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China, Asset Management and Investing Strategies · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We
• 0:33
  Speaker 1: are broadcasting live from the New York Bloomberg invest Summit,
• 0:37
  Speaker 1: and I'm very pleased to say joining us next is
• 0:40
  Speaker 1: a renowned short seller, well known for his correct calls.
• 0:44
  Speaker 1: Carson Block, chief investment officer of Muddy Waters Capital here
• 0:48
  Speaker 1: in our eleven three oh studios and in New York City. So, Carson, Um,
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  Speaker 1: you've been uh, sort of looking at possible store opportunities
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  Speaker 1: in China for a while, but your thesis is sort
• 0:59
  Speaker 1: of sifting as time goes on, and as m s
• 1:02
  Speaker 1: c I includes Chinese shares in one of its major
• 1:05
  Speaker 1: emerging markets indexes tell us that can you explain how
• 1:08
  Speaker 1: it's changing? Sure? Well, I mean we pay attention to
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  Speaker 1: stocks from China because we like to short frauds where
• 1:15
  Speaker 1: active as short sellers. So I'm fond of saying that
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  Speaker 1: China is to stock fraud as Silicon Valley is to technology.
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  Speaker 1: So we will always be looking at especially you know,
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  Speaker 1: especially US companies are Chinese China companies listed in the US.
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  Speaker 1: But um, I think there's a bigger point, and part
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  Speaker 1: of it has to do with the fraud, and part
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  Speaker 1: of it has to do with other geopolitical or strategic reasons.
• 1:39
  Speaker 1: But I'm arguing that US investors should start to look
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  Speaker 1: at China companies like sin stocks, you know, where there's
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  Speaker 1: a moral dimension. Um, you know, you're making a moral
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  Speaker 1: choice that you know it's not necessarily in accordance with
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  Speaker 1: the best interests of us and your kids and grandkids
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  Speaker 1: if you're going along the stocks and you know, on
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  Speaker 1: one hand, you've got the fraud problem. So you know,
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  Speaker 1: there's a movie that came out, a documentary came out
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  Speaker 1: a few months ago called The China Hustle, and that
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  Speaker 1: profiled how they were literally last decade, about four hundred
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  Speaker 1: companies from China listed on the US exchanges that were frauds,
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  Speaker 1: and so investors lost you know, who knows how many
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  Speaker 1: billions when those things blew up. But no, hardly anybody
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  Speaker 1: has been punished for that basically, you know, I think
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  Speaker 1: only one Chinese company chairman ever did prison time in
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  Speaker 1: the US. The auditors, the Big Four affiliates from China,
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  Speaker 1: we're going to have their practice licenses suspended for six months.
• 2:40
  Speaker 1: But the administration capitulated and find each auditor, each Big
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  Speaker 1: Four affiliate only five hundred thousand dollars, which is basically
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  Speaker 1: you know, when you're audit fee of a medium sized client.
• 2:51
  Speaker 1: And so you know, it's like Charlie Munger says, show
• 2:54
  Speaker 1: me the incentive and I'll show you the outcome. Well,
• 2:58
  Speaker 1: defrauding US investors from China is a you know, heads,
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  Speaker 1: I win, tails, you lose proposition um. And you know,
• 3:04
  Speaker 1: it's like we saw the financial crisis. I mean, in
• 3:06
  Speaker 1: that situation where somebody else bears all of the risk,
• 3:10
  Speaker 1: you know you're going to get bad outcomes. So we
• 3:12
  Speaker 1: have that situation, but we also have this issue that
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  Speaker 1: at the end of the day, in China, there's no
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  Speaker 1: such thing as a private company. They can all be
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  Speaker 1: made to do the bidding of the Chinese government. So
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  Speaker 1: you know, since the technological edge devolved from the government
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  Speaker 1: to the private sector, you know, probably ten fifteen years ago,
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  Speaker 1: we're struggling in the West to to adjust to that
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  Speaker 1: because we have these private companies that control our strategic technologies.
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  Speaker 1: They're running around taking investment from you know, companies from
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  Speaker 1: China um that I think in you know, some cases,
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  Speaker 1: if not many cases, are making those investments not because
• 3:51
  Speaker 1: they think it's just commercially a great move, but because
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  Speaker 1: they're being directed to do so by you know, say
• 3:58
  Speaker 1: the Ministry of State Security or the PRC government. And
• 4:02
  Speaker 1: you know, if you think like that's kind of crazy,
• 4:04
  Speaker 1: well how could they do that? You know, private companies
• 4:07
  Speaker 1: don't forget the banking system in China is state run.
