Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg,
Speaker 1: and I'm Vildonna hire across asset reporter with Bloomberg. And
Speaker 1: this week on the show, well, sticky inflation, a slowing economy,
Speaker 1: even bank runs. Stocks have had a lot of headwinds
Speaker 1: this year, and yet the market is still pricing in
Speaker 1: a soft landing, where a scenario under which inflation is
Speaker 1: subdued but the economy avoids a deep recession. At least
Speaker 1: that's according to this week's guest, who is the w
Speaker 1: CEO of a major hedge fund firm. But does the
Speaker 1: market of it right? We're gonna get into it with him, Vildanna,
Speaker 1: But first I gotta ask, are you going to ask
Speaker 1: me a basketball question? I could don't. I don't know anything.
Speaker 1: I just know that the game was on really late
Speaker 1: and everybody was mad. Yeah, right, started after nine or something.
Speaker 1: That's about right. No. I was gonna ask you, um,
Speaker 1: if you watched MTV as a child, of course, of course,
Speaker 1: Oh my gosh, cribs, cribs, let's see my day. MTV
Speaker 1: still was playing videos. I don't I don't think I
Speaker 1: saw many cribs. Okay, So my craziest thing, the reason
Speaker 1: I ask is my craziest thing. The week harkings back
Speaker 1: to the early MTV days, and I'm wondering if you'll
Speaker 1: even know what we're talking about. Nineteen eighties, when did
Speaker 1: MTV start? It was like mid eighties. Yeah, okay, late
Speaker 1: eighties maybe, No. They they played videos when I was
Speaker 1: young too, But they also had like really fun shows.
Speaker 1: It was cribs. Was your main cribs? What else did
Speaker 1: they have? Oh my gosh, they had room Oh was
Speaker 1: that an MTV show? Yeah? They had Room Raiders Room
Speaker 1: rad Yeah, which is just like a really gross show,
Speaker 1: like somebody will go into your room and like literally
Speaker 1: go through all your stuff and try to embarrass you. Yeah,
Speaker 1: they had some good shows. I guess Jersey Shore was
Speaker 1: that's that's that's a gem. That's a gem. In fact,
Speaker 1: my daughter ran in to Pauly d Wow on her
Speaker 1: spring break where in Panama City, Florida, which is I
Speaker 1: guess is like the Jersey Shore of Florida. Yes, but anyway,
Speaker 1: we digress. We digress because our guest actually is really
Speaker 1: far removed from the Jersey for he's not really the
Speaker 1: Jersey Island. Sure, he's in the UK baste. Yeah, not
Speaker 1: quite the same Jersey shore. Not the same maybe a
Speaker 1: nicer Jersey shore. But anyway, Mark jones Man Group Deputy CEO,
Speaker 1: is joining us this week. Mark, thank you so much
Speaker 1: for joining us and welcome to the show. Pleasure glad
Speaker 1: to join you. I'm glad to be far away from
Speaker 1: the new Jersey Shore, right, it's definitely a different one
Speaker 1: on all side. Um, Okay, So you sent us a
Speaker 1: couple of notes before we started and you said we're
Speaker 1: in a tough period four large asset owners, and I
Speaker 1: wanted to ask you about this and what the backdrop
Speaker 1: is right now, what maybe some of your biggest worries
Speaker 1: out there are, and just sort of conceptualize this. Yeah. Sure,
Speaker 1: So I think if you're a large asset owner, you've
Speaker 1: obviously you've got some structural risk asset positions in equities
Speaker 1: and bonds, and you've had this very benign period where
Speaker 1: inflation just hasn't been a problem or certainly in developed markets,
Speaker 1: and obviously it's been back with a vengeance over the
Speaker 1: past eighteen months or so. And getting out of the
Speaker 1: way of that when you have those structural long asset
Speaker 1: positions is very, very tough for people, and actually, frankly,
Speaker 1: HARKing back to how do I risk manage my positions
Speaker 1: in an inflationary environment? Last year is one of the
Speaker 1: most difficult that most of our clients will have had
Speaker 1: for at least a decade and possibly significantly more. And
Speaker 1: they're definitely still concerned about what do we do now
Speaker 1: that this insidious sort of force on real assets that
Speaker 1: hasn't been around for a long period of time is back.
Speaker 1: What do they do with their allocations? Where do they
Speaker 1: need to move things around? Who can help them? Where's
Speaker 1: the ALP Do they still need to increase the private
Speaker 1: market allocations they've had in the past. Just sort of
Speaker 1: a long long list of debates that they're having in
Speaker 1: a way frankly that we haven't heard from them for
Speaker 1: a long, long period of time. You know, Mark, in
Speaker 1: the intro, I mentioned that, as you mentioned in your notes,
Speaker 1: it sure does look like equity markets at least are
Speaker 1: pracing in a soft landing. Here reading the restaur notes,
Speaker 1: I'm not convinced you believe they're right. Could this rally
Speaker 1: be a big head fake? Do you think? Yeah? I
Speaker 1: think the risk reward inequities is very, very tough at
Speaker 1: the moment because, as you say, they're effectively implying that
Speaker 1: the FED does manage to navigate this and land things perfectly.
