WEBVTT - Trump's Potential CHIPS Reversal, Tech Faces Tariff Volatility 0:00:02.520 --> 0:00:09.680 Bloomberg Audio Studios, podcasts, radio news from the heart of 0:00:09.760 --> 0:00:15.480 where innovation, money and power collide in Silicon Valley and beyond. 0:00:15.920 --> 0:00:21.160 This is Bloomberg Technology with Caroline Hyde and Ed Ludlow. 0:00:34.840 --> 0:00:35.559 Live from New York. 0:00:35.560 --> 0:00:39.520 I'm Caroline Hyde and I'm Jackie Devalas in Washington. This 0:00:39.640 --> 0:00:40.840 is Bloomberg Technology. 0:00:41.000 --> 0:00:44.319 We get straight to the markets because we currently see 0:00:44.320 --> 0:00:46.159 a market that braces for possible changes. 0:00:46.280 --> 0:00:48.479 Jackie to the tariffs on Canada and Mexico. 0:00:48.760 --> 0:00:50.840 All of this is being suggested by Commas Secretary Howard 0:00:50.920 --> 0:00:54.800 Lutnik in a Bloomberg interview with Bloomberg Television. We are 0:00:54.880 --> 0:00:58.000 basically being bounced around by the latest headlines. We have 0:00:58.120 --> 0:01:00.000 got so much to debate when it comes to the market. 0:01:00.160 --> 0:01:03.640 D Anidy, the earnings with CrowdStrike looking worse than the 0:01:03.680 --> 0:01:07.120 market had braced for and CrowdStrike currently trading off significantly 0:01:07.120 --> 0:01:09.400 by some eight percent, off as much as twelve percent 0:01:09.440 --> 0:01:12.360 at one point, as once again that hit to the 0:01:12.600 --> 0:01:15.800 entire global breakdown in software that we saw back in 0:01:15.920 --> 0:01:20.240 last summer. Shares still having an effect as we saw 0:01:20.280 --> 0:01:22.880 worse than expected earnings outlook for this company. 0:01:23.040 --> 0:01:25.720 Let's stick into all of this with Bluebergs Isabelle Lee. 0:01:25.800 --> 0:01:28.800 Because we have whiplash on our hands, whether or not 0:01:28.880 --> 0:01:32.120 it's about the latest amount announcement for semiconductor support here 0:01:32.160 --> 0:01:34.679 in the United States, whether it's whiplash ultimately, and whether 0:01:34.720 --> 0:01:36.840 we will have tariffs remain in force or not. 0:01:37.200 --> 0:01:38.960 How does the market digest this moment. 0:01:39.600 --> 0:01:41.560 I think that's why they're confused. Markets have been se 0:01:41.640 --> 0:01:44.039 signed between gains and losses. Before I came here, I 0:01:44.040 --> 0:01:45.800 had a script on in my head that stucks rallying 0:01:45.800 --> 0:01:47.760 because of the ISSM beat. But there now as I'm 0:01:47.800 --> 0:01:50.680 sitting here, they're actually edging lower. It's been a wild ride, 0:01:50.680 --> 0:01:53.600 and options traders really predict more volatility to come. And 0:01:53.640 --> 0:01:56.000 on Friday we have the big payrolls data that's also 0:01:56.040 --> 0:01:58.600 going to add to volatility. We have options traders predicting 0:01:58.600 --> 0:02:00.760 a move of one point two percent in either direction, 0:02:00.880 --> 0:02:03.760 and that's pretty significant. So it's really just if you 0:02:03.800 --> 0:02:06.760 take a step back, investors are on edge. Even for 0:02:06.880 --> 0:02:09.160 us on the terminal, you have headlines after headlines. You 0:02:09.280 --> 0:02:11.440 just really don't know what to expect. Some people argue 0:02:11.480 --> 0:02:13.560 that it's too much of a data driven market, but 0:02:13.720 --> 0:02:16.400 remains to be seen Isabelle. 0:02:16.440 --> 0:02:19.760 We're expecting some kind of guidance from Howard Lutnik later 0:02:19.840 --> 0:02:23.200 this afternoon. What subsectors within tech should we be on. 0:02:23.160 --> 0:02:23.799 The lookout for. 0:02:24.600 --> 0:02:27.120 There's automakers, there's also chip makers. But the thing is 0:02:27.120 --> 0:02:30.120 tyres itself isn't really bad. We have many analysts telling 0:02:30.160 --> 0:02:32.959 us that it's Tarris Priss lingering, growth spheres, press, the 0:02:33.000 --> 0:02:36.080 prospects of the FED keeping interest rates higher, plus the 0:02:36.160 --> 0:02:38.800 higher stock valuations. Then if you have all of that, 0:02:38.919 --> 0:02:42.079 you question whether the markets should be this high. But 0:02:42.120 --> 0:02:45.120 other than that, even in Asia we have Asian equities rallying. 