worth aren't at Carlisle just to be
467
00:24:23,400 --> 00:24:27,700
clear but my dreams your team because we're Carlisle probably right? We're
468
00:24:26,400 --> 00:24:28,200
on the same team.
469
00:24:29,900 --> 00:24:31,000
Well, the first thing I'm going to say is.
470
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I don't know how common it is that a panel tends to generally sort
471
00:24:35,100 --> 00:24:38,300
of circle around a consensus, but it does
472
00:24:38,100 --> 00:24:41,400
feel like there's a bit of a consensus and I try to avoid that actually.
473
00:24:41,100 --> 00:24:44,500
No, I know I'll try and help you in a second, but I think
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that
475
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You know if we were all sitting here a year year and a half
476
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ago and you described if you said everybody close your
477
00:24:52,800 --> 00:24:53,100
eyes.
478
00:24:54,200 --> 00:24:57,700
What do you think the world's going to be? Like if the FED raises nearly 5%
479
00:24:57,200 --> 00:25:00,800
we have multiple bank failures. There's a
480
00:25:00,500 --> 00:25:02,600
consolidation between the two Swiss banks.
481
00:25:03,500 --> 00:25:06,400
Again, I think we'd be somewhat surprised.
482
00:25:07,400 --> 00:25:11,200
At where we are in terms of 60 40 portfolio performance
483
00:25:10,500 --> 00:25:15,100
liquidity state of the system, but what?
484
00:25:16,000 --> 00:25:19,900
Sometimes feels a little bit reminiscent of the 2008 crisis
485
00:25:19,700 --> 00:25:22,900
going by the first question. It's just fear is high confidence is
486
00:25:22,700 --> 00:25:23,000
low.
487
00:25:24,100 --> 00:25:27,300
And personally I think that makes a lot of sense. And so
488
00:25:27,100 --> 00:25:31,200
I think what a lot of us are saying and Mike and
489
00:25:31,000 --> 00:25:34,100
I go way back. I think we're saying it's a time
490
00:25:34,000 --> 00:25:37,200
for discipline and a disciplined approach to deploying capital.
491
00:25:37,000 --> 00:25:40,100
I know that's how the team at Carlisle is thinking about
492
00:25:40,000 --> 00:25:40,900
it now.
493
00:25:42,300 --> 00:25:43,800
how this recalibration of
494
00:25:44,600 --> 00:25:47,900
Literally the global capital structure occurs. I think
495
00:25:47,600 --> 00:25:50,700
for sure. Katie has to be right. There'll be
496
00:25:50,700 --> 00:25:54,900
some problems in previously deployed credit, but the return
497
00:25:54,400 --> 00:25:58,400
opportunities will be extraordinary and to come
498
00:25:57,900 --> 00:26:01,000
all his point the opportunity or an eight or ten percent
499
00:26:00,900 --> 00:26:04,200
on a different risk adjusted basis will be
500
00:26:04,100 --> 00:26:08,000
enormous for Market participants, but it doesn't have to be today and
501
00:26:07,100 --> 00:26:11,400
the wall of capital doesn't have to be put to work today, but
502
00:26:10,100 --> 00:26:13,200
I think the opportunity sets there and I
503
00:26:13,200 --> 00:26:16,400
think while private Equity will also go through a
504
00:26:16,200 --> 00:26:19,400
bit of a repricing and as we all know massive amounts of
505
00:26:19,400 --> 00:26:22,800
capital going on in a private Equity, I think private Equity. Well it
506
00:26:22,500 --> 00:26:25,900
may pause I think private Equity will continue to grow because I
507
00:26:25,800 --> 00:26:29,200
think the trend around the world and the demand for private Capital
508
00:26:28,800 --> 00:26:32,000
whether it's private Equity or fixed income. I just think
509
00:26:31,800 --> 00:26:33,200
that trend is in place.
510
00:26:34,000 --> 00:26:37,800
One thing I feel like we're sort of talking around is the rate environment and yes,
511
00:26:37,000 --> 00:26:40,000
we've gone from zero to five percent a really fast.
512
00:26:41,000 --> 00:26:44,200
An aggressive way I'd say from the fed and and the question
513
00:26:44,000 --> 00:26:47,500
of what comes next is pretty interesting because now the Market's pricing
514
00:26:47,300 --> 00:26:50,700
in actual cuts that it goes down one reason. It's held
515
00:26:50,300 --> 00:26:53,500
up and everyone here. I talked to at the Milken conference
516
00:26:53,300 --> 00:26:56,900
thinks that inflation is stickier and the fed's going to have to keep raising
517
00:26:56,400 --> 00:26:58,900
and stay restrictive and I'm curious.
518
00:27:00,400 --> 00:27:03,600
How you calculate how you guys are are thinking of that and how
519
00:27:03,600 --> 00:27:07,700
it fits in with your hard Landing view. We medium to
520
00:27:07,600 --> 00:27:12,800
hard just medium to Heart together a little bit of but we
521
00:27:12,600 --> 00:27:15,500
think that we will that's how I have my hard-boiled eggs.
522
00:27:16,500 --> 00:27:19,900
We think that we'll probably get a rate rise this
523
00:27:19,700 --> 00:27:23,000
week of a quarter point. There is
524
00:27:23,000 --> 00:27:26,900
still inflationary signs. We know that the FED basis
525
00:27:26,400 --> 00:27:29,600
some of these decisions on lagging indicators, which take some
526
00:27:29,400 --> 00:27:33,600
time to get caught up and we haven't seen massive
527
00:27:32,800 --> 00:27:36,300
demand destruction yet. So that would be the core view
528
00:27:36,200 --> 00:27:40,100
to wait and then digest and see what see what happens next obviously by
529
00:27:39,800 --> 00:27:43,100
definition since I said that we are going to have a
530
00:27:42,900 --> 00:27:47,300
you know, our view as a medium to hard Landing we would expect more
531
00:27:46,200 --> 00:27:50,000
softening in the future. I I sorry
532
00:27:49,400 --> 00:27:52,500
to cut you up. What is a medium to hard Landing. What does that
533
00:27:52,400 --> 00:27:55,700
mean? Just meaning that a lot of people think the recession would be short-lived but
534
00:27:55,600 --> 00:27:59,000
we just think it will be more challenging than that and I want to connect just to
535
00:27:58,800 --> 00:28:02,100
one point you're asking people about ask that allocation and
536
00:28:01,900 --> 00:28:05,400
whether we should be in cash or not and I
537
00:28:05,100 --> 00:28:08,400
I just want to observe that because you can kind of get a
538
00:28:08,100 --> 00:28:11,600
good sense of consent is that these conferences I still
539
00:28:11,300 --> 00:28:15,500
think people are to happy here like
540
00:28:14,600 --> 00:28:16,200
I think the mood
541
00:28:16,500 --> 00:28:20,000
A little bit too good don't you feel like people are still well, you're
542
00:28:19,700 --> 00:28:21,500
doing a pretty good job bringing it down. Yeah.
543
00:28:22,100 --> 00:28:26,000
I don't feel as good now. Yeah.
544
00:28:26,900 --> 00:28:30,000
I don't know Mike how do you feel? I feel great Harvey. Thank you.
