WEBVTT - BlackRock’s $26 Billion Private Credit Fund Limits Withdrawls 0:00:02.720 --> 0:00:10.559 Bloomberg Audio Studios, Podcasts, radio News. You're listening to the 0:00:10.600 --> 0:00:14.560 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.600 --> 0:00:18.520 Eastern on Applecarplay and Android Auto with the Bloomberg Business App. 0:00:18.640 --> 0:00:21.840 Listen on demand wherever you get your podcasts, or watch 0:00:21.960 --> 0:00:24.000 us live on youtubell. 0:00:24.079 --> 0:00:26.639 One of the undercurrents out there in the marketplace is 0:00:26.680 --> 0:00:29.920 credit quality, particularly in the private credit business. We've been 0:00:29.960 --> 0:00:33.559 reading stories over the last several weeks and months, including 0:00:33.600 --> 0:00:36.560 blue Out for example, and there's another about some credit 0:00:37.240 --> 0:00:39.520 titaness there and some concerns there. 0:00:39.960 --> 0:00:40.760 Then Blackrock. 0:00:40.800 --> 0:00:45.440 Today Blackrock curbed withdrawals from its HPS corporate Lending fund 0:00:45.560 --> 0:00:50.360 after client requests for redemption. Spike, I wasn't expecting Blackrock, 0:00:50.400 --> 0:00:52.760 that this is such a high quality name. I was 0:00:52.800 --> 0:00:55.160 not expecting to see the Blackrock come into this conversation. 0:00:55.720 --> 0:00:57.760 But let's get the latest reporting there. Brian schapotap It 0:00:57.840 --> 0:01:00.480 joins his managing enter of Leverage, Finance and the rest. 0:01:00.320 --> 0:01:02.080 Bet for Bloomberg News. 0:01:02.240 --> 0:01:04.600 Brian talked to us about what's happening in the private 0:01:04.640 --> 0:01:09.000 credit market here today. Are these cockroaches, as Jamie Diamonds suggests, 0:01:09.080 --> 0:01:11.039 or is this something now maybe a little bit more 0:01:11.120 --> 0:01:12.280 systematic or systemic. 0:01:13.400 --> 0:01:15.240 Well, you know, I think you talked about at the 0:01:15.319 --> 0:01:17.600 jump you weren't expecting necessarily Blackrock, And you know, one 0:01:17.600 --> 0:01:19.720 of the big things that Blackrock has been pushing into 0:01:20.080 --> 0:01:22.960 is private markets and is private credits. So this HPS 0:01:23.000 --> 0:01:26.000 fund is one of the major funds that it acquired 0:01:26.000 --> 0:01:29.039 as part of its acquisition last year of HPS Investment Partners. 0:01:29.400 --> 0:01:31.440 So what you were seeing here in this fund is 0:01:31.840 --> 0:01:35.280 nine point three percent withdraw all requests. And they have 0:01:35.760 --> 0:01:37.759 stated in their language, as many of these private credit 0:01:37.800 --> 0:01:41.720 funds do, if we reserve the right to halt redemptions 0:01:41.720 --> 0:01:44.400 at five percent if they become too overwhelming for us, 0:01:44.400 --> 0:01:48.000 because we can't really sell our assets. So they threw 0:01:48.080 --> 0:01:50.680 up the gates, as they like to say, and as 0:01:50.680 --> 0:01:53.960 a result, investors aren't getting the full money back that 0:01:54.000 --> 0:01:56.520 they expected. We'll see if that continues, and if it does, 0:01:56.560 --> 0:01:57.880 that will be something that will play out over the 0:01:57.960 --> 0:01:58.600 quarters to come. 0:01:59.120 --> 0:02:02.120 Well, Brian, you know Blackrock saying that this step is 0:02:02.120 --> 0:02:06.040 in line with its existing management of liquidity. As they 0:02:06.080 --> 0:02:09.440 put it, are investors buying that, is the street buying that. 0:02:10.440 --> 0:02:10.639 Yeah. 0:02:10.639 --> 0:02:13.000 Well, one of the things that we've kind of observed 0:02:13.440 --> 0:02:16.040 on the private credit team here at Bloomberg is that 0:02:16.360 --> 0:02:19.880 even just as recently as this week, Blackstone opted to 0:02:19.919 --> 0:02:22.959 meet all investor redemption requests even though it was seven 0:02:23.040 --> 0:02:25.679 point nine percent in excess of that five percent threshold, 0:02:26.080 --> 0:02:28.120 they were allowed to go all the way up to seven. 