Day Two Part Two from the Milken Institute Global Conference

Watch Carol and Tim LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Television and Radio broadcast live from the Milken Institute Global Conference featuring Kipp DeVeer, CEO at Ares Capital, TCW CEO Katie Koch, Steve Klinsky, CEO at New Mountain Capital, Andy Sieg, Citigroup Head of Wealth Management, Raymond McGuire, President at Lazard, Victor Khosla, Founder and CIO at SVP Global, Mike Gitlin, CEO at Capital Group and Dr. Ali Rezai, Neurosurgeon and Neuroscientist at West Virginia University’s Rockefeller Institute.
Hosts: Carol Massar and Romaine Bostick. Producer: Paul Brennan.

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg business
Week inside from the reporters and editors who bring you
America's most trusted business magazine, plus global business, finance and
tech news. The Bloomberg Business Week Podcast with Carol Messer

(00:23):
and Tim Stenebeck from Bloomberg Radio.

Speaker 2 (00:27):
Welcome back to our special.

Speaker 3 (00:28):
Live covera up the Milk and Global LISTITITU conference in
Beverly Hills, California, Arn Romaine Bostik alongside Carol Masser.

Speaker 2 (00:35):
A big focus today not just on the.

Speaker 3 (00:36):
Broader investment space, but really on direct lending, an alternative
credit and one of the specialists in that space, Harry's Management.
Still seeing opportunities out there out includes well even helping
buy out shops throw up the companies they back against
higher interest rates well at the same time providing cash
back to fund investors without necessarily having to sell both
underlying assets. Please to say that the head of Aria's

(00:58):
credit group is joining us right now. Well, Tip to
be are live here on the Milk and stage. Great
to see you, Thanks, thanks for having me. Where do
you finding opportunities right now?

Speaker 4 (01:06):
So we're actually finding a pretty good constructive backdrop for
everything that we do, just as a reminder, credit, real estate,
private equity, secondaries, and we play in a host of
different geographies. Obviously our largest business in the US, but
we're in Europe and we're in Asia as well. So
I think my quick takeaway is we're actually seeing the
economy better than we might have expected at this point.

Speaker 5 (01:29):
US economy, US economy.

Speaker 6 (01:31):
Or everything.

Speaker 4 (01:32):
I think the global economy is saved for a few
but the US economy in particular, for sure. We've been
questioning a little bit. Isn't transaction activity down a lot?
And then when we go back and look at the
deployment that we've had in our businesses, it would actually
tell you that we're doing fine. To me, that means
we're picking up market share and just continuing to be

(01:52):
more and more relevant in all the businesses that we're in.

Speaker 3 (01:55):
With some of those transactions, I'm really talking about kind
of mid mid tier, mid market type companies or something bigger.

Speaker 7 (02:01):
Yeah.

Speaker 4 (02:02):
I mean, we have a pretty broad credit business. So
today it's about three hundred billion of assets in five
different businesses. I mean it ranges from the lower middle market,
which can be probably as small as twenty million of
you bit dom, but increasingly we're able to finance these
much much larger companies that you all are writing about
it at Bloomberg. So you know multi billion dollar deals

(02:23):
as well.

Speaker 8 (02:24):
What are those deals looking like?

Speaker 5 (02:25):
And I'm curious in a higher rate environment, how that
kind of impacts the financial structure a little bit?

Speaker 9 (02:29):
So lout in here, can you say that again?

Speaker 5 (02:31):
What's kind of in terms of a higher rate environment?
How is it impacting a little bit the financial.

Speaker 8 (02:35):
Structure of the deals? It is really left?

Speaker 4 (02:39):
You know, I mean, I think, look, the good news
is a higher rate environment means that assets are worthless,
and that's true real estate, corporates, et cetera. So you're
starting to see a reduction i'd say, in purchase prices
on corporate assets and certainly on real estate. And of
course with higher rates that helps because you don't need

(02:59):
to set these companies up with as much debt.

Speaker 5 (03:02):
What kind of deals are getting done in real estate
in particular? I think we continue We've had a couple
of conversations on the residential side of things, also on
global properties in general and office as well.

Speaker 8 (03:11):
So what kind of deals are happening?

Speaker 2 (03:13):
Are you fine?

Speaker 8 (03:13):
My interest in my day.

Speaker 4 (03:15):
Today is not frankly living in the real estate business.
But I think if we surveyed everybody in real estated areas,
it's really important that you don't take too broad a
brush on real estate.

Speaker 10 (03:26):
Right.

Speaker 4 (03:27):
So office is very, very different than we think industrial
and multifamily or most of our portfolios are both on
the lending side and on the equity side. I think
office is tougher and it's a bit of a wool See.
Although you know we're all in New York. You've probably
read the articles. The AD properties in New York are
fully leased up and the b properties are not. So

(03:49):
I think it's just you really have to be a
good asset selector and a good lender going in and
doing the fundamental work, depending on the asset class and
depending on.

Speaker 8 (03:57):
Really know it.

Speaker 3 (03:58):
Yeah, well, with some of the strength of the economy
and more importantly some of the stability repolicy than the
great environment, I mean, it's supposed beyond just real fate overall,
is that helping facilitate more transactions.

Speaker 4 (04:11):
There are all sorts of and we talked about this
on our earnings call last week. There are all sorts
of contributors that should lead to increased deal activity. So
the we think plateauing you know, of rates or the
black and continued rise of rates is one. We've talked
about this a lot publicly that most investors are LPs

(04:31):
are are really have significant appetite to get capital back,
and there's a lot of money in the ground in leverage,
finance base and in private equity, in and elsewhere that's
going to need to compel transaction opportunities. The economic backdrop
being good obviously is one of those as well.

Speaker 3 (04:49):
What does fundraising look like, parn you right now? Is
that more difficult?

Speaker 4 (04:53):
I shouldn't really talk about it in any specificity, but
we mentioned.

Speaker 9 (04:56):
This on the earnings call last week.

Speaker 4 (04:59):
We raised seven billion of capital last quarter and areas
in about fourteen billion of that was in credit. So
the good news is a lot of the places where
we live is it has not been any harder. I
think there's a real change in the way that investors
have approached their portfolios public versus private, liquid versus I liquid,

(05:20):
et cetera, and that's continuing to create tailwinds for us.

Speaker 5 (05:22):
You know, kit fourteen billion on the credit side, that's
a nice little bucket if you will, to put to
work right, fourteen billion. How quickly do you think you
put that to.

Speaker 8 (05:29):
Work in this environment or how quickly do you want?

Speaker 4 (05:31):
I mean, we try to be thoughtful obviously as we
raise capital, and the way that we justify capital raises
with our investors is certainly with our belief and we hope,
we think their belief that we can obviously deploy along
with what we've raised in terms of the capital. So
I think if new deal activity really does pick up

(05:53):
a bit, it'll be even easier.

Speaker 9 (05:54):
But we've been hitting our.

Speaker 4 (05:55):
Deployment targets, as I mentioned earlier, regardless, So we wouldn't
raising the capital if we didn't think that.

Speaker 9 (06:01):
We can deploy it over a reasonable period of time.

Speaker 4 (06:04):
That being said, having dry powder is really nice as
the markets are always transitioning.

Speaker 5 (06:08):
Yip, what are investor expectations? I talked a little bit
about higher rate environment in an environment where you get
a five percent out of tenure, you know, it's just
like I think the rethink about expectations of what investors.

Speaker 8 (06:18):
Want longer term.

Speaker 4 (06:20):
Oh look, I mean the reality is and a lot
of the businesses that we're in, we're in a spread product,
so we need to provide you know, attractive risk award
relative to the risk free rate, and that's how we
think about things, So there's no doubt. And base rates
going up has helped because a lot of what we
do is floating rate assets.

Speaker 9 (06:37):
But the private markets in.

Speaker 4 (06:39):
Particular have to shift with the risk free rate and
with the public markets.

Speaker 2 (06:42):
Oh, I want to talk about areas as a business.

Speaker 3 (06:44):
Do you guys have been expanding into as aw you
have new private uh when you're wealth management offering here?
First talk about Asia and the opportunities there is that
where the most of the growth is going to be.

Speaker 2 (06:55):
Do you think so well?

