1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,560 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:23,120 Speaker 1: at Bloomberg dot com slash podcast. All right, the question 7 00:00:23,160 --> 00:00:25,840 Speaker 1: here for this felto reserve to what extent can it 8 00:00:26,000 --> 00:00:30,520 Speaker 1: in fact fight inflation? Is it's something more than just rates. Uh, 9 00:00:30,600 --> 00:00:32,800 Speaker 1: isn't a supply chain issue out there that's really kind 10 00:00:32,800 --> 00:00:35,200 Speaker 1: of a challenge? Pre A Miserab, Managing director and Global 11 00:00:35,240 --> 00:00:38,080 Speaker 1: head of rate Strategy at TV Securities, joins us Um. 12 00:00:38,159 --> 00:00:41,040 Speaker 1: I guess my question is does the FED have the 13 00:00:41,120 --> 00:00:44,960 Speaker 1: tools to curb inflation create a soft landing that I 14 00:00:44,960 --> 00:00:48,600 Speaker 1: think people would like to see. So I think the 15 00:00:48,680 --> 00:00:51,440 Speaker 1: FED does have the tool of interest rates both the 16 00:00:51,560 --> 00:00:54,200 Speaker 1: rate channel as well as QT, and they have the 17 00:00:54,240 --> 00:00:58,520 Speaker 1: ability to slow demand aggregate demand. Does that bring inflation 18 00:00:58,600 --> 00:01:01,240 Speaker 1: down to two percent? I do struggling with that as 19 00:01:01,280 --> 00:01:03,960 Speaker 1: you talked about their supply chain issues as commodity price 20 00:01:04,040 --> 00:01:07,200 Speaker 1: increases because of Russia. So I don't think they can 21 00:01:07,240 --> 00:01:09,880 Speaker 1: achieve the two percent target in the very near term, 22 00:01:10,080 --> 00:01:12,640 Speaker 1: but they can absolutely slow aggregate demand, and they can 23 00:01:12,640 --> 00:01:15,440 Speaker 1: tighten financial conditions, and the market is already doing some 24 00:01:15,520 --> 00:01:17,800 Speaker 1: of that work for them. So now, really I think 25 00:01:17,800 --> 00:01:19,920 Speaker 1: that you see, the market didn't really react to even 26 00:01:19,920 --> 00:01:22,000 Speaker 1: as them the fact that it came in weaker than 27 00:01:22,040 --> 00:01:26,000 Speaker 1: expected because the market is giving greater weight to inflation 28 00:01:26,040 --> 00:01:27,840 Speaker 1: and the fact that the Fed will have to respond 29 00:01:27,880 --> 00:01:29,920 Speaker 1: to these very high readings. Yeah, and that kind of 30 00:01:29,920 --> 00:01:32,320 Speaker 1: brings up, you know, the topic that's been you know, 31 00:01:32,319 --> 00:01:34,680 Speaker 1: on people's minds are really less several weeks a couple 32 00:01:34,720 --> 00:01:38,480 Speaker 1: of months, is stagflation. You look at China, uh, and 33 00:01:38,800 --> 00:01:41,080 Speaker 1: there are various levels of lockdown, and that seems to 34 00:01:41,080 --> 00:01:43,319 Speaker 1: be an ongoing issue. Then of course you've got Russia 35 00:01:43,319 --> 00:01:45,360 Speaker 1: and Europe and what it means for commodities and other 36 00:01:45,720 --> 00:01:49,840 Speaker 1: products here that kind of suggests that stagflation is a thing. 37 00:01:49,840 --> 00:01:52,640 Speaker 1: Here are How concerned are you about that? So it 38 00:01:52,760 --> 00:01:55,480 Speaker 1: is a nightmare scenario for the FED because in the 39 00:01:55,680 --> 00:01:59,240 Speaker 1: two mandates pull in different directions, you know, because we 40 00:01:59,320 --> 00:02:02,840 Speaker 1: think that as always inflation starts to decelerate, say the 41 00:02:02,920 --> 00:02:06,200 Speaker 1: monthly readings go from point six point seven right now 42 00:02:06,480 --> 00:02:09,360 Speaker 1: CPI two point three point four. We think the Fed 43 00:02:09,400 --> 00:02:12,080 Speaker 1: at that point will probably be more tolerant of these 44 00:02:12,400 --> 00:02:16,360 Speaker 1: slightly higher than than target inflation and not overdo it. 45 00:02:16,560 --> 00:02:18,280 Speaker 1: But that is a call that the FED will have 46 00:02:18,320 --> 00:02:20,040 Speaker 1: to make closer to your end when they get to 47 00:02:20,160 --> 00:02:23,880 Speaker 1: neutral on the funds rate. QT is continuing. If inflation 48 00:02:23,919 --> 00:02:27,600 Speaker 1: just gives them the ability to push out that when 49 00:02:27,639 --> 00:02:30,280 Speaker 1: they reach their target, we don't think they'll overdo it. 50 00:02:30,320 --> 00:02:32,440 Speaker 1: That's why our end point of the hiking cycle is 51 00:02:32,480 --> 00:02:35,080 Speaker 1: not as high as the market. But there is another 52 00:02:35,120 --> 00:02:38,000 Speaker 1: scenario where inflation really doesn't decelerate and the FED has 53 00:02:38,040 --> 00:02:40,840 Speaker 1: to go significantly about neutral, you know, three and a 54 00:02:40,840 --> 00:02:43,560 Speaker 1: half or higher on the funds rate along with QT. 55 00:02:44,080 --> 00:02:47,040 Speaker 1: That's when I really worry about thet inflation because I 56 00:02:47,080 --> 00:02:50,600 Speaker 1: don't think that the soft landing in that scenario where 57 00:02:50,639 --> 00:02:53,760 Speaker 1: there's so much tightening through monetary policy. I thing is 58 00:02:53,800 --> 00:02:56,919 Speaker 1: a very tough um, you know, aim for the FED. 59 00:02:57,280 --> 00:03:01,160 Speaker 1: So it's only if they're able to tolerate slightly high inflation, 60 00:03:01,240 --> 00:03:03,520 Speaker 1: and I sort of hope they make that call near 61 00:03:03,560 --> 00:03:06,160 Speaker 1: your end. Or that's our basic case, but it depends 62 00:03:06,160 --> 00:03:10,160 Speaker 1: on some deceleration and that inflation momentum. Yeah, I've got 63 00:03:10,160 --> 00:03:12,480 Speaker 1: to ask about the balance sheet here, because this is 64 00:03:12,480 --> 00:03:15,400 Speaker 1: something that there's still a lack of clarity on what 65 00:03:15,520 --> 00:03:18,200 Speaker 1: can we expect on the balance sheet? What is the 66 00:03:18,240 --> 00:03:20,840 Speaker 1: worst case and best case scenario in terms of what 67 00:03:20,880 --> 00:03:23,880 Speaker 1: we hear about that sure, And I completely agree with you. 68 00:03:23,919 --> 00:03:26,160 Speaker 1: I think it's hard for the market to price in 69 00:03:26,240 --> 00:03:28,960 Speaker 1: the balance sheet because there's a nonlinear effect of the 70 00:03:29,000 --> 00:03:31,280 Speaker 1: balance sheet. I would argue that the balance sheet run 71 00:03:31,280 --> 00:03:33,919 Speaker 1: off initially is not a big deal because we are 72 00:03:33,919 --> 00:03:37,560 Speaker 1: far from neutral because supply only picks up slowly. They 73 00:03:37,600 --> 00:03:40,520 Speaker 1: face it in when you get closer to your end, 74 00:03:40,680 --> 00:03:43,520 Speaker 1: when you know the funds rate is closer to normal 75 00:03:43,720 --> 00:03:46,400 Speaker 1: or neutral, and the balance sheet at this point is 76 00:03:46,480 --> 00:03:49,240 Speaker 1: running off almost a hundred billion a month, I think 77 00:03:49,240 --> 00:03:51,720 Speaker 1: the effects starts to grow a lot more, and the 78 00:03:51,760 --> 00:03:54,840 Speaker 1: impact really comes from higher long and real rates. And 79 00:03:54,840 --> 00:03:57,400 Speaker 1: you've already seen a rise in long and reil rates, 80 00:03:57,440 --> 00:04:00,640 Speaker 1: which is I think ultimately what's tightening financial cans. So 81 00:04:00,680 --> 00:04:03,400 Speaker 1: I think that's the channel through which you see the 82 00:04:03,440 --> 00:04:06,200 Speaker 1: tightening in conditions. You see the movement in mortgage rates, 83 00:04:06,240 --> 00:04:08,800 Speaker 1: which starts to impact housing, and I think that it's 84 00:04:08,840 --> 00:04:11,600 Speaker 1: working in the fashion the FED wants it to. But 85 00:04:11,760 --> 00:04:14,600 Speaker 1: I think that's the hard part, calibrating balance sheet which 86 00:04:14,600 --> 00:04:16,880 Speaker 1: they are not nimble on the balance sheet once it starts, 87 00:04:17,240 --> 00:04:20,119 Speaker 1: it's supposed to operate in the background, and then making 88 00:04:20,120 --> 00:04:22,599 Speaker 1: sure that they don't overdo it on the rate hikes channel. 89 00:04:22,640 --> 00:04:24,560 Speaker 1: I think that's the key one. But you know, I 90 00:04:24,560 --> 00:04:27,440 Speaker 1: think what we hear this week will be likely the 91 00:04:27,480 --> 00:04:29,719 Speaker 1: same caps that were talked about in the minute. I 92 00:04:29,760 --> 00:04:32,920 Speaker 1: think that's pricedon. It's really the flow effect of supply 93 00:04:33,240 --> 00:04:36,360 Speaker 1: month after month that starts to I think have impact 94 00:04:36,680 --> 00:04:38,680 Speaker 1: later on in the year. I think that's when we 95 00:04:38,800 --> 00:04:41,400 Speaker 1: see more of that impact of balance sheet run off. 96 00:04:41,560 --> 00:04:43,840 Speaker 1: All right, thank you so much for joining us. Always 97 00:04:43,880 --> 00:04:47,640 Speaker 1: appreciate getting your perspective. Prem Israe, Managing director and global 98 00:04:47,680 --> 00:04:54,800 Speaker 1: head of rate Strategies over there at TV Securities. In 99 00:04:54,839 --> 00:04:56,640 Speaker 1: case you haven't heard it, there's a chip shortage out 100 00:04:56,640 --> 00:04:59,159 Speaker 1: there and it's affecting pretty much every industry out there, 101 00:04:59,200 --> 00:05:01,360 Speaker 1: and we see it hear it on these conference calls 102 00:05:01,360 --> 00:05:03,000 Speaker 1: being called out all the time as a reason for 103 00:05:03,480 --> 00:05:06,479 Speaker 1: supply issues, and to be honest with you, I don't 104 00:05:06,480 --> 00:05:10,240 Speaker 1: get it. Baba babash Bala Christian that joins us. He's 105 00:05:10,279 --> 00:05:13,400 Speaker 1: the CEO and president of Power Integrations. Maybe he can 106 00:05:13,440 --> 00:05:17,159 Speaker 1: answer the question follow I envision all these semiconductor chip 107 00:05:17,240 --> 00:05:21,839 Speaker 1: makers have rows and rows and rows of desks filled 108 00:05:21,839 --> 00:05:26,000 Speaker 1: by nbas who do nothing but forecast chip demand five 109 00:05:26,040 --> 00:05:28,480 Speaker 1: ten years out. Why do we have such a chip 110 00:05:28,520 --> 00:05:33,200 Speaker 1: shortage right now? I don't get it. Good morning, Paul 111 00:05:33,279 --> 00:05:36,719 Speaker 1: and pretty and thanks for inviting me. Uh, excellent question. 