Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Meta is said to have selected Pimco to help lead
Speaker 2: a twenty nine billion dollar financing for its data center expansion.
Speaker 2: I'm happy to say the Pimco CEO, Manay Roman, joins
Speaker 2: us now for more manic.
Speaker 3: Good morning, Good morning, Johnathan, Nice to see you.
Speaker 2: It's good to see you, sir. How does a man
Speaker 2: like you deal with a three am alarm clock on
Speaker 2: the West Coast? How does that work?
Speaker 3: You've got I make, I make the best expresso known
Speaker 3: to mankind, you know, and you'll be hippy triple espresso,
Speaker 3: triple expresso, and it feels good every day and happy
Speaker 3: to be at work.
Speaker 2: Well, I'm happy to have you with us this morning.
Speaker 2: Let's get into some of these deals. I know, the
Speaker 2: certain deals you can talk about, can't talk about. What
Speaker 2: are talking broad terms about? The appetite here for the
Speaker 2: capital that we need to provide to this particular force,
Speaker 2: this growing force AI data centers. Where it's going to
Speaker 2: come from and where you and the team are going
Speaker 2: to fit in.
Speaker 3: So I think it's I mean, it's it's a huge
Speaker 3: super secular opportunity. There is an enormous need for funding
Speaker 3: an equity in data center. We I don't know whether
Speaker 3: the six point seven trillion dollars from McKinsey is remotely right,
Speaker 3: but it's very, very big, and there'll be plenty of
Speaker 3: financing deals to be done, and there'll be plenty of
Speaker 3: construction to be done. And it's true in the US,
Speaker 3: but it's true in other part of the world. And
Speaker 3: the need also to have the infrastructure and the energy
Speaker 3: will come after that. So you know, we all talk
Speaker 3: about data center, but there's going to be a real
Speaker 3: rush for energy in terms of providing the right set
Speaker 3: up for this data center. And you know that's one
Speaker 3: of the reason to be very bullish on natural gas.
Speaker 2: We've reflected on one particular statement from one particular tax
Speaker 2: CEO over the last twelve months that I think was
Speaker 2: really quite important. It was last summer. It was the
Speaker 2: Alphabet CEO when essentially he said that the greatest risk
Speaker 2: here was under investing and not overinvesting. And I wonder
Speaker 2: how you think about that from the perspective as an
Speaker 2: asset manager. When you've got a group of companies that
Speaker 2: are willing to run the risk of overinvesting, how do
Speaker 2: you think about the risk around it?
Speaker 3: In terms of think. What we will do is we
Speaker 3: will look at every single deal and we will say
Speaker 3: this makes sense for us, and this may make less sense,
Speaker 3: and I think I think we I think one of
Speaker 3: the one of the strength we have is to be
Speaker 3: to be pretty pretty focused on relative value and sort
Speaker 3: of think that, you know, there may be a fantastic
Speaker 3: deal to be done which would be very very good
Speaker 3: for our investors, and then we look at the next
Speaker 3: one in the full light of day and decide whether
Speaker 3: it fits our portfolio and whether this is something we
Speaker 3: want to do.
Speaker 2: I think it's important to build on this that Mark
Speaker 2: Rowan said recently, we are what we originate. When it
Speaker 2: comes to private markets, you are what you originate. It's
Speaker 2: quite labor intensive. It takes a lot of work. When
Speaker 2: you think about scaling this and building this as an opportunity,
Speaker 2: how difficult is it? In Prentice, I.
Speaker 3: Think we have built it differently from ourk We have
Speaker 3: built it based on or experiencing fixed income or experience
Speaker 3: in relative value. In a history of fifty four years,
Speaker 3: in looking at all sorts of credit, we have fifty
Speaker 3: five credit analysts who looks at every single segment of
Speaker 3: the market, and I think we look at it from
Speaker 3: a value standpoint, does it make sense? Is it something
Speaker 3: we want to do. We shouldn't be originating for the
Speaker 3: sake of originating. And there's a lot of money. There's
Speaker 3: a lot of money coming to this market. You know,
Speaker 3: some sectors would be very attractive and some will be
Speaker 3: less so. And I think you want to be very
Speaker 3: much on top of this and say I want to
Speaker 3: do this, and I want to do less of this.
