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US Services Expand, ADP Data, Trump Speech · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. You're listening to the
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  Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
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  Speaker 2: Alex feel here alongside Paul sw We need this a
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  Speaker 2: Bloomberg Intelligence Radio. We are broadcasting to live from a
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  Speaker 2: Bloomberg Invest twenty twenty five conference in downtown Manhattan. A
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  Speaker 2: lot of the action, though, is still in the economic data,
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  Speaker 2: in particular ADP. We also got ism services and also
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  Speaker 2: what's going to happen with trade policy. Earlier today, US
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  Speaker 2: Commerce Secretary Howard Lutnick spoke with Bloomberg, saying maybe a
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  Speaker 2: potential a potential shift in TEARFF policy.
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  Speaker 3: The President is listening uh to the offers from Mexico
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  Speaker 3: and Canada. He's thinking about trying to do something in
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  Speaker 3: the middle. He's thinking about it. We're talking about it.
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  Speaker 3: We're going to what I leave here, I'm going to
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  Speaker 3: go to talk about it with him, and I think
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  Speaker 3: early this afternoon or this afternoon, we expect to make
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  Speaker 3: an announcement. And my thinking is it's going to be
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  Speaker 3: somewhere in.
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  Speaker 4: The middle, all right. That was Howard Ludnik.
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  Speaker 2: We also are hearing from Peter Navarro on CNN talking
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  Speaker 2: about trade as well, saying Trump is right, there's going
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  Speaker 2: to be some kind of tear uf disturbance, and all
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  Speaker 2: of this just means a little bit more uncertainty within
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  Speaker 2: the market. Michael mcckeb Bloomberg Economic and Policy correspondent joins us. Now, Mike,
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  Speaker 2: is that uncertainty showing up in some.
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  Speaker 5: Of the data not yet?
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  Speaker 6: Interestingly enough, we've had divergent data today. The ADP report
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  Speaker 6: comes in a little light in terms of private sector jobs,
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  Speaker 6: and the composition of jobs is a little strange in
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  Speaker 6: that report. But the ISM services PMI comes in much
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  Speaker 6: better than anticipated, and new orders were up, which is
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  Speaker 6: the converse of what we saw in the ISM manufacturing number.
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  Speaker 6: So a little reassurance for the markets, which sort of
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  Speaker 6: have been bouncing around today, but in general have taken
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  Speaker 6: a little encouragement from the idea that perhaps the economy
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  Speaker 6: is not falling off a cliff.
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  Speaker 7: Hey, Mike, I see the ISM services prices paid came
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  Speaker 7: in higher than expected and higher than the last period.
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  Speaker 7: Does that suggest maybe some inflation seeping in to the
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  Speaker 7: economy there.
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  Speaker 6: Well, maybe more inflation still in the economy as opposed
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  Speaker 6: to seeping in now.
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  Speaker 8: It's a little hard to separate out because we don't know.
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  Speaker 6: This is a sentiment survey, and we don't know how
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  Speaker 6: much that sentiment might have been influenced by all the
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  Speaker 6: tariff talk. But tariffs generally don't hit services in the
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  Speaker 6: same way they hit goods, and so this may be
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  Speaker 6: just more reflection of the cost of raw materials, maybe
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  Speaker 6: commodities that are out there now. We don't know, but
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  Speaker 6: we have seen the ism services prices paid index up
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  Speaker 6: for four months in a row, so it does seem
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  Speaker 6: that we still have some inflation out there.
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  Speaker 8: The Fen's going to have to address.
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  Speaker 4: Yes, yes, inflation address.
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  Speaker 2: And that brings us to your news making interview yesterday
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  Speaker 2: of a New York Fed President John Williams talking about
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  Speaker 2: how to address the inflationary impact from tariffs.
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  Speaker 4: Can walk us through some of the highlights.
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  Speaker 2: Here, because that was definitely one of the standouts yesterday
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  Speaker 2: at Boom.
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  Speaker 4: We're going to best.
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  Speaker 6: The Fed's been waiting for quite some time to have
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  Speaker 6: any kind of comment on what Trump's policies would be
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  Speaker 6: because he didn't know what they were. But now that
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  Speaker 6: we know, he's got these twenty five percent tariffs on
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  Speaker 6: maybe some carve outs coming this afternoon and more coming.
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  Speaker 6: As Secretary Lutnik emphasized over and over again this morning,
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  Speaker 6: the FED feels a little more unconstrained. John Williams talking
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  Speaker 6: about the fact that tariffs are inflationary. Now they don't
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  Speaker 6: know how inflationary because they don't know how many tariffs
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  Speaker 6: are going to end up being imposed, at what level
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  Speaker 6: and over what period of time. But he did suggest
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  Speaker 6: that that's reason for caution and that the Fed basically
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  Speaker 6: needs to stay on hold for right now.
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  Speaker 7: We're going to get some labor data MIC over the
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  Speaker 7: next couple of days, with initial jobles claims tomorrow and
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  Speaker 7: then nonfarm payrolls on Friday. Still too early to see
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  Speaker 7: any effects of dose impacting the numbers.
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  Speaker 6: Well, we might actually get some numbers this week because
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  Speaker 6: the federal government employees have their own category within jobless claims.
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  Speaker 8: It's funded separately, and so.
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  Speaker 6: It's two weeks delayed in terms of its release and
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  Speaker 6: should suggest that we are now at least getting some
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  Speaker 6: jobless claims from federal workers who've been laid off, so
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  Speaker 6: we would anticipate that. I wouldn't anticipate much of anything
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  Speaker 6: showing up in the payrolls report on Friday, because that
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  Speaker 6: encompasses the pay period that includes the twelfth of the month,
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  Speaker 6: And it really was Valentine's Day, February fourteenth when the
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  Speaker 6: layoffs really started. If you remember the late night time
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  Speaker 6: from Elon Musk to so many federal.
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  Speaker 2: Workers, Mike, before we let you go, my favorite question,
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  Speaker 2: as most of you know, he always gets to send
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  Speaker 2: me charts in the afternoon, like the one nerdy thing
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  Speaker 2: that Mike's paying attention to. What's that one nerdy thing
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  Speaker 2: you're going to be paying attention to.
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  Speaker 6: Well, I'm looking at the ADP numbers, and it's unusual
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  Speaker 6: that we see service industry jobs much lower than the
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  Speaker 6: goods producing jobs. In this case, it's the goods producing.
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  Speaker 6: That's very odd because we've been talking about how manufacturing
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  Speaker 6: is suffering, and yet they had a big increase in
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  Speaker 6: jobs during the month according to ADP, of eighteen thousand jobs,
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  Speaker 6: and construction was up.
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  Speaker 8: By twenty six thousand.
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  Speaker 6: But what have we been hearing for weeks now about
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  Speaker 6: how bad the weather was and how do you have
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  Speaker 6: a lot of construction going on when the weather is
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  Speaker 6: that bad, so some unusual numbers. Also, of educational health
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  Speaker 6: services is usually the biggest job creator, and ADP found
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  Speaker 6: a twenty eight thousand job loss there. So I'm not
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  Speaker 6: sure about the makeup of the ADP numbers, but we'll
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  Speaker 6: get a better clue on Friday.
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  Speaker 4: All right, My thanks a lot, really appreciate it.
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  Speaker 2: Michael mcke Boomberg Economic and Policy Corresponding, joining us now.
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  Speaker 4: Looking for his nerde chart later on as well.
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  Speaker 7: Joining us now at the conference on site is Katie Fogerty,
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  Speaker 7: chief financial officer of Shakeshack. Katie, thanks so much for
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  Speaker 7: joining us here. Love to get a sense everybody's talking
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  Speaker 7: about Harris and what it might do to economic growth,
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  Speaker 7: what it might do to the consumer. Who is the
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  Speaker 7: consumer shake check and what is that consumer telling you
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  Speaker 7: these days?
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  Speaker 9: Great? So you know who we think of as our consumer?