Speaker 1: They've got an incredibly difficult job on their hands. I
Speaker 1: definitely wouldn't want to be in their shoes right now,
Speaker 1: because you've got very material risks both sides, and indeed
Speaker 1: you've now got financial stability coming up as a third
Speaker 1: dress that frankly I wasn't thinking about six months previously.
Speaker 1: But the standard ones, which clearly have been the ones
Speaker 1: on their mind for most of this period, are Okay,
Speaker 1: we do think we're going to cause a drop in
Speaker 1: economic growth, but can we time that perfectly? Can we
Speaker 1: have a mild recession without you know, major major job losses?
Speaker 1: At every time, you know, you hear him stand up,
Speaker 1: he does make the point of it's better to take
Speaker 1: pain now, otherwise it's worse long term. They understand what
Speaker 1: they're doing, they understand the potential consequences. Can they get
Speaker 1: the dial right there? And you know, economies are not
Speaker 1: things where the dials work desperately well. And the sort
Speaker 1: of feedback from what you do to how they behave
Speaker 1: as that perfect and then clearly the brisk the other side,
Speaker 1: which again you know they've been talking about previously. If
Speaker 1: they're sustained inflation, they have to get it back to
Speaker 1: two percent. That is their mandate. They will have to
Speaker 1: be high for longer if it doesn't move down. And
Speaker 1: the path between those two things is pretty hard. And
Speaker 1: then to throw the third problem in which we've obviously
Speaker 1: seen in the last month or so, is okay, do
Speaker 1: we put enough stress in the financial system here that
Speaker 1: they suddenly have to start worrying about financial stability? Is
Speaker 1: the you know, the other piece of their mandate that
Speaker 1: has been in the background for most of the lost
Speaker 1: eighteen months or so and then suddenly came very very aggressively.
Speaker 1: Interview with SVB, I do not envy him his job
Speaker 1: at the moment. I certainly don't. I don't think any
Speaker 1: I really don't. You say you're expecting more volatility ahead, Like,
Speaker 1: what are you expecting? What are you expecting from the Fed?
Speaker 1: I've read some interesting notes from some of the big
Speaker 1: banks this week. One of them said, when they're talking
Speaker 1: to clients, well, clients says they're sort of frustrated with
Speaker 1: the rally that we've seen in stocks. I guess if
Speaker 1: you were not positioned for it, you'd be frustrated with
Speaker 1: So what are you expecting going forward? Yeah, I think,
Speaker 1: I mean, I think equities difficult because we haven't really
Speaker 1: seen the cut in earnings und some drift down in
Speaker 1: earnings expectations, but nothing too material. So that's definitely one leg,
Speaker 1: which is just the fundamental piece, and then the other
Speaker 1: is just a flow piece. You know, we are starting
Speaker 1: to see people move back obviously money markets out of banks,
Speaker 1: but also into credit and government bond positions in a
Speaker 1: way that they just haven't had for years because there
Speaker 1: hasn't been enough return there to attract people. So whether
Speaker 1: that's the consumer or whether that's big institutional clients starting
Speaker 1: to come back to an asset class that frankly had
Speaker 1: fallen relatively out of favor. And some of that flow
Speaker 1: of funds is also an issue for equities. There's just
Speaker 1: people move money around. So I think it's, as I said,
Speaker 1: it's a tough tight rope to walk if you look
Speaker 1: at equities right now. I think there's plenty of other
Speaker 1: places where you can get comfortable returns without the same
Speaker 1: risk profile. And I think you're seeing plenty of people
Speaker 1: make some of those allocation moves. The US is obviously
Speaker 1: a bit of an outline, and that the balance is
Speaker 1: a bit better in some other markets. The SMP is
Speaker 1: remarkably calm in the face of everything we've seen recently. Mark,
Speaker 1: there's some comments from your colleague Lucallis, the CEO of
Speaker 1: Man Group, a few weeks ago that really sort of
Speaker 1: clop my eye. One thing he said was, such banks
Speaker 1: will have to break stuff to tame inflation. I think
Speaker 1: the mission accomplished there to some degree. I don't think
Speaker 1: that's what they thought they were going to break exactly.
Speaker 1: You'd never quite know what's going to break. But he
Speaker 1: also said a significant number of banks won't exist in
Speaker 1: twelve to twenty four months. And we have not seen
Speaker 1: the lows in equities this cycle. Now, these comments were
Speaker 1: a couple of weeks old. A lot has changed. It
Speaker 1: seems like the fire in the US regional banking system
Speaker 1: knock on wood, if it's not completely put out, it's
Speaker 1: not raging like it once was. The reaction from the
Speaker 1: Federal Reserve, the FDIC was very aggressive, you know, was
Speaker 1: that sort of the house view there about you know,
Speaker 1: the banking system being bracing for more failures. Has anything
Speaker 1: changed about that? How are you thinking about the state
Speaker 1: of the banking system. I think he was talking at
Speaker 1: a point when the market was pretty fee bro. Yeah,
Speaker 1: in full. What he's actually talking about is, Look, there's
Speaker 1: the US regional banks, in particular, the US as an
Speaker 1: incredible number of banks compared to virtually every other major market.
