Latest / Bloomberg Intelligence / Seeing EM Fund Outflows Accelerate, More Pain To Come: Sassower

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Seeing EM Fund Outflows Accelerate, More Pain To Come: Sassower · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg pim L Podcast. I'm pim Fox.
0:08
Speaker 1: Along with my co host Lisa A. Brahmowitz. Each day
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Speaker 1: we bring you the most important, noteworthy, and useful interviews
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0:33
Speaker 1: Well live by emerging markets and potentially die by emerging markets.
0:38
Speaker 1: Damian sass Our, fixed income strategist for Bloomberg Intelligence, joins
0:42
Speaker 1: us now to tell us all about how it is
0:44
Speaker 1: the worst year since two thousand four for emerging market
0:49
Speaker 1: box that was quick. Well, it's just a month ago
0:52
Speaker 1: we were here talking about how great emerging market. That's
0:55
Speaker 1: my point. And what happened in the last month at
0:58
Speaker 1: the dollar, right, I mean we've and talking about the
1:00
Speaker 1: dollar for so long, about dollar strength and how it's
1:03
Speaker 1: just managed to be this one way street. And since
1:05
Speaker 1: that's against the your right now, one thirty five against
1:11
Speaker 1: the pounds sterling and one o nine against the Japanese. Yeah, him,
1:15
Speaker 1: it's amazing. You know, everyone always looks at the G
1:17
Speaker 1: three currency crosses, but it's China. I have to tell
1:20
Speaker 1: you it's been the remnimbi that that is, that is
1:22
Speaker 1: what's changed, right, I mean, for the past year, you've
1:24
Speaker 1: seen the Chinese wand basically on a one way street
1:27
Speaker 1: appreciating relative to the dollar. And that turned about a
1:30
Speaker 1: month ago in mid April, and that's what drove everything here.
1:33
Speaker 1: China dubbishness kind of crept in and people started to say,
1:36
Speaker 1: we'll wait a second now, Um, maybe the PBSC is
1:39
Speaker 1: gonna let the currency depreciate, and what does that mean
1:42
Speaker 1: for the you know, what does that mean for the dollar?
1:43
Speaker 1: And of course people woke up to the reality that well,
1:46
Speaker 1: that's that's good for the dollar and that's bad for
1:48
Speaker 1: you am. So just to sort of walk through the
1:51
Speaker 1: logic here, typically when the dollar strengthens, that means all
1:54
Speaker 1: of these developing nations that have borrowed a lot of
1:57
Speaker 1: hard currency assets what a harder time paying back their debt.
2:01
Speaker 1: Is that the main reason here, Well, that's one element
2:04
Speaker 1: of it, right, I mean, you're obviously talking about all
2:06
Speaker 1: of the emerging market UH borrowers who have issued dollar debt,
2:10
Speaker 1: but their local government debt, you know, their local currency
2:13
Speaker 1: debt is what the real killer here is because the
2:16
Speaker 1: currency it's dominated in is no longer worth what it's
2:19
Speaker 1: written on. So that is part of the issue. Now
2:22
Speaker 1: here is the question, have we reached a point where
2:25
Speaker 1: the sell off has escalated to such a degree that
2:28
Speaker 1: people are coming in and buying buying opportunities. I'll tell
2:33
Speaker 1: you what I mean by that. But the buying opportunities
2:35
Speaker 1: that we've seen in EM debt have only been an
2:38
Speaker 1: i M dollar debt, and they've only been idiosyncratic opportunities
2:41
Speaker 1: in names like Tava, which had sold off significantly or
2:43
Speaker 1: at a brash But certainly we have not seen new
2:46
Speaker 1: money coming in and saying these are attractive levels we're
2:49
Speaker 1: getting paid. You know, we're getting attractive yields, attractive carried
2:52
Speaker 1: and i M dollar debt to go in at this stage,
2:54
Speaker 1: we're not seeing that yet in factor seeing fund flows
2:56
Speaker 1: accelerate of fund outflows accelerate right now. So I think
3:00
Speaker 1: we still have a little bit of pain left left
3:02
Speaker 1: ahead of us. But fundamentally e M is still you know,
3:05
Speaker 1: in a relatively good place relative to where it's been
3:07
Speaker 1: just in during the less paper uh and and another
3:11
Speaker 1: you know kind of a venture of a you know,
3:12
Speaker 1: sort of event risk elevated event risk environments, and so
3:15
Speaker 1: you know, I think this is a correction that's long overdue. Um.
3:19
Speaker 1: I think we gotta wait and see it play through.