112 00:05:37,160 --> 00:05:39,679 Speaker 1: I think part of the reason is that people got 113 00:05:39,880 --> 00:05:43,400 Speaker 1: so used to squeezing everything out of the supply chain. 114 00:05:44,440 --> 00:05:48,919 Speaker 1: They introduced what's known as just in time manufacturing, which 115 00:05:48,960 --> 00:05:51,640 Speaker 1: is actually very risky. What you're saying is everything has 116 00:05:51,640 --> 00:05:54,200 Speaker 1: to work perfectly for you to be able to manufacture 117 00:05:54,200 --> 00:05:57,920 Speaker 1: a car or a product and appliance, and now they're 118 00:05:57,960 --> 00:06:05,120 Speaker 1: seeing the effect for such you know, tight uh supply chain. Uh. 119 00:06:05,120 --> 00:06:07,480 Speaker 1: I would say, if you go back about fifty years 120 00:06:07,560 --> 00:06:11,599 Speaker 1: or so, everybody carried inventory at different stages. So that's that's, 121 00:06:11,720 --> 00:06:14,680 Speaker 1: you know, part of the problem. The second is, I 122 00:06:14,800 --> 00:06:19,160 Speaker 1: really don't think anybody expected the amount of electronics that 123 00:06:19,360 --> 00:06:22,960 Speaker 1: goes into some of the products, whether it's appliance or 124 00:06:23,480 --> 00:06:28,400 Speaker 1: industrial products, or the electrification which is you know, electric cars, 125 00:06:28,440 --> 00:06:32,000 Speaker 1: buses and so on, they are really computers on wheels, 126 00:06:32,080 --> 00:06:37,040 Speaker 1: and I think they miscalculated the amount of capacity needed. 127 00:06:37,640 --> 00:06:42,560 Speaker 1: And when we had the the COVID situation, everybody stopped, 128 00:06:42,600 --> 00:06:46,400 Speaker 1: I mean literally, automotive companies stopped ordering and so there 129 00:06:46,480 --> 00:06:50,160 Speaker 1: was nothing in the inventory, and they stopped manufacturing vapors 130 00:06:50,200 --> 00:06:51,880 Speaker 1: because they thought the whole world is going to come 131 00:06:52,279 --> 00:06:55,000 Speaker 1: to the end in terms of demand. And now we're 132 00:06:55,000 --> 00:06:59,560 Speaker 1: seeing the effects of it. So how do you predict 133 00:07:00,080 --> 00:07:03,760 Speaker 1: or model out some of this demand with the volatility 134 00:07:03,920 --> 00:07:06,360 Speaker 1: of the COVID lockdowns. Now that we are two years 135 00:07:06,360 --> 00:07:09,320 Speaker 1: into this, we know the about China zeroor COVID policy. 136 00:07:09,840 --> 00:07:15,600 Speaker 1: How is that modeling or that forecasting changing. Well, I 137 00:07:15,640 --> 00:07:19,600 Speaker 1: think what is happening right now is the huge amount 138 00:07:19,680 --> 00:07:24,600 Speaker 1: of capacity being put into vapor vapor fabrications. You know, 139 00:07:24,760 --> 00:07:28,400 Speaker 1: vapor plans take a long time, They take three to 140 00:07:28,480 --> 00:07:31,960 Speaker 1: four years established. So this is very typical of a 141 00:07:32,080 --> 00:07:35,600 Speaker 1: stomic and recycle with you know, they put a lot 142 00:07:35,640 --> 00:07:38,960 Speaker 1: of investment and I won't be surprised if three or 143 00:07:39,000 --> 00:07:43,560 Speaker 1: four years will be floating in vapor capacity. UM I 144 00:07:43,880 --> 00:07:47,760 Speaker 1: would say we have been much more we meaning power 145 00:07:47,800 --> 00:07:51,920 Speaker 1: Integrations has been much more careful in planning this. So 146 00:07:51,960 --> 00:07:55,080 Speaker 1: I am happy to say please to say that we 147 00:07:55,160 --> 00:07:59,320 Speaker 1: have not had a supply chain problem for multiple reasons. 148 00:07:59,320 --> 00:08:05,680 Speaker 1: One is a unique boundary model. Secondly, we are multiple 149 00:08:05,760 --> 00:08:10,800 Speaker 1: source into multiple geographies and so that has really helped us. 150 00:08:10,800 --> 00:08:13,920 Speaker 1: Probably the most important if it's never stopped manufacturing wafers. 151 00:08:14,000 --> 00:08:16,680 Speaker 1: Even when there was a downturn in the beginning of 152 00:08:18,960 --> 00:08:21,520 Speaker 1: we kept building inventory. We had so much inventory that 153 00:08:21,560 --> 00:08:25,040 Speaker 1: we had no problems applying when the demand came right back. 154 00:08:26,360 --> 00:08:28,200 Speaker 1: You know, at the beginning of this, I guess the 155 00:08:28,240 --> 00:08:31,080 Speaker 1: beginning of the pandemic, the beginning of the supply chain challenges. 156 00:08:31,160 --> 00:08:35,640 Speaker 1: There's a lot of talk about on shoring chip manufacturing 157 00:08:35,720 --> 00:08:39,640 Speaker 1: in the United States now it's mainly centered in Asia. 158 00:08:40,720 --> 00:08:43,640 Speaker 1: Do you think that's a viable strategy. Is that happening? 159 00:08:46,160 --> 00:08:49,520 Speaker 1: It is a viable strategy. It is happening because as 160 00:08:49,559 --> 00:08:53,320 Speaker 1: far as vapor fabrication goals, it doesn't matter where you 161 00:08:53,360 --> 00:08:55,400 Speaker 1: put it. The cost is about the same because it 162 00:08:55,480 --> 00:09:00,640 Speaker 1: was dominated by um equipment costs, not labor costs. So 163 00:09:00,800 --> 00:09:04,120 Speaker 1: there is no reason to have it in UH low 164 00:09:04,200 --> 00:09:08,880 Speaker 1: cost countries, low cost labor countries. So Uh, it was 165 00:09:08,960 --> 00:09:11,480 Speaker 1: too bad as so much of the capacity went away 166 00:09:11,480 --> 00:09:13,959 Speaker 1: from US, and finally it's good to see that it's 167 00:09:14,000 --> 00:09:16,800 Speaker 1: coming back. Europe is doing the same thing. And by 168 00:09:16,800 --> 00:09:20,120 Speaker 1: the way, we have been very careful not to put 169 00:09:20,280 --> 00:09:24,440 Speaker 1: our technology which we own into countries where we don't 170 00:09:24,440 --> 00:09:28,240 Speaker 1: have intellectual property protection like in China, like Taiwan and Korea. 171 00:09:28,679 --> 00:09:30,960 Speaker 1: As a result, we had in a much better place. 172 00:09:31,000 --> 00:09:33,360 Speaker 1: So you know, we have most most of the foundaries 173 00:09:33,360 --> 00:09:37,120 Speaker 1: that in Japan, some in US and some in Europe. 174 00:09:38,800 --> 00:09:42,120 Speaker 1: I've got to ask about once again the geopolitics of 175 00:09:42,120 --> 00:09:46,920 Speaker 1: this all because I think pre pandemic the story. Paul, 176 00:09:46,960 --> 00:09:48,400 Speaker 1: correct me if I'm wrong here, but I think the 177 00:09:48,520 --> 00:09:52,199 Speaker 1: story was the trade war, right, tariffs that haven't necessarily 178 00:09:52,240 --> 00:09:55,439 Speaker 1: disappeared with the Biden administration. So I have to ask, 179 00:09:56,240 --> 00:09:59,080 Speaker 1: as it takes years, and I believe it will take 180 00:09:59,160 --> 00:10:01,319 Speaker 1: years to bring some of that more of that capacity 181 00:10:01,400 --> 00:10:05,439 Speaker 1: back domestically or onto Europe. I mean, how do how 182 00:10:05,480 --> 00:10:09,440 Speaker 1: do companies like yours and and others navigate the tariff environment, 183 00:10:09,440 --> 00:10:14,920 Speaker 1: the geopolitical environment. Well, that's a good question. As I said, 184 00:10:15,000 --> 00:10:18,320 Speaker 1: we are in a different position, so we are actually 185 00:10:18,360 --> 00:10:21,920 Speaker 1: not capacity limited. We were not capacity limited last year 186 00:10:21,960 --> 00:10:24,719 Speaker 1: and we are not this year either, which is an 187 00:10:24,800 --> 00:10:28,200 Speaker 1: enviable position. So there are a couple of things we 188 00:10:28,240 --> 00:10:31,120 Speaker 1: are doing hopefully other people can follow on. That is 189 00:10:31,160 --> 00:10:33,480 Speaker 1: that we only ship to real demand. We don't ship 190 00:10:33,559 --> 00:10:36,839 Speaker 1: to any orders that are placed. We look at what 191 00:10:36,880 --> 00:10:39,760 Speaker 1: they were buying before, and we only shipped to the 192 00:10:39,840 --> 00:10:42,040 Speaker 1: run rate of what they were buying, or maybe a 193 00:10:42,040 --> 00:10:46,840 Speaker 1: little bit higher because the demand is higher. Secondly, we have, 194 00:10:47,000 --> 00:10:49,480 Speaker 1: as I said, we have a unique boundary model where 195 00:10:49,679 --> 00:10:55,080 Speaker 1: we put our technology into companies in Japan, US and 196 00:10:55,160 --> 00:10:59,440 Speaker 1: Europe where we have a long term contract to keep 197 00:10:59,440 --> 00:11:01,960 Speaker 1: the capacity be and we are able to do that 198 00:11:02,000 --> 00:11:05,000 Speaker 1: because we continue to build it. We continue to build 199 00:11:05,080 --> 00:11:08,160 Speaker 1: during downturns. We did that in two thousand two nine, 200 00:11:08,679 --> 00:11:12,720 Speaker 1: and of course in two thousand we did that again 201 00:11:12,880 --> 00:11:17,360 Speaker 1: during the COVID situation, and we group forty four last year. UM. 202 00:11:18,000 --> 00:11:21,920 Speaker 1: I think it really comes down to making sure that 203 00:11:21,960 --> 00:11:25,800 Speaker 1: you have sufficient inventory, and that's where I think people 204 00:11:25,920 --> 00:11:29,320 Speaker 1: cut too short because they were trying to manage the 205 00:11:29,440 --> 00:11:33,959 Speaker 1: supply chain way too close, and supply chains are incredibly 206 00:11:33,960 --> 00:11:38,200 Speaker 1: complex in in in when it comes to chips. So 207 00:11:38,280 --> 00:11:41,040 Speaker 1: going forward, I think what they have to learn is 208 00:11:41,360 --> 00:11:47,479 Speaker 1: just in time is not a uh not a lowish proposition. 