Speaker 1: There's obviously stress amongst them. There's likely to be consolidation
Speaker 1: as some of the stronger players take on some of
Speaker 1: the weaker players. We've obviously seen the extreme version of that,
Speaker 1: where it's been via fdoc rescues and then reseales, But
Speaker 1: just more generally you would expect to see consolidation. Then
Speaker 1: maybe some failures. Banks do fail, that's part of the
Speaker 1: nature of the business model, but it was a much
Speaker 1: It was much more around the banking system generally either
Speaker 1: consolidating or maybe some going out of business. We did
Speaker 1: we did manage to trigger a comment from the Bank
Speaker 1: of England saying that they were comfortable with the banking
Speaker 1: system off the back of that. So that was definitely
Speaker 1: not an intended effect and maybe slightly taken out of
Speaker 1: context in a market where everyone was feeling a little
Speaker 1: bit more scared than they are today. Yeah, but no,
Speaker 1: we I mean, look, there's definitely still some stress in
Speaker 1: the banking system. And I saw some of the big
Speaker 1: investment bank defaults back sort of post in the financial crisis,
Speaker 1: and I remember telling people post that, look, the key
Speaker 1: thing is not to be there if there's a default
Speaker 1: of a bank, And that was the lesson that I
Speaker 1: thought everyone had learned in OA, and I spent years
Speaker 1: telling everyone when we get bank runs in future, they're
Speaker 1: going to be faster because everyone's going to remember O eight.
Speaker 1: And it turned a bit into the sort of horror
Speaker 1: story by the fire, because we didn't have very many
Speaker 1: defaults in banks for a long period of time, and
Speaker 1: then we just saw obviously the speed recently, which frankly,
Speaker 1: even though I was expecting bank runs to be faster,
Speaker 1: I was amazed at how fast really quite big institutions
Speaker 1: went from functioning to into FDIC hands. So SVB obviously
Speaker 1: is the one that people focused on. I actually think
Speaker 1: signature is the more interesting one in some ways, where
Speaker 1: there was almost no noise because everyone was focused on SVB,
Speaker 1: and then it was gone over the weekend, which is
Speaker 1: a remarkable sign of the speed of liquidity withdrawal in
Speaker 1: the current world. I wanted to ask you about that. Actually,
Speaker 1: I wanted to ask you about the speed with which
Speaker 1: we saw some of these bank rounds actually happen. And
Speaker 1: obviously we have had some weeks go by, and we've
Speaker 1: had some retrospective and lots of news reports about what
Speaker 1: actually happened and how, you know, different tech figures, we're
Speaker 1: talking to each other in different chat groups and whatever else.
Speaker 1: Can you characterize what happened and sort of the astoundingness
Speaker 1: at which and the speed at which had happened. I mean,
Speaker 1: it is just classic bank runs, So it's it's just
Speaker 1: liquidity withdrawal and banks a levied institutions, and you know
Speaker 1: they can't cope with some level of liquidity withdrawal. The
Speaker 1: thing that's different, it's clearly the sheer speed of which
Speaker 1: it happened. And as I say, all of the stories,
Speaker 1: you know, the press commentary is around SVB and the
Speaker 1: concentration of the client base there, and you know, effectively
Speaker 1: did they create their own bank run? But then go
Speaker 1: look at signature where it's not obvious that any of
Speaker 1: that was happening, but exactly the same thing happened at
Speaker 1: very very high speed. You know, look at the money
Speaker 1: coming out of credits we set great speed. Again, that's
Speaker 1: not coordinated action, that's just people reading press reports, and
Speaker 1: the world is much more attuned to some of this information. Clearly,
Speaker 1: generally financial information percolates far far faster than it used to.
Speaker 1: But I don't think if you look at the set
Speaker 1: of them, I don't think you can say it's sort
Speaker 1: of specifically a social media thing, or a concentrated set
Speaker 1: of clients thing, or a tech thing, because that's not
Speaker 1: the case with the other institutions that ran into liquidity issues.
Speaker 1: I think it's much more around general speed of information
Speaker 1: flow combined with frankly, just a classic tail risk with
Speaker 1: banking as a business model, which is bank runs happen,
Speaker 1: They will happen again. They've happened for decades. I'm not
Speaker 1: sure when the first one wards, but it won't have
Speaker 1: been that long after the first bank was started. That's
Speaker 1: probably true. Mark. I wanted to talk about sort of
Speaker 1: the climate of the hedge fund industry itself, you know,
Speaker 1: sort of a mixed year in twenty twenty two for
Speaker 1: a lot of funds. CTA's trend following funds did did
Speaker 1: very well. There were a lot of outflows from some funds.