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  Speaker 9: We have you know, went out there and we have
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  Speaker 9: this amazing real estate strategy, real estates strategy, and what
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  Speaker 9: we've done is we've put these great community gathering places
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  Speaker 9: in a lot of these you know, great communities, and
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  Speaker 9: where we have attracted is just really kind of more
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  Speaker 9: of a I would say, you know, a more a
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  Speaker 9: middle income to higher income guests, and we've seen that
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  Speaker 9: guest be able to weather a lot more of the
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  Speaker 9: economic headwinds than other, you know, than the low income
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  Speaker 9: consumer has been facing. And you know, what we continue
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  Speaker 9: to see is by leaning into our strength, which is
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  Speaker 9: delivering a fine casual experience. So we think about kind
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  Speaker 9: of bringing all those great guts of fine dining, elevated food,
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  Speaker 9: premium ingredients, doing the things that you know, other you know,
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  Speaker 9: fast casual and QSR just are not willing to do.
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  Speaker 9: Putting that an amazing hospital or hospitable environment and getting
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  Speaker 9: great guest service. That together has been a winning formula
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  Speaker 9: to help us outpunch what has been you know, some
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  Speaker 9: consumer headwinds that has been facing the industry.
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  Speaker 4: And we are going to continue to lean into that.
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  Speaker 9: It's it's helping us to different and kind of pull
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  Speaker 9: apart from the pack, and it's it's been our strength.
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  Speaker 4: Where are our samples? I know, I mean what is
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  Speaker 4: this about?
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  Speaker 2: Uh, you know, who doesn't want to burger at ten
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  Speaker 2: am on a Wednesday so close to open?
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  Speaker 7: So so who.
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  Speaker 2: Are your competitors then? So if you're a middle and
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  Speaker 2: high end consumer, who would.
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  Speaker 9: You say as a competitor, Yeah, I mean we sell burgers, shakes, fries,
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  Speaker 9: I think the best chicken sandwich out there in the business.
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  Speaker 9: We view our competitors as being, you know, anybody who
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  Speaker 9: you know you might consider having lunch at or dinner at.
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  Speaker 9: So that is a pretty wide array and it also
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  Speaker 9: can be you know, food at home. I mean that
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  Speaker 9: can also be in you know, in an area where
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  Speaker 9: you would have some share of stomach. So, you know,
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  Speaker 9: for the vast amount of you know, of our restaurants
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  Speaker 9: out there, we are competing with a lot of people.
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  Speaker 9: Now we are differentiated and we are kind of in
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  Speaker 9: that category of one in the fine casual sector. But
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  Speaker 9: at the same time we know that, you know, people
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  Speaker 9: have lots of different options where they can go out
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  Speaker 9: to eat.
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  Speaker 7: Okay, there's concern out there about inflation. If inflation were
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  Speaker 7: to come into your business, where would you see it
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  Speaker 7: and how do you plan for that?
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  Speaker 9: So we actually have been navigating through inflationary pressures for
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  Speaker 9: a number of years here and doing so quite successfully.
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  Speaker 9: I'll say, you know, we've had wage inflationary pressures in COVID.
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  Speaker 4: It was actually very hard to get.
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  Speaker 9: Restaurant talent in our restaurants to staff and to deliver
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  Speaker 9: our food. It was not a desirable job at the time,
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  Speaker 9: and we had we raised wages and had a very
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  Speaker 9: competitive and compelling opportunity for our team members. We also
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  Speaker 9: introduced tips as a way to compensate our team members
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  Speaker 9: as well and give them added benefit. And then last
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  Speaker 9: year with you know, with California Fast Food Wage Act,
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  Speaker 9: you know, we paced through that as well. We've also
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  Speaker 9: had on the food side, you know, inflationary pressures that
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  Speaker 9: have been we've been navigating for a number of years
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  Speaker 9: as well. But through all of this through leaning in
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  Speaker 9: on our strength, which is you know, again delivering that
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  Speaker 9: elevated you know experience to guests, giving them that you know,
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  Speaker 9: twenty five dollars you know, black truffle Burger that we
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  Speaker 9: were actually selling for ten dollars and giving them that
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  Speaker 9: great value. On that side, we've been able to both
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  Speaker 9: grow sales and grow margins at a faster pace. Just
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  Speaker 9: even last year, we expanded our margins in the fourth
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  Speaker 9: quarter by three hundred basis points.
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  Speaker 2: So I've never had Shakeshack but it looks I know,
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  Speaker 2: I know, but it looks like I may be able
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  Speaker 2: to now in Delta.
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  Speaker 9: Yeah.
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  Speaker 2: So, and this really also goes to your expansion plans.
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  Speaker 2: Delta is going to offer Shakeshack Burgers on additional domestic
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  Speaker 2: roots this year, and that could expand international flights next year.
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  Speaker 4: Talk about these expansion kind of plans.
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  Speaker 9: Yeah, I mean, if you look at Delta at its
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  Speaker 9: core and what this does, you know, this is an
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  Speaker 9: opportunity where we're able to surprise and delight our guests,
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  Speaker 9: give them that thing that they weren't really expecting. You know,
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  Speaker 9: you have your expectation for what airline food is like,
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  Speaker 9: and you know this this opportunity to get a Shakeshack
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  Speaker 9: burger and our great we have a special brownie that
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  Speaker 9: we've made for Delta as well.
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  Speaker 4: Through this program.
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  Speaker 9: People are just absolutely elated at the opportunity to have
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  Speaker 9: that on their flights, and so much so that it's
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  Speaker 9: exceeded our internal expectations.
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  Speaker 4: We're rolling it out to more airports.
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  Speaker 9: You're going to be able to get it, you know,
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  Speaker 9: New York, Atlanta, a number of airports, and that will
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  Speaker 9: just you know, probably continue to grow. And you know,
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  Speaker 9: if you look at that opportunity, and I can make
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  Speaker 9: so many different parallels to how we've gone into an
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  Speaker 9: area where the consumer had a certain expectation and we
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  Speaker 9: just really raised the bar on it and out punched
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  Speaker 9: above our weight and transformed what people were expecting from
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  Speaker 9: you know, it's airline food, if it's roadside food, and
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  Speaker 9: across the board.
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  Speaker 7: Katie, in terms of growth, how many locations do you
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  Speaker 7: have today and what's your outlook for the next year
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  Speaker 7: or two.
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  Speaker 9: Yeah, we have, you know, across both our company operated
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  Speaker 9: and our licensed business. We're you know, about five hundred
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  Speaker 9: and fifty five hundred and seventy locations, but we are
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  Speaker 9: growing very fast. We're going to add another forty five
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  Speaker 9: domestic company operator shacks this year, and we're going to
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  Speaker 9: open about thirty five to forty licensed shacks as well.
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  Speaker 9: Those licensed shacks are ones that we operate, that our
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  Speaker 9: partners operate. We have locations in the US, but most
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  Speaker 9: of that is kind of outside of the US and Asia,
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  Speaker 9: and and we have UK, the Middle East, Mexico and
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  Speaker 9: most recently we opened up in Canada.
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  Speaker 4: Well, great stuff. We really appreciate it. We know you
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  Speaker 4: got to run, Katie.
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  Speaker 2: Thank you very much, next time, snaxt Katie Muggerty, Chief
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  Speaker 2: financial officer at shake Shack.
• 12:32
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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• 12:47
  Speaker 7: Alex Steel, Paul Swiney live here in our Bloomberg invest
• 12:49
  Speaker 7: conference at Brookfield Place in Lower Manhattan. Lots of great
• 12:52
  Speaker 7: guests we're just grabbing. As soon as they get off
• 12:54
  Speaker 7: the stage, we grab and put them in the hot seat.
• 12:56
  Speaker 7: One of them is Chris Heisie, chief investment officer at
• 12:58
  Speaker 7: Bank of America Private Bank, and I love that branding
• 13:01
  Speaker 7: right there. Somebody thought of that, got you paid that
• 13:04
  Speaker 7: for that? Chris, talk to us about the market here.
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  Speaker 7: There's a lot of cross winds coming in aside from
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  Speaker 7: some of the economic data like we received today, aside
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  Speaker 7: from some of the corporate earnings that we have to
• 13:15
  Speaker 7: deal with. A lot of cross winds coming out of Washington,
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  Speaker 7: d C. How do you guys at the portfolio level
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  Speaker 7: deal with.