545
00:28:30,000 --> 00:28:33,200
I just like, you know, I just feels like a little bit
546
00:28:33,000 --> 00:28:36,100
to things are. Okay, and we made the point
547
00:28:36,100 --> 00:28:39,100
that we think more things will break worth the early stage of that. But I I
548
00:28:39,100 --> 00:28:42,600
would make the observation to you that you had
549
00:28:42,200 --> 00:28:45,700
mentioned that the vix hasn't gone where you would think it would given some
550
00:28:45,600 --> 00:28:49,300
of the news flow and credit spreads also haven't widen dramatically either
551
00:28:49,000 --> 00:28:52,300
and personally. I just wanted to answer that question by
552
00:28:52,000 --> 00:28:55,400
saying that for individuals. I think it would be wise to
553
00:28:55,200 --> 00:28:59,300
keep some cash ready to deploy and for institutions also
554
00:28:58,700 --> 00:29:02,300
and for the way that we manage our portfolios, we want
555
00:29:01,900 --> 00:29:04,900
to keep a lot of dry powder because I do think you know
556
00:29:04,900 --> 00:29:08,500
things will get worse and they'll be massive opportunities. It is
557
00:29:08,400 --> 00:29:12,000
absolutely true that the greatest wealth creation
558
00:29:11,600 --> 00:29:15,400
opportunities happen coming out of a recession and
559
00:29:14,900 --> 00:29:18,000
we're just we're just not there yet and there needs to
560
00:29:18,000 --> 00:29:21,600
be more access worked out of the system. So I would strongly encourage people
561
00:29:21,200 --> 00:29:24,300
to sit on that drive powder and
562
00:29:24,200 --> 00:29:26,400
wait for things to play out and there should be
563
00:29:26,800 --> 00:29:30,000
Some incredible investment opportunities. We talked about commercial real estate.
564
00:29:29,800 --> 00:29:33,100
I'll just end by saying that hasn't gotten
565
00:29:32,800 --> 00:29:36,400
as bad as it's going to get that will get a lot worse before it
566
00:29:36,000 --> 00:29:39,100
gets better. And and that's something that could take
567
00:29:39,000 --> 00:29:42,200
a long time to play out. They'll be a long long tail to that
568
00:29:42,100 --> 00:29:45,500
investment opportunity. And so we want to be ready to capitalize on it before
569
00:29:45,200 --> 00:29:48,300
we move on from cash. We were getting too good questions and
570
00:29:48,200 --> 00:29:51,500
they're both exactly the same from Anonymous and
571
00:29:51,300 --> 00:29:55,000
attendee 7, which is what really
572
00:29:54,600 --> 00:29:58,300
take to get trillions of dollars of cash off
573
00:29:57,600 --> 00:30:01,500
the sidelines Mike. You raise. Yeah point. It's
574
00:30:00,900 --> 00:30:04,300
already coming. I mean if you look even
575
00:30:03,900 --> 00:30:07,100
just using us, you're today, we're seeing an average
576
00:30:06,900 --> 00:30:10,100
of about 500 million in net new flows into the bond
577
00:30:09,900 --> 00:30:13,700
market. It's a capital group per week. It's coming. So
578
00:30:12,900 --> 00:30:16,000
I I think what it takes is where's it going
579
00:30:15,900 --> 00:30:19,200
into? It's it's not going into high yield yet.
580
00:30:18,900 --> 00:30:22,800
It is going into high quality short to intermediate duration
581
00:30:22,300 --> 00:30:25,800
bonds, so it's not coming into equities yet,
582
00:30:25,600 --> 00:30:26,500
and it's not going.
583
00:30:26,900 --> 00:30:30,400
High yield yet, but doing a hundred basis points
584
00:30:30,200 --> 00:30:33,700
better than cash and owning a bit more duration than zero is
585
00:30:33,600 --> 00:30:36,800
where where the cash is going. And I think you'll see that continue. I
586
00:30:36,600 --> 00:30:39,900
think I think you'll see a trillion dollars flow back
587
00:30:39,800 --> 00:30:43,200
into the bond markets in the next few years and you know
588
00:30:43,200 --> 00:30:46,900
5% a heck of a lot better than a zero interest rate policy and
589
00:30:46,600 --> 00:30:50,700
experimental monetary policy that we saw for gosh 13
590
00:30:50,400 --> 00:30:53,700
years. So I I think it's coming and I think you'll see it accelerate.
591
00:30:54,400 --> 00:30:58,800
Kamal how are you guys positioning around the the fed and the
592
00:30:57,900 --> 00:30:59,200
Outlook?
593
00:30:59,900 --> 00:31:03,200
Yeah, so I think simple answer
594
00:31:02,900 --> 00:31:06,700
is I think Sarah inflation is stubborn growth
595
00:31:05,900 --> 00:31:07,200
is fleeting.
596
00:31:07,800 --> 00:31:12,200
And that's a very difficult environment to manage to and to
597
00:31:11,700 --> 00:31:14,900
your point on recession and then I'll go to how you think about that from
598
00:31:14,700 --> 00:31:18,900
an investment standpoint. You know, this recession is
599
00:31:18,300 --> 00:31:21,900
is complicated and it's
600
00:31:21,700 --> 00:31:24,100
complicated in a simple way if you think about it.
601
00:31:25,100 --> 00:31:28,500
I think almost everybody in this room will feel this
602
00:31:28,400 --> 00:31:29,100
recession.
603
00:31:29,800 --> 00:31:33,200
Because this is a Services recession that's coming upon
604
00:31:32,800 --> 00:31:33,400
us.
605
00:31:34,100 --> 00:31:36,500
the way our economy has grown is
606
00:31:37,100 --> 00:31:40,600
we sort of left the natural comfort of
607
00:31:40,300 --> 00:31:43,400
manufacturing, you know, the the ratio of
608
00:31:43,300 --> 00:31:47,500
blue collar White Collar jobs in the economy reversed and
609
00:31:46,900 --> 00:31:51,500
so as the broad American economy particularly
610
00:31:50,300 --> 00:31:53,900
in lot of well-paying jobs became a
611
00:31:53,500 --> 00:31:54,900
Services economy.
612
00:31:55,700 --> 00:31:59,200
The recession upon us is going to hit Services the hardest.
613
00:32:00,200 --> 00:32:03,500
Yet the people on the other side you see this with the
614
00:32:03,300 --> 00:32:06,500
PMI data manufacturing is rebounding. We are
615
00:32:06,300 --> 00:32:09,900
bringing Capital back. You know, there is a sort of an anti globalization
616
00:32:09,400 --> 00:32:13,200
Trend you sort of look at leisure statistics,
617
00:32:12,700 --> 00:32:16,100
you know, you walk outside this room people out.
618
00:32:15,700 --> 00:32:18,700
There are probably never going to feel a recession over the next
619
00:32:18,700 --> 00:32:23,200
three years. And so what you have to process is you're
620
00:32:22,100 --> 00:32:26,000
going to see two economies. You can
621
00:32:25,300 --> 00:32:29,100
see a recession in the service economy yet. They'll
622
00:32:28,700 --> 00:32:31,900
be parts of economy that won't feel a recession and so
623
00:32:31,800 --> 00:32:35,100
as an investor you now have to think how do
624
00:32:34,900 --> 00:32:39,300
I invest for that sort of bifurcated economy
625
00:32:38,700 --> 00:32:42,700
and our view is is twofold.
626
00:32:43,800 --> 00:32:47,700
I think there's going to be a lot of positioning in defensive
627
00:32:47,000 --> 00:32:50,600
Industries. There's going to be a Renaissance
628
00:32:50,100 --> 00:32:53,900
in what I think of as
629
00:32:53,300 --> 00:32:56,500
small cap investing in this country. If you
630
00:32:56,400 --> 00:33:00,700
look at the GDP construct of America a lot
631
00:33:00,700 --> 00:33:04,800
of those Industries who benefit in this market cycle will tend
632
00:33:04,300 --> 00:33:07,700
to be smaller companies under leverage smaller companies
633
00:33:07,500 --> 00:33:11,000
are going to do well so to the point you heard here that's
634
00:33:10,600 --> 00:33:14,100
where I think Equity flows are going to go to your
635
00:33:14,000 --> 00:33:17,600
question on cash. You know, we are new to this environment.
