May 6, 2025 • 41 mins
The 28th annual Milken Institute Global Conference will, in the organization’s own words, “unite our catalytic community to tackle challenges and seize the opportunity to collectively shape our shared future.” The conference aims to tackle our world’s most pressing issues from climate change to geopolitical hotspots to AI complexities, examining impact on markets and workers globally.
On this special edition of the Bloomberg Businessweek Daily podcast, hear some of the top conversations from our second day at Milken, with hosts Carol Massar and Romaine Bostick live from the conference.
On this episode, we hear from:
- Pimco CEO Manny Roman
- Oaktree Capital Co-CEO Armen Panossian
- Former Baltimore Mayor Stephanie Rawlings-Blake
- Churchill Asset Management President/CEO Ken Kencel
See omnystudio.com/listener for privacy information.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business
Weekdaily reporting from the magazine that helps global leaders stay
ahead with insight on the people, companies, and trends shaping
today's complex economy. Plus global business, finance and tech news
(00:23):
as it happens. The Bloomberg Business Week Daily Podcast with
Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 2 (00:32):
We want to bring in the head of the world's
biggest active bond manager, Pimco. They began making earlier this
year making a case for actually owning treasuries in that
five to ten years zone as it's all get this
unpredictable US policy furnishing the appeal of high quality bonds
at least compared when it's equities as well as the
corporate debt. And so far that bet is paid off.
(00:53):
You see that in the returns in the bond market
relative to equities. For a close review of that market
and the signals it may be sending, please say that
Manny Roman joins us right now.
Speaker 3 (01:01):
CEO, I go great to have you, Mannie.
Speaker 4 (01:03):
Thank you for having me.
Speaker 3 (01:05):
Market disruptions.
Speaker 2 (01:06):
Market perceptions have changed a lot, really in the last
four months because I felt like in January, coming into
this year, people were relatively optimistic.
Speaker 4 (01:16):
That's correct.
Speaker 5 (01:16):
I think people had made the assumption that they'd be
a very quick resolution to the tariff question. And the
reality is there's a lot we don't know, but tariffs
are going to.
Speaker 4 (01:31):
Be high, and that.
Speaker 5 (01:33):
We're going to have to deal with it for a
long time, and that will need to readdress our thinking
both in terms of economic growth but also inflation. And
I think that's the real question we have to deal with.
Speaker 2 (01:46):
Can you make that change now, meaning like when you
have to factor in what economic growth will be, what
the impact of tariffs will be, even though we don't know,
how do you make that pivot now?
Speaker 5 (01:56):
I think you do scenario and nanisis the big three
trait partners are China and Mexico, Canada. So you basically
run simulation and say if this happened, then this will
be GDP, If this happened, this will be inflation and
acknowledge that we don't know what the endgame.
Speaker 4 (02:17):
Is going to be and the only thing we could.
Speaker 5 (02:20):
Reasonably say is the overwhelming likelihood is you will have
high tariff for the foreseeable future and we'll have to
deal with this Mannie.
Speaker 6 (02:29):
Once we know what the terms are, does some of
the uncertainty go away and things settle down? But it's
structurally a different financial dynamic, potentially depending on how high
those tariffs are.
Speaker 4 (02:40):
I think that's right, But I think a number.
Speaker 5 (02:42):
Of company will have to re engineer this supply chain
and optimize the production costs and the transfer pricing based
on what the tariff will be. And I think that
changing supplight chain may.
Speaker 4 (02:59):
Not be as easy as what you make it to be.
Speaker 5 (03:02):
For us, we look at a set of macro parameters
and optimize our portfolio and decide what we think is
attractive in terms of asset and buy them at the
best possible price.
Speaker 7 (03:15):
So was that mean for investors?
Speaker 6 (03:16):
Do they just kind of stay put waiting for everything
to settle or are they starting to make those bets
assuming it is going to be very different? Tell us
a little bit about what you are seeing in terms
of clooth on.
Speaker 5 (03:28):
I think you've seen enormous volatility in the equity market,
right and somehow I would say with surprise that the
equity market has bounced back to the Liberation day level.
But you've seen clearly a move to cash all world,
which is the bond world, has been pretty much unaffected.
(03:49):
And my partner Dan Iverson has to say, where you
look at the year on a portfolio of bonds, say
six percent, six and a half percent, it's a very
good predictor of what your return will be over the
next five years. So if you want to own bones,
you're going to make six and a half percent, give
(04:11):
or take over the next five years.
Speaker 4 (04:13):
How are you going to get? There? A lot of uncertainty,
And that's what.
Speaker 2 (04:16):
I'm curious is about the volatility. And I mean you're
referring to your CIO. I mean I thought an interview
where you actually talked about how he was really embracing
that volatility to a certain extent.
Speaker 5 (04:26):
So there's too competent to it. What we like about
volativity is the fact that it will provide investment opportunity
and a source of ali file in terms of treading
different part of the curve, but also different products and
to move away from the US and final opportunity in
(04:47):
other part of the world. So you can always buy
US asset, but you can also buy non US asset
as a way to get duration and hedge them back
into dollar. So for example, we like Australian duration Australia
as a daring, robust academy. We like Australian bonds, but
we hedge them back in two dollars.
Speaker 4 (05:09):
That's the way to add our FA to the portfolio.
Speaker 2 (05:11):
How complicated is it to do that when there's also
a ton of volatility in the effect space and no
one seems to know where the dollars.
Speaker 5 (05:20):
You may wonder what the two thousand people we have
a new public school, that's what they do.
Speaker 4 (05:25):
You know, we can deal with that. Just about that,
we can deal with that.
Speaker 6 (05:30):
Aten US Secretary Treasury Scott Person obviously really kicking off
milk and on Monday, and he talks about the importance
of watching the tenure Do you agree in terms of
US Treasury is.
Speaker 4 (05:42):
The cost of boring is very important?
Speaker 5 (05:44):
And I think I will answer this in twofold one.
The US dollar as a reserve currency is really important,
and the tenure bond is in a way the barometer
for the financial health of the world academy, so it
is really important.
Speaker 4 (06:01):
Now, I would say, you look at the whole year.
Speaker 5 (06:03):
Cove, you look at the short end, the ten year,
the thirty year. You think also about credit spread, they're
very tight, and you think about all of this parameter
and try to assess what's to come and how you're
going to deal with it.
Speaker 7 (06:20):
Mannie, one thing.
Speaker 6 (06:20):
I'm curious about, and bringing up Secretary Bessett, what is
the voice that you listen to most trying to determine
ultimately what happens in the US, especially when it comes
to its financial system and the importance of you know,
it's been the place the world safe haven, right.
Speaker 5 (06:41):
And and it will remain it will remain as the
place of safe handy.
Speaker 7 (06:46):
We're so sure why.
Speaker 4 (06:48):
Well, think about it.
Speaker 5 (06:50):
The US dollar is the reserve currency, but it's also
the most liquid treasury.
Speaker 4 (06:56):
Market in the world. About an enormous factor.
Speaker 5 (06:59):
And yes, you know, you can make a reasonable argument
that the dollar is slightly expensive and that you may
want to diversify from the.
Speaker 4 (07:09):
Dollar to other currency, but.
Speaker 5 (07:11):
It doesn't mean, it does not mean that the dollar
loses its status. And I think it's very important to
keep that in mind. There's no other reserve currency, there's
no other place to move trillions and trillions of dollars
away from the dollar, and it is what it is.
Speaker 7 (07:28):
Do you have faith in the treasury Secretary to.
Speaker 6 (07:30):
Do the right thing, or at least get the president's
here on doing the right thing, because he has said
some things in regards to the Fed the Treasury secretary.
Speaker 7 (07:39):
Even so, I'm just curious, do you have faith.
Speaker 5 (07:43):
I think the wonderful thing about financial markets is that
they're efficient, and so they'll tell them and that the
market reacts to policy, and when the market doesn't like
either policies or a tweet, the market react in such
a way that people need to adjust the cost of action.
(08:03):
The market wants the flat to be independent, and I
think has voted very strongly about that, and I think
that dictates some of the choices and some of the
noise around all of this.
Speaker 4 (08:18):
And you know, it's a good thing markets that they.
Speaker 5 (08:20):
Have to reflect, to reflect supply and demand and also
reaction to event in the world.
Speaker 3 (08:25):
And we saw that play out in a big way
in April.
Speaker 2 (08:28):
One side of that, though, basically to your comments about
there kind of this being the most liquid market, this
is kind of the reserve currency, and that's not going
to end will lessen to a degree because when we
look at our treasury market and we think about how
many global investors hold our bonds, all the rumors that
maybe certain nations might be willing to weaponize their holdings
(08:49):
if the dispute with the US over trade escalates.
Speaker 3 (08:53):
Does that concern you?
Speaker 4 (08:55):
You know, there's no free launch.
Speaker 5 (08:57):
The reason why people own US dollar is because they
like to own US dollar asset. There is a very
strong case for American exceptionalism. The fact that the financial
systems are very liquid and very well run, and that
if you, for example, a Japanese investor, where there's about
a trillion dollars of US debt held by Japanese institution,
(09:21):
it's a good place to be, even hedge back.
Speaker 4 (09:23):
In the yen.
Speaker 5 (09:24):
And I think that's that's really an important fact to
remember in terms of the flow of fund and who
needs to put money aware.
Speaker 3 (09:35):
Is the treasury market healthy right now?
Speaker 4 (09:38):
Totally? You did not.
Speaker 2 (09:40):
You weren't concerned at all about what transpired that first
week to April, about the potential come up in the
system or that mismatch between buyers and sellers.
Speaker 4 (09:48):
No.
Speaker 5 (09:49):
We, on the contrary, I think we've seen very liquid
market voice and treasury and in credits, and to be honest, yeah,
you know, markets have been remarkably well behaved. We had
a couple of difficult days during COVID before they've fed intervened.
Speaker 4 (10:07):
But it's been very with sailing since.
Speaker 5 (10:10):
And you know, the markets offer plenty of opportunity to
change your mind. One of the good contribution have been ETF.
Where ETF have a low people like us to do
portfolio trade, rebalance for a book and to use this
liquidity to move assets around.
Speaker 4 (10:29):
And I would really and fire facts this.
Speaker 2 (10:32):
The markets are quite liquid, I promise not all my
questions are pessimistic, but I do have wonder.
Speaker 4 (10:39):
With the guard.
Speaker 2 (10:39):
I mean, you had a market, they had to deal
with the trade issues that hasn't been resolved, but they
certainly made some degree a piece with where we are.