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  Speaker 10: That novel statement here I'm about to say, which is,
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  Speaker 10: you know, market hates uncertainty. We've seen it. There's a
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  Speaker 10: lot of uncertainty. It's across the board. It's geopolitical risk,
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  Speaker 10: it's policy in general. It's now starting to seep into
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  Speaker 10: the level of growth. You saw a little bit of
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  Speaker 10: soft patch data. We believe it's a little exaggerated, frankly,
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  Speaker 10: because a lot of it was weather induced. I know
• 13:42
  Speaker 10: it sounds like an excuse, but it's particularly true in
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  Speaker 10: the Northeast. But when you're putting all this together, one
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  Speaker 10: thing that hasn't changed is the fact that corporate earnings
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  Speaker 10: are still going to be very attractive and above average. Frankly,
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  Speaker 10: you could see double digits. Some of Wall Street has
• 13:56
  Speaker 10: been bringing them down, but that's pretty natural.
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  Speaker 11: So overall, we're.
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  Speaker 10: In a volatility pothole which is forcing some repricing, and
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  Speaker 10: that's very healthy. And it's easy for me to say
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  Speaker 10: because it's only a five percent pullback and it could
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  Speaker 10: get to a ten percent correction, but that would be
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  Speaker 10: a buying opportunity in our opinion.
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  Speaker 2: So the narrative of maybe you want to be putting
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  Speaker 2: money into areas that will be stimulative Europe, for example,
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  Speaker 2: Germany most likely, China versus US.
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  Speaker 11: Hold for you, it does. It does.
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  Speaker 10: It's at the top of our watch list for one
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  Speaker 10: very important reason. They are now serious about a level
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  Speaker 10: of stimulus.
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  Speaker 11: It wasn't the case.
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  Speaker 7: Before both of them.
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  Speaker 4: You can make the argument right both, Yeah.
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  Speaker 11: That's right.
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  Speaker 10: And when the US was providing the fiscal stimulus, you
• 14:42
  Speaker 10: saw what happened. Now, granted it created a deficit for sure,
• 14:45
  Speaker 10: but now you're starting to see easing financial conditions across Europe.
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  Speaker 10: At the same time, you're seeing this willingness now to
• 14:53
  Speaker 10: add fiscal spend.
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  Speaker 11: To get the growth. So it's a little bit of
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  Speaker 11: a normalization.
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  Speaker 10: I want to get two over enthusiastic about non dollar assets,
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  Speaker 10: but certainly it's the.
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  Speaker 11: Top of the watch list to upgrade.
• 15:04
  Speaker 7: Just breaking across the Bloomberg terminal right now, red headline
• 15:07
  Speaker 7: Canada won't end tariffs unless all US tariffs lifted. That
• 15:11
  Speaker 7: is according to an official. So again the news keeps
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  Speaker 7: flowing here. So as we think about the US equity markets,
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  Speaker 7: one of the risks that gets called out quite frequently
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  Speaker 7: Chris is just this concentration risk. It's just too over
• 15:23
  Speaker 7: concentrated some of these big cap names. As you talk
• 15:26
  Speaker 7: to your portfolio managers, how did they deal with that?
• 15:29
  Speaker 10: Most portfolio managers cannot own up to the level of
• 15:33
  Speaker 10: what the index is in any one name. So when
• 15:36
  Speaker 10: people say portfolio managers are underperforming or active managers are underperformed, well,
• 15:41
  Speaker 10: they can't participate at the level that the index can't.
• 15:45
  Speaker 10: Now we're now switching into a marketplace that's rotating rebalancing.
• 15:50
  Speaker 10: I'd like to use the word rebalancing because the rotation
• 15:53
  Speaker 10: would make you think that it's going to happen with with.
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  Speaker 11: A snap of a chalk line. It's from here to there.
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  Speaker 2: It actually applies that you'd be like selling tech and
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  Speaker 2: buying Europe.
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  Speaker 4: It's the one for one exactly.
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  Speaker 10: And I think it's just really portfolio construction. To your
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  Speaker 10: point about what do you do with it? I think
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  Speaker 10: you have to look for three things that have been
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  Speaker 10: driving markets and it's now switching to other parts. It's
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  Speaker 10: earnings momentum, price momentum, and news momentum.
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  Speaker 11: Those three things hit together. Where are they hitting?
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  Speaker 10: Some defensives and frankly, some cyclicals and away from the
• 16:24
  Speaker 10: big leaders.
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  Speaker 11: I wouldn't be short the big leaders.
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  Speaker 2: Though, so it's not short the big leaders. How do
• 16:31
  Speaker 2: you protect yourself from all the noise?
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  Speaker 10: Very hard to do. You have to take emotion out.
• 16:38
  Speaker 10: You have to be disciplined. How do you be disciplined?
• 16:41
  Speaker 10: You have to have a process, you have to have
• 16:42
  Speaker 10: cash ready to reinvest and stick to your goals. I
• 16:45
  Speaker 10: know that sounds very simple and elementary, but it's the
• 16:48
  Speaker 10: only way to create a framework that takes the emotion out. Granted,
• 16:53
  Speaker 10: we just wrote a report recently. It talks about focus
• 16:56
  Speaker 10: on the trend lines, not the headlines.
• 16:58
  Speaker 11: Hard to do so to a.
• 17:01
  Speaker 10: Certain degree, trust your instincts about your goals and objectives
• 17:05
  Speaker 10: and be diversified. And it just doesn't always mean sixty forty.
• 17:09
  Speaker 10: It's whatever that appropriate mix is for you.
• 17:12
  Speaker 7: What are we doing in the fixed income world here?
• 17:14
  Speaker 7: Yield's coming down?
• 17:15
  Speaker 10: Actually, yeah, for a few people that have been around
• 17:18
  Speaker 10: the block a little bit, we're back to the nineteen
• 17:20
  Speaker 10: nineties again, and you're talking about four to five percent yields,
• 17:23
  Speaker 10: which are attractive for savers and fixed income investors. So
• 17:27
  Speaker 10: there's a reason why fixed income is called fixed income
• 17:30
  Speaker 10: and that's how we should think about it versus the
• 17:32
  Speaker 10: total return that occurred for better part of three decades.
• 17:35
  Speaker 10: So we're looking across the curve. We're right on duration
• 17:38
  Speaker 10: right now. We think at some point up to five
• 17:41
  Speaker 10: percent of the ten year yield, it's important to.
• 17:43
  Speaker 11: Extend duration a little bit.
• 17:44
  Speaker 10: A lot of people don't like to do that because
• 17:45
  Speaker 10: they're getting four percent at the short end. That's fine
• 17:49
  Speaker 10: at the end of the day. I would say in
• 17:50
  Speaker 10: terms of segments within fixed income, real quickly, we want
• 17:53
  Speaker 10: to be neutral across the board. There's not a unit
• 17:56
  Speaker 10: of risk out there that's going to give you extra
• 17:58
  Speaker 10: return that is more attractive than any of the space.
• 18:01
  Speaker 2: What about corporate credit, for example, because we finally to
• 18:04
  Speaker 2: see a little bit of a widening in the investment
• 18:05
  Speaker 2: grade market.
• 18:06
  Speaker 10: In addition to international equities being at the top of
• 18:10
  Speaker 10: the watch list, it's also corporate credit. They're at spreads now,
• 18:12
  Speaker 10: they're a little bit more attractive both high yield and
• 18:15
  Speaker 10: investment grade, and I would consider.
• 18:17
  Speaker 11: That an upgrade potential.
• 18:19
  Speaker 7: So one of the topics we hear a lot about
• 18:21
  Speaker 7: at this conference and a lot of conferences over the
• 18:23
  Speaker 7: last couple of years is alternative investments, not just private credit,
• 18:26
  Speaker 7: I mean private equity and hedge funds, but also private credit.
• 18:29
  Speaker 7: How do you and your private clients at Bava Meryl,
• 18:32
  Speaker 7: how do you guys think about that?