0:02:28.160 --> 0:02:29.959 And then they also actually put some of the firm's 0:02:29.960 --> 0:02:33.160 money and some of the employees' own money into kind 0:02:33.160 --> 0:02:35.760 of offsetting the withdrawals. So for a long time, we 0:02:35.800 --> 0:02:40.240 have not seen any asset manager actually say we are 0:02:40.280 --> 0:02:44.040 limiting withdrawals because it's not a good look necessarily if 0:02:44.080 --> 0:02:46.160 you can't get your full money back. But it is, 0:02:46.280 --> 0:02:48.800 as they said, kind of part of what why you 0:02:48.840 --> 0:02:50.680 got into private credit in the first place is illiquid 0:02:50.680 --> 0:02:51.560 and you get paid for that. 0:02:52.480 --> 0:02:54.120 So, Brian, what is the is there? 0:02:54.320 --> 0:02:56.359 Or put it this way, is there a consensus building 0:02:56.400 --> 0:02:59.720 as to whether there really is a systemic problem credit 0:02:59.760 --> 0:03:01.240 problem in private credit? 0:03:02.000 --> 0:03:04.639 Yeah, well, right now, it's kind of a liquidity problem. 0:03:04.760 --> 0:03:08.160 Right There's a mismatch I think between maybe some of 0:03:08.200 --> 0:03:11.359 the retail investors that got into these products that kind 0:03:11.360 --> 0:03:13.400 of expect that if they want their money back, they 0:03:13.400 --> 0:03:15.240 can get their money back, and do something else with it. 0:03:16.120 --> 0:03:18.200 So I think this has to all play out, and 0:03:18.240 --> 0:03:21.400 I think the question that everyone's asking is will there 0:03:21.440 --> 0:03:24.400 eventually be kind of a liquidity problem become you know, 0:03:24.480 --> 0:03:26.400 kind of there's a feedback loop, right like if there's 0:03:26.440 --> 0:03:29.840 for selling, then prices go down, that hurts returns, and 0:03:29.880 --> 0:03:32.679 then that necessitates kind of you know, people wanting to 0:03:32.680 --> 0:03:34.640 pull their money more, and it becomes this kind of 0:03:34.680 --> 0:03:37.360 very negative feedback loop. We kind of saw this with 0:03:37.360 --> 0:03:40.400 with commercial real estate a few years ago when when the. 0:03:40.360 --> 0:03:41.360 FED was hiking rates. 0:03:41.840 --> 0:03:43.440 So we have to see how this cycle plays out 0:03:43.480 --> 0:03:46.560 and whether it continues in the coming months and quarters. 0:03:46.680 --> 0:03:50.400 And every seeing any read across through the broader credit space. 0:03:50.440 --> 0:03:53.400 I know that, for instance, in publicly traded credit markets, 0:03:53.520 --> 0:03:56.360 spreads have been quite favorable at the beginning of this year. 0:03:56.400 --> 0:03:59.400 We've seen a lot of issuers benefit from that. But 0:03:59.600 --> 0:04:02.360 now seeing more jitters in private credit space, is it 0:04:02.360 --> 0:04:05.200 something that you expect to ripple across the res in 0:04:05.280 --> 0:04:05.920 the market as well. 0:04:06.880 --> 0:04:08.840 It's it's a really good point. I mean, some of 0:04:08.840 --> 0:04:10.640 these private credit vehicles. 0:04:10.880 --> 0:04:14.440 Have leverage loans which are which are kind of more 0:04:14.440 --> 0:04:18.640 publicly traded, broadly syndicated in their in their portfolios so 0:04:18.760 --> 0:04:21.560 that they have some sort of liquidity. So we are 0:04:21.640 --> 0:04:25.159 actually seeing some evidence of this trickling out into the 0:04:25.200 --> 0:04:29.840 other more like risky lending markets, where a lot of 0:04:29.839 --> 0:04:32.760 managers are selling what they're able to and selling what's easy, 0:04:33.040 --> 0:04:36.360 and that's actually hitting loan prices a little bit more 0:04:36.400 --> 0:04:39.440 than we might expect, even though those loans are relatively 0:04:39.480 --> 0:04:43.200 higher quality and are generally doing fine. Investors are kind 0:04:43.200 --> 0:04:45.479 of trying to get liquidity where they can, and so 0:04:45.480 --> 0:04:46.960 they're kind of selling the stuff that they're able. 0:04:47.480 --> 0:04:50.160 Our private our fund managers are they out there in 0:04:50.200 --> 0:04:52.720 the market trying to raise capital for private credit funds. 