April 3, 2025 • 13 mins
On this week’s In the City, host Francine Lacqua discusses the rise of private credit amid economic uncertainty driven in large part by US President Donald Trump and his global trade war.
Joined by Bloomberg senior reporter Silas Brown, Lacqua looks at how key figures like Blackrock Chief Executive Officer Larry Fink have emphasized a shift towards private markets, and the importance of non-publicly traded opportunities as a way for average Americans to build wealth. The discussion also includes the challenges of high interest rates on valuations, and the evolving regulatory landscape required to protect retail investors as they gain access to private investments.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. Welcome to in the City.
Each week we unpack a story that's crucial to the
world's financial capitals and Francis Laqua And this week, while
everyone is talking about Donald Trump so called Liberation Day
and the TERRFF announcements he might make, we want to
look at what some of the consequences of those policies are.
(00:24):
In particular, one market that's getting a boost. Private credit
feels like the topic of the moment, So what's driving
the momentum.
Speaker 2 (00:33):
Welcome to the City of London, the City of the City,
the City of London.
Speaker 1 (00:40):
Please mind the gap between.
Speaker 2 (00:42):
The Trump and the plant, the financial hearts of the country,
the city, the city. Welcome to in the city, stand
clear of the doors.
Speaker 1 (00:59):
I'm glad to be joined here in the London studio
with our senior reporter, Silas Brown. Silence, thank you so
much for joining us.
Speaker 2 (01:05):
Thank you very much for having me.
Speaker 1 (01:06):
Private credit, I mean, it's the only thing that people
are excited about talking about, and it's an ass a
class that's grown exponentially really in the last couple of years.
Speaker 2 (01:16):
Yeah, it was a great coincidence that I decided to
cover private credit just at the moment of the boom.
So I'm enjoying the boom as well. But yeah, no, Look,
private credit is growing, and in a way, it thrives
in moments of manageable uncertainty. And I think the rollout
of the tariffs has provoked a degree of uncertainty which
has made its arch rival, the leverage loan market, struggle,
(01:40):
and so private credit is a kind of clear beneficiary
of that.
Speaker 1 (01:43):
So that's why has private credits actually increased so much.
Speaker 2 (01:48):
Private credit is in essence a service provider for private equity,
and so I think, in very blunt terms, as the
private equity market has been expanding, this new form of
raising money to back the buy apps has risen, and
now it has grown to a sufficiently high amount that
even more players, even bigger asset managers, are piling money
(02:11):
and resources into developing their own franchises, and so the
increase of the market has become exponential.
Speaker 1 (02:18):
So as there are two annual letters to shareholders that
I read religiously. One is Jamie Diamond and the other
one is Larry Fink. I was, you know, surprised or encouraged,
whatever word you want to use to see that Larry
Fink was so focused on private markets this week.
Speaker 2 (02:33):
Yes, well, I hope other executives aren't upset by the
fact that you don't reach them religious.
Speaker 1 (02:40):
I read a shareholder letters I just look forward to.
Speaker 2 (02:44):
But yeah, no, I think it was. It was a
big statement, and I mean they've been on this kind
of acquisition spree unparalleled in the history of private markets.
With these two milestone acquisitions of g ip and and
HPS and also pre Quinn Data Provider. I think they
have acknowledged that there's two comparable markets, one which is
(03:06):
the established publicly traded market and the private market. One
is clearly growing and the other one is dwindling. And
so I think it's acknowledgment from Larry think that a
lot of the action is going private, and I think
that's for a series of reasons. One is pretty obvious,
which is that if you're looking for high fees, you
can find them in private markets, not in public markets.
(03:26):
Our brilliant colleague, Scilla Brush did did the maths, and
he said that one of BlackRock's biggest funds, the I Shares,
the brilliantly named I Shares Core SMP five hundred ETF,
which manages about six hundred billion of assets only has
a fee of zero point zero three percent, which brings
in one hundred and eighty million in annual revenue. Conversely,
(03:48):
the six hundred billion in alternative assets that Blackrock now
has its expected to bring in three billion, and that
doesn't include performance fees. By the way, the difference is stark.
And I think it's a big moment for private markets
because black Rock is an expert in bringing different financial
products to retail investors, and I think that's clearly something
(04:10):
that is going ahead in private markets.
Speaker 1 (04:13):
Lear rethink basically promise to open up private markets to
millions of every day investors, not just a wealthy few
a How will he do that and does that change
the proposition for private markets?