• 18:33
  Speaker 10: Well, we think of it as an alternative piece of
• 18:36
  Speaker 10: credit right and at the same time, right now where
• 18:39
  Speaker 10: it is in the cycle, stay high quality. Don't reach
• 18:43
  Speaker 10: for the lower quality end of private credit right now.
• 18:46
  Speaker 10: Even though you're going to get a little bit of
• 18:48
  Speaker 10: pickup in yield, you can do that in the normal
• 18:51
  Speaker 10: high yield market.
• 18:52
  Speaker 11: We don't see any big default cycle coming.
• 18:54
  Speaker 10: We're kind of through the hornet's nest of that recycle
• 18:58
  Speaker 10: of going from zero percent inturates restraights sharply up to
• 19:01
  Speaker 10: five percent. So we look at private credit as an
• 19:04
  Speaker 10: alternative source of credit as a part of a build
• 19:07
  Speaker 10: out of a portfolio on the private side.
• 19:09
  Speaker 2: Okay, So if we were looking at the sixty forty
• 19:11
  Speaker 2: or like, just don't think of it like that is it?
• 19:13
  Speaker 2: What percent is equity is what is fixed income? And
• 19:15
  Speaker 2: in fixed income what would be your traditional stuff versus
• 19:19
  Speaker 2: a private credit.
• 19:20
  Speaker 10: So you start with the role it's going to play
• 19:21
  Speaker 10: if you're looking for it to be in a yield
• 19:24
  Speaker 10: or a yield enhancing strategy for you that comes from
• 19:28
  Speaker 10: fixed income. If you're going to pick up a little
• 19:29
  Speaker 10: bit of the equity, which some parts of private credit
• 19:32
  Speaker 10: can do, then it's a little bit of a combination
• 19:34
  Speaker 10: of both. We don't have any one particular allocation to
• 19:38
  Speaker 10: private credit. It kind of depends on the individual. But
• 19:41
  Speaker 10: at the end of the day, I think you're going
• 19:42
  Speaker 10: to consistently see this. It's gone from an assa class
• 19:45
  Speaker 10: so basically had nothing in it to two trillion. Ultimately,
• 19:48
  Speaker 10: they're probably increasing that over the course of the next
• 19:50
  Speaker 10: decade for sure, so we're going to constantly be adding
• 19:52
  Speaker 10: to it.
• 19:53
  Speaker 7: We talked a little bit about Europe earlier. There's actually
• 19:56
  Speaker 7: been some pretty good performance out of Europe in this
• 19:59
  Speaker 7: first quarter visa VI the US, and that has not
• 20:02
  Speaker 7: been the case for a long time. Does that change
• 20:05
  Speaker 7: your allocation? I mean, do you risk kind of chasing
• 20:08
  Speaker 7: this performance?
• 20:10
  Speaker 10: The US reached seventy percent of the world market cap extraordinary.
• 20:15
  Speaker 10: I remember in the nineteen nineties it barely broke the
• 20:18
  Speaker 10: fifty two percent level and everybody got excited. Now you're
• 20:21
  Speaker 10: talking seventy percent, and it makes sense for everything that's
• 20:24
  Speaker 10: going on in the last, you know, twenty plus years.
• 20:27
  Speaker 11: We think it's a little excessive.
• 20:29
  Speaker 10: We don't believe that America dominance from an equity market standpoint,
• 20:33
  Speaker 10: is over, but we think people should reassess their allocation
• 20:37
  Speaker 10: overseas and not overseas investing. Typically the window opens and
• 20:43
  Speaker 10: it closes, and usually it closes because they can't compete
• 20:47
  Speaker 10: on growth, they can't compete on yields, and ultimately the
• 20:50
  Speaker 10: dollar doesn't stay weak, it ultimately strengthens again.
• 20:53
  Speaker 11: You're starting to see winds of change there.
• 20:56
  Speaker 10: So this is a great time to reassess and put
• 20:58
  Speaker 10: that at the top of your watchlift for potential upgrade.
• 21:00
  Speaker 2: And I'm assuming you're talking about the fiscal break kind
• 21:03
  Speaker 2: of coming off the boil in Germany, so like this
• 21:05
  Speaker 2: time it maybe actually is different.
• 21:08
  Speaker 10: It seems it seems like that, And there's a lot
• 21:12
  Speaker 10: of investors who think the international markets didn't participate in
• 21:15
  Speaker 10: that narrow leadership.
• 21:17
  Speaker 11: They did.
• 21:18
  Speaker 10: A lot of the companies that lead the market even
• 21:20
  Speaker 10: now in this year, particularly in Europe, thin get most
• 21:23
  Speaker 10: of their revenues outside of Europe. They're just happened to
• 21:26
  Speaker 10: be domiciled there. But you're going to pick up value
• 21:30
  Speaker 10: and it doesn't mean you go from growth to value.
• 21:33
  Speaker 11: You have a broad mix of both.
• 21:34
  Speaker 7: How am I back here in the US valuation? What's
• 21:37
  Speaker 7: the valuation call? Here? Earnings have been good, but are
• 21:40
  Speaker 7: they good enough?
• 21:41
  Speaker 10: This is where it gets interesting, right The whole second
• 21:43
  Speaker 10: derivative argument is slowing down and the first mover when
• 21:48
  Speaker 10: the second derivative is going up higher velocity, get higher
• 21:51
  Speaker 10: earnings growth.
• 21:53
  Speaker 11: You start early, you benefit from that.
• 21:55
  Speaker 10: Now you start to see a little cresting of that
• 21:56
  Speaker 10: second derivative. You're slowing down, but earning's growth should still
• 21:59
  Speaker 10: be okay. A Our view is pretty simple valuation. If
• 22:04
  Speaker 10: billions of investors feel comfortable paying twenty times forward earnings.
• 22:08
  Speaker 11: Who are we to argue with that? Until something changes?
• 22:12
  Speaker 11: What's that something?
• 22:13
  Speaker 10: We have to see earnings growth fade and ultimately go
• 22:16
  Speaker 10: down to almost zero three to two percent keeping with inflatial,
• 22:21
  Speaker 10: We don't see that, So we are comfortable with valuation
• 22:24
  Speaker 10: right now. We understand it's at premium. But our last
• 22:27
  Speaker 10: point on this is pretty simple. If the leaders have
• 22:30
  Speaker 10: been and the leaders of tomorrow are going to consistently
• 22:34
  Speaker 10: be asset light, they have high cash rich, they have
• 22:37
  Speaker 10: good balance sheets, they have low fixed labor. Why shouldn't
• 22:41
  Speaker 10: they have premium valuations? And that's how we see the
• 22:43
  Speaker 10: market moving in the next ten years. It's going to
• 22:46
  Speaker 10: become increasingly asset light, which keeps valuations a little higher
• 22:50
  Speaker 10: than what we've come to know in the last thirty
• 22:51
  Speaker 10: forty years.
• 22:52
  Speaker 2: Before we let you go, thoughts and comments on a
• 22:55
  Speaker 2: potential recession in the US, what are you guys modeling
• 22:57
  Speaker 2: right now?
• 22:58
  Speaker 11: Very low level.
• 23:00
  Speaker 10: Obviously, if tariffs stay and they stick, and they're across
• 23:02
  Speaker 10: the board and ultimately becomes a tax on growth, we
• 23:06
  Speaker 10: would have to reset.
• 23:07
  Speaker 4: And stay in stick means like forever tariffs.
• 23:09
  Speaker 10: Forever tariffs at least, or if they just stay and
• 23:12
  Speaker 10: stick through the year and into next year, it could harm.
• 23:15
  Speaker 11: Growth pretty aggressively. So we'll be watching that closely.
• 23:17
  Speaker 10: But we have a very low probability on any recession
• 23:19
  Speaker 10: risk in the in the foreseeable future.
• 23:22
  Speaker 7: Villanova basketball tough loss at Georgetown last night, eighteen and
• 23:25
  Speaker 7: thirteen on the year. What's going on down Philly?
• 23:28
  Speaker 10: I don't even want to talk about last night's Let's
• 23:30
  Speaker 10: talk about humble and hungry, which is who we are.