There's now a big budget battle that's about to take
place in Washington, and I do wonder as the lead
leader of the biggest bond company bon investor out there
is there concern that our fiscal deficit and the potential
(11:03):
remedies that are being discussed in Congress could exasperate the
situation and the fixed income market.
Speaker 5 (11:10):
That's the wonder of being the reserve currency, everything else
being equal, you could run a slightly higher deficit than
you would otherwise. And I think that of course, people
will look at the amount of deficit, and you know,
it is overwhelmingly likely that the deficit is.
Speaker 8 (11:28):
Not going to get reduced.
Speaker 5 (11:29):
But once again, would you rather own very high quality
asset in the US or would you rather own bonds
in southern Europe? You can decide which one you would
rather own. That's the reality. The reality is you need
to invest somewhere.
Speaker 6 (11:48):
So you're not worried about it's a lot of debt.
It's a physical situation. It's been a lot of debt
for a long time, but now we're at levels we
haven't seen and so I'm just curious, is there some
point It's like you're saying, well, where else are you
going to go?
Speaker 3 (12:02):
Right?
Speaker 6 (12:02):
And it's kind of part of the US being the
market in the.
Speaker 7 (12:06):
World, So like should we just accept it?
Speaker 4 (12:10):
No, I think I would. I would.
Speaker 5 (12:11):
I would reply with a quote that I heard Janet
Yellen gave in a private conversation. She said, all we
can say is it's not a problem until it becomes
a problem. And so but but it's a deeper it's
a deeper meaning maybe that it appears like there's a
tipping point, which is very hard to guess where all
(12:34):
of a sudden, either because the issue will lose credibility
or because the policy doesn't make sense to market participant,
people all of a sudden don't want to be the
marginal buyer. And I think that's that's the analysis we
constantly make in terms of what's the right level to
clear the market?
Speaker 7 (12:54):
Man, when we had.
Speaker 6 (12:55):
The disconnect between the equity markets selling off a bunch,
we saw yield spiking, right, would trying to make sense
of it? Right, it just didn't seem to come together.
Are you telling investors watch the bond market equities kind
of do?
Speaker 7 (13:07):
Like, how do you make sense of something like that?
Speaker 5 (13:09):
Well, you could say that it did make sense because
the market, all of a sudden say we're going to
get in the worst possible situation.
Speaker 4 (13:15):
We're going to get into stackflation.
Speaker 5 (13:17):
Right, And in a case of stackflation, I can I
can remember seventy three and seventy four. Now there were
real macro reason with an old shock, but stackflation is
a real ugly problem because everything goes down and there's
no place to hide except cash, and even cash because
of inflation, you lose money. And I think you saw
(13:37):
the price of gold reacting to this, and so if
you use my frame of mind.
Speaker 4 (13:43):
Yeah, then I think it sort of makes sense.
Speaker 5 (13:46):
It's not a pretty picture, and I think the market
corrected pretty quickly. And say, you know what, stackflation is
by far not the most likely scenario, but the odds
of a recession must be slightly about fifty.
Speaker 6 (13:58):
Do you agree stackfliction not likely? Yes, great, it's not likely.
It's not likely, got it?
Speaker 5 (14:07):
And I think stackflation is the Night mayre or for
central banker. Yeah, and most of them haven't seen it.
You know, you have to remember that, market participants, there's
only one good thing about being old is you've seen
my market cycle. Yeah, and you know, I remember, for example,
the nineteen one ninety two crisis with the SNL. You know,
(14:29):
we had the Milken conference. You know, people had bought
a lot of I yelled dead and some of it
had to sell. So you remember that. You try not
to make the same mistake. You remember nineteen ninety eight,
you remember two thousand and one, in two thousand and two,
and of.
Speaker 4 (14:43):
Course remember the Great Financial Crisis.
Speaker 5 (14:45):
And each crisis is different, but you have a frame
of reference where you've seen ups and downs in the
financial markets.
Speaker 2 (14:52):
I want to talk specifically about your business, and I
mean you've got a big private business, private credit business
alongside the public credit business. And we've put talking a
lot over the last couple of days about how all
these markets seem to be overlapping. There's sort of this
vend diagram between public markets, private markets, credit equity, et cetera.
Are they in conflict with each other or are they
complimenting each other.
Speaker 5 (15:12):
I think they complement each other, but they may not
offer the same value at every point in time. So
I'll give you a very simple example.
Speaker 4 (15:20):
There's a reasonable case.
Speaker 5 (15:21):
To be made that we have a probability of a
recession slightly about fifty percent.
Speaker 4 (15:28):
If if that's the case, you don't want to own.
Speaker 5 (15:33):
High your credit, and you probably don't want to own
drect lending. Why Because the company are leverage, they are
weak single B they may or may not be in
the industry you want to be in. And so if
you have a recession, you'll see losses. By the way,
losses are normal. It doesn't mean there's anything wrong. But
(15:57):
when we think of optimizing our portfolio, we find better
off tunity to invest the weaker credit.
Speaker 4 (16:04):
At this stage of the business cycle and then.
Speaker 3 (16:07):
Making those decisions.
Speaker 2 (16:08):
I mean, you reference just a second ago about all
the books you have to figure out where the dollar
is going to go. I assume that there's got to
be a big technological component to that. When you took
over back in twenty sixteen, you made a big push
to add more technology.
Speaker 3 (16:23):
Resources to what you guys do.
Speaker 2 (16:25):
And given what's transpired over the last few years with
AI and the newfound interest in that space, I'm wondering
how much of that has become a component of the
analysis and decision making process.
Speaker 4 (16:35):
A very large one. And that's a very good question
if you think about it. You know, what do we want.
Speaker 5 (16:39):
We want great people to work for PIMCO and to
stay for as long as possible, and then we want
the best technology and the most innovative quant and marry
the two together and hope.
Speaker 4 (16:53):
That it works.
Speaker 5 (16:55):
And the EI revolution for us is the to manipulate
a lot of data coming from very disparate sources, analyze
them and get to a tool to help making decisions
which is incredibly granular. So we are very very big
(17:17):
player in mortgages. Everyone has a mortgage somewhere.
Speaker 4 (17:21):
We have a.
Speaker 5 (17:22):
Totally unique database and what I mean by database is
not only numbers, it's picture, its location, it's conversation with
the mortgage broker. And so you get an edge because
you have an ability to crunch through an enormous amount
of data and get to another granular level of decision
(17:44):
that or.
Speaker 4 (17:45):
Human brain would need longer to be able to do, as.
Speaker 7 (17:51):
Would go pretty quickly.
Speaker 4 (17:52):
I'm just going to tell you it's very fast.
Speaker 7 (17:53):
He's very very fast.
Speaker 3 (17:55):
Maddy.
Speaker 6 (17:55):
I'm so thoughtful, so helpful. Thank you so much for
asking for our audience. Really appreciate it. Many Reven the
Pimco CEO.
Speaker 9 (18:02):
You are listening to the Bloomberg Business Weekdaily podcast. Catch
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Speaker 6 (18:17):
Master along with remain Bostik. Private credit, Yeah, we tend
to talk about that a lot here in Milkin turned
rapidly in recent years to become.
Speaker 7 (18:26):
A one point six trillion dollar industry.
Speaker 6 (18:28):
That expansion and relative block of regulation, though, has fields
some concerns about the quality of private credit loans if
the economy deteriorates which begs the question, amid all the
talk about a possible US recession or could it be staculation?
Speaker 7 (18:41):
Might we be getting there?
Speaker 6 (18:43):
Penkin Sel has invested in numerous credit and economic cycles.
Speaker 7 (18:46):
He's laughing at me right now.
Speaker 6 (18:48):
He is the presidency of the global private debt manager
Churchill Asset Management. The long existent present company Pokmon Asset
Management comprises new being private capital.
Speaker 7 (18:58):
I'm trying to get through it intro large, Can you
just like one n seventy eight billion dollars private capital?
You are the OG when it comes to private capital.
Speaker 6 (19:10):
You were laughing at the introduction? Why because you don't think.
Speaker 10 (19:13):
No, no, it's very simple. It's Churchill, right, That's why
I know me as mister Churchill.
Speaker 8 (19:17):
So I'll take that.
Speaker 7 (19:18):
H Hey, listen, I think it was roughly. Let me
just look two years ago.
Speaker 6 (19:21):
You talked about the golden era of private credit.
Speaker 7 (19:23):
We always bring it up, right now? Is it still golden?
Is the shine off a little bit? Right now? How
would you describe it?
Speaker 8 (19:29):
I would say still very much so.
Speaker 10 (19:31):
I mean, if you think about the dynamics today.
Speaker 8 (19:34):
We were on a roll right third quarter, fourth quarter.
Speaker 10 (19:37):
First quarter activity coming back, interest rates stabilizing.
Speaker 8 (19:42):
Everything looked fantastic.
Speaker 10 (19:43):
We had a record quarter of deployment, capital raising, everything
going great, and then of course we had Liberation Day, right.
Speaker 8 (19:50):
But what's interesting.
Speaker 10 (19:51):
About Liberation Day is that it's actually creating a further
opportunity for private credit. But if you think about the
dynamics when the public markets close and go offline, that
creates opportunity in private credit.
Speaker 8 (20:04):
And unlike the GFC, where.
Speaker 10 (20:06):
There really wasn't a private credit market to step in,
there was private equity, but not a lot of private credit.
Speaker 8 (20:12):
Today there is.
Speaker 10 (20:13):
I mean, if you look at the largest managers, like ourselves,
we have thirteen billion dollars in dry powder, very much
open for business, very interested.
Speaker 8 (20:21):
In providing that capital.
Speaker 10 (20:22):
Now, we haven't yet seen a widening of spreads in
the private credit market yet. I know, I know the
BSL market is basically closed and secondary spreads and widened
out a bit. But I think what you're going to
see if this environment continues, and I suspect it will
at least for a short period of time, is that
private credit will take advantage of those opportunities.
Speaker 2 (20:42):
Oh, I'm just curious, So, I mean, what does spreads
look like in the direct lending space. And I know
it's probably very specific to each individual company and scenario,
but I assume those had to have widened out.
Speaker 10 (20:53):
You know, interestingly remain they have not at this point.
But what has narrowed in are the companies that are
getting finance right, so A plus credits with little to
know tariff impact.
Speaker 8 (21:06):
Yes, still very much being financed.
Speaker 10 (21:08):
In fact, we didn't have a single deal that you know,
once we went from March to April that actually went
you know, went on hold or with.
Speaker 8 (21:14):
Otherwise pull back.