636
00:33:17,100 --> 00:33:20,200
We are a big investor in Brazil. We run a big business
637
00:33:20,100 --> 00:33:23,800
there and if you look at Brazil, it's one of those economies
638
00:33:23,100 --> 00:33:26,800
that has dealt with inflation for as long
639
00:33:26,600 --> 00:33:30,100
as I know and if you look at investor behavior in
640
00:33:29,900 --> 00:33:31,100
a place like Brazil,
641
00:33:31,900 --> 00:33:35,000
What you see is investors tend to hold a lot
642
00:33:34,900 --> 00:33:38,300
of cash economies that have high inflation and
643
00:33:38,100 --> 00:33:41,500
we do have some stubborn inflation people love cash for
644
00:33:41,200 --> 00:33:45,300
a while. And what they tend to do is then they
645
00:33:44,900 --> 00:33:48,400
will make trade-off decisions. So they kind of mentally put
646
00:33:48,100 --> 00:33:51,400
their cash bucket separate from their equity and fixed and
647
00:33:51,300 --> 00:33:54,600
come bucket and I think we are coming upon times in Asset Management
648
00:33:54,400 --> 00:33:57,500
in America. You're going to see a lot of that so there is a
649
00:33:57,400 --> 00:34:00,600
place for fixed income but it's not the same way. We have
650
00:34:00,400 --> 00:34:04,000
thought about investing before on the economy. You should
651
00:34:03,900 --> 00:34:06,600
I'm wondering where where you are on the spectrum of
652
00:34:07,600 --> 00:34:10,800
Soft Landing medium landing hard landing and I'm
653
00:34:10,600 --> 00:34:14,700
going to add in a question here that relates to it specifically about
654
00:34:14,500 --> 00:34:17,700
the consumer and Consumer Debt from the audience. Thank you at an
655
00:34:17,500 --> 00:34:21,600
all-time high somewhere around 1.2 trillion and record low record
656
00:34:20,700 --> 00:34:24,100
low consumer savings and arising rate environment.
657
00:34:23,700 --> 00:34:27,000
How can there be anything but a hard Landing?
658
00:34:27,800 --> 00:34:29,000
so I would say we
659
00:34:30,200 --> 00:34:34,800
Let's see, we we think that
660
00:34:34,600 --> 00:34:37,700
there's going to be one more raid hike and we'll see
661
00:34:37,600 --> 00:34:40,900
that obviously very soon and then the question will be exactly what is
662
00:34:40,800 --> 00:34:44,500
a Fed gonna signal, you know for what's to come on
663
00:34:43,800 --> 00:34:47,200
balance. We think that you know,
664
00:34:47,100 --> 00:34:50,900
the economy is likely in 2024 to grow modestly
665
00:34:50,200 --> 00:34:53,400
sub one percent and that's
666
00:34:53,200 --> 00:34:56,500
the same. I mean that we get additional rate Cuts coming into
667
00:34:56,200 --> 00:34:59,500
this year called 50 basis points and then potentially another
668
00:34:59,400 --> 00:35:00,800
200 basis points.
669
00:35:01,500 --> 00:35:05,600
Next year, I think on the question about the consumer.
670
00:35:04,800 --> 00:35:08,100
We actually see it a little bit differently. We think
671
00:35:07,900 --> 00:35:11,800
that the consumer and consumers spending is in actually
672
00:35:11,100 --> 00:35:14,900
pretty decent shape labor is holding up. Well, we
673
00:35:14,100 --> 00:35:17,700
think household finances are actually in decent
674
00:35:17,400 --> 00:35:21,300
shape and of course real wages have been increasing so we
675
00:35:20,500 --> 00:35:23,600
don't necessarily subscribe to that view on the
676
00:35:23,600 --> 00:35:27,300
consumer end. I did talk earlier about you know concerns that
677
00:35:27,100 --> 00:35:27,600
we have.
678
00:35:28,700 --> 00:35:32,200
Sort of in the business sector of your call small to medium-sized companies
679
00:35:31,900 --> 00:35:36,000
and seeing more cracks there, you know
680
00:35:36,000 --> 00:35:39,400
at the end of the day, I think it is still and I'm glad that there's
681
00:35:39,100 --> 00:35:42,300
a lot of debate here because I think when you know,
682
00:35:42,200 --> 00:35:45,600
you read the popular process always a discussion of when is effect
683
00:35:45,200 --> 00:35:48,500
going to start cutting and you know, is it a hard Landing soft Landing,
684
00:35:48,200 --> 00:35:50,000
but it's more or less than the same direction.
685
00:35:51,200 --> 00:35:54,600
And what we see actually in some of the data that we track we
686
00:35:54,400 --> 00:35:58,000
follow something like 250 real-time signals around
687
00:35:57,800 --> 00:36:00,900
inflation and to kamal's point.
688
00:36:00,800 --> 00:36:04,900
I do think that there is some elements that are pretty sticky today when
689
00:36:04,000 --> 00:36:07,200
we look at clothing when we look
690
00:36:07,000 --> 00:36:10,600
at Healthcare. These are costs
691
00:36:10,000 --> 00:36:14,700
that are well above the 10 year average similarly food
692
00:36:14,400 --> 00:36:18,100
costs have not come down to pre-pandemic levels. And so
693
00:36:18,000 --> 00:36:21,400
I think it's worth investors thinking about a potential environment
694
00:36:21,000 --> 00:36:24,300
where we have sustained inflation and
695
00:36:24,000 --> 00:36:27,600
sustained higher interest rates and that could be with or without
696
00:36:27,300 --> 00:36:29,000
some level of growth.
697
00:36:29,700 --> 00:36:33,000
And thinking about overall portfolios, perhaps not
698
00:36:32,900 --> 00:36:36,600
in the 60/40 mix but really thinking along different factors.
699
00:36:36,000 --> 00:36:39,700
So the growth Dimension the inflation Dimension and
700
00:36:39,500 --> 00:36:42,900
having different aspects of the portfolio
701
00:36:42,500 --> 00:36:45,800
that's going to perform in those environments. So for in a lower growth,
702
00:36:45,500 --> 00:36:49,100
does that mean a higher quality bent to the portfolio of
703
00:36:48,700 --> 00:36:52,400
higher inflation environment a greater Commodities
704
00:36:51,900 --> 00:36:53,000
exposure?
705
00:36:54,400 --> 00:36:57,700
In terms of what it takes to get money off the sidelines into the
706
00:36:57,500 --> 00:37:00,700
market. I'm I think we need to get to a place
707
00:37:00,500 --> 00:37:04,100
where there's much more clarity about the path
708
00:37:03,600 --> 00:37:06,900
ahead whether it's higher or lower. I think
709
00:37:06,800 --> 00:37:10,100
that's the time when we see much more money moving into the
710
00:37:09,900 --> 00:37:13,400
market. And in the meantime our view is that this
711
00:37:13,100 --> 00:37:16,600
is more of a Trader's Market if you have liquidity and
712
00:37:16,300 --> 00:37:19,400
liquidity is a premium today being able to
713
00:37:19,300 --> 00:37:22,900
deploy that in the private markets is opportunities arise
714
00:37:22,300 --> 00:37:25,900
whether that's in the distressed Arena or opportunistic private
715
00:37:25,600 --> 00:37:28,700
credit or even secondaries and even in the
716
00:37:28,600 --> 00:37:32,300
public markets, I mean we've seen really quick moves
717
00:37:31,700 --> 00:37:35,500
in terms of dynamic dislocations, right how
718
00:37:35,200 --> 00:37:39,100
you'll spreads blue out last year. We saw treasuries
719
00:37:38,200 --> 00:37:41,800
yielding about 4% much lower today.
720
00:37:41,500 --> 00:37:44,800
And so having that sort of view around the
721
00:37:44,600 --> 00:37:47,900
portfolio thinking about different environments that we
722
00:37:47,800 --> 00:37:51,100
could find ourselves in maintaining that
723
00:37:50,900 --> 00:37:54,000
dry powder to take advantage of these opportunities.
724
00:37:54,400 --> 00:37:57,800
Present themselves, but they come very quickly and then being
725
00:37:57,500 --> 00:38:00,700
in a position to Pivot is sort of the way that we're thinking about
726
00:38:00,500 --> 00:38:01,000
the world.