209 00:11:47,880 --> 00:11:50,520 Speaker 1: There's very high risk when you do just in time manufacturing. 210 00:11:51,200 --> 00:11:53,080 Speaker 1: So how do you think just in time be about 211 00:11:53,120 --> 00:11:54,760 Speaker 1: third thirty seconds left? How do you think just in 212 00:11:54,800 --> 00:11:59,040 Speaker 1: time inventory will evolve? I guess I think what will 213 00:11:59,080 --> 00:12:02,280 Speaker 1: happen is everybody will caddies some level of inventory, including 214 00:12:02,280 --> 00:12:06,280 Speaker 1: the automotive companies, appliance companies. UH. That way they are 215 00:12:06,800 --> 00:12:11,160 Speaker 1: buffered from UH you know, disasters or in this case, 216 00:12:11,200 --> 00:12:15,480 Speaker 1: pandemic or you know, any of the supply chain interruptions. 217 00:12:16,160 --> 00:12:18,640 Speaker 1: All right, Ballo, thank you so much for joining us there. 218 00:12:18,679 --> 00:12:22,199 Speaker 1: Bo Bala Krishnan, he's a CEO and president of Power Integrations, 219 00:12:22,240 --> 00:12:26,040 Speaker 1: a semiconductor UH company out there giving us his thoughts 220 00:12:26,120 --> 00:12:29,080 Speaker 1: on the chip market. Again, it's been an issue here 221 00:12:29,120 --> 00:12:31,880 Speaker 1: from pretty much every company in every industry when they 222 00:12:31,880 --> 00:12:34,319 Speaker 1: talk about shortages or supply chain challenges. One of the 223 00:12:34,400 --> 00:12:37,320 Speaker 1: key area is UH they focus on is the semiconductors. 224 00:12:40,679 --> 00:12:43,280 Speaker 1: All right, Well, last Friday, while I had my toes 225 00:12:43,320 --> 00:12:48,000 Speaker 1: in the sand, Amazon stock and it's because one day 226 00:12:48,080 --> 00:12:51,840 Speaker 1: drops since July two thousand six, just extraordinary. So the 227 00:12:51,880 --> 00:12:53,920 Speaker 1: questions what does that mean for Amazon? What does that 228 00:12:53,960 --> 00:12:56,600 Speaker 1: mean for e commerce? What does that mean for retail 229 00:12:56,640 --> 00:12:58,600 Speaker 1: in general as most of the world comes out on 230 00:12:58,640 --> 00:13:01,160 Speaker 1: the other side of this pandemic re Checking with Nikki Baird, 231 00:13:01,480 --> 00:13:04,760 Speaker 1: vice president of strategy at Aptose Retail, Nikki, just, first 232 00:13:04,760 --> 00:13:08,360 Speaker 1: of all, what do you make of Amazon's report and 233 00:13:08,360 --> 00:13:11,760 Speaker 1: then the market reaction to said report. Yeah, I wasn't 234 00:13:11,880 --> 00:13:17,160 Speaker 1: too surprised by the report, certainly from our perspective, our 235 00:13:17,240 --> 00:13:23,800 Speaker 1: retailers are seeing much stronger store sales and much less 236 00:13:23,840 --> 00:13:26,920 Speaker 1: on the e commerce side. I think the reaction was 237 00:13:27,360 --> 00:13:31,440 Speaker 1: was definitely a stronger reaction than I would have expected. Uh, 238 00:13:31,559 --> 00:13:34,560 Speaker 1: you know, just in general, I nobody, I think should 239 00:13:34,559 --> 00:13:37,040 Speaker 1: expect that e commerce is going to continue to grow 240 00:13:37,160 --> 00:13:39,960 Speaker 1: from pandemic highs. It's got to come back at least 241 00:13:39,960 --> 00:13:42,360 Speaker 1: a little bit as consumers ship some of their spending 242 00:13:42,360 --> 00:13:46,920 Speaker 1: back to stores. I've got to ask about how Amazon 243 00:13:47,040 --> 00:13:50,319 Speaker 1: is even a proxy perhaps for broader retail, and that 244 00:13:50,440 --> 00:13:53,200 Speaker 1: Amazon's kind of turning into a logistics business expanding their 245 00:13:53,240 --> 00:13:55,920 Speaker 1: shipping services to the likes of Etsy, to Walmart, to 246 00:13:56,040 --> 00:13:58,960 Speaker 1: other third party retailers. Is if you're to really use 247 00:13:59,080 --> 00:14:02,480 Speaker 1: Amazon as kind of this beacon for broader retail, spending. 248 00:14:03,640 --> 00:14:06,640 Speaker 1: I think it's definitely still fair to use them for that. 249 00:14:07,000 --> 00:14:10,600 Speaker 1: While it is true that they are incredibly good at 250 00:14:10,679 --> 00:14:13,400 Speaker 1: taking services that they used to run their own business 251 00:14:13,400 --> 00:14:16,760 Speaker 1: and monetizing those by offering them to others. Uh, you know, 252 00:14:16,880 --> 00:14:21,760 Speaker 1: it is still definitely the destination shopping force for consumers. 253 00:14:22,200 --> 00:14:24,280 Speaker 1: You know, a lot of people will refer to it 254 00:14:24,360 --> 00:14:26,880 Speaker 1: as the Google of products. So when you have that 255 00:14:26,960 --> 00:14:32,360 Speaker 1: kind of market presence in terms of just capturing consumer attention, Uh, yeah, 256 00:14:32,440 --> 00:14:35,840 Speaker 1: I think you can still use them as a good proxy. Nikki, 257 00:14:35,880 --> 00:14:38,040 Speaker 1: give us your sense of kind of how the consumer 258 00:14:38,400 --> 00:14:41,440 Speaker 1: is doing here again coming out on the at least 259 00:14:41,440 --> 00:14:45,160 Speaker 1: here in in the US of this pandemic um dealing 260 00:14:45,200 --> 00:14:49,160 Speaker 1: with the really intense inflation pressures. How's the consumer doing 261 00:14:49,200 --> 00:14:53,320 Speaker 1: in your mind? You know, I am looking forward to 262 00:14:53,360 --> 00:14:57,360 Speaker 1: getting more feedback on April sales because I think that's 263 00:14:57,360 --> 00:14:59,320 Speaker 1: going to be the first place that we really see 264 00:14:59,760 --> 00:15:03,600 Speaker 1: an indicator of how consumers are going to be looking ahead. 265 00:15:03,720 --> 00:15:06,400 Speaker 1: I think, you know, for the first quarter of the year, 266 00:15:06,480 --> 00:15:10,280 Speaker 1: we saw that then they were relatively unimpacted by inflation 267 00:15:10,640 --> 00:15:13,280 Speaker 1: by uh, you know, any of the concerns that were 268 00:15:13,320 --> 00:15:16,440 Speaker 1: driven from that, and you know, an opening up of 269 00:15:16,560 --> 00:15:20,160 Speaker 1: the economy as people are getting more and more comfortable 270 00:15:20,280 --> 00:15:23,240 Speaker 1: with the stage of the pandemic that we're apparently in 271 00:15:23,880 --> 00:15:27,640 Speaker 1: um But but looking ahead, I think I'm starting to 272 00:15:27,720 --> 00:15:32,160 Speaker 1: hear anecdotally consumers noticing, you know, that inflation is definitely 273 00:15:32,160 --> 00:15:34,880 Speaker 1: starting to bite in their budgets. And I think there's 274 00:15:34,880 --> 00:15:38,480 Speaker 1: anticipation that some of the text credits that were given 275 00:15:38,560 --> 00:15:41,800 Speaker 1: during the depths of the pandemic are are kind of 276 00:15:41,800 --> 00:15:45,800 Speaker 1: reducing the tax refund that consumers are expecting to get 277 00:15:45,840 --> 00:15:48,360 Speaker 1: this year, uh, and that that will start to show 278 00:15:48,480 --> 00:15:51,720 Speaker 1: up in April spending and info may well. What really 279 00:15:51,760 --> 00:15:54,720 Speaker 1: strikes me here is that this was the exact conversation 280 00:15:54,760 --> 00:15:59,120 Speaker 1: we were having September where you had this massive sell off. 281 00:15:59,280 --> 00:16:01,320 Speaker 1: A lot of you will blame no seasonality, some people 282 00:16:01,360 --> 00:16:04,120 Speaker 1: saying that the end of fiscal stimulus was the end 283 00:16:04,240 --> 00:16:06,480 Speaker 1: of what was going to happen at the end of summer. 284 00:16:06,960 --> 00:16:09,800 Speaker 1: It didn't really happen until I would say, you know, 285 00:16:09,960 --> 00:16:13,760 Speaker 1: more recently. But this is a conversation that was almost 286 00:16:13,800 --> 00:16:17,640 Speaker 1: inevitable and something that I think the market had expected. 