• 23:33
  Speaker 11: And we're going to move on and we're going to
• 23:35
  Speaker 11: do really well.
• 23:36
  Speaker 7: Are they having a hard time adjusting to the nil
• 23:38
  Speaker 7: and every trans for a portfolio kind of thing.
• 23:40
  Speaker 10: Everybody is Yeah, it's a whole new state out there.
• 23:44
  Speaker 10: But at the end of the day, it is what
• 23:46
  Speaker 10: it is. We like friendly competition. We're going to look
• 23:49
  Speaker 10: forward to the Big East. It's gonna be very very
• 23:51
  Speaker 10: fun and Big East is back.
• 23:53
  Speaker 7: Big East is backward. Bettina's back. See smug in a
• 23:56
  Speaker 7: little bit. Did Villanova people. They're very passionate about their who.
• 23:58
  Speaker 4: Hey, man, I support sports, so I support you supporting sports.
• 24:01
  Speaker 7: My father was all set to go to Villanova and
• 24:04
  Speaker 7: then the Japanese bomb Pearl Harbor change in plans for
• 24:07
  Speaker 7: him and like a lot of people, so soft spot
• 24:09
  Speaker 7: in the heart for you. Ye, fair enough, fair enough,
• 24:11
  Speaker 7: Chris Heisei, thanks so much for joining us. Chris Hesei,
• 24:13
  Speaker 7: Chief Investment Officer, Bank of America Private Bank, and Merril
• 24:16
  Speaker 7: here at our Bloomberg inst conference. A lot of smart
• 24:19
  Speaker 7: people running around here.
• 24:20
  Speaker 4: Yeah, it's really great.
• 24:21
  Speaker 2: Actually, I mean all these people that you see through
• 24:23
  Speaker 2: the screens and now they're real and you're talking and
• 24:25
  Speaker 2: you get lots of time to chat.
• 24:27
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 24:31
  Speaker 1: weekdays at ten am Eastern on Apple Coarclay, and Android
• 24:34
  Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
• 24:38
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 24:42
  Speaker 2: Alex Steel alongside Pops we Need. This is Bloomberg Intelligence Radio.
• 24:45
  Speaker 2: We are broadcasting to live from Bloomberg invest conference in
• 24:48
  Speaker 2: downtown at Manhattan. We talked to all the top names
• 24:51
  Speaker 2: in business, really asset managers, private credit, private equity, even
• 24:54
  Speaker 2: pension funds. And for that we are joined now by Yupkim,
• 24:57
  Speaker 2: a chief investment officer at Texas Municipal Retirement System managing
• 25:01
  Speaker 2: forty plus billion dollars in pension fund today. Do a
• 25:05
  Speaker 2: long history in funds, right, you previously ran private equity
• 25:10
  Speaker 2: over at CalPERS. You also were senior portfolio manager at
• 25:13
  Speaker 2: the Alaska Permanent Fund Corporation, so you've been through this
• 25:16
  Speaker 2: for a long time. What is the best allocation that
• 25:20
  Speaker 2: you can think of right now in this very strange,
• 25:22
  Speaker 2: difficult environment.
• 25:24
  Speaker 12: Yeah, it's you know, I think on a very holistic basis,
• 25:28
  Speaker 12: we are long term investors, and so our long term
• 25:31
  Speaker 12: strategy remains unchanged. You know, it's really predicated upon three
• 25:35
  Speaker 12: pillars number one, attract higher and retain the best talent possible,
• 25:40
  Speaker 12: and also attract and partner with the world class investment
• 25:43
  Speaker 12: managers around the globe. Secondly, it's really about taking a
• 25:49
  Speaker 12: low cost, public markets benchmark aligned approach to investing.
• 25:53
  Speaker 13: I do think we all recognize.
• 25:55
  Speaker 12: Going forward there are more alph opportunities and beta might
• 25:59
  Speaker 12: be you know, there might some headwinds to to beta
• 26:01
  Speaker 12: going forward. So I do think increasing the share of
• 26:04
  Speaker 12: active management and public markets will be a critical a
• 26:07
  Speaker 12: critical approach. And lastly, really endeavoring to generate a lot
• 26:11
  Speaker 12: of the upperformance going forward in private markets will be
• 26:15
  Speaker 12: absolutely critical. And you know, and so I do think
• 26:18
  Speaker 12: kind of with the you know, with the confluence of
• 26:21
  Speaker 12: a lot of market volatility, it's it's easy to be
• 26:23
  Speaker 12: swayed left and right. But I do think kind of
• 26:26
  Speaker 12: sticking to your core long term strategy is you know,
• 26:30
  Speaker 12: very important in this environment.
• 26:31
  Speaker 7: How does an asset allocation work for you guys down
• 26:34
  Speaker 7: in Austin stocks, bonds, alternatives, Let's you hold it with
• 26:37
  Speaker 7: alternatives playing.
• 26:39
  Speaker 12: Absolutely Look, I think when you think about alternatives, the
• 26:44
  Speaker 12: delta between a media and manager and a top five
• 26:48
  Speaker 12: percentile manager in alternatives and privates can be upwards of
• 26:52
  Speaker 12: fifteen hundred to eighteen hundred basis points. That equivalent number
• 26:55
  Speaker 12: in public markets is two hundred fifty to three hundred
• 26:58
  Speaker 12: basis points. And so you are really compensated for good
• 27:02
  Speaker 12: manager selection but also a good deal selection. And so
• 27:05
  Speaker 12: I do think there's still you know, when you think
• 27:07
  Speaker 12: about the next ten years, there's a lot of equity
• 27:09
  Speaker 12: value creation that will occur in the private markets, and
• 27:12
  Speaker 12: so it really you know, kind of provides that long
• 27:15
  Speaker 12: term you know, kind of alp engine to the overall portfolio.
• 27:18
  Speaker 2: I mean, so surprise that you did private equity in
• 27:20
  Speaker 2: your last job, and then now we're taking over at
• 27:22
  Speaker 2: the Texas Pension fund. Correct, How how well funded are
• 27:25
  Speaker 2: pensions right now?
• 27:27
  Speaker 12: Yes, and so pension funds are definitely better funded kind
• 27:31
  Speaker 12: of really on the backs of two incredible years in
• 27:35
  Speaker 12: you know, the equity public markets. And and I do
• 27:37
  Speaker 12: think public pensions typically have higher allocations to public equities,
• 27:42
  Speaker 12: since that's that's certainly helped. At Texas, we're you know,
• 27:46
  Speaker 12: above ninety percent funded and so and just given that
• 27:50
  Speaker 12: we serve cities that are growing, you know, you know,
• 27:53
  Speaker 12: our net cash out flow for the past two years
• 27:56
  Speaker 12: has been less than a percent, and so that really
• 27:58
  Speaker 12: empowers us to harvest, you know, the ilquided premium of
• 28:01
  Speaker 12: our private market book, but also really helps us risk
• 28:05
  Speaker 12: manage on the liquidity side.
• 28:07
  Speaker 7: How do you feel about just the opportunities today? Where
• 28:10
  Speaker 7: do you guys see the best opportunities?
• 28:13
  Speaker 13: Sure?
• 28:13
  Speaker 12: Sure, you know, like I think, maybe three things I'll
• 28:16
  Speaker 12: share there is, you know, number one, the core building
• 28:20
  Speaker 12: blocks on why people were excited about this US exceptionalism.
• 28:25
  Speaker 12: The core building blocks have not changed. Right when I
• 28:28
  Speaker 12: talk to my peers in Asia and Europe and the
• 28:31
  Speaker 12: Middle East, the US continues to be the top destination,
• 28:35
  Speaker 12: you know, for their investment capital. You have the top
• 28:38
  Speaker 12: academic institutions in the United States, presumably with the greatest founders,
• 28:44
  Speaker 12: the most tenured management teams.
• 28:45
  Speaker 13: You have access to cheap energy.
• 28:47
  Speaker 12: You have really a risk taking culture that's celebrated that's
• 28:53
  Speaker 12: really not found in many parts of the world. And
• 28:55
  Speaker 12: so I do think when we think, the question we
• 28:58
  Speaker 12: ask is not how do we performs in twenty twenty five,
• 29:02
  Speaker 12: but how do we generate outperforms in the next decade.