0:02:45.320 --> 0:02:49.000 We have German stocks really in question after that really 0:02:49.040 --> 0:02:50.679 big stimulus that they're injecting. 0:02:50.760 --> 0:02:54.040 So all in all, we have recession probabilities rising. 0:02:54.040 --> 0:02:57.160 We have a JP Morgan implied probability of economic downturn 0:02:57.240 --> 0:02:59.680 rising through thirty one percent on Thursday. That's up from 0:02:59.720 --> 0:03:02.200 set eighteen percent at the end of November. So now 0:03:02.240 --> 0:03:05.119 again we have a lot of investors predicting their own 0:03:05.160 --> 0:03:07.959 models of recession. But it's really just a tough market 0:03:08.040 --> 0:03:08.640 to digest. 0:03:09.320 --> 0:03:12.520 It's a tough market global market for companies trying to sell. 0:03:12.560 --> 0:03:16.280 At the moment, I think of Tesla once again dropping lower. 0:03:16.600 --> 0:03:19.000 We saw China weakness. 0:03:18.720 --> 0:03:21.040 Yesterday in terms of the data, you saw it in France, 0:03:21.080 --> 0:03:23.799 and then the latest chew to drop is Germany. I mean, 0:03:23.840 --> 0:03:26.639 Elon Musk, is this his brand or is it ultimately 0:03:26.639 --> 0:03:28.799 about what's happening in terms of curtailing some of their 0:03:28.840 --> 0:03:30.040 output some of their production. 0:03:30.440 --> 0:03:33.600 I think it could be both, because Tesla registration plummeted 0:03:33.639 --> 0:03:35.600 in Germany last month, and a part of that is 0:03:35.680 --> 0:03:38.440 Elon Musk and his politicking. But then a part of 0:03:38.480 --> 0:03:41.880 that is also just really the car makers suspending out plants. 0:03:41.920 --> 0:03:43.840 If it's model why yeah, and then they have a 0:03:43.840 --> 0:03:46.000 factor outside of Berlin and that will lose out to 0:03:46.080 --> 0:03:48.400 several projections. I feel like it's just really the perfect 0:03:48.400 --> 0:03:52.000 storm or the perfect cocktail, everything moving together. But yes, 0:03:52.440 --> 0:03:54.720 every headline in every part of the world is really 0:03:54.760 --> 0:03:55.880 something to watch out for. 0:03:56.320 --> 0:03:58.840 Public investors are trying to dicer in it. So a 0:03:58.920 --> 0:04:01.680 private investors is across the tape when it comes to 0:04:01.720 --> 0:04:04.040 what's happening in the public markets. But let's get back 0:04:04.040 --> 0:04:05.760 to what leaders are talking about. 0:04:05.560 --> 0:04:06.760 In the private markets too. 0:04:07.080 --> 0:04:10.320 We've had Bloomberg business leaders across the board at the 0:04:10.320 --> 0:04:12.920 invest conference that we're hosting today in New York City. 0:04:13.120 --> 0:04:16.200 I did today. I spoke with Iconic Capital founder Michael Anders, 0:04:16.600 --> 0:04:19.400 and we began with the changes in consumer sentiment at 0:04:19.400 --> 0:04:22.080 this moment in reaction to tariff threats and also the 0:04:22.120 --> 0:04:22.760 impact on AI. 0:04:22.839 --> 0:04:24.720 Take to listen, But. 0:04:24.720 --> 0:04:26.599 I think it's spending a lot of time with consumer 0:04:26.720 --> 0:04:31.200 CEOs lately. There is definitely an awareness that there's a 0:04:31.360 --> 0:04:35.239 sentiment shift. I think the consumer is beginning to start 0:04:35.240 --> 0:04:40.640 paying attention to the uncertainty in terms of, you know 0:04:40.960 --> 0:04:44.159 where tariffs are going to take us, And so I 0:04:44.160 --> 0:04:47.960 think that's a pause that people are feeling. From our standpoint, 0:04:47.960 --> 0:04:52.279 though we actually like this environment. It makes you do 0:04:52.360 --> 0:04:55.360 the work. And I think if you're you know, got 0:04:55.440 --> 0:04:58.080 the team, you've got the rigor, you've got the discipline, 0:04:58.080 --> 0:05:00.320 you've got the focus. And going back to what I 0:05:00.320 --> 0:05:03.000 said earlier, this is a moment where picking the winners 0:05:03.560 --> 0:05:07.320 is so critically important. And so I think right now, 0:05:07.320 --> 0:05:10.800 in this AI journey we're in, it's been a long road. 0:05:10.880 --> 0:05:12.960 I mean, AI has been around for decades. 