287 00:16:18,120 --> 00:16:23,280 Speaker 1: So why such a strong reaction. Yeah, I I honestly, 288 00:16:23,400 --> 00:16:26,160 Speaker 1: I'm with you. I don't understand the reaction. I would 289 00:16:26,160 --> 00:16:28,880 Speaker 1: have expected that this kind of responds to be priced in. 290 00:16:28,960 --> 00:16:32,280 Speaker 1: And when you look at the you know, the way 291 00:16:32,320 --> 00:16:35,760 Speaker 1: that consumers are getting up their spending, store sales are 292 00:16:35,800 --> 00:16:40,320 Speaker 1: still incredibly strong and not even just against pandemic numbers 293 00:16:40,320 --> 00:16:45,880 Speaker 1: but against So it's not like retail overall is really hurting. Uh, 294 00:16:46,000 --> 00:16:49,240 Speaker 1: it's it's e commerce is coming back off of you know, 295 00:16:50,000 --> 00:16:53,600 Speaker 1: rapidly accelerated growth that happened during the pandemic, and that 296 00:16:53,680 --> 00:16:56,680 Speaker 1: really should be expected. I mean, I think one of 297 00:16:56,720 --> 00:17:00,320 Speaker 1: the dimensions of this is definitely the cost structure, even 298 00:17:00,360 --> 00:17:03,240 Speaker 1: for e commerce. And in some ways e commerce is 299 00:17:03,320 --> 00:17:07,960 Speaker 1: uniquely vulnerable because they depend very much on digital as 300 00:17:08,000 --> 00:17:11,080 Speaker 1: their pathway for consumers to find them. And you know, 301 00:17:11,320 --> 00:17:15,119 Speaker 1: while we've been talking about logistics costs and um, you know, 302 00:17:15,160 --> 00:17:18,919 Speaker 1: inflation and and everything that reflects in the price of 303 00:17:18,960 --> 00:17:22,879 Speaker 1: the product that the consumer pays, marketing costs online also 304 00:17:22,960 --> 00:17:26,200 Speaker 1: have been hit really hard. By some estimates, there ten 305 00:17:26,359 --> 00:17:30,960 Speaker 1: times customer acquisition costs that companies were paying before the pandemic. 306 00:17:31,119 --> 00:17:34,960 Speaker 1: So when you look at those costs and where you're 307 00:17:35,040 --> 00:17:37,920 Speaker 1: literally getting a tent of the bang for your buck 308 00:17:38,359 --> 00:17:41,200 Speaker 1: in terms of acquiring or driving customers to your site. 309 00:17:41,920 --> 00:17:45,120 Speaker 1: I could see that that's driving some outside concern over 310 00:17:45,200 --> 00:17:48,760 Speaker 1: the longer term health of e commerce. So, Nikki, if 311 00:17:48,800 --> 00:17:50,840 Speaker 1: I do go to the store, which I try to 312 00:17:50,840 --> 00:17:53,280 Speaker 1: avoid at all costs, um am, I going to find 313 00:17:53,359 --> 00:17:56,480 Speaker 1: stuff on the shelves. How's the supply chain and inventory 314 00:17:56,600 --> 00:18:00,679 Speaker 1: right now? You know it is better and it was 315 00:18:01,240 --> 00:18:04,600 Speaker 1: uh and you kind of have to differentiate again, you know, 316 00:18:04,760 --> 00:18:08,840 Speaker 1: essential versus non essentials. Right, So there's some additional things 317 00:18:08,840 --> 00:18:12,600 Speaker 1: that are happening in the food supply chain that stay complex. 318 00:18:12,640 --> 00:18:16,680 Speaker 1: But as far as discretionary spending goes, retailers are are 319 00:18:17,040 --> 00:18:21,520 Speaker 1: fairly well stocked. Probably not as exciting of assortments as 320 00:18:22,040 --> 00:18:24,520 Speaker 1: they really would want them to be. But if you 321 00:18:24,560 --> 00:18:28,800 Speaker 1: go to the store, I think you're going to find stuff, well, 322 00:18:28,840 --> 00:18:31,440 Speaker 1: thank God for that. Yeah, absolutely, all right, we'll see 323 00:18:31,440 --> 00:18:33,040 Speaker 1: how that goes, all right, Nicki Baird, thanks so much 324 00:18:33,119 --> 00:18:35,879 Speaker 1: for joining us there. Nicky Baird, vice president of Strategy 325 00:18:36,359 --> 00:18:44,159 Speaker 1: for Aptose Retail. We're going to head over to the 326 00:18:44,200 --> 00:18:48,560 Speaker 1: Milk and Institute's Global Conference in Los Angeles or Bloommark's BusinessWeek. 327 00:18:48,640 --> 00:18:52,119 Speaker 1: Eric Shatsker interviews Apollo Global Asset manager, CEO and co 328 00:18:52,200 --> 00:18:55,919 Speaker 1: founder Mark Romans. Tick listen, Mark, great to see you, 329 00:18:56,040 --> 00:18:59,399 Speaker 1: good morning, see you. Everybody. Delighted to be back at 330 00:18:59,400 --> 00:19:01,919 Speaker 1: the Milk and Gloo conference and kicking it off with 331 00:19:02,000 --> 00:19:07,840 Speaker 1: this conversation. I did want to comment Mark on on 332 00:19:07,920 --> 00:19:12,520 Speaker 1: the following if anybody needed a lesson and how much 333 00:19:12,520 --> 00:19:15,639 Speaker 1: has changed over the course of the pandemic. It's the 334 00:19:15,680 --> 00:19:19,399 Speaker 1: private equity CEO who's in khakis and a sweater this morning, 335 00:19:19,400 --> 00:19:23,680 Speaker 1: and the journalist who's wearing a tie. Um, well, it's 336 00:19:23,720 --> 00:19:26,240 Speaker 1: consistent with the ethos I've had for a very long time. 337 00:19:26,280 --> 00:19:28,439 Speaker 1: I know, I know, if you are elected to a 338 00:19:28,520 --> 00:19:30,879 Speaker 1: national office and I'm seeing you in your office, I 339 00:19:30,920 --> 00:19:33,520 Speaker 1: wear a tie, or if you're my regulator, I'm wearing 340 00:19:33,520 --> 00:19:38,320 Speaker 1: a tie. Other than that, I don't worry about it. Um. 341 00:19:38,359 --> 00:19:42,040 Speaker 1: As I mentioned, Mark, I went around the audience before 342 00:19:42,080 --> 00:19:44,600 Speaker 1: we began and did what I should do, which is 343 00:19:44,600 --> 00:19:48,480 Speaker 1: to ask your friends and colleagues what they would ask 344 00:19:49,480 --> 00:19:53,480 Speaker 1: if they were me, And they all gave me a 345 00:19:53,640 --> 00:19:57,119 Speaker 1: version of the same question. Uh. And maybe it's not 346 00:19:57,240 --> 00:20:02,000 Speaker 1: surprising given the times we're living in. What are you 347 00:20:02,080 --> 00:20:05,960 Speaker 1: most worried about the same thing I'm always most worried 348 00:20:05,960 --> 00:20:11,640 Speaker 1: about people always. Um, I'll be honest. Um, the business, 349 00:20:11,720 --> 00:20:15,560 Speaker 1: the markets, the things that we're talking about today, inflation, 350 00:20:15,680 --> 00:20:18,840 Speaker 1: the correction in the stock market, I don't worry about 351 00:20:18,880 --> 00:20:21,480 Speaker 1: so much. I mean, if people don't see this as 352 00:20:21,520 --> 00:20:27,199 Speaker 1: the logical conclusion to fourteen years of money printing, I 353 00:20:27,240 --> 00:20:30,840 Speaker 1: don't know where they've been. We've printed money for fourteen years. 354 00:20:30,920 --> 00:20:33,880 Speaker 1: Rates went down, stocks went up. The more risk you took, 355 00:20:33,920 --> 00:20:35,639 Speaker 1: the further out on a growth curve, you were the 356 00:20:35,640 --> 00:20:39,040 Speaker 1: better off you did. Okay, it's now about to run 357 00:20:39,080 --> 00:20:45,920 Speaker 1: in reverse. So SMP. Last I looked the end of nineteen, 358 00:20:45,960 --> 00:20:52,680 Speaker 1: it was three thousand SNPPE today one long term average sixteen. 359 00:20:53,560 --> 00:21:00,639 Speaker 1: It's just not that bad people power of the business. Okay, 360 00:21:00,840 --> 00:21:05,440 Speaker 1: you've brought up the market context. It's probably worth us 361 00:21:05,600 --> 00:21:08,240 Speaker 1: spending it a few minutes at the very least talking 362 00:21:08,800 --> 00:21:14,800 Speaker 1: about that. Um. People would probably say it feels like 363 00:21:14,840 --> 00:21:17,600 Speaker 1: a challenging time to invest for some of the reasons 364 00:21:17,640 --> 00:21:21,120 Speaker 1: that you just enumerated. Right, there's a lot of inflation, 365 00:21:21,400 --> 00:21:25,560 Speaker 1: the most we've seen in four decades. There's war, there's 366 00:21:25,560 --> 00:21:28,600 Speaker 1: the prospect of rising rates. There's quantitative tightening. We haven't 367 00:21:28,600 --> 00:21:33,360 Speaker 1: seen that really. Uh, in a serious way. Yet, um, 368 00:21:33,440 --> 00:21:35,480 Speaker 1: you mentioned that there's a correction in the equity market. 369 00:21:35,480 --> 00:21:38,320 Speaker 1: There's a correction in the credit market too. What kind 370 00:21:38,359 --> 00:21:41,840 Speaker 1: of future are you preparing for? Of all the one 371 00:21:42,160 --> 00:21:45,160 Speaker 1: I mean, but I start with you know, sometimes I'm 372 00:21:45,160 --> 00:21:48,200 Speaker 1: asked to explain what our strategy is and I put 373 00:21:48,280 --> 00:21:53,399 Speaker 1: it in three words, purchase price matters. So if I 374 00:21:53,440 --> 00:21:57,879 Speaker 1: can buy a fundamentally good business today at less than 375 00:21:57,880 --> 00:22:01,119 Speaker 1: I could buy it three months ago, that feels like 376 00:22:01,200 --> 00:22:03,920 Speaker 1: a good outcome. Will there be bumps along the way 377 00:22:03,960 --> 00:22:07,399 Speaker 1: where there be deviations, of course there will be, But 378 00:22:07,520 --> 00:22:11,200 Speaker 1: I think the notion of purchase price matters. Some call 379 00:22:11,240 --> 00:22:14,520 Speaker 1: it value in the extreme. You can be like Laurren 380 00:22:14,520 --> 00:22:18,800 Speaker 1: Buffett and Charlie Monger, But I think it's a strategy 381 00:22:18,880 --> 00:22:23,720 Speaker 1: that's built for multiple market cycles. In the equity business, 382 00:22:23,720 --> 00:22:26,440 Speaker 1: it's the price you pay, it's the companies you buy. 383 00:22:26,520 --> 00:22:30,040 Speaker 1: And in the credit business, it's being senior secured, it's 384 00:22:30,080 --> 00:22:34,240 Speaker 1: not being long duration, being floating rate. There are lots 385 00:22:34,240 --> 00:22:37,080 Speaker 1: of ways still to protect yourself. Maybe it doesn't feel 386 00:22:37,080 --> 00:22:39,880 Speaker 1: as good given what we've been through and just how 387 00:22:39,920 --> 00:22:43,760 Speaker 1: positive the last decade has been. No, it certainly doesn't 388 00:22:43,800 --> 00:22:47,359 Speaker 1: feel as good. Um. But on the subject of purchase 389 00:22:47,480 --> 00:22:57,800 Speaker 1: price mattering and value as a concept and time, there's 390 00:22:57,840 --> 00:23:03,840 Speaker 1: something of an unknown. Uh, it's enough if you can 391 00:23:03,880 --> 00:23:06,720 Speaker 1: buy something for less right now, might you be able 392 00:23:06,720 --> 00:23:10,280 Speaker 1: to buy it for less six months from now? Perhaps? 