727
00:38:02,100 --> 00:38:04,000
Harvey when does the FED cut rates
728
00:38:06,300 --> 00:38:09,700
So the interesting thing I find about the FED discussion is
729
00:38:09,400 --> 00:38:12,600
that it's often. Will they cut rates in a quarter or
730
00:38:12,400 --> 00:38:15,600
two quarters? And I think when I think about that when we talk
731
00:38:15,500 --> 00:38:18,300
about that internally, I think the right way to think about it is
732
00:38:19,600 --> 00:38:22,800
the Fed chairman J pal. He has a really
733
00:38:22,800 --> 00:38:23,600
odd job.
734
00:38:24,500 --> 00:38:24,800
and
735
00:38:26,200 --> 00:38:29,500
I think the the difficulty in that job is really been expressed by
736
00:38:29,400 --> 00:38:32,800
everyone on this panel, which is just tremendous degree of uncertainty.
737
00:38:33,700 --> 00:38:37,300
On the one hand. It's like a tug of war on the one hand you have inflation. He
738
00:38:36,700 --> 00:38:39,800
has to fight and another and he has Market stability.
739
00:38:40,800 --> 00:38:44,200
And he will have be forced to toggle back and forth between those
740
00:38:43,900 --> 00:38:44,800
two things.
741
00:38:45,900 --> 00:38:49,900
And along the way probably take undoubtedly a lot of unwarranted criticism
742
00:38:49,600 --> 00:38:52,700
for both because that's what we
743
00:38:52,600 --> 00:38:56,400
tend to do is a society but but I digress yeah,
744
00:38:55,900 --> 00:38:58,900
no, he has a hard job. And so
745
00:39:00,700 --> 00:39:02,300
I don't think the FED knows.
746
00:39:03,200 --> 00:39:06,300
I don't think they should know because uncertainty is high and I
747
00:39:06,300 --> 00:39:09,700
think it's all going to be about the data and I think in the
748
00:39:09,700 --> 00:39:12,800
near term they'll be caution. So I think we
749
00:39:12,700 --> 00:39:17,100
could again consensus on the panel sounds like roughly one
750
00:39:16,900 --> 00:39:20,000
hike that's what we think then a pause but it'll be
751
00:39:19,900 --> 00:39:20,400
data driven.
752
00:39:21,300 --> 00:39:23,700
Now when we look at our consumer data.
753
00:39:24,500 --> 00:39:28,100
Some of the consumer data is very positive. Yes credit
754
00:39:27,500 --> 00:39:31,100
card debt is back up to pre-pandemic levels, but the
755
00:39:30,700 --> 00:39:33,900
average mortgage rate for trillions of mortgages in the US is three
756
00:39:33,800 --> 00:39:38,000
and a half percent. That's an amazing cushion for the consumer it
757
00:39:36,900 --> 00:39:40,100
now it's it's a problem for the lender but it's
758
00:39:40,000 --> 00:39:43,300
an amazing cushion for the consumer in America. And when
759
00:39:43,100 --> 00:39:46,800
we look at our data our April activity data for our consumer
760
00:39:46,400 --> 00:39:49,700
businesses was up 2% That's mostly
761
00:39:49,500 --> 00:39:53,000
focused in travel Leisure experiences areas, you
762
00:39:52,900 --> 00:39:56,500
would think but I think and we think this inflation
763
00:39:56,000 --> 00:39:59,700
is probably going to be stickier now could a
764
00:39:59,300 --> 00:40:00,500
debate. Yes.
765
00:40:02,400 --> 00:40:06,300
This again gets to the point of the uncertainty. So I'll make
766
00:40:06,100 --> 00:40:07,600
two final observations and
767
00:40:08,400 --> 00:40:11,500
listen to everybody's been fantastic. I think one thing
768
00:40:11,400 --> 00:40:14,800
I would say is that in terms of what brings Capital to the
769
00:40:14,600 --> 00:40:17,000
market is always the same thing. It's confidence.
770
00:40:17,900 --> 00:40:21,800
In 2009, they had the bank stress tests. And literally
771
00:40:21,300 --> 00:40:24,800
that was one of the turning points where capital and
772
00:40:24,600 --> 00:40:28,100
confidence came back into the marketplace when quantitative easing
773
00:40:27,600 --> 00:40:28,600
was announced.
774
00:40:29,400 --> 00:40:30,600
Most people were scared of it.
775
00:40:31,400 --> 00:40:34,700
It was misunderstood and they liked it and they liked
776
00:40:34,600 --> 00:40:38,500
it a lot. Then we liked it way too much. It was like cake if
777
00:40:37,600 --> 00:40:40,900
you've never had cake before but I'm a food guy. So anyway,
778
00:40:40,700 --> 00:40:42,800
the I think that
779
00:40:44,100 --> 00:40:47,500
confidence will return maybe it's the all clear but when
780
00:40:47,300 --> 00:40:50,600
there's some sense of mortgage stability and a real clear path on
781
00:40:50,500 --> 00:40:51,500
inflation and rates.
782
00:40:52,800 --> 00:40:55,800
I don't think anybody knows exactly when that is we think it'll take
783
00:40:55,800 --> 00:40:58,800
a little longer. Now. The other observation I would make is
784
00:40:59,800 --> 00:41:03,000
not all capitals created equally, I think you just
785
00:41:02,800 --> 00:41:04,000
said it to Traders Market.
786
00:41:05,100 --> 00:41:05,500
and
787
00:41:07,100 --> 00:41:11,200
for our partners, we're talking about very durable long-term capital
788
00:41:10,700 --> 00:41:12,400
it can be patient.
789
00:41:13,300 --> 00:41:17,400
And it can be invested over years and there is
790
00:41:17,200 --> 00:41:21,000
where the opportunity set to us looks quite advantageous, but
791
00:41:20,500 --> 00:41:21,800
we wouldn't rush.
792
00:41:22,600 --> 00:41:26,700
But I think for shorter-term government money market funds and then where
793
00:41:26,400 --> 00:41:29,600
that money is moving. I think Mike's 100% right in terms
794
00:41:29,500 --> 00:41:31,200
of ways describing the opportunity set.
795
00:41:32,300 --> 00:41:35,400
So it sounds like you all kind of think that the inflation is sticky.
796
00:41:36,500 --> 00:41:40,200
Thing and I guess I don't know. My only pushback would be you know
797
00:41:40,200 --> 00:41:43,900
inflation expectations have come down and if you
798
00:41:43,900 --> 00:41:47,300
all think the economy is going into recession, which will
799
00:41:47,000 --> 00:41:49,900
eventually move joblessness higher.
800
00:41:50,900 --> 00:41:53,000
Ultimately won't that cure the inflation problem?
801
00:41:53,900 --> 00:41:54,300
Mike
802
00:41:55,000 --> 00:41:55,600
I want to take that.
803
00:41:56,200 --> 00:41:57,100
sure, I mean I
804
00:41:57,700 --> 00:42:01,000
I'm leaning towards where you are in that and that if
805
00:42:00,900 --> 00:42:04,600
you do look at the tips Break, Even Market is suggesting inflation is
806
00:42:04,300 --> 00:42:07,800
going to get down towards two and a half percent over five year period
807
00:42:07,400 --> 00:42:09,200
something like that on average.
808
00:42:10,000 --> 00:42:13,100
It's probably right. So I I think when folks are
809
00:42:13,000 --> 00:42:15,300
talking about inflation being sticky.
810
00:42:16,100 --> 00:42:20,000
We're looking at four to five percent core pce that
811
00:42:19,200 --> 00:42:22,300
goes down to three to four and then two to three
812
00:42:22,200 --> 00:42:25,700
but it takes time. So I think it's it's more about the time
813
00:42:25,300 --> 00:42:28,700
frame. I think that time frame goes over a couple years
814
00:42:28,400 --> 00:42:30,000
not a couple quarters.
815
00:42:30,700 --> 00:42:34,100
And then you know Sarah your question on when
816
00:42:33,700 --> 00:42:37,100
does the FED hike to cut? Yeah cut
817
00:42:36,800 --> 00:42:40,100
when the fat Cuts I you know the way I would think of that is
818
00:42:39,900 --> 00:42:43,100
the markets pricing in 50 basis points over
819
00:42:42,900 --> 00:42:45,600
the rest of this year. That's really hard to imagine.