• 29:05
  Speaker 12: And we do view the US to continue to take
• 29:08
  Speaker 12: an asymantic share of that equity, you know, value creation
• 29:11
  Speaker 12: in our total portfolio.
• 29:13
  Speaker 2: How do you deal with liquidity when it comes to
• 29:16
  Speaker 2: different parts of the market. Being in the public market,
• 29:18
  Speaker 2: obviously it is easier, but then the more you go
• 29:19
  Speaker 2: to alternatives as harder it as.
• 29:21
  Speaker 12: A get Yeah, absolutely, liquidity is absolutely critical. I do think,
• 29:25
  Speaker 12: you know, as I shared before, given that our net
• 29:29
  Speaker 12: cash off flow annually is less than a percent, we're
• 29:32
  Speaker 12: very well covered by our public equities book and our
• 29:35
  Speaker 12: public credit book to meet those annual you know, liability streams.
• 29:39
  Speaker 12: The situation you really want to avoid is having to
• 29:42
  Speaker 12: sell your private market assets at a grave discount right
• 29:46
  Speaker 12: to satisfy that that liability stream. And so we feel
• 29:49
  Speaker 12: very very fortunate, you know, from a liquidity standpoint.
• 29:53
  Speaker 7: Texans would say that they are unique. Their Texans first,
• 29:57
  Speaker 7: really strong strong belief in that not often comes into
• 30:00
  Speaker 7: the investment themes as well, kind of leading the way
• 30:03
  Speaker 7: with maybe an alternative view of ESG investing several years ago,
• 30:06
  Speaker 7: allocating towards energy versus people who don't have heat towards energy.
• 30:10
  Speaker 7: How does that impact running the state pension fund? Yeah?
• 30:13
  Speaker 12: Look, I think I think Austin is a wonderful place
• 30:16
  Speaker 12: to be an allocator. Right, there are a number of
• 30:20
  Speaker 12: very large LPs you know, in town, and all the
• 30:23
  Speaker 12: CIOs we convene together and you know, we share share,
• 30:27
  Speaker 12: you know, kind of our views of the world, and
• 30:28
  Speaker 12: so I think that's that's super helpful, you know, Like
• 30:30
  Speaker 12: I think thematically, we're really excited about you know, five
• 30:34
  Speaker 12: big mega trends, right. Number one obviously around you know,
• 30:38
  Speaker 12: digital transformation. So we're talking about just industry transforming AI applications,
• 30:44
  Speaker 12: vertical software, cybersecurity, and data centers.
• 30:48
  Speaker 13: In healthcare innovation, we're really focused on.
• 30:50
  Speaker 12: Next generation pre clinical biotech platforms and also just opportunities
• 30:54
  Speaker 12: across the biotech and pharma value chain. On industrial resilience,
• 30:59
  Speaker 12: really around robotics AI, and also aerospace and defense. And
• 31:05
  Speaker 12: then kind of the last two areas, it's really around energy,
• 31:08
  Speaker 12: monetization and financial empowerment, so opportunities in fintech and also
• 31:12
  Speaker 12: asset light insurance, brokerage and so look, I do think
• 31:15
  Speaker 12: the next fifteen years will look very different from the
• 31:18
  Speaker 12: last fifteen and so really digging deep on these mega
• 31:21
  Speaker 12: trends and understanding how the world is moving, how these
• 31:25
  Speaker 12: industries are transforming, will be critical to long term OWT performance.
• 31:28
  Speaker 2: Here's an entirely unfair question you have to answer now
• 31:30
  Speaker 2: in thirty seconds. Okay, do you think the US should
• 31:32
  Speaker 2: have a sovereign well fund?
• 31:35
  Speaker 13: I do think that.
• 31:39
  Speaker 12: I do think we have the best investment talent in
• 31:41
  Speaker 12: the world residing here in the United States. I do think,
• 31:44
  Speaker 12: you know, a lot of our federal sources of capital
• 31:46
  Speaker 12: has not been compounding at endowment or pension like returns,
• 31:50
  Speaker 12: and so I think there is great opportunity to bring
• 31:53
  Speaker 12: the best of America's investment management and apply it to
• 31:58
  Speaker 12: you know, different forms of federal funds.
• 32:00
  Speaker 7: Great stuff. I really appreciate it. They're getting some thoughts
• 32:04
  Speaker 7: on these markets. Yep Kim, Chief Investment Officer, Texas Municipal
• 32:07
  Speaker 7: Retirement System based in Austin, Texas.
• 32:10
  Speaker 1: Credit you're listening to the Bloomberg Intelligence Podcast. Catch us
• 32:15
  Speaker 1: live weekdays at ten am Eastern on Applecarclay, and Android
• 32:18
  Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
• 32:22
  Speaker 1: you get your podcasts, or watch us live on YouTube Alex.
• 32:26
  Speaker 2: You here alongside Paul Sweeney the Bloomberg invest Conference twenty
• 32:29
  Speaker 2: twenty five downtown in Lower Manhattan.
• 32:32
  Speaker 4: Now, obviously, when you.
• 32:33
  Speaker 2: Get together wealth managers private equity bankers, private credit guys.
• 32:36
  Speaker 2: They're all talking about alternative assets, but what have you
• 32:39
  Speaker 2: already been in that space for decades?
• 32:41
  Speaker 4: What do you do there?
• 32:42
  Speaker 2: While joining us now is a Pernima PII. She's governing
• 32:45
  Speaker 2: partner and portfolio manager for public credit at HPS Investment Partners,
• 32:50
  Speaker 2: which was founded back in twenty to two thousand and
• 32:52
  Speaker 2: seven to focus on credit and guess what longer dated,
• 32:55
  Speaker 2: less liquid investment opportunities, which it feels like that's the world.
• 32:59
  Speaker 4: That everyone is chasing right now.
• 33:01
  Speaker 2: You guys ended twenty twenty four with one hundred and
• 33:03
  Speaker 2: forty nine billion dollars in assets under management.
• 33:06
  Speaker 4: Where are your biggest opportunities?
• 33:08
  Speaker 14: Yeah, So when we started the business, the regulatory environment
• 33:13
  Speaker 14: changed pretty quickly thereafter, and it really gave us the
• 33:15
  Speaker 14: opportunity to get involved in the private credit business. And
• 33:20
  Speaker 14: at the time, private credit was more levered companies in
• 33:24
  Speaker 14: the high market or a substitute for broadly syndicated loans.
• 33:28
  Speaker 2: Like I can't get funding for my regular banks, I
• 33:30
  Speaker 2: got to go to.
• 33:30
  Speaker 4: You and pay up.
• 33:31
  Speaker 14: And there were moments of dislocation in the marketplace, and
• 33:33
  Speaker 14: so the banks might not have been there at that
• 33:34
  Speaker 14: moment in time regulatory environment changed and that opened up
• 33:37
  Speaker 14: the sort of I would say, that opened up the
• 33:40
  Speaker 14: marketplace for people to be an alternative provider of capital
• 33:44
  Speaker 14: to companies that needed at different moments in time. And
• 33:47
  Speaker 14: so what we used to be, you know, oh, was
• 33:49
  Speaker 14: when the capital markets were shifting. It actually transitioned a lot.
• 33:52
  Speaker 14: Like our business for example, we invest not just in
• 33:55
  Speaker 14: sponsor deals. We invest in we provide capital to owners
• 33:58
  Speaker 14: as well on a regular base. So over time the
• 34:01
  Speaker 14: market's evolved a lot. I would say, the market is
• 34:03
  Speaker 14: really bifurcated. There's a whole host of folks in private credit.