393 00:23:11,119 --> 00:23:14,160 Speaker 1: I mean, this is always the question of what's cheap 394 00:23:14,240 --> 00:23:18,240 Speaker 1: enough and what what what's what's worth doing? Um? I 395 00:23:18,280 --> 00:23:21,399 Speaker 1: think we have more to go or in what sense? 396 00:23:21,480 --> 00:23:24,520 Speaker 1: I think there's more of a correction to come? I think, 397 00:23:24,760 --> 00:23:29,160 Speaker 1: you know, being a macroeconomics prognosticator is not what we do. 398 00:23:29,600 --> 00:23:35,400 Speaker 1: But understanding fundamentally good businesses that maybe had more options 399 00:23:36,040 --> 00:23:39,919 Speaker 1: three months ago and have fewer options today. We'll find 400 00:23:40,640 --> 00:23:43,320 Speaker 1: that category of things that makes sense for us to do. 401 00:23:44,040 --> 00:23:51,040 Speaker 1: We always do. Yes, history would suggest so. Um. But 402 00:23:51,119 --> 00:23:56,520 Speaker 1: if you think, if you don't have the luxury of 403 00:23:56,600 --> 00:23:59,520 Speaker 1: being the kind of investor that Apollo is, and you 404 00:23:59,560 --> 00:24:01,840 Speaker 1: put your open somebody else's shoes for a moment, do 405 00:24:01,840 --> 00:24:05,119 Speaker 1: you look at the market and say to yourself, I 406 00:24:05,160 --> 00:24:09,200 Speaker 1: think the future that I envision is relatively priced aning 407 00:24:09,200 --> 00:24:10,720 Speaker 1: of them. If there's a little bit more of a 408 00:24:10,760 --> 00:24:14,000 Speaker 1: correction to come, or that is not a noable answer 409 00:24:14,119 --> 00:24:16,560 Speaker 1: right now? I don't think it's a noable answer right now. 410 00:24:16,600 --> 00:24:19,239 Speaker 1: But you know, certainly we saw in today's announcement from 411 00:24:19,280 --> 00:24:23,680 Speaker 1: the FED the signs that they are taking the need 412 00:24:23,720 --> 00:24:27,320 Speaker 1: to get inflation expectations under control very seriously, and that 413 00:24:27,359 --> 00:24:30,720 Speaker 1: will manifest itself through their liquefying their balance sheet and 414 00:24:30,760 --> 00:24:34,320 Speaker 1: selling down, which they outlined this morning, but also through 415 00:24:34,640 --> 00:24:39,000 Speaker 1: rate increases. But you know something, we was in d 416 00:24:39,080 --> 00:24:41,480 Speaker 1: C last week and I spent a lot of there's 417 00:24:41,480 --> 00:24:42,880 Speaker 1: a lot of free time, by the way, in DC, 418 00:24:43,119 --> 00:24:45,840 Speaker 1: it's a great time to go and visit um and 419 00:24:46,080 --> 00:24:49,560 Speaker 1: and the key point I was making is that everything 420 00:24:49,600 --> 00:24:53,600 Speaker 1: that you believe prior to two eight no longer exists. 421 00:24:54,520 --> 00:24:57,520 Speaker 1: And in the context of your question, UM, I'll take 422 00:24:57,560 --> 00:25:00,960 Speaker 1: public markets sixty plus pers. One of the equity market 423 00:25:01,000 --> 00:25:06,120 Speaker 1: today is indexed, is which indexed, meaning it trades on liquidity, 424 00:25:06,440 --> 00:25:09,639 Speaker 1: just people going in and out. The fixed income market 425 00:25:11,520 --> 00:25:14,879 Speaker 1: liquidity driven at this point in time, and so investors, 426 00:25:14,920 --> 00:25:18,960 Speaker 1: the public public fixed income markets, investors who are relying 427 00:25:19,200 --> 00:25:24,000 Speaker 1: on public stocks and public bonds are finding out that 428 00:25:24,080 --> 00:25:27,399 Speaker 1: everything is correlated to liquidity. Because you've had one of 429 00:25:27,440 --> 00:25:30,680 Speaker 1: the worst first quarters ever. You've had equities down about 430 00:25:30,680 --> 00:25:35,280 Speaker 1: fo you've had investment grade credit down. Wasn't that supposed 431 00:25:35,320 --> 00:25:40,119 Speaker 1: to be riskless? Um? And I think institutions kind of 432 00:25:40,160 --> 00:25:43,840 Speaker 1: already know this. Public markets have become beta and if 433 00:25:43,880 --> 00:25:46,359 Speaker 1: you want excess return, you need to step back from 434 00:25:46,400 --> 00:25:54,600 Speaker 1: the public markets. So what you've just said, UM, I 435 00:25:54,600 --> 00:25:57,520 Speaker 1: would summarize with something along the lines of we've lived 436 00:25:57,520 --> 00:25:59,840 Speaker 1: through a dozen years of rock bottom rates and most 437 00:26:00,000 --> 00:26:03,480 Speaker 1: recently endless liquidity, and it felt like a riskless era. 438 00:26:03,960 --> 00:26:07,439 Speaker 1: Does risk matter again now for the first time, maybe 439 00:26:07,480 --> 00:26:13,760 Speaker 1: since before the crisis? Absolutely, I think we're seeing things correct. 440 00:26:14,480 --> 00:26:17,879 Speaker 1: We're a long way from means or medians in the 441 00:26:17,920 --> 00:26:22,760 Speaker 1: equity market, where from the medium, which is pretty scary 442 00:26:23,440 --> 00:26:25,640 Speaker 1: UM and the credit market we also have a long 443 00:26:25,680 --> 00:26:29,639 Speaker 1: way to go. But I do think that the mentality 444 00:26:29,680 --> 00:26:33,880 Speaker 1: with which investors have focused has they've been lulled into 445 00:26:33,880 --> 00:26:36,159 Speaker 1: this sense that everything goes up, that everything is supposed 446 00:26:36,200 --> 00:26:39,919 Speaker 1: to go well, because we've had one could say, thirty 447 00:26:39,960 --> 00:26:44,359 Speaker 1: plus years of declining rates but extreme liquidity in the 448 00:26:44,359 --> 00:26:50,480 Speaker 1: past fourteen. So if you think about what you see 449 00:26:50,520 --> 00:26:55,520 Speaker 1: and what you anticipate, you have an idea of what 450 00:26:55,880 --> 00:27:01,920 Speaker 1: businesses of yours still work, what businesses don't work anymore? 451 00:27:02,000 --> 00:27:05,920 Speaker 1: Yours are others. Look, I think the on the run 452 00:27:06,160 --> 00:27:10,760 Speaker 1: long only markets business are very difficult. To the extent 453 00:27:10,840 --> 00:27:15,639 Speaker 1: you have been the beneficiary of trends, so you know 454 00:27:15,680 --> 00:27:17,280 Speaker 1: there there will be a number of speakers who will 455 00:27:17,320 --> 00:27:20,040 Speaker 1: come here and we'll talk about the massive increase in 456 00:27:20,119 --> 00:27:23,840 Speaker 1: technology and the technology growth curve. And I would say 457 00:27:23,880 --> 00:27:27,080 Speaker 1: tech and growth in particular have benefited from low rates 458 00:27:27,960 --> 00:27:30,800 Speaker 1: because they are their business plans are further out there 459 00:27:30,840 --> 00:27:34,280 Speaker 1: discounted back at much lower rates. Therefore, they've been the 460 00:27:34,320 --> 00:27:38,840 Speaker 1: beneficiaries of this speculative room. And to quote one of 461 00:27:38,920 --> 00:27:43,800 Speaker 1: the speakers will hear from later, technology technological change is real, 462 00:27:43,880 --> 00:27:46,480 Speaker 1: it's fundamental. But that doesn't mean the purchase price doesn't 463 00:27:46,480 --> 00:27:50,240 Speaker 1: matter and the entry point doesn't matter. So I think 464 00:27:50,240 --> 00:27:54,520 Speaker 1: people who have benefited from this extreme low rate, high 465 00:27:54,600 --> 00:27:59,879 Speaker 1: liquidity environment where growth, all manner of growth have been rewarded. Uh, 466 00:28:00,000 --> 00:28:02,919 Speaker 1: I think that's where the greatest correction will come. And that, 467 00:28:03,160 --> 00:28:06,360 Speaker 1: of course is not just the E t F manager 468 00:28:06,440 --> 00:28:11,360 Speaker 1: whom you're thinking of. That presumably extends to growth equity, 469 00:28:11,520 --> 00:28:16,439 Speaker 1: it extends to late stage venture, early stage venture, it 470 00:28:16,480 --> 00:28:19,280 Speaker 1: extends spectrum, it extends to all these markets. I look 471 00:28:19,320 --> 00:28:22,159 Speaker 1: at the traditional alternative market, and so much of the 472 00:28:22,240 --> 00:28:27,280 Speaker 1: traditional alternative market UM has become beta as well, even 473 00:28:27,320 --> 00:28:29,720 Speaker 1: with our our our own firm. You know, I my 474 00:28:29,800 --> 00:28:32,640 Speaker 1: joke internally is you've worked for me for ten years, 475 00:28:32,720 --> 00:28:34,280 Speaker 1: but I still don't know if you're a good investor. 476 00:28:35,520 --> 00:28:41,320 Speaker 1: I think we're about to find out, any sense. Having 477 00:28:41,360 --> 00:28:49,120 Speaker 1: lived through what now three solid market cycles, let's say four, four, 478 00:28:50,000 --> 00:28:55,920 Speaker 1: how long does shake out lasts? No, no known unknown. Look, 479 00:28:56,040 --> 00:28:59,560 Speaker 1: we if we profess to know, we we just mislead. 480 00:29:00,080 --> 00:29:03,160 Speaker 1: But what we can do is return to some basic playbooks. 