WEBVTT - Michael Arougheti Talks AI Opportunity, Hiring

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Well Arie's unveiling a number of new targets the asset

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<v Speaker 2>management firm, predicting it will booze assets under management to

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<v Speaker 2>seven hundred and fifty billion dollars by twenty twenty eight.

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<v Speaker 2>In a statement posted on the company's website, it said, quote,

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<v Speaker 2>we expect to grow faster than the projected industry average

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<v Speaker 2>over the next five years. For more, I'm pleased to

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<v Speaker 2>say we're joined now by Mike Arraghetti he is ARI CEO,

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<v Speaker 2>and of course Bloomber Zone Shanali Bassk. So Mike, let's start,

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<v Speaker 2>of course with that target. I have to imagine that

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<v Speaker 2>the growth of private credit is an important ingredient.

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<v Speaker 3>It is a big driver, and obviously it's a big

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<v Speaker 3>part of what we do. But if you look over

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<v Speaker 3>the last five years, when we gave our prior guidance,

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<v Speaker 3>we said that we were going to grow twenty percent.

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<v Speaker 1>We grew thirty five.

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<v Speaker 3>Private credit was a big part of that, but we've

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<v Speaker 3>diversified into other big growth areas like real assets, private equity, secondaries, insurance.

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<v Speaker 1>So I think it's a combination of all of the above.

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<v Speaker 4>How do you think about the private credit marketrit large here.

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<v Speaker 4>You've had so many new entrants, you have billions of

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<v Speaker 4>dollars flowing into the industry. A lot of investors are

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<v Speaker 4>looking around now and asking where's the risk.

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<v Speaker 3>Well, you have to everyone defines private credit differently, So

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<v Speaker 3>when we talk about private credit today, I think a

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<v Speaker 3>lot of people are specifically talking about corporate direct lending

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<v Speaker 3>in the US, which is a great market. It's a

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<v Speaker 3>market that we've led for many, many years, and it

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<v Speaker 3>is a market that frankly, in my opinion, is still

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<v Speaker 3>under capitalized, and we.

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<v Speaker 1>Can come back to that maybe.

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<v Speaker 3>But when I think about private credit, we're talking about

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<v Speaker 3>all self originated private credit, rated, non rated, or ratings

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<v Speaker 3>are equivalent in corporate, real estate, infrastructure, asset backed opportunistics.

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<v Speaker 3>So these are huge addressable markets, each of which is

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<v Speaker 3>growing at.

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<v Speaker 1>A very high rate for structural reasons.

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<v Speaker 3>So we're not really experiencing the market as crowded, and

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<v Speaker 3>when you look at the performance in the underlying portfolios,

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<v Speaker 3>we're not actually seeing risk emerging in any of those corners.

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<v Speaker 2>Well, that touches on something that I've been wondering about.

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<v Speaker 2>Of course, with the growth of private credit, like channel

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<v Speaker 2>I mentioned all the new entrants. What does deployment look

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<v Speaker 2>like when it comes to the actual opportunities there to

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<v Speaker 2>throw money at.

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<v Speaker 1>Well, here's something to think about.

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<v Speaker 3>If you look at fundraising in the private credit market,

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<v Speaker 3>over the last five years, the top twenty five managers

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<v Speaker 3>we are at the top of the list, grew the

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<v Speaker 3>fund to fifty six percent market share in capital raised. Okay,

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<v Speaker 3>so sixty percent of the dollars are going to a

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<v Speaker 3>very small handful of people. The five years prior it

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<v Speaker 3>was roughly half that. So these markets are growing, but

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<v Speaker 3>they're also consolidating. And so while you're seeing a proliferation

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<v Speaker 3>of funds, the way that capital is getting raised and deployed,

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<v Speaker 3>it still still sits with a very small handful of people.

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<v Speaker 1>So if you look at our.

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<v Speaker 3>Deployment, we put out about forty billion dollars a year

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<v Speaker 3>in our private credit franchise, and that's been consistent for

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<v Speaker 3>the last three, four or five years, regardless of the

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<v Speaker 3>raid environment, regardless of the competitive environment.

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<v Speaker 2>You know.