0:05:13.320 --> 0:05:16.760 Does generative AI become more relevant at this moment where 0:05:16.800 --> 0:05:21.719 companies are worrying about predicting the future, making sure that 0:05:21.720 --> 0:05:24.520 they're profitable. Are they even more galvanized than to lean 0:05:24.560 --> 0:05:26.160 into this generative shift. 0:05:26.839 --> 0:05:31.560 I think in the last year or two, the awareness 0:05:31.600 --> 0:05:36.560 around jen AI has gotten everybody sort of to the 0:05:36.600 --> 0:05:39.480 point where they know it's critically important. But it is 0:05:39.560 --> 0:05:44.000 such a complicated and nuanced situation we're in right now 0:05:44.040 --> 0:05:47.320 that I think people are starting to really know the 0:05:47.360 --> 0:05:50.080 need they need to pay more attention, and I think 0:05:50.080 --> 0:05:52.440 it's less about the predictive nature of it. I think 0:05:52.520 --> 0:05:55.520 that's kind of where we've just come from, and now 0:05:55.560 --> 0:05:58.880 we've gone to where these machines are able to think, 0:05:59.400 --> 0:06:02.599 they're able to reason, and pretty soon they're going to 0:06:02.600 --> 0:06:06.040 be able to act. And I think the acting piece 0:06:06.120 --> 0:06:10.080 is what gets us very close to this agi moment 0:06:10.640 --> 0:06:12.760 where machines are all knowing. 0:06:14.320 --> 0:06:17.880 That was my candas of Iconic Capital, and Jackie such an. 0:06:17.760 --> 0:06:19.000 Important voice of this moment. 0:06:19.240 --> 0:06:21.440 They have bet on the past winners, They bet on 0:06:21.480 --> 0:06:23.760 the snowflakes, on the data dogs, on the ADI ends. 0:06:23.880 --> 0:06:26.279 They're now making big bets on the likes of data breaks. 0:06:26.279 --> 0:06:28.880 But they continue to invest in this moment even though 0:06:29.120 --> 0:06:31.960 we've got this tipping point that's worried about geopolitics. They 0:06:32.160 --> 0:06:34.720 like this environment where you're having to do more work, 0:06:34.760 --> 0:06:36.880 and I think my putting money where the mouth is 0:06:36.920 --> 0:06:40.320 assured insurance technologies. They just committed more money to that 0:06:40.320 --> 0:06:42.240 particular Jennai business just yesterday. 0:06:44.320 --> 0:06:45.400 That's right, Caroline. 0:06:45.440 --> 0:06:49.360 Not always the covered names are a little bit underappreciated 0:06:49.400 --> 0:06:51.640 and tech but crucial sectors to keep an eye on. Now, 0:06:51.720 --> 0:06:54.680 let's go to the Bloomberg invest Conference for a conversation 0:06:54.800 --> 0:06:59.600 with KKR co CEO Joebe along with Bloomberg's Shanali Basic. 0:07:01.480 --> 0:07:03.560 Across Mall Street, and we're going to get to some 0:07:03.600 --> 0:07:05.840 of the things underpinning those goals. But first we're going 0:07:05.920 --> 0:07:08.520 to start with a big view on where the world 0:07:08.600 --> 0:07:11.880 stands today. And as we've been talking about Joe, in 0:07:11.920 --> 0:07:15.120 the US, investors are trying to shake off that tariff 0:07:15.160 --> 0:07:19.200 hangover that exists right now. The markets have been very jittery, 0:07:19.800 --> 0:07:23.440 investors are digesting how these trade policies could be in 0:07:23.480 --> 0:07:27.160 the future. How do you view the impact from your seat? 0:07:27.520 --> 0:07:30.480 Sure, I think it's obvious to everybody that we're in 0:07:30.480 --> 0:07:32.640 an environment right now where there's a lot of uncertainty 0:07:32.720 --> 0:07:36.480 around trade tariffs, but it's not necessarily new. Even with 0:07:36.520 --> 0:07:40.480 the first Trump administration, he was focused on tariffs and trade. 