481 00:29:03,160 --> 00:29:04,920 Speaker 1: So I look at the three businesses we're in. We're 482 00:29:04,920 --> 00:29:06,960 Speaker 1: in the equity business, We're in the hybrid business, and 483 00:29:07,000 --> 00:29:10,200 Speaker 1: we're in the credit business or the yield business. Of 484 00:29:10,200 --> 00:29:13,120 Speaker 1: those three, the yield business is our largest for some 485 00:29:13,240 --> 00:29:17,720 Speaker 1: three hundred and sixty billion senior secured, top of the 486 00:29:17,760 --> 00:29:24,880 Speaker 1: capital structure, floating rate, generally, shorter duration. That feels like 487 00:29:24,920 --> 00:29:28,120 Speaker 1: a good place to be, and it feels like business 488 00:29:28,160 --> 00:29:31,479 Speaker 1: is going to be good because credit creation is going 489 00:29:31,520 --> 00:29:34,560 Speaker 1: to be more difficult. That generally is good for people 490 00:29:34,600 --> 00:29:37,880 Speaker 1: who are able to create credit. If I move to 491 00:29:37,960 --> 00:29:42,240 Speaker 1: the hybrid business, hybrid is the piece of investing where 492 00:29:42,280 --> 00:29:45,280 Speaker 1: you give away all the upside in return for downside protection. 493 00:29:45,680 --> 00:29:49,280 Speaker 1: You essentially become a solutions provider that also feels like 494 00:29:49,320 --> 00:29:51,719 Speaker 1: a pretty good business. People are going to need solutions 495 00:29:52,320 --> 00:29:55,160 Speaker 1: to the extent your business plan was predicated on raising 496 00:29:55,200 --> 00:30:00,000 Speaker 1: easy money every year. Maybe it's changed. Um. Toughest business 497 00:30:00,040 --> 00:30:02,520 Speaker 1: will be the equity business, because the equity business is 498 00:30:02,560 --> 00:30:06,520 Speaker 1: the most volatble and difficult economic times. Um. But there 499 00:30:06,560 --> 00:30:10,720 Speaker 1: it's it's very granular, it's very companies specific, and there 500 00:30:10,760 --> 00:30:14,040 Speaker 1: are a whole host of sectors that will not see 501 00:30:14,080 --> 00:30:16,920 Speaker 1: cycles as a result of what's happening at a macro 502 00:30:17,040 --> 00:30:22,000 Speaker 1: level where they're just fundamentally good businesses. Credit hasn't seen 503 00:30:22,040 --> 00:30:26,040 Speaker 1: a real distress cycle since the Great Financial Crisis? Will 504 00:30:26,040 --> 00:30:29,440 Speaker 1: it see another? At some point? It has to? Um, 505 00:30:29,600 --> 00:30:32,960 Speaker 1: You look, we two thousand and eight is actually a 506 00:30:33,000 --> 00:30:37,200 Speaker 1: really good dividing line, um for the credit markets. So 507 00:30:37,320 --> 00:30:40,440 Speaker 1: much changed the role of the bank's changed, the role 508 00:30:40,480 --> 00:30:43,920 Speaker 1: of the investment marketplace changed. But you're right, it has 509 00:30:43,960 --> 00:30:48,200 Speaker 1: not been tested. Um. We have as a general rule 510 00:30:48,600 --> 00:30:52,200 Speaker 1: not seeing the kind of speculative excesses that we saw 511 00:30:52,320 --> 00:30:55,720 Speaker 1: prior to two tho eight. This, at least the corporate 512 00:30:55,760 --> 00:30:59,480 Speaker 1: side of this credit cycle feels more benign. You don't 513 00:30:59,520 --> 00:31:03,760 Speaker 1: see them kind of pent up leverage so or systematic 514 00:31:03,920 --> 00:31:07,880 Speaker 1: leverage or use of off balance sheet leverage. So I 515 00:31:07,920 --> 00:31:11,920 Speaker 1: would expect it to be significantly more benign than we did, 516 00:31:12,760 --> 00:31:16,760 Speaker 1: but inevitably there will be corrections. Is that also because 517 00:31:17,880 --> 00:31:24,920 Speaker 1: the lenders have less thanks to the deterioration of documents, 518 00:31:24,920 --> 00:31:28,240 Speaker 1: have less power over the borrowers. I'm not sure I 519 00:31:28,240 --> 00:31:30,080 Speaker 1: would say it. Look I said when I was in 520 00:31:30,160 --> 00:31:33,800 Speaker 1: d C last week, Dodd Frank worked. Dodd Frank took 521 00:31:33,960 --> 00:31:37,240 Speaker 1: risk out of government guaranteed institutions and put it into 522 00:31:37,240 --> 00:31:40,680 Speaker 1: the investment marketplace. So in the US today the banking 523 00:31:40,720 --> 00:31:45,760 Speaker 1: system is less than credit creation in Europe at in Asia, 524 00:31:46,040 --> 00:31:51,800 Speaker 1: depending on the country close, we have essentially matched credit 525 00:31:52,160 --> 00:31:55,760 Speaker 1: and the creation of credit with institutions who have the 526 00:31:55,760 --> 00:31:59,400 Speaker 1: capacity to hold long term. That's not true in every market. 527 00:31:59,680 --> 00:32:01,600 Speaker 1: We will have opened the mutual funds, we have e 528 00:32:01,680 --> 00:32:04,360 Speaker 1: t f s, we have some mismatches like that, but 529 00:32:04,480 --> 00:32:07,360 Speaker 1: we don't have the kind of built up leverage on 530 00:32:07,480 --> 00:32:10,240 Speaker 1: regulated balance sheets that we had pre crisis. So I 531 00:32:10,640 --> 00:32:14,960 Speaker 1: personally would expect a more benign crisis. Mark you referred 532 00:32:15,000 --> 00:32:20,280 Speaker 1: to this earlier. UM the thirty year called it bond 533 00:32:20,320 --> 00:32:26,680 Speaker 1: bull market. That was an enormous tail wind for the 534 00:32:26,760 --> 00:32:30,520 Speaker 1: industry that you and your peers in private equity and 535 00:32:30,560 --> 00:32:38,160 Speaker 1: more broadly alternatives built. And then again, as we've acknowledged, 536 00:32:39,000 --> 00:32:42,000 Speaker 1: the tail end of that was the most aggressive central 537 00:32:42,000 --> 00:32:45,560 Speaker 1: bank easing since the Great Depression. Now that we're living 538 00:32:45,600 --> 00:32:49,400 Speaker 1: in a different era's let's form however long at lasts, 539 00:32:49,440 --> 00:32:53,360 Speaker 1: it's definitely a different era. UM. Does a different era 540 00:32:53,480 --> 00:32:58,120 Speaker 1: require a different strategy? I don't know. I mean I'll 541 00:32:58,160 --> 00:33:01,400 Speaker 1: give you for us, and I every market participant will 542 00:33:01,440 --> 00:33:04,960 Speaker 1: be different. UM. We built our yield business on the 543 00:33:05,000 --> 00:33:07,720 Speaker 1: back of what I call fixed income replacement think of 544 00:33:08,080 --> 00:33:11,800 Speaker 1: actually replacement of investment grade fixed income, but with more yield, 545 00:33:12,320 --> 00:33:15,880 Speaker 1: and we built it to serve initially our own retirement 546 00:33:15,920 --> 00:33:19,600 Speaker 1: services balance sheet a theme. The way that business works 547 00:33:19,640 --> 00:33:23,360 Speaker 1: is we make promises to retirees and we back those 548 00:33:23,360 --> 00:33:27,840 Speaker 1: promises with highly rated credit. Whether whether rates are higher 549 00:33:27,920 --> 00:33:31,280 Speaker 1: or low is not really that relevant to us. It's 550 00:33:31,320 --> 00:33:35,680 Speaker 1: about spread. Because if rates are high, promises we make 551 00:33:35,720 --> 00:33:37,840 Speaker 1: two retirees will be high, and if rates are low, 552 00:33:37,920 --> 00:33:40,400 Speaker 1: promises will be low. Our job is to earn a 553 00:33:40,440 --> 00:33:46,320 Speaker 1: spread and therefore inflation market price of securities does not 554 00:33:46,560 --> 00:33:50,040 Speaker 1: really impact the way we invest or how we think 555 00:33:50,360 --> 00:33:53,680 Speaker 1: very much like a pension fund or an endowment or 556 00:33:53,760 --> 00:33:58,880 Speaker 1: sovereign wealth fund, where they also have obligations, sometimes fixed 557 00:33:59,080 --> 00:34:01,800 Speaker 1: to retirees, sometimes not fixed in the case of a 558 00:34:01,840 --> 00:34:06,360 Speaker 1: sovereign wealth fund. And so what we're seeing is the 559 00:34:06,360 --> 00:34:10,640 Speaker 1: biggest rotation is the acceptance by institutions and others that 560 00:34:10,719 --> 00:34:15,280 Speaker 1: publicly traded markets offer beta and if they want excess 561 00:34:15,320 --> 00:34:18,160 Speaker 1: return they need to go step back from the daily 562 00:34:18,200 --> 00:34:23,880 Speaker 1: liquid market and do something else. So is that different? Maybe? 563 00:34:23,880 --> 00:34:29,560 Speaker 1: So a couple of questions arise from me out of that, Ah, 564 00:34:29,760 --> 00:34:37,279 Speaker 1: what about a recession defaults and credit losses? And then 565 00:34:37,280 --> 00:34:39,440 Speaker 1: I'll get to the second question after that. Look on, 566 00:34:39,960 --> 00:34:45,359 Speaker 1: the fundamental risk is collectibility, and it's why in an 567 00:34:45,440 --> 00:34:49,120 Speaker 1: uncertain time and the business we've elected to scale has 568 00:34:49,160 --> 00:34:53,800 Speaker 1: been fixed income replacement, not high yield, not levered loans, 569 00:34:54,239 --> 00:34:58,200 Speaker 1: all of which have a place in the financial ecosystem. 570 00:34:58,239 --> 00:35:00,960 Speaker 1: But the business that we are math sit in is 571 00:35:01,000 --> 00:35:05,040 Speaker 1: the top of the capital structure, senior secured. Typically in 572 00:35:05,040 --> 00:35:09,680 Speaker 1: a recession, you do not suffer significant losses if you're 573 00:35:09,680 --> 00:35:14,279 Speaker 1: a good investor, We've been through a mini test for 574 00:35:14,480 --> 00:35:18,400 Speaker 1: COVID and the shutdown we had in twenty we we 575 00:35:18,520 --> 00:35:21,160 Speaker 1: like where we stand, but I would much rather be 576 00:35:21,440 --> 00:35:24,279 Speaker 1: at the top end of the capital structure today then 577 00:35:24,320 --> 00:35:28,719 Speaker 1: at the bottom. And then on the point about um 578 00:35:31,160 --> 00:35:37,000 Speaker 1: the I guess the nature of the instrument um and 579 00:35:37,040 --> 00:35:41,040 Speaker 1: the degree to which it offers alpha that you can 580 00:35:41,080 --> 00:35:46,480 Speaker 1: no longer find in public markets. How long is that sustainable? 