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Speaker 2: One of the undercurrents out there in the marketplace is
Speaker 2: credit quality, particularly in the private credit business. We've been
Speaker 2: reading stories over the last several weeks and months, including
Speaker 2: blue Out for example, and there's another about some credit
Speaker 2: titaness there and some concerns there.
Speaker 3: Then Blackrock.
Speaker 2: Today Blackrock curbed withdrawals from its HPS corporate Lending fund
Speaker 2: after client requests for redemption. Spike, I wasn't expecting Blackrock,
Speaker 2: that this is such a high quality name. I was
Speaker 2: not expecting to see the Blackrock come into this conversation.
Speaker 2: But let's get the latest reporting there. Brian schapotap It
Speaker 2: joins his managing enter of Leverage, Finance and the rest.
Speaker 3: Bet for Bloomberg News.
Speaker 2: Brian talked to us about what's happening in the private
Speaker 2: credit market here today. Are these cockroaches, as Jamie Diamonds suggests,
Speaker 2: or is this something now maybe a little bit more
Speaker 2: systematic or systemic.
Speaker 4: Well, you know, I think you talked about at the
Speaker 4: jump you weren't expecting necessarily Blackrock, And you know, one
Speaker 4: of the big things that Blackrock has been pushing into
Speaker 4: is private markets and is private credits. So this HPS
Speaker 4: fund is one of the major funds that it acquired
Speaker 4: as part of its acquisition last year of HPS Investment Partners.
Speaker 4: So what you were seeing here in this fund is
Speaker 4: nine point three percent withdraw all requests. And they have
Speaker 4: stated in their language, as many of these private credit
Speaker 4: funds do, if we reserve the right to halt redemptions
Speaker 4: at five percent if they become too overwhelming for us,
Speaker 4: because we can't really sell our assets. So they threw
Speaker 4: up the gates, as they like to say, and as
Speaker 4: a result, investors aren't getting the full money back that
Speaker 4: they expected. We'll see if that continues, and if it does,
Speaker 4: that will be something that will play out over the
Speaker 4: quarters to come.
Speaker 5: Well, Brian, you know Blackrock saying that this step is
Speaker 5: in line with its existing management of liquidity. As they
Speaker 5: put it, are investors buying that, is the street buying that.
Speaker 6: Yeah.
Speaker 4: Well, one of the things that we've kind of observed
Speaker 4: on the private credit team here at Bloomberg is that
Speaker 4: even just as recently as this week, Blackstone opted to
Speaker 4: meet all investor redemption requests even though it was seven
Speaker 4: point nine percent in excess of that five percent threshold,
Speaker 4: they were allowed to go all the way up to seven.
Speaker 4: And then they also actually put some of the firm's
Speaker 4: money and some of the employees' own money into kind
Speaker 4: of offsetting the withdrawals. So for a long time, we
Speaker 4: have not seen any asset manager actually say we are
Speaker 4: limiting withdrawals because it's not a good look necessarily if
Speaker 4: you can't get your full money back. But it is,
Speaker 4: as they said, kind of part of what why you
Speaker 4: got into private credit in the first place is illiquid
Speaker 4: and you get paid for that.
Speaker 3: So, Brian, what is the is there?
Speaker 2: Or put it this way, is there a consensus building
Speaker 2: as to whether there really is a systemic problem credit
Speaker 2: problem in private credit?
Speaker 4: Yeah, well, right now, it's kind of a liquidity problem.
Speaker 4: Right There's a mismatch I think between maybe some of
Speaker 4: the retail investors that got into these products that kind
Speaker 4: of expect that if they want their money back, they
Speaker 4: can get their money back, and do something else with it.
Speaker 4: So I think this has to all play out, and
Speaker 4: I think the question that everyone's asking is will there
Speaker 4: eventually be kind of a liquidity problem become you know,
Speaker 4: kind of there's a feedback loop, right like if there's
Speaker 4: for selling, then prices go down, that hurts returns, and
Speaker 4: then that necessitates kind of you know, people wanting to
Speaker 4: pull their money more, and it becomes this kind of
Speaker 4: very negative feedback loop. We kind of saw this with
Speaker 4: with commercial real estate a few years ago when when the.
Speaker 6: FED was hiking rates.
Speaker 4: So we have to see how this cycle plays out
Speaker 4: and whether it continues in the coming months and quarters.
Speaker 5: And every seeing any read across through the broader credit space.