Speaker 10 (21:16):
So I would say spreads have not yet widened in
private credit, but the kinds of deals that can get
done have narrow right, higher quality gets done. Tariff impacted
not really all.
Speaker 6 (21:29):
Right, but the uncertainty of the past month maybe increases
the need for some firms, right, yes, to reach out
to someone like you guys, So were you busy host April?
Speaker 8 (21:38):
Second, we've been very busy. In fact, we've been busy, you're.
Speaker 7 (21:42):
Like, as a result of what happened with the tariff.
Speaker 10 (21:44):
News, what we've seen are larger companies that would have
gone to the syndicated loan market or the BSL market.
Speaker 8 (21:51):
That market is essentially closed.
Speaker 10 (21:53):
So what we're seeing is they are coming to private
credit managers and saying, look.
Speaker 8 (21:57):
Can can we club you guys up?
Speaker 10 (21:59):
Can we get two or three direct lenders to do
a billion dollar finance two biling somewhat larger companies, which
is typically what happens. And overall what we should see
is generally wider spreads.
Speaker 8 (22:10):
Today you asked the question where are we today? Probably
so for five hundred or so, things really haven't widened
out that much. But I think you will see spreads
widen out.
Speaker 10 (22:19):
I think you'll see leverage come in a bit, and
of course you'll see our good friend the Covenant come
back in vogue, which we like to see.
Speaker 8 (22:29):
And our world start in our world can see them.
Speaker 10 (22:32):
But I would say is a general matter. You know,
in the liquid markets, not so much. So I think
it opens up larger deals. It opens up deal flow
that enables us to step in. You know, it's interesting
if you look at the GFC, there was plenty of
private equity, but the banks weren't lending, and there was
no direct lending. Today, tremendous amount of dry powder and
(22:52):
direct lending.
Speaker 8 (22:53):
Still a lot of dry powder and private equity.
Speaker 10 (22:56):
So I think things will normalize, and frankly, from my perspective,
I don't think we're going to see an extended period
of this tariff dynamic.
Speaker 8 (23:04):
I would expect that.
Speaker 10 (23:05):
It'll play out in a reasonable period of time, and
hopefully shorter rather than longer, and obviously the longer it goes,
you know, the worst.
Speaker 2 (23:13):
I'm curious when you say that, then if you're looking
for new opportunities, I mean a lot of people have said, Okay,
we're only looking for companies that, you know, domestic companies
or companies that don't have a lot of international exposure
or terriff exposure. Is our argument to be made that
maybe you should be looking at those names, assuming that
their valuations might have come down because of the tariff pressure.
Speaker 10 (23:33):
Yeah, well, I would say maybe, but not for US.
I mean, I would say, here's an interesting stat. Ninety
two percent of our borrowers today we have we have
about six hundred companies in our portfolio, ninety two percent
no impact, no tariff impact at all. So private credit
by its nature is mid market US companies that tend
(23:56):
to be more domestic, that tend not to be as
international as maybe some of the you know, large cap
businesses are so.
Speaker 3 (24:03):
In that's services, businesses.
Speaker 10 (24:04):
Services, healthcare, software, Uh, you know, business services that tend
to be more domestic.
Speaker 7 (24:10):
But you're picky in terms of who you choose.
Speaker 8 (24:12):
We're really picky.
Speaker 7 (24:14):
So I mean that percentage is impressive, but I'm just saying.
Speaker 8 (24:16):
Yeah, you're really careful with you. Yeah.
Speaker 4 (24:18):
No, no, it's sorry.
Speaker 10 (24:20):
And as a gentle matter, within that, we tend to
focus on those, you know, those sectors that are that
are less impacted.
Speaker 3 (24:25):
Real quickly, Ken, we'll run out of time.
Speaker 2 (24:27):
I just have to ask you, though, going back to
the origin of best conference, which you sort of chuckled, Yeah,
here nineteen ninety eight, whenever that was here.
Speaker 3 (24:35):
Yeah, the evolution of this is this an evolution or
is it just growth?
Speaker 10 (24:39):
It's absolutely an evolution. Yeah, And I would tell you
changed in a number of ways. In early days it
was more of a policy conference. It's retained that policy
which is great and I think attracts a broader audience.
But the investors are all here, right, and they're all
looking to talk about their stories, and they're exchanging ideas
with each other. I was saying earlier to both some
(25:00):
of the most interesting conversations I've had here have been
the one on ones with other investors.
Speaker 4 (25:06):
Yeah.
Speaker 10 (25:06):
You know, we don't get to see each other very often, right, we're.
Speaker 8 (25:08):
On the road raising money. Yeah, but we're all here, right, so.
Speaker 10 (25:11):
It's an opportunity to share ideas. Yeah, think about Okay,
have we thought about different angles from an investment standpoint?
Speaker 8 (25:17):
So in that way, it's really evolved quite a bit.
Speaker 3 (25:19):
All right, Ken, we have to leave it there. Always
a great pleasure.
Speaker 6 (25:21):
You don't want to have them share one of those deals,
those ideas on the side.
Speaker 3 (25:24):
I don't know.
Speaker 2 (25:25):
My producers in my ear telling me actually wrapped like
ten minutes ago, but you you actually sometimes I listen Ken, Kenzell, Churchill,
ATSET Management, President and cel.
Speaker 1 (25:35):
This is the Bloomberg Business Week Daily Podcast. Listen live
each weekday starting at two pm Eastern on Applecarplay and
Android Auto with the Bloomberg Business App. You can also
listen live on Amazon Alexa from our flagship New York station,
Just say Alexa Play Bloomberg eleven thirty.
Speaker 3 (25:53):
Talk about meeting a head.
Speaker 2 (25:54):
Prices now approaching almost six times the US media income
mean mile.
Speaker 3 (25:58):
If you're renting right, they're spending more than a third
or your.
Speaker 7 (26:01):
Income line rank so it's sound of a big expence.
Speaker 2 (26:03):
Last year, Airbnb formed a council of experts chaired by
the former Mayor of Baltimore, Stephany Rowlings Blank, to advise
the company on initiative to booths housing supply and drivecount crisis.
Please to say the Mayor Rowlans Blake joined us right
here on the stage.
Speaker 3 (26:18):
Great to see if Sephane, thank you for having me.
Speaker 2 (26:21):
How it affordability as something people who are trying to
solve probably for decades.
Speaker 3 (26:25):
Maybe even longer than that. A lot of the topics.
Speaker 2 (26:28):
That came up were the responses that came up really
talked about the emphasis of more government involvement and pushing
this forward.
Speaker 3 (26:36):
Are we seeing that?
Speaker 11 (26:38):
Definitely seeing it. But one of the things that I
took out of the panel that we had is that
it's going to take all of us.
Speaker 5 (26:44):
Right.
Speaker 11 (26:46):
Airbnb understands, for example, that they're not the cause of
the housing supply shortage, but they can be a part
of the solution. As a mayor, I knew that I
didn't cause it, but I had to be a part
of the solution.
Speaker 3 (26:58):
And some of the.
Speaker 11 (26:59):
Developers and private equity folks that were on the panel
they have to understand that they have to be a
part of the solution as well. So it's an all
hands on deck. You know, we talked on the panel
that we're short in this country over five million homes
and we're not going to close that gap by doing
what we did yesterday or a decade ago. We have
(27:19):
to think critically and with more innovation around how to
build more, how to build faster, and how to build better.
Speaker 2 (27:28):
How do how do the city, though grapple with economic growth,
similar to what Baltimore went through where you had this
huge resurgence, companies coming back, people moving back to the city.
Of course, that also drives up typically real estate prices as.
Speaker 3 (27:42):
People look for a homes.
Speaker 2 (27:44):
So there's a balance, right You want to you know,
reap the fruits of getting all those people back into
your city, but at the same time, you don't want
to shut everyone out who maybe isn't at a certain
income level.
Speaker 3 (27:54):
Where's the balance?
Speaker 11 (27:55):
So I don't always look for the win win, and
when you talk about bringing people in, that's always a
good thing. But in Baltimore, like many cities, we have
a circuit breaker, meaning the value of your home year
over year could go up one hundred percent, but your
property tax will only go up a fraction and that
allows people to stay in their homes and reap the
(28:16):
benefit of wealth creation through their home. But they are
also things like repurposing vacant homes.
Speaker 8 (28:25):
I think we need to think.
Speaker 11 (28:26):
Differently about vacant homes. Yes, they're they're are blake, but
they're also an opportunity when home ownership is so far
out of reach for many of America's young people, we
can look to rebuild and these vacant homes as a
way because the infrastructure is already there. Right, cities like
Baltimore were built for, you know, over a million people,
(28:48):
So that infrastructure is there, the people aren't there. So
how do we look at those vacant homes as opportunities
for families and young people to become homeowners?
Speaker 6 (28:58):
Stephan and live that you went there, because I think
people are like, just build homes, build homes, build a
five million homes. It's not just about building them anywhere.
It's about building them where people need them. And they
tend to be cities which tend to be expensive. So
as soon as the build happens, it's often expensive. How
do we fix that? How do we get developers, politicians,
everyone to say, let's build where the housing is needed,
(29:20):
and let's make sure we make it up affordable.
Speaker 7 (29:22):
How do we do that?
Speaker 11 (29:24):
So cities like Baltimore are incentivizing affordable housing, incentivizing repurposing
vacant homes. Right, that was one of the projects that
I started as mayor, my Bags to Value program that
our current mayor has taken on and made it his own.
So we need to do things like that where we're
creating incentives like down payment assistance. The president of Dom
(29:47):
Hopkins is speaking here at Milk and they give employees
like match for Match, like they're giving their employees thousands
of dollars and down payment assistance if they move around
the U university. So things like that, and we have
to look for innovative ways to promote financing of leads
of affordable housing as well.
Speaker 6 (30:08):
Do you feel like all the right stakeholders are at
the table talking because sometimes now who's missing?
Speaker 11 (30:14):
I think you have to look at the job creators.
On the panel today we talked about a teacher, a
teacher in a public school having to commute an hour
and a half. Right, that is atrocious. No teacher should
have to commute an hour and a half to get
to the classroom. So the Board of Education should be
(30:35):
at the table. The hospitals, the universities, all of these people,
the companies, the people who are employing America's you know,
citizens should be at the table to be a part
of the solution. Everyone has a different role to play.
Speaker 3 (30:49):
Like Airbnb.
Speaker 11 (30:50):
Like Airbnb supports grassroots organizations that are doing things like
fighting zoning laws that prevent housing, that work with cities
to reduce bureaucracy and make it easier for buildings to
happen across the country. That's what Airbnb is doing their part.