Speaker 4 (06:57):
I mean, we have some really well established platforms in
Asia and obviously represents a tremendously large market, but I'd
say in our businesses it's probably less sophisticated and certainly
what we have here in the US and also in Europe,
so I just view it as earlier stage. There, we
basically have a credit business that does performing credit and

(07:18):
also special situations, and we recently acquired a private equity
manager based in Singapore there that I think should provide growth.
I think in Asia we're focused on other areas, whether
it's real estate, infrastructure and real assets. As we try
to grow into a larger footprint there.

Speaker 5 (07:35):
But you know, it's interesting if we bring up Asia,
and you know, obviously you go back a few years
and I feel like we always talked about China, but
Japan as.

Speaker 8 (07:41):
All of a sudden, especially.

Speaker 5 (07:42):
Here at milkn we're hearing many investors bring up the
Japanese market the opportunity that it presents for you guys, specifically.

Speaker 8 (07:51):
In the area credit.

Speaker 4 (07:52):
I mean, we think, look, the reality is, it's an
enormous economy, yeah, with a very sophisticated business community that
is massively under allocated relative to the rest.

Speaker 9 (08:03):
Of the world in terms of alternatives.

Speaker 4 (08:05):
And the reason for that is obviously just the required
rate of return that they need over there has historically
been lower based on the way that their economy works.
That's probably changing, but I think they're also getting more
sophisticated and frankly more interested about wanting to really roll
up their sleeves due to work and.

Speaker 9 (08:25):
Get invested in alternatives.

Speaker 4 (08:26):
And when you talk about a one percent shift and
the portfolios over there from traditional to alternatives, the numbers
get very large, very quickly.

Speaker 3 (08:34):
Yeah, what is what is the differential right now in
terms of the allocations that you see alternatives in the
US versus say in Asia, particularly Japan or Europe.

Speaker 4 (08:43):
Yeah, I mean, I think it depends depends who you are,
whether you're you know, a pension versus a sovereign and
an endowment which will typically have a much much longer
range and then much longer, much higher allocation to new alternatives.

Speaker 9 (08:59):
The allocation in Japan today.

Speaker 2 (09:00):
Is virtually zero. What about how you're structuring deals right now?

Speaker 3 (09:05):
There's been a lot of discussions about how alternative asset
managers private credit funds are partnering with a lot of
the bigger money center banks and more traditional banks to
get deals done. I mean, they are basically calling you
and not necessarily you going to them. Is this going
to be kind of the structure of deals for the
foreseeable future?

Speaker 4 (09:22):
I mean, I think because on the new transaction front,
where a natural partner for banks. We obviously buy loans
and buy high yield and syndicated transactions for banks in
the regular way.

Speaker 9 (09:34):
We're also a good junior capital provider.

Speaker 4 (09:36):
Which is a business that they have had less and
less interesting over the years. But I do think over
the next couple of years, banks will keep rationalizing the
types of businesses that they're in and we'll probably sell
a portion of this business or that business, and we think.

Speaker 2 (09:54):
We can be very good buyers with those.

Speaker 8 (09:56):
Business as private credit.

Speaker 11 (09:57):
Is it getting crowded at all?

Speaker 5 (10:00):
It feels like everybody and in this week alone, like
different tie ups and linkups if you will, between traditional finance.

Speaker 4 (10:06):
And some of the part I mean, I've been doing
this for twenty plus years, so the market has just
grown substantially, right, So when we started, we talked about
financing ten to fifty million dollars Eve Dove businesses. As
I mentioned to you earlier, we can now talk to
much much larger companies because of our capital base.

Speaker 2 (10:22):
We think it's a business that.

Speaker 4 (10:24):
Actually gets easier as you get larger. Are either real
scale advantages? So is it more crowded? Is it more discussed?

Speaker 9 (10:32):
It is?

Speaker 4 (10:32):
But when you look at the risk reward and you
look at the results that we're generating for investors are
still pretty compelling.

Speaker 5 (10:40):
What can you give us in terms of insight about
returns to investors? Returns to investors?

Speaker 10 (10:45):
Very little?

Speaker 8 (10:47):
Come on?

Speaker 2 (10:49):
Are they being more demanding though?

Speaker 3 (10:50):
I mean, we've we've heard a lot, We've talked to
LP's ourselves, and they've talked about this idea of either
wanted a quicker return of capital or wanted to see
better returns than what was promised when the when they
first entered into those days.

Speaker 4 (11:01):
I mean, I think and and I just got here
last night, but apparently everyone's been talking about DPI, which
is obviously how much capital you can return to your LPs.

Speaker 9 (11:10):
I think what the LPs one first.

Speaker 4 (11:11):
And foremost today is more return of capital because they're
mismatched in terms of how they want to be able
to reallocate within their portfolios.

Speaker 12 (11:20):
I don't know.

Speaker 4 (11:21):
Our LP's are always tough on us to generate good returns.
If we don't generate good returns, still fire us, we
will hire someone else.

Speaker 2 (11:28):
Just guzee.

Speaker 3 (11:30):
That's about your existing portfolio there. I mean, I know
you guys kind of ranked those you have that whole system.

Speaker 2 (11:35):
I think it was like one to four or something.

Speaker 3 (11:36):
But when you talk about the quality of what you
already have, yeah, are you.

Speaker 2 (11:40):
Comfortable with it?

Speaker 4 (11:41):
Yeah?

Speaker 9 (11:41):
We've said this over and over here and over the
last couple of months.

Speaker 4 (11:45):
Things from an economic perspective are better than we probably
would have thought.

Speaker 9 (11:50):
Defaults in loan.

Speaker 4 (11:52):
And alternative credit portfolios are still materially below historical averages.
I get the question a lot of do you expect
they'll go up? Kind of rates remain higher for longer.
The answer is probably yes, But we're not forecasting, you know,
anything other than probably a traditional credit cycle, and that
should lead to I think, just dispersion of results. We

(12:12):
think the really high quality firms, the great origination and
great risk management, will continue to succeed, and the smaller
folks who haven't been in the business quite as long
could have a harder time.

Speaker 2 (12:23):
All right, Kevi, you have to leave it there.

Speaker 3 (12:25):
We're gonna try to get you to bump you to
the front of the line for Matgic Johnson here there
over our area's credit group.

Speaker 1 (12:34):
You're listening to the Bloomberg Business Week podcast Can't Just
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Speaker 5 (12:48):
Yesterday, I deal between PNC Financial Services Group and the
TCWS Group. I'm partnering to develop to deliver excuse me,
private credit solutions to middle market companies.

Speaker 8 (12:59):
Private credit. There is a lot going on.

Speaker 5 (13:00):
Continues to be great to be talking again with Katie Katchi,
CEO of the Global Asset Asset from TCW, which manages
approximately two hundred billion in client assets.

Speaker 8 (13:10):
You've been busy, Thanks for having.

Speaker 5 (13:12):
Me on, Yessa, tell us about this deal with D
and C.

Speaker 12 (13:15):
Yeah, sure, we're just by background. You mentioned TCW as
a two hundred billion dollar global asset manager. We were
an early entrant to private credit that is led for
us by the extraordinarily talented Rick Miller, our CIO of
private Credit. A twenty three year track record in that
asset class of conservative lending that's allowed us to outperform
with a low loss ratio. And we're really proud to

(13:37):
be partnering with PNC, which is the course one of
the leading US financial institutions. They're ranked forth and middle
market lending. They have an extraordinarily talented and tenured management team,
a strong balance sheet, and great client relationships. And this
has been a partnership. Just to answer a question how
it came about, it's actually fifteen years in the making,

(13:58):
so we've worked together closely for a long period of time.
Over that period, we've done forty co financings, and it
is also true that they are number one fun finance partner,
which means that actually PMC had to underwrite TCW and
our capabilities in order to provide leverage to our fund.
So this is a very very strong partnership, and I

(14:19):
wanted to just end Carol by saying that there are
This is different than other partnerships that have been announced,
and this strong relationship we have with each other has
allowed us to create something really differentiated for three quick reasons.
The first is that it's very middle market focused, so
we're going to target loans to companies with about fifteen
to seventy five billion at Evada. The second is that

(14:41):
it's a shared investment approach, so we're both putting in
investors to this partnership. We're going to work together on
the underwriting and the origination. Of course, it will be
shared by Rick, and that's because we have a shared
credit culture of conservative lending that allows us to do
to share the investment approach. And then finally it's shared
economic We're targeting two and a half billion dollars of

(15:02):
equity this year and it will be strong contributions both
from PNC and from TCW and our affiliate, so that
economic alignment aligns our interest with PNC and also of
course with our clients.