• 4:10
  Speaker 1: It's state owned, you know, in financing. I mean, look there.
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  Speaker 1: I used to live in China and do business there.
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  Speaker 1: And so they took in foreign you know, strategic investors,
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  Speaker 1: and that's actually kind of an old thing that happened
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  Speaker 1: in the early two thousands, and the idea, you know
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  Speaker 1: a lot of these foreign banks bought in. It's like, oh,
• 4:29
  Speaker 1: you know, we're gonna help them, you know, with their
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  Speaker 1: risk management. And I talked to a few people who
• 4:32
  Speaker 1: were the you know, foreign representatives brought in to try
• 4:35
  Speaker 1: to make sure these banks were operating properly, and it
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  Speaker 1: sounded like it was one of the most frustrating jobs
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  Speaker 1: on the planet, Like they don't know what's going on. Um.
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  Speaker 1: So look, I you know, at the end of the day,
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  Speaker 1: I think when you look at a Bai Do and
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  Speaker 1: Ali Baba, you know, I think a lot of their
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  Speaker 1: interest in making investments in the US, it's not driven
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  Speaker 1: by you know, ge this is gonna you know, make
• 4:57
  Speaker 1: our platform, make our search engine. You know that much better. Um,
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  Speaker 1: it's just real, you know, case and point um. Every
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  Speaker 1: year there's a Joint Congressional Committee report on the US
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  Speaker 1: China Economic relationship, and the last report that was published
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  Speaker 1: this past November. I mean it was I mean, I
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  Speaker 1: think it was very realistic about you know, number of
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  Speaker 1: the challenges and you know, the cheat, the IP, theft
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  Speaker 1: that's rampant, and the dumping. But they also talked about
• 5:22
  Speaker 1: AI and this was a surprise to me, but they
• 5:25
  Speaker 1: said that China's AI is on par with out of
• 5:27
  Speaker 1: the US. And interestingly then they said that the entity
• 5:31
  Speaker 1: in China that has the single most advanced AI. So
• 5:34
  Speaker 1: in other words, our main strategic competitor is by Do,
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  Speaker 1: and we give that company liquid markets for for security.
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  Speaker 1: So are we financing our own demise here. Well, come on, secondly,
• 5:43
  Speaker 1: you just have like a minute left, But I want
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  Speaker 1: to get your sense of do you think that they're
• 5:47
  Speaker 1: going to be imminent collapses of Chinese companies coming up
• 5:50
  Speaker 1: or do you think that this is going to be
• 5:52
  Speaker 1: played out over over a number of years. I think
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  Speaker 1: there's still a lot of frauds listed from China and
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  Speaker 1: the US. Now these are not companies where the red
• 6:00
  Speaker 1: news fake. They're real businesses. But I think a lot
• 6:02
  Speaker 1: of the profits are fake. You know, whether those collapse
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  Speaker 1: or not, I don't know, But I am trying to
• 6:07
  Speaker 1: start a conversation and I think there's some other people
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  Speaker 1: who would like to do that as well, where allocators
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  Speaker 1: really should be thinking twice about whether they should be
• 6:15
  Speaker 1: putting this money into into China stocks. So to the
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  Speaker 1: extent that we get some traction that has implications for valuations,
• 6:23
  Speaker 1: you know, we'll see. All right, Well, we got to
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  Speaker 1: leave it there. Unfortunately, we'd love to have you back
• 6:28
  Speaker 1: and spend more time, because you know, the world of
• 6:31
  Speaker 1: misinformation is not just confined to the to China, right,
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  Speaker 1: I mean there are companies all over the world that
• 6:38
  Speaker 1: you think are straight players, And I mean I'm thinking of,
• 6:41
  Speaker 1: for example, one company particular in France that you've had
• 6:44
  Speaker 1: something to do with, uh, And that's a story that
• 6:47
  Speaker 1: I think could probably be made into a Netflix series.
• 6:50
  Speaker 1: How Arada. But so thanks very much for being with us,
• 6:53
  Speaker 1: and we look forward to having you more in the future.
• 6:55
  Speaker 1: Carson Block is the chief investment officer for money Waters Capital,
• 6:59
  Speaker 1: speaking about investments in the Chinese companies. They might not
• 7:04
  Speaker 1: be exactly what they've seen. We are broadcasting live from
• 7:23
  Speaker 1: the Bloomberg invest Summit from our world headquarters in New York,
• 7:26
  Speaker 1: and it's my pleasure to bring in our next guest,
• 7:29
  Speaker 1: you Send Hung, the chief executive of New York Life
• 7:32
  Speaker 1: Investment Management, joining us here in our beautiful world headquarters.