0:04:52.720 --> 0:04:55.640 I would think this would be a tough time. They 0:04:55.680 --> 0:04:56.240 are still. 0:04:56.680 --> 0:04:59.359 I think it was Dan Loebe who came out recently 0:04:59.400 --> 0:05:02.520 and said he was who's actually raising a BBC. There 0:05:02.520 --> 0:05:06.520 are pockets of fundraising that are still working. But I 0:05:06.520 --> 0:05:08.719 do think that's obviously a fair question. There's been this big, 0:05:08.839 --> 0:05:13.200 obviously push into retail for one k's private markets, and 0:05:13.680 --> 0:05:16.560 it comes at perhaps not the most optimal time, as 0:05:16.600 --> 0:05:18.159 there's kind of a reassessment of. 0:05:18.880 --> 0:05:20.440 Risk and kind of liquidity. 0:05:20.800 --> 0:05:23.200 Nobody really cares about liquidity until they do, and when 0:05:23.200 --> 0:05:26.159 they do, it can be kind of what we're seeing today. 0:05:27.080 --> 0:05:29.719 Yeah, Well, are we seeing also any signs of stress 0:05:29.760 --> 0:05:32.880 given what's happening in a broader space with a run 0:05:32.920 --> 0:05:34.960 conflict at this moment? How does that get going to 0:05:35.120 --> 0:05:37.920 play into private credit and credit markets broadly? 0:05:38.880 --> 0:05:41.640 Yeah, it's still I would say early days as far 0:05:41.720 --> 0:05:44.920 as the spillover effects. But obviously there are a lot 0:05:44.960 --> 0:05:47.600 of borrowers out there that are exposed to commodity prices, 0:05:47.600 --> 0:05:49.520 for example, and so I think those are some of 0:05:49.560 --> 0:05:52.080 the markets where you're seeing the most dramatic moves as 0:05:52.080 --> 0:05:56.480 a result of the conflict in Irans. So something that 0:05:56.680 --> 0:05:58.960 I think the credit markets have to be watching pretty closely. 0:05:59.040 --> 0:06:01.720 But for now, it was mostly just the market's kind 0:06:01.760 --> 0:06:04.200 of just really quieted down quite a bit as everybody 0:06:04.240 --> 0:06:05.800 kind of assessed what was happening on how long the 0:06:05.839 --> 0:06:08.360 conflict might be going on. So I think we'll seeing 0:06:08.400 --> 0:06:10.560 that maybe next week or the week after as some 0:06:10.600 --> 0:06:11.920 of these big deals come down the pike. 0:06:12.680 --> 0:06:15.840 Stay with us more from Bloomberg Intelligence coming up after this. 0:06:19.680 --> 0:06:23.360 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:06:23.440 --> 0:06:26.560 weekdays at ten am Eastern on Apple, Cocklay and Android 0:06:26.560 --> 0:06:29.880 Auto with the Bloomberg Business app. Listen on demand wherever 0:06:29.920 --> 0:06:33.240 you get your podcasts, or watch us live on YouTube. 0:06:33.720 --> 0:06:37.039 Just up a little technology stocks. Here's here's a note 0:06:37.040 --> 0:06:40.440 from a recent analyst who says investors are now navigating 0:06:40.440 --> 0:06:44.240 an uncertain Iran military conflict in the Middle East, adding 0:06:44.279 --> 0:06:47.839 to the nervousness already in the tech trade with the ghosts, 0:06:47.839 --> 0:06:51.760 with the AI ghost trade and anthropic worries abound. The 0:06:51.839 --> 0:06:54.279 author of that note is Dan Ives, Global head of 0:06:54.320 --> 0:06:57.800 Technology research at web Bush Securities. Here Dan, love to 0:06:57.800 --> 0:06:59.160 get your thoughts, Danzey. 0:06:59.160 --> 0:07:01.000 He's somewhere in the Swan Jersey. I don't know where 0:07:01.000 --> 0:07:01.600 he is right now. 0:07:01.640 --> 0:07:05.279 But what is the AI ghost trade, Dan, And how's 0:07:05.279 --> 0:07:06.640 it impacted tech stocks? 