But every company that has employees could be doing something great.
Speaker 4 (31:12):
Point Savy, that was a.
Speaker 2 (31:14):
Great compositions to catch up with the I to fly
all the way to LA to catch up with you.
Speaker 3 (31:18):
We'll get back to you.
Speaker 7 (31:19):
Good luck when we're back on the East Coast.
Speaker 2 (31:21):
Stephanie Rawlings Blake aarond Airbnb Housing Council chair and the
former mayor of Baltimore. We should also point out she
mentioned Johns Hopkins. Of course, Mike Bloomberg is a big
contributor to Johns Hopkins. He is the owner of the
company that own the network that you're watching right now.
Speaker 9 (31:37):
This is the Bloomberg Business Week Daily Podcast. Listen live
each weekday starting at two pm Eastern on Apple car
Play and the Android Auto with the Bloomberg Business app.
You can also listen live on Amazon Alexa from our
flagship New York station Just Say Alexa played Bloomberg eleven thirty.
Speaker 2 (31:56):
And while we have seen spreads in the US highyuel
bond market actually down from that big spot that we
saw in early April, they do remain elevated, and so
too does the volatility. And in the less liquid world
of private credit direct lending, spreads just a touch wider,
although we don't know quite how wide for obvious reasons,
but that has left some money managers much more selective
about adding risk. Here to discuss those correlations and the
(32:18):
dislocations is Armand Phenolcian.
Speaker 3 (32:20):
He's the co CEO over.
Speaker 2 (32:21):
At oak Tree two hundred billion dollars in assets, mainly
in credit.
Speaker 3 (32:24):
Great to see, Armin, great to see both. Are you
buying right now?
Speaker 4 (32:27):
Carefully?
Speaker 12 (32:29):
We are mindful of the exposure to tariffs. We are
mindful about the potential retaliatory tariffs. We think there's some
good value out there, especially in public credit. But we
are also recognizing the fact that we may be on
the precipice of some volatile times ahead.
Speaker 2 (32:45):
What are credit spreads telling us right now? We have
that brief spike in early April, and I know we're
still elevated, but we're nowhere near the types of blowouts
we saw during past financial crisis.
Speaker 4 (32:54):
Correct.
Speaker 12 (32:55):
You know, we're at about a three sixty spread in
US high yield. If you look at the high and
the low the last six months, it was two sixty
and four sixty, so we're right in between. So you
have to ask yourself, you know, has the news been
supportive of being sort of right in the middle there?
Speaker 4 (33:10):
I think the second and third quarter numbers as.
Speaker 12 (33:12):
They come out, however, could suggest that three sixty is
a little bit on the tight side.
Speaker 6 (33:16):
To be honest with you or mean, I guess what
we have to do is kind of accept the reality
though that all right here we are at this moment
in time, But twenty four hours from now it could
be very different.
Speaker 7 (33:25):
Mason, what's coming out out of the White House.
Speaker 6 (33:27):
So when you say precipice a volatle time, I mean
that's the reality of it. What would happen to make
things settle down? Is it a terrif agreement with US China? Like,
what is it in particular?
Speaker 12 (33:39):
I think it's exactly right. If President Trump decides very
very soon that there is a reasonable resolution with China
in particular on tariffs, then I think there's a relative
calm that will persist in the economy and the markets
and companies will be able to know what to do next.
For now, Well, what's happening is there's a delay in spending,
(34:02):
consumer spending, capital expenditures. As that continues, it could cascade
into unemployment.
Speaker 4 (34:09):
And that's the.
Speaker 12 (34:10):
Sort of the really negative outcome here. If this negotiation
takes much longer, all right.
Speaker 6 (34:16):
So if they get a deal and it is a
little bit more onerous in terms of tariffs between the
two nations.
Speaker 7 (34:20):
Is that kind of okay? As well as we know
the terms or the terms do matter as well.
Speaker 12 (34:24):
The terms do matter because whatever the tariffs are, let's
say it's sixty percent on China and twenty or thirty
percent for the rest of the world, that's still inflationary, right,
and so the question is what's after that? And Secretary,
that's a mentioned sort of a three pronged approach. There's tariffs,
there's taxes, and deregulation. So the question is does the
(34:45):
deregulation and do the lower taxes offset the impact the
inflationary impact of the tariffs for consumers or not If
it doesn't, and there could be demand destruction in some
economic issue.
Speaker 2 (34:57):
So Bloomberg reported last month that Buchrie was setting up
another special Situations fun trying to raise money for that.
Are you able to share any thoughts on the progress
of that.
Speaker 4 (35:07):
Well, we don't.
Speaker 12 (35:08):
We can't talk about any particular fundraise, but we do
see a lot of opportunity for companies in need of
both equity and debt to help them bridge through uncertain times.
We are seeing more activity in terms of companies calling
us for rescue owns.
Speaker 4 (35:23):
I know others have mentioned that as well.
Speaker 12 (35:26):
I expect that given what's happened with the policy backdrop
and private equity firms had hoped to be able to
sell out of their businesses earlier this year.
Speaker 4 (35:37):
It was supposed to be a really strong gear for
M and A.
Speaker 12 (35:40):
But given what's going on now, I think that those
private equity owners will have to come to the likes
of oak Tree for some solutions that help to extend
their ownership of those businesses.
Speaker 2 (35:49):
Has there have been discussion not just at Oaktree, but
just amongst your peers as well in the private capital
space about trying to find ways to increase liquidity or
at least have the flexibility to increase liquidity.
Speaker 3 (36:01):
Should times really get hard.
Speaker 12 (36:03):
In terms of liquidity in the asset class, I think
that's very hard to do now. The reason is in
below investment grade credit or unrated credit, the borrowers want
their financials to be not in the public domain. You
need those financials to be in the public domaintein be
able to increase liquidity and transparency in the trading of
(36:23):
those assets in investment grade private credit, because usually the
borrowers are already publicly traded, it's easy to triangulate to
the value of a privately issued credit to a publicly
traded company.
Speaker 6 (36:36):
What are the geographical variations and differences that you're seeing
or dispersions, you know, Europe has off been a topic
we've been talking about a lot here at and Milkan
talk to us about that if he would, Well.
Speaker 12 (36:46):
We're not seeing a tremendous amount of dispersion yet, but
What we are seeing, however, is our clients globally are
wondering whether they need to back off.
Speaker 4 (36:53):
On how much exposure they have to the US. They
really are asking, they are asking.
Speaker 12 (36:58):
They know that the US is still the best place
to invest. It's the deepest market, strongest economy. But the
question is has the US damaged itself in some for
an intermediate period with some of the policy statements we've made,
And if that's the case, should we should we a
non USLP in particular, should we be looking at other
parts of the world, like Asia or Europe. And Europe
(37:20):
in particular, there are some tailwinds, and the tailwinds being
stimulus around defense, especially and infrastructure.
Speaker 4 (37:26):
Relating to defense, a lot of capital is going to
be spent.
Speaker 12 (37:29):
Debt to GDP in a country like Germany is low
enough that there could be some additional debt taken on
by Germany to fuel.
Speaker 4 (37:36):
This type of build out.
Speaker 12 (37:38):
It's probably a good time to think about asset allocations
a bit with regards to.
Speaker 2 (37:42):
Some of that allocation that we're saying to Europe, is
that concentrated though around defense, or at least around industries
that would be a direct beneficiary of debt increase and
fiscal spending.
Speaker 12 (37:52):
I think it's too early to tell, but I would
say it's the point of focus is in general industrials
and that is a first order and second order or
it depends on defense on a first order and second
order basis.
Speaker 2 (38:05):
Do you think we'll see much more of an opening
of the European market to private capital, private credit, private equity.
They didn't necessarily chase the US, at least not to
the same scale that we have here. Do you see
the potential for that market to actually expand?
Speaker 4 (38:21):
I see it.
Speaker 12 (38:22):
I see the potential to expand. I think the size
of the borrowers in Europe, however, just tend to be smaller.
The market is smaller. I don't see it becoming the
size of the US, but I do see it growing
from its current status.
Speaker 4 (38:33):
I think the hard part is for European LPs.
Speaker 12 (38:37):
For European investors, there is a different regulatory dynamic that
requires them to really favor European investment, and.
Speaker 4 (38:44):
They're not finding enough to do right now.
Speaker 12 (38:45):
They have a lot of capital and not enough places
to put it in Europe. So the market doesn't need
to expand. The question is will there be enough businesses
of size and scale and giving depth to that market.
Speaker 4 (38:55):
For deployment in the region.
Speaker 6 (38:57):
All right, when you said that, some of the investors
were saying, should we reduce our exposure to the United
States by how much?
Speaker 7 (39:02):
Are they just saying a little bit or are they looking
to say, do I need to be a little bit
more aggressive outside the US?
Speaker 4 (39:07):
For now, it's by a little bit, Okay. You know,
right now, most.
Speaker 12 (39:12):
Non US investors have something like fifty to maybe as
much as seventy percent of their portfolios deployed in the
US private equity credit of variety of types. They're not
talking about cutting that in half, but five, ten, fifteen
percent could be on the table.
Speaker 7 (39:26):
That's so significant. Hey, last question, Milkan.
Speaker 6 (39:29):
I feel like from year to year, the mood, the
narrative can change. It feels like everybody's here trying to
figure out what's next. Yeah, there's always a part of that,
But I'm just curious what's striking you about this year's conversations.
Speaker 4 (39:42):
That's a good question, I think, because the.
Speaker 12 (39:46):
SMP is back to sort of Liberation Day levels, I'm
not surprised to hear that some people are probably a
little bit more optimistic than that that there will be
a deal cut. I'm surprised to hear that there's a
belief that they're a sort of rationality or rationalism will
prevail and that we'll get to a deal on the
on the tariff side that is acceptable to US companies
(40:09):
in a in a reasonable enough period of time to
avoid a bad outcome. Well, I don't think that's off
the table. I don't think that, but I don't think
that that's the likely outcome.
Speaker 4 (40:18):
And I think that the mood.
Speaker 12 (40:20):
Shifts depending on whether you're talking to US investors or
non US investors.
Speaker 4 (40:26):
US investors are quite US centric and they believe everything
will be fine.
Speaker 12 (40:29):
Non US investors are a little bit more concerned because
they are frankly, a little bit more culturally sensitive to
what our trading partners now think of us. That's a
sobering kind of dichotomy in terms of conversations that I've
been having over the last few days with our client.
Speaker 4 (40:47):
Base, and it gives me pause.