Speaker 5: I know that, for instance, in publicly traded credit markets,
Speaker 5: spreads have been quite favorable at the beginning of this year.
Speaker 5: We've seen a lot of issuers benefit from that. But
Speaker 5: now seeing more jitters in private credit space, is it
Speaker 5: something that you expect to ripple across the res in
Speaker 5: the market as well.
Speaker 6: It's it's a really good point. I mean, some of
Speaker 6: these private credit vehicles.
Speaker 4: Have leverage loans which are which are kind of more
Speaker 4: publicly traded, broadly syndicated in their in their portfolios so
Speaker 4: that they have some sort of liquidity. So we are
Speaker 4: actually seeing some evidence of this trickling out into the
Speaker 4: other more like risky lending markets, where a lot of
Speaker 4: managers are selling what they're able to and selling what's easy,
Speaker 4: and that's actually hitting loan prices a little bit more
Speaker 4: than we might expect, even though those loans are relatively
Speaker 4: higher quality and are generally doing fine. Investors are kind
Speaker 4: of trying to get liquidity where they can, and so
Speaker 4: they're kind of selling the stuff that they're able.
Speaker 2: Our private our fund managers are they out there in
Speaker 2: the market trying to raise capital for private credit funds.
Speaker 3: I would think this would be a tough time. They
Speaker 3: are still.
Speaker 4: I think it was Dan Loebe who came out recently
Speaker 4: and said he was who's actually raising a BBC. There
Speaker 4: are pockets of fundraising that are still working. But I
Speaker 4: do think that's obviously a fair question. There's been this big,
Speaker 4: obviously push into retail for one k's private markets, and
Speaker 4: it comes at perhaps not the most optimal time, as
Speaker 4: there's kind of a reassessment of.
Speaker 6: Risk and kind of liquidity.
Speaker 4: Nobody really cares about liquidity until they do, and when
Speaker 4: they do, it can be kind of what we're seeing today.
Speaker 5: Yeah, Well, are we seeing also any signs of stress
Speaker 5: given what's happening in a broader space with a run
Speaker 5: conflict at this moment? How does that get going to
Speaker 5: play into private credit and credit markets broadly?
Speaker 4: Yeah, it's still I would say early days as far
Speaker 4: as the spillover effects. But obviously there are a lot
Speaker 4: of borrowers out there that are exposed to commodity prices,
Speaker 4: for example, and so I think those are some of
Speaker 4: the markets where you're seeing the most dramatic moves as
Speaker 4: a result of the conflict in Irans. So something that
Speaker 4: I think the credit markets have to be watching pretty closely.
Speaker 4: But for now, it was mostly just the market's kind
Speaker 4: of just really quieted down quite a bit as everybody
Speaker 4: kind of assessed what was happening on how long the
Speaker 4: conflict might be going on. So I think we'll seeing
Speaker 4: that maybe next week or the week after as some
Speaker 4: of these big deals come down the pike.
Speaker 3: Stay with us more from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 2: Just up a little technology stocks. Here's here's a note
Speaker 2: from a recent analyst who says investors are now navigating
Speaker 2: an uncertain Iran military conflict in the Middle East, adding
Speaker 2: to the nervousness already in the tech trade with the ghosts,
Speaker 2: with the AI ghost trade and anthropic worries abound. The
Speaker 2: author of that note is Dan Ives, Global head of
Speaker 2: Technology research at web Bush Securities. Here Dan, love to
Speaker 2: get your thoughts, Danzey.
Speaker 3: He's somewhere in the Swan Jersey. I don't know where
Speaker 3: he is right now.
Speaker 2: But what is the AI ghost trade, Dan, And how's
Speaker 2: it impacted tech stocks?
Speaker 6: Yeah? Well, Paul, I mean the AI ghost trade.
Speaker 7: It goes back to like the anthropic worries that's crushed
Speaker 7: software this year. You know, in terms of cybersecurity software
Speaker 7: that these lms are going to replace.
Speaker 6: The software layer.
Speaker 7: And I'd take to somebody it's also been a huge
Speaker 7: overhang of names like Microsoft.
Speaker 6: But we continue to view it. It's a good trade.
Speaker 7: I think last week's anthropic event earlier in the week
Speaker 7: will be the star of a bottoming event. I think
Speaker 7: we've already seen it in software, and I think it's
Speaker 7: a fictional tale, okay, fairy tale. The anthropic is going
Speaker 7: to replace software.
Speaker 5: Yeah, well, I'm sure Dan that you've read a training
Speaker 5: report from a couple of weeks ago that really sparks
Speaker 5: some of these worries or continue to stoke these software worries.