• 7:37
  Speaker 1: Thank you very much for being I'm so delighted to
• 7:39
  Speaker 1: be here. Thank you. What are the things We'll get
• 7:42
  Speaker 1: to a couple of things, like you know, alternative assets
• 7:44
  Speaker 1: and and so on, But I want to first understand
• 7:46
  Speaker 1: a little bit, UH, the specific challenges that you face
• 7:50
  Speaker 1: because you work for people who don't even know that
• 7:56
  Speaker 1: you work for them, because they're gonna be people who
• 7:59
  Speaker 1: in the future, the big future, like ten twenty thirty
• 8:02
  Speaker 1: years down the line, they are depending on decisions that
• 8:06
  Speaker 1: you make now in order for them to be able
• 8:09
  Speaker 1: to plan for their retirement and a variety of their
• 8:12
  Speaker 1: financial goals. I'm wondering if you could explain a little
• 8:15
  Speaker 1: bit about how you take on that responsibility. So the
• 8:18
  Speaker 1: right way and the way that I think about New
• 8:20
  Speaker 1: York Life Investments is that we are the best of
• 8:23
  Speaker 1: both worlds. So we have independent investment boutiques together with
• 8:27
  Speaker 1: a heritage and long term perspective of New York Life,
• 8:31
  Speaker 1: and we come at this business really from an investment perspective.
• 8:34
  Speaker 1: You know, New York Life is a hundred and seventy
• 8:36
  Speaker 1: three years old. We've been through the Civil War, two
• 8:39
  Speaker 1: World Wars, the Great Recession, and today it's as strong
• 8:43
  Speaker 1: as we've ever been as only one of a handful
• 8:46
  Speaker 1: of tripoy rated financial institutions around the world. And so
• 8:50
  Speaker 1: we really think about this business and our clients the
• 8:53
  Speaker 1: same way as we work in terms of what we're
• 8:55
  Speaker 1: trying to accomplish. You take the time to understand the
• 8:58
  Speaker 1: problems are trying to solve the challenges they face, and
• 9:02
  Speaker 1: that's really helped me as CEO of this business to
• 9:05
  Speaker 1: really think about expansion. So we've moved significantly outside the
• 9:10
  Speaker 1: US into Europe and Asia through editions of boutiques. We
• 9:14
  Speaker 1: really lean very heavily into alternatives, an area that I
• 9:18
  Speaker 1: know quite well. Well, let's talk about alternatives, actually, I
• 9:21
  Speaker 1: want to go there because when you talk about the
• 9:22
  Speaker 1: needs of your clients, what need is for yield, especially
• 9:25
  Speaker 1: in this financial oppression era, what alternatives are you going into?
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  Speaker 1: And how concerned are you about the glut of cash
• 9:31
  Speaker 1: sitting on the sidelines and pouring into things that people
• 9:34
  Speaker 1: aren't as familiar with. You know, as a general rule,
• 9:38
  Speaker 1: I believe alternatives have a role in every portfolio. What
• 9:42
  Speaker 1: we've been seeing is equity markets are fairly elevated, interest
• 9:46
  Speaker 1: razor climbing, greater volatility, and so in this market environment,
• 9:50
  Speaker 1: our advice to clients is really to think about what
• 9:54
  Speaker 1: exposures they can introduce to dampen volatility, maybe introduced a
• 9:58
  Speaker 1: little bit of inflation since activity, but in general diversify
• 10:03
  Speaker 1: and so what we like. We have a platform called
• 10:06
  Speaker 1: index i Q that has really developed some interesting e
• 10:10
  Speaker 1: t s. There are the Pioneer and Alternative et s
• 10:13
  Speaker 1: and so things like ROOF which is for real estate
• 10:16
  Speaker 1: or m and A for merger arbitrage strategies, or even QAI,
• 10:20
  Speaker 1: which is a diversified multi strat And so our view
• 10:23
  Speaker 1: is there are many ways for investors to add these
• 10:26
  Speaker 1: elements to their portfolios. Structure at e T F that
• 10:30
  Speaker 1: has alternative assets that aren't as liquid, you know, those
• 10:33
  Speaker 1: are actually liquid. They're just like the e T s
• 10:36
  Speaker 1: that we all know right daily, liquid, transparent, low cost.
• 10:40
  Speaker 1: And that's why they offer such an interesting value proposition
• 10:44
  Speaker 1: because today, if you're an individual investor, you can buy
• 10:47
  Speaker 1: one of hundreds of e T s, one of thousands
• 10:50
  Speaker 1: of mutual funds. But if you want alternative exposure, you
• 10:53
  Speaker 1: don't have a lot of choice like institutions do today.
