Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.
Speaker 2: The US and China have agreed in principle to a
Speaker 2: framework for de escalating the trade war.
Speaker 3: Now.
Speaker 2: This comes after two days of discussions in London over
Speaker 2: nearly twenty hours. We heard today from Commerce Secretary Howard Lutnik.
Speaker 4: I think we have the two largest economies in the
Speaker 4: world have reached a handshake, right for a framework. We're
Speaker 4: going to start to implement that framework upon the approval
Speaker 4: of President Trump and the Chinese will get their president
Speaker 4: cheese approval and that's the process. So once the President's
Speaker 4: approve it, we will then seek to implement it now.
Speaker 2: Lutnik also said that export controls could come down if
Speaker 2: rare earths and magnet licenses are resolved with China. We
Speaker 2: also heard from u US Trade Rep. Jamison Greer. He
Speaker 2: said the goal now is to implement the framework speedily
Speaker 2: after it's been approved by both Presidents Trump and Chi.
Speaker 2: In a moment, we'll get some perspective on the trade
Speaker 2: war from the Bloomberg invest summit in Hong Kong. We'll
Speaker 2: hear from Matthew Mitchellini. He's partner and head of Asia
Speaker 2: Pacific at Apollo Global Management. But we begin here in
Speaker 2: the States. Joining me now is George Schultze. He is
Speaker 2: the founder and CEO of Schultze Asset Management. George, thank
Speaker 2: you so much for making time to chat with us. Obviously,
Speaker 2: developments in the US China trade war will be captivating
Speaker 2: much of the market's attention going forward. I'm looking at
Speaker 2: the e many futures contracts right now. They seem to
Speaker 2: be a little subdued. Wouldn't you expect a more enthusiastic
Speaker 2: positive response.
Speaker 1: Well, the news so far dog coming out of London
Speaker 1: is that you have an agreement to abide by the
Speaker 1: prior agreement to the Geneva cord as it were. So
Speaker 1: I guess it's good news because both sides are going
Speaker 1: to live up to what they agreed to do previous.
Speaker 1: What we're really looking for, I think what the markets
Speaker 1: are really looking for, more importantly, is a bigger trade deal.
Speaker 1: You know that resolves all these bigger open issues, tariffs
Speaker 1: back and forth. You know whether our market's going to
Speaker 1: be open with China, and and you know it'll be
Speaker 1: a huge deal when it is announced. I don't think
Speaker 1: that's part of this deal. This deal, as far as
Speaker 1: I can tell so far, is really just an agreement
Speaker 1: to agree and not breach the terms of the prior deal,
Speaker 1: where China was basically opening up to allow the export
Speaker 1: of rare earth minerals to the US and in exchange
Speaker 1: it won certain concessions from the US. So it was
Speaker 1: a de thawing of a big tariff war that had
Speaker 1: gotten really out of hand. But it's good that the
Speaker 1: sides are both talking and that it's good that they're
Speaker 1: both agreeing to agree, And I think what's what's going
Speaker 1: to happen next is most likely a broader trade deal,
Speaker 1: and the fact that you have news from Mexico as
Speaker 1: well is encouraging, and I think maybe the markets will
Speaker 1: absorb that and react a little bit more favorably tomorrow morning.
Speaker 1: But certainly a nice thawing from where we were in
Speaker 1: the past, I would say, Doug.
Speaker 2: Now we know there's been tremendous volatility, driven largely by
Speaker 2: the uncertainty around tariff policy. We are in the middle
Speaker 2: of that ninety day truce before the reciprocal tariffs kick in,
Speaker 2: and that seems to be speeding up the process quite
Speaker 2: a bit. Would you be more comfortable taking risk now
Speaker 2: in the current environment.
Speaker 1: I would say, you know, not just me, but but
Speaker 1: I think investors around the world are excited about taking
Speaker 1: more risk as you get you know, more of a
Speaker 1: thawing in these global trade wars. It's very interesting watching
Speaker 1: the negotiations. It's a multifaceted negotiation with so many different
Speaker 1: countries at once. But this would be big if you
Speaker 1: get a big deal with China. And you know, it's
Speaker 1: been back and forth. It's created a lot of volatility
Speaker 1: right now. The markets, you know, the vix is down,
Speaker 1: you know, I guess below twenty in the in the
Speaker 1: dark days of the early part of the you know,
Speaker 1: tariff announcement announcements, things really went the opposite direction. And
Speaker 1: now we've had a pretty good recovery. I think. I
Speaker 1: think the worst of the trade fears, you know, related
Speaker 1: to these tah wars, is really behind us. Going forward,
Speaker 1: You're going to have more deals announced and more progress
Speaker 1: going forward.