Speaker 5: What'd you take on that scenario? Are you an account
Speaker 5: that it's too much doomsday, especially because they were calling
Speaker 5: for this to or rather it was a hypothetical scenario
Speaker 5: that they were potentially seeing play out as soon as
Speaker 5: twenty twenty eight, But what are your thoughts about that?
Speaker 6: I mean, that's like me saying in two years, I'm
Speaker 6: going to be in pole vault in the Olympics in
Speaker 6: La You could be. I mean, look, I get to
Speaker 6: teach your own.
Speaker 7: But I believe we're in the early d's of an
Speaker 7: AI revolution and what's going to be a secure, a
Speaker 7: tech ball market. Look, I get the jitters, the white
Speaker 7: knuckles that we're going through in terms of the ghost trade,
Speaker 7: worries about cap backs.
Speaker 6: Obviously Iran conflict war which was adding to that.
Speaker 7: But it just speaks to my view like this will
Speaker 7: also pass Like these are going to be opportunities to
Speaker 7: own the core tech winners in a revolution where the
Speaker 7: US for the first time in thirty years is the
Speaker 7: head of China when it comes attack DAN.
Speaker 2: As it relates to risk or potential risk to software,
Speaker 2: is there a way to differentiate ones that are maybe
Speaker 2: more at risk versus less at risk.
Speaker 7: Yeah, well, I think it's a great point. Look, I think,
Speaker 7: first off, the most disconnected of all software cybersecurity, like
Speaker 7: when I look like nothing is replacing the and AI
Speaker 7: just increases the surface area and the miles are going
Speaker 7: to have to be protected CrowdStrike pow out a checkpoint
Speaker 7: Z scale like, I think that's probably one of the
Speaker 7: areas that I think is a huge misnumber. And then
Speaker 7: you look at like the salesforces the service now is
Speaker 7: the Microsoft Like nothing is replaced in that layer and
Speaker 7: that data. I palent you would be a good example
Speaker 7: even when you look like everything that's happened with Anthropic
Speaker 7: and the Pentagon, it's just going to increase the ability
Speaker 7: for palenteer less reliant.
Speaker 6: It's a plug and play in terms of the models
Speaker 6: are there.
Speaker 7: Coming to the UI path Some others that have maybe
Speaker 7: more one trick pony business models. It could be disintermediate. Yeah,
Speaker 7: but you can't paint them all at the same rush.
Speaker 7: And that's why this is the most disconnected selloff that
Speaker 7: I've seen my history on washing go back to the
Speaker 7: late nineties.
Speaker 8: Yeah.
Speaker 5: Well, Dan, I know that you've also written recently about
Speaker 5: how the tech trade and the developments in that space
Speaker 5: connects to the broader macro environment that we're seeing. Obviously,
Speaker 5: the rund conflict driving a lot of price action this week.
Speaker 5: What are your thoughts around that?
Speaker 6: Then?
Speaker 5: How does this new catalyst kind of further up in
Speaker 5: what we're seeing in the tech space at the moment.
Speaker 7: Look, I think right now investors are trying to put
Speaker 7: pieces of the puzzle together, and the puzzle keeps getting
Speaker 7: thrown apart. Right in terms of like other risks and
Speaker 7: other fears, I think at the end of the day,
Speaker 7: you take a step back the anthropic fears, the goos
Speaker 7: trade that is way disconnected in terms of what I
Speaker 7: see is happening software and sproader tech. The cat backst
Speaker 7: hours are going to continue to increase, and even though
Speaker 7: you're going through these jitters, that's not going to stop that.
Speaker 7: That's going to continue to accelerate. I think when you
Speaker 7: look what's happening, you know, with with Iran conflict and
Speaker 7: war and what this is doing to some extent, military
Speaker 7: is going to just have to.
Speaker 6: Rely more and more on technology players.
Speaker 7: And I think that's playing in We've talked about like
Speaker 7: our top ten names, Like there's names like Planet Labs.
Speaker 6: There's names like Voyager, you know.
Speaker 7: Of course, like you know, safety Technius, cybersecurity, names like Polunteer.
Speaker 7: I think tech messures need to navigate this uncertainty but
Speaker 7: own the winners and you cannot get caught on with
Speaker 7: still the long term thesis that were less than a
Speaker 7: third of the way through.