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<v Speaker 4>Like, as we sit here with you today, it's interesting

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<v Speaker 4>a lot of investors have a lot of AI on

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<v Speaker 4>their minds with Nvidia after the bell and I've got

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<v Speaker 4>to say, in your investor day, you did say the buzzword,

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<v Speaker 4>how is AI going to drive the future of private credit?

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<v Speaker 3>You know, it's it's still early, and so we've known

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<v Speaker 3>each other a long time, and whenever something as transformational

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<v Speaker 3>as AI comes out, we want to make sure that

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<v Speaker 3>we first understand the opportunity, We want to understand the risk,

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<v Speaker 3>and then deploy in a measured way.

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<v Speaker 1>But we can't ignore it.

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<v Speaker 3>My view is, at least for private markets investors, the

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<v Speaker 3>biggest opportunity in AI will be twofold one supporting the

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<v Speaker 3>digital infrastructure necessary and needed to see the data explosion happen.

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<v Speaker 3>And that's everything from data centers, renewable renewable power, grid,

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<v Speaker 3>grid transmission. So that's one big, big theme that market

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<v Speaker 3>is undercapitalized.

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<v Speaker 1>We're leaning in there.

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<v Speaker 3>And then two is how do we use AI to

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<v Speaker 3>improve the efficiency and the returns in our own company

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<v Speaker 3>and in our investment portfolio. We recently made a small

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<v Speaker 3>acquisition of a team of technologists Bootstrap Labs. We have

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<v Speaker 3>put them into our corporate strategy group and we're now

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<v Speaker 3>deploying them into our portfolio to look for opportunities for efficiency.

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<v Speaker 3>We're deploying them into our middle and back office to

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<v Speaker 3>try to drive margin expansion, and we're eventually going to

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<v Speaker 3>set them free on our portfolio companies and data to

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<v Speaker 3>try to create some underwriting edge. So I think that's

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<v Speaker 3>going to be the long term fully grill.

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<v Speaker 4>To this holy grail. If you look to this kind

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<v Speaker 4>of long term push that you're making here to twenty

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<v Speaker 4>twenty eight adding assets under management, then where do you

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<v Speaker 4>look to deploy your own capital, not the funds, but

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<v Speaker 4>investing in the business. Is it the marginal hire or

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<v Speaker 4>is it the marginal technology expertise here?

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<v Speaker 1>It's both, It's both.

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<v Speaker 3>But we've been very vocal that I think the strategy

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<v Speaker 3>to win long term in private markets is origination and

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<v Speaker 3>investment acumen. Now we're going to be able to use

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<v Speaker 3>technology to support good investment decision making. Any margin enhancement

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<v Speaker 3>that we can generate through technology, we're going to put

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<v Speaker 3>back into the investment engine, right because when you're in

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<v Speaker 3>these large addressable markets, ultimately we win by finding investment

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<v Speaker 3>opportunities that others can't, and at the end of the day,

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<v Speaker 3>technology can't do that alone. So my own way of

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<v Speaker 3>thinking about AI is it is a supplementation of our

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<v Speaker 3>human capital. It's not a replacement of our human capital.

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<v Speaker 2>Well, overall, how are you thinking about your human capital

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<v Speaker 2>when you think about some of your AUM goals? For example,

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<v Speaker 2>do you plan to hire more people to help achieve that?

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<v Speaker 4>And how many?

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<v Speaker 3>I'm going to say yes, plenty, and then I'm going

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<v Speaker 3>to get back in my phone.

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<v Speaker 1>Is going to be ringing up the hook with people

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<v Speaker 1>looking for a job? Yeah, clearly.

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<v Speaker 3>If you look at our headcount, we have three thousand

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<v Speaker 3>employees at areas today, in forty offices in twenty countries.

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<v Speaker 3>They're all growing because, again, our differentiator is our ability

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<v Speaker 3>to be in these local markets developing relationships with companies

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<v Speaker 3>and assets. So by definition, we have to grow our

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<v Speaker 3>headcount in order to support the AUM target. I think

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<v Speaker 3>we'll be doing that all over the globe.

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<v Speaker 4>Now, there are some areas that have gotten really hot

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<v Speaker 4>in private credit. One where you guys have made an

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<v Speaker 4>early splash is sports. Yes, there's a lot of news

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<v Speaker 4>around the market about the NFL looking to be open

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<v Speaker 4>to private equity ownership. How big is that market? Is

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<v Speaker 4>it even attracted to somebody like you?