Speaker 2: I'm imagining that the FED is going to breathe a
Speaker 2: big sigh of relief too, because this has been a
Speaker 2: dark cloud I think overhanging monetary policy.
Speaker 1: It is, but there's this interesting dynamic between you know,
Speaker 1: the Trump administration and Powell. So we shall see how
Speaker 1: it gets implemented. Right now, it doesn't look like, you know,
Speaker 1: any dramatic changes in Fed policy, although at least with
Speaker 1: regard to interest rates, but not many people are talking
Speaker 1: about the fact that, you know, quantitive quantitative tightening has
Speaker 1: been reduced somewhat under Powell. So you know, the FED
Speaker 1: is accommodating somewhat during this uncertain time, just not dropping
Speaker 1: interest rates so dramatically as Trump would like to see.
Speaker 2: So we get the CPI data on Wednesday for the
Speaker 2: month of May here in the US. If what we're
Speaker 2: talking about now is a little bit of relief in
Speaker 2: price pressure, I would think that tomorrow's inflation print aside,
Speaker 2: maybe we're going to begin to see more favorable news
Speaker 2: when it comes to inflation going forward, safe better or not.
Speaker 1: Possibly so. But remember if inflation does tend to be sticky,
Speaker 1: I'm sure you remember, Douga, how long it took, you know,
Speaker 1: to increase inflation during the times when we had very
Speaker 1: you know, record low interest rates. So you know, these
Speaker 1: things don't seem to happen overnight. But sure, if if
Speaker 1: you get a big thaw in these trade wars. Most likely,
Speaker 1: you know, the path would be downward with regard to inflation,
Speaker 1: and you know, maybe that would slow the urgency, you know,
Speaker 1: or at least increase the urgency that the fat can
Speaker 1: maybe reduce rates from here.
Speaker 2: One of the things that was popular during the Biden
Speaker 2: administration insofar as investing was concerned, was the move into
Speaker 2: green energy. The Trump administration, right now, we are learning,
Speaker 2: intends to scrap some of those Biden era climate may
Speaker 2: that may happen as soon as Wednesday, and they require
Speaker 2: power plants to kind of curb greenhouse gas emissions. If
Speaker 2: we see the EPA start to unwind a lot of
Speaker 2: the limits and perhaps provide a little bit more fuel
Speaker 2: pun intended here to conventional power generation. What does that
Speaker 2: do to your thinking when it comes to kind of
Speaker 2: the green energy trade, or maybe you've already been dialing
Speaker 2: back from that.
Speaker 1: Yeah, I think there's some interesting opportunities to short cell
Speaker 1: companies that were really built up around the green energy trade. Obviously,
Speaker 1: this is good for you know, regular non green energy
Speaker 1: oil and natural gas. You know, remember Trump brand on
Speaker 1: the drill baby, drill platform. But I think it will
Speaker 1: happen the dialing back of you know, power plant emission restrictions.
Speaker 1: You're also seeing it in the big beautiful bill, you know,
Speaker 1: with with you know, the proposals as drafted and passed
Speaker 1: from the House by the House already will reduce a
Speaker 1: lot of the tax incentives for or solar companies, and
Speaker 1: you know, it's really a gutting of that industry. And
Speaker 1: you know, no matter which side of the earlier on,
Speaker 1: it changes the dynamic tremendously for companies in those sectors.
Speaker 1: So that'll be something worth definitely watching. At the minimum,
Speaker 1: it's going to dramatically change business plans. But more likely
Speaker 1: some of these companies that have too much debt that
Speaker 1: operate in those sectors, like we saw Sonova earlier this
Speaker 1: week file for bankruptcy. There is risk of bankruptcy and
Speaker 1: distress for those companies that are overlevered facing that kind
Speaker 1: of dramatic change.
Speaker 2: So we're talking about power generation. Obviously, the demand from
Speaker 2: US data centers has become a major component in this discussion.
Speaker 2: We've seen very robust building nationally of AI data centers.
Speaker 2: Are you a little concerned that perhaps this build out
Speaker 2: has become a little too aggressive?