3:22
Speaker 1: I think, though, UM, the real interesting dynamic within emerging
3:25
Speaker 1: market debt right now is local currency yields are actually
3:29
Speaker 1: below and on a duration adjusted to basis, are about
3:32
Speaker 1: to sink below em dollar yields for the first time
3:35
Speaker 1: since the global financial crisis. So you are not getting
3:38
Speaker 1: paid to go local in e M. And oh hey,
3:40
Speaker 1: by the way, currency volatility is way more volatile than
3:45
Speaker 1: than than e M dollar spreads, and that's a real
3:47
Speaker 1: risk Argentina. Go ahead, that's not the punch line. That's
3:52
Speaker 1: the question Argentina, so so blended yields uh in Argentina
3:57
Speaker 1: right now dollar yields. So the risk here is do
4:01
Speaker 1: we go out and try to, you know, take a
4:03
Speaker 1: punt on getting a twenty pay out around UM in
4:06
Speaker 1: Argentina dollar bonds with the currency risk and the currency
4:10
Speaker 1: volatility that has just been absolutely off the charts. I mean,
4:13
Speaker 1: I think it's down in the last three weeks since
4:16
Speaker 1: we spoke last you know, I'm struck by and and
4:20
Speaker 1: PIM you mentioned Argentina and This is a perfect segue.
4:23
Speaker 1: It's not just Argentina. You have Turkey, you have the
4:26
Speaker 1: Philippines raising rates in order to support their currency. You
4:30
Speaker 1: have others as well. So yes, on a whole, perhaps
4:33
Speaker 1: emerging markets are in a better position, which you have
4:35
Speaker 1: these trouble spots that are very troubled spots with increasing trouble.
4:39
Speaker 1: And I wonder, especially given the fact, as we've talked
4:41
Speaker 1: many times before, how much money went in through indexed
4:44
Speaker 1: strategies trying to get ahold of the entire complex of
4:47
Speaker 1: emerging markets, how much just a couple of bad names
4:50
Speaker 1: contained the reputation and cause a flood of withdrawals. Absolutely,
4:54
Speaker 1: I mean this all begin with Russian and in many
4:56
Speaker 1: respects this is really like as soon as Russia and
4:58
Speaker 1: the sanctions on Russia, Russol and all that kind of
5:01
Speaker 1: started to hit and people started to reevaluate. What We'll
5:03
Speaker 1: wait a second here, the rubles now off ten percent?
5:05
Speaker 1: What other countries are vulnerable? You know, what does this
5:08
Speaker 1: mean for Turkey? What does this mean they actually have oil? Well, yeah,
5:12
Speaker 1: you're right right, I mean a lot of countries don't
5:15
Speaker 1: have that commodity base. You know, it's it's but what
5:17
Speaker 1: we're so far off and by the time they actually
5:20
Speaker 1: drive for some of that deep sea oil or gas
5:22
Speaker 1: whatever is under the base. And I mean we might
5:24
Speaker 1: be an electric powered economy. So we really can't you know,
5:28
Speaker 1: we can't obviously model that in I think I think
5:30
Speaker 1: for me and for what what we're looking at is,
5:33
Speaker 1: you know, Argentina is a funny one, Pim. I mean,
5:35
Speaker 1: you know, it's just come back online, it's a serial
5:38
Speaker 1: default or it's got its own set of risks. But Turkey,
5:41
Speaker 1: I think we're getting to a point here, you know,
5:43
Speaker 1: where you have to you just have to take a
5:45
Speaker 1: look at it. I mean, some of the yields I
5:46
Speaker 1: mean are just you just have to take a look
5:49
Speaker 1: at it, you know. And certainly Turkish financials, which I get.
5:51
Speaker 1: You know, there's a lot of there's a lot of
5:53
Speaker 1: negative narrative around guarantee and bank and and and all
5:56
Speaker 1: that's going on in that sector. But I mean, you know,
5:59
Speaker 1: some of those banks are bell Weather, some of them
6:01
Speaker 1: are are you know, fundamentally healthy right now and um
6:06
Speaker 1: and so you have to begin to look at those
6:07
Speaker 1: at those opportunities. I can say, Tim, is it right here, Damien.