Speaker 1: There's a concern, especially as CEOs say it's more important
Speaker 1: to be throwing enough money at this rather than being underinvested.
Speaker 1: And then you have people like David Heinhorn of Green
Speaker 1: Light coming out and saying the numbers that are being
Speaker 1: thrown around are so extreme that it's really really hard
Speaker 1: to understand them. How difficult is it to invest in
Speaker 1: a market where people are throwing spaghetti at the wall
Speaker 1: to try to understand what's going to stick. And there
Speaker 1: is a feeling of excess that continues to bubble up
Speaker 1: around there.
Speaker 3: So my friend, my friend, Richard Thayler, who is an
Speaker 3: economic number price and console for US, has this this say.
Speaker 3: He says, you know, when you make long term product prediction,
Speaker 3: the degree of humidity understanding around the estimate should be
Speaker 3: very very big. So when I hear an estimate like
Speaker 3: six months seven trillion dollars, I don't know what to
Speaker 3: make of it. David may be very well be right,
Speaker 3: but we'll take it one step at the time. I
Speaker 3: think six months horizon is about all we can do
Speaker 3: in terms of the demand, and then you know, the
Speaker 3: environment may change dramatically. You know, they are business cycles.
Speaker 3: Sometimes things are cheap, sometimes they're expensive. If there's a recession,
Speaker 3: all of a sudden spreads world widened, company may revisit
Speaker 3: what they're trying to do, and so on and so forth.
Speaker 1: So this is a difficulty. How do you have a
Speaker 1: six month horizon when a lot of these investments are
Speaker 1: ten year buildouts, when there are ten year usage, when
Speaker 1: they are labor intensive, and infrastructure projects by nature are
Speaker 1: a lot longer than six months.
Speaker 3: So in terms of committing capital and in terms of
Speaker 3: finding the right opportunity with the riding length of time,
Speaker 3: we totally find to have a very long term horizon.
Speaker 3: What I'm saying is I'm saying making long term prediction
Speaker 3: in terms of how big the market will be, it's
Speaker 3: very hard. I think you have some visibility over the
Speaker 3: next six months in terms of what the demand is,
Speaker 3: what the real demand is, and whether that slows down,
Speaker 3: whether that accelerate. You just don't know, And I think
Speaker 3: you've got to have I think you have to be
Speaker 3: very humble about the season, just say, look, will take
Speaker 3: it one step at the time and see what the
Speaker 3: market gives us. And by the way, there may be
Speaker 3: other opportunity which are more attractive. You know, you look,
Speaker 3: for example, in asset backed finance business aircraft leasing. Aircraft
Speaker 3: leasing is incredibly interesting and then nothing happens for five years,
Speaker 3: and then it becomes very interesting again. And you got
Speaker 3: to constantly say to yourself, are they better opportunity for
Speaker 3: me to deploy money? And what do I want to do?
Speaker 3: How do I think about the risk? How will I
Speaker 3: get out what's the right risk return profile?
Speaker 2: You may have Headline recently wanted to ask you about it.
Speaker 2: Private markets haven't been tested? Can you build that out
Speaker 2: a little bit more? What did you mean when you
Speaker 2: said that the private markets haven't been tested?
Speaker 3: Well, my partner Dana Versin and a CIO of course admit,
Speaker 3: I have the charts and we will check the number.
Speaker 3: About twenty times because we kind of didn't believe it.
Speaker 3: But it shows the return on week single B which
Speaker 3: is a reasonably good proxy for direct lending. And what
Speaker 3: you see is you make money because the yield is higher,
Speaker 3: and then there's a recession and then you lose it all.
Speaker 3: And so I'm old enough to to remember nineteen ninety one,
Speaker 3: I saw that, you know, there's a recession which came
Speaker 3: out of nowhere from you know, essentially SNL having too
Speaker 3: much high yelled nineteen ninety seven. The world is absolutely
Speaker 3: final until there's an Asian crisis, and then you have AILITCM.