• 34:06
  Speaker 14: You say to yourself, there's been a ton of funds
• 34:07
  Speaker 14: that have been raised. We tend to traffic in I
• 34:10
  Speaker 14: would say, Number one, bigger businesses. Number Two, we tend
• 34:14
  Speaker 14: to we tend to provide larger sources of capital. Three,
• 34:17
  Speaker 14: we have flexible capital in terms of the top and bottom
• 34:19
  Speaker 14: of the structure, so we do we are able to
• 34:22
  Speaker 14: sort of think about where our solution might make sense
• 34:24
  Speaker 14: for a company. So that competitive landscape I think is
• 34:27
  Speaker 14: a little bit smaller in terms of the folks that
• 34:29
  Speaker 14: are trafficking there. The other thing I would say is
• 34:32
  Speaker 14: private credits expanding dramatically now because you're seeing it with
• 34:35
  Speaker 14: I think Joe Bay was just speaking, you know, private
• 34:38
  Speaker 14: ig that's a whole other sector that there's a whole
• 34:41
  Speaker 14: need of financing for all these mega trends that are
• 34:43
  Speaker 14: happening in the US. So that could be infrastructure, that
• 34:46
  Speaker 14: can be AI, that can be energy transition and that,
• 34:49
  Speaker 14: and that opportunity set is sort of ripe for folks
• 34:54
  Speaker 14: like ourselves and others to take advantage of.
• 34:56
  Speaker 7: What's a typical deal size for you guys? And how
• 34:58
  Speaker 7: has that changed over the year.
• 35:00
  Speaker 14: Well, it's changed a lot because the market's changed a lot.
• 35:03
  Speaker 14: So several years ago you did not have a lot
• 35:05
  Speaker 14: of private credit tranches that were you know, call it
• 35:09
  Speaker 14: much greater than three hundred.
• 35:10
  Speaker 5: Million dollars of size.
• 35:12
  Speaker 14: There are many now, I'll give you an example in
• 35:14
  Speaker 14: the marketplace today. There are three deals I can think
• 35:17
  Speaker 14: of that are refinancing in the broadly syndicated loan private credit.
• 35:21
  Speaker 14: One of them is a four to five billion dollar
• 35:24
  Speaker 14: deal size.
• 35:25
  Speaker 5: That's one trunch.
• 35:26
  Speaker 14: Another is, you know, three billion on the first lane,
• 35:29
  Speaker 14: nine hundred million second lane. That's a trunch, And another's
• 35:32
  Speaker 14: two and a half billion so like now you're starting
• 35:34
  Speaker 14: to see billion dollar deals. Wow, you don't have tons
• 35:38
  Speaker 14: of people that can traffic in two and a half
• 35:39
  Speaker 14: billion dollar deal sizes there, But there's guys out there
• 35:42
  Speaker 14: that can. You know, we think there's five or six
• 35:44
  Speaker 14: people who do that on a regular basis every single day.
• 35:47
  Speaker 5: But that's a smaller, smaller pool of competition.
• 35:49
  Speaker 2: I think, are you seeing the distress market grow pick up?
• 35:54
  Speaker 2: Is that the catastrophe we all thought it was going
• 35:56
  Speaker 2: to be five years ago or no?
• 35:58
  Speaker 14: I mean I would say, no, Oh, I don't think there.
• 36:01
  Speaker 14: I mean this was like the default cycle that never was.
• 36:03
  Speaker 14: So it was a variant on the distress cycle, which
• 36:06
  Speaker 14: is that you guys have talked about this, I'm sure,
• 36:08
  Speaker 14: but all the liability management stuff and sort of structured
• 36:11
  Speaker 14: transactions to kick the can a little bit and figure
• 36:13
  Speaker 14: out if you had time, especially in the in the
• 36:16
  Speaker 14: world of rising interest rates where balance sheets got stressed.
• 36:20
  Speaker 14: But we haven't really seen a distress cycle. And in fact,
• 36:25
  Speaker 14: if you talk to my partners who run our private
• 36:28
  Speaker 14: credit business, they would say they were surprised by how
• 36:32
  Speaker 14: well a lot of companies did over this period of time.
• 36:35
  Speaker 7: I started my career at the Chasement, Heaton Bank, and
• 36:37
  Speaker 7: the Leverage Lending Group lending five six times that the EBITTA.
• 36:41
  Speaker 7: We took a big fee up front, We syndicate, syndicated
• 36:44
  Speaker 7: all the risk off our balance sheet. It was a
• 36:45
  Speaker 7: great business. I would never allow you to come in
• 36:47
  Speaker 7: and take one of my clients. What are the banks
• 36:49
  Speaker 7: doing here? Why are they letting this business go to
• 36:51
  Speaker 7: people like you and others?
• 36:54
  Speaker 5: Wow?
• 36:55
  Speaker 14: So so one is that there's a regulatory environment shift right,
• 36:58
  Speaker 14: that changed a lot from when you started and frankly
• 37:00
  Speaker 14: when I started, and all that kind of stuff.
• 37:01
  Speaker 5: So that's number one.
• 37:02
  Speaker 14: Number two, there's different reasons companies go to private credit lenders,
• 37:06
  Speaker 14: right because banks, by and large, I think, just take
• 37:09
  Speaker 14: the body syndicated loan market, right, That bodily syndicated loan
• 37:12
  Speaker 14: market is sixty plus percent colos.
• 37:14
  Speaker 5: Colo is like a box. There's a box.
• 37:16
  Speaker 14: You want a reading, you want a certain amount of leverage,
• 37:18
  Speaker 14: you need a certain amount of diversity. It's great business,
• 37:20
  Speaker 14: by the way, but the things that are straight down
• 37:23
  Speaker 14: the fairway nicely fit into a colo.
• 37:25
  Speaker 5: So all of a sudden, if your reading's.
• 37:27
  Speaker 14: Constrained and maybe something's the minus, that market may or
• 37:31
  Speaker 14: may not be available to at a given moment in time.
• 37:33
  Speaker 14: So why do people go why do issuers go to
• 37:35
  Speaker 14: private credit folks? Well, they'll go because maybe they need
• 37:38
  Speaker 14: flexibility in picking for a period of time.
• 37:42
  Speaker 5: Okay, that could be one.
• 37:43
  Speaker 14: Maybe it's because the americket feels pretty saturated in particular industries.
• 37:47
  Speaker 5: That could be two.
• 37:48
  Speaker 14: Maybe it's because people need a delay draw facility because
• 37:51
  Speaker 14: businesses aren't static and they grow over time, and you
• 37:53
  Speaker 14: want to have that funding sort of lined up and
• 37:56
  Speaker 14: ready to roll if it's a roll up or something
• 37:58
  Speaker 14: like that, or you have a capback plan or something
• 38:00
  Speaker 14: like that. So that could be the third reason. And
• 38:04
  Speaker 14: then four, I think that you know, what we've seen,
• 38:06
  Speaker 14: certainly in some of our buckets of capital is that
• 38:08
  Speaker 14: as businesses grow, sometimes they'd like to have one or
• 38:12
  Speaker 14: two relationship providers.
• 38:15
  Speaker 7: Interesting, it's great business.
• 38:16
  Speaker 4: What what do you not want to touch right now
• 38:19
  Speaker 4: at the tem football.
• 38:21
  Speaker 5: Well, I think you mean, I'm sure you've heard this
• 38:23
  Speaker 5: from everybody.
• 38:24
  Speaker 14: You know, we don't know what's going on with tariffs,
• 38:26
  Speaker 14: and tariffs have both short term implications and longer term applicatdications.
• 38:30
  Speaker 5: The longer term implications.
• 38:31
  Speaker 14: Are trickier to underwrite because trade wars are very difficult
• 38:34
  Speaker 14: to underwrite, and that can really that coupled with the
• 38:37
  Speaker 14: other sort of things as part of the puzzle.
• 38:40
  Speaker 5: Immigration, slower growth.
• 38:41
  Speaker 14: Et cetera, affect a whole, but will affect everyone's portfolio.
• 38:44
  Speaker 14: Everybody's portfolio, every company. Shorter term. Maybe there's a band
• 38:49
  Speaker 14: you can underwrite on tariffs. So there's sort of the obvious,
• 38:52
  Speaker 14: which are you know, industrial manufacturing, retail or certain things
• 38:56
  Speaker 14: in the consumer space which get trickier to trickier to underwrite.
• 39:00
  Speaker 7: But just real quickly, thirty seconds. Your market is open,
• 39:02
  Speaker 7: today's miss. There's three deals in the market.