0:07:41.440 --> 0:07:44.480 Biden kept most of those tariffs in place. So I 0:07:44.520 --> 0:07:47.280 think in our business, you know, we're very long term investors, 0:07:47.480 --> 0:07:49.720 we need to be thinking about these issues over time, 0:07:49.880 --> 0:07:53.200 not just in one administration. And what I'd say is, 0:07:53.280 --> 0:07:56.800 you know, we have teams at KKR who focus on 0:07:56.880 --> 0:08:00.880 all these areas of macro risk, whether that's currency, tariff 0:08:00.920 --> 0:08:05.840 and trade, geopolitical risk, regulatory risk in each of the 0:08:05.840 --> 0:08:07.320 different markets that we're investing in. 0:08:08.000 --> 0:08:08.520 I think this. 0:08:08.440 --> 0:08:12.960 Issue around supply chain security and resiliency, which relates to tariffs, 0:08:13.360 --> 0:08:15.800 is obviously front and center for all long term investors, 0:08:16.440 --> 0:08:18.679 but people are trying to parse through what this all means. 0:08:18.720 --> 0:08:21.960 The final policies are not in place, the actions of 0:08:22.000 --> 0:08:25.360 other countries and governments in reaction to what Trump may 0:08:25.440 --> 0:08:28.120 or may not do is still unknown, so it's very 0:08:28.160 --> 0:08:30.520 fluid at the moment, and I think that's obviously creating 0:08:30.560 --> 0:08:31.920 some uncertainty and volatility. 0:08:32.040 --> 0:08:34.559 You know, it's interesting in conversation with you, you had 0:08:34.600 --> 0:08:36.520 mentioned that this was a risk that you should have 0:08:36.559 --> 0:08:39.600 seen coming in a lot of ways. So from where 0:08:39.640 --> 0:08:42.280 I'm sitting, it looks like KKR has been preparing for 0:08:42.320 --> 0:08:45.840 this in a way that many investors have kind of 0:08:45.920 --> 0:08:49.360 very obviously have not been So what have you been 0:08:49.400 --> 0:08:52.160 doing to prepare for all of this uncertainty knowing that 0:08:52.200 --> 0:08:53.400 there's even more of it ahead. 0:08:54.080 --> 0:08:56.199 Yeah, So, I think we have over one hundred and 0:08:56.240 --> 0:09:00.280 fifty companies in our private equity portfolio around the world. 0:09:00.360 --> 0:09:05.319 Supply chain resiliency, multiple sourcing avenues for our companies has 0:09:05.360 --> 0:09:08.640 always been a part of the risk mitigation approach, and 0:09:08.679 --> 0:09:10.480 we've spent a lot of time really over the last 0:09:10.480 --> 0:09:13.640 five six seven years understanding that risk and mitigating that risk. 0:09:14.440 --> 0:09:16.400 And when it comes to new investments, I think a 0:09:16.440 --> 0:09:19.760 big part of our job thematically is understanding the risk 0:09:19.840 --> 0:09:23.240 environment we're in and choosing those themes and sectors and 0:09:23.360 --> 0:09:27.320 opportunities that really have less exposure to terrorf risk or 0:09:27.360 --> 0:09:30.600 trade risk. So maybe a couple of examples of that is, 0:09:31.400 --> 0:09:34.720 you know, healthcare services are very domestic, whether it's in 0:09:34.720 --> 0:09:37.120 the US, Europe, or Asia. You know, that's an area 0:09:37.160 --> 0:09:39.480 where we feel like the TERRFF risk at least is 0:09:39.520 --> 0:09:44.120 not a pronounced risk. You could look at certain services businesses. 0:09:44.160 --> 0:09:48.760 We've made a number of investments in companies like home Services, Foundation, 0:09:48.880 --> 0:09:52.480 Inspection maintenance companies in the US for an aging housing stock. 0:09:53.240 --> 0:09:56.920 You look at it services and software investments in different countries. Again, 0:09:57.080 --> 0:10:00.439 very little terrorf risk, so you're able to really zero 0:10:00.520 --> 0:10:03.320 in and target those industries and sectors where you don't 0:10:03.320 --> 0:10:05.000 think this is going to be a big problem. 0:10:04.960 --> 0:10:06.800 When you think about the ripple effects that you might 0:10:06.840 --> 0:10:09.160 see from the terror strategy. There are a lot of 0:10:09.200 --> 0:10:13.920 concerns about inflation, sure growth. How are you thinking about 0:10:13.920 --> 0:10:17.439 the economic headwinds that the US is facing Listen, I 0:10:17.480 --> 0:10:17.960 think that's. 0:10:17.840 --> 0:10:19.840 One of the big uncertainties out there that people are 0:10:19.840 --> 0:10:24.319 trying to figure out. Tariffs are inflationary by design, so 0:10:24.400 --> 0:10:27.880 I think if that leads to an escalated level of 0:10:27.880 --> 0:10:31.560 inflation in US economy, obviously that's going to slow GDP growth. 