820
00:42:46,600 --> 00:42:49,700
So I you know, I think we think they'll be on
821
00:42:49,600 --> 00:42:53,500
pause for a while and you'll be discussing a cut in 2024.
822
00:42:52,700 --> 00:42:56,400
But for the rest of this year hike and
823
00:42:56,000 --> 00:42:59,700
then either another hike or in a pause probably feels
824
00:42:59,200 --> 00:43:03,000
better for the next seven eight months then immediately beginning to
825
00:43:02,500 --> 00:43:03,300
cut.
826
00:43:04,600 --> 00:43:07,900
I'm curious, you know when we talked we did a little prep call where we
827
00:43:07,800 --> 00:43:11,000
all spoke about the panel and and wanted to
828
00:43:10,800 --> 00:43:14,000
get some questions to you guys about your business about the
829
00:43:13,900 --> 00:43:17,000
asset management business. And I don't remember
830
00:43:16,900 --> 00:43:20,100
I think Mike you said every business has been affected
831
00:43:19,900 --> 00:43:23,800
by five percent rates. So I'm curious how that's
832
00:43:23,500 --> 00:43:26,700
affected your business and we're the
833
00:43:26,500 --> 00:43:27,100
growth comes from
834
00:43:28,100 --> 00:43:32,500
Yeah, it's interesting the the gross coming from I'd say
835
00:43:32,500 --> 00:43:36,000
in an improvement in choice for the end client meaning
836
00:43:35,700 --> 00:43:40,000
in vehicle proliferation and adoption. So
837
00:43:39,200 --> 00:43:42,400
in a world, especially in
838
00:43:42,300 --> 00:43:45,700
the wealth management side that it focused on mutual funds and moving
839
00:43:45,300 --> 00:43:49,000
into separately manage accounts or sma's Collective Investment
840
00:43:48,600 --> 00:43:52,000
Trust or citiz ETFs,
841
00:43:51,700 --> 00:43:55,600
which we launched a range of fully transparent active
842
00:43:54,800 --> 00:43:58,000
ETFs. It's choice for the
843
00:43:57,800 --> 00:44:01,200
end client is really been where
844
00:44:00,800 --> 00:44:04,200
we've seen the most change and I think that's going
845
00:44:03,900 --> 00:44:07,900
to continue. I think you'll I think you'll see Choice it helps
846
00:44:07,700 --> 00:44:11,200
for tax purposes different reasons why someone
847
00:44:10,800 --> 00:44:14,300
might opt for a different vehicle for us.
848
00:44:14,200 --> 00:44:17,800
It's all about making sure you have the right Investment services available
849
00:44:17,200 --> 00:44:20,800
for the client and then let the client determine how
850
00:44:20,600 --> 00:44:23,800
they like to consume them. But that amount of change, you know,
851
00:44:23,800 --> 00:44:26,900
it's change in terms of the distribution model in terms of how
852
00:44:26,800 --> 00:44:27,800
you're interacting with.
853
00:44:28,000 --> 00:44:31,400
Your clients operating capacity and
854
00:44:31,200 --> 00:44:34,200
expense. There's a lot that goes on with all of that change.
855
00:44:35,900 --> 00:44:38,500
Ethan what about you how has it changed?
856
00:44:39,900 --> 00:44:44,500
Guys are prioritizing, you know what I mean to my comment
857
00:44:43,600 --> 00:44:47,200
about moves into fixed income, you
858
00:44:46,600 --> 00:44:50,500
know at ssga. We're very large index manager
859
00:44:49,700 --> 00:44:52,800
our spider ETFs. So
860
00:44:52,700 --> 00:44:55,900
in many ways, we think of ourselves as sort of creating the building
861
00:44:55,700 --> 00:44:57,800
blocks for many portfolios.
862
00:44:58,700 --> 00:45:02,100
And so I think in many ways we're seeing enormous moves into
863
00:45:02,000 --> 00:45:06,100
fixed income whether that's on the fixed income indexing side or fixing
864
00:45:05,500 --> 00:45:09,200
a ETFs. Frankly. We've had I think three incredible
865
00:45:08,500 --> 00:45:11,800
years already and it feels like we're the
866
00:45:11,600 --> 00:45:15,300
beginning stages of what happened with equities moving much
867
00:45:15,000 --> 00:45:16,500
more into passive.
868
00:45:17,100 --> 00:45:20,700
We also see interest in active ETFs
869
00:45:20,600 --> 00:45:24,000
in the similar fashion. We launched a whole bunch in
870
00:45:23,600 --> 00:45:26,800
partnership with other Asset Management firms on the fixed income
871
00:45:26,600 --> 00:45:27,000
side.
872
00:45:28,000 --> 00:45:32,000
And we think again there's room for sort of a core that's more
873
00:45:31,800 --> 00:45:35,000
passively oriented really thinking about asset allocation in
874
00:45:34,800 --> 00:45:39,000
the first instance and then layering in you
875
00:45:38,500 --> 00:45:41,900
know, those areas where potentially could bring Alpha.
876
00:45:42,600 --> 00:45:46,000
And then I think you know just going back to the conversation. We were
877
00:45:45,800 --> 00:45:49,200
having about private Equity private credit. I do
878
00:45:49,000 --> 00:45:52,700
think you know, our business is a long-term business. And so
879
00:45:52,600 --> 00:45:56,400
part of our role is to really help deliver outcomes
880
00:45:55,600 --> 00:45:58,400
for investors regardless of the environment. We're in
881
00:45:59,100 --> 00:46:02,700
And you know we've seen just a number of public companies come
882
00:46:02,200 --> 00:46:05,900
down dramatically over the decades. Similarly IPOs are
883
00:46:05,500 --> 00:46:09,800
such smaller volume today. There's so much value creation is
884
00:46:09,000 --> 00:46:12,100
happening in the private markets. And I think that's what's
885
00:46:12,000 --> 00:46:15,400
going to continue to drive ultimately demand and
886
00:46:15,300 --> 00:46:18,900
private equity and private credit and ways
887
00:46:18,400 --> 00:46:21,700
that we've already seen so I think it's really thinking about
888
00:46:21,500 --> 00:46:24,900
sort of the near term and being in a
889
00:46:24,800 --> 00:46:28,700
position in our case as a provider of investment exposures.
890
00:46:28,200 --> 00:46:31,400
What additional exposures should we be bringing out into the
891
00:46:31,200 --> 00:46:34,900
market bringing those insides together help investors
892
00:46:34,300 --> 00:46:38,200
create portfolias at a robust enough preserve Capital
893
00:46:37,800 --> 00:46:39,900
take advantage of opportunities.