• 39:04
  Speaker 14: The broadly syndicated liquid loan market is open. Yes, you know,
• 39:07
  Speaker 14: there's been one hundred and sixty billion dollars of COLO
• 39:10
  Speaker 14: growth demand and the markets in twenty twenty one, the
• 39:13
  Speaker 14: lever lone market has changed by fifty billion.
• 39:15
  Speaker 5: There's a lot of people who want paper.
• 39:16
  Speaker 2: Yep, there you go, all right, Really great to get
• 39:19
  Speaker 2: your perspective up from Prairie joining us from HPS Investment Partners.
• 39:23
  Speaker 4: Also Feller in Northwestern grad and now you're going up
• 39:25
  Speaker 4: on me. They are good to know, they are good Western.
• 39:28
  Speaker 4: It was really cold.
• 39:29
  Speaker 7: It was very cool, Chicago.
• 39:32
  Speaker 4: Yeah, but you know it's because you're not like you don't.
• 39:34
  Speaker 2: Have big towers, because you're kind of allot to win.
• 39:37
  Speaker 7: All you have got that win.
• 39:39
  Speaker 4: Yes, and it's cold.
• 39:40
  Speaker 7: Yeah, I went to Virginia in North Carolina.
• 39:43
  Speaker 4: I'm not so many layers. All right, I thank very much.
• 39:46
  Speaker 2: We really appreciate it's great to talk to you.
• 39:49
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 39:53
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 39:56
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• 39:59
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• 40:03
  Speaker 7: Let's get to our next guest, Stephen Meyer, New York
• 40:05
  Speaker 7: City Retirement Systems Asset Management CIO and he's deputy controller
• 40:09
  Speaker 7: for the city. Steve, thanks so much for joining us here.
• 40:12
  Speaker 7: Now you just jumped off a panel. We appreciate it.
• 40:15
  Speaker 7: How are you guys navigating the last six, seven, eight
• 40:19
  Speaker 7: weeks with all the cross current of news coming out.
• 40:21
  Speaker 7: How does that impact the way you manage your pension?
• 40:23
  Speaker 15: Well, it's certainly been interesting, and we try to do
• 40:27
  Speaker 15: those adhere to a long term strategic plan. So a
• 40:31
  Speaker 15: lot for us, a lot of this is noise in
• 40:33
  Speaker 15: terms of what's going on in the change of policy
• 40:35
  Speaker 15: in Washington. So we're really trying to stick to our
• 40:38
  Speaker 15: north star, which is our strategic ass allocation. Again, we
• 40:41
  Speaker 15: have multi generational liabilities that we're trying to satisfy. So again,
• 40:46
  Speaker 15: a long term investment horizon and a long term discipline. Now,
• 40:49
  Speaker 15: having said that, our trustees and our beneficiaries and our
• 40:52
  Speaker 15: participants do call. We have the privilege of servicing eight
• 40:55
  Speaker 15: hundred thousand public workers here in the City of New
• 40:59
  Speaker 15: York their concerns. So we need to stay on top
• 41:01
  Speaker 15: of it in terms of increasing the information flow of
• 41:05
  Speaker 15: how our assets are diversified and they continue to perform
• 41:08
  Speaker 15: as expected.
• 41:09
  Speaker 2: So how are they like forty sixty or sixty forty
• 41:12
  Speaker 2: maybe a thing of the past. There's different mix in there,
• 41:14
  Speaker 2: especially when it comes to alternative assets.
• 41:16
  Speaker 4: What's the best mix.
• 41:17
  Speaker 15: We're about thirty five percent and alternative assets at this point.
• 41:19
  Speaker 15: That's a lot, yeah, yeah, yeah, And that includes private equity, infrastructure,
• 41:24
  Speaker 15: private credit, some small exposure to hedge funds in real estate.
• 41:29
  Speaker 15: Of this other sixty five percent were about almost forty
• 41:33
  Speaker 15: percent of that is in equity, dominated by US equity,
• 41:36
  Speaker 15: about eighty five percent US large cap in particular, and
• 41:40
  Speaker 15: then an allocation to develop market xually US and emerging market.
• 41:43
  Speaker 15: So we're balanced. We're balanced from a private perspective, we're
• 41:46
  Speaker 15: balanced from a public perspective, and again I think that's
• 41:50
  Speaker 15: going to benefit us over time.
• 41:51
  Speaker 7: With the increase in volatility, have you changed your views
• 41:54
  Speaker 7: on the economy out of the US economy or global
• 41:57
  Speaker 7: economy given some of these trade tensions that are coming
• 41:59
  Speaker 7: into the marketplace.
• 42:00
  Speaker 15: Well, we're concerned about inflation, and we do think we
• 42:03
  Speaker 15: have some natural hedges against inflation and our portfolio in
• 42:07
  Speaker 15: terms of a real asset allocation, real estate, infrastructure. I
• 42:10
  Speaker 15: think our public equities will actually perform well over time
• 42:13
  Speaker 15: in a higher inflationary environment. So we're not necessarily overly concerned.
• 42:18
  Speaker 15: We did expect to see some uplift in inflation expectations
• 42:22
  Speaker 15: given concerns about the imposition of tariffs, the mass deportations
• 42:29
  Speaker 15: that were talked about anyway in terms of potentially impact
• 42:32
  Speaker 15: in the price of labor.
• 42:33
  Speaker 7: So again, haven't really changed.
• 42:35
  Speaker 15: What we're doing or how we're doing it, but we're
• 42:36
  Speaker 15: certainly mindful and we continue to monitor the situations.
• 42:40
  Speaker 2: We do have a headline carousing right now the US
• 42:44
  Speaker 2: is now weighing a one month delay of Canada and
• 42:45
  Speaker 2: Mexico tariffs on autos, so looking for those exemptions, those
• 42:49
  Speaker 2: little carve outs. But potentially we could hear more about
• 42:52
  Speaker 2: that from the White House later on this afternoon. Before
• 42:55
  Speaker 2: we let you go, you mentioned thirty five percent in alternatives.
• 42:58
  Speaker 4: Seems like a lot. Is there a liquidity issue there?
• 43:01
  Speaker 15: Not really compared to some of our peers, And I know,
• 43:04
  Speaker 15: you know other institutional investors were just under three hundred
• 43:07
  Speaker 15: billion dollars in assets, So I understand that there are
• 43:10
  Speaker 15: other managers out there that have forty forty five fifty
• 43:13
  Speaker 15: percent allocation to alternatives. We have ample liquidity through the
• 43:16
  Speaker 15: sixty five percent in public markets. Again, we're disciplined in
• 43:20
  Speaker 15: terms of putting them work money to work over time,
• 43:22
  Speaker 15: we're benefiting from vintage your diversification. We've actually been putting
• 43:27
  Speaker 15: more money to work in private assets over the last
• 43:29
  Speaker 15: two years with a change of our strategic as allocation,
• 43:32
  Speaker 15: which has been beneficial as others have pulled away from
• 43:34
  Speaker 15: the markets. We've been actually putting money to work, getting
• 43:37
  Speaker 15: better economics, better access to the top manager's co investment
• 43:41
  Speaker 15: as well to average down the fees and expense.
• 43:43
  Speaker 7: All right, Steve, thank you so much for joining us.
• 43:45
  Speaker 7: Really appreciate you. Stee my New York City Retirement System
• 43:48
  Speaker 7: Asset Management CIO and Deputy Comptroller for the great City
• 43:52
  Speaker 7: of New York that does it for us here at
• 43:55
  Speaker 7: Umberg Invest twenty twenty five here at the Convene Conference
• 43:58
  Speaker 7: Center down here in the world financial centers. In a
• 44:00
  Speaker 7: great couple of days, some great guests.
• 44:01
  Speaker 4: Yeah, amazing guests, yep.
• 44:03
  Speaker 2: And it's great to get all different perspectives, right, Like
• 44:06
  Speaker 2: that's how you make a market at the end of
• 44:08
  Speaker 2: the day.
• 44:09
  Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
• 44:14
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• 44:18
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• 44:21
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• 44:25
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• 44:29
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