0:10:32.440 --> 0:10:34.680 It may put some pressure on the FED obviously in 0:10:34.720 --> 0:10:38.440 a more tough economic environment, to lower rates faster over time. 0:10:39.480 --> 0:10:42.079 But we've always felt that the bigger trends happening in 0:10:42.120 --> 0:10:46.000 the world, whether that's energy transition, the massive investments into data, 0:10:46.520 --> 0:10:49.120 a lot of these things are in inflationary by its nature. 0:10:49.120 --> 0:10:52.520 Putting aside tariffs, so we have a higher resting heart 0:10:52.600 --> 0:10:55.360 rate for inflation globally today. Than we've had in the 0:10:55.400 --> 0:10:58.400 last decade, and you expect that to continue and potentially 0:10:58.440 --> 0:11:01.400 even get higher inflation. Right, if these tariff and these 0:11:01.440 --> 0:11:04.920 trade wars continue, it's not an unreasonable expectation that in 0:11:04.920 --> 0:11:06.800 the near term you can see higher inflation. 0:11:06.880 --> 0:11:08.880 Well, it doesn't that mean higher rates or do you 0:11:08.920 --> 0:11:10.720 think that the FED is going to have to lower 0:11:10.800 --> 0:11:13.280 rates into the face of that. People are starting to 0:11:13.440 --> 0:11:15.880 use the words stagflation an awful lot these days. 0:11:16.600 --> 0:11:18.520 I think it's going to be different in different markets, 0:11:18.679 --> 0:11:20.160 and I think the FED is going to have to 0:11:20.240 --> 0:11:23.480 be very nimble in how they navigate this risk. Obviously, 0:11:23.520 --> 0:11:27.240 if the US is headed towards an economic downturn, cutting 0:11:27.320 --> 0:11:30.079 rates is probably going to be the policy response. If 0:11:30.160 --> 0:11:33.160 rates are high and we're not headed down that recession 0:11:33.200 --> 0:11:37.080 path or deceleration of growth path, then rates could actually 0:11:37.080 --> 0:11:38.520 go a little bit higher in the near term. 0:11:38.960 --> 0:11:41.439 So let's look at this from a global perspective as well. 0:11:41.480 --> 0:11:44.160 I think one unique view you can bring from KKR 0:11:44.440 --> 0:11:46.800 is that you are very global in nature. So you 0:11:46.880 --> 0:11:50.800 see the way that the changes are happening in the 0:11:50.840 --> 0:11:54.839 tariff strategy, the way that nations are kind of separating 0:11:54.840 --> 0:11:56.760 in their relationship to each other. You see that on 0:11:56.800 --> 0:12:01.480 the ground through your portfolio companies. What are than other 0:12:01.720 --> 0:12:05.160 areas of the worlds that are maybe even more attractive 0:12:05.200 --> 0:12:06.880 to you than the United States right now? 0:12:07.880 --> 0:12:09.440 Well, you know, I think it's not a secret. You 0:12:09.480 --> 0:12:11.559 had it up on the slide. We're big fans right 0:12:11.600 --> 0:12:14.480 now of Japan. We think that is a really really 0:12:14.720 --> 0:12:20.120 underpenetrated opportunity, especially among US investors. They really haven't figured 0:12:20.120 --> 0:12:22.200 out how to get the exposure they want in a 0:12:22.240 --> 0:12:24.719 market like Japan where they're coming out of two and 0:12:24.720 --> 0:12:28.720 a half decades of deflation. So finally positive wage growth, 0:12:29.240 --> 0:12:34.199 pricing power, inflation is very modest, but positive inflation right now, 0:12:34.679 --> 0:12:38.120 and rates are actually increasing modestly in Japan. That's a 0:12:38.160 --> 0:12:41.080 completely different macro picture than what we've seen in Japan 0:12:41.120 --> 0:12:43.840 for the last three decades, and a really exciting time 0:12:44.040 --> 0:12:49.320 when you marry that with shareholder reform, activism, activism, corporate 0:12:49.360 --> 0:12:52.880 governance reform in that market. Outside of the United States today, 0:12:52.920 --> 0:12:55.440 Japan is the largest destination of our capital. 