0:07:07.480 --> 0:07:10.000 Yeah? Well, Paul, I mean the AI ghost trade. 0:07:10.000 --> 0:07:12.840 It goes back to like the anthropic worries that's crushed 0:07:12.840 --> 0:07:17.040 software this year. You know, in terms of cybersecurity software 0:07:17.600 --> 0:07:19.520 that these lms are going to replace. 0:07:19.160 --> 0:07:20.280 The software layer. 0:07:20.480 --> 0:07:22.560 And I'd take to somebody it's also been a huge 0:07:22.560 --> 0:07:24.000 overhang of names like Microsoft. 0:07:24.360 --> 0:07:27.440 But we continue to view it. It's a good trade. 0:07:27.480 --> 0:07:30.920 I think last week's anthropic event earlier in the week 0:07:31.280 --> 0:07:33.360 will be the star of a bottoming event. I think 0:07:33.360 --> 0:07:36.480 we've already seen it in software, and I think it's 0:07:36.480 --> 0:07:40.560 a fictional tale, okay, fairy tale. The anthropic is going 0:07:40.640 --> 0:07:41.680 to replace software. 0:07:42.600 --> 0:07:45.440 Yeah, well, I'm sure Dan that you've read a training 0:07:45.840 --> 0:07:48.520 report from a couple of weeks ago that really sparks 0:07:48.560 --> 0:07:52.960 some of these worries or continue to stoke these software worries. 0:07:53.600 --> 0:07:56.160 What'd you take on that scenario? Are you an account 0:07:56.160 --> 0:08:00.440 that it's too much doomsday, especially because they were calling 0:08:00.520 --> 0:08:03.680 for this to or rather it was a hypothetical scenario 0:08:03.840 --> 0:08:07.640 that they were potentially seeing play out as soon as 0:08:07.840 --> 0:08:09.800 twenty twenty eight, But what are your thoughts about that? 0:08:10.440 --> 0:08:12.400 I mean, that's like me saying in two years, I'm 0:08:12.400 --> 0:08:14.400 going to be in pole vault in the Olympics in 0:08:14.560 --> 0:08:18.760 La You could be. I mean, look, I get to 0:08:19.080 --> 0:08:19.720 teach your own. 0:08:19.960 --> 0:08:23.720 But I believe we're in the early d's of an 0:08:23.760 --> 0:08:26.400 AI revolution and what's going to be a secure, a 0:08:26.480 --> 0:08:29.920 tech ball market. Look, I get the jitters, the white 0:08:29.960 --> 0:08:32.480 knuckles that we're going through in terms of the ghost trade, 0:08:32.920 --> 0:08:34.160 worries about cap backs. 0:08:34.240 --> 0:08:37.400 Obviously Iran conflict war which was adding to that. 0:08:37.960 --> 0:08:40.959 But it just speaks to my view like this will 0:08:41.000 --> 0:08:43.679 also pass Like these are going to be opportunities to 0:08:43.679 --> 0:08:46.959 own the core tech winners in a revolution where the 0:08:47.120 --> 0:08:48.920 US for the first time in thirty years is the 0:08:48.960 --> 0:08:51.719 head of China when it comes attack DAN. 0:08:51.800 --> 0:08:55.240 As it relates to risk or potential risk to software, 0:08:55.559 --> 0:08:57.480 is there a way to differentiate ones that are maybe 0:08:57.720 --> 0:09:00.520 more at risk versus less at risk. 0:09:01.120 --> 0:09:03.360 Yeah, well, I think it's a great point. Look, I think, 0:09:03.400 --> 0:09:08.720 first off, the most disconnected of all software cybersecurity, like 0:09:08.760 --> 0:09:13.000 when I look like nothing is replacing the and AI 0:09:13.280 --> 0:09:16.120 just increases the surface area and the miles are going 0:09:16.160 --> 0:09:20.640 to have to be protected CrowdStrike pow out a checkpoint 0:09:21.160 --> 0:09:23.240 Z scale like, I think that's probably one of the 0:09:23.320 --> 0:09:26.200 areas that I think is a huge misnumber. And then 0:09:26.280 --> 0:09:29.839 you look at like the salesforces the service now is 0:09:29.880 --> 0:09:33.000 the Microsoft Like nothing is replaced in that layer and 0:09:33.040 --> 0:09:35.280 that data. I palent you would be a good example 0:09:35.320 --> 0:09:37.479 even when you look like everything that's happened with Anthropic 0:09:37.559 --> 0:09:40.600 and the Pentagon, it's just going to increase the ability 0:09:40.760 --> 0:09:43.359 for palenteer less reliant. 