Speaker 5 (15:14):
So katy targeting two and a half billion, how big
could this partnership.

Speaker 12 (15:17):
Get those We think this partnership could expand significantly over time.
And that's important because private credit managers and banks, we
think those partnerships with US and others will continue because
banks are under some regulatory pressure, and private credit managers
they have the capital to allocate and to lend, and
banks have great origination capabilities, and those two things are

(15:38):
going to have to cooperate so we can continue to
put credit out into the US market.

Speaker 8 (15:42):
What does significantly mean.

Speaker 12 (15:44):
I'm not going to give you the exact billions of.

Speaker 5 (15:46):
Dollars, but I will say the double from the initial
two and a half or many.

Speaker 12 (15:50):
Times actually for our credit alternative platform broadly, we've already
doubled the AUM of that platform over the next couple
of years, and we're expecting it to be many multiple
over that. And this is going to play a very
important role in the growth of TCW's alternative credit platforms.

Speaker 2 (16:06):
Carol mentioned at the start that you've been busy.

Speaker 3 (16:08):
Another I guess deal, if you will, was a conversion
of two mutual.

Speaker 2 (16:11):
Funds to ets.

Speaker 3 (16:12):
Yes, in the AI space, talk a little bit about
why you make sure well.

Speaker 12 (16:16):
First of all, mutual funds in general, we think that
they have a place. We'll continue to have a place
in the market. Very important part of our business, very
big part of teas and will continue to be a
relevant vehicle. It is also true that clients are looking
at the exchange traded fund vehicle because of the liquidity,
the tax efficiency, and the transparency and ease of trading
of those vehicles. And so we are going to convert

(16:38):
several funds and launch new ETS. We did want an AI.
I do want to emphasize I am a believer in
generative AI. We have been managing AI strategies for seven years.
So this isn't something we just launched because chat GBT
is cool. It's we saw that transformative technology almost a
decade ago and launched a strategy on that. We're investing

(17:00):
in the technology enablers of AI and also the companies that.

Speaker 3 (17:03):
Will do That's what I'm curious is what is a
portfolio of AI SOX stakes?

Speaker 2 (17:06):
Because if you ask someone else.

Speaker 3 (17:08):
That question, they would just say, well, in video, maybe
Microsoft and that's in I assume.

Speaker 2 (17:12):
This is part of that.

Speaker 12 (17:13):
We have some of those in there, so these companies
that are driving the technology of AI, but then also
the companies that are the beneficiary and what it's actively
managed and it's relatively focused, and so what we're going
to do is ship the shape of the portfolio as
that narrative of AI changes over time. I do just
want to say one thing, because I think it's important
to be balanced on these issues. I do believe in

(17:35):
the transformative potential of AI, but it is a story
that's going to play out over the very long term,
and so a vehicle like this is appropriate for people
who can take that long horizon. And this is said
a lot, but I think it's a very good reminder.
The Internet was also an incredibly transformational technology, but that
didn't happen in year one, in year two, and it
took twenty years. But if you stuck with that narrative

(17:57):
for a couple of decades, and many of our clients
have that type of durability of capital, it was one
of the greatest wealth creation opportunities in the US economy,
and so we are excited about it, but balanced in
telling people this is a great vehicle. Be active, be selective,
which we are be with a manager that can evolve
with the narrative, but also be long.

Speaker 5 (18:16):
Ais a time as you know of our investment narrative.
Just generally speaking, take the big broad macro Katie, what
are you seeing right now?

Speaker 8 (18:23):
How would you describe the environment?

Speaker 12 (18:25):
I would say that we are long dispersion, the idea
of dispersion across all of our portfolios. It's really hard
to predict this in short increments. But what I would
say to you, whether it's private credit or it's public credit,
we think that the spreads and I'm going to talk
about public because it's just a little easier to point
to valuations which are at record tights in credit markets

(18:47):
in their post global financial crisis history, at record heights.
That valuation is inconsistent with some of the obvious challenges
that we have in this economy. Regardless of whether or
not we get a recession.

Speaker 8 (19:00):
Let's take the.

Speaker 12 (19:00):
Scenario where we muddle forward and have some type of
soft landing, but rates we all believe will stay elevated
because inflation is still pressure that could create a credit event.
Right when rates are this high and these companies we're
already starting to see stress in certain parts of the
credit market not priced into credit spreads. So in our
liquid portfolios where we do take macro views, which is

(19:22):
in the core plus space. Remember that's people's retirement money,
so we're managing that for their retirement assets over many decades.
We're conservatively positioned. We're overweight agency mbs, which is carrying
over the index, and we're being very patient and eventually
this is going to break, and when it does, we'll
lean into those specific credit opportunities. If, on the other hand,

(19:43):
I just we do get the recession, then we're going
to have a credit event anyway, in both public or
private markets, and that will create dispersion.

Speaker 5 (19:50):
Are you suspicious that the default rate is in something
different than what it is today?

Speaker 12 (19:54):
So this is a good point. Default rates are actually
where we would expect them to be in the traditional
level loan market. They're low and actually went down in
the first quarter in the private credit market. And I'm
glad you asked that, because we think that's really masking
some serious liquidity challenges in the private credit market. And

(20:15):
what we and you so the auguest question is why
why is this happening? Well, I would ask first, why
is there stress. The reason that we think there's actual
stress that's not showing in default rates yet is because
from from twenty nineteen to twenty two, these capital structures
were highly levered with the view that rates would stay
zero forever, right, and that didn't happen, And now masks

(20:36):
taken over and they're under pressure. Now, why haven't the
defaults gone up? My answer to you on that is
that if you look at last year, the amendments of
these loans were three to four times normal, and we
don't generally amend loans when things are going well, so
this cannot be extended forever, and eventually those default rates
will rise. I'm going to end with just bring it

(20:56):
back to dispersion. If you look at the last fifteen
years in the private credit world, the dispersion between the
top and bottom quartile manager is about fifteen basis points.
This is not high discersion. That number could ten x
or more over the next couple of years as these
default rates rise, and that's why you obviously want to
be with a manager like TCW that does conservative lending diligence,

(21:19):
very high levels of diligence, very significant underwriting, and we
feel really great about how we're going to manage this
environment for our clients.

Speaker 2 (21:27):
All right, Katie, we have to leave it there. Great
to talk.

Speaker 12 (21:29):
Thank you so much HEREO.

Speaker 3 (21:30):
Good time for us, Katie Kacha. Of course Elite's at TCW.
I'll take a time to talk with us here on
the Milk and Saints.

Speaker 1 (21:38):
You're listening to the Bloomberg Business Week Podcast. Listen live
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Speaker 2 (21:57):
Continue our spectional the coverage year about the Beverly Hilton.

Speaker 3 (21:59):
It is the items of private credit, y circle, the
hallways here of the Beverly Hilton, the legends of private equity.

Speaker 2 (22:05):
They want to remind you they haven't gone anywhere, and.

Speaker 3 (22:07):
If anything, they've actually graduated Kerl Massler to the next
phase of growth. At least that's the view of our
next guest, who says pe has now evolved into a
quote form of business versus just its origins as a
form of finance and that actually lays a foundation potentially
for better returns through building businesses and governance rather than
just leverage and risks. Stephen Klinsky co founded at Goldman's

(22:30):
original private.

Speaker 2 (22:30):
Equity group back in the eighties.

Speaker 3 (22:32):
Before branching out on his own in the late nineteen
nineties with New Mountain Capital. Please to say he joins
us here. Definitely a legend in the business. Great to
have you here, see it.

Speaker 7 (22:40):
Thank you both for having me here.

Speaker 3 (22:41):
Let's talk about this idea of the evolution of pe
and the idea of a form of business, because I
hear this so much.

Speaker 2 (22:47):
This isn't about cutting checks anymore. Maybe it never was,
but it's.

Speaker 3 (22:50):
Much more now about the handholding, about the business building.

Speaker 13 (22:54):
Yeah, you know, I'm one of the original private equity
people around. As you said, I came in nineteen eighty
one when the and your treasure was fifteen point eight percent.
There was lots of inflation, and it was about leverage
in those years. Forty years later, Uh, there used to
be twenty private equity firms. Now there are five thousand
private equity firms owning thirty thousand companies employing twelve million people.