6:11
Speaker 1: He has a very strong stomach to be recommended, saying
6:19
Speaker 1: fields are very high, they are high fial. Look, you
6:24
Speaker 1: know there's this. We have an election coming up in Mexico. Yeah. Uh,
6:28
Speaker 1: and uh. The Mexican economy, at least the government part
6:31
Speaker 1: of the economy, depends a lot on oil revenue. The
6:34
Speaker 1: leader in the polls is basically saying we don't want
6:39
Speaker 1: foreign investment in the oil economy. Yeah. Yeah, Now, I
6:42
Speaker 1: mean that is a risk, right, I mean, um am
6:44
Speaker 1: Loo is definitely leading in the polls, and for all
6:46
Speaker 1: intents and purposes, he is probably gonna be there. But
6:48
Speaker 1: I do I I'm not going to recommend it. But
6:51
Speaker 1: one area that does look rather attractive. And I'll tell
6:53
Speaker 1: you why. Our Mexican high grade debt short duration. And
6:56
Speaker 1: that's like an America Movil or a Televisa. And the
6:58
Speaker 1: reason I say that is Mexico tends to track, especially
7:02
Speaker 1: in Mexican dollar debt tends to track US debt, right,
7:05
Speaker 1: US high grade debt and US high grade debt. I mean,
7:07
Speaker 1: with the front end of the curve kind of ratcheting
7:09
Speaker 1: up here, I mean, you've got some attractive yields now
7:12
Speaker 1: and names that were you know, I mean, you just couldn't.
7:14
Speaker 1: You couldn't invest in it before because you just weren't
7:16
Speaker 1: getting paid to own American mobile bonds, and now you
7:18
Speaker 1: are and short duration American mobile bonds. So I think
7:21
Speaker 1: in some pockets of the market, Brazilian financials, for example,
7:24
Speaker 1: Brazilian has one of the steepest yield curves out there.
7:27
Speaker 1: So you think, you know, steep yiel curve is good
7:29
Speaker 1: for for the financial sector. And it's also short duration debt, right,
7:32
Speaker 1: because I mean, that's that's the buzz, right, you want
7:34
Speaker 1: to go short duration, and so that's another area you
7:37
Speaker 1: may want to take a look at as well. It's
7:38
Speaker 1: how Bradesco some some banks there that might might look
7:42
Speaker 1: pretty interesting at these levels. Amazing, really really interesting. Damian Sassare,
7:46
Speaker 1: thank you so much for being with us. Damian sassaur
7:49
Speaker 1: It talked about how a month ago it all looked different,
7:52
Speaker 1: but not to him back to back in a month
7:56
Speaker 1: and it will be completely different. You get to his chair.
8:01
Speaker 1: Fixing Cup strategist at Bloomberg Intelligence, joining us here at
8:04
Speaker 1: the Bloomberg World count Quarters thirty Lexington. We are broadcasting
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Speaker 1: live from Bloomberg's Business of Equality Summit, bringing together business
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Speaker 1: leaders and thinkers to talk about how to make the
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Speaker 1: We are broadcasting from Bloomberg Business of Equality Summit in
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Speaker 1: academic and political leaders, as well as the leaders of
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Speaker 1: and equality and diversity. Joining us now is Elizabeth A.
8:53
Speaker 1: Yama Yaro, a senior advisor to the Under Secretary General
8:57
Speaker 1: and Executive Director of the United Nations for You and Women.
9:01
Speaker 1: She's also the global head of the u n S
9:03
Speaker 1: He for She Movement and you can follow her on
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Speaker 1: Twitter at e Underscore Yama Yarrow. But there is an
9:12
Speaker 1: end before that. Um Elizabeth, thank you very much for
9:14
Speaker 1: being with us. Tell us what is the Heat for
9:17
Speaker 1: She movement? It is the global solidarity movement for gender
9:21
Speaker 1: equality that was set up three years ago to engage
9:24
Speaker 1: men and boys as part of the solution. So we
9:27
Speaker 1: are waking at grassroot level, but also working with global companies,
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Speaker 1: global CEOs, heads or states academia to create tangible solutions
9:36
Speaker 1: for gender equality. So how much does war impede these uh,
9:41
Speaker 1: these issues that you're focusing on, Because if I think
9:44
Speaker 1: about gender equality, I think about equal pay, but then
9:47
Speaker 1: I also think about the reports that we hear out
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Speaker 1: of Syria or other places where there is war and
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Speaker 1: women are getting raped and killed, or India for example.