• 10:57
  Speaker 1: They want to go into real estate or private equity. Now,
• 11:00
  Speaker 1: just to give people little detail, some of the subsidiaries
• 11:04
  Speaker 1: that come under your umbrella, I believe mackay Shields, the
• 11:08
  Speaker 1: mutual fund company, also Cornerstone, right os Bille, the investment
• 11:14
  Speaker 1: management firm. How do you decide who fits with the
• 11:19
  Speaker 1: New York Life investment management sort of zeitgeist. You know,
• 11:23
  Speaker 1: we really are carefully slagged the boutiques that we bring
• 11:28
  Speaker 1: under our umbrella. Clearly, what's important to us is really
• 11:31
  Speaker 1: investment excellence and UH strategies that we think really makes
• 11:36
  Speaker 1: sense for UH investors portfolios. But just as important to
• 11:40
  Speaker 1: us is cultural fit. We're an institution at New York
• 11:43
  Speaker 1: Life that really believes and putting our clients first, solving
• 11:47
  Speaker 1: their problems. And so what's important to us is that
• 11:50
  Speaker 1: we have a set of capabilities specialists by boutique and
• 11:55
  Speaker 1: then out forwards us the opportunity to have the building
• 11:57
  Speaker 1: blocks so that if we're having that conversation with clients,
• 12:00
  Speaker 1: you know, how to put together good portfolios. So we
• 12:03
  Speaker 1: just have about a minute left, and I'm wondering. You know,
• 12:05
  Speaker 1: a lot of people are worried that perhaps we are
• 12:07
  Speaker 1: a seeing two elevated evaluations we could crash. Other people
• 12:11
  Speaker 1: worrying that they're gonna pull out too soon, which is
• 12:14
  Speaker 1: the biggest worry for you. You know, all of these
• 12:17
  Speaker 1: are legitimate worries. It's very interesting that last year we
• 12:21
  Speaker 1: had a lot of worries, but the market seemed pretty confident.
• 12:24
  Speaker 1: This year we have a lot of worries and there's
• 12:26
  Speaker 1: a lot of anxiety. My view is one of a
• 12:29
  Speaker 1: long term view. Look, clients really have not only return expectations,
• 12:33
  Speaker 1: but they have obligations and needs to meet, and that's
• 12:37
  Speaker 1: really our focus because we have all the pieces to
• 12:39
  Speaker 1: help them achieve their goals. Thank you so much for
• 12:42
  Speaker 1: being with us, and thank you for participating in it
• 12:45
  Speaker 1: this day where a lot of really interesting ideas are
• 12:48
  Speaker 1: being thrown out there and discussed. Uh Eahan Hung is
• 12:52
  Speaker 1: chief executive officer of New York Life Investment Management. She
• 12:56
  Speaker 1: has helped to expand the company and UH and and
• 12:59
  Speaker 1: plow further into alternatives, which has been one of the
• 13:01
  Speaker 1: hottest areas over the past few years as people try
• 13:04
  Speaker 1: to diversify and frankly, as they see a lot of
• 13:06
  Speaker 1: the equity markets as being somewhat overvalued, as well as
• 13:10
  Speaker 1: bond markets, which have been UH certainly affected dramatically by
• 13:14
  Speaker 1: central banks around the world. We are broadcasting live from
• 13:34
  Speaker 1: the Bloomberg Invests Summit in New York. Our next guest,
• 13:37
  Speaker 1: manages more than a trillion dollars, is chief executive of
• 13:41
  Speaker 1: p G. I am David Hunt, President, chief executive joining
• 13:45
  Speaker 1: us now. Thank you so much for being with us. Um.
• 13:48
  Speaker 1: You said on the panel that you're just on that
• 13:51
  Speaker 1: you are worried about the US equity market, that it
• 13:54
  Speaker 1: is not in good shape because fewer companies are opting
• 13:56
  Speaker 1: to go public and stay public, and this reduces opportunity
• 14:00
  Speaker 1: das for retail investors. Can you talk about what the
• 14:03
  Speaker 1: consequences are of this in your view? Sure, here's the
• 14:07
  Speaker 1: parlor trick question for you. How many stocks are in
• 14:10
  Speaker 1: the will share five thousand? Well, answer three thousand, six hundred.