894
00:46:40,800 --> 00:46:44,800
And then really thinking about the longer term structural Trends and
895
00:46:44,100 --> 00:46:47,900
I do agree also that the wealth segment
896
00:46:47,700 --> 00:46:51,900
is a fascinating place that I think will continue to
897
00:46:50,900 --> 00:46:54,500
grow. We're seeing the benefit of Technology bringing
898
00:46:53,900 --> 00:46:57,500
what used to be only available to the largest institutions. We're
899
00:46:57,100 --> 00:47:00,400
just separate accounts, right? I mean hundred thousand dollars
900
00:47:00,300 --> 00:47:03,600
even potentially less ambassadors can get that same
901
00:47:03,300 --> 00:47:06,600
sort of, you know management of
902
00:47:06,500 --> 00:47:09,600
their assets. We're seeing model portfolias. It used
903
00:47:09,500 --> 00:47:12,900
to be the purview again of Institutions. That is one of the fastest growing
904
00:47:12,600 --> 00:47:16,100
Arenas in the retail Marketplace and then
905
00:47:15,900 --> 00:47:18,900
you think about even direct indexing right? I mean,
906
00:47:18,900 --> 00:47:23,100
we're in the business today and providing really customized index mandates
907
00:47:21,900 --> 00:47:25,200
for very sophisticated institutions that
908
00:47:24,900 --> 00:47:28,800
again is coming into you know,
909
00:47:28,800 --> 00:47:32,700
individuals hands and said this longer term trend of democratizing
910
00:47:31,900 --> 00:47:35,400
investing and making available what's been
911
00:47:35,100 --> 00:47:38,600
available to institutions to individual investors. I
912
00:47:38,200 --> 00:47:40,600
think is another area that we're very
913
00:47:40,800 --> 00:47:42,000
bullish on
914
00:47:43,400 --> 00:47:46,700
Katie what are you how do you focus strategically on this
915
00:47:46,600 --> 00:47:50,100
kind of environment? Yeah, I just say from business perspective two
916
00:47:49,600 --> 00:47:53,800
things. I that a lot of that resonates that the value
917
00:47:53,500 --> 00:47:56,800
proposition for clients needs to go up in this industry. And actually
918
00:47:56,700 --> 00:48:00,100
if you look at any industry over time you need
919
00:48:00,000 --> 00:48:04,200
to and more and more people come in and it becomes more and more competitive and
920
00:48:03,400 --> 00:48:06,900
the Returns come harder to come by actually the
921
00:48:06,500 --> 00:48:10,100
value proposition shifts towards clients and
922
00:48:10,000 --> 00:48:13,800
delivering that and the Best in Class way which means liquid transparent
923
00:48:13,000 --> 00:48:16,300
and cheaper broadly across all asset classes.
924
00:48:16,100 --> 00:48:19,700
So I would agree with that and I think if you're
925
00:48:19,600 --> 00:48:22,700
an LP or an individual client the next 10 years
926
00:48:22,600 --> 00:48:25,900
should be better for you. You should have an experience
927
00:48:25,600 --> 00:48:29,200
with lower fees and less friction and it
928
00:48:28,900 --> 00:48:32,100
should be less fun probably for all of us, which is
929
00:48:31,900 --> 00:48:35,300
part of the hard job that we have here over the next 10 years
930
00:48:35,100 --> 00:48:38,400
and we'll just have to to meet together on that
931
00:48:38,200 --> 00:48:41,400
from a partnership perspective. And then I just wanted to make the
932
00:48:41,300 --> 00:48:43,100
observation. I absolutely agree that
933
00:48:44,000 --> 00:48:47,500
Um, when you're trying to invest anywhere on the capitol structure,
934
00:48:47,200 --> 00:48:51,100
what we're really trying to do is own a piece of GDP broadly
935
00:48:50,600 --> 00:48:55,400
that will translate into returns over time and you
936
00:48:54,200 --> 00:48:57,800
know, the productive capacity of this country's
937
00:48:57,200 --> 00:49:00,900
moving a lot from public to private markets and I I
938
00:49:00,600 --> 00:49:03,900
lived through that disruption in the public Equity markets. We now have
939
00:49:03,800 --> 00:49:07,900
50% less publicly listed companies than we did, you know,
940
00:49:07,900 --> 00:49:11,900
20 years ago and and that I'm
941
00:49:11,200 --> 00:49:15,100
not I'm not against private Equity at all, but it
942
00:49:14,900 --> 00:49:18,200
is also true that most individual investors didn't
943
00:49:17,900 --> 00:49:21,500
get a lot of access to that wealth creation opportunity and now
944
00:49:21,200 --> 00:49:24,500
we're in a very similar place in credit markets. We're 30% of
945
00:49:24,300 --> 00:49:27,500
credit is in private markets. And so I do think we're going
946
00:49:27,400 --> 00:49:30,700
to have to think about as a community how we get
947
00:49:30,500 --> 00:49:34,200
some of those assets in a safe and reliable
948
00:49:33,600 --> 00:49:37,000
way on to the individual
949
00:49:36,700 --> 00:49:39,900
investor and I don't think any of us have actually come up
950
00:49:39,800 --> 00:49:43,300
with a great answer for that. Obviously. There's some Vehicles out there we
951
00:49:42,900 --> 00:49:43,400
all
952
00:49:43,500 --> 00:49:47,200
What they are but I would think that even The Regulators would
953
00:49:46,900 --> 00:49:52,000
be focused on figuring out how we do that because generally their
954
00:49:50,800 --> 00:49:54,200
view would that wealth creation should be should be
955
00:49:54,000 --> 00:49:57,200
broadly distributed. And so I don't I don't have the magic answer
956
00:49:57,000 --> 00:50:00,600
for everyone on that. But that's something we're thinking really hard about how
957
00:50:00,100 --> 00:50:03,400
we bridge that that gap between
958
00:50:03,100 --> 00:50:07,000
public and private markets particularly for individual investors. And
959
00:50:06,400 --> 00:50:10,000
I think whoever figures out how to do that and to
960
00:50:09,700 --> 00:50:13,300
deliver it in a really frictionless way. That's a that's
961
00:50:12,800 --> 00:50:14,100
a massive Tam.
962
00:50:14,800 --> 00:50:18,200
Well first they have to figure out how to regulate Shadow lending and
963
00:50:18,100 --> 00:50:22,100
then they can figure out how to regulate democratizing shadow shadow lending.
964
00:50:21,800 --> 00:50:26,000
I guess I got to spend more time with the regional Banks first. Yeah, just
965
00:50:24,800 --> 00:50:28,400
a prioritization. Yeah, exactly. So
966
00:50:27,800 --> 00:50:31,400
I call let me ask you is there a growth problem in
967
00:50:30,800 --> 00:50:31,900
your industry?
968
00:50:32,600 --> 00:50:35,800
You just had a tricky quarter. Yeah. Well, so one.
969
00:50:37,100 --> 00:50:40,900
I'll tell you they're very few satisfying Industries and
970
00:50:40,600 --> 00:50:44,000
asset management still is one of those and I'll tell you why it's satisfying.
971
00:50:45,200 --> 00:50:48,700
It is still an industry where it easily covers
972
00:50:48,400 --> 00:50:51,800
its cost of capital. And what's our Capital costs, it's
973
00:50:51,700 --> 00:50:54,800
Talent. That's essentially what asset Management's cost of
974
00:50:54,700 --> 00:50:57,800
capital is and yes, there is technology cost now and things like
975
00:50:57,700 --> 00:51:00,800
that, but it easily covers it. So it's a good industry to be in
976
00:51:00,700 --> 00:51:03,100
because you across the board.
977
00:51:03,900 --> 00:51:06,700
It is tougher now and I'll tell you why it's tougher.
978
00:51:07,300 --> 00:51:11,000
what used to be easy in asset management and 5%
979
00:51:10,500 --> 00:51:14,000
environment sort of accelerates this movement
980
00:51:13,600 --> 00:51:14,300
is
981
00:51:15,200 --> 00:51:19,300
What you had to do have great products great
982
00:51:18,600 --> 00:51:22,200
client service decent performance
983
00:51:21,600 --> 00:51:23,500
and the money came in.