Speaker 7 (23:19):
And the best private equity firms.

Speaker 13 (23:21):
You have all the advantages of being like a family
business where you're close to the ground to shareholders, but
all the scale of the big organization. You're not under
ninety day reporting. You can get the best managers and
build the businesses. So you know, the real success is
it's not where twenty interest rates twenty five basis points
higher or lower. It's how you took a company from
good to great. And that's what we try to do,

(23:43):
and that's what I think other good firms try to do.

Speaker 3 (23:45):
What does that take though, or let me rephrase that,
what are the companies themselves asking for from someone like
a new mountain or idy area for posing.

Speaker 13 (23:53):
Yeah, you know we buy we have megafund strength, but
we buy mid market companies. So let's say it's a
five hundred million dollar value business. The founders retiring. He
may never have done an acquisition, may never have gone global,
may never have thought about AI, may never have thought
about salesforce construction. So we take businesses that are already

(24:13):
safe and sound, we've never had a bankruptcy or miss
an interest payment, But the key is building them up
to a much much higher head of bankruptcy. Have never
had a bankruptcy, never missed an interest payment. And we
have now a team of two hundred and fifty people
at my firm and many many more affiliated with the firm,
so we can put in large sets of operators to

(24:35):
assist the management at the company.

Speaker 7 (24:38):
And that's what it's about.

Speaker 13 (24:39):
You don't want to be good just in one interest
rate environment and bad in another, or good one year
and bad another year.

Speaker 7 (24:44):
It's all weather business building.

Speaker 5 (24:46):
I love how you came out of the gate and started,
because we keep saying, you know, oh my gosh, we
got to go back to like zero.

Speaker 8 (24:51):
Interest rates environment. That's the abnormal part of it.

Speaker 5 (24:53):
You can come out of the gate and say fifteen sixteen
seventy percent, you know, talk to us about the constructive conversation.
We all need to be happy about today's rate environment.

Speaker 8 (25:02):
What it means for the investment landscape.

Speaker 13 (25:04):
Yeah, you know, look, when rate at any given interest rate,
private equity functions fine. As rates go up, things get cheaper,
so it's easier to buy the new company, a little
harder to sell what you bought before rates went up.
So uh, but then it's stabilizes. So when you actually
go back to the early eighties when interest rates were

(25:25):
crazy high because of stagflation. That was the best time
to buy companies because they were so cheap. And my
firm actually had a very active year both buying and
selling last year, and I think we got some of
the best things you've ever bought in the last twelve
months when some other people were out of the market.
So it's, uh, you're always buying and selling as a
mature private equity fund.

Speaker 8 (25:45):
Well, tell us about what you are buying or what's
of interest.

Speaker 5 (25:47):
At this point I'm rode away that never you know,
finally a bankruptcy.

Speaker 8 (25:51):
So what is kind of the.

Speaker 5 (25:52):
Secret special sauce if you will, in terms of what
you look for in a company and what you are
you know, committing to.

Speaker 13 (25:57):
Yeah, So what we do is we pick sectors roactively
that are non cyclical growth sectors like life science supplies,
healthcare it So, for example, years ago, we had a
business called Avon Tour that started a two ninety million
it's now worth about twenty billion. It's second biggest to
Thermo Fisher and Life science supplies. So a year ago
we did a big carve out from Perkin Elmer where

(26:19):
we bought all of their life science supplies businesses. Their
legacy Crown Jules and Spectromedy and chromatography and very complicated
carve out. They wanted certainty in a bad market, and
I think we can add a lot of value to
that company. Or we just we have a lot of
good success with a company called citren Cooperman and Accounting.

(26:40):
We're in the process of buying Grant Thornton, which is
one of the seven largest accounting firms.

Speaker 7 (26:44):
Wonderful firm.

Speaker 13 (26:46):
We just bought BMI, which represents one point four million
songwriters from Taylor, Swift and everyone else. It's a business
service that collects their royalties and we think we can
add a lot of technology and growth to improve it.

Speaker 7 (26:58):
So we're in these industries we have.

Speaker 13 (27:01):
My firm's now been around for about twenty four years,
so we've gotten stronger and stronger in these spaces, and
we don't depend on debt, so we could just get
some good byes.

Speaker 7 (27:11):
Well.

Speaker 3 (27:11):
Common bread with a lot of those companies you mentioned,
is kind of the acycle or non cyclical nature totally businesses.

Speaker 2 (27:17):
So that is the core strategy.

Speaker 13 (27:18):
It changes as the decades go on, but what sector
can grow non syncnically high free cash high barrier to
entry for the next five to ten years.

Speaker 7 (27:27):
That's where we focus. We have teams working.

Speaker 13 (27:30):
In these sectors and then when we find a nice,
safe company, we then spend years building it to get
their return.

Speaker 2 (27:36):
So and that's what we do, all right, Seebat to
leave it.

Speaker 3 (27:40):
They're great to talk to you and great to have
his perspective here. Really are one of the titans in
private equity of Stephen Klinsky of New Amountain Capital.

Speaker 1 (27:49):
You're listening to the Bloomberg Business Week podcast. Catch us
Live weekday afternoons from two to five pm Eastern. Listen
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Business at just Live on YouTube.

Speaker 5 (28:03):
Well, City cee of Jane Frazier was here at Milkin.
She expects the equity rally to continue. That was among
her comments at Milcote yesterday, appearing on a panel a
wide discussion on the market environment. Another member of her
team also at Milkin with us, as Andy Saig. He
is head of wealth management over at City Group and
we're delighted to have him join us.

Speaker 7 (28:22):
Help.

Speaker 14 (28:22):
Hey, I'm great, terrific to be here. As you said,
there's a bullish sentiment here at the conference.

Speaker 11 (28:27):
So it's great to hear you see that among your
wealth management clients.

Speaker 10 (28:30):
Give us an idea of the commenty you are.

Speaker 14 (28:32):
We see we see people very front footage in terms
of looking for opportunities in the markets. Obviously, you know
what's been happening in the US and market has attention
around the world.

Speaker 7 (28:41):
Our business is very global.

Speaker 14 (28:43):
We see a lot of discussion, of course about the
US election, but honestly, I don't think it's really driving
investor decision making. They're looking through that too, just the
underlying fundamental strength in the US economy and value they
see in our equity markets. Even after this run.

Speaker 5 (28:58):
Andy get into some of this visit investments at the
wealth management area, clients really are interested in. You know,
we talk about private credit. Here's another year of BILK
and we talk a lot about private credit. AI is
once again dominating the investment themes. I'm curious what those
clients are asking for.

Speaker 10 (29:12):
Well, I mean, well, you put your finger on it.
I mean, the probably the number one topic.

Speaker 14 (29:17):
And our clients in the private bank around the world
are they're real change makers in the world.

Speaker 2 (29:22):
They're very high at worth.

Speaker 14 (29:23):
Individuals, they've got a they're investors with great acumens, so
the focus on alternative investments is at the top of
their list. We happen to have one of the strongest
alternative investment teams in the market, and so a lot
of firms here at the conference are ones that we
work with with clients in the US equity market. Healthcare
is a topic that investors are very focused.

Speaker 8 (29:43):
On, specifically in healthcare.

Speaker 14 (29:45):
So it's very broad based because when you think about
where AI and so many other technology trends are going
to have their secondary and tertiary impact, it's going to
be in an area like healthcare. So I think we're
entering an era of innovation in healthcare which is going
to be mind blowing, and investors see that, they understand it.
We think it's a very durable trend and a place

(30:08):
people are putting capital to work against.

Speaker 3 (30:09):
Later coming up talking about we do'll be talking exactly
about that.

Speaker 2 (30:14):
I do want to ask you, though I've heard you.

Speaker 3 (30:16):
Talk in the past about getting sort of a larger
sort of wallets share if you will, out of existing clients.

Speaker 2 (30:21):
What gets you there?

Speaker 14 (30:23):
Well, I mean, hey, with our clients, as you said,
Cities business today, it's an outstanding business, but we've got
a tremendous opportunity with our clients to do more with them,
and so some of that is getting to know them
more deeply, trying to connect the dots in situations where
we're a corporate banker or an investment banker with a

(30:43):
family office or otherwise a wealthy family, and introduce the
investment capabilities of city. This is a powerful and broad
based investments business. It's not just alternatives, and we were
talking about earlier. We have some of the industry's most
sophisticated capital market solutions. We work with that managers across
the traditional space, and so a lot of this, honestly,

(31:04):
is just ensuring that our dialogue is as broad based
as possible. We've got many kinds who know us for
our banking strength and our sophistication is a lender, and
we're reintroducing them to what we can do with the investment.