Speaker 12 (40:49):
It gives me reason for real concern that we're going
to have some troubled times economically, which will then eventually
create some opportunities to invest in the markets.
Speaker 2 (40:58):
Well, Arman, if we are fortunate to catch up with
you twelve months from now. The interest to city, what
if that mood has actually changed or not? Great to
have you here, Armin Venoci and the co CEO over
at oh Tree.
Speaker 9 (41:10):
This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live weekday
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You can also watch us live every weekday on YouTube
(41:30):
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Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business
Weekdaily reporting from the magazine that helps global leaders stay
ahead with insight on the people, companies, and trends shaping
today's complex economy. Plus global business, finance and tech news
(00:23):
as it happens. The Bloomberg Business Week Daily Podcast with
Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 2 (00:32):
We want to bring in the head of the world's
biggest active bond manager, Pimco. They began making earlier this
year making a case for actually owning treasuries in that
five to ten years zone as it's all get this
unpredictable US policy furnishing the appeal of high quality bonds
at least compared when it's equities as well as the
corporate debt. And so far that bet is paid off.
(00:53):
You see that in the returns in the bond market
relative to equities. For a close review of that market
and the signals it may be sending, please say that
Manny Roman joins us right now.
Speaker 3 (01:01):
CEO, I go great to have you, Mannie.
Speaker 4 (01:03):
Thank you for having me.
Speaker 3 (01:05):
Market disruptions.
Speaker 2 (01:06):
Market perceptions have changed a lot, really in the last
four months because I felt like in January, coming into
this year, people were relatively optimistic.
Speaker 4 (01:16):
That's correct.
Speaker 5 (01:16):
I think people had made the assumption that they'd be
a very quick resolution to the tariff question. And the
reality is there's a lot we don't know, but tariffs
are going to.
Speaker 4 (01:31):
Be high, and that.
Speaker 5 (01:33):
We're going to have to deal with it for a
long time, and that will need to readdress our thinking
both in terms of economic growth but also inflation. And
I think that's the real question we have to deal with.
Speaker 2 (01:46):
Can you make that change now, meaning like when you
have to factor in what economic growth will be, what
the impact of tariffs will be, even though we don't know,
how do you make that pivot now?
Speaker 5 (01:56):
I think you do scenario and nanisis the big three
trait partners are China and Mexico, Canada. So you basically
run simulation and say if this happened, then this will
be GDP, If this happened, this will be inflation and
acknowledge that we don't know what the endgame.
Speaker 4 (02:17):
Is going to be and the only thing we could.
Speaker 5 (02:20):
Reasonably say is the overwhelming likelihood is you will have
high tariff for the foreseeable future and we'll have to
deal with this Mannie.
Speaker 6 (02:29):
Once we know what the terms are, does some of
the uncertainty go away and things settle down? But it's
structurally a different financial dynamic, potentially depending on how high
those tariffs are.
Speaker 4 (02:40):
I think that's right, But I think a number.
Speaker 5 (02:42):
Of company will have to re engineer this supply chain
and optimize the production costs and the transfer pricing based
on what the tariff will be. And I think that
changing supplight chain may.
Speaker 4 (02:59):
Not be as easy as what you make it to be.
Speaker 5 (03:02):
For us, we look at a set of macro parameters
and optimize our portfolio and decide what we think is
attractive in terms of asset and buy them at the
best possible price.
Speaker 7 (03:15):
So was that mean for investors?
Speaker 6 (03:16):
Do they just kind of stay put waiting for everything
to settle or are they starting to make those bets
assuming it is going to be very different? Tell us
a little bit about what you are seeing in terms
of clooth on.
Speaker 5 (03:28):
I think you've seen enormous volatility in the equity market,
right and somehow I would say with surprise that the
equity market has bounced back to the Liberation day level.
But you've seen clearly a move to cash all world,
which is the bond world, has been pretty much unaffected.
(03:49):
And my partner Dan Iverson has to say, where you
look at the year on a portfolio of bonds, say
six percent, six and a half percent, it's a very
good predictor of what your return will be over the
next five years. So if you want to own bones,
you're going to make six and a half percent, give
(04:11):
or take over the next five years.
Speaker 4 (04:13):
How are you going to get? There? A lot of uncertainty,
And that's what.
Speaker 2 (04:16):
I'm curious is about the volatility. And I mean you're
referring to your CIO. I mean I thought an interview
where you actually talked about how he was really embracing
that volatility to a certain extent.
Speaker 5 (04:26):
So there's too competent to it. What we like about
volativity is the fact that it will provide investment opportunity
and a source of ali file in terms of treading
different part of the curve, but also different products and
to move away from the US and final opportunity in
(04:47):
other part of the world. So you can always buy
US asset, but you can also buy non US asset
as a way to get duration and hedge them back
into dollar. So for example, we like Australian duration Australia
as a daring, robust academy. We like Australian bonds, but
we hedge them back in two dollars.
Speaker 4 (05:09):
That's the way to add our FA to the portfolio.
Speaker 2 (05:11):
How complicated is it to do that when there's also
a ton of volatility in the effect space and no
one seems to know where the dollars.
Speaker 5 (05:20):
You may wonder what the two thousand people we have
a new public school, that's what they do.
Speaker 4 (05:25):
You know, we can deal with that. Just about that,
we can deal with that.
Speaker 6 (05:30):
Aten US Secretary Treasury Scott Person obviously really kicking off
milk and on Monday, and he talks about the importance
of watching the tenure Do you agree in terms of
US Treasury is.
Speaker 4 (05:42):
The cost of boring is very important?
Speaker 5 (05:44):
And I think I will answer this in twofold one.
The US dollar as a reserve currency is really important,
and the tenure bond is in a way the barometer
for the financial health of the world academy, so it
is really important.
Speaker 4 (06:01):
Now, I would say, you look at the whole year.
Speaker 5 (06:03):
Cove, you look at the short end, the ten year,
the thirty year. You think also about credit spread, they're
very tight, and you think about all of this parameter
and try to assess what's to come and how you're
going to deal with it.
Speaker 7 (06:20):
Mannie, one thing.
Speaker 6 (06:20):
I'm curious about, and bringing up Secretary Bessett, what is
the voice that you listen to most trying to determine
ultimately what happens in the US, especially when it comes
to its financial system and the importance of you know,
it's been the place the world safe haven, right.
Speaker 5 (06:41):
And and it will remain it will remain as the
place of safe handy.
Speaker 7 (06:46):
We're so sure why.
Speaker 4 (06:48):
Well, think about it.
Speaker 5 (06:50):
The US dollar is the reserve currency, but it's also
the most liquid treasury.
Speaker 4 (06:56):
Market in the world. About an enormous factor.
Speaker 5 (06:59):
And yes, you know, you can make a reasonable argument
that the dollar is slightly expensive and that you may
want to diversify from the.
Speaker 4 (07:09):
Dollar to other currency, but.
Speaker 5 (07:11):
It doesn't mean, it does not mean that the dollar
loses its status. And I think it's very important to
keep that in mind. There's no other reserve currency, there's
no other place to move trillions and trillions of dollars
away from the dollar, and it is what it is.
Speaker 7 (07:28):
Do you have faith in the treasury Secretary to.
Speaker 6 (07:30):
Do the right thing, or at least get the president's
here on doing the right thing, because he has said
some things in regards to the Fed the Treasury secretary.
Speaker 7 (07:39):
Even so, I'm just curious, do you have faith.
Speaker 5 (07:43):
I think the wonderful thing about financial markets is that
they're efficient, and so they'll tell them and that the
market reacts to policy, and when the market doesn't like
either policies or a tweet, the market react in such
a way that people need to adjust the cost of action.
(08:03):
The market wants the flat to be independent, and I
think has voted very strongly about that, and I think
that dictates some of the choices and some of the
noise around all of this.
Speaker 4 (08:18):
And you know, it's a good thing markets that they.
Speaker 5 (08:20):
Have to reflect, to reflect supply and demand and also
reaction to event in the world.
Speaker 3 (08:25):
And we saw that play out in a big way
in April.
Speaker 2 (08:28):
One side of that, though, basically to your comments about
there kind of this being the most liquid market, this
is kind of the reserve currency, and that's not going
to end will lessen to a degree because when we
look at our treasury market and we think about how
many global investors hold our bonds, all the rumors that
maybe certain nations might be willing to weaponize their holdings
(08:49):
if the dispute with the US over trade escalates.
Speaker 3 (08:53):
Does that concern you?
Speaker 4 (08:55):
You know, there's no free launch.
Speaker 5 (08:57):
The reason why people own US dollar is because they
like to own US dollar asset. There is a very
strong case for American exceptionalism. The fact that the financial
systems are very liquid and very well run, and that
if you, for example, a Japanese investor, where there's about
a trillion dollars of US debt held by Japanese institution,
(09:21):
it's a good place to be, even hedge back.
Speaker 4 (09:23):
In the yen.
Speaker 5 (09:24):
And I think that's that's really an important fact to
remember in terms of the flow of fund and who
needs to put money aware.
Speaker 3 (09:35):
Is the treasury market healthy right now?
Speaker 4 (09:38):
Totally? You did not.
Speaker 2 (09:40):
You weren't concerned at all about what transpired that first
week to April, about the potential come up in the
system or that mismatch between buyers and sellers.
Speaker 4 (09:48):
No.
Speaker 5 (09:49):
We, on the contrary, I think we've seen very liquid
market voice and treasury and in credits, and to be honest, yeah,
you know, markets have been remarkably well behaved. We had
a couple of difficult days during COVID before they've fed intervened.
Speaker 4 (10:07):
But it's been very with sailing since.
Speaker 5 (10:10):
And you know, the markets offer plenty of opportunity to
change your mind. One of the good contribution have been ETF.
Where ETF have a low people like us to do
portfolio trade, rebalance for a book and to use this
liquidity to move assets around.
Speaker 4 (10:29):
And I would really and fire facts this.
Speaker 2 (10:32):
The markets are quite liquid, I promise not all my
questions are pessimistic, but I do have wonder.
Speaker 4 (10:39):
With the guard.
Speaker 2 (10:39):
I mean, you had a market, they had to deal
with the trade issues that hasn't been resolved, but they
certainly made some degree a piece with where we are.
There's now a big budget battle that's about to take
place in Washington, and I do wonder as the lead
leader of the biggest bond company bon investor out there
is there concern that our fiscal deficit and the potential
(11:03):
remedies that are being discussed in Congress could exasperate the
situation and the fixed income market.