Speaker 2: Dan last question thirty seconds left the both how do
Speaker 2: you put into context the anthropics and the open ayes
Speaker 2: and some of the discussions they've been having with the government,
Speaker 2: particularly the Pentagon about how technology is used.
Speaker 7: Look anthropic, like they touched the third rile essentially right
Speaker 7: now they're trying I didn't starting to backtrack and some
Speaker 7: of the apologies, but you cannot tell the government and
Speaker 7: I think they're needs to be guardrails and I think
Speaker 7: open A and Almonds talked about the others that work
Speaker 7: with the government but I think.
Speaker 6: For them, like it got them into very precarious.
Speaker 7: Situations supply chain risk and others, And it's a cautionary
Speaker 7: tale right in terms of what's happening. Others will gain
Speaker 7: from that opportunity. But look, this is we're going into
Speaker 7: unprecedented territory. But I think anthropic, Like last Friday Night,
Speaker 7: that was a I think that was.
Speaker 6: A black Eyes situation that they're trying to navigate.
Speaker 2: Are we gonna get anthropic and open eye IPO in
Speaker 2: twenty twenty six?
Speaker 7: Look, I think it's one where I'd be surprised if
Speaker 7: that happened twenty six.
Speaker 6: I mean, you're about SpaceX and others. Yeah, but when.
Speaker 7: You get supply chain designation doubt from the Pentagon, which
Speaker 7: essentially is the same as Huawei, Yeah, that's uh, you're
Speaker 7: not digesting that over in a cabernet over the weekend.
Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 2: Skip talk to the real estate business, and we always
Speaker 2: like to talk about the commercial real estate business because
Speaker 2: we're in New York City, just with amazing real estate
Speaker 2: here in town, and we have Morgan Stanley.
Speaker 3: We've talked about this before.
Speaker 2: Lauren Hawkfelder, head of Global real Estate Assets at Morgan Stanley.
Speaker 2: And as long as I've been in this business, since
Speaker 2: the mid eighties, it's been Morgan Stanley really the leaders
Speaker 2: in the investment banking side of real estate and the
Speaker 2: ownership of real estate.
Speaker 3: Lauren, thanks so much for joining us here. Is the
Speaker 3: worst behind us?
Speaker 4: Here?
Speaker 2: Do you think?
Speaker 8: Thank you for having me first of all? And yes,
Speaker 8: I absolutely think the worst is behind us. I think
Speaker 8: we talked the last time we were together that it
Speaker 8: felt like a bottom was forming, and I think today
Speaker 8: there's pretty clear evidence it has formed. Clear evidence on
Speaker 8: the ground when we look at public markets, when we
Speaker 8: look at private capital formation, we're feeling pretty good.
Speaker 5: Yeah, well, Laurien, I think one of the things that
Speaker 5: you cited as part of this improving process is the
Speaker 5: fact that the cost of capital is falling right and
Speaker 5: debt market's also more favorable to real estate borrowers. How
Speaker 5: durable do you think that development will be.
Speaker 8: Yeah, so debt markets are wide open. Real estate lending
Speaker 8: last year was up thirty percent and across categories, So
Speaker 8: even the banks are back, and I think perhaps most interestingly,
Speaker 8: you know, in the beginning it was sort of a
Speaker 8: pretty narrow subset of what lenders would lend to. Today
Speaker 8: they're even lending to office and so you know what
Speaker 8: they say, when the corpse has a pulse, you can
Speaker 8: that you can infer what's going on in the market.
Speaker 2: All right, So, as I understand it, we have a
Speaker 2: housing shortage in this country. Let's say I'm entrepreneurial, I
Speaker 2: want to build a multi family community out.
Speaker 3: There or some type of property. Where am I going
Speaker 3: to get the capital to do that?
Speaker 8: Yeah, So look, real estate lending is absolutely back, or
Speaker 8: multifamily in particular, certainly a bit less on the construction
Speaker 8: lending side, and I think for good reason. So in
Speaker 8: the US in particular, what ends every cycle. It's new supply, right,
Speaker 8: Rents run, values run, and builders build. It is a
Speaker 8: very efficient supply side response, and we saw a lot
Speaker 8: of excess supply this time around. So fortunately we've seen
Speaker 8: a real pullback in that.
Speaker 5: What could happend this development here? The fact that it
Speaker 5: is on the rise. I mean, we have seen a
Speaker 5: few macro stories unfolding this week that are quite major,
Speaker 5: and so is any of that kind of potential halt
Speaker 5: or that could potentially stop the recovery that we've seen
Speaker 5: so far invested.