0:12:55.800 --> 0:13:01.120 So it's interesting. In addition to Japan, KKR has maintained 0:13:01.120 --> 0:13:04.120 a commitment to China as well. In fact, there are 0:13:04.200 --> 0:13:06.839 big deals that are in the market that KKR may 0:13:06.840 --> 0:13:10.240 be involved with at this very moment. So a lot 0:13:10.240 --> 0:13:13.120 of other investors are very worried about China, the internal 0:13:13.120 --> 0:13:17.559 economics and the relationship that China has to the United States. Yeah, 0:13:17.600 --> 0:13:19.880 how do you view that dynamic? 0:13:20.480 --> 0:13:24.679 Yeah, listen, I think the geopolitical tensions right now obviously 0:13:24.800 --> 0:13:26.880 are front and center for US as we think about 0:13:26.920 --> 0:13:30.000 where to invest in how to invest and in China 0:13:30.000 --> 0:13:32.559 in particular, you have to avoid those sectors that have 0:13:32.640 --> 0:13:35.400 sensitivity on both sides of the ocean, both the US 0:13:35.520 --> 0:13:38.840 government and the Chinese government. So we have not invested 0:13:38.880 --> 0:13:42.480 in some of these sensitive sectors like electric vehicles or 0:13:42.520 --> 0:13:45.800 semiconductors or AI. That's not the focus of our China 0:13:45.880 --> 0:13:50.640 investment strategy. We're really focusing on super high quality domestic 0:13:50.679 --> 0:13:55.000 businesses that are around domestic consumption and services. So we 0:13:55.160 --> 0:13:57.400 in our portfolio today we have one of the largest 0:13:58.080 --> 0:14:02.200 or the largest Chinese pet food company, again geopolitically not sensitive. 0:14:02.559 --> 0:14:04.760 We own one of the largest pharmacy chains in China. 0:14:05.400 --> 0:14:09.080 We own the largest white mushroom grower in China, all 0:14:09.160 --> 0:14:12.760 geared towards the domestic market, a growing middle class who 0:14:12.840 --> 0:14:16.480 wants higher quality goods and services and food, and I 0:14:16.520 --> 0:14:18.480 think that's the sweet spot of where we're focused to 0:14:18.520 --> 0:14:19.160 the market today. 0:14:19.600 --> 0:14:22.800 That's interesting because even if you're focused on the Chinese consumer, 0:14:23.120 --> 0:14:26.080 that might be a little more insulated to let's say, 0:14:26.080 --> 0:14:29.360 the global macro challenges. There are a lot of concerns 0:14:29.360 --> 0:14:33.480 about the Chinese economy. Why are you seeing through them? 0:14:33.560 --> 0:14:36.240 Yeah, listen, I think the overall long term trend in 0:14:36.320 --> 0:14:41.000 China is the middle class is growing, and the expectations 0:14:41.000 --> 0:14:43.280 of the middle class are really for higher quality goods 0:14:43.320 --> 0:14:47.920 and services, safer food, safer services, and that's what these 0:14:47.920 --> 0:14:51.840 companies that we're investing behind are really catering towards. No doubt, 0:14:51.920 --> 0:14:54.920 the macro growth in China has slowed from a decade ago, right, 0:14:55.000 --> 0:14:57.520 you were talking about a country growing at double digits GDP. 0:14:58.400 --> 0:15:00.920 They're targeting four to five percent growth today, right, So 0:15:00.960 --> 0:15:04.120 there has been a slowdown. There's clearly challenges in terms 0:15:04.160 --> 0:15:06.400 of the real estate market in China, and you have 0:15:06.440 --> 0:15:08.320 to factor all that in in terms of the growth 0:15:08.400 --> 0:15:11.960 rate you're underwriting, and largely the entry multiple. You know, 0:15:12.000 --> 0:15:14.400 the Chinese stock market today is one of the most 0:15:14.400 --> 0:15:17.240 interesting value markets in the world in terms of multiples. 0:15:17.840 --> 0:15:20.280 So if you know what you're looking for the type 0:15:20.280 --> 0:15:22.560 of risk you're trying to mitigate against, you could still 0:15:22.600 --> 0:15:23.800 find some interesting opportunities. 0:15:23.920 --> 0:15:27.000 You know, yes day I asked the question, is American 0:15:27.080 --> 0:15:32.680 exceptionalism dead? In addition to that, I ask you, is 0:15:32.840 --> 0:15:37.240 globalization of diversification play? Is it a safety trade? How 0:15:37.240 --> 0:15:38.160 do you think about it? 0:15:38.880 --> 0:15:41.400 But we are a very very global firm, and we 0:15:41.520 --> 0:15:44.440 have a lot of different ways to participate in those opportunities. 