Speaker 2 (04:24):
I think that is the key point when it comes
to black Rock's introduction into private markets is their ability
to move and sell financial products to retail investors. The
key thing for me with private markets is to do
with scale. They've picked the low hanging fruit of pension
funds and softeign wealth, and now they're moving on to
(04:45):
insurance and also retail, and that's the key drivers for
growth in the industry. So I think it's significant that
black Rock is energetically figuring out ways of selling private
markets products to retail investors.
Speaker 1 (05:01):
So this is one of my favorite codes from Larry.
Think it's quite dramatic. They're in private markets locked behind
high walls with gates that only open for the wealthiest
or largest market participants, and so he's trying to sell
this idea of your democratizing.
Speaker 2 (05:17):
Yeah, it sounds like one of Bloomberg News's articles brilliantly worded. Yeah, no,
I think that's Shakespeare. But okay, I think that's the
key thing. His point is that there's only a small
group of investors that are benefiting from this attractive proposition
that private markets has to offer. By the way, he's
(05:38):
not alone in wanting to do this. If you look
at the earnings calls of Blackstone or Apollo, you will
also find a motivation to construct different ways of bringing
high net worth slash retail people into private markets.
Speaker 1 (05:56):
Sounds this President trump push on tariff's must mean bad
news for public markets, but are news for private markets?
Speaker 2 (06:04):
I think so. The canny among private equity firms have
done is sort of reincarnate themselves like the phoenix, and
they've moved from being known as buyout firms to being
known as private markets firms. So the lights of Blackstone
and Apollo, they're as proficient in investing in credit and infrastructure,
and I think that naturally makes the investment proposition all
(06:25):
the more appealing. I think with public markets, obviously they
are at least superficially more affected by volatility, and so
I think to bring a company to IPO, or to
even sell debt for a company in the publicly traded
markets is much trickier in times of uncertainty, and I
(06:47):
think with private credit and private equity firms, I think
one of their key advantages is their ability to price
through uncertainty, provided it's not an uncertainty that it's like
totally unmanageable.
Speaker 1 (07:00):
Is there just simply better returns and more money in
private market?
Speaker 2 (07:03):
I think this is the real question of the decades.
I think private equity and to a certain lesser extent,
private credit flourished in a low interest rate environment where
the ability to buy and sell companies was a bit easier.
Now with a prolonged period of high interest rates, and
often a lot of these companies having already been bought
(07:26):
by private equity a lot of the attractive companies. The
ability for them to deliver returns for investors, I think
is the key question of the next five years. And yeah,
we'll wait and see. I mean it certainly the practitioners
think it is, and presumably Larry think does as well.
So I guess it's a wait and see.
Speaker 1 (07:44):
So silas you mentioned higher for longer interest rates have
gone up so quickly, do we really know that the
valuations of a lot of these private companies and private
credit aren't correct.
Speaker 2 (07:55):
I think the challenge for private equity firms is with
a prolonged period of higher in trust rates when they've
bought companies when the rates were lower, will the valuation
judgments that they applied when they bought the companies bear
out when they sell the companies. I think M and
A has fallen globally, and perhaps that informs us as
(08:18):
to why that there is a challenge selling these businesses
at their lofty heights that they valued them when they
bought them. On the private credit side, again it is
a hot topic how do you value these loans? And
I think there are actually different judgments as to how
you value these loans, both in Europe and the US.
Speaker 1 (08:40):
You know, we speak to a lot of private market
chief executives, and I always feel the need to push
them a little bit, say, you know, the problem is
that some of the valuations could be a concern, Like
the difference between a public company and a private company
is that they could have a lot more debt and
you don't really know how to value it unless you
sell it.
Speaker 2 (09:00):
Yeah, I mean, look, we've done a lot of reporting
on valuation mismatches in private credit. I think the mismatches
become more stark naturally in private equity. I think regulators,
both in the US and Europe are keen to understand
valuation methodologies more. The key things I think from a
regulatory perspective that keep coming up are valuations. How do
(09:23):
you value an asset that isn't traded? I don't have
the answer. It's a tricky one. But also just transparency.
It's a totally different realm to public companies and their
disclosure requirements. But having said that, conversely, and slightly slightly ironically,
one of the reasons why I think private markets are
booming is because companies don't have to go through the
(09:45):
kind of onerous rigmarole of quarterly earnings and disclosures, and
so if you are bringing disclosures to private markets, you
may find similar frustration both in finance and also corporate executives.