0:09:43.440 --> 0:09:45.440 It's a plug and play in terms of the models 0:09:45.640 --> 0:09:46.040 are there. 0:09:45.960 --> 0:09:49.640 Coming to the UI path Some others that have maybe 0:09:49.720 --> 0:09:53.280 more one trick pony business models. It could be disintermediate. Yeah, 0:09:53.800 --> 0:09:56.000 but you can't paint them all at the same rush. 0:09:56.040 --> 0:10:00.160 And that's why this is the most disconnected selloff that 0:10:00.240 --> 0:10:02.400 I've seen my history on washing go back to the 0:10:02.440 --> 0:10:03.160 late nineties. 0:10:03.679 --> 0:10:03.880 Yeah. 0:10:03.920 --> 0:10:07.080 Well, Dan, I know that you've also written recently about 0:10:07.120 --> 0:10:10.200 how the tech trade and the developments in that space 0:10:10.720 --> 0:10:14.000 connects to the broader macro environment that we're seeing. Obviously, 0:10:14.240 --> 0:10:17.080 the rund conflict driving a lot of price action this week. 0:10:17.160 --> 0:10:18.160 What are your thoughts around that? 0:10:18.160 --> 0:10:18.360 Then? 0:10:18.400 --> 0:10:22.160 How does this new catalyst kind of further up in 0:10:22.360 --> 0:10:24.800 what we're seeing in the tech space at the moment. 0:10:25.720 --> 0:10:28.000 Look, I think right now investors are trying to put 0:10:28.080 --> 0:10:31.880 pieces of the puzzle together, and the puzzle keeps getting 0:10:32.559 --> 0:10:35.920 thrown apart. Right in terms of like other risks and 0:10:35.960 --> 0:10:37.920 other fears, I think at the end of the day, 0:10:37.920 --> 0:10:41.880 you take a step back the anthropic fears, the goos 0:10:41.880 --> 0:10:45.680 trade that is way disconnected in terms of what I 0:10:45.760 --> 0:10:49.160 see is happening software and sproader tech. The cat backst 0:10:49.200 --> 0:10:52.600 hours are going to continue to increase, and even though 0:10:52.600 --> 0:10:54.880 you're going through these jitters, that's not going to stop that. 0:10:55.080 --> 0:10:57.920 That's going to continue to accelerate. I think when you 0:10:57.960 --> 0:11:02.120 look what's happening, you know, with with Iran conflict and 0:11:02.240 --> 0:11:06.480 war and what this is doing to some extent, military 0:11:06.520 --> 0:11:07.520 is going to just have to. 0:11:07.480 --> 0:11:09.439 Rely more and more on technology players. 0:11:09.480 --> 0:11:11.280 And I think that's playing in We've talked about like 0:11:11.320 --> 0:11:14.960 our top ten names, Like there's names like Planet Labs. 0:11:15.360 --> 0:11:17.400 There's names like Voyager, you know. 0:11:17.360 --> 0:11:21.520 Of course, like you know, safety Technius, cybersecurity, names like Polunteer. 0:11:21.960 --> 0:11:25.160 I think tech messures need to navigate this uncertainty but 0:11:25.280 --> 0:11:29.120 own the winners and you cannot get caught on with 0:11:29.400 --> 0:11:32.640 still the long term thesis that were less than a 0:11:32.679 --> 0:11:33.959 third of the way through. 0:11:34.880 --> 0:11:37.720 Dan last question thirty seconds left the both how do 0:11:37.760 --> 0:11:41.480 you put into context the anthropics and the open ayes 0:11:41.559 --> 0:11:43.800 and some of the discussions they've been having with the government, 0:11:43.840 --> 0:11:47.320 particularly the Pentagon about how technology is used. 0:11:48.000 --> 0:11:53.040 Look anthropic, like they touched the third rile essentially right 0:11:53.120 --> 0:11:55.440 now they're trying I didn't starting to backtrack and some 0:11:55.520 --> 0:11:58.839 of the apologies, but you cannot tell the government and 0:11:59.200 --> 0:12:01.640 I think they're needs to be guardrails and I think 0:12:01.679 --> 0:12:04.120 open A and Almonds talked about the others that work 0:12:04.200 --> 0:12:06.040 with the government but I think. 0:12:05.840 --> 0:12:09.120 For them, like it got them into very precarious. 