Speaker 8: Look, the perspective matters, and I look across Morgan Stanley's
Speaker 8: real assets business. We own real estate assets, infrastructure assets, equity, credit, etc.
Speaker 8: And so we have a really global perspective, and I
Speaker 8: would say, of course all of this geopolitical risk has
Speaker 8: massive implications. The difference perhaps is that whereas the broader
Speaker 8: investible universe is at all time highs and facing a
Speaker 8: lot of volatility in the public markets, real estate values
Speaker 8: are still down roughly twenty percent as you look across
Speaker 8: the world, and so you have a really attractive entry point.
Speaker 8: You have as your reference cost to capital going down,
Speaker 8: and you have new construction down. So when you put
Speaker 8: aside all of the noise, I think the relative value
Speaker 8: proposition for real estate is really strong. And when you
Speaker 8: think about the flow through risks created by some of
Speaker 8: this geopolitical these dynamics, it's inflation, it's a risk off appetite,
Speaker 8: and what do we know about real estate. Real estate
Speaker 8: is a pretty effective inflation head and it tends to
Speaker 8: be a lower risk asset class with durable cash flow,
Speaker 8: among other things.
Speaker 2: Well, and you say one of your higher conviction real
Speaker 2: estate strategies is industrial. Does that include this the data
Speaker 2: center thing or is that something different?
Speaker 8: So data centers tend to be adjacent to industrial. We
Speaker 8: do invest in data centers as well, in particular in
Speaker 8: our infrastructure business. But i'd say when you look, actually,
Speaker 8: AI is really impacting both data centers and industrial.
Speaker 2: Yeah.
Speaker 5: Well, one of the things that you're looking at as
Speaker 5: well in terms of high conviction areas of senior housing.
Speaker 5: What's been the trend there?
Speaker 3: Yeah.
Speaker 8: Well, look, in investing, you have knowns and unknowns, And
Speaker 8: one thing we know for sure is that our population
Speaker 8: is getting older and with that, our housing needs change.
Speaker 3: So the eighty.
Speaker 8: Plus population in this country is growing at nearly five
Speaker 8: percent against a backdrop of the overall population dead flat,
Speaker 8: and so we have a lot of growth in that segment.
Speaker 6: And by the.
Speaker 8: Way, they control a lot of the wealth in this country.
Speaker 8: They control more than fifty percent of the wealth, so
Speaker 8: you have a lot of them with a lot of money.
Speaker 8: That is a lot of demand for senior housing, and
Speaker 8: we're seeing across our portfolio a lot of growth.
Speaker 3: All right, before we let you go just office.
Speaker 2: If I want to go buy an office building on
Speaker 2: Third Avenue on forty eighth Street, what should my bid
Speaker 2: b relative to like the last transactions? Right?
Speaker 3: Am I coming in at a fifty percent discount? Thirty percent?
Speaker 3: Or is that thing already cleared?
Speaker 8: Maybe? Well, here's what's so interesting is we debated for years,
Speaker 8: including here with you, the sort of return to office trend, right,
Speaker 8: would work from home just decimate office? Unfortunately, I think
Speaker 8: that debate is over. People are back in the office.
Speaker 8: But now what you're seeing is this new debate of
Speaker 8: the AI office scare right, and we are all the
Speaker 8: jobs going from Third Avenue and forty seventh Street to
Speaker 8: data centers in god knows where. We still think that
Speaker 8: the highest quality office will really prevail.
Speaker 2: So that AA plus story that's still to play. What
Speaker 2: are we doing now for the B and C? Does
Speaker 2: that stuff just clear at a price? Does it get
Speaker 2: torn down?
Speaker 6: Like?
Speaker 5: Yeah, I don't know.
Speaker 8: I think that there is going to be a reasonable
Speaker 8: amount of casion. Okay, so there's demand destruction and their
Speaker 8: higher and better uses of these pieces of clay. That's
Speaker 8: just the reality. Now we need the private and public
Speaker 8: sector to come together to make those economically viable.
Speaker 2: So why is Morgan Stanley so good have been forever
Speaker 2: in real estate? Is it just you've had a commitment
Speaker 2: through cycles that maybe others didn't.
Speaker 8: We have an extraordinary team, and we have the combination
Speaker 8: of a global perspective, right and being part of Morgan Stanley,
Speaker 8: the best economists in the world, the best global perspective,
Speaker 8: but amazing local teams and real estate is fundamentally local law.
Speaker 6: Business.
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