Speaker 3 (31:16):
But with regards to the wealth business, I mean, how
do you sort of improve the performance. I mean, the
last couple of quarters have disappointed to a certain extent,
and I know that's just kind of the short term,
but as you look long term here, what gives investors
a more consistent returnment.

Speaker 10 (31:30):
Well, I mean.

Speaker 14 (31:33):
From a shareholder perspective, I mean this business. We've got
a very strong focus on what the business model should
be on Wealth Manager. This should be a business with
pretext margins approaching thirty percent, returns in the twenties, and
strong organic growth, and so we're setting out in a
very disciplined way to deliver that. First up, this business
has to be more fit. We're taking a lot of

(31:53):
topics that honestly are hobbies and we're sun setting those.
We're readjusting the expense base in the business, and that's
something investors are going to see you.

Speaker 6 (32:01):
In this quarter.

Speaker 14 (32:03):
We're shifting the focus of the businesses to your earlier
question around the investment solutions and investment advice we can
offer it to clients. We can't just be our client's
lender or their banker. We need to be their investment advisor.
And we're elevating the quality of the experience that we
offer clients around the world. Heavy investments in our digital platforms,

(32:23):
focus on the training of our people in personnel, more
discipline in terms of and intensity around how we cover clients,
and I think that all adds up to a powerful proposition,
and you're going to see us unify this business around
the world in a way that ensures that regardless of
where you're touching City, you have access to the best
in class capabilities that this firm represents.

Speaker 5 (32:45):
That was a lot going on in Wealth Manage, a
lot of competition to out there, that's for sure.

Speaker 9 (32:49):
It is well.

Speaker 14 (32:51):
That's why the power of this brand and the strength
of the client franchise.

Speaker 9 (32:55):
You know, our challenge is different than most.

Speaker 14 (32:57):
We're not out trying to acquire clients first, and foremot
for trying to do more with our existing clients makes sense.

Speaker 8 (33:02):
Andy, thank you so much. Any Jaeger, of course of
City Group.

Speaker 1 (33:08):
You're listening to the Bloomberg Business Week podcast. Listen live
each weekday. He's starting a two pm Eastern on applecar
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Speaker 3 (33:26):
The focus on investment banks, which have been signaling upswings
in two business lines that don't usually take off at
the same time, the busing ambitious companies on expansions well,
helping others still drowning in debt. Now, those simultaneous ways
of deal making infrastructurings, they've been the talk of Ernie's
conference calls at firms like evercoor like Molis as well
as Lazard. Ray maguire knows more about this space than anyone.

(33:48):
Have you run City Group's investment banking business for more
than a decade before that, helped run M and A
over at Morgan Stanley as well as other banking roles
at First Boston Wasser Team Pirella, and for the past
year he served as the president of those are the
world's largest independent investment bank.

Speaker 2 (34:03):
Ray maguire joins us here on the milk and stage.
What to have you here? You have a pretty long resident.

Speaker 10 (34:08):
I'm with you, guys. This is a big time.

Speaker 2 (34:12):
Is business good right now in the investment banking world?

Speaker 15 (34:15):
Is it?

Speaker 2 (34:15):
Or is it better?

Speaker 6 (34:16):
You know?

Speaker 15 (34:16):
We we just announced first quarter record earning in the
first in the first quarter of this year. So the
answer is yes, business is good. And I say that
with cautious optimisms. There's still headwinds out there, but we
think that the tailwinds are are pretty strong and so
we'll see how this evolves. And you're right to point
out that we have both the restructuring business animatey business,

(34:40):
which historically have not worked so much at the same time,
but today we see that it's a little different.

Speaker 3 (34:47):
Is the economic backdrop supported above that? Is it good
or good enough?

Speaker 15 (34:52):
Well, I would look about the economic backdrop is you know,
look at it. Where fed rates are today, we that's
going to be higher for longer. With the corporates. That
translates into making certain that they got the right strategic
profile and the right strategy.

Speaker 10 (35:11):
For the asset.

Speaker 15 (35:13):
Managers, which are thirty to forty percent of the overall
fee wallet, we're figuring out what they're going to do right.

Speaker 10 (35:19):
Many of them are active.

Speaker 15 (35:21):
Restructuring, as you said, is an active part of the business,
and we expect for both to continue.

Speaker 5 (35:26):
Wait, it's fascinating you say record quarter and then you're
like cautious optimism.

Speaker 8 (35:29):
That's kind of a span.

Speaker 11 (35:30):
Why why are you so cautious in this environment?

Speaker 15 (35:33):
Because you still have some tailwinds out there, I mean
some headwinds out there.

Speaker 6 (35:37):
So what what what most.

Speaker 15 (35:39):
Well, you know, interest rates being one. Yeah, the interest rate.
What's in front of us today? Our interest rates in
the state of the economy, inflation remains sticky. The FED
is looking closely at the data. That's what's in front
of us that we have to manage. What's ahead of
us is what's taking place geoeconomically and geopolitically. And there

(35:59):
I'm looking at five different trends that we need to manage.

Speaker 10 (36:03):
AI is one. Energy transition another.

Speaker 15 (36:06):
Deglobalization or reshowing is another, what takes place with cybersecurity
is another, and then what takes place with aging. The
largest growing part of the American demographic is sixty five
and over, and if you look at the American story
as the.

Speaker 9 (36:24):
Kind of the.

Speaker 15 (36:24):
Anchor to the global North, and then you look at
the global South where the largest growing population is thirty
and below. So we have to take all those factors
to consideration as you think about the trends that are
taking place.

Speaker 10 (36:39):
And I'm distincting.

Speaker 15 (36:40):
Between I'm distinct between between a trend and between a cycle.

Speaker 5 (36:44):
That's a lot that's just certainly a full plate, right,
And so I get the costs optimism. Is it something
that as we kind of deal with all of those
and some of the disconnections we might see play out
in the marketplace, does it ultimately lead us to some
downturn at some point to kind of find our.

Speaker 8 (36:57):
Way through it.

Speaker 10 (36:58):
I can't see.

Speaker 15 (37:00):
I can't tell you that the headwinds or that's from
the tailwinds, or probably a little stronger than the headwinds,
but they exist. So I can't predict a downturn at all.
I'm looking at where the market has traded. The S
and F for the past fifteen years is now traded
at you know, one of his historic highs for the
past twenty fifteen hundred years, that it's close to fourteen percent.

(37:21):
The dollar is the strongest that has been in fifteen years.
I look at that, and I look at what's going
to take place across border. As an example, the North
American wallet still remains the largest, notwithstanding some of the headwinds.
I think this tailwinds are pretty constructive as well.

Speaker 2 (37:39):
Do you think you have a good read though on
the economy.

Speaker 3 (37:42):
I was listening to the pan you're on a Milking
panel earlier today, and I was listening to some of
the common not only that you made with some of
your colleagues made about the state of the US economy
specifically and how what we're seeing in the data doesn't
necessarily reflect the true pain that we're seeing.

Speaker 2 (37:56):
On the ground.

Speaker 3 (37:57):
How much does that matter that there is a disconnect
between some of that top line data and maybe what's
happening on mainstream.

Speaker 15 (38:02):
You know, the markets have been able to perform notwithstanding
what we see with inflation. Right, have just cited to
you what's taking place over the past fifteen years. You
will look over the past five years. You're going to
see commensurate data that suggests that at least the markets
are performing. There as clearly some volatility to them. If
you look at the VICS index up and down, not
as high as it's been doing the Great Financial Crisis,

(38:24):
but you know it's up and down.

Speaker 10 (38:28):
We need to pay particular.

Speaker 15 (38:29):
Attention as I think the Fed is doing. It's what's
taking place on main street, which is inflation, which is
the value of the price of a carton and milk
or or you know, or a dozen eggs. Yeah, that's real.
So we can't ignore that. And as you think about
how you manage a portfolio of assets, either corporate assets

(38:51):
or assets that it gives in the asset management world,
you got to be mindful of that. You've got to
be mindful of the implication of valuations, if you will,
and we don't see that that's that togetherness yet is
speech at least with some of the asset managers.