581 00:35:47,400 --> 00:35:51,480 Speaker 1: There is? Think about the amount of money that you're 582 00:35:51,520 --> 00:35:54,880 Speaker 1: deploying into private credit every day. I could look at 583 00:35:54,880 --> 00:35:57,200 Speaker 1: what's going on at your peers right the amount of 584 00:35:57,200 --> 00:35:59,480 Speaker 1: money that they're raising in permanent capital vehicles and that 585 00:35:59,520 --> 00:36:03,359 Speaker 1: they have to invest. This just keeps mushrooming. And at 586 00:36:03,400 --> 00:36:06,880 Speaker 1: what point does that begin to erode the alpha that 587 00:36:07,000 --> 00:36:10,080 Speaker 1: remains in private markets. I think we're a long way 588 00:36:10,120 --> 00:36:13,160 Speaker 1: from that. And you know, there are very subtle gradations 589 00:36:13,160 --> 00:36:17,320 Speaker 1: today that are taking place in the marketplace for alternative credit. 590 00:36:17,840 --> 00:36:20,640 Speaker 1: So um there are two words that go together but 591 00:36:20,680 --> 00:36:24,840 Speaker 1: actually don't mean anything private credit. They sound like something, 592 00:36:24,880 --> 00:36:28,480 Speaker 1: but they're not. Because private credit can be the most 593 00:36:28,600 --> 00:36:31,600 Speaker 1: risky private credit, it can be financing of levered loans, 594 00:36:32,560 --> 00:36:35,560 Speaker 1: or it can be the most secure. Each of us. 595 00:36:36,200 --> 00:36:39,279 Speaker 1: Each of the alternatives firm have chosen their place in 596 00:36:39,320 --> 00:36:42,680 Speaker 1: the ecosystem that they want. The bet that we have 597 00:36:42,800 --> 00:36:46,120 Speaker 1: made is at the top end of that. The primary 598 00:36:46,200 --> 00:36:52,600 Speaker 1: competitor for us is not black Stone, KKRTPG, Carlisle, Aries, Brookfield, whoever. 599 00:36:53,400 --> 00:36:57,440 Speaker 1: It's JP Morgan, Goldman, Sachs be of a securitization market. 600 00:36:58,719 --> 00:37:02,720 Speaker 1: And I feel at three hundred and sixty billion that 601 00:37:02,920 --> 00:37:07,080 Speaker 1: we are just like that. We're just not a massive 602 00:37:07,160 --> 00:37:10,479 Speaker 1: player yet in the market. We're growing fast. As I've said, 603 00:37:10,480 --> 00:37:12,960 Speaker 1: this business is going to double over the next five years. 604 00:37:13,640 --> 00:37:17,960 Speaker 1: Even at seven it's just not that big in the scheme. 605 00:37:18,040 --> 00:37:21,439 Speaker 1: The market is immense. I mean I look at one 606 00:37:21,480 --> 00:37:26,960 Speaker 1: little subsect sector of it, energy transition. Little Apollo has 607 00:37:26,960 --> 00:37:30,520 Speaker 1: put out twenty billion of energy transition financing over the 608 00:37:30,560 --> 00:37:34,480 Speaker 1: past three years. We'll do another fifty billion over the 609 00:37:34,520 --> 00:37:37,879 Speaker 1: next three. The need for capital, and by the way, 610 00:37:37,920 --> 00:37:42,120 Speaker 1: most of that financing senior secured project type financing or 611 00:37:42,160 --> 00:37:44,719 Speaker 1: a little bit of hybrid. It is not for the 612 00:37:44,760 --> 00:37:47,680 Speaker 1: most part risk. It is not for the most part equity. 613 00:37:48,600 --> 00:37:52,840 Speaker 1: The capital needs of our country and the world, given 614 00:37:52,920 --> 00:37:55,799 Speaker 1: the state of change, not just in technology, but in 615 00:37:56,000 --> 00:38:00,600 Speaker 1: commodity usage, are immense, So I think the market will 616 00:38:00,640 --> 00:38:03,520 Speaker 1: definitely get more crowded. There is no market that persists 617 00:38:03,560 --> 00:38:07,359 Speaker 1: for very long without increased competition. But at least at 618 00:38:07,360 --> 00:38:10,080 Speaker 1: the little sector we've chosen, Um, we have a long 619 00:38:10,120 --> 00:38:12,160 Speaker 1: way to go. I was going to save this for 620 00:38:12,239 --> 00:38:14,560 Speaker 1: the end, but I'm going to have frontload it because 621 00:38:15,040 --> 00:38:17,000 Speaker 1: what you just said reminded me of it. What you're 622 00:38:17,040 --> 00:38:21,279 Speaker 1: talking about, Mark is such a different business then the 623 00:38:21,360 --> 00:38:26,520 Speaker 1: business that you got into years ago. It's like night 624 00:38:26,520 --> 00:38:29,680 Speaker 1: and day, you know. So it's it's actually funny because 625 00:38:29,680 --> 00:38:32,279 Speaker 1: I'm I find myself now going, for instance, in d 626 00:38:32,360 --> 00:38:35,600 Speaker 1: C last week, explaining what it is we do. So 627 00:38:36,120 --> 00:38:38,680 Speaker 1: I go down and I say, first, what is an alternative? 628 00:38:39,760 --> 00:38:41,640 Speaker 1: And people look at me, well, of course, it's like 629 00:38:41,800 --> 00:38:45,279 Speaker 1: private equity and this, And I said, an alternative is 630 00:38:45,320 --> 00:38:48,640 Speaker 1: nothing other than an alternative to publicly traded stocks and bonds. 631 00:38:49,719 --> 00:38:53,160 Speaker 1: Some alternatives can be rated double A, and some alternatives 632 00:38:53,239 --> 00:38:57,840 Speaker 1: or equity. There is nothing inherently riskier about private or 633 00:38:57,880 --> 00:39:01,759 Speaker 1: alternative than public, just like public can be double A 634 00:39:02,000 --> 00:39:05,680 Speaker 1: too really risky. And so what we're seeing is the 635 00:39:05,719 --> 00:39:10,920 Speaker 1: growth of this marketplace given the indexation of public markets. 636 00:39:10,920 --> 00:39:14,560 Speaker 1: We're seeing the private market massively expand in size and scale, 637 00:39:15,200 --> 00:39:20,240 Speaker 1: and the alternatives firms, in their own way, are picking 638 00:39:20,280 --> 00:39:23,880 Speaker 1: their spot along that continuum of double A down to 639 00:39:23,920 --> 00:39:28,000 Speaker 1: equity as to where they choose to grow. And I 640 00:39:28,040 --> 00:39:33,319 Speaker 1: think we look forward five years, our clients portfolios are 641 00:39:33,320 --> 00:39:38,520 Speaker 1: going to look profoundly different in what way what you 642 00:39:38,560 --> 00:39:41,399 Speaker 1: start with the top end of the scale, the most 643 00:39:41,400 --> 00:39:46,200 Speaker 1: sophisticated institutions, the largest institutions in the world. They were 644 00:39:46,960 --> 00:39:50,160 Speaker 1: backers of the alternatives industry. They were well known. Now 645 00:39:50,239 --> 00:39:53,480 Speaker 1: of course they want to be our partners in the 646 00:39:53,520 --> 00:39:56,640 Speaker 1: alternatives business, and increasingly they are becoming our partners in 647 00:39:56,680 --> 00:39:59,960 Speaker 1: the alternatives business. As I said, there's no permanent friends 648 00:40:00,080 --> 00:40:03,200 Speaker 1: or permanent permanent enemies anymore. Everyone is in a state 649 00:40:03,239 --> 00:40:08,040 Speaker 1: of flux. The other place we're seeing just massive change 650 00:40:08,320 --> 00:40:11,520 Speaker 1: is at retail, particularly high net worth. You know, over 651 00:40:11,560 --> 00:40:15,920 Speaker 1: the past three or four years, we have seen nothing 652 00:40:15,960 --> 00:40:18,480 Speaker 1: short of a revolution and alternatives take place in the 653 00:40:18,520 --> 00:40:23,719 Speaker 1: retail marketplace. And that's without yet starting. All retail is 654 00:40:23,760 --> 00:40:28,319 Speaker 1: seeing thus far from our industry are existing products at 655 00:40:28,360 --> 00:40:32,480 Speaker 1: institutional fees. Over the next six months, I think you're 656 00:40:32,520 --> 00:40:36,839 Speaker 1: going to see the first products created especially for this marketplace, 657 00:40:37,680 --> 00:40:40,560 Speaker 1: and it will not surprise me in five years if 658 00:40:40,600 --> 00:40:47,640 Speaker 1: a retail investors portfolio is alternatives, except it won't. Alternative 659 00:40:47,680 --> 00:40:51,360 Speaker 1: will mean alternative to publicly traded stock and bond, not 660 00:40:51,840 --> 00:40:55,040 Speaker 1: alternative the way many people have associated it traditionally with 661 00:40:55,040 --> 00:40:57,560 Speaker 1: private equity or hedge fund or risk. And what will 662 00:40:57,640 --> 00:41:00,759 Speaker 1: some of these first purpose build products look like. I 663 00:41:00,800 --> 00:41:03,480 Speaker 1: think they're going to solve fundamental needs. I mean, if 664 00:41:03,520 --> 00:41:05,839 Speaker 1: you think about how a retail investor might have been 665 00:41:05,960 --> 00:41:11,120 Speaker 1: educated historically, a sixty forty portfolio Debton equity, well, it 666 00:41:11,160 --> 00:41:13,239 Speaker 1: feels like a bad idea right now about it's well, 667 00:41:13,239 --> 00:41:16,120 Speaker 1: it's it's certainly been a bad first quarter. Imagine if 668 00:41:16,160 --> 00:41:20,280 Speaker 1: you could replace your publicly traded equity with private equity, 669 00:41:20,320 --> 00:41:22,840 Speaker 