Speaker 1: Madgroup actually managed to book about more than three billion
Speaker 1: dollars worth of inflows. And I was looking at some
Speaker 1: of the better performing funds. The HL Diversified Fund was
Speaker 1: up more than thirteen percent, HL Alpha up eleven percent. Now,
Speaker 1: of course, some of the long and only strategies, it
Speaker 1: was tough to post a positive return last year given
Speaker 1: the markets, but pretty impressive returns for some of these
Speaker 1: AHL funds. What if you could break down for us
Speaker 1: what worked? Is it to oversimplify it, to just call
Speaker 1: it trend following with some of these strategies. Is there
Speaker 1: more going on or was that really a big part
Speaker 1: of it? Trend fulling was definitely a big driver. So
Speaker 1: I think systematic funds did very well last year. In
Speaker 1: macro markets, there were some big trends to invest in,
Speaker 1: so some of the commodities moves at the start. Obviously
Speaker 1: the bond moves throughout the dollar move was a big
Speaker 1: positive contributor. So there were plenty of places for positive
Speaker 1: returns to be had, and CTAs are very good at
Speaker 1: capturing those sorts of macro moves. And I think when
Speaker 1: you so when you step back, we've had this very
Speaker 1: prolonged period where all developed markets have basically been doing
Speaker 1: the same things with interest rate policy. There's been this
Speaker 1: very very high correlation, and then that's clearly pushed into
Speaker 1: a bunch of other asset classes. It's generally dampened volatility down,
Speaker 1: it's increased correlation. It's been quite a tough environment for alpha,
Speaker 1: or at least there's less opportunities than you would sort
Speaker 1: of normally have seen pre that period of very very
Speaker 1: low interest rates. What we're moving back into now is
Speaker 1: something that's much more into O eight. So you've seen
Speaker 1: I mean, actually equity vole hasn't increased in the same way,
Speaker 1: but in a lot of other ethic classes you've seen
Speaker 1: quite material step ups, whether it's that in fixed income
Speaker 1: or in commodities or in currencies. You know, there's a
Speaker 1: lot more going on. There's a lot more differentiation in
Speaker 1: how countries are managing their interest rates because of some
Speaker 1: of the core macroeconomic differences between them, where inflation is,
Speaker 1: where energy policy is, in each of those places, strength
Speaker 1: at the job market. That's exactly the sort of environment
Speaker 1: that suits some of these macro strategies. Over time, because
Speaker 1: there's just a lot more opportunity. There's the risk management
Speaker 1: skills are a lot more relevant when things are moving
Speaker 1: around in that sort of a way. So, yeah, trends
Speaker 1: were absolutely critical to a lot of the strong outline
Speaker 1: returns last year. But we think that environment is going
Speaker 1: to persist, and frankly, it feels like that's the future
Speaker 1: decades going to be a lot more like that rather
Speaker 1: than just the next year or so. Really, so twenty
Speaker 1: twenty three will another good year for trend follow me
Speaker 1: think I mean individual, I mean that the last month
Speaker 1: or so it's been tougher for trend followers specifically because
Speaker 1: of the interest rate moves post SVB. That's in the
Speaker 1: nature of the strategy. You will have some difficult periods.
Speaker 1: They work over time, but it's a higher volatility and
Speaker 1: lower correlation between things, so at some level, just much
Speaker 1: more macro uncertainty in the sort of simplified way of
Speaker 1: putting that, that's the environment when you want strategies which
Speaker 1: can help you navigate that uncertainty, And that at heart
Speaker 1: is what trend followers are very good at doing over time,
Speaker 1: and I think we who knows in twenty years, thirty years, time,
Speaker 1: I suspect we'll look back now and go the previous
Speaker 1: ten years with the outlier rather than the other way around. Okay,
Speaker 1: and you said there's a bigger opportunity set for alpha
Speaker 1: than over the last decade one interest rates where near zero.
Speaker 1: Can you talk about what you mean by that? Yeah,
Speaker 1: I mean it's it's because of that higher volatility, So
Speaker 1: there's more there's more risk in markets, which if you've
Speaker 1: got skill, is the opportunity set obvious. You've got to
Speaker 1: have the skill in the first place. Similarly, within equities,
Speaker 1: you know, there's more dispersion within equities than they have
Speaker 1: been for a prolonged period of time. Again, if you
Speaker 1: are good making those investment choices, that's a great environment
Speaker 1: for you because there's just a bigger opportunity to make
Speaker 1: money for your clients. You've got to have the skill.
Speaker 1: Otherwise it's just risk with out the positive return. So
Speaker 1: I think it's it's sort of a more difficult environment
Speaker 1: because the risk is higher. But where you've got expertise,
Speaker 1: that's what you want. You know, our job is to
Speaker 1: take risk on behalf of clients when there's more opportunities
Speaker 1: in the world. Because it's a riskier period, you can
Speaker 1: add more benefit to them, and that's that's definitely what
Speaker 1: we're looking to do from here. I think what he's
Speaker 1: trying to say is he has the skill the firm.
Speaker 1: There's a there's a one and a half thousand double
Speaker 1: PhDs and the like sitting around me who definitely have
Speaker 1: the skills. You got to call him doctor, doctor. Doctor.
Speaker 1: We do have some gen you in rocket scientists, so
Speaker 1: on any day that you're feeling small at yourself, you
Speaker 1: can just go talk to someone and if you immediately
Speaker 1: feel a lot smaller. So I always joke about this.
Speaker 1: It's amazing how many actual rocket scientists find their way
Speaker 1: into investing, and yeah, quant we've interviewed some of them. Mark.
Speaker 1: I think one really sort of interesting sea change that
Speaker 1: we saw this year with Silicon Valley Bank is a
Speaker 1: greater focus on private markets venture capital, especially in Silicon Valley,
Speaker 1: and sort of this notion that boy, they had a
Speaker 1: great run. There was so much sort of interest in
Speaker 1: private markets that almost seems to me like the end
Speaker 1: of an era once Silicon Valley Bank broke. I mean,
Speaker 1: is is that an exaggeration? Do you think? I mean,
Speaker 1: was that whole private market craze a low interest rate phenomenon.