0:12:08.520 --> 0:12:12.280 Situations supply chain risk and others, And it's a cautionary 0:12:12.440 --> 0:12:15.280 tale right in terms of what's happening. Others will gain 0:12:15.320 --> 0:12:19.000 from that opportunity. But look, this is we're going into 0:12:19.040 --> 0:12:22.720 unprecedented territory. But I think anthropic, Like last Friday Night, 0:12:23.280 --> 0:12:25.719 that was a I think that was. 0:12:25.480 --> 0:12:28.360 A black Eyes situation that they're trying to navigate. 0:12:29.000 --> 0:12:31.760 Are we gonna get anthropic and open eye IPO in 0:12:31.760 --> 0:12:32.560 twenty twenty six? 0:12:33.880 --> 0:12:37.120 Look, I think it's one where I'd be surprised if 0:12:37.160 --> 0:12:38.520 that happened twenty six. 0:12:38.559 --> 0:12:42.280 I mean, you're about SpaceX and others. Yeah, but when. 0:12:42.160 --> 0:12:45.559 You get supply chain designation doubt from the Pentagon, which 0:12:45.640 --> 0:12:49.720 essentially is the same as Huawei, Yeah, that's uh, you're 0:12:49.720 --> 0:12:52.680 not digesting that over in a cabernet over the weekend. 0:12:53.040 --> 0:12:56.120 Stay with us. More from Bloomberg Intelligence coming up after this. 0:13:00.120 --> 0:13:03.800 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:13:03.880 --> 0:13:06.920 weekdays at ten am Eastern on Apple, Cocklay and Android 0:13:06.960 --> 0:13:10.280 Auto with the Bloomberg Business app. Listen on demand wherever 0:13:10.320 --> 0:13:13.400 you get your podcasts, or watch us live on YouTube. 0:13:14.200 --> 0:13:17.200 Skip talk to the real estate business, and we always 0:13:17.200 --> 0:13:19.760 like to talk about the commercial real estate business because 0:13:19.760 --> 0:13:23.520 we're in New York City, just with amazing real estate 0:13:23.559 --> 0:13:26.240 here in town, and we have Morgan Stanley. 0:13:27.120 --> 0:13:28.360 We've talked about this before. 0:13:28.200 --> 0:13:32.240 Lauren Hawkfelder, head of Global real Estate Assets at Morgan Stanley. 0:13:32.240 --> 0:13:33.640 And as long as I've been in this business, since 0:13:33.640 --> 0:13:36.800 the mid eighties, it's been Morgan Stanley really the leaders 0:13:36.920 --> 0:13:39.800 in the investment banking side of real estate and the 0:13:39.800 --> 0:13:40.840 ownership of real estate. 0:13:41.080 --> 0:13:44.240 Lauren, thanks so much for joining us here. Is the 0:13:44.280 --> 0:13:45.080 worst behind us? 0:13:45.080 --> 0:13:45.240 Here? 0:13:45.320 --> 0:13:45.760 Do you think? 0:13:46.440 --> 0:13:48.640 Thank you for having me first of all? And yes, 0:13:48.760 --> 0:13:51.160 I absolutely think the worst is behind us. I think 0:13:51.200 --> 0:13:53.600 we talked the last time we were together that it 0:13:53.600 --> 0:13:56.640 felt like a bottom was forming, and I think today 0:13:56.640 --> 0:14:01.200 there's pretty clear evidence it has formed. Clear evidence on 0:14:01.240 --> 0:14:03.360 the ground when we look at public markets, when we 0:14:03.360 --> 0:14:05.960 look at private capital formation, we're feeling pretty good. 0:14:06.840 --> 0:14:08.640 Yeah, well, Laurien, I think one of the things that 0:14:08.720 --> 0:14:10.880 you cited as part of this improving process is the 0:14:10.880 --> 0:14:13.400 fact that the cost of capital is falling right and 0:14:13.720 --> 0:14:17.679 debt market's also more favorable to real estate borrowers. How 0:14:17.800 --> 0:14:20.240 durable do you think that development will be. 0:14:20.600 --> 0:14:24.880 Yeah, so debt markets are wide open. Real estate lending 0:14:24.960 --> 0:14:28.400 last year was up thirty percent and across categories, So 0:14:28.520 --> 0:14:32.080 even the banks are back, and I think perhaps most interestingly, 0:14:32.520 --> 0:14:34.040 you know, in the beginning it was sort of a 0:14:34.080 --> 0:14:37.200 pretty narrow subset of what lenders would lend to. Today 0:14:37.200 --> 0:14:39.520 they're even lending to office and so you know what 0:14:39.640 --> 0:14:41.680 they say, when the corpse has a pulse, you can 0:14:41.720 --> 0:14:44.680 that you can infer what's going on in the market. 