Speaker 1 (10:00):
Wasn't it something like a couple of weeks ago at
the FCA was reviewing valuations across threety six firms serving
UK clients and they basically said that they failed to
police conflicts of interest. The concern with private markets full
stop is that they can be a little bit murky. Yeah.
Speaker 2 (10:15):
I think they are a lot more discreet and secretive
than their public market counterparts. You have interesting contradictions. For example,
the largest private equity firms also owned some of the
largest private credit units. I think you can find conflicts
of interest across the board in all financial markets. But
I think a lot of the evolution of private markets
(10:39):
is really untested and still I think hard for regulators
to understand. A lot of the strength in private markets
is trying to correct problems that were inherent in financial
markets already through the banking industry, and I think to
a certain extent they've done that on the credit side.
Speaker 1 (10:57):
If you open private at a private companies private investments
to retailers, does the regulation have to change.
Speaker 2 (11:06):
I think that's an important question. In a way, there's
been limited regulatory scrutiny over private markets because the market
has been somewhat closed off from retail investors, And one
of the questions going forward is will the regulation have
to change as a result of opening the market to
(11:29):
the people on the street. I think it would be
a natural conclusion to say it would. And I think
it would be a fair conclusion to say it would,
because ultimately regulators are interested in protecting retail investors from
financial risk. With the dawn of this opportunity set, which
(11:49):
is clearly attractive to some retail investors, that would naturally
beg the question of when's the regulation going to adjust
to that too.
Speaker 1 (11:57):
And if black Rock wants to open up this asset
class to reach tail investors, will others do the same?
Speaker 2 (12:02):
Yes? I think with or without black Rock, there's been
a concerted effort to build and develop financial products that
would be suitable to retail investors, particularly in the US,
and you see firms you know, Apollo and Blackstone and Ares,
the kind of titans of private markets also discussing ways
to accommodate retail investors. I think you can say with
(12:24):
a high degree of certainty that this will be the
topic going forward or one of the key topics going
forward for both private credit and private equity.
Speaker 1 (12:35):
Silas, thank you so much, Thank you thanks for listening
to this week's In the City from Bloomberg. This episode
was hosted by me Francin Laqua. It was produced by
Summersati and Moses and Dam with sound design by Blake Maples.
Brendan France Newnham is our executive producer. Special thanks to
(12:56):
Silas Brown. Please subscribe, rate, and review wherever you listen
to podcasts.
Bloomberg Audio Studios, Podcasts, radio News. Welcome to in the City.
Each week we unpack a story that's crucial to the
world's financial capitals and Francis Laqua And this week, while
everyone is talking about Donald Trump so called Liberation Day
and the TERRFF announcements he might make, we want to
look at what some of the consequences of those policies are.
(00:24):
In particular, one market that's getting a boost. Private credit
feels like the topic of the moment, So what's driving
the momentum.
Speaker 2 (00:33):
Welcome to the City of London, the City of the City,
the City of London.
Speaker 1 (00:40):
Please mind the gap between.
Speaker 2 (00:42):
The Trump and the plant, the financial hearts of the country,
the city, the city. Welcome to in the city, stand
clear of the doors.
Speaker 1 (00:59):
I'm glad to be joined here in the London studio
with our senior reporter, Silas Brown. Silence, thank you so
much for joining us.
Speaker 2 (01:05):
Thank you very much for having me.
Speaker 1 (01:06):
Private credit, I mean, it's the only thing that people
are excited about talking about, and it's an ass a
class that's grown exponentially really in the last couple of years.
Speaker 2 (01:16):
Yeah, it was a great coincidence that I decided to
cover private credit just at the moment of the boom.
So I'm enjoying the boom as well. But yeah, no, Look,
private credit is growing, and in a way, it thrives
in moments of manageable uncertainty. And I think the rollout
of the tariffs has provoked a degree of uncertainty which
has made its arch rival, the leverage loan market, struggle,
(01:40):
and so private credit is a kind of clear beneficiary
of that.
Speaker 1 (01:43):
So that's why has private credits actually increased so much.
Speaker 2 (01:48):
Private credit is in essence a service provider for private equity,
and so I think, in very blunt terms, as the
private equity market has been expanding, this new form of
raising money to back the buy apps has risen, and
now it has grown to a sufficiently high amount that
even more players, even bigger asset managers, are piling money
(02:11):
and resources into developing their own franchises, and so the
increase of the market has become exponential.