Speaker 5 (11:10):
That's the wonder of being the reserve currency, everything else
being equal, you could run a slightly higher deficit than
you would otherwise. And I think that of course, people
will look at the amount of deficit, and you know,
it is overwhelmingly likely that the deficit is.
Speaker 8 (11:28):
Not going to get reduced.
Speaker 5 (11:29):
But once again, would you rather own very high quality
asset in the US or would you rather own bonds
in southern Europe? You can decide which one you would
rather own. That's the reality. The reality is you need
to invest somewhere.
Speaker 6 (11:48):
So you're not worried about it's a lot of debt.
It's a physical situation. It's been a lot of debt
for a long time, but now we're at levels we
haven't seen and so I'm just curious, is there some
point It's like you're saying, well, where else are you
going to go?
Speaker 3 (12:02):
Right?
Speaker 6 (12:02):
And it's kind of part of the US being the
market in the.
Speaker 7 (12:06):
World, So like should we just accept it?
Speaker 4 (12:10):
No, I think I would. I would.
Speaker 5 (12:11):
I would reply with a quote that I heard Janet
Yellen gave in a private conversation. She said, all we
can say is it's not a problem until it becomes
a problem. And so but but it's a deeper it's
a deeper meaning maybe that it appears like there's a
tipping point, which is very hard to guess where all
(12:34):
of a sudden, either because the issue will lose credibility
or because the policy doesn't make sense to market participant,
people all of a sudden don't want to be the
marginal buyer. And I think that's that's the analysis we
constantly make in terms of what's the right level to
clear the market?
Speaker 7 (12:54):
Man, when we had.
Speaker 6 (12:55):
The disconnect between the equity markets selling off a bunch,
we saw yield spiking, right, would trying to make sense
of it? Right, it just didn't seem to come together.
Are you telling investors watch the bond market equities kind
of do?
Speaker 7 (13:07):
Like, how do you make sense of something like that?
Speaker 5 (13:09):
Well, you could say that it did make sense because
the market, all of a sudden say we're going to
get in the worst possible situation.
Speaker 4 (13:15):
We're going to get into stackflation.
Speaker 5 (13:17):
Right, And in a case of stackflation, I can I
can remember seventy three and seventy four. Now there were
real macro reason with an old shock, but stackflation is
a real ugly problem because everything goes down and there's
no place to hide except cash, and even cash because
of inflation, you lose money. And I think you saw
(13:37):
the price of gold reacting to this, and so if
you use my frame of mind.
Speaker 4 (13:43):
Yeah, then I think it sort of makes sense.
Speaker 5 (13:46):
It's not a pretty picture, and I think the market
corrected pretty quickly. And say, you know what, stackflation is
by far not the most likely scenario, but the odds
of a recession must be slightly about fifty.
Speaker 6 (13:58):
Do you agree stackfliction not likely? Yes, great, it's not likely.
It's not likely, got it?
Speaker 5 (14:07):
And I think stackflation is the Night mayre or for
central banker. Yeah, and most of them haven't seen it.
You know, you have to remember that, market participants, there's
only one good thing about being old is you've seen
my market cycle. Yeah, and you know, I remember, for example,
the nineteen one ninety two crisis with the SNL. You know,
(14:29):
we had the Milken conference. You know, people had bought
a lot of I yelled dead and some of it
had to sell. So you remember that. You try not
to make the same mistake. You remember nineteen ninety eight,
you remember two thousand and one, in two thousand and two,
and of.
Speaker 4 (14:43):
Course remember the Great Financial Crisis.
Speaker 5 (14:45):
And each crisis is different, but you have a frame
of reference where you've seen ups and downs in the
financial markets.
Speaker 2 (14:52):
I want to talk specifically about your business, and I
mean you've got a big private business, private credit business
alongside the public credit business. And we've put talking a
lot over the last couple of days about how all
these markets seem to be overlapping. There's sort of this
vend diagram between public markets, private markets, credit equity, et cetera.
Are they in conflict with each other or are they
complimenting each other.
Speaker 5 (15:12):
I think they complement each other, but they may not
offer the same value at every point in time. So
I'll give you a very simple example.
Speaker 4 (15:20):
There's a reasonable case.
Speaker 5 (15:21):
To be made that we have a probability of a
recession slightly about fifty percent.
Speaker 4 (15:28):
If if that's the case, you don't want to own.
Speaker 5 (15:33):
High your credit, and you probably don't want to own
drect lending. Why Because the company are leverage, they are
weak single B they may or may not be in
the industry you want to be in. And so if
you have a recession, you'll see losses. By the way,
losses are normal. It doesn't mean there's anything wrong. But
(15:57):
when we think of optimizing our portfolio, we find better
off tunity to invest the weaker credit.
Speaker 4 (16:04):
At this stage of the business cycle and then.
Speaker 3 (16:07):
Making those decisions.
Speaker 2 (16:08):
I mean, you reference just a second ago about all
the books you have to figure out where the dollar
is going to go. I assume that there's got to
be a big technological component to that. When you took
over back in twenty sixteen, you made a big push
to add more technology.
Speaker 3 (16:23):
Resources to what you guys do.
Speaker 2 (16:25):
And given what's transpired over the last few years with
AI and the newfound interest in that space, I'm wondering
how much of that has become a component of the
analysis and decision making process.
Speaker 4 (16:35):
A very large one. And that's a very good question
if you think about it. You know, what do we want.
Speaker 5 (16:39):
We want great people to work for PIMCO and to
stay for as long as possible, and then we want
the best technology and the most innovative quant and marry
the two together and hope.
Speaker 4 (16:53):
That it works.
Speaker 5 (16:55):
And the EI revolution for us is the to manipulate
a lot of data coming from very disparate sources, analyze
them and get to a tool to help making decisions
which is incredibly granular. So we are very very big
(17:17):
player in mortgages. Everyone has a mortgage somewhere.
Speaker 4 (17:21):
We have a.
Speaker 5 (17:22):
Totally unique database and what I mean by database is
not only numbers, it's picture, its location, it's conversation with
the mortgage broker. And so you get an edge because
you have an ability to crunch through an enormous amount
of data and get to another granular level of decision
(17:44):
that or.
Speaker 4 (17:45):
Human brain would need longer to be able to do, as.
Speaker 7 (17:51):
Would go pretty quickly.
Speaker 4 (17:52):
I'm just going to tell you it's very fast.
Speaker 7 (17:53):
He's very very fast.
Speaker 3 (17:55):
Maddy.
Speaker 6 (17:55):
I'm so thoughtful, so helpful. Thank you so much for
asking for our audience. Really appreciate it. Many Reven the
Pimco CEO.
Speaker 9 (18:02):
You are listening to the Bloomberg Business Weekdaily podcast. Catch
us live weekday afternoons from two to five pm Eastern.
Listen on Apple CarPlay and Android Auto with the Bloomberg
Business app, or watch us live on YouTube crol.
Speaker 6 (18:17):
Master along with remain Bostik. Private credit, Yeah, we tend
to talk about that a lot here in Milkin turned
rapidly in recent years to become.
Speaker 7 (18:26):
A one point six trillion dollar industry.
Speaker 6 (18:28):
That expansion and relative block of regulation, though, has fields
some concerns about the quality of private credit loans if
the economy deteriorates which begs the question, amid all the
talk about a possible US recession or could it be staculation?
Speaker 7 (18:41):
Might we be getting there?
Speaker 6 (18:43):
Penkin Sel has invested in numerous credit and economic cycles.
Speaker 7 (18:46):
He's laughing at me right now.
Speaker 6 (18:48):
He is the presidency of the global private debt manager
Churchill Asset Management. The long existent present company Pokmon Asset
Management comprises new being private capital.
Speaker 7 (18:58):
I'm trying to get through it intro large, Can you
just like one n seventy eight billion dollars private capital?
You are the OG when it comes to private capital.
Speaker 6 (19:10):
You were laughing at the introduction? Why because you don't think.
Speaker 10 (19:13):
No, no, it's very simple. It's Churchill, right, That's why
I know me as mister Churchill.
Speaker 8 (19:17):
So I'll take that.
Speaker 7 (19:18):
H Hey, listen, I think it was roughly. Let me
just look two years ago.
Speaker 6 (19:21):
You talked about the golden era of private credit.
Speaker 7 (19:23):
We always bring it up, right now? Is it still golden?
Is the shine off a little bit? Right now? How
would you describe it?
Speaker 8 (19:29):
I would say still very much so.
Speaker 10 (19:31):
I mean, if you think about the dynamics today.
Speaker 8 (19:34):
We were on a roll right third quarter, fourth quarter.
Speaker 10 (19:37):
First quarter activity coming back, interest rates stabilizing.
Speaker 8 (19:42):
Everything looked fantastic.
Speaker 10 (19:43):
We had a record quarter of deployment, capital raising, everything
going great, and then of course we had Liberation Day, right.
Speaker 8 (19:50):
But what's interesting.
Speaker 10 (19:51):
About Liberation Day is that it's actually creating a further
opportunity for private credit. But if you think about the
dynamics when the public markets close and go offline, that
creates opportunity in private credit.
Speaker 8 (20:04):
And unlike the GFC, where.
Speaker 10 (20:06):
There really wasn't a private credit market to step in,
there was private equity, but not a lot of private credit.
Speaker 8 (20:12):
Today there is.
Speaker 10 (20:13):
I mean, if you look at the largest managers, like ourselves,
we have thirteen billion dollars in dry powder, very much
open for business, very interested.
Speaker 8 (20:21):
In providing that capital.
Speaker 10 (20:22):
Now, we haven't yet seen a widening of spreads in
the private credit market yet. I know, I know the
BSL market is basically closed and secondary spreads and widened
out a bit. But I think what you're going to
see if this environment continues, and I suspect it will
at least for a short period of time, is that
private credit will take advantage of those opportunities.
Speaker 2 (20:42):
Oh, I'm just curious, So, I mean, what does spreads
look like in the direct lending space. And I know
it's probably very specific to each individual company and scenario,
but I assume those had to have widened out.
Speaker 10 (20:53):
You know, interestingly remain they have not at this point.
But what has narrowed in are the companies that are
getting finance right, so A plus credits with little to
know tariff impact.
Speaker 8 (21:06):
Yes, still very much being financed.
Speaker 10 (21:08):
In fact, we didn't have a single deal that you know,
once we went from March to April that actually went
you know, went on hold or with.
Speaker 8 (21:14):
Otherwise pull back.
Speaker 10 (21:16):
So I would say spreads have not yet widened in
private credit, but the kinds of deals that can get
done have narrow right, higher quality gets done. Tariff impacted
not really all.