984
00:51:24,600 --> 00:51:28,100
Those are not the only sufficient conditions to
985
00:51:27,900 --> 00:51:31,100
grow in Asset Management anymore. I think the
986
00:51:30,900 --> 00:51:34,700
biggest change for us is the business
987
00:51:34,400 --> 00:51:37,700
has become more complicated because the clients have become
988
00:51:37,400 --> 00:51:40,900
more sophisticated, you know there would you were
989
00:51:40,400 --> 00:51:43,400
joking about the wealth management space I could tell you
990
00:51:43,400 --> 00:51:46,600
even wealth management clients are way more sophisticated. They want
991
00:51:46,400 --> 00:51:49,700
more for their dollar and the way they want more for their dollar
992
00:51:49,400 --> 00:51:53,700
is they want some sort of complex
993
00:51:52,400 --> 00:51:55,700
advice embedded in products now,
994
00:51:55,400 --> 00:51:59,200
they just don't simply buy a product. I'll give
995
00:51:59,200 --> 00:52:02,400
you two examples where we we do a lot of work and
996
00:52:02,300 --> 00:52:05,700
I see this is we are big investors in real estate,
997
00:52:05,600 --> 00:52:08,800
you know, we have over 100 billion in all sorts of
998
00:52:08,800 --> 00:52:12,000
real estate and it used to be that you would have clients who
999
00:52:11,800 --> 00:52:15,200
would just invest with you in real estate
1000
00:52:15,100 --> 00:52:18,400
private equity and those clients, you know, they've gone through
1001
00:52:18,200 --> 00:52:21,600
this cycle over time. And now what they say is well, that's
1002
00:52:21,400 --> 00:52:24,300
not good enough. We want someone who can think
1003
00:52:24,500 --> 00:52:27,800
About the Arbitrage between REITs and real estate. We want
1004
00:52:27,600 --> 00:52:30,800
somebody who can think between the Arbitrage between
1005
00:52:30,600 --> 00:52:34,300
mortgages and cmbs. So the complexity of
1006
00:52:34,100 --> 00:52:38,000
what people expect from you is higher they
1007
00:52:37,100 --> 00:52:41,200
still pay you that so I think the successful firms
1008
00:52:40,500 --> 00:52:44,400
in Asset Management have to process that complexity. It's
1009
00:52:44,000 --> 00:52:47,500
a multi-dimensional expectation now than a one-dimensional
1010
00:52:47,000 --> 00:52:50,500
expectation. You see that even in traditional
1011
00:52:50,100 --> 00:52:53,100
fixed income, you know, it used to be we were talking a lot
1012
00:52:53,100 --> 00:52:56,300
about rates and it's easy to manage rates, you know, what's
1013
00:52:56,100 --> 00:52:59,600
more difficult managing effects and we've had
1014
00:52:59,300 --> 00:53:02,600
an enormous run in the US dollar the US dollar is
1015
00:53:02,300 --> 00:53:05,600
going to other way and every fixed income investor says,
1016
00:53:05,500 --> 00:53:08,700
well, you may be great at managing duration, but do you have FX skills?
1017
00:53:08,500 --> 00:53:12,400
So I think the business of asset management is getting
1018
00:53:12,000 --> 00:53:15,200
tougher but it's still industry that
1019
00:53:15,000 --> 00:53:18,800
will easily cover its cost of capital and will reward
1020
00:53:18,300 --> 00:53:21,600
the clients and the industry itself. This is supposed to
1021
00:53:21,500 --> 00:53:23,900
be the portion. However, where you guys talk about how
1022
00:53:24,500 --> 00:53:27,900
Is transforming your industry and making everything more
1023
00:53:27,600 --> 00:53:31,400
efficient and exciting is their role here for AI
1024
00:53:31,100 --> 00:53:32,000
and investing.
1025
00:53:32,500 --> 00:53:36,000
You ask me that I couldn't hear when you first did you say me Harvey? Sure.
1026
00:53:35,700 --> 00:53:39,500
I didn't hear you. Got a general question for them. It's General.
1027
00:53:39,300 --> 00:53:42,500
But yeah, well, I'm happy to take a crack out of
1028
00:53:42,300 --> 00:53:43,200
their mind the
1029
00:53:45,100 --> 00:53:48,500
I do think the trends in the industry are hugely positive whether
1030
00:53:48,200 --> 00:53:51,500
it's democratization product development had a
1031
00:53:51,300 --> 00:53:53,400
conversation with someone very smart earlier and they said
1032
00:53:54,700 --> 00:53:58,200
Why do you even refer to it as alternative at this state? It's just really investing
1033
00:53:57,700 --> 00:54:01,400
and it's about I think Mike said very
1034
00:54:00,700 --> 00:54:04,400
well. It's really just about making sure that we're providing
1035
00:54:03,700 --> 00:54:06,900
our partners our clients with the
1036
00:54:06,800 --> 00:54:09,900
right opportunities and the right returns for what they want to
1037
00:54:09,800 --> 00:54:11,100
achieve over a long period of time.
1038
00:54:11,900 --> 00:54:15,100
I do think one of the more fascinating things that will happen in
1039
00:54:14,900 --> 00:54:18,700
the industry over. The next decade is the introduction of AI
1040
00:54:18,100 --> 00:54:22,000
and data science and machine learning and once
1041
00:54:21,100 --> 00:54:24,400
been a lot of time on this, but we had a demonstration.
1042
00:54:25,400 --> 00:54:28,700
Internally just last week and it was
1043
00:54:28,500 --> 00:54:31,800
sort of mind-blowing for everybody to see
1044
00:54:31,500 --> 00:54:35,700
just the developments in chat GPT just
1045
00:54:35,100 --> 00:54:38,800
recently and how in one of our portfolio companies
1046
00:54:38,300 --> 00:54:41,800
by spending a very small amount of money. They
1047
00:54:41,300 --> 00:54:45,000
were able to actually completely redefine the
1048
00:54:45,000 --> 00:54:46,100
efficiency of processes.
1049
00:54:47,200 --> 00:54:49,200
And this isn't even really the first inning.
1050
00:54:49,700 --> 00:54:52,900
and so I do think the trending technology which has gone
1051
00:54:52,800 --> 00:54:56,100
on for 40 years is going to be a very steep Trend and
1052
00:54:56,000 --> 00:54:57,800
I think it will only enable us to
1053
00:54:59,800 --> 00:55:03,200
be better managers of capital understand our clients needs
1054
00:55:02,900 --> 00:55:05,500
and deliver to our clients any better, but this this will be
1055
00:55:07,000 --> 00:55:10,300
Definitely evolutionary in my mind may be revolutionary but it's
1056
00:55:10,200 --> 00:55:13,800
going to be we're early. We're early stage in this new part of the process which
1057
00:55:13,500 --> 00:55:17,300
will go on I think for at least another 10 to 15 years anybody else experimenting
1058
00:55:16,500 --> 00:55:19,900
with Chachi speed GPT or
1059
00:55:19,800 --> 00:55:21,200
AI in the business?
1060
00:55:23,200 --> 00:55:27,200
Or too early I'd say from an investment perspective. It's
1061
00:55:26,400 --> 00:55:29,600
really about structuring unstructured data.
1062
00:55:29,500 --> 00:55:34,100
So for us you have so much data and try
1063
00:55:33,000 --> 00:55:36,500
trying to harness that and use
1064
00:55:36,300 --> 00:55:40,000
it as a component of your process can be value-added and
1065
00:55:39,500 --> 00:55:44,100
there's a lot of there's a lot of examples in that it's
1066
00:55:42,700 --> 00:55:46,200
not meant to answer the question. It's
1067
00:55:45,800 --> 00:55:49,500
meant to be a piece of the pie and and we're using
1068
00:55:48,800 --> 00:55:52,200
it in that way and I I think that's
1069
00:55:52,000 --> 00:55:56,100
a one-way train. It's also from operating our
1070
00:55:55,800 --> 00:55:59,200
business and not just investing. It's making us
1071
00:55:58,900 --> 00:56:02,500
more efficient and helping us scale our business. So that's really
1072
00:56:02,300 --> 00:56:03,600
important the effectively
1073
00:56:04,700 --> 00:56:07,800
Can become more efficient you can operate smartly which is one of
1074
00:56:07,800 --> 00:56:11,300
our core themes and and at the same time on the
1075
00:56:11,100 --> 00:56:14,700
investment side, you basically have a 24/7 research assistant.
1076
00:56:15,400 --> 00:56:18,900
And that's super helpful when when you're looking at capacity to
1077
00:56:18,800 --> 00:56:19,800
help you make decisions.
1078
00:56:20,500 --> 00:56:24,000
Related question from the audience on this. Well, it's not on this but
1079
00:56:23,600 --> 00:56:27,100
I'm going to make it on this which is we have seen significant
1080
00:56:26,600 --> 00:56:30,800
layoffs in Tech. Is that coming to Asset Management?