Speaker 1: I do get a little concerned about it, Doug. I mean,
Speaker 1: to be fair, I gotta admit we had a big
Speaker 1: investment with Vistra com Stock and that company was really
Speaker 1: benefiting from the AI you know, build out. But if
Speaker 1: you look at it a step back and look at
Speaker 1: the whole picture, there's only a few companies that represent
Speaker 1: most of the demand for those new data centers, and
Speaker 1: there is a concern. I don't think it's really been
Speaker 1: fully talked about yet, but there's a concern that maybe
Speaker 1: some of this is getting ahead of itself and you know,
Speaker 1: maybe we have more capacity than we need ultimately in
Speaker 1: these AI data centers. We saw a correction earlier this
Speaker 1: year when you know, new technology was announced in Asia
Speaker 1: that would maybe reduce the demand for so much energy
Speaker 1: with you know, with very rapid chip computing, and maybe
Speaker 1: that's just a crack on the surface or a sign
Speaker 1: of worse things to potentially come.
Speaker 2: George, thank you for making time to chat. That is
Speaker 2: George Schultze, founder and CEO of Schultze Asset Management, joining
Speaker 2: us here on the Daybreak Asia podcast. Welcome back to
Speaker 2: the Daybreak Asia Podcast. I'm Doug Chrisner. Financial markets are
Speaker 2: closely watching to see if the world's largest economies can
Speaker 2: find a way to de escalate the trade war. Now
Speaker 2: economists are saying it's already tip the global economy into
Speaker 2: a downturn. For more on today's top story, we cross
Speaker 2: over to the Bloomberg invest summit in Hong Kong. We
Speaker 2: heard earlier from Matthew Mitchellini. He is partner and head
Speaker 2: of Asia Pacific at Apollo Global Management. He spoke with
Speaker 2: Bloomberg sivon Man.
Speaker 5: Let's talk about just overall what we're seeing in the
Speaker 5: macro outlook in the light. It seems like public markets
Speaker 5: at least are really gripping themselves on over what's going
Speaker 5: on with trade. How much visibility is there in the
Speaker 5: private space right now, the companies that you own and
Speaker 5: the investors that you talked to.
Speaker 3: It's actually been the trade of volatility has actually been
Speaker 3: a positive for private capital or private credit at least
Speaker 3: out in Asia for a couple of reasons. Because I
Speaker 3: travel around the region, and I go to Japan, I
Speaker 3: go to create, I go to Australia. Before the tariffs
Speaker 3: they were going to US one hundred dollars into the US.
Speaker 3: They're now doing one hundred dollars and they're now doing
Speaker 3: seventy dollars into the US thirty dollars somewhere else. Most
Speaker 3: of that somewhere else is Southeast Asia, it's India, it's Australia.
Speaker 5: Have you seen these signs of stress at least, I mean,
Speaker 5: obviously tariffs that don't weigh on borrowers or anyway.
Speaker 3: There hasn't a little bit on the cross border for
Speaker 3: companies that are serving the US. But they're rethinking their
Speaker 3: supply chains, and that's actually created an opportunity for US
Speaker 3: to finance the supply chains, especially as they get overweight
Speaker 3: with product and they need to put factories in different countries,
Speaker 3: and so as everybody rethinks their supply chain strategy, it's
Speaker 3: actually been a big positive for private capital.
Speaker 5: What is that lee evaluations?
Speaker 4: Then?
Speaker 5: Should I assume that things should be adjusted high or
Speaker 5: lower in the region.
Speaker 3: It's hard to say on the equity side, because most
Speaker 3: of our focus is on private credit or on senior equity.
Speaker 3: But on private credit, we're still seeing good spreads and
Speaker 3: we're putting a lot of money to work in Australia,
Speaker 3: We're putting a lot of money to work in Southeast Asia,
Speaker 3: and comparable spreads to what we're finding in the US, US,
Speaker 3: in Europe.
Speaker 5: There are some naysayers out there that say, you know,
Speaker 5: the glory days of private credit are over. You're starting
Speaker 5: to see fundamental headwinds, a global slowdown, possibly here in
Speaker 5: the face of this trade war, and coming at a
Speaker 5: time when public and private markets are seemed to be
Speaker 5: converging in some ways, where the pricing of direct loans
Speaker 5: is moving closer to public. Are the glory days over?
Speaker 3: You think, well, I don't think the glory days are over,
Speaker 3: And I think what the trend you're talking about is
Speaker 3: direct lending or sponsor lending in the US, where it
Speaker 3: is going to be a cyclical business, and it is
Speaker 3: a cyclical business. But the private capital trends out here
Speaker 3: are actually more structural factors benefiting our business. I was
Speaker 3: shocked when I came out of here. I would have
Speaker 3: not guessed that we would have had a large partnership
Speaker 3: with the Japanese bank to buy assets off their balance sheet,
Speaker 3: but we do because private capital out here is finding
Speaker 3: the productive way to partner with banks, with companies and
Speaker 3: a sponsors. So it's actually a structural factor where private
Speaker 3: capitals filling a gap that the banks can't fill today.