Speaker 6 (21:29):
Right, but the uncertainty of the past month maybe increases
the need for some firms, right, yes, to reach out
to someone like you guys, So were you busy host April?
Speaker 8 (21:38):
Second, we've been very busy. In fact, we've been busy, you're.
Speaker 7 (21:42):
Like, as a result of what happened with the tariff.
Speaker 10 (21:44):
News, what we've seen are larger companies that would have
gone to the syndicated loan market or the BSL market.
Speaker 8 (21:51):
That market is essentially closed.
Speaker 10 (21:53):
So what we're seeing is they are coming to private
credit managers and saying, look.
Speaker 8 (21:57):
Can can we club you guys up?
Speaker 10 (21:59):
Can we get two or three direct lenders to do
a billion dollar finance two biling somewhat larger companies, which
is typically what happens. And overall what we should see
is generally wider spreads.
Speaker 8 (22:10):
Today you asked the question where are we today? Probably
so for five hundred or so, things really haven't widened
out that much. But I think you will see spreads
widen out.
Speaker 10 (22:19):
I think you'll see leverage come in a bit, and
of course you'll see our good friend the Covenant come
back in vogue, which we like to see.
Speaker 8 (22:29):
And our world start in our world can see them.
Speaker 10 (22:32):
But I would say is a general matter. You know,
in the liquid markets, not so much. So I think
it opens up larger deals. It opens up deal flow
that enables us to step in. You know, it's interesting
if you look at the GFC, there was plenty of
private equity, but the banks weren't lending, and there was
no direct lending. Today, tremendous amount of dry powder and
(22:52):
direct lending.
Speaker 8 (22:53):
Still a lot of dry powder and private equity.
Speaker 10 (22:56):
So I think things will normalize, and frankly, from my perspective,
I don't think we're going to see an extended period
of this tariff dynamic.
Speaker 8 (23:04):
I would expect that.
Speaker 10 (23:05):
It'll play out in a reasonable period of time, and
hopefully shorter rather than longer, and obviously the longer it goes,
you know, the worst.
Speaker 2 (23:13):
I'm curious when you say that, then if you're looking
for new opportunities, I mean a lot of people have said, Okay,
we're only looking for companies that, you know, domestic companies
or companies that don't have a lot of international exposure
or terriff exposure. Is our argument to be made that
maybe you should be looking at those names, assuming that
their valuations might have come down because of the tariff pressure.
Speaker 10 (23:33):
Yeah, well, I would say maybe, but not for US.
I mean, I would say, here's an interesting stat. Ninety
two percent of our borrowers today we have we have
about six hundred companies in our portfolio, ninety two percent
no impact, no tariff impact at all. So private credit
by its nature is mid market US companies that tend
(23:56):
to be more domestic, that tend not to be as
international as maybe some of the you know, large cap
businesses are so.
Speaker 3 (24:03):
In that's services, businesses.
Speaker 10 (24:04):
Services, healthcare, software, Uh, you know, business services that tend
to be more domestic.
Speaker 7 (24:10):
But you're picky in terms of who you choose.
Speaker 8 (24:12):
We're really picky.
Speaker 7 (24:14):
So I mean that percentage is impressive, but I'm just saying.
Speaker 8 (24:16):
Yeah, you're really careful with you. Yeah.
Speaker 4 (24:18):
No, no, it's sorry.
Speaker 10 (24:20):
And as a gentle matter, within that, we tend to
focus on those, you know, those sectors that are that
are less impacted.
Speaker 3 (24:25):
Real quickly, Ken, we'll run out of time.
Speaker 2 (24:27):
I just have to ask you, though, going back to
the origin of best conference, which you sort of chuckled, Yeah,
here nineteen ninety eight, whenever that was here.
Speaker 3 (24:35):
Yeah, the evolution of this is this an evolution or
is it just growth?
Speaker 10 (24:39):
It's absolutely an evolution. Yeah, And I would tell you
changed in a number of ways. In early days it
was more of a policy conference. It's retained that policy
which is great and I think attracts a broader audience.
But the investors are all here, right, and they're all
looking to talk about their stories, and they're exchanging ideas
with each other. I was saying earlier to both some
(25:00):
of the most interesting conversations I've had here have been
the one on ones with other investors.
Speaker 4 (25:06):
Yeah.
Speaker 10 (25:06):
You know, we don't get to see each other very often, right, we're.
Speaker 8 (25:08):
On the road raising money. Yeah, but we're all here, right, so.
Speaker 10 (25:11):
It's an opportunity to share ideas. Yeah, think about Okay,
have we thought about different angles from an investment standpoint?
Speaker 8 (25:17):
So in that way, it's really evolved quite a bit.
Speaker 3 (25:19):
All right, Ken, we have to leave it there. Always
a great pleasure.
Speaker 6 (25:21):
You don't want to have them share one of those deals,
those ideas on the side.
Speaker 3 (25:24):
I don't know.
Speaker 2 (25:25):
My producers in my ear telling me actually wrapped like
ten minutes ago, but you you actually sometimes I listen Ken, Kenzell, Churchill,
ATSET Management, President and cel.
Speaker 1 (25:35):
This is the Bloomberg Business Week Daily Podcast. Listen live
each weekday starting at two pm Eastern on Applecarplay and
Android Auto with the Bloomberg Business App. You can also
listen live on Amazon Alexa from our flagship New York station,
Just say Alexa Play Bloomberg eleven thirty.
Speaker 3 (25:53):
Talk about meeting a head.
Speaker 2 (25:54):
Prices now approaching almost six times the US media income
mean mile.
Speaker 3 (25:58):
If you're renting right, they're spending more than a third
or your.
Speaker 7 (26:01):
Income line rank so it's sound of a big expence.
Speaker 2 (26:03):
Last year, Airbnb formed a council of experts chaired by
the former Mayor of Baltimore, Stephany Rowlings Blank, to advise
the company on initiative to booths housing supply and drivecount crisis.
Please to say the Mayor Rowlans Blake joined us right
here on the stage.
Speaker 3 (26:18):
Great to see if Sephane, thank you for having me.
Speaker 2 (26:21):
How it affordability as something people who are trying to
solve probably for decades.
Speaker 3 (26:25):
Maybe even longer than that. A lot of the topics.
Speaker 2 (26:28):
That came up were the responses that came up really
talked about the emphasis of more government involvement and pushing
this forward.
Speaker 3 (26:36):
Are we seeing that?
Speaker 11 (26:38):
Definitely seeing it. But one of the things that I
took out of the panel that we had is that
it's going to take all of us.
Speaker 5 (26:44):
Right.
Speaker 11 (26:46):
Airbnb understands, for example, that they're not the cause of
the housing supply shortage, but they can be a part
of the solution. As a mayor, I knew that I
didn't cause it, but I had to be a part
of the solution.
Speaker 3 (26:58):
And some of the.
Speaker 11 (26:59):
Developers and private equity folks that were on the panel
they have to understand that they have to be a
part of the solution as well. So it's an all
hands on deck. You know, we talked on the panel
that we're short in this country over five million homes
and we're not going to close that gap by doing
what we did yesterday or a decade ago. We have
(27:19):
to think critically and with more innovation around how to
build more, how to build faster, and how to build better.
Speaker 2 (27:28):
How do how do the city, though grapple with economic growth,
similar to what Baltimore went through where you had this
huge resurgence, companies coming back, people moving back to the city.
Of course, that also drives up typically real estate prices as.
Speaker 3 (27:42):
People look for a homes.
Speaker 2 (27:44):
So there's a balance, right You want to you know,
reap the fruits of getting all those people back into
your city, but at the same time, you don't want
to shut everyone out who maybe isn't at a certain
income level.
Speaker 3 (27:54):
Where's the balance?
Speaker 11 (27:55):
So I don't always look for the win win, and
when you talk about bringing people in, that's always a
good thing. But in Baltimore, like many cities, we have
a circuit breaker, meaning the value of your home year
over year could go up one hundred percent, but your
property tax will only go up a fraction and that
allows people to stay in their homes and reap the
(28:16):
benefit of wealth creation through their home. But they are
also things like repurposing vacant homes.
Speaker 8 (28:25):
I think we need to think.
Speaker 11 (28:26):
Differently about vacant homes. Yes, they're they're are blake, but
they're also an opportunity when home ownership is so far
out of reach for many of America's young people, we
can look to rebuild and these vacant homes as a
way because the infrastructure is already there. Right, cities like
Baltimore were built for, you know, over a million people,
(28:48):
So that infrastructure is there, the people aren't there. So
how do we look at those vacant homes as opportunities
for families and young people to become homeowners?
Speaker 6 (28:58):
Stephan and live that you went there, because I think
people are like, just build homes, build homes, build a
five million homes. It's not just about building them anywhere.
It's about building them where people need them. And they
tend to be cities which tend to be expensive. So
as soon as the build happens, it's often expensive. How
do we fix that? How do we get developers, politicians,
everyone to say, let's build where the housing is needed,
(29:20):
and let's make sure we make it up affordable.
Speaker 7 (29:22):
How do we do that?
Speaker 11 (29:24):
So cities like Baltimore are incentivizing affordable housing, incentivizing repurposing
vacant homes. Right, that was one of the projects that
I started as mayor, my Bags to Value program that
our current mayor has taken on and made it his own.
So we need to do things like that where we're
creating incentives like down payment assistance. The president of Dom
(29:47):
Hopkins is speaking here at Milk and they give employees
like match for Match, like they're giving their employees thousands
of dollars and down payment assistance if they move around
the U university. So things like that, and we have
to look for innovative ways to promote financing of leads
of affordable housing as well.
Speaker 6 (30:08):
Do you feel like all the right stakeholders are at
the table talking because sometimes now who's missing?
Speaker 11 (30:14):
I think you have to look at the job creators.
On the panel today we talked about a teacher, a
teacher in a public school having to commute an hour
and a half. Right, that is atrocious. No teacher should
have to commute an hour and a half to get
to the classroom. So the Board of Education should be
(30:35):
at the table. The hospitals, the universities, all of these people,
the companies, the people who are employing America's you know,
citizens should be at the table to be a part
of the solution. Everyone has a different role to play.
Speaker 3 (30:49):
Like Airbnb.
Speaker 11 (30:50):
Like Airbnb supports grassroots organizations that are doing things like
fighting zoning laws that prevent housing, that work with cities
to reduce bureaucracy and make it easier for buildings to
happen across the country. That's what Airbnb is doing their part.
But every company that has employees could be doing something great.
Speaker 4 (31:12):
Point Savy, that was a.