9:56
Speaker 1: So talked a little bit about that this is actually
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Speaker 1: one of the crisis of our time, the issue of
10:02
Speaker 1: gender inequality, because when you look at every single level
10:05
Speaker 1: of society is socially, economically, politically, women are not doing well. Uh,
10:10
Speaker 1: there's lack of representation, but there's also abuse. Um the
10:13
Speaker 1: issue of violence that you mentioned. Globally, one in three
10:16
Speaker 1: women will be subject to violence in their lifetime. That's
10:18
Speaker 1: one billion women working around wounded. So the issues of
10:22
Speaker 1: gender equality really we're in a crisis moment and we've
10:24
Speaker 1: got to figure out a where that we can you know,
10:27
Speaker 1: support women and girls and and really create tree equality
10:30
Speaker 1: in these societies. Can you just offer an example of
10:33
Speaker 1: one of the experiences for the He for She movements
10:37
Speaker 1: something that has actually taken place. The biggest achievement that
10:41
Speaker 1: we've done is to create this initiative called the Impact Initiative,
10:45
Speaker 1: where we engage ten heads of states from the Prime
10:48
Speaker 1: Prime Minister of Japan, Prime Minister of Canada, to Wander Malawi,
10:54
Speaker 1: um to the Scandinavian countries and also global CEOs, whether
10:58
Speaker 1: it be the chairman of PwC. We was just with
11:00
Speaker 1: on a panel today at the Bloomberg Summit um too,
11:04
Speaker 1: you know, UNI Live, et cetera. But the biggest thing
11:06
Speaker 1: that these champions are doing is they have identified critical
11:10
Speaker 1: policy areas that they are going to literally achieve parity
11:14
Speaker 1: on by twenty So if you look at p w say,
11:16
Speaker 1: we're here today talking about how the company have been
11:19
Speaker 1: able to move the data point in their global leadership
11:22
Speaker 1: team from eighteen percent in twenty fifteen when they joined
11:25
Speaker 1: the here Foreshen movement to for within fifteen months. So
11:29
Speaker 1: who has been the least receptive of the world leaders
11:32
Speaker 1: who you've spoken to? We again, here for shas an
11:37
Speaker 1: open invitation to those that want to be on the
11:39
Speaker 1: rest side of history. And so what we've done was
11:41
Speaker 1: to really issue core to action and we ended up
11:43
Speaker 1: with those leaders that actually want to be part of
11:45
Speaker 1: the change. So who is notably absent? I don't think
11:49
Speaker 1: I can single out anyone. It is a pilot initiative.
11:52
Speaker 1: So we started with ten countries in terms of governments,
11:56
Speaker 1: and the ten companies the countries that came to us.
12:00
Speaker 1: I've really defined some concrete change. Malawi is on. You know,
12:03
Speaker 1: they have now outlawed child marriage as part of the
12:05
Speaker 1: Heathshire Commitment. In a spece of twelve months, the chiefs,
12:09
Speaker 1: the male chiefs in Malawi worked with the female chiefs
12:11
Speaker 1: and went around and are now more than three thousand,
12:14
Speaker 1: five hundred child marriages and these girls are now back
12:16
Speaker 1: in school. So we are seeing that those those who
12:18
Speaker 1: want to build the rest sort of history are doing
12:21
Speaker 1: something very concrete and very inspiring. Can you talk a
12:24
Speaker 1: little bit about your own background and how you came
12:26
Speaker 1: to be part of this UN initiative. I grew up
12:29
Speaker 1: in a tiny village in Zimbabwe and when I was
12:32
Speaker 1: eight years old, the United Nations came into my village.
12:35
Speaker 1: We're going through one of our West drought and I
12:38
Speaker 1: was starving. I had not eaten for several days and
12:40
Speaker 1: literally the UN saved my life. A young woman who
12:43
Speaker 1: happened to be Zimbabwe but worked for UNI SEV found
12:47
Speaker 1: me underneath the street, give me a ball of hom
12:49
Speaker 1: porridge and literally, you know, I survived. And I knew
12:51
Speaker 1: from that early young age that I wanted to work
12:54
Speaker 1: for the U n and so I pursued that vision
12:56
Speaker 1: and have now been with the UN for fifteen years,
12:59
Speaker 1: working for different entities from UNA's in Geneva who I've
13:03
Speaker 1: also worked at the World Bank, and now I'm with
13:05
Speaker 1: You and Women as the senior advisor to the under
13:07
Speaker 1: Sector General. So how young were you when you loved Zimbabwe?
13:11
Speaker 1: So I left Simbabwe in my early twenties, moved to
13:15
Speaker 1: the United Nations with two fifty pounds to my name,
13:18
Speaker 1: with not friends or family. I had my dream though,
13:20
Speaker 1: to become this young girl who worked for the United Nations,
13:24
Speaker 1: wore a blue uniform, and I ended up, you know,
13:27
Speaker 1: studying political science and the London School of Economics. And
13:30
Speaker 1: and here we are well, thank you so much for
13:32
Speaker 1: joining us. So really fascinating to speak with you, and
13:36
Speaker 1: we will she the best of luck in the initiative.
13:38
Speaker 1: Elizabeth Yummy Yarrow is Senior Advisor to the Under Secretary
13:42
Speaker 1: General and executive director of You and Women. She is
13:45
Speaker 1: also the global head for You and He for SHE movement.
13:49
Speaker 1: She is joining us here from the Bloomberg Business of
13:53
Speaker 1: Equality Summit in our seven thirty Lexington Avenue headquarters here
13:58
Speaker 1: in New York. Really interesting, and it's definitely interesting to
14:02
Speaker 1: hear about all of the different challenges and sort of
14:04
Speaker 1: uniting thread between them all through different nations and different challenges.