0:15:44.840 --> 0:15:50.200 Private equity, real estate, private credit, and infrastructure. So in 0:15:50.240 --> 0:15:53.200 really volatile periods like we're in right now, having that 0:15:53.280 --> 0:15:57.560 flexibility of capital, we could partner with companies management teams 0:15:57.880 --> 0:16:00.520 as a provider of anything from senior and from grade 0:16:00.520 --> 0:16:04.960 debt right to non investment grade debt, to structured credit solutions, 0:16:05.280 --> 0:16:09.680 structured equity solutions, growth equity capital, to buy out capital. 0:16:10.280 --> 0:16:14.400 So you know, today it's an interesting market. When volatility spikes, 0:16:15.080 --> 0:16:18.480 that usually leads to really really interesting deployment opportunities for 0:16:18.520 --> 0:16:20.960 our firm. You need to be nimble, you need to 0:16:21.000 --> 0:16:24.080 have the local reach in all these different markets. But 0:16:24.120 --> 0:16:26.800 we're excited, quite frankly about twenty twenty five. They're going 0:16:26.840 --> 0:16:29.200 to be hiccups. There's going to be some headwinds in 0:16:29.240 --> 0:16:32.120 terms of some of these macro policies, but our ability 0:16:32.160 --> 0:16:35.000 to deploy scale capital around the world, we think is 0:16:35.080 --> 0:16:37.240 quite high. 0:16:37.320 --> 0:16:39.480 I will still ask you, if not dead, then is 0:16:39.520 --> 0:16:41.920 American exceptionalism then overblown? 0:16:43.080 --> 0:16:46.280 Now listen, I think this notion that the US is 0:16:46.320 --> 0:16:48.760 going to win alone has never been the case. I 0:16:48.760 --> 0:16:51.240 think the strength of the United States is really the 0:16:51.280 --> 0:16:54.880 resiliency of the economy, the strength of our capital markets 0:16:54.880 --> 0:16:58.640 to mobilize capitals to support companies in the private sector, 0:16:59.360 --> 0:17:01.960 and labor productivity. Right when you think about why the 0:17:02.080 --> 0:17:05.159 US has grown faster than Europe or faster than Japan, 0:17:05.640 --> 0:17:08.639 it's really about labor productivity in the United States. A 0:17:08.680 --> 0:17:11.840 lot of that is technology driven and innovation driven, but 0:17:11.920 --> 0:17:14.160 a lot of that is our unique mobility of labor 0:17:14.160 --> 0:17:17.200 in this country. You think about Japan, which is going 0:17:17.200 --> 0:17:20.280 through this resurgence. You know, structurally they've done the best 0:17:20.359 --> 0:17:23.560 job of any country in terms of women participation in 0:17:23.600 --> 0:17:27.040 the workforce, people working longer in Japan. Right, They've got 0:17:27.080 --> 0:17:30.800 real demographic challenges. They've done an excellent job around automation 0:17:31.040 --> 0:17:35.320 and robotics in their industrial base, but they're not getting 0:17:35.400 --> 0:17:38.439 the labor productivity because the mobility of labor in Japan 0:17:38.520 --> 0:17:42.040 is quite constrained, and their investment in software and tech 0:17:42.640 --> 0:17:45.240 is a fraction of what you see in the United States. Right, 0:17:45.359 --> 0:17:49.000 So the real superpower of the United States is labor productivity. 0:17:49.040 --> 0:17:51.520 At the end of the day, I do want to 0:17:51.520 --> 0:17:53.600 spend the remaining time here switching gears talking about the 0:17:53.640 --> 0:17:57.879 future of KKR, because it's been fascinating to watch the 0:17:58.040 --> 0:18:00.880 change from an iconic private equity company to. 0:18:00.880 --> 0:18:01.720 What you are today. 0:18:01.960 --> 0:18:04.800 There was the full acquisition of your insurance company last year, 0:18:04.880 --> 0:18:09.000 Global Atlantic, and it's made KKR look more and more 0:18:09.359 --> 0:18:13.160 like Berkshire Hathaway. And there's one part of your business 0:18:13.160 --> 0:18:15.480 that's far less understood that I think makes you look 0:18:15.560 --> 0:18:19.040 like the most like Berkshire Hathaway, and that's your strategic 0:18:19.040 --> 0:18:22.920 holding's business. Many people don't know that KKR owns eighteen 0:18:23.000 --> 0:18:27.680 companies on your own balance sheet at KKR, what is 0:18:27.960 --> 0:18:32.360 this business going to