• 14:14
  Speaker 1: In fact, we used to have over seven thousand, five
• 14:18
  Speaker 1: hundred stocks in the US. If you go back fifteen years, um,
• 14:21
  Speaker 1: we've had a huge drop in the number of publicly
• 14:24
  Speaker 1: traded companies. At the same time, the level of I
• 14:28
  Speaker 1: p o s are literally at half of the level
• 14:31
  Speaker 1: that they were a decade ago. So what's happening. What's
• 14:34
  Speaker 1: happening is that a lot of the higher growth companies,
• 14:37
  Speaker 1: some of them are technology, but health sciences and others
• 14:41
  Speaker 1: are choosing to stay private. And so whereas ten years
• 14:44
  Speaker 1: ago everyone's dream was to ring the bell and and
• 14:47
  Speaker 1: really come out in the public way, now they're very
• 14:50
  Speaker 1: happy to take another slug or a second round of
• 14:53
  Speaker 1: private financing from the private equity realm um and stay private.
• 14:58
  Speaker 1: And uh that it really does us have important implications.
• 15:01
  Speaker 1: So we've got fewer stocks, we've got fewer growth stocks
• 15:05
  Speaker 1: coming in, and we've got a private equity industry that
• 15:08
  Speaker 1: has a trillion dollars of dry powder. Now leverage that
• 15:12
  Speaker 1: a few times and you're talking about real money. So
• 15:14
  Speaker 1: you've got a lot. Even more of these companies are
• 15:18
  Speaker 1: likely to choose to stay private. And here's a prediction.
• 15:21
  Speaker 1: I think that some public companies UM will choose to
• 15:24
  Speaker 1: go private. We saw that, we saw that in in
• 15:28
  Speaker 1: in spades last year for the first time dramatically, and
• 15:31
  Speaker 1: I think we'll see it some more. So what does
• 15:34
  Speaker 1: that mean then for for the markets? It obviously means
• 15:37
  Speaker 1: there's less choice, uh for for investors, but it more
• 15:41
  Speaker 1: fundamentally means that these growth stocks that were available to
• 15:45
  Speaker 1: retail investors through the public markets now are actually having
• 15:49
  Speaker 1: their returns come up through private equity and into the
• 15:51
  Speaker 1: institutional market. And UM. I think that that goes against
• 15:55
  Speaker 1: a little bit of the democratization of the capital markets
• 15:59
  Speaker 1: that we've enjoyed in the United States for a long time,
• 16:02
  Speaker 1: and I don't think people have really taken on the
• 16:04
  Speaker 1: overall kind of implications and consequences of that. Uh And
• 16:08
  Speaker 1: and the weakness in our public equity markets is that
• 16:11
  Speaker 1: because the amount of money that is available in private
• 16:14
  Speaker 1: equity investments is so great and growing that in a sense,
• 16:19
  Speaker 1: it doesn't matter whether you take money from the public
• 16:23
  Speaker 1: or the private sector in terms of the actual amount
• 16:26
  Speaker 1: of money. And yet the public sector comes with a
• 16:29
  Speaker 1: lot of rules, regulations and quarterly reports. Yeah. I think
• 16:33
  Speaker 1: that there's a multitude of reasons, um and you've you've
• 16:37
  Speaker 1: hit on many of them. I think there's been the
• 16:38
  Speaker 1: burdens of being a public company. Uh. And I think
• 16:41
  Speaker 1: that the Sarbanes Oxley was a bit of a flashpoint
• 16:45
  Speaker 1: for that. I think also to to to give private
• 16:48
  Speaker 1: equity is due. They have become a lot better owners
• 16:51
  Speaker 1: over the course of the last fifteen years. In the
• 16:54
  Speaker 1: early days, this was a bit of a financial engineering move,
• 16:58
  Speaker 1: and now they actually have turned out to be good
• 17:01
  Speaker 1: long term investors investing in businesses. I have to I
• 17:04
  Speaker 1: have to inter interject there, because there's been a lot
• 17:06
  Speaker 1: of publicity around the retail apocalypse and a lot of
• 17:09
  Speaker 1: fingers pointing at private equity companies that added quite a
• 17:12
  Speaker 1: bit of leverage to some of these retailers that seems
• 17:15
  Speaker 1: unsustainable in retrospect. I'm thinking toys, r us Vonton, you know,
• 17:19
  Speaker 1: pick your company. I'm just wondering, do you think that
• 17:22
  Speaker 1: that is an inadequate sort of representation or sort of
• 17:25
  Speaker 1: an unjust representation of what private equity has done broadly,
• 17:29
  Speaker 1: I would say it is. I think that the the
• 17:31
  Speaker 1: overall returns of the private equity business have been quite attractive,
• 17:35
  Speaker 1: and if you're certainly in one of the better funds,
• 17:38
  Speaker 1: you've done extremely well. And you've done it in a
• 17:40
  Speaker 1: way that is, to some extent non corelate because they
• 17:43
  Speaker 1: can time when they want to get out of their
• 17:45
  Speaker 1: investments to the underlying investment equity businesses. So I actually
• 17:50
  Speaker 1: think that they've done broadly quite a good job. Would
• 17:54
  Speaker 1: the public markets have made those decisions sooner or better?