14:23
Speaker 1: They're sort of a disconnect in Silicon Valley where you
14:26
Speaker 1: think of a sort of socially progressive and liberal attitude,
14:31
Speaker 1: while the pay gap between the genders has widened and
14:34
Speaker 1: there's talk of the Broo topia. The Emily Chang of
14:37
Speaker 1: Bloomberg Television wrote about here to talk about how to
14:40
Speaker 1: make the tech world perhaps a little bit more equal
14:43
Speaker 1: is a Neil dash He is chief executive of fog
14:46
Speaker 1: Creek Software in New York. He also was an advisor
14:49
Speaker 1: to the Obama White House's Office of Digital Strategy. We're
14:52
Speaker 1: so glad that you could join us. Thank you for
14:54
Speaker 1: being here. So what is sort of at the root
14:57
Speaker 1: of this inequality that persists between the genders even in
15:01
Speaker 1: Silicon Value. You know, there's there's a lot of good intention,
15:03
Speaker 1: as you said, and then there is the self reflection
15:07
Speaker 1: and the challenge of changing yourself and saying what am
15:09
Speaker 1: I doing wrong? Is it just thinking the right things
15:12
Speaker 1: enough to get it done? And then there is I
15:15
Speaker 1: think the slightly more legitimate excuses we're moving a breakneck speed.
15:19
Speaker 1: Everything is changing really rapidly. I'll get to fixing all
15:22
Speaker 1: this social stuff once everything is settled down. Of course,
15:25
Speaker 1: there is no settling down at tech, and so they
15:28
Speaker 1: sort of, you know, kick the can down the road
15:29
Speaker 1: a lot, and that's that's the most charitable interpretation. And
15:32
Speaker 1: then we have people that that say they care and
15:34
Speaker 1: just don't you know, which is one of those things
15:36
Speaker 1: that we have to reckon with as an industry. I
15:38
Speaker 1: think all those things combining together to close off a
15:40
Speaker 1: lot of opportunity, um, you know, for the for the
15:43
Speaker 1: companies that aren't involving in that way. In our case,
15:45
Speaker 1: we're small independent company. Um we we we build a
15:49
Speaker 1: cycle called Flitch, which is like a YouTube for coders.
15:51
Speaker 1: So we're competing for talent with Facebook, with Google. Um
15:54
Speaker 1: by us being able to plan a flag and say
15:56
Speaker 1: we're really going to stand on you know, meaningful measures
16:00
Speaker 1: that push for equity and push for inclusion, that's been
16:03
Speaker 1: a competitive advantage for us, Even things like simply doing
16:06
Speaker 1: salary transparency where people know what their salary is going
16:08
Speaker 1: to be when we hire them. That opens the door
16:10
Speaker 1: to us attracting talent that others can and Neil, could
16:13
Speaker 1: you just describe a little bit of your background in
16:15
Speaker 1: the world of blogging, so pea understand how you came
16:19
Speaker 1: to be, I believe one of the few people that
16:22
Speaker 1: could count prints as well as Bill Gates among their
16:28
Speaker 1: at least their previous followers. Yeah. Yeah, it's a it's
16:30
Speaker 1: a very um you know, social media used to be
16:32
Speaker 1: a small world, right, So I started blogging twenty years ago,
16:35
Speaker 1: and you had to be fairly interested in both technology
16:38
Speaker 1: and media at that point to do both. And so, um,
16:41
Speaker 1: you know, I've been making software. You know, we had
16:43
Speaker 1: the back then it was you know, Windows ninety eight
16:45
Speaker 1: or whatever it was. Yeah, this sort of um, conventional
16:47
Speaker 1: software industry. But the age six apart was was you Yeah, yeah,
16:51
Speaker 1: I was the first employee there, and we made tools
16:53
Speaker 1: like movable type, which was one of the early blogging tools,
16:55
Speaker 1: and um, and people took that and used that to
16:58
Speaker 1: make huffing and post or to make gawk, or to
17:00
Speaker 1: make all these sort of you know, really prominent early
17:02
Speaker 1: media sites. And like I said, you were combining technology
17:05
Speaker 1: and media. And you know, in Bloomberg that might be
17:07
Speaker 1: pretty obvious that a lot of other places it wasn't.