Speaker 8 (39:05):
Well, that's interesting that you said about valuations.

Speaker 5 (39:07):
All right, So I don't know when you look at
deal activity of the next sixty to twelve months, what
are you anticipating.

Speaker 15 (39:13):
You know, we have a pretty good momentum today, but
followed them, so our expectations that you're going to continue
to say strategics they need to grow, they need to
remain competitive. And if you see a lot of the
activities taking place by the strategicis that included merging acquisitions
stock transactions.

Speaker 10 (39:33):
But the cost of an answering is.

Speaker 15 (39:34):
Pretty high, and I don't think the market ex actually
digested that. From the standpoint of using cases or borrowing
capacity as currency, because the rate is so high, we
are seeing a lot of the currency being used there
as stock. You can benefit from that. It's an appreciation
the value of the combination plus the benefit from synergies.

Speaker 8 (39:53):
All right, A colleague of mind, you got twenty seconds?
Are you going to run from mayor again?

Speaker 2 (39:56):
Oh gosh, you went there.

Speaker 15 (39:57):
I am quite confident with where I am and you know,
my objective today is to do what a right can
to add value to Lizart and the liz Art shareholders
and be a partner with Peter as we set the
strategy out.

Speaker 10 (40:09):
Now objectives go execute.

Speaker 2 (40:11):
All right, Well, that that was a good way to guy.

Speaker 3 (40:13):
And she told my last question, which was going to
be about it No, not about being mayor, but about
his involvement at Studio Museum of Harlem Cherisstudio Museum of
Harlan and the Whitney. I want to talk about arts
with him, but she took it away from me. Ray McQuire, guys,
President of all Lazard.

Speaker 1 (40:29):
You're listening to the Bloomberg Business Week podcast. Listen live
each weekday. He's starting at two pm Easter on Apple
car Play and Android Auto with the Bloomberg Business Ad.
You can also listen live on Amazon Alexa from our
flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.

Speaker 5 (40:47):
At the beginning of our next guest said there's more
pain coming for commercial real estate as the unwinding of
years and easy money begins taking its toll on the sector.
He is Victor Kosla, the founder and chief investment officer
of distressed debts less strategic value Partners. They are an
eight billion dollar global alternative investment firm focused on distressed
and deep value opportunities, doing us right here at milk.

Speaker 6 (41:08):
And how are you very well?

Speaker 10 (41:10):
Thanks?

Speaker 8 (41:10):
Thanks for having me well, it's great to have you back.
So distressed.

Speaker 5 (41:13):
How distressed are some of the assets that are out there?

Speaker 16 (41:17):
You know we are today? It looks like a wonderfully
today tworld. Right, High yield spreads are three hundred and
fifty basis points, Technology equity stocks are up right, So on.

Speaker 6 (41:30):
The on the face of it, it's like ducks fighting.

Speaker 16 (41:35):
Yeah, are just like, oh, it's you know, so what what.

Speaker 6 (41:40):
People miss a little bit?

Speaker 16 (41:42):
There's four trillion dollars of private equity assets invested in
the ground. There's five trillion dollars of people they have
borrowed to make.

Speaker 6 (41:56):
And where we are today, high.

Speaker 16 (41:59):
Interest rates, a sluggish economy outside tech Europe, neo recessionary,
a wall of maturities over the next three four years.

Speaker 6 (42:12):
So I think what you miss is, oh boy, there's
a slog now.

Speaker 11 (42:17):
To kind of work through this, all right, So when
does that?

Speaker 5 (42:20):
I'm looking at our live blog here on the milk
and conference, and that's one of the things that they
highlight that.

Speaker 8 (42:24):
You see the companies hitting that debt maturity wall.

Speaker 11 (42:26):
So when does it start to come undone?

Speaker 16 (42:29):
It started, so you know when we look at when
you look at what we do, if you use us
as a as an example, right, starting about twelve months ago,
we started to speed up the base of investing. Right,
so it's this is not like it's coming next year
or something. Because what happens is the maturity wall today

(42:51):
is there's very little in two thousand and twenty four,
in twenty twenty five, twenty six, twenty seven is six
seven hundred billion a year, six seven hundred billion a year,
and you've got.

Speaker 6 (43:05):
To address it early.

Speaker 16 (43:07):
So the maturity wall people are addressing it.

Speaker 6 (43:10):
It started, But you've.

Speaker 3 (43:13):
Seen some of the creative tactics now that we're starting
to see some funds take to make sure that we
don't see those default, whether it's doing selling to another fund,
just peeling off the stake here. And I wonder, like,
what do you make of that in terms of the
sustainability of that strategy and protecting those companies until in theory,

(43:33):
we get to the other side of whatever we're going through.

Speaker 6 (43:35):
And it is.

Speaker 16 (43:37):
You know, private equity investors are really smart and they wiggle. Yeah,
but they're wiggling. But I think when we look at
that world, how big it is. Our view, there's five
hundred billion dollars of what we would call adventurous financi
which is required, which.

Speaker 6 (43:58):
Will be there.

Speaker 16 (43:59):
Allah, they'll push it off, yes, but they'll pay a
pretty price for pushing it off.

Speaker 5 (44:04):
Right.

Speaker 16 (44:04):
And there's three hundred billion or so be estimate, which
is going to be just like, I give up.

Speaker 3 (44:10):
And just to be clear, the values we're talking about
two those have been inflated because of some of these
new agreements and some of these new extensions.

Speaker 6 (44:16):
Yeah.

Speaker 3 (44:17):
But it gets to the question, though, do we need,
say like a recession or some real huge economic shock
to shape this out. If not, if we don't get
that shock, you think this will still play out in
your favor.

Speaker 16 (44:29):
You know, our view would be we don't really expect
some headline grabbing recession. There is a chance there is
tail risk in this economy. Our base case in the
United States, say, is it's a little bit of a
slog Yeah, and so we're not expecting oh my gosh,
there's a credit market.

Speaker 6 (44:50):
Crash or anything like this. But just to deal with
what we have. You know, for somebody like us, we've
got a broad set of skills.

Speaker 16 (44:59):
Right, we don't just buy debt at fifty cents. We
have the operating skills to fix it, to take control
of a company, to manage it better for somebody. When
we buy assets, we have we own operating platforms to
own the asset and to fix it.

Speaker 6 (45:18):
What somebody like us, it's really attracted.

Speaker 8 (45:21):
Would you want to own commercial real estate assets?

Speaker 12 (45:23):
That?

Speaker 5 (45:23):
Right?

Speaker 16 (45:23):
You know, we've been looking the most interesting investment we've
probably made in commercial real estate, the most one of
the two best investments we've ever made in a film
was in commercial real estate.

Speaker 6 (45:35):
Two three years ago.

Speaker 16 (45:36):
Right, But what I would tell you is, last ten
months we are seeing that slide. We are in the
process of making our first ones. But boy, you've got
to be careful. You know when you look at these
office properties. Yeah, there's two trillion dollars of office mortgage
debt in the US and the ERA. But you now

(46:00):
is the all kip and see, hey it's forty percent?
How much money does it take? Yeah, you've got a problem.

Speaker 8 (46:06):
You're gonna be careful you got to your home mark.
That's for sure.

Speaker 3 (46:09):
All right, better we're gonna have to leave get there,
Victor Posla over at SVP. And it gets to this
idea too, of of where those opportunities are, and we
talk about both sides of the equation, the folks that
might be forced to sell them, more importantly, the folks
who are there to buy.

Speaker 1 (46:23):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from two to five pm Eastern Listen
on Apple car Play and then Bright Auto with a
Bloomberg Business app or one't just live on YouTube.

Speaker 3 (46:36):
Let's talk about that. It is homegrown right here in
Los Angeles, and it's probably best known for its prowess
in picking stocks, but as of late, it's been putting
up some of the best results among actively run bond funds.
As of last year, the manager of two and a
half trillion dollars in assets had a mass almost five
hundred billion in fixed income holdings. That's more than double
what they were less than a decade ago. It's elbowed

(46:58):
its way past fixed income rival. We are still enduring
a siege from cheaper index funds and rising interest rate
here to talk about the state of the market is
Mike Gittlin is the president and chief executive officer over
at Capital Group.

Speaker 2 (47:11):
Great to have you here, Mike.

Speaker 9 (47:12):
Good to see again.