Speaker 1: I mean, is has this has every changed now for
Speaker 1: say private versus public the appeal of each type of investment. Yeah. So,
Speaker 1: I mean we've obviously had this huge trend in asset
Speaker 1: management for I mean, it's more than a decade old now,
Speaker 1: arguably too of increased allocation into private markets over time
Speaker 1: from the big asset owners, and the period of low
Speaker 1: interest rates definitely helped that trend because you just had
Speaker 1: to go somewhere you for returns them rather than the
Speaker 1: traditional asset classes. I don't think we're going to see
Speaker 1: some huge pivot away from that, because there's a lot
Speaker 1: of money allocated and you can't pull it out quickly.
Speaker 1: It takes time. Plus frankly, they are useful sources of
Speaker 1: returning people's portfolio. But I do think the speed of
Speaker 1: that trend is definitely, at a minimum going to slow down,
Speaker 1: and I think for a lot of people they're going
Speaker 1: to tilt back towards public markets for the first time
Speaker 1: in really quite a long time, because it's been relatively
Speaker 1: inexorable of adding to their private allocations year by year
Speaker 1: by year. And that's for a couple of reasons. One
Speaker 1: some of the stuff that we touched on earlier, where
Speaker 1: there's actually there's more return from some traditional asset classes,
Speaker 1: in particular on the fixed income side, So people go, actually,
Speaker 1: I don't need to reach out on the risk spectrum.
Speaker 1: I can meet my investment goals with some much more
Speaker 1: traditional returns, investment grade, credit, whatever it may be. And
Speaker 1: they're much happier if they can do that in a
Speaker 1: lower risk way and meet whatever their their retirees obligations
Speaker 1: or whatever their responsibilities are. And so that piece definitely
Speaker 1: is a big driver. And then I think the other
Speaker 1: thing is we saw the benefit of liquidity. The UK
Speaker 1: obviously had a relatively spectacular blow up in the guilt
Speaker 1: market last year. You had clients who suddenly had a
Speaker 1: very very strong liquidity need to meet that big, big
Speaker 1: market move, and they were having to sell assets to
Speaker 1: meet cash calls. And suddenly that reminder of things that
Speaker 1: I can liquidated if I need it in a crisis,
Speaker 1: and the value of that so I'm not a force
Speaker 1: seller of something else. We'd sort of forgotten that as
Speaker 1: a key benefit of liquidity, but I think we've had
Speaker 1: a few reminders in some of the sort of panic
Speaker 1: periods of that benefit of more liquid assets. So both
Speaker 1: for a risk management piece of balanced piece and a
Speaker 1: course sort of return piece, I think you're going to
Speaker 1: see tilts bag. Private markets are well established as parts
Speaker 1: of investor's portfolios. It's not that they're just going to
Speaker 1: drop them, but I think the speed of growth is
Speaker 1: going to change. Okay, So if we are seeing a
Speaker 1: tilt back towards more liquid assets, where do you already
Speaker 1: or maybe where are you foreseeing that money actually going
Speaker 1: from our business? Clearly the head fund business is a
Speaker 1: big part of what we do, and some of the
Speaker 1: systematic strategies, in particular macrosystematic strategy. I think people are
Speaker 1: looking at again this clearly saw them had a good
Speaker 1: year last year, and I think they agree with what
Speaker 1: I've just discussed around the environment suiting those sorts of
Speaker 1: strategies and needing something nimble to help them move around.
Speaker 1: So strategies that are able to take macro risk successfully
Speaker 1: on behalf of clients. That's definitely a big source of demand.
Speaker 1: Liquid alternatives as well, so sources returned that are equity
Speaker 1: or bonds, but again that you can liquidate if you
Speaker 1: need them, so you get that protection in the portfolio
Speaker 1: and then frankly just playing vanilla fixed income at whatever
Speaker 1: risk level people are looking at, you know, whether it's
Speaker 1: high yield or investment grade or not so much of
Speaker 1: our business. But guveyes, I think people are definitely coming
Speaker 1: back to just because it works now. It's not for
Speaker 1: a long period it was all risk and no reward.
Speaker 1: We just sort the risk materialized last year, but you've
Speaker 1: now got back to an environment where there's actually some
Speaker 1: reward again, so you can make a plausible case for
Speaker 1: it being a bigger part of a portfolio. So a
Speaker 1: mix of liquid alternatives, particularly systematic macro, and then some
Speaker 1: core fixed income in particular that I think people are
Speaker 1: coming back two off to a number of years of
Speaker 1: not really being focused on it, right, I mean when
Speaker 1: you can get yielded a money market fund these days. Uh,
Speaker 1: it's it's such a dramatic change of climate from what
Speaker 1: we're used to in the you know, the post TFC
Speaker 1: ere It's it's pretty amazing really. But Mark I used
Speaker 1: to joke last year that they passed a law that
Speaker 1: every podcast guests had to talk about inflation. Um, yeah,
Speaker 1: this year's done that. Yeah, this year. I think the
Speaker 1: law is that you have to talk about AI at
Speaker 1: some level, and I feel like, you know, at some
Speaker 1: level you must have some rocket scientists already in the firm,
Speaker 1: uh using AI. But I'm curious how you're thinking about it.