be in maybe ten years and 0:18:32.680 --> 0:18:35.399 why is it valuable to you? Sure? 0:18:35.440 --> 0:18:38.639 So when you think about KKR as a business, we 0:18:38.760 --> 0:18:43.320 really have three core strategic parts of our business. Strategy 0:18:43.960 --> 0:18:46.480 asset management, I think is well understood. That's what we're 0:18:46.520 --> 0:18:49.160 known for for the last fifty years. So that's our 0:18:49.200 --> 0:18:52.840 third party private equity again real estate and infrastructure of 0:18:52.880 --> 0:18:55.440 private credit business, and that's the six hundred and fifty 0:18:55.440 --> 0:18:59.240 billion dollar business that you mentioned at the start. The 0:18:59.320 --> 0:19:02.360 second big pill of our business today is Global Atlantic. 0:19:02.760 --> 0:19:05.440 It's one hundred percent owned insurance company in the life 0:19:05.440 --> 0:19:08.400 and annuity space, roughly one hundred and ninety billion dollars 0:19:08.440 --> 0:19:11.400 of AUM there and again playing into all of these 0:19:11.440 --> 0:19:15.320 trends around retirement savings, retirement security, and being able to 0:19:15.359 --> 0:19:19.600 offer individuals compelling products for their own long term savings. 0:19:20.320 --> 0:19:22.560 The third piece of it is a segment that we 0:19:22.600 --> 0:19:25.399 introduced last year at our investor Day, but it's been 0:19:25.440 --> 0:19:27.879 a segment we've been incubating for well over a decade 0:19:27.880 --> 0:19:31.720 now at KKR, and that's Strategic Holdings. So what we're 0:19:31.720 --> 0:19:35.080 trying to build in Strategic Holdings is in some ways 0:19:35.080 --> 0:19:38.360 a mini Berkshire Hathaway. These are companies where we own 0:19:38.480 --> 0:19:43.280 large stakes, sometimes controlling stakes, sometimes not, but businesses that 0:19:43.359 --> 0:19:46.480 we think we could own literally forever. Businesses that have 0:19:46.560 --> 0:19:50.040 the potential to compound in mid teens over a very 0:19:50.080 --> 0:19:53.480 very long period of time. Very defensive in nature, so 0:19:53.520 --> 0:19:56.320 we have eighteen companies in that portfolio today. We're going 0:19:56.359 --> 0:19:59.640 to continue to redeploy our free cash flow at KKR 0:20:00.119 --> 0:20:02.880 to invest in more of these types of businesses. And 0:20:02.960 --> 0:20:05.280 it's not just private equity. Over time, it's going to 0:20:05.320 --> 0:20:09.600 include certain platforms, probably in infrastructure and real assets, maybe 0:20:09.640 --> 0:20:11.280 certain build ups you know that we're going to do 0:20:11.320 --> 0:20:14.600 in different sectors. You know, when Scott Nuttell and I 0:20:14.840 --> 0:20:17.440 my co CEO, joined KKRE back in nineteen ninety six, 0:20:18.200 --> 0:20:21.040 Berkshire Hathaway had a market cap of forty billion dollars 0:20:21.600 --> 0:20:24.840 and roughly nav balance sheet of forty billion dollars. You 0:20:24.880 --> 0:20:27.640 fast forward twenty eight years, they have a trillion dollar 0:20:27.720 --> 0:20:30.800 market cap on the back of long term compounding of 0:20:30.840 --> 0:20:34.359 their balance sheet and their investments. Right, some version of 0:20:34.359 --> 0:20:36.520 that is what we're going to be doing with strategic holdings, 0:20:36.920 --> 0:20:39.639 but leveraging all of the skills and expertise we have 0:20:39.720 --> 0:20:42.639 in our private equity teams, our infrastructure teams around the world. 0:20:42.720 --> 0:20:45.359 So what's an interesting parallel here If you think about 0:20:45.359 --> 0:20:48.840 Berkshire Hathaway, is it almost like Global Atlantic is your 0:20:48.880 --> 0:20:52.760 own Geico, and these future infrastructure holdings will be your 0:20:52.800 --> 0:20:57.000 BNSF and your private equity holdings would be kind of 0:20:57.040 --> 0:20:58.240 like your stock portfolio. 0:20:59.680 --> 0:21:02.920 Yes, this imperfect anology, but directionally you are absolutely right. 0:21:03.119 --> 0:21:06.399 I think listen strategic holdings for us, you got to 0:21:06.440 --> 0:21:08.080 think about it as a way, how do we think 0:21:08.119 --> 0:21:12.680