• 17:57
  Speaker 1: I'm not really sure. Does this then beg the question
• 18:01
  Speaker 1: about passive investing versus active investing, particularly with the explosion
• 18:07
  Speaker 1: in exchange traded funds, where you don't actually buy a
• 18:11
  Speaker 1: specific company, and therefore you have no allegiance to their
• 18:15
  Speaker 1: long term plan or strategy or even to their management.
• 18:20
  Speaker 1: That's partly true, um. On the other hand, the irony
• 18:23
  Speaker 1: is that if you're a passive manager, you actually are
• 18:26
  Speaker 1: a long term investor, because as long as that company
• 18:28
  Speaker 1: is in the index, UH, the e t F is
• 18:31
  Speaker 1: going to also remain an investor in that, but what
• 18:34
  Speaker 1: you do lose is having analysts who are following that
• 18:37
  Speaker 1: particular stock, and so we have many fewer people who
• 18:42
  Speaker 1: are actually understanding the fundamentals of a business um and
• 18:46
  Speaker 1: I do think that that is a back to another
• 18:48
  Speaker 1: reason why you have many fewer companies going public, because
• 18:51
  Speaker 1: you have many fewer analysts who are covering midsize companies.
• 18:54
  Speaker 1: From the cell side, there's been a dramatic fall in, uh,
• 18:57
  Speaker 1: the amount of money and people on the cell side
• 19:00
  Speaker 1: who were doing the kind of high quality research that's
• 19:03
  Speaker 1: required for these One thing that strikes me though, is
• 19:05
  Speaker 1: that as people worry about overvaluation and the equity markets
• 19:08
  Speaker 1: and a lack of diversification, they're going increasingly to alternatives
• 19:11
  Speaker 1: and investing more money in private equity companies which do
• 19:14
  Speaker 1: have that a trillion dollars of dry powder sitting on
• 19:18
  Speaker 1: their books. How worried are you that valuations in private
• 19:21
  Speaker 1: markets have gotten way far ahead of themselves and are
• 19:25
  Speaker 1: poised for some sort of correction, you know. It's it's
• 19:27
  Speaker 1: interesting how different the allocations are by investor group. And
• 19:31
  Speaker 1: I think you really have to make these comments about
• 19:34
  Speaker 1: individual client types. For most of my professional life. If
• 19:39
  Speaker 1: you were to just guess the asset allocation of a
• 19:42
  Speaker 1: pension fund whether the public were private, and said sixty,
• 19:45
  Speaker 1: you would be within five percentage points of being right. Um.
• 19:49
  Speaker 1: And they really went down a very balanced investment approach
• 19:53
  Speaker 1: that is absolutely not true today. If you go into
• 19:57
  Speaker 1: a corporate plan today, for the most part, they have
• 20:01
  Speaker 1: a de risking plan in place. They have moved significantly
• 20:05
  Speaker 1: to take risk off the table. They are much more
• 20:07
  Speaker 1: into fixed income, and their holdings actually of alternatives and
• 20:11
  Speaker 1: even equities overall is at some of its lowest levels.
• 20:16
  Speaker 1: And yet almost in complete contrast, if you walk down
• 20:20
  Speaker 1: the street and you visit the public plan, UH, you
• 20:23
  Speaker 1: find that they've gone in the other direction. Uh. They
• 20:25
  Speaker 1: have actually decided to re risk. They've moved significant money
• 20:29
  Speaker 1: into real estate, into privates UH, private equity UH, and
• 20:34
  Speaker 1: into hedge funds. And they are trying very hard to
• 20:38
  Speaker 1: work their way out of their underfunded situation through investment returns.