0:14:44.760 --> 0:14:46.560 All right, So, as I understand it, we have a 0:14:46.600 --> 0:14:49.800 housing shortage in this country. Let's say I'm entrepreneurial, I 0:14:49.840 --> 0:14:52.440 want to build a multi family community out. 0:14:52.280 --> 0:14:54.600 There or some type of property. Where am I going 0:14:54.640 --> 0:14:55.720 to get the capital to do that? 0:14:56.000 --> 0:15:00.160 Yeah, So look, real estate lending is absolutely back, or 0:15:00.240 --> 0:15:04.119 multifamily in particular, certainly a bit less on the construction 0:15:04.280 --> 0:15:08.080 lending side, and I think for good reason. So in 0:15:08.200 --> 0:15:13.120 the US in particular, what ends every cycle. It's new supply, right, 0:15:13.480 --> 0:15:16.720 Rents run, values run, and builders build. It is a 0:15:16.840 --> 0:15:19.800 very efficient supply side response, and we saw a lot 0:15:19.840 --> 0:15:23.400 of excess supply this time around. So fortunately we've seen 0:15:23.400 --> 0:15:24.360 a real pullback in that. 0:15:25.440 --> 0:15:29.680 What could happend this development here? The fact that it 0:15:29.760 --> 0:15:31.720 is on the rise. I mean, we have seen a 0:15:31.800 --> 0:15:36.080 few macro stories unfolding this week that are quite major, 0:15:37.040 --> 0:15:41.840 and so is any of that kind of potential halt 0:15:42.440 --> 0:15:45.040 or that could potentially stop the recovery that we've seen 0:15:45.120 --> 0:15:46.600 so far invested. 0:15:46.200 --> 0:15:50.840 Look, the perspective matters, and I look across Morgan Stanley's 0:15:50.880 --> 0:15:56.800 real assets business. We own real estate assets, infrastructure assets, equity, credit, etc. 0:15:57.480 --> 0:15:59.560 And so we have a really global perspective, and I 0:15:59.560 --> 0:16:04.040 would say, of course all of this geopolitical risk has 0:16:04.240 --> 0:16:08.440 massive implications. The difference perhaps is that whereas the broader 0:16:08.480 --> 0:16:11.760 investible universe is at all time highs and facing a 0:16:11.800 --> 0:16:15.160 lot of volatility in the public markets, real estate values 0:16:15.200 --> 0:16:18.720 are still down roughly twenty percent as you look across 0:16:18.760 --> 0:16:21.640 the world, and so you have a really attractive entry point. 0:16:21.880 --> 0:16:24.400 You have as your reference cost to capital going down, 0:16:24.640 --> 0:16:27.360 and you have new construction down. So when you put 0:16:27.360 --> 0:16:30.160 aside all of the noise, I think the relative value 0:16:30.160 --> 0:16:33.360 proposition for real estate is really strong. And when you 0:16:33.400 --> 0:16:35.840 think about the flow through risks created by some of 0:16:35.880 --> 0:16:43.720 this geopolitical these dynamics, it's inflation, it's a risk off appetite, 0:16:43.840 --> 0:16:45.920 and what do we know about real estate. Real estate 0:16:46.000 --> 0:16:49.120 is a pretty effective inflation head and it tends to 0:16:49.160 --> 0:16:52.280 be a lower risk asset class with durable cash flow, 0:16:52.600 --> 0:16:53.600 among other things. 0:16:54.240 --> 0:16:56.640 Well, and you say one of your higher conviction real 0:16:56.720 --> 0:17:00.760 estate strategies is industrial. Does that include this the data 0:17:00.800 --> 0:17:02.640 center thing or is that something different? 0:17:02.840 --> 0:17:06.359 So data centers tend to be adjacent to industrial. We 0:17:06.400 --> 0:17:09.199 do invest in data centers as well, in particular in 0:17:09.200 --> 0:17:13.000 our infrastructure business. But i'd say when you look, actually, 0:17:13.080 --> 0:17:17.440 AI is really impacting both data centers and industrial. 