Speaker 3: Then things become very cheap. And so you've got to
Speaker 3: remember these things. And we have been in a period
Speaker 3: since two thousand and nine of exceptionalism where you have
Speaker 3: had very strong equity of return and very strong higher return.
Speaker 3: If you believe this is gonna this is going to
Speaker 3: continue for the next fifteen years, then I think you
Speaker 3: should have the same position. But it may not be
Speaker 3: the case. And I think I think we bring that
Speaker 3: and said, the data's a the data.
Speaker 2: Do you see parallels between now and those periods?
Speaker 3: Well, I think the initial condition where we are right
Speaker 3: now as search that equity markets are expensive by any measure,
Speaker 3: they may go higher because momentum is strong and credit
Speaker 3: market are tight in some part of the of the
Speaker 3: of the spectrum. And I think that's that's the reality.
Speaker 3: And look, we've been in period where things things are
Speaker 3: expensive for a long time two thousand and five, two
Speaker 3: thousand and six, where search period where things remain expensive
Speaker 3: and become more expensive, and then something breaks and then
Speaker 3: all of a sudden, you have you have a lot
Speaker 3: of work to be done.
Speaker 2: Many let's continue the conversation. We were having equity markets
Speaker 2: very close to all time highs, credit spreads and their
Speaker 2: multi decade ties on investment great high you'r spreads near
Speaker 2: the ties of the year, and yet we've got a
Speaker 2: FED official saying that we're excessively restrictive year across a
Speaker 2: range of funds. You look across markets all the time
Speaker 2: and the economy with the team, do you see any
Speaker 2: signs that are excessively restrictive?
Speaker 3: Well, I think rates are very high across across the globe,
Speaker 3: right And I think I think you know, part of
Speaker 3: the reason why I get up so early and happy
Speaker 3: to go to work is because you know the opportunity
Speaker 3: has been better and you know, we talk here about
Speaker 3: the US, but look at the UK. The UK where
Speaker 3: you're from is you know, tenure rates are four and
Speaker 3: three quarter. Australia looks really, really attractive. So when we
Speaker 3: think about the opportunity in a way, yes, we do
Speaker 3: expect the FED to cut. How much they're going to
Speaker 3: cut next year remant to be to be proven. No
Speaker 3: one knows what's going to happen to the labor market.
Speaker 3: But the reality is the opportunity in terms of global
Speaker 3: fixed income is very, very big, and the opportunity to
Speaker 3: add alpha is quite high. I'll tell you a funny story.
Speaker 3: We have a partner in Tokyo called Tomoroya Messano, and
Speaker 3: you know, for the longest time, there's not much happening
Speaker 3: in Tokyo. So you sort of call him and you
Speaker 3: have much out with him, and not much is happening,
Speaker 3: and then all of a sudden, the Japanese fixed income
Speaker 3: market becomes super exciting, and then there's a lot to do,
Speaker 3: and there's a whole generation of people who have disappear
Speaker 3: because they don't do it anymore. And so you have
Speaker 3: a liber market which hasn't supply fixed income investor because
Speaker 3: there was nothing to do for the longest time. And
Speaker 3: so what I think is interesting is the difference of you.
Speaker 3: The difference of opinion is also a source of incredible alpha.
Speaker 3: And you know, if you want to think about white
Speaker 3: performance has been quite good, it's partially because the alpha
Speaker 3: that is being given by the market is quite good.
Speaker 1: I think it's interesting that John was talking about the
Speaker 1: FED and you talk about the international sphere, and I
Speaker 1: think that that's really telling about what people are looking
Speaker 1: to for that alpha, for that incremental extra yield. Are
Speaker 1: those Japanese investors staying in Japan right now and not
Speaker 1: coming to the US for treasures even if the FED
Speaker 1: cuts No.