• 20:43
  Speaker 1: And so you have these two groups that have diametricly
• 20:46
  Speaker 1: different approaches to what's essentially the same problem, which is
• 20:50
  Speaker 1: how do you meet the very important promises that they've
• 20:52
  Speaker 1: made to their workers. Thank you very much for being
• 20:55
  Speaker 1: with us. David Hunt is the president and the chief
• 20:58
  Speaker 1: executive of p gimp G I m a R, the
• 21:02
  Speaker 1: investment management business of Prudential Financial, helping to manage more
• 21:06
  Speaker 1: than one point to trillion dollars of assets. Much appreciated
• 21:10
  Speaker 1: and thank you, thank you for having me here at
• 21:12
  Speaker 1: our Bloomberg constating the idea of public and private pensions
• 21:16
  Speaker 1: having the exact opposite aims. You have to wonder who's
• 21:19
  Speaker 1: got it right well, Pam. The one trillion dollar Apple
• 21:37
  Speaker 1: valuations stories have started to be plastered all over media
• 21:41
  Speaker 1: across the board. Everyone's getting ready as Apple's market capitalization
• 21:46
  Speaker 1: reaches nifty billion dollars. So has it gone too far
• 21:49
  Speaker 1: too fast? Are the FAMOD stocks uh is a little
• 21:53
  Speaker 1: bit over valued at this point or is this just
• 21:55
  Speaker 1: the beginning of a massive bull run? Here to sort
• 21:59
  Speaker 1: of lay out the arguments on either side. A Shara Ovida.
• 22:01
  Speaker 1: She's technology columnist for Bloomberg Opinion and contribute to contributor
• 22:06
  Speaker 1: to Bloomberg Markets. Am Um, Sara, thank you so much
• 22:09
  Speaker 1: for being with us. So um, let's just start with
• 22:12
  Speaker 1: the people who say that this is something that can
• 22:15
  Speaker 1: keep going, that even though the biggest six US tech
• 22:18
  Speaker 1: companies account for more than four trillion dollars of market capitalization.
• 22:24
  Speaker 1: This is just the beginning. I mean, if you look
• 22:27
  Speaker 1: at the story of those tech giants, and you could
• 22:30
  Speaker 1: include Ali Baba Intencent in that mix too, from China eats,
• 22:35
  Speaker 1: a story of revenue growth, earnings, power pricing, power global businesses,
• 22:43
  Speaker 1: and the ability to kind of invest money. All of
• 22:47
  Speaker 1: those companies are investing near record amounts in research and
• 22:50
  Speaker 1: development and capital spending. So they're looking to the future
• 22:54
  Speaker 1: and it's hard to imagine at this point that anything
• 22:58
  Speaker 1: is going to slow them down, right, So that's the
• 23:00
  Speaker 1: kind of bull market for the tech giants of the
• 23:03
  Speaker 1: future and the and the current well that it does.
• 23:06
  Speaker 1: Let's look at some of the kind of valuations, because
• 23:08
  Speaker 1: that's why I always like to kind of understand this. Um.
• 23:12
  Speaker 1: Let's say you had a business that did I don't know,
• 23:15
  Speaker 1: two hundred and forty six uh dollars in sales a year,
• 23:20
  Speaker 1: but out of that two hundred forty six, you got
• 23:23
  Speaker 1: to put more than fifty of that in your pocket
• 23:25
  Speaker 1: after you paid for everything, lollipops, water, whatever it is.
• 23:29
  Speaker 1: And someone said, you know, I want to buy that
• 23:31
  Speaker 1: whole business, and I'll give you a thousand bucks for it.
• 23:33
  Speaker 1: That's Apple. That's basically what Apple is, at least that's
• 23:36
  Speaker 1: what the numbers tell you. Yeah, and and depending on
• 23:40
  Speaker 1: how you look at it, some of these tech companies
• 23:42
  Speaker 1: are not really richly valued. So Apple, as you mentioned,
• 23:45
  Speaker 1: is trading at something like fifteen times forward earnings. That's
• 23:49
  Speaker 1: on the high side for Apple historically. But Apple has
• 23:53
  Speaker 1: always been this company that is that is relatively inexpensive
• 23:57
  Speaker 1: if you look at the growth rates. Now, Apple's growth
• 23:59
  Speaker 1: rates coming down, um. And You've got companies on the
• 24:02
  Speaker 1: other side of the spectrum like Amazon, who is expensive
• 24:05
  Speaker 1: by conventional price to earnings metrics. But if you believe
• 24:10
  Speaker 1: that these companies can continue to grow earnings and continue
• 24:13
  Speaker 1: to have pricing power and have an ability to kind
• 24:16
  Speaker 1: of control the future of technology spending, then those big
• 24:21
  Speaker 1: tech company shares don't necessarily look overvalued. UM. I will
• 24:25
  Speaker 1: say though, that it's hard to kind of make an
• 24:27
  Speaker 1: argument for technology stocks as value plays because of the
• 24:31
  Speaker 1: extreme binary outcomes and technology that when technology shifts, when
• 24:35
  Speaker 1: you have this kind of wholesale shift and technology as
• 24:38
  Speaker 1: we did, um, you know ten years ago when smartphones
• 24:41
  Speaker 1: started to become popular and prevalent. It can create winners
• 24:45
  Speaker 1: and losers nearly overnight to the you know, no, Kia
• 24:48
  Speaker 1: doesn't exist anymore, Um, Microsoft does. Microsoft and Microsoft Microsoft
• 24:54
  Speaker 1: is an exception I think where it was prevalent in
• 24:57
  Speaker 1: previous eras of technology and has managed to find it's
• 25:00
  Speaker 1: footing again. But they're the exception that proves the rule,
• 25:02
  Speaker 1: I think. So then let's talk about the bear case here.