17:10
Speaker 1: And um, and so that was one of those moments
17:13
Speaker 1: where we realized what in retrospect became social media would
17:17
Speaker 1: be the thing that defined technology to people even more
17:19
Speaker 1: than uh, you know, using a spreadsheet program or something
17:22
Speaker 1: like that. And so out of that that sort of
17:24
Speaker 1: community of people that were paying attention that came a
17:26
Speaker 1: lot of the early social network and social media platforms,
17:29
Speaker 1: as well as a lot of the sort of big
17:31
Speaker 1: innovators and adventures that I think have gone on to
17:33
Speaker 1: become household names. Does does it ever cause you some
17:37
Speaker 1: kind of irony that the social media explosion has come
17:42
Speaker 1: back to create I don't want to say a social media,
17:47
Speaker 1: but certainly social media where you don't know who's behind
17:51
Speaker 1: the information, you don't know what their agenda is, and
17:54
Speaker 1: there's very little way in which you can track it
17:56
Speaker 1: and hold people accountable. Yeah, there were, you know, there
17:59
Speaker 1: were a lot of maybe faulty assumptions is one way
18:03
Speaker 1: to put it, or even just sort of shortsighted assumptions
18:05
Speaker 1: about how the systems were designed, you know, the the
18:08
Speaker 1: idea when you're building tools. In two thousand or two
18:10
Speaker 1: thousand five or two thousand and six on Twitter launched
18:13
Speaker 1: that maybe a billion people would show up and use
18:15
Speaker 1: your tool would be absurd. So so this idea that
18:18
Speaker 1: they were going to design to anticipate that was a
18:20
Speaker 1: little unexpected. I think what became of that was assuming
18:22
Speaker 1: everybody who's gonna be part of the same community is
18:24
Speaker 1: part of the same clique. Didn't anticipate the values everybody had,
18:27
Speaker 1: didn't anticipate building accountability for everyone. So given that, and
18:31
Speaker 1: given where the social media world has come from, do
18:35
Speaker 1: you think that Facebook and uh it's rivals have adequately
18:39
Speaker 1: addressed some of these security concerns as well as some
18:42
Speaker 1: of the social concerns. Uh No, you know, there's so
18:45
Speaker 1: much more to do. And and this actually goes to
18:47
Speaker 1: the earlier point about inclusion in the industry. If if
18:50
Speaker 1: more of the people in power at Facebook and these
18:52
Speaker 1: other companies where the people that get targeted and harassed
18:55
Speaker 1: online or to get marginalized by these technologies, I think
18:59
Speaker 1: you would see very different designs and very different prioritizations
19:02
Speaker 1: other products. I think they're starting to reckon with it.
19:04
Speaker 1: I mean, there are a ton of good people at
19:06
Speaker 1: these companies and they want to do the right thing.
19:08
Speaker 1: But it's a lot easier to prevent than it is
19:10
Speaker 1: to try and cure after the harms have already been caused.
19:13
Speaker 1: That's what I was going to ask, is it's one
19:15
Speaker 1: thing to go and consciously try to be diverse, But
19:18
Speaker 1: isn't there some kind of business advantage have you found
19:21
Speaker 1: to hiring people with different points of view? Yeah? Yeah,
19:23
Speaker 1: I mean you you end up with them anticipating uh,
19:26
Speaker 1: you know, flaws or weaknesses. And I look at this
19:29
Speaker 1: as sort of um, you know, and and the conventional
19:31
Speaker 1: tech industry that things that everybody pays attention to our
19:34
Speaker 1: security scalability issues like that, and you always anticipate it.
19:38
Speaker 1: You sort of say, this is the next area where
19:39
Speaker 1: we're gonna have to anticipate an area of vulnerability. I
19:43
Speaker 1: look at the same thing with culture. Culture debt is
19:45
Speaker 1: just like technical debt. It's something that you um one
19:48
Speaker 1: way or another. You're gonna pay right one way or another.
19:50
Speaker 1: You're gonna have to address these things that you were
19:53
Speaker 1: shortsighted on or that you underinvested in. Why not be preventative.
19:57
Speaker 1: I look at it as you know, it's the right
19:59
Speaker 1: thing to do morally and ethically, that's where it starts.
20:02
Speaker 1: But it's also a great way to manage risk as
20:04
Speaker 1: a company that's, you know, really operating extremely competitive environment.
20:08
Speaker 1: Let's reduce our risk and increase the odds that we're
20:10
Speaker 1: gonna be able to compete against these giant players. I
20:12
Speaker 1: want to thank you very much for joining us. You're
20:14
Speaker 1: gonna be blogging about this right absolutely and tweeting about
20:16
Speaker 1: it too. Well done. Thanks very much. That she is
20:18
Speaker 1: the chief executive of fog Creek, a software one of
20:22
Speaker 1: the many attendees here at the Business of Equality Summit
20:26
Speaker 1: at our New York City corporate headquarters and brings together
20:29
Speaker 1: a variety of business, academic and nonprofit leaders to talk
20:33
Speaker 1: about equality and diversity in the workplace. A sixty two
20:51
Speaker 1: billion dollar bet on orphan drugs to treat diseases such
20:56
Speaker 1: as Hunter's syndrome. That's the case of Takeda Pharmaceuticals and
21:00
Speaker 1: it's sixty two billion dollar deal to acquire Shire. Here
21:04
Speaker 1: to tell us more is Max Neeson, biotech, parma and
21:07
Speaker 1: healthcare columnist for Bloomberg Opinion. You can follow Max on
21:11
Speaker 1: Twitter at Max Neeson nets and I S. E. N. Max.