Speaker 10 (47:13):
Romaine.

Speaker 3 (47:13):
Let's start talking about the bond side of the equation.
We're good to socks in a second here and talk
about the evolution of it, because the growth there has
really picked up in recent years.

Speaker 2 (47:22):
What was behind that, What.

Speaker 9 (47:24):
Was behind that really was investment results.

Speaker 17 (47:27):
Our team tried to generate a predictable pattern of returns.

Speaker 9 (47:30):
We have a really strong team.

Speaker 17 (47:32):
They were able to do that over one, three, five,
ten years, and clients appreciated that journey. You know, clients
in the bond market, they don't want a wild rod,
and the team was able to generate those kinds of
outcomes and the assets followed.

Speaker 3 (47:47):
You were working, your team was working with financial advisors
to push this as well. You had new products ETF
products too, right if I'm correct.

Speaker 17 (47:55):
Well, we launched a bunch of new investment services, mutual funds, ETFs,
elective investment trust whatever. The vehicle of choice for the
client was institutional separate accounts, but the real difference was
beating benchmarks after fees if you look over five and
ten year periods, one hundred percent of our bond strategies
beat the benchmarks net of fees.

Speaker 9 (48:16):
That's a good story to tell for our clients.

Speaker 5 (48:19):
The things to come environment today, is it like a
once in a generation event in yourview?

Speaker 17 (48:26):
I don't know if it's a once in a generation event.
There's a real opportunity though. If you look at the
bond markets right now, you can generate anywhere between five
to seven percent yield without taking a tremendous amount of
either interst.

Speaker 9 (48:39):
Rate risk or credit risk.

Speaker 17 (48:41):
It's a heck of a lot different than it was
five and ten years ago when we had zero interst
rate policy. So we see a lot of interest in
the bond markets. Even year to date, we have about
a billion dollars of net new flows per week into
our strategies. I actually think that's going to accelerate once
we get the first FED cut and people can get
real income. In the previous decade, the income wasn't infixed income.

(49:06):
Now it is again and there's a lot of opportunity.

Speaker 3 (49:08):
Did you think we're going to get that first bedcut
though soon this year?

Speaker 17 (49:12):
Look, I think we're looking for the inflection point, not
the month. I think later this year we'll get our
first cut, and I think that's where you have to
lean in and start being comfortable owning duration again in
bond strategies. What hurt clients in twenty twenty two was
owning duration his rates went up so fast.

Speaker 9 (49:30):
It works the other way around too, So as.

Speaker 17 (49:33):
Rates get cut, clients are going to benefit not just
from income but from total return by owning duration.

Speaker 9 (49:39):
So as we get that first rate cut.

Speaker 17 (49:41):
There's going to be a lot of opportunity in bonds
and also cash as an instrument.

Speaker 9 (49:46):
Cash is going to decay in value once.

Speaker 17 (49:48):
You start getting rate cuts. That's just around the corner.

Speaker 11 (49:51):
How much are you still seeing in cash right now?

Speaker 17 (49:53):
So right now globally there's literally ten trillion dollars in
money finds. The baseline for that is about three trillions,
so there's about seven trillion of excess cash.

Speaker 9 (50:04):
Sitting on the sidelines.

Speaker 17 (50:06):
That cash will come into the bond market before it
runs into growth equities. So that's what we're already starting
to see that kind of flow, and again I think
that will accelerate as you get to the end of
this year and into twenty five we'll.

Speaker 3 (50:18):
Explain that why you think that, why we'll flow more
into fixed income rather than into growth equity.

Speaker 17 (50:23):
You know, if you've been hanging on the cash and
you've been comfortable getting five percent, you don't necessarily leap
directly from cash into more risky assets. You tend to
take a little stopover in fixed income where you're generating
better return than cash, but on a risk adjusted basis
a little bit more common environment. So I think it
will stop there. Ultimately we'll see equity flows, and we're

(50:46):
beginning to see some of those as well. But I
think you'll see the first stop into the bond market.

Speaker 3 (50:51):
But with all that money that's sitting in money mark accounts,
cash accounts right now, that level that you signed otentrillion
globally whatever it is here in the US, it's been
at that level now for a while, So I mean,
it's got to be more than just a FED cut
that sort of shakes that up and gets that money out.

Speaker 17 (51:05):
You know, it's it's market volatility, it's concerned about elections,
it's concerned about geopolitics, all of those things.

Speaker 9 (51:13):
When you're getting paid five percent may convince you to
sit on the sideline.

Speaker 17 (51:18):
Why not and that's what some people are saying. The
reality though, is once you start getting these fed cuts,
that five twenty five cash yield goes to four seventy
five and four point fifty and four to twenty five.

Speaker 9 (51:30):
And at the same time different.

Speaker 17 (51:31):
You had this opportunity to generate better income and total
return in active bonds.

Speaker 8 (51:36):
One last question, just quickly. You said money is starting
to go into the equity side.

Speaker 5 (51:39):
All that cash that's sitting on the sidelines where inequity.

Speaker 8 (51:42):
Is it going?

Speaker 9 (51:43):
You know, inequities.

Speaker 17 (51:44):
We're going to see a broadening, a broadening beyond a
very narrow benchmark in the S and P five hundred.
You're going to see a broadening into small and mid caps,
into dividends, into international stocks where MSCIX the US over
the last fifteen years has done half as well as
the S and P five hundred. A lot of opportunities

(52:05):
outside the US, So I think you'll see that spread
around in a lot of different areas.

Speaker 3 (52:10):
So when we talk to you a year from now,
we're gonna be talking about the full on embrace. Here
got the full everything, the equity and elongertion.

Speaker 9 (52:19):
We've got a cash too much money in cash.

Speaker 3 (52:21):
Yeah, all right, Mike, we gotta leave it there. Great
to talk to you. Thanks for taking time for us.
Mike Gittlin, who leads the Capital Group, and I always
like talk to folks. You know, you are like the
homegrown companies here here in La So I'm a.

Speaker 5 (52:31):
Love it and kind of fascinating all of the kind
of all investment strategies, private credit that we've talked to,
just kind of really get a good view in terms
of what's going on and fixed in Kevin.

Speaker 8 (52:39):
Also a little bit in the equity side.

Speaker 1 (52:44):
You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 11 (52:58):
The global conference is done made by leaders in finance.

Speaker 5 (53:01):
You know that another category that always factors into the
speakers and conversations is health and wellness.

Speaker 11 (53:07):
Our next guest here at Milican.

Speaker 5 (53:09):
Was featured recently in a sixty minutes piece on the
work he's doing at the Rockefeller Institute at West Virginia University.
We welcome neurosurgeon doctor Ali Rizade.

Speaker 8 (53:18):
He is the Associate dean of.

Speaker 5 (53:19):
Neuroscience at West Virginia University. He's also executive chair and
director of the Rockefeller Neuroscience Institute. So nice to have
you here with Roman and myself. I have to say,
when we were planning for milkine and your name came up,
I'm like, yes, yes, sixty minutes did recently feature some
of the work you've been doing. But you've been studying
the brain, neuroscience, neurology for a long time, many decades.

(53:42):
How much have we learned about the brain and it's
connection to maybe future healthcare treatments.

Speaker 8 (53:47):
How much more do we have to learn?

Speaker 18 (53:49):
So neurological conditions are growing as a population is aging,
and we have more people with Alzheimer's disease, more addiction,
people with als, people with different types of dementias, and
we need to find solutions and we need to work
together between industry, public, private sector in the same way
we came up with a solution for COVID with the
COVID vaccine. We need to build teams together that are

(54:11):
accelerating the pace of discovery because Alzheimer's not going away,
addiction is not going away, and we need to find
solutions quickly.

Speaker 5 (54:19):
Well, pharmaceutical industry is really trying to find solutions for Alzheimer's.
You have figured out something and also with addiction, and
it's using I'm going to be very basic, but sonograms.

Speaker 8 (54:29):
So talk to us a little bit about what work
you are doing.

Speaker 18 (54:31):
So we're using ultrasound technology and this been universally there
when you look at a baby in alone, cultrasound exactly
says one ultrasound looks at a baby in a room,
or for heart doing echocardiography.

Speaker 6 (54:42):
In this case, we have.