Speaker 1: You know, obviously this chat chept sort of caught the
Speaker 1: world by storm and has everybody wondering about how AI
Speaker 1: is going to be used in all industries, but investing especially.
Speaker 1: I'm curious if it made as big of a splash
Speaker 1: in your world, is there a bigger focus on AI
Speaker 1: now because of this, And if you could tell us
Speaker 1: you know, where you see it going as an investment tool,
Speaker 1: and maybe a little bit about how you're using it
Speaker 1: now if it are. I mean, look machine learning as
Speaker 1: we would have called it, but AI and the sort
Speaker 1: of popular vernacular that's been a big part of some
Speaker 1: of the research efforts here for a number of years.
Speaker 1: You know, we use those techniques in various of the strategies.
Speaker 1: You've got to be an expert to deploy it successfully.
Speaker 1: In finance though, in terms of running money, naive approaches
Speaker 1: are very dangerous frankly, so you need the human expertise
Speaker 1: alongside some of those techniques. The bit that the entire
Speaker 1: world has got wealthy excited about over the last couple
Speaker 1: of weeks, so some of the generative AI. I actually
Speaker 1: think he's one of the first times that the hype
Speaker 1: is appropriate against the technology. So whether that's useful in
Speaker 1: the pure investment decision side, that's definitely to be determined.
Speaker 1: But in our wider business using that as a way
Speaker 1: to help people do all manner of commercial tasks that
Speaker 1: we need, in commercial processes that we need, absolutely, you know,
Speaker 1: we clearly want people experimenting across the whole business of
Speaker 1: figuring out how can I use this to make myself
Speaker 1: more productive. I think you're going to see that, frankly,
Speaker 1: in almost all industries because it really is a remarkable
Speaker 1: step forward on the technology side. And I say that
Speaker 1: normally when these things come out, my view is, Okay,
Speaker 1: let's wait and see. Everyone always over hypes them and
Speaker 1: says innovation is always increasing. Doesn't show up in the
Speaker 1: productivity to statistics at the government level, So I'll believe
Speaker 1: it when I see it. This one, I genuinely think
Speaker 1: is going to have a big impact across most of
Speaker 1: the business world as people figure out how to deploy it.
Speaker 1: Right interesting our podcasts, Okay, I think you are safe.
Speaker 1: I think I saw some report from one of the
Speaker 1: sales side which was listing jobs that were at risk,
Speaker 1: and they've missed cell site research report writers somewhere. Maybe
Speaker 1: that was not a mistake. The other thing I think
Speaker 1: they're probably gonna pass a law that we have to
Speaker 1: talk about is commercial real estate and the credit cycle.
Speaker 1: I mean this banking and I you know, I don't
Speaker 1: know if he really should use the word crisis. You know,
Speaker 1: what's so unusual, Mark is to have this banking turbulence.
Speaker 1: We'll call it triggered by interest rate risk and deposit
Speaker 1: flows rather than credit. You know, but I do feel
Speaker 1: like the focus now is shifting towards especially that in
Speaker 1: the US, and problem I'm sure in the UK to
Speaker 1: the commercial real estate office reads here in the US,
Speaker 1: how are you thinking about the credit market? Has it?
Speaker 1: I mean, is that the next candidate to look for
Speaker 1: as far as the central banks breaking something? I mean,
Speaker 1: is that the next shooter draft? Do you think? I
Speaker 1: think we've got a bit of time because most large
Speaker 1: sort of segments of borrowers took the opportunity to push
Speaker 1: maturity out when rates were so low. I mean obviously
Speaker 1: saw that on the consumer side with a bunch of
Speaker 1: the refinancing mortgages in the US, you saw it quite
Speaker 1: a lot on the corporate sideway. There's really not much
Speaker 1: in maturities this year or even that much next year.
Speaker 1: And similarly on the real estate side, because interest rates
Speaker 1: were very attractive and you were asleep at the wheel
Speaker 1: if you weren't doing something in credit at that point
Speaker 1: in time. The bit that we're worried about mid term
Speaker 1: is okay, But if you had to refinance now, how
Speaker 1: many of those businesses can actually cope with where the
Speaker 1: interest coupe would be, whether that's real estate, whether that's
Speaker 1: the consumer, whether that's some of the sort of highly
Speaker 1: leveed corporates. And I'm sure there are all sorts of
Speaker 1: people sitting in various offices around the US and the
Speaker 1: wider world sweating and hoping that interest rates come down
Speaker 1: considerably before they have to do that trade, because there
Speaker 1: will be a lot of assets that need a new
Speaker 1: capital structure at that point in time, and they'll either
Speaker 1: need an equity injection or they'll need some very beneficial
Speaker 1: credit provider. But I don't think it's near term because
Speaker 1: the maturity dates are just they're far enough away. People
Speaker 1: are going to have to start looking at it next year,
Speaker 1: maybe the back end of this year some people. But
Speaker 1: we've still got a reasonable period of time and their
Speaker 1: most credits are still quite healthy at the moment. You know,
Speaker 1: I wonder if trying to raise capital on the equity market,
Speaker 1: as Silicon Valley Bank trying to do is sort of
Speaker 1: radioactive this year. Yeah, I mean, obviously the most large
Speaker 1: sort of equity markets are relatively shut for new issuance.