• 25:05
  Speaker 1: Is there something that people are concerned about as they
• 25:08
  Speaker 1: watch valuations climb? Look, I think the concern for me
• 25:12
  Speaker 1: is this fam era to use the terrible acronym, has
• 25:15
  Speaker 1: been a phenomenon of the last decade when we've basically
• 25:19
  Speaker 1: had um steadily strong growth in both global GDP and
• 25:25
  Speaker 1: stock markets. And I don't know whether the story of
• 25:29
  Speaker 1: earnings growth and and revenue growth can continue for those
• 25:33
  Speaker 1: tech companies in a slow and a much slower global
• 25:37
  Speaker 1: economic growth scenario. I don't think we've proven, we've seen
• 25:40
  Speaker 1: the ability to prove that kese out. I guess that
• 25:42
  Speaker 1: one question would be with these stocks, with these companies
• 25:46
  Speaker 1: suffer disproportionately in a downturn or would they go down
• 25:49
  Speaker 1: along with everything else? And at this point, are they
• 25:51
  Speaker 1: like the proxy for everything anyway because they're just such
• 25:54
  Speaker 1: a dominant It's true, and I don't know that I
• 25:57
  Speaker 1: haven't answered that. My broader point is that it's just
• 25:59
  Speaker 1: not tested, right that you know, Facebook didn't exist. There
• 26:04
  Speaker 1: was not a public company at least in two thousand eight, right,
• 26:07
  Speaker 1: um Ali Baba was not a public company in two
• 26:09
  Speaker 1: thousand eight. So we haven't really seen these companies get
• 26:11
  Speaker 1: tested when global economic growth goes down the tube, so
• 26:16
  Speaker 1: that'll be interesting. And then regulation, to me is a
• 26:18
  Speaker 1: big wild card that it's hard to quantify it. But
• 26:21
  Speaker 1: as these companies get bigger, you know, success in a
• 26:25
  Speaker 1: way becomes a problem for them. It puts a target
• 26:28
  Speaker 1: on their back with global regulators and politicians. So we'll
• 26:32
  Speaker 1: just have to wait and see. I guess that's the point.
• 26:34
  Speaker 1: But I mean, you can make the argument that they're
• 26:36
  Speaker 1: going to fall. Listen, if the stock market falls, they'll
• 26:39
  Speaker 1: fall well, and it's not going to be excepted. And
• 26:41
  Speaker 1: as as Leasa said, it's a little bit of a
• 26:42
  Speaker 1: circular logic since there's such a large part of the
• 26:44
  Speaker 1: stock market, right that if they fall, the stock market
• 26:47
  Speaker 1: falls almost by definition. But I will say, and we
• 26:50
  Speaker 1: just we have less than a minute left pit raised
• 26:52
  Speaker 1: a good point before this segment. He was talking about
• 26:54
  Speaker 1: how Apple is trying to create technology to reduce people's
• 26:57
  Speaker 1: usage of smartphones. You do have to wonder how how
• 27:00
  Speaker 1: much people are gonna vilify smartphone addictions and how that
• 27:03
  Speaker 1: will play into this entire cycle going forward. I agree,
• 27:07
  Speaker 1: and that's I think again, it's an issue for tech
• 27:09
  Speaker 1: that's hard to quantify, but also important to pay attention
• 27:12
  Speaker 1: to this kind of backlash against technology in general. All right,
• 27:15
  Speaker 1: well done, Thank you very much, Shira oi Day. As always,
• 27:18
  Speaker 1: we enjoy having to be with us and giving us
• 27:20
  Speaker 1: your perspective, our technology columnist for Bloomberg Opinion. Be sure
• 27:24
  Speaker 1: to follow Shira online on Twitter at Shira ov Day.
• 27:32
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 27:35
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 27:39
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 27:42
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa
• 27:46
  Speaker 1: abramoids one. Before the podcast, you can always catch us
• 27:49
  Speaker 1: worldwide on Bloomberg Radio