Speaker 5: Do you need to subscribe a certain premium on private
Speaker 5: markets over public now in exchange the loss of liquidity?
Speaker 3: For in Asia, there is less liquidity in the private markets,
Speaker 3: and I think what you're seeing evolving in the US
Speaker 3: there you do earn a premium for being private versus public.
Speaker 5: Yeah, what is that gap right now?
Speaker 3: Anywhere between one hundred and fifteen to hundred braces pas.
Speaker 5: Okay, Okay, you know what if it is a downturn
Speaker 5: right there's there's a lot of talk about this asca
Speaker 5: class saw a rapid rise when global rates were essentially
Speaker 5: as zero. It hasn't been test proven in a way.
Speaker 5: When things slow down in the world economy, what happens
Speaker 5: then to private credits.
Speaker 3: Well, I think you're already seeing it. There's some recent
Speaker 3: stats about amending extents going up, the amount of pick
Speaker 3: going up, or the amount of pick is going up
Speaker 3: in underlying funds. I think you're going to see increased
Speaker 3: defaults and restructurings. But private, A lot of these private
Speaker 3: credit lenders are going to have to look at their
Speaker 3: book and see how they underwrote it. If you are
Speaker 3: a twenty twenty twenty one vintage loan and you underwrote
Speaker 3: a deal with low rates and low inflation, You're going
Speaker 3: to have a much different terminal value and cash flow
Speaker 3: profile when you go to refinance that loan than some
Speaker 3: of the later vintage loans.
Speaker 5: Something that's also a trend that's happening in Asia is
Speaker 5: that you know some I guess as the managers are
Speaker 5: tapping into retail investors to get into the private credit space.
Speaker 5: I mean this is as you say, you liquid not
Speaker 5: a know how really, how does that change the dynamics
Speaker 5: of this market if there is a domestic or retail
Speaker 5: investor involved.
Speaker 3: Now, yeah, you haven't seen other than in Australia. You
Speaker 3: haven't seen private credit managers in Asia tap that retail market.
Speaker 3: It's really been for global product and it really depends
Speaker 3: on the underlying manager. For us, where we buy everything
Speaker 3: onto our own balance sheet that we buy for retail,
Speaker 3: of that we buy for institutions, our job is to
Speaker 3: protect that capital. But what you saw out here in Asia,
Speaker 3: as you saw a rotation from local equities and local
Speaker 3: real estate into private credit because you can get ten
Speaker 3: percent yields in theory with low volatility and low default
Speaker 3: and low default risk. In one of our flagship direct
Speaker 3: lending products has sold very well because of that, and
Speaker 3: they like the fact that we're buying these loans right
Speaker 3: alongside them.
Speaker 5: And Macha, I know you're spending a lot of time
Speaker 5: all over the world. You're going to be about to
Speaker 5: talk about Japan and the credit boom that we're seeing there.
Speaker 5: In terms of geographies, where are the sort of the
Speaker 5: untapped sort of opportunities now.
Speaker 3: So I was in Australia yesterday talking with some of
Speaker 3: the government officials and they have no idea where the
Speaker 3: long duration capital is going to come to support the
Speaker 3: industrial renaissance that we've talked about, which is a global theme,
Speaker 3: and same thing in Japan. You look at the average
Speaker 3: loan on a Japanese bank balance sheet, it's three years
Speaker 3: in duration and all in yield is about one hundred
Speaker 3: and seventy five basis points. So it's really really high
Speaker 3: quality and really short term. And these countries are running
Speaker 3: with fiscal deficits and they're asking themselves where does the
Speaker 3: private capital, Where does the capital come to financi's longer
Speaker 3: term projects, And that's where private capital is going to
Speaker 3: step in. But I'd say right now, in Japan, Australia
Speaker 3: and a bit of Southeast Asia.
Speaker 5: Matt mcgaullia there, but thank you so much for joining us.
Speaker 5: Thanks long, Matt, Matt, Michael Dy there from Apollo here
Speaker 5: at Boomberg invest Hong Kong.
Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 2: Asia Edition podcast. Each weekday, we look at the story
Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 2: or anywhere else you listen. Join us again tomorrow for
Speaker 2: insight on the market moves from Hong Kong to Singapore
Speaker 2: and Australia. I'm Doug Prisoner and this is Bloomberg