Speaker 1: Some secondary stuff's getting done, but not at anything like
Speaker 1: the volume that you would need if interest rates stay here,
Speaker 1: and you're just going to need equity going into quite
Speaker 1: a lot of asset classes to improve the cap structures.
Speaker 1: So I mean, look, there's a lot that's going to
Speaker 1: have to be done in quite a few markets. I
Speaker 1: just think we're twelve months away from it, probably. But
Speaker 1: so what everybody's talking about is a credit crunch or
Speaker 1: a credit tightening. I'm wondering if you think there's a
Speaker 1: difference between the two, or like what the more severe
Speaker 1: scenario might look like. Yeah, I think i'd normally distinguish
Speaker 1: the two. A sort of credit crunch is just the
Speaker 1: absence of provision. You just can't get things done or
Speaker 1: there's no sort of clearing price where things can get done.
Speaker 1: That's when you just get large default waves. And I
Speaker 1: think it's it's just hard to tell right now where
Speaker 1: that's going to be, because it is going to be
Speaker 1: so much around where credit and rates are. In twelve
Speaker 1: months forward. If things stay here, I think you're going
Speaker 1: to have a decent pickup in defaults. And I say
Speaker 1: that as someone who's heard about a default wave coming
Speaker 1: for ten years and it's just never turned up. And
Speaker 1: the view that distressed debt is the place to be
Speaker 1: on the sort of hedge fund strategy side, and actually
Speaker 1: the opportunity has been relatively limited. But I do think
Speaker 1: we're getting to that point where you know, when you
Speaker 1: hear the FED talk about the lag effect of interest
Speaker 1: rates into the economy, that's part of what they're talking
Speaker 1: about is, well, people can hunker down and they've got
Speaker 1: fixed rates. It doesn't bite them, it doesn't hit their
Speaker 1: cash flow. They kind of know it's coming and maybe
Speaker 1: they change their behavior a little bit, but where they're
Speaker 1: not actually paying the higher coupon, it's not fully in
Speaker 1: their behavior. When you've actually got to refinance and figure
Speaker 1: out what you do. Whether you're a consumer and you've
Speaker 1: got your mortgage coming up, or you're a corporate and
Speaker 1: you go, okay, do I have to look at my
Speaker 1: cost structure because I've now going to make this higher
Speaker 1: interest payment. That's really when it bites. And I don't
Speaker 1: think we've seen most people respond, whether that's corporate's real
Speaker 1: estate consumer to that move yet, because it hasn't. Actually
Speaker 1: she started to hit that pocket. Mark Jones, Deputy CEO
Speaker 1: of Man Group, joining us from London. Such a pleasure
Speaker 1: to catch up with you, Mark and hear your thoughts
Speaker 1: on the market. Really fascinating. We can't let you go
Speaker 1: just yet, though. We do have a tradition here the
Speaker 1: craziest things we saw in markets this week. I have
Speaker 1: a good one. You got a good one. Yeah, let's
Speaker 1: hear it. I'm sure you saw it. Dogecoin rose thirty
Speaker 1: percent because the Alla must put a picture of the
Speaker 1: little doggie on the Twitter homepage, and I looked. I
Speaker 1: went on Twitter and I found it. Yeah, I have
Speaker 1: it on money. It's just a little happy dog. I
Speaker 1: don't get it. I don't, Yeah, Mark, I assume Man
Speaker 1: is not exposed the dogecoin and not that I'm aware of.
Speaker 1: I'm sure someone has some. Someone's got some in their
Speaker 1: private account. How about you mark you see anything crazy
Speaker 1: in markets recently? I was. I was thinking about that
Speaker 1: as you asked the question, and it's the old thing
Speaker 1: about this week is having had a bunch of things
Speaker 1: that sort of eight on the Richter scale last week
Speaker 1: was to borrow a quote from Sherlock Holmes, it felt
Speaker 1: like the dog that didn't bob. It was a remarkably
Speaker 1: quiet week in markets, given quite how dramatic things were previously,
Speaker 1: So almost the thing that was most have noticed how
Speaker 1: little happened, given how chaotic it was prior to that.
Speaker 1: I think the thing I thought was most interesting as
Speaker 1: someone who runs a financial services institution was just seeing
Speaker 1: the change in CEO at ubs as they start to
Speaker 1: go through what will be an absolutely enormous change project there,
Speaker 1: and just interesting to see that shift back to the
Speaker 1: previous CEO but actual market booths. Genuinely, I think the
Speaker 1: absence of anything dramatic was the most striking thing last week.
Speaker 1: I love the Sherlock Holmes quote the dog that didn't
Speaker 1: park it. If I remember that was because the thief
Speaker 1: was the owner of the dog. Is there it spoiler
Speaker 1: something it's I think it's I read to my son recently.
Speaker 1: I think it's because the dog doesn't balk. You know,
Speaker 1: somebody didn't go past if I remember correctly, don't. I know,
Speaker 1: we've had a hundred years to read it, but don't.
Speaker 1: All right, it's about a horse being stolen, but I
Speaker 1: forget the details. I know, I'm trying to remember it.