Speaker 18 (54:43):
A thousand ultrasound probes that we're delivering the energy that
goes through your hair, through your scalp, through different parts
of the brain and converging in different parts to stop
the tremor from Parkinson's, to open the blood brain barriers
some more drugs can get into the problem area or
to reset part to the brain involved with substance use
disorder addictions.

Speaker 7 (55:02):
So the application hasn't.

Speaker 5 (55:04):
Been happening before with Alzheimer's, right because the drugs they
don't penetrate quickly enough exactly.

Speaker 18 (55:09):
So we have good pharmaceutical industries doing great job and
accelerate discovery, so drugs are able to go in but
ninety nine percent of the drugs have difficulty crossing your
blood brain barrier, which is in the brain's blood vessels,
and that's why you have to get higher doses, more
frequency and long term drugs. But what if now we
can open the blood brain barrier non invasively with an

(55:31):
outpatient procedure temporarily to allow much more drugs to get
into the area of the problems, and that can potentially
help really accelerate and make drugs even more effective and safer.

Speaker 2 (55:43):
How close are we to that to seeing that actually deployed?

Speaker 18 (55:47):
We and other groups have demonstrated that where we can
non invasively, for example, somebody with Alzheimer's, they have these
protein build up in the brain, So we can open
the blood pain barrier in the areas with data amyloid
plaques and.

Speaker 7 (55:59):
Then liver the antibody.

Speaker 18 (56:01):
So now the antibody can get in faster because their
barriers open and then do its jobs. So we found
the initial study that we can increase the removal of
this claques by fifty three percent more as compared to
antibody alone.

Speaker 3 (56:13):
Is that going to be effective on people who are
in advanced stages of alzheimer or is this only going
to work on.

Speaker 2 (56:18):
People or maybe at the early stage right.

Speaker 6 (56:19):
Now, studies for very early stage.

Speaker 18 (56:21):
But this has potential for Parkinson's, for people with frontal
temple dementias, als, and many other conditions. So we think
this is important for the pharmaceutical industry and partnership to
now provide a new way where we can deliver the
drugs to the brain, to the problem area exactly where
it is. You're delivered the payload and then it closes,
so the drugs can become more safe and more effective potentially.

Speaker 11 (56:44):
Tetro asi Alzheimer's is one thing.

Speaker 5 (56:46):
Addiction is another one, and you probably all know someone
who's had to deal with addiction on some level. Tell
us about the same kind of treatment similar, I should say,
that's also being effective.

Speaker 8 (56:56):
When it comes to addiction.

Speaker 18 (56:57):
Yes, so the same technology is being used as a
part of your brain, deep in the brain that is
your addiction center, reward center. So this country is having
a big problem with substance use disorders, phantom mail, heroin, cocaine,
meth and there are more than forty million people.

Speaker 7 (57:11):
With substance use disorders.

Speaker 18 (57:13):
So the solutions can be affected, but they're not good enough.
Last year, sadly one hundred and ten thousand people died
from overdoses.

Speaker 7 (57:20):
And it's only getting worse.

Speaker 18 (57:21):
So we need to explore new technologies and partnership with
science and industry to help people with addiction. And the
work that we did, we're able to show initially that
we can delivered ultra sound beam and reset the brain,
the craving parts of the brain, so the cravings are
dramatically reduced and people are now able to deal with
the addiction of the cravings better and are not taking

(57:42):
as much stress. So we're very excited about this opportunity.

Speaker 8 (57:45):
I do think about here at Milkin right.

Speaker 5 (57:46):
It's all about capital, lots of money here investing going
to different places, capital flows and medicine and treatments and discovery.

Speaker 7 (57:55):
Pitch.

Speaker 11 (57:55):
Tell us what you are seeing on that front and
what more you would.

Speaker 2 (57:58):
Like to say.

Speaker 18 (57:59):
So I us with you about Alzheimer's work and the addiction.
It was all developed by philanthropy and foundations giving us
a seed capital, and that seed capital raises all the
other sectors coming in. It's only with combining philanthropy with
science and technical expertise, industry, governments all together. Once they

(58:20):
come together, magic can happen. And we've already shown that
for COVID for example, with COVID vaccine, and this needs
to also happen for neurological conditions because many of them.
We don't have a solution for populations getting older, and
we have people that we need to help, so we
should be very impatient and try to collaborate together to
help people find cures and also find ways to improve

(58:41):
the quality of life.

Speaker 3 (58:42):
With the money that's being raised, particularly the money that's
not coming from safe philanthropic organizations here, obviously there's a
demand of return at some point here what exactly are
those folks asking for?

Speaker 18 (58:51):
So once we do the initial work, this is all
technology that leads to new innovations that can build new businesses.

Speaker 6 (58:58):
So you can find new businesses.

Speaker 18 (59:00):
There are dozens of companies making ultrasound systems. Combination therapy
will enable the pharmaceutical industry to have better solutions to
deliver the drug to the exact area, so you may
not need years of treatment, you may need just a
few treatments. So this actually will accelerate discovery and innovation
and will lead to more technology commercialization opportunities.

Speaker 2 (59:20):
I have to ask you.

Speaker 3 (59:21):
You know, as someone who's had to watch firsthand on
a couple of occasions of people dealing with dementia Parkinson's.
In the very slow process of watching that unfold, we've
seen some of these potential breakthroughs that promise that this
would be the last generation of folks who really suffer
from this, and we've seen we've seen that come up short.

(59:43):
How do we make sure that we don't run into
that again?

Speaker 18 (59:45):
Right now, we're having some good solutions that helping people
improve the quality of life. We need to search for
the cure, but only in my opinion, by bringing teams
together with a passion on purpose and an impatience and
a sense of urgency. Because you're right, Alzeh, time not
going away. Parkinson's is not going away. So we need
to bring in more capital from foundations, from philanthropy. We

(01:00:06):
need more collaboration with the industry and the private sector.
We need government collaboration, and fundamentally is about patient suffering.
We need patient advtsy groups. Once that all comes together,
we can provide new solutions. We may not have the answer,
but we're going to give it our best shot and
help quality your life and seek for cures.

Speaker 8 (01:00:23):
How do you think about it?

Speaker 5 (01:00:24):
And kind of going back to where I started, I
think there's so much we've learned about the brain, so
much we still are learning. I mean, when you think
about innovation and healthcare, what will be kind of the
next frontier? Here we are talking about the diet drugs
that seem to be fixing everything that ails us. But
how do you think about it the smart frontier going forward?

Speaker 18 (01:00:41):
I think for the brain, we need to understand diagnostics,
detect Alzheimer's earlier. Because Alzheimer's and Parkinson's for twenty years,
your brain is degenerating, you're not aware of it. But
what if you can detect it ten years before you'll
first have the first manifestation of it. Or to be
able to treat people better than ever before number one
detected earlier, changed lifestyles, or participate in clinical trials.

Speaker 6 (01:01:04):
And have new solutions. Just technology like to ultra sounds.

Speaker 18 (01:01:08):
It's used for looking at a baby or the heart,
but now it's used to treat brain conditions. So embrace it, partner,
and then we can accelerate the pace of discovery and
do rapid cycle innovation. So I think the future is bright,
but we need more partnership and collaboration here.

Speaker 5 (01:01:23):
All right, Well listen, so delighted to get some time
with you. Really appreciate it, doctor Ali Razai. He is,
of course at the Rockefeller Neuroscience and Stute, he's the.

Speaker 8 (01:01:32):
Director of that at WVU.

Speaker 10 (01:01:34):
Yeah.

Speaker 3 (01:01:35):
Yeah, I think Neil say everybody is rooting for him,
even if they don't know yet. This is something that
I think is uplate so many families and everyone really
is holding out hope that we finally see that. And
I don't like what he said too. It's not just
about what the scientists are doing. You need the government buying,
you need to fill in profit organizations, and you need
the private sector and that helps push this along.

Speaker 2 (01:01:53):
You saw what we were able to do with.

Speaker 5 (01:01:54):
COVID, well that's what I'm sactaing and during the pandemic
what we were able to do so quickly, but everybody
came together. This is what's kind of interesting about milk.
And we're gonna be back tomorrow. We've got more interviews.
But it really is this class section of Yes, finance,
but it's healthcare, it's wellness, it's everything that's kind of
going on in society and how do we find the
money that's needed to find the right solutions going to follow?

Speaker 2 (01:02:13):
Yeah, well, maybe we'll hear some of that tomorrow.

Speaker 1 (01:02:16):
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