Speaker 1 (02:18):
So as there are two annual letters to shareholders that
I read religiously. One is Jamie Diamond and the other
one is Larry Fink. I was, you know, surprised or encouraged,
whatever word you want to use to see that Larry
Fink was so focused on private markets this week.
Speaker 2 (02:33):
Yes, well, I hope other executives aren't upset by the
fact that you don't reach them religious.
Speaker 1 (02:40):
I read a shareholder letters I just look forward to.
Speaker 2 (02:44):
But yeah, no, I think it was. It was a
big statement, and I mean they've been on this kind
of acquisition spree unparalleled in the history of private markets.
With these two milestone acquisitions of g ip and and
HPS and also pre Quinn Data Provider. I think they
have acknowledged that there's two comparable markets, one which is
(03:06):
the established publicly traded market and the private market. One
is clearly growing and the other one is dwindling. And
so I think it's acknowledgment from Larry think that a
lot of the action is going private, and I think
that's for a series of reasons. One is pretty obvious,
which is that if you're looking for high fees, you
can find them in private markets, not in public markets.
(03:26):
Our brilliant colleague, Scilla Brush did did the maths, and
he said that one of BlackRock's biggest funds, the I Shares,
the brilliantly named I Shares Core SMP five hundred ETF,
which manages about six hundred billion of assets only has
a fee of zero point zero three percent, which brings
in one hundred and eighty million in annual revenue. Conversely,
(03:48):
the six hundred billion in alternative assets that Blackrock now
has its expected to bring in three billion, and that
doesn't include performance fees. By the way, the difference is stark.
And I think it's a big moment for private markets
because black Rock is an expert in bringing different financial
products to retail investors, and I think that's clearly something
(04:10):
that is going ahead in private markets.
Speaker 1 (04:13):
Lear rethink basically promise to open up private markets to
millions of every day investors, not just a wealthy few
a How will he do that and does that change
the proposition for private markets?
Speaker 2 (04:24):
I think that is the key point when it comes
to black Rock's introduction into private markets is their ability
to move and sell financial products to retail investors. The
key thing for me with private markets is to do
with scale. They've picked the low hanging fruit of pension
funds and softeign wealth, and now they're moving on to
(04:45):
insurance and also retail, and that's the key drivers for
growth in the industry. So I think it's significant that
black Rock is energetically figuring out ways of selling private
markets products to retail investors.
Speaker 1 (05:01):
So this is one of my favorite codes from Larry.
Think it's quite dramatic. They're in private markets locked behind
high walls with gates that only open for the wealthiest
or largest market participants, and so he's trying to sell
this idea of your democratizing.
Speaker 2 (05:17):
Yeah, it sounds like one of Bloomberg News's articles brilliantly worded. Yeah, no,
I think that's Shakespeare. But okay, I think that's the
key thing. His point is that there's only a small
group of investors that are benefiting from this attractive proposition
that private markets has to offer. By the way, he's
(05:38):
not alone in wanting to do this. If you look
at the earnings calls of Blackstone or Apollo, you will
also find a motivation to construct different ways of bringing
high net worth slash retail people into private markets.
Speaker 1 (05:56):
Sounds this President trump push on tariff's must mean bad
news for public markets, but are news for private markets?
Speaker 2 (06:04):
I think so. The canny among private equity firms have
done is sort of reincarnate themselves like the phoenix, and
they've moved from being known as buyout firms to being
known as private markets firms. So the lights of Blackstone
and Apollo, they're as proficient in investing in credit and infrastructure,
and I think that naturally makes the investment proposition all
(06:25):
the more appealing. I think with public markets, obviously they
are at least superficially more affected by volatility, and so
I think to bring a company to IPO, or to
even sell debt for a company in the publicly traded
markets is much trickier in times of uncertainty, and I
(06:47):
think with private credit and private equity firms, I think
one of their key advantages is their ability to price
through uncertainty, provided it's not an uncertainty that it's like
totally unmanageable.
Speaker 1 (07:00):
Is there just simply better returns and more money in
private market?
Speaker 2 (07:03):
I think this is the real question of the decades.
I think private equity and to a certain lesser extent,
private credit flourished in a low interest rate environment where
the ability to buy and sell companies was a bit easier.