21:16
Speaker 1: Why is Takeda spending sixty two billion dollars on Shire? Well,
21:22
Speaker 1: I think they're really desperate for for some combination of
21:25
Speaker 1: geographic and and drug diversification. Uh, they're pretty heavily dependent
21:29
Speaker 1: on on some older treatments themselves, nothing much in the pipeline,
21:33
Speaker 1: and also on the Japanese market, which is particularly tough
21:37
Speaker 1: for drug makers given that they have some pretty aggressive
21:40
Speaker 1: price controls at times. So they were just looking for
21:43
Speaker 1: a way to supplement their pipeline, get into the United
21:46
Speaker 1: States to a greater degree, and also um get into
21:50
Speaker 1: the rare disease drug market, as you mentioned. So let's
21:52
Speaker 1: talk price. This sixty two billion dollar price tag includes
21:56
Speaker 1: a thirty one billion dollar bridge loan that makes it
21:59
Speaker 1: the largest such borrowing ever by a Japanese company for
22:04
Speaker 1: an acquisition. What do you think do you think that
22:06
Speaker 1: this is fairly value in Shire? Um? You know, considering
22:10
Speaker 1: that that it traded close to the levels that it's
22:12
Speaker 1: being bought at last year, it doesn't seem like an
22:15
Speaker 1: enormously expensive deal on that kind of metric. But in
22:19
Speaker 1: terms of the amount of death that's being raised here,
22:21
Speaker 1: the damage that's being done to Takada's balance sheet, H,
22:24
Speaker 1: then you have a little bit more in the way
22:26
Speaker 1: of questions. Just because there there are some risks here.
22:28
Speaker 1: Shire is pretty heavily depending on the team affiliate business,
22:31
Speaker 1: which is facing some competition now and will in the
22:34
Speaker 1: future from potentially curative gene therapies. And also just in
22:38
Speaker 1: terms of integration risk and the level of synergies that
22:42
Speaker 1: Takeda is targeting both more than the usual. So definitely
22:46
Speaker 1: a lot of risk given the amount of death that's
22:48
Speaker 1: coming into play here, because Shi already had on the
22:50
Speaker 1: role of eighteen point five billion in debt on its books,
22:53
Speaker 1: So this is gonna be one of the more leverage
22:55
Speaker 1: pharmacy cool companies in the world if this deal is completed, Max.
22:59
Speaker 1: Just to go to this issue of orphan drugs, rare diseases,
23:04
Speaker 1: the one I was just gonna use as an example
23:07
Speaker 1: is La Praise and Ella Praises, the drug that Shire
23:11
Speaker 1: has to treat Hunter's syndrome. The cost of the drug
23:16
Speaker 1: for a full regiment, and I believe it is like
23:18
Speaker 1: three hundred and sixty five thousand dollars and the sales
23:22
Speaker 1: of La Praise were more than three hundred and fifty
23:25
Speaker 1: million dollars a year. That's just for one drug. Is
23:29
Speaker 1: that the kind of number that and the and the
23:31
Speaker 1: situation that drug companies are really looking for yeah, so
23:35
Speaker 1: there are a lot of benefits to that sort of
23:37
Speaker 1: severe disease drugs of that type. You don't have to
23:40
Speaker 1: spend a lot on marketing. You do have to go
23:42
Speaker 1: out and find the patients and make sure they're getting
23:44
Speaker 1: on drugs. But you know, it's enormously profitable in a
23:48
Speaker 1: way that's different from you know, say, a really competitive
23:51
Speaker 1: area like diabetes, where you have to fight against a
23:54
Speaker 1: bunch of similar drugs for every single patient, pay huge
23:57
Speaker 1: rebate rebates to insures in pharmacy enefit managers. So I
24:01
Speaker 1: think that's one of the things that that makes us
24:03
Speaker 1: attractive as well. What's the risk of failing to integrate
24:08
Speaker 1: the two companies? Well, I mean, when you're talking about
24:10
Speaker 1: the debt level and leverage, there's a little voice in
24:13
Speaker 1: the back of my head that just keeps saying Valiant, Valiant, Valiant.