Speaker 1: I think, yeah, it's either that, Yeah, well, we're not
Speaker 1: going to figure it out here, but a good quote. Nonetheless,
Speaker 1: it kind of makes me worried that the dog wasn't
Speaker 1: parking in markets last week. I feel like that's that's
Speaker 1: an ominous sign. Yeah, but all right, my crazy thing
Speaker 1: also somewhat involves some good British fiction for you. I
Speaker 1: know your favorite bil Donna is a quote unquote Taddy
Speaker 1: first edition of Harry Potter The Philosopher's Stone, Taddy meaning
Speaker 1: it's just it's a mess. I guess it's lacking a spine.
Speaker 1: Protective plastic was peeled off, pages were yellowed. But it
Speaker 1: is one of the first edition hard acts. There are
Speaker 1: only five hundred first editions of that book printed, three
Speaker 1: hundred one to local libraries, so this is somewhat rare,
Speaker 1: but I'm gonna make it harder, okay, because we're gonna
Speaker 1: play prices precise mark you're ready. I thought this had
Speaker 1: something to do with MTV. That's the other items, okay.
Speaker 1: A giant gong used on MTVu Tina Turner actually stood
Speaker 1: upside down and banged it with her feet one time,
Speaker 1: if that helps you. That sold at auction according to
Speaker 1: the New York Post and according to the BBC, A
Speaker 1: whiskey collection rescued by divers from one hundred and twenty
Speaker 1: eight year old shipwreck, the SS Wallachia, sank in the
Speaker 1: Firth of Clyde in eighteen ninety five while carrying a
Speaker 1: collection of whiskey in beer. Wilkinson's famous liquor Whiskey was
Speaker 1: recovered from the wreck. So it's time to play the game.
Speaker 1: Show what fetched the highest price at auction and give
Speaker 1: me your estimate? Was it? A the giant gong on MTV?
Speaker 1: The Taddy first edition of Harry Potter and the Philosopher's
Speaker 1: Stone or seven bottles and half bottles so summer, half
Speaker 1: bottles and one bottle of beer. Actually McEwan's export beer
Speaker 1: was also recovered in this whiskey collection. Rescued from one
Speaker 1: hundred and twenty eight year old shipwreck. Okay, I know
Speaker 1: what I'm going. I'm definitely going with the whiskey. Not
Speaker 1: that I like the word taddy, but I can't go
Speaker 1: with that. Definitely the whiskey. And what's your your dollar figure,
Speaker 1: pound figure, my pound figure? Okay, I'm gonna go with
Speaker 1: seven hundred and fifty thousand pounds, seven hundred and fifty
Speaker 1: thousand pounds for one hundred and twenty eight year old shipwreck. Hiskey.
Speaker 1: That's cool, you know, like people like whiskey, but also
Speaker 1: it has a nice story. Yeah, all right, Mark, as
Speaker 1: a expert in valuations, Well, firstly, I'd like to sell
Speaker 1: you some Whiskey's got a few bottles to download. Hopefully
Speaker 1: no one paid too much for the one hundred and
Speaker 1: twenty eight year old bottle of beer on the side.
Speaker 1: That's hard. I think I'll go with Harry Potter. Harry
Speaker 1: think it's going to be a lot lower. Yeah, what's
Speaker 1: your price tag on Harry Potter? One fifty thousand, one
Speaker 1: fifty thousand pounds. You guys are very generous bidders, I
Speaker 1: will say, Mark wins. Wow, it was the Harry Potter
Speaker 1: I can't. I gave you a Harry Potter book and
Speaker 1: you I didn't choose it. It's sold for twenty thousand,
Speaker 1: one hundred and sixty pounds about twenty five thousand dollars.
Speaker 1: It was taddy though, all right. The giant gun used
Speaker 1: on MTV sold for fifteen thousand, three hundred. Now you
Speaker 1: could be right about the whiskey because it hasn't sold yet.
Speaker 1: This is it's estimated to sell for three to four thousands.
Speaker 1: For the whole collection, it's about five thousand. So maybe
Speaker 1: come and comes in and bids it up. But listeners
Speaker 1: of what goes up, go out there and bid this
Speaker 1: thing up. Yeah, you can sell me some books and
Speaker 1: I'll sell you some whiskey. Well, the problem with one
Speaker 1: hundred and whatever year old whiskey that was picked up
Speaker 1: from the bottom of the ocean is it's got a
Speaker 1: great story, but it tastes terrible. I think I have
Speaker 1: no idea. The beer I wouldn't touch, but the whiskey
Speaker 1: I have no clue. I don't even like whiskey. Work.
Speaker 1: Mark Jones, I think just proved why he is deputy
Speaker 1: and I'm not the top priced asset. What he hears
Speaker 1: it yeah, and he'll be setting some collections of his
Speaker 1: whiskey to you. Yeah. All right, great to catch up
Speaker 1: with you. I hope we can have you back some days.
Speaker 1: Great pleasure, great being with you. Thank you so much
Speaker 1: for joining us What Goes Up. We'll be back next
Speaker 1: week and so then you can find us on the
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Speaker 1: Up is produced by Stacy Wong. Thanks for listening, See
Speaker 1: you next time.