Speaker 3: I think they're very big investors in US asset. And remember,
Speaker 3: one of the opportunity everyone has is to buy foreign
Speaker 3: assets and swap them back into dollars or swap them
Speaker 3: back into yen and so on and so forth. And
Speaker 3: so you can actually buy synthetic credit. You can buy
Speaker 3: synthetic dollar exposure by for US investors buying, for example,
Speaker 3: JGB and setting forward the yen in two dollar and
Speaker 3: having a different credit risk with JGB than you have
Speaker 3: with US dollar. And so there's a lot to do
Speaker 3: now we do that a lot in short term and
Speaker 3: longer term in terms of adding alpha. But all the
Speaker 3: time you can do this sort of transaction and sort
Speaker 3: of mitigate your exposure or increase your exposure, or have
Speaker 3: different risk profile.
Speaker 1: That's a much smarter way of looking at it. I'm
Speaker 1: looking at this sort of a blunt instrument. So dumb,
Speaker 1: do you like international more than the United That's really
Speaker 1: a wonderful once it.
Speaker 3: Has an enormous amount of money to put to work,
Speaker 3: and has is a nation of savers, and so there's
Speaker 3: a you know the reason. The thing that I always
Speaker 3: say is you need to put your money somewhere, and
Speaker 3: the reality is the US is the only place where
Speaker 3: you can actually put scale and when you want a thing.
Speaker 3: For example, of the Australian problem, there was a whole
Speaker 3: delegation last week from the UN from Australia. They need
Speaker 3: to move capital all the way from Australia because they
Speaker 3: are a nation of savers and the Australian market is
Speaker 3: not big enough for them, and so they need to
Speaker 3: pivot too.
Speaker 2: For a long time, Japan had to do the same thing.
Speaker 2: They didn't have to yield. To your point, the story
Speaker 2: is change one thing we're trying to track is whether
Speaker 2: the Japanese bring the money home, whether we see this
Speaker 2: great repatriation where I could leave markets vulnerable. What's hip
Speaker 2: that deployed that capitt on thinking as serting European markets
Speaker 2: to the US as well. You seeing any of that
Speaker 2: flow story start to turn.
Speaker 3: No, not so far.
Speaker 2: Would you expect it to change?
Speaker 3: Honestly not really. These things are very very slow to move.
Speaker 3: And the reality is people keep on saving in Japan,
Speaker 3: and so it made us be that the marginal dollar
Speaker 3: goes into JGB But the credit markets are very underdeveloped,
Speaker 3: and if you want to buy, for example, cigole exposure,
Speaker 3: you much better off going to the US.
Speaker 2: The conversation we had back in April was maybe the
Speaker 2: decline of US exceptionalism. The money was going to leave,
Speaker 2: was going to go outsewhere. I want to understand where
Speaker 2: you are now six months later? What did you see
Speaker 2: at the time in April? Did we start to see
Speaker 2: that decay click into US exceptionalism and our way back
Speaker 2: to where we were at the start of the year
Speaker 2: just six months later?
Speaker 3: So I think we were dollar underweighted. We literally just
Speaker 3: quare our for position. We're still very much like emerging
Speaker 3: market currency. We do like Australian There's plenty to do.
Speaker 3: But you know, there was there was a short dollar
Speaker 3: position to be had, and you know, it moved ten percent,
Speaker 3: and I think we decided to square our position.
Speaker 1: You're talking a lot about rates and the era of income.
Speaker 1: We've been talking a lot about that, just based on
Speaker 1: the fact that yield has been higher, talking about private
Speaker 1: investments through infrastructure, not mentioning equities. And this is a
Speaker 1: time when people.
Speaker 3: Are trying to fixed income. I'm a fixed in combust no, I.
Speaker 1: Know, and you have sympathy with us, But I'm wondering
Speaker 1: how much a higher rate regime limits future equity returns.
Speaker 1: We used to talk about that. That was before our
Speaker 1: three years consecutive twenty plus percent returns. I mean, at
Speaker 1: what point will constrain the equity side of the portfolio.
Speaker 1: Even though some people are wondering what kind of buffer
Speaker 1: bonds really provide?