24:16
Speaker 1: I mean, is this going to be the same? All right? Thanks,
24:21
Speaker 1: thanks for the name. Oh yeah, well there you go.
24:24
Speaker 1: That makes much Well, of course they don't want the
24:27
Speaker 1: name in the back of the head saying Valiant, But
24:29
Speaker 1: you know, is there a risk that this could end
24:31
Speaker 1: up being something like that, a highly levered deal that
24:34
Speaker 1: goes bad? I definitely think there is, because you know,
24:38
Speaker 1: you have the biggest ever take over from from a
24:40
Speaker 1: Japanese country company of a drug company. UM that that
24:44
Speaker 1: offers some some potential integration headaches and um as I
24:47
Speaker 1: mentioned those risks of the hemophilia franchise, some other generic competition.
24:52
Speaker 1: If if Shire delivers, especially if it's pipeline delivers less
24:56
Speaker 1: than expected or hemophilia competition is great and expected, you
25:00
Speaker 1: could see a sales slowdown that that makes that debtload
25:03
Speaker 1: even scarier. Well, well, it's probably not going to be
25:06
Speaker 1: anything on the scale of Valiant, where you know the
25:08
Speaker 1: business kind of just collapsed. Uh still still makes their
25:12
Speaker 1: debt paid down targets which are going to have to
25:14
Speaker 1: be aggressive Uh look pretty risky. Does it matter at
25:19
Speaker 1: all that this is a Japanese and a British company
25:21
Speaker 1: coming together in an age of trade wars and trade concerns.
25:26
Speaker 1: I mean, you know that that is a potential risk
25:29
Speaker 1: as well considered because things are so volatile, and especially
25:32
Speaker 1: United States, I think the Trump administration has been making
25:36
Speaker 1: some noise about other countries paying it's paying their fair
25:40
Speaker 1: share for medicines. You know, we subsidize a lot of
25:42
Speaker 1: r and d costs UH through paying an outside share
25:46
Speaker 1: of of you know, paying higher drug prices, paying more
25:49
Speaker 1: for medicines. UM. So if that changes that, that's another
25:51
Speaker 1: potential risk of such a big international UH transaction. Who
25:55
Speaker 1: might be next? Because he tried to buy Shire a
25:59
Speaker 1: couple of years ago. Um. Also there was talk that
26:02
Speaker 1: Allergan was interested in Shire at one point. Who's next?
26:05
Speaker 1: You believed? Um, You know, I don't think there's a
26:08
Speaker 1: particularly acute risk of another company jumping into to kind
26:13
Speaker 1: of mess up to Kata's offer, just given the risk
26:16
Speaker 1: profile and the cost of the deal. You know, fiser
26:19
Speaker 1: Is always mentioned is the most likely to go for
26:21
Speaker 1: a mega deal, but they were pretty explicit that they
26:24
Speaker 1: weren't interested on their most recent earnings call. Um, but
26:27
Speaker 1: I think fiser Is is due for a deal of
26:30
Speaker 1: decent size, even if it's not Shire, UM Murk as well.
26:33
Speaker 1: The question is whether they're going to go for something
26:36
Speaker 1: of of the big consolidating type or or to try
26:39
Speaker 1: to poster their pipelines. You know, just to put us
26:42
Speaker 1: in a perspective, to Kata and Shire together would have
26:44
Speaker 1: more than thirty one billion dollars of revenue UH. That
26:47
Speaker 1: doesn't put it in the top five in terms of revenue.
26:50
Speaker 1: It's behind Johnson and Johnson, roche Viser, no Artists, and
26:53
Speaker 1: no Fee Murk Bear lax of Kline. Uh So, definitely
26:57
Speaker 1: an interesting tie up that pushes it into the top ranks,
27:00
Speaker 1: but they are both of much smaller size and some
27:03
Speaker 1: of them on the top five of total debt and
27:06
Speaker 1: leverage ratio. Though. Well, they can have that that crown
27:09
Speaker 1: and we're proudly perhaps for for the time being anyway,
27:11
Speaker 1: Max Neeason, thank you so much for being with us.
27:13
Speaker 1: Max Neeason is our biotech, farm and healthcare columnist for
27:16
Speaker 1: Bloomberg Opinion, joining us here in our leven three oh
27:19
Speaker 1: the studios. Thanks for listening to the Bloomberg P and
27:24
Speaker 1: L podcast. You can subscribe and listen to interviews at
27:27
Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm
27:31
Speaker 1: Pim Fox. I'm on Twitter at pim Fox. I'm on
27:35
Speaker 1: Twitter at Lisa abramoids one. Before the podcast, you can
27:38
Speaker 1: always catch us worldwide on Bloomberg Radio.