Speaker 2 (31:14):
Great compositions to catch up with the I to fly
all the way to LA to catch up with you.
Speaker 3 (31:18):
We'll get back to you.
Speaker 7 (31:19):
Good luck when we're back on the East Coast.
Speaker 2 (31:21):
Stephanie Rawlings Blake aarond Airbnb Housing Council chair and the
former mayor of Baltimore. We should also point out she
mentioned Johns Hopkins. Of course, Mike Bloomberg is a big
contributor to Johns Hopkins. He is the owner of the
company that own the network that you're watching right now.
Speaker 9 (31:37):
This is the Bloomberg Business Week Daily Podcast. Listen live
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Speaker 2 (31:56):
And while we have seen spreads in the US highyuel
bond market actually down from that big spot that we
saw in early April, they do remain elevated, and so
too does the volatility. And in the less liquid world
of private credit direct lending, spreads just a touch wider,
although we don't know quite how wide for obvious reasons,
but that has left some money managers much more selective
about adding risk. Here to discuss those correlations and the
(32:18):
dislocations is Armand Phenolcian.
Speaker 3 (32:20):
He's the co CEO over.
Speaker 2 (32:21):
At oak Tree two hundred billion dollars in assets, mainly
in credit.
Speaker 3 (32:24):
Great to see, Armin, great to see both. Are you
buying right now?
Speaker 4 (32:27):
Carefully?
Speaker 12 (32:29):
We are mindful of the exposure to tariffs. We are
mindful about the potential retaliatory tariffs. We think there's some
good value out there, especially in public credit. But we
are also recognizing the fact that we may be on
the precipice of some volatile times ahead.
Speaker 2 (32:45):
What are credit spreads telling us right now? We have
that brief spike in early April, and I know we're
still elevated, but we're nowhere near the types of blowouts
we saw during past financial crisis.
Speaker 4 (32:54):
Correct.
Speaker 12 (32:55):
You know, we're at about a three sixty spread in
US high yield. If you look at the high and
the low the last six months, it was two sixty
and four sixty, so we're right in between. So you
have to ask yourself, you know, has the news been
supportive of being sort of right in the middle there?
Speaker 4 (33:10):
I think the second and third quarter numbers as.
Speaker 12 (33:12):
They come out, however, could suggest that three sixty is
a little bit on the tight side.
Speaker 6 (33:16):
To be honest with you or mean, I guess what
we have to do is kind of accept the reality
though that all right here we are at this moment
in time, But twenty four hours from now it could
be very different.
Speaker 7 (33:25):
Mason, what's coming out out of the White House.
Speaker 6 (33:27):
So when you say precipice a volatle time, I mean
that's the reality of it. What would happen to make
things settle down? Is it a terrif agreement with US China? Like,
what is it in particular?
Speaker 12 (33:39):
I think it's exactly right. If President Trump decides very
very soon that there is a reasonable resolution with China
in particular on tariffs, then I think there's a relative
calm that will persist in the economy and the markets
and companies will be able to know what to do next.
For now, Well, what's happening is there's a delay in spending,
(34:02):
consumer spending, capital expenditures. As that continues, it could cascade
into unemployment.
Speaker 4 (34:09):
And that's the.
Speaker 12 (34:10):
Sort of the really negative outcome here. If this negotiation
takes much longer, all right.
Speaker 6 (34:16):
So if they get a deal and it is a
little bit more onerous in terms of tariffs between the
two nations.
Speaker 7 (34:20):
Is that kind of okay? As well as we know
the terms or the terms do matter as well.
Speaker 12 (34:24):
The terms do matter because whatever the tariffs are, let's
say it's sixty percent on China and twenty or thirty
percent for the rest of the world, that's still inflationary, right,
and so the question is what's after that? And Secretary,
that's a mentioned sort of a three pronged approach. There's tariffs,
there's taxes, and deregulation. So the question is does the
(34:45):
deregulation and do the lower taxes offset the impact the
inflationary impact of the tariffs for consumers or not If
it doesn't, and there could be demand destruction in some
economic issue.
Speaker 2 (34:57):
So Bloomberg reported last month that Buchrie was setting up
another special Situations fun trying to raise money for that.
Are you able to share any thoughts on the progress
of that.
Speaker 4 (35:07):
Well, we don't.
Speaker 12 (35:08):
We can't talk about any particular fundraise, but we do
see a lot of opportunity for companies in need of
both equity and debt to help them bridge through uncertain times.
We are seeing more activity in terms of companies calling
us for rescue owns.
Speaker 4 (35:23):
I know others have mentioned that as well.
Speaker 12 (35:26):
I expect that given what's happened with the policy backdrop
and private equity firms had hoped to be able to
sell out of their businesses earlier this year.
Speaker 4 (35:37):
It was supposed to be a really strong gear for
M and A.
Speaker 12 (35:40):
But given what's going on now, I think that those
private equity owners will have to come to the likes
of oak Tree for some solutions that help to extend
their ownership of those businesses.
Speaker 2 (35:49):
Has there have been discussion not just at Oaktree, but
just amongst your peers as well in the private capital
space about trying to find ways to increase liquidity or
at least have the flexibility to increase liquidity.
Speaker 3 (36:01):
Should times really get hard.
Speaker 12 (36:03):
In terms of liquidity in the asset class, I think
that's very hard to do now. The reason is in
below investment grade credit or unrated credit, the borrowers want
their financials to be not in the public domain. You
need those financials to be in the public domaintein be
able to increase liquidity and transparency in the trading of
(36:23):
those assets in investment grade private credit, because usually the
borrowers are already publicly traded, it's easy to triangulate to
the value of a privately issued credit to a publicly
traded company.
Speaker 6 (36:36):
What are the geographical variations and differences that you're seeing
or dispersions, you know, Europe has off been a topic
we've been talking about a lot here at and Milkan
talk to us about that if he would, Well.
Speaker 12 (36:46):
We're not seeing a tremendous amount of dispersion yet, but
What we are seeing, however, is our clients globally are
wondering whether they need to back off.
Speaker 4 (36:53):
On how much exposure they have to the US. They
really are asking, they are asking.
Speaker 12 (36:58):
They know that the US is still the best place
to invest. It's the deepest market, strongest economy. But the
question is has the US damaged itself in some for
an intermediate period with some of the policy statements we've made,
And if that's the case, should we should we a
non USLP in particular, should we be looking at other
parts of the world, like Asia or Europe. And Europe
(37:20):
in particular, there are some tailwinds, and the tailwinds being
stimulus around defense, especially and infrastructure.
Speaker 4 (37:26):
Relating to defense, a lot of capital is going to
be spent.
Speaker 12 (37:29):
Debt to GDP in a country like Germany is low
enough that there could be some additional debt taken on
by Germany to fuel.
Speaker 4 (37:36):
This type of build out.
Speaker 12 (37:38):
It's probably a good time to think about asset allocations
a bit with regards to.
Speaker 2 (37:42):
Some of that allocation that we're saying to Europe, is
that concentrated though around defense, or at least around industries
that would be a direct beneficiary of debt increase and
fiscal spending.
Speaker 12 (37:52):
I think it's too early to tell, but I would
say it's the point of focus is in general industrials
and that is a first order and second order or
it depends on defense on a first order and second
order basis.
Speaker 2 (38:05):
Do you think we'll see much more of an opening
of the European market to private capital, private credit, private equity.
They didn't necessarily chase the US, at least not to
the same scale that we have here. Do you see
the potential for that market to actually expand?
Speaker 4 (38:21):
I see it.
Speaker 12 (38:22):
I see the potential to expand. I think the size
of the borrowers in Europe, however, just tend to be smaller.
The market is smaller. I don't see it becoming the
size of the US, but I do see it growing
from its current status.
Speaker 4 (38:33):
I think the hard part is for European LPs.
Speaker 12 (38:37):
For European investors, there is a different regulatory dynamic that
requires them to really favor European investment, and.
Speaker 4 (38:44):
They're not finding enough to do right now.
Speaker 12 (38:45):
They have a lot of capital and not enough places
to put it in Europe. So the market doesn't need
to expand. The question is will there be enough businesses
of size and scale and giving depth to that market.
Speaker 4 (38:55):
For deployment in the region.
Speaker 6 (38:57):
All right, when you said that, some of the investors
were saying, should we reduce our exposure to the United
States by how much?
Speaker 7 (39:02):
Are they just saying a little bit or are they looking
to say, do I need to be a little bit
more aggressive outside the US?
Speaker 4 (39:07):
For now, it's by a little bit, Okay. You know,
right now, most.
Speaker 12 (39:12):
Non US investors have something like fifty to maybe as
much as seventy percent of their portfolios deployed in the
US private equity credit of variety of types. They're not
talking about cutting that in half, but five, ten, fifteen
percent could be on the table.
Speaker 7 (39:26):
That's so significant. Hey, last question, Milkan.
Speaker 6 (39:29):
I feel like from year to year, the mood, the
narrative can change. It feels like everybody's here trying to
figure out what's next. Yeah, there's always a part of that,
But I'm just curious what's striking you about this year's conversations.
Speaker 4 (39:42):
That's a good question, I think, because the.
Speaker 12 (39:46):
SMP is back to sort of Liberation Day levels, I'm
not surprised to hear that some people are probably a
little bit more optimistic than that that there will be
a deal cut. I'm surprised to hear that there's a
belief that they're a sort of rationality or rationalism will
prevail and that we'll get to a deal on the
on the tariff side that is acceptable to US companies
(40:09):
in a in a reasonable enough period of time to
avoid a bad outcome. Well, I don't think that's off
the table. I don't think that, but I don't think
that that's the likely outcome.
Speaker 4 (40:18):
And I think that the mood.
Speaker 12 (40:20):
Shifts depending on whether you're talking to US investors or
non US investors.
Speaker 4 (40:26):
US investors are quite US centric and they believe everything
will be fine.
Speaker 12 (40:29):
Non US investors are a little bit more concerned because
they are frankly, a little bit more culturally sensitive to
what our trading partners now think of us. That's a
sobering kind of dichotomy in terms of conversations that I've
been having over the last few days with our client.
Speaker 4 (40:47):
Base, and it gives me pause.
Speaker 12 (40:49):
It gives me reason for real concern that we're going
to have some troubled times economically, which will then eventually
create some opportunities to invest in the markets.
Speaker 2 (40:58):
Well, Arman, if we are fortunate to catch up with
you twelve months from now. The interest to city, what
if that mood has actually changed or not? Great to
have you here, Armin Venoci and the co CEO over
at oh Tree.
Speaker 9 (41:10):
This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
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(41:30):
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