Speaker 3: Well, the Pimco view is that equity return in the
Speaker 3: US is going to be six percent for the next
Speaker 3: three years or something like this. I mean, we you know,
Speaker 3: we look at cape valuation. You know it's it's treading
Speaker 3: at twenty eight times earnings. It looks really really high
Speaker 3: to us. We understand the excitement about the hyperscalo, but
Speaker 3: if you look outside of the hyperscalo, life in industrial
Speaker 3: America isn't great. I mean, top line is not is
Speaker 3: not is not growing. And one of the questions that
Speaker 3: we don't know is the impact of tariff and what
Speaker 3: will happen in corporate America in terms of how they're
Speaker 3: going to deal with either passing on prices or diminishing
Speaker 3: margin and so on and so forth. And we don't
Speaker 3: know that, and so there's a whole leg of the
Speaker 3: of the of the equation that we haven't really seen.
Speaker 1: Stock investors have been trying to outpull each other this morning,
Speaker 1: and Max Katner was on earlier of HSBC and he
Speaker 1: was saying, look, he thinks that the Fed is making
Speaker 1: a policy error by cutting more significantly, but they're along
Speaker 1: for the ride because it's just going to inflate the
Speaker 1: prices of hasse has significantly. They want to gain from that.
Speaker 1: Do you agree with that assessment?
Speaker 3: Well, I haven't. I haven't listened. I haven't listened to him,
Speaker 3: so I would not be.
Speaker 1: Good initial punt.
Speaker 3: I don't.
Speaker 2: I don't.
Speaker 1: I don't know.
Speaker 2: I have.
Speaker 3: We have a lot of trust in in the FED
Speaker 3: in terms of them doing the right thing. And I
Speaker 3: think that the FED usually doesn't know much more than
Speaker 3: we all do. They look at the same data and
Speaker 3: so the decision is a very well thought out decision
Speaker 3: where they will decide what to do with the condition
Speaker 3: that they are being given. And if, for example, we
Speaker 3: were to see a very bad inflation print, it would
Speaker 3: be very difficult for them to cut Now. They may
Speaker 3: argue that they have to look through inflation and so
Speaker 3: and so forth, But the FED is a very rational
Speaker 3: actor in the market, and I don't think anything is
Speaker 3: going to change. And the same goes for the Central
Speaker 3: Bank in the UK and the ECB and so and
Speaker 3: so forth. And I think I think once you're in
Speaker 3: a job, you behavior changes also in terms of how
Speaker 3: you think about what the right thing to do is.
Speaker 2: Even listing to the new fetcher next.
Speaker 3: To no, I'm just I'm just saying it's it's it's
Speaker 3: like being a Supreme Court justice. You know, it's a
Speaker 3: very important job and I think people take their job
Speaker 3: very seriously.
Speaker 2: It's a good change. Next year there's going to be
Speaker 2: a new FED chair. Do you expect to be to
Speaker 2: see any daylight between a FED chair selected by appointed
Speaker 2: by this White House and Chairman J. Powell and his
Speaker 2: current leadership.
Speaker 3: Do you know I was reflecting on this and what
Speaker 3: we're talking about this. I mean, every single FED share
Speaker 3: has been to some degree of political appointee. And you know,
Speaker 3: there's been a history of very good FED chair since
Speaker 3: the Burns and the Nixon presidency. And I see no
Speaker 3: reason why that would change the.
Speaker 2: List of candidates we've seen so far. We've said repeatedly,
Speaker 2: very credible names on that list from this White House
Speaker 2: on a treasury and it is.
Speaker 3: It is, it is. It is important to remember that
Speaker 3: it's in everyone's incentive to have a very credible feed
Speaker 3: share because the market will not like a non credible feat.
Speaker 2: Schhair you running. I was going to.
Speaker 1: Means, yes, he's affirms.
Speaker 2: Money wants that job, and it's going to see you.
Speaker 2: Thank you, thank you for we do this in Newport
Speaker 2: next time. Okay, when the weather starts to warm up
Speaker 2: a little bit around it's very cool in the winter
Speaker 2: turn of the year. Works for me. In a January time, Yeah,
Speaker 2: we'll try and make that happen, all right, Money, thank
Speaker 2: you sir, appreciate it. Money Roman there the Pimco CEO