0:17:18.640 --> 0:17:18.880 Yeah. 0:17:18.920 --> 0:17:21.159 Well, one of the things that you're looking at as 0:17:21.200 --> 0:17:24.760 well in terms of high conviction areas of senior housing. 0:17:24.800 --> 0:17:25.800 What's been the trend there? 0:17:26.160 --> 0:17:26.360 Yeah. 0:17:26.400 --> 0:17:29.439 Well, look, in investing, you have knowns and unknowns, And 0:17:29.480 --> 0:17:31.919 one thing we know for sure is that our population 0:17:32.119 --> 0:17:35.320 is getting older and with that, our housing needs change. 0:17:35.680 --> 0:17:37.280 So the eighty. 0:17:37.080 --> 0:17:40.000 Plus population in this country is growing at nearly five 0:17:40.080 --> 0:17:44.000 percent against a backdrop of the overall population dead flat, 0:17:44.440 --> 0:17:46.840 and so we have a lot of growth in that segment. 0:17:46.880 --> 0:17:47.359 And by the. 0:17:47.359 --> 0:17:49.880 Way, they control a lot of the wealth in this country. 0:17:50.119 --> 0:17:52.359 They control more than fifty percent of the wealth, so 0:17:52.400 --> 0:17:54.280 you have a lot of them with a lot of money. 0:17:54.320 --> 0:17:56.480 That is a lot of demand for senior housing, and 0:17:56.520 --> 0:17:59.320 we're seeing across our portfolio a lot of growth. 0:17:59.560 --> 0:18:01.520 All right, before we let you go just office. 0:18:03.080 --> 0:18:05.080 If I want to go buy an office building on 0:18:05.160 --> 0:18:08.480 Third Avenue on forty eighth Street, what should my bid 0:18:08.480 --> 0:18:11.239 b relative to like the last transactions? Right? 0:18:11.240 --> 0:18:14.000 Am I coming in at a fifty percent discount? Thirty percent? 0:18:14.080 --> 0:18:15.119 Or is that thing already cleared? 0:18:15.160 --> 0:18:18.479 Maybe? Well, here's what's so interesting is we debated for years, 0:18:18.520 --> 0:18:22.520 including here with you, the sort of return to office trend, right, 0:18:22.640 --> 0:18:26.760 would work from home just decimate office? Unfortunately, I think 0:18:26.920 --> 0:18:30.080 that debate is over. People are back in the office. 0:18:30.280 --> 0:18:32.760 But now what you're seeing is this new debate of 0:18:32.800 --> 0:18:36.320 the AI office scare right, and we are all the 0:18:36.440 --> 0:18:39.359 jobs going from Third Avenue and forty seventh Street to 0:18:39.520 --> 0:18:42.719 data centers in god knows where. We still think that 0:18:42.760 --> 0:18:45.880 the highest quality office will really prevail. 0:18:46.200 --> 0:18:49.479 So that AA plus story that's still to play. What 0:18:49.520 --> 0:18:51.680 are we doing now for the B and C? Does 0:18:51.680 --> 0:18:54.560 that stuff just clear at a price? Does it get 0:18:54.560 --> 0:18:55.120 torn down? 0:18:55.320 --> 0:18:55.399 Like? 0:18:56.119 --> 0:18:56.760 Yeah, I don't know. 0:18:57.040 --> 0:18:59.480 I think that there is going to be a reasonable 0:18:59.480 --> 0:19:03.520 amount of casion. Okay, so there's demand destruction and their 0:19:03.680 --> 0:19:06.400 higher and better uses of these pieces of clay. That's 0:19:06.560 --> 0:19:09.479 just the reality. Now we need the private and public 0:19:09.520 --> 0:19:12.199 sector to come together to make those economically viable. 0:19:12.320 --> 0:19:15.160 So why is Morgan Stanley so good have been forever 0:19:15.280 --> 0:19:17.760 in real estate? Is it just you've had a commitment 0:19:17.800 --> 0:19:20.119 through cycles that maybe others didn't. 0:19:20.160 --> 0:19:23.520 We have an extraordinary team, and we have the combination 0:19:23.640 --> 0:19:27.520 of a global perspective, right and being part of Morgan Stanley, 0:19:27.560 --> 0:19:30.600 the best economists in the world, the best global perspective, 0:19:30.880 --> 0:19:35.399 but amazing local teams and real estate is fundamentally local law. 0:19:35.480 --> 0:19:35.840 Business. 0:19:35.920 --> 0:19:41.679 Yep, this is the Bloomberg Intelligence podcast, available on Apple, Spotify, 0:19:41.840 --> 0:19:45.320