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<v Speaker 1>Yeah?

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<v Speaker 3>I think the sports media and entertainment as I would

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<v Speaker 3>describe the opportunity as a huge addressable market We formally

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<v Speaker 3>entered the business about four years ago in the middle

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<v Speaker 3>of COVID, identifying that that would be a catalyst for

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<v Speaker 3>what we thought would be transformational change. So when I

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<v Speaker 3>reflect back on our thirty years in private credit, it's

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<v Speaker 3>always been about innovating where there was some form of

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<v Speaker 3>rigidity in the way that things got financed. And if

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<v Speaker 3>you look at sports globally, they've typically been financed with

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<v Speaker 3>bank capital and high net worth investors and nothing in between.

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<v Speaker 3>And what we've learned over thirty years is the markets

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<v Speaker 3>will evolve to value innovation in capital structures, and I

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<v Speaker 3>think that's what's happening in sports.

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<v Speaker 1>So the NFL being one example of many.

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<v Speaker 3>As these leagues are maturing and people are seeing values grow,

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<v Speaker 3>they're bringing institutional capital into a unlock value in the

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<v Speaker 3>capital structure, support growth, bring management expertise to the table

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<v Speaker 3>to help drive continued revenues. So I think we're just

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<v Speaker 3>getting started. And this is a TAM that did not exist.

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<v Speaker 3>So you mentioned the NFL. If you say thirty teams

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<v Speaker 3>times you know, three four or five billion, pick your

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<v Speaker 3>number one league alone, you can see you start to

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<v Speaker 3>create one hundred billion dollar equity TAM.

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<v Speaker 1>And so I think we're just beginning.

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<v Speaker 3>To see the you know, the evolution of this, but

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<v Speaker 3>it's going to open up a whole new market investment

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<v Speaker 3>opportunity for folks like us.

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<v Speaker 2>I also do want to talk about wealth because obviously

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<v Speaker 2>that's a big growth driver for you. How do you

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<v Speaker 2>keep the momentum going, how do you continue to expand

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<v Speaker 2>your business in that business?

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<v Speaker 3>Yeah, I think, Look, there's going to be like all

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<v Speaker 3>things in our business now, it's consolidating and the consolidation

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<v Speaker 3>is accelerating.

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<v Speaker 1>I think in wealthy you win with people.

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<v Speaker 3>Ie you need teams around the globe that are supporting

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<v Speaker 3>the sales and servicing of the wealth investor.

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<v Speaker 1>You need a platform to support it.

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<v Speaker 3>You need product, you need track record, you need relationships

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<v Speaker 3>with the distribution partners.

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<v Speaker 1>And it's a huge investment.

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<v Speaker 3>We have one hundred and twenty five people with six

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<v Speaker 3>products that are actually pushing product into the wealth channel.

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<v Speaker 3>We set it our Investor Day yesterday. We expect our

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<v Speaker 3>twenty five billion today to grow to one hundred billion.

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<v Speaker 3>We expect our hundred and twenty five people to go

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<v Speaker 3>to one hundred and seventy five, and our product set

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<v Speaker 3>will go from six to likely ten. So again you

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<v Speaker 3>have to make investments in each of these areas.

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<v Speaker 1>People, product platform.

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<v Speaker 4>Are long term goals twenty twenty eight, you said these

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<v Speaker 4>goals for but what about the next twelve months. What's

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<v Speaker 4>the biggest opportunity.

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<v Speaker 1>I think we just got to keep doing what we're doing.

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<v Speaker 3>You know, obviously the transaction market is beginning to open up,

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<v Speaker 3>deployment is starting to pick up again. The fundraising machine

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<v Speaker 3>has been working for us, as you've seen in our

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<v Speaker 3>fundraising numbers in what we by all accounts. You know,

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<v Speaker 3>here is a difficult fundraising market. So I think every

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<v Speaker 3>year is about execution. The way that we get to

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<v Speaker 3>our five year goals is just, you know, keep doing

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<v Speaker 3>what we're doing, and I think that's what we're focused on.

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<v Speaker 2>Well, Mike, I think that's a good place to leave it.

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<v Speaker 2>Really appreciates your time today. Out of course, is Mike

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<v Speaker 2>Arraghetty of Areas, and of course Ploomberg's Shanali Basset