1081
00:56:30,700 --> 00:56:31,500
Whether it's
1082
00:56:32,600 --> 00:56:34,500
the environment or I guess
1083
00:56:35,700 --> 00:56:37,200
having a digital research assistant
1084
00:56:37,900 --> 00:56:41,100
I'll start with that and answer the
1085
00:56:40,900 --> 00:56:44,100
previous question too Tech was just the locus of some of
1086
00:56:44,100 --> 00:56:48,100
the most excess in the market particularly during
1087
00:56:47,700 --> 00:56:50,700
the pandemic period And I think it goes back to the
1088
00:56:50,700 --> 00:56:54,200
same concept A Lot build up and there's a lot to wash out the
1089
00:56:53,800 --> 00:56:56,900
asset management industry written largely did not
1090
00:56:56,800 --> 00:57:00,700
have as much so we wouldn't I generally wouldn't
1091
00:57:00,500 --> 00:57:04,200
expect to see this the same level of cuts but it
1092
00:57:04,100 --> 00:57:07,400
is it is quite significant the job destruction that's happening
1093
00:57:07,100 --> 00:57:10,300
in technology. And I and I'm hopeful that
1094
00:57:10,200 --> 00:57:13,400
will all of us will be able to pick up some of that engineering talent because
1095
00:57:13,200 --> 00:57:16,600
we're all going to need it over the next decade and then
1096
00:57:16,500 --> 00:57:20,000
I just want to make a quick comment on on AI. We are
1097
00:57:19,900 --> 00:57:23,500
looking at it in the same ways. The other panelists are I think
1098
00:57:23,400 --> 00:57:26,600
it's incredibly important our view
1099
00:57:26,400 --> 00:57:30,400
alluded to this. This is a real thing and it's
1100
00:57:29,900 --> 00:57:33,300
probably going to be the defining technology of the
1101
00:57:33,100 --> 00:57:36,700
next 10 years and it is very important and
1102
00:57:36,300 --> 00:57:37,500
we're spending a lot of time.
1103
00:57:37,900 --> 00:57:41,300
To understand this particularly in the equity markets Company by
1104
00:57:41,100 --> 00:57:44,300
company about who understands how to harness this and
1105
00:57:44,100 --> 00:57:47,500
where the winners and losers are so you really want
1106
00:57:47,100 --> 00:57:50,600
to think about this in the magnitude of things going from off to
1107
00:57:50,400 --> 00:57:54,000
online and then eventually to mobile and how how
1108
00:57:53,400 --> 00:57:56,600
much that disrupted the consumer Market it changed
1109
00:57:56,400 --> 00:58:00,700
the entire consumer market and it's just a totally different Market the companies
1110
00:58:00,300 --> 00:58:03,500
that didn't figure out how to do that when bankrupt the ones that figured
1111
00:58:03,300 --> 00:58:06,600
out how to do it have a trillion dollar market cap. And that is
1112
00:58:06,400 --> 00:58:09,600
what is going to happen here with the use of AI
1113
00:58:09,400 --> 00:58:12,900
and I know Carla I'm sure we're spending a lot of time asking their
1114
00:58:12,700 --> 00:58:15,700
companies how they plan to use it. So we'll come up
1115
00:58:15,700 --> 00:58:18,900
with a good answer for that for you not on the stage but in the
1116
00:58:18,800 --> 00:58:22,200
future and I think it's true of all public Equity companies. That's
1117
00:58:21,900 --> 00:58:24,900
the number one. It's not it's not just our sector. It's not
1118
00:58:24,900 --> 00:58:28,500
just in technology. It's a cross all sectors. How are you going to use that to
1119
00:58:28,000 --> 00:58:31,200
redefine your business model and to win
1120
00:58:31,100 --> 00:58:34,400
in your category and I think healthcare could be by far
1121
00:58:34,200 --> 00:58:37,500
the biggest beneficiary of that Healthcare is currently
1122
00:58:37,800 --> 00:58:41,400
25% of the GDP in this country for the worst Healthcare outcomes
1123
00:58:40,800 --> 00:58:44,200
in the oecd and if we could get that
1124
00:58:44,000 --> 00:58:47,800
data and use it and harness it appropriately there could
1125
00:58:47,700 --> 00:58:51,400
be a lot of value creation last comment is just that by definition.
1126
00:58:51,200 --> 00:58:54,500
This is actually massively deflationary. So if
1127
00:58:54,300 --> 00:58:58,700
you want to think about inflation from a secular perspective, like,
1128
00:58:57,600 --> 00:59:00,900
you know, it's hard to call it on a 12
1129
00:59:00,700 --> 00:59:04,400
to 24 month view but technology continues to
1130
00:59:04,400 --> 00:59:07,800
be massively deflationary. All right, 45 seconds left. We'll do
1131
00:59:07,800 --> 00:59:11,300
a speed round for everyone in the next year
1132
00:59:10,800 --> 00:59:14,100
when we all meet again at Milken on the stage,
1133
00:59:13,900 --> 00:59:14,400
hopefully.
1134
00:59:15,400 --> 00:59:18,600
The best investment will be have been in the
1135
00:59:18,500 --> 00:59:20,300
past year. What?
1136
00:59:21,100 --> 00:59:21,600
Come on.
1137
00:59:23,900 --> 00:59:25,900
the longest duration Bonds in the world
1138
00:59:27,900 --> 00:59:31,800
The longest duration bonds and in the world in the world finally the
1139
00:59:31,200 --> 00:59:32,900
longest duration board by it.
1140
00:59:34,100 --> 00:59:37,300
Mike I'll go a little shorter duration because that seems
1141
00:59:37,100 --> 00:59:41,200
like a hundred year bond is long. But yeah, I
1142
00:59:40,300 --> 00:59:43,900
would I would say intermediate duration
1143
00:59:43,500 --> 00:59:46,800
high quality fix incomes would return something like
1144
00:59:46,600 --> 00:59:50,400
six or seven percent. The lawyers aren't here. So I I could return
1145
00:59:50,100 --> 00:59:53,900
something like six or something and I think in the backdrop of
1146
00:59:53,600 --> 00:59:56,000
what we're all talking about. That's probably a good investment.
1147
00:59:56,500 --> 00:59:59,700
You said yeah, I be sort of been fixed income too.
1148
00:59:59,500 --> 01:00:03,600
Probably more and treasuries thinking that
1149
01:00:03,400 --> 01:00:06,900
obviously fixed income yields are very attractive and then
1150
01:00:06,700 --> 01:00:11,000
depending on the scenario if we think that there's more of a tougher Landing
1151
01:00:10,800 --> 01:00:12,700
than it'll be a good place to be.
1152
01:00:13,900 --> 01:00:17,200
Katie it's good thing you went in to run a fixed income business. I know
1153
01:00:17,000 --> 01:00:20,200
I mean, I'm just thinking sitting here thinking how fortuitous that is.
1154
01:00:20,100 --> 01:00:20,900
I would say.
1155
01:00:22,400 --> 01:00:26,100
Cash and appropriately structured highly conservatively
1156
01:00:25,500 --> 01:00:27,100
structured private credit.
1157
01:00:28,800 --> 01:00:32,300
So I think waiting is key and then
1158
01:00:32,200 --> 01:00:35,400
I think when opportunities present themselves into structured credit
1159
01:00:35,300 --> 01:00:38,600
where you're getting the right risk adjusted return in particularly in
1160
01:00:38,400 --> 01:00:41,100
acute environment. I think you get massive outperformance.
1161
01:00:41,700 --> 01:00:45,200
But I think I think waiting is key. You guys stuck here time queues.
1162
01:00:44,700 --> 01:00:49,100
Very good. Thank you very much. Thank you. Thank you for being
1163
01:00:49,100 --> 01:00:50,000
here. Thank you, everyone.
1164
01:00:52,600 --> 01:00:55,900
Is that beautiful house? You may ask yourself?
1165
01:00:55,600 --> 01:00:59,100
Where does that Highway go to and you
1166
01:00:58,900 --> 01:00:59,300
may