1: and I don't mean private equity and a fund, but 670 00:41:23,000 --> 00:41:27,080 Speaker 1: you could have lower risk, better returns, and some amount 671 00:41:27,080 --> 00:41:30,799 Speaker 1: of liquidity. How we do that is up to us 672 00:41:30,840 --> 00:41:35,240 Speaker 1: to crack. But the we've spent as an industry thirty 673 00:41:35,280 --> 00:41:39,280 Speaker 1: five years solving problems for the largest institutions in the world, 674 00:41:39,760 --> 00:41:43,520 Speaker 1: and that creativity has now flipped in part to solve 675 00:41:43,560 --> 00:41:48,080 Speaker 1: problems for this retail marketplace. For the first fifteen or 676 00:41:48,120 --> 00:41:52,360 Speaker 1: twenty years, maybe of your career there was an enormous 677 00:41:52,719 --> 00:41:58,960 Speaker 1: illiquidity premium to be harvested in the private market. To 678 00:41:59,000 --> 00:42:03,920 Speaker 1: what degree has that premium eroted? Well, I'd say this 679 00:42:04,160 --> 00:42:08,120 Speaker 1: so clearly the premium has eroded, so as I sometimes say, 680 00:42:08,200 --> 00:42:11,920 Speaker 1: private equity started thirty five plus years ago as a 681 00:42:11,960 --> 00:42:17,440 Speaker 1: black art and people rarely participated in it, and now 682 00:42:17,480 --> 00:42:22,600 Speaker 1: it's an asset class. And how we as an industry 683 00:42:22,600 --> 00:42:27,240 Speaker 1: go about that asset class remains to be seen. The firms, 684 00:42:27,600 --> 00:42:30,279 Speaker 1: and I'll get to this, The firms no longer look 685 00:42:30,320 --> 00:42:33,680 Speaker 1: exactly the same. Private equity does not mean the same 686 00:42:33,719 --> 00:42:38,040 Speaker 1: thing to each firm. So for us, purchase price matters 687 00:42:38,520 --> 00:42:42,759 Speaker 1: for some of our peers, different story, different focus. I 688 00:42:42,800 --> 00:42:46,520 Speaker 1: look at the transactions we've elected to do as private equity, 689 00:42:46,920 --> 00:42:51,239 Speaker 1: Yahoo being among the most interesting Las Vegas sands. They 690 00:42:51,239 --> 00:42:53,879 Speaker 1: are very as people in this room might say, they're 691 00:42:53,960 --> 00:42:57,839 Speaker 1: very apollo esque. A lot of complexity on the front end, 692 00:42:58,000 --> 00:43:02,000 Speaker 1: a lot of trading of perspiration for purchase price. It 693 00:43:02,160 --> 00:43:04,600 Speaker 1: is our mentality, it's our brand, it's how we come 694 00:43:04,640 --> 00:43:08,200 Speaker 1: to market, and it's it's timely. Maybe hasn't been so 695 00:43:08,280 --> 00:43:12,840 Speaker 1: timely for the past few years. We did just fine, 696 00:43:12,960 --> 00:43:15,959 Speaker 1: but certainly not the kind of market that we really 697 00:43:15,960 --> 00:43:19,680 Speaker 1: excel in. When you say you did just fine, you 698 00:43:19,760 --> 00:43:23,960 Speaker 1: did just fine, of course, but in a competitive context, 699 00:43:24,520 --> 00:43:27,560 Speaker 1: others did better. Right Over the past five years, you 700 00:43:27,719 --> 00:43:32,839 Speaker 1: have been either outperformed by your peers or underperforming your 701 00:43:32,880 --> 00:43:36,879 Speaker 1: peers this year as well, I should add, Um, does 702 00:43:36,920 --> 00:43:41,000 Speaker 1: that matter to you in the short term, No, it 703 00:43:41,080 --> 00:43:43,560 Speaker 1: really does not. I mean I look at this business 704 00:43:43,640 --> 00:43:46,840 Speaker 1: over now thirty years, thirty two years in our case, 705 00:43:47,560 --> 00:43:52,480 Speaker 1: UM generally not generally mid thirties gross returns, high twenties 706 00:43:52,520 --> 00:43:56,440 Speaker 1: net return, generally a thousand basis points better than our peers. 707 00:43:57,680 --> 00:44:00,560 Speaker 1: I'm very proud of that record. I think you'll see 708 00:44:00,760 --> 00:44:04,719 Speaker 1: divergence in the first quarter when we all announce, which 709 00:44:04,719 --> 00:44:08,000 Speaker 1: is next week. So if I'm not right about that, 710 00:44:08,040 --> 00:44:11,080 Speaker 1: I don't know much about our business UM, and I 711 00:44:11,120 --> 00:44:14,040 Speaker 1: think you'll continue to see divergence. But we look at 712 00:44:14,080 --> 00:44:17,760 Speaker 1: the private equity business as an absolute rate of return business. 713 00:44:17,800 --> 00:44:20,759 Speaker 1: We want to produce plus net rate of returns for 714 00:44:20,760 --> 00:44:24,960 Speaker 1: our clients. What clients have not been doing is adjusting 715 00:44:24,960 --> 00:44:32,400 Speaker 1: for risk, lower purchase price, less leverage. I'm very comfortable 716 00:44:32,440 --> 00:44:36,319 Speaker 1: with with the place we have chosen in the ecosystem. 717 00:44:36,400 --> 00:44:40,800 Speaker 1: I asked you earlier if Apollo needed needed to change 718 00:44:40,880 --> 00:44:46,719 Speaker 1: its business model to reflect the new reality, and and 719 00:44:46,800 --> 00:44:49,360 Speaker 1: maybe it doesn't, but do you need to change the 720 00:44:49,400 --> 00:44:54,600 Speaker 1: way people think it? So it's happening, you know, it's 721 00:44:54,680 --> 00:44:57,399 Speaker 1: it's it's it's what I do as CEO. I mean 722 00:44:57,520 --> 00:45:01,920 Speaker 1: what I say is I really can't do anything. I 723 00:45:01,960 --> 00:45:04,440 Speaker 1: could probably pick one thing and do it well, but 724 00:45:04,480 --> 00:45:07,279 Speaker 1: it wouldn't matter in the context of our business. My 725 00:45:07,360 --> 00:45:10,680 Speaker 1: only job is to change how people think, and that 726 00:45:10,800 --> 00:45:13,480 Speaker 1: is what I'm trying to do. I'm trying them in 727 00:45:13,480 --> 00:45:17,400 Speaker 1: each of our business is to understand that for yield, 728 00:45:17,760 --> 00:45:21,280 Speaker 1: it's about safe spread. How do you get safe spread? 729 00:45:21,480 --> 00:45:25,239 Speaker 1: It's about massively scaling origination. If you can't buy it 730 00:45:25,239 --> 00:45:27,280 Speaker 1: in the public market, you have to create it yourself. 731 00:45:28,080 --> 00:45:31,719 Speaker 1: So we wake up every day and we worry about origination. 732 00:45:32,760 --> 00:45:34,799 Speaker 1: I asked them to think about what's the journey that 733 00:45:34,880 --> 00:45:38,160 Speaker 1: our clients are on, the retail clients and the most 734 00:45:38,160 --> 00:45:41,840 Speaker 1: sophisticated clients. A year ago, we had four people in 735 00:45:41,840 --> 00:45:44,520 Speaker 1: global wealth. We now have a hundred and forty people 736 00:45:44,520 --> 00:45:48,080 Speaker 1: in global wealth. Global wealth will be a third of 737 00:45:48,080 --> 00:45:51,040 Speaker 1: our new capital over the next five years, a third 738 00:45:51,719 --> 00:45:55,680 Speaker 1: a third. I think about the other places in the 739 00:45:55,719 --> 00:45:59,799 Speaker 1: world that we're looking you know, um, we are late 740 00:45:59,840 --> 00:46:02,440 Speaker 1: to the game in Asia in terms of really building 741 00:46:02,440 --> 00:46:05,719 Speaker 1: out of presence. I am fully convinced that Asia does 742 00:46:05,760 --> 00:46:09,120 Speaker 1: not need another equity opportunity fund. There's plenty of equity 743 00:46:09,160 --> 00:46:13,360 Speaker 1: in Asia. What Asia lacks is yield and hybrid. The 744 00:46:13,400 --> 00:46:18,799 Speaker 1: banking system is credit creation. We've recently sent over one 745 00:46:18,840 --> 00:46:22,239 Speaker 1: of our most senior partners, and his job is to 746 00:46:22,280 --> 00:46:25,719 Speaker 1: get the bank market share from I think he'll do that, 747 00:46:27,000 --> 00:46:30,000 Speaker 1: and so we do in the context of what we believe, 748 00:46:30,600 --> 00:46:33,960 Speaker 1: in the context of our competitive advantages, particularly in yield 749 00:46:34,239 --> 00:46:37,880 Speaker 1: and fixed income replacement. Our job is to execute the 750 00:46:37,920 --> 00:46:40,680 Speaker 1: plan that we've put out, which is roughly to double 751 00:46:40,719 --> 00:46:43,480 Speaker 1: our business, but to do it in a way where 752 00:46:43,520 --> 00:46:46,680 Speaker 1: we adhere to the promise that we've made to our clients, 753 00:46:47,200 --> 00:46:50,680 Speaker 1: which is excess return per unit of risk, not just 754 00:46:50,760 --> 00:46:53,719 Speaker 1: growth in a u M. I promised that would get 755 00:46:53,719 --> 00:46:58,760 Speaker 1: to some questions. That was listening to the global Apollo 756 00:46:58,800 --> 00:47:01,200 Speaker 1: Global Asset Management see you and co founder Mark rowan 757 00:47:01,280 --> 00:47:05,120 Speaker 1: fascinating discussion with bloomber Business Weeks Eric Shatzker about Apollo 758 00:47:05,160 --> 00:47:08,680 Speaker 1: about the private equity business about alternative investing, how that 759 00:47:08,800 --> 00:47:12,240 Speaker 1: is continuing to be a market that is growing in size. 760 00:47:14,200 --> 00:47:17,319 Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can 761 00:47:17,360 --> 00:47:21,120 Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever 762 00:47:21,200 --> 00:47:24,880 Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter 763 00:47:25,120 --> 00:47:28,640 Speaker 1: at Matt Miller three pt On Fall Sweeney I'm on 764 00:47:28,640 --> 00:47:31,600 Speaker 1: Twitter at pt Sweeney. Before the podcast. You can always 765 00:47:31,600 --> 00:47:33,719 Speaker 1: catch us worldwide at Bloomberg Radio