Now with a prolonged period of high interest rates, and
often a lot of these companies having already been bought
(07:26):
by private equity a lot of the attractive companies. The
ability for them to deliver returns for investors, I think
is the key question of the next five years. And yeah,
we'll wait and see. I mean it certainly the practitioners
think it is, and presumably Larry think does as well.
So I guess it's a wait and see.
Speaker 1 (07:44):
So silas you mentioned higher for longer interest rates have
gone up so quickly, do we really know that the
valuations of a lot of these private companies and private
credit aren't correct.
Speaker 2 (07:55):
I think the challenge for private equity firms is with
a prolonged period of higher in trust rates when they've
bought companies when the rates were lower, will the valuation
judgments that they applied when they bought the companies bear
out when they sell the companies. I think M and
A has fallen globally, and perhaps that informs us as
(08:18):
to why that there is a challenge selling these businesses
at their lofty heights that they valued them when they
bought them. On the private credit side, again it is
a hot topic how do you value these loans? And
I think there are actually different judgments as to how
you value these loans, both in Europe and the US.
Speaker 1 (08:40):
You know, we speak to a lot of private market
chief executives, and I always feel the need to push
them a little bit, say, you know, the problem is
that some of the valuations could be a concern, Like
the difference between a public company and a private company
is that they could have a lot more debt and
you don't really know how to value it unless you
sell it.
Speaker 2 (09:00):
Yeah, I mean, look, we've done a lot of reporting
on valuation mismatches in private credit. I think the mismatches
become more stark naturally in private equity. I think regulators,
both in the US and Europe are keen to understand
valuation methodologies more. The key things I think from a
regulatory perspective that keep coming up are valuations. How do
(09:23):
you value an asset that isn't traded? I don't have
the answer. It's a tricky one. But also just transparency.
It's a totally different realm to public companies and their
disclosure requirements. But having said that, conversely, and slightly slightly ironically,
one of the reasons why I think private markets are
booming is because companies don't have to go through the
(09:45):
kind of onerous rigmarole of quarterly earnings and disclosures, and
so if you are bringing disclosures to private markets, you
may find similar frustration both in finance and also corporate executives.
Speaker 1 (10:00):
Wasn't it something like a couple of weeks ago at
the FCA was reviewing valuations across threety six firms serving
UK clients and they basically said that they failed to
police conflicts of interest. The concern with private markets full
stop is that they can be a little bit murky. Yeah.
Speaker 2 (10:15):
I think they are a lot more discreet and secretive
than their public market counterparts. You have interesting contradictions. For example,
the largest private equity firms also owned some of the
largest private credit units. I think you can find conflicts
of interest across the board in all financial markets. But
I think a lot of the evolution of private markets
(10:39):
is really untested and still I think hard for regulators
to understand. A lot of the strength in private markets
is trying to correct problems that were inherent in financial
markets already through the banking industry, and I think to
a certain extent they've done that on the credit side.
Speaker 1 (10:57):
If you open private at a private companies private investments
to retailers, does the regulation have to change.
Speaker 2 (11:06):
I think that's an important question. In a way, there's
been limited regulatory scrutiny over private markets because the market
has been somewhat closed off from retail investors, And one
of the questions going forward is will the regulation have
to change as a result of opening the market to
(11:29):
the people on the street. I think it would be
a natural conclusion to say it would. And I think
it would be a fair conclusion to say it would,
because ultimately regulators are interested in protecting retail investors from
financial risk. With the dawn of this opportunity set, which
(11:49):
is clearly attractive to some retail investors, that would naturally
beg the question of when's the regulation going to adjust
to that too.
Speaker 1 (11:57):
And if black Rock wants to open up this asset
class to reach tail investors, will others do the same?
Speaker 2 (12:02):
Yes? I think with or without black Rock, there's been
a concerted effort to build and develop financial products that
would be suitable to retail investors, particularly in the US,
and you see firms you know, Apollo and Blackstone and Ares,
the kind of titans of private markets also discussing ways
to accommodate retail investors. I think you can say with
(12:24):
a high degree of certainty that this will be the
topic going forward or one of the key topics going
forward for both private credit and private equity.
Speaker 1 (12:35):
Silas, thank you so much, Thank you thanks for listening
to this week's In the City from Bloomberg. This episode
was hosted by me Francin Laqua. It was produced by
Summersati and Moses and Dam with sound design by Blake Maples.
Brendan France Newnham is our executive producer. Special thanks to
(12:56):
Silas Brown. Please subscribe, rate, and review wherever you listen
to podcasts.
Host
Francine Lacqua
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