Speaker 1: This is Bloomberg Business Week inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. As it happened this
Speaker 1: Bloomberg Business Week with Carol Messer and Tim Stenebeck on
Speaker 1: Bloomberg Radio.
Speaker 2: Hi, everyone, Welcome to the weekend edition of Bloomberg Business Week.
Speaker 2: Tim is off this week, and just before the FED
Speaker 2: decided to cut rates by fifty basis points, I headed
Speaker 2: out west to Huntington Beach, California for the future Proof Festival.
Speaker 2: It's a gathering of the wealth management ecosystem, so financial advisors,
Speaker 2: wealth management execs, and limited partners talking about trends impacting
Speaker 2: the advisory industry and the future of wealth creation. With
Speaker 2: me at future Proof Barry Ridtholts, host of the Bloomberg
Speaker 2: podcasts Masters in Business and at the Money, and chairman
Speaker 2: and CIO of Ridtholt's Wealth Management, which is a close
Speaker 2: partner with the event. Over the next couple of hours,
Speaker 2: we've got a round above some well known names in
Speaker 2: the financial advice and wealth management spaces, among them Sarah Mallik.
Speaker 2: She is CIO at Nouven, one of the world's largest
Speaker 2: investment managers, plus two members of the JP Morgan Asset
Speaker 2: Managements team, including the chief Global market Strategist, David Kelly,
Speaker 2: who weighs in on the mood of investors. Also, how
Speaker 2: about an academic approach to investing shaped by a handful
Speaker 2: of Nobel laureates. That's what they do at Dimensional Investing.
Speaker 2: We'll hear more, and we've got to check on the
Speaker 2: pulse of private credit with Alona Gornick. She is senior
Speaker 2: investment strategist at Churchill Asset Management. Keep in mind, these
Speaker 2: interviews all happening ahead of that Wednesday FED decision, and
Speaker 2: so with that in mind, we begin this hour with
Speaker 2: a new survey of Bloomberg terminal subscribers showing a Kamala
Speaker 2: Harris victory in November's US presidential election is seen as
Speaker 2: better for treasuries and worse for stocks than a win
Speaker 2: for Donald Trump. So weighing in on all of this
Speaker 2: Priya Misra, portfolio manager of Global fixed Income, Currency and
Speaker 2: Commodities at j P Morgan Asset Management who joined us
Speaker 2: at Future Proof.
Speaker 3: So we are all we're all definitely thinking about the elections.
Speaker 3: It's a big election. It's a very close election. But
Speaker 3: I'll make a couple of points. You know, the presidency
Speaker 3: is clearly extremely important, but Congress is very important to
Speaker 3: get a lot of things done, you know, or not done,
Speaker 3: because the twenty seventeen tax cuts are likely to expire
Speaker 3: if Congress doesn't do anything. So beyond the presidency, we're
Speaker 3: looking at the Senate races, the House races, So the
Speaker 3: entirety of the election is going to be important. Secondly,
Speaker 3: there's a lot of policies that are up in the air,
Speaker 3: right from tariff, immigration, you know, regulation. I talked about taxes, spending.
Speaker 3: I think it may be a little simplistic to say
Speaker 3: that one outcome is necessarily good for the economy or
Speaker 3: good for markets. I think we also have this deficit
Speaker 3: issue which is out there either of them, for either
Speaker 3: of them exactly, whether it's spending or it's taxes or tariffs,
Speaker 3: they all have fiscal implications. I mean, what I'll say is,
Speaker 3: as I manage of portfolio is one our position for
Speaker 3: one way or the other. It really from a risk
Speaker 3: towards standpoint. Given that the election is won by not
Speaker 3: a lot of forty thousand votes or one hundred thousand votes,
Speaker 3: we're talking not about, you know, a very clear dividea.
Speaker 3: So I would say it's best not to position before
Speaker 3: the election, to see the election outcome and then to
Speaker 3: see what, you know, what policies are prioritized. Is it
Speaker 3: going to be taxes first? Is it tariffs first, which
Speaker 3: is going to have a very different implication. There's also
Speaker 3: so I would say when we look at the election
Speaker 3: and the outcome on markets, I look at the impact
Speaker 3: on growth and inflation, I look at the impact on
Speaker 3: the deficit, and then what I really hope is FED independence,
Speaker 3: you know, remains, but that is I don't think we
Speaker 3: should take that for granted. Is there any impact there,
Speaker 3: because that's going to have an impact on treasuries as
Speaker 3: a safe haven, the dollar is a safe have and
Speaker 3: these are all things which require an independence center bank.
Speaker 4: So there's a lot. But I would Saylely.
Speaker 5: Did say for independence, you really are concerned.
Speaker 4: I am a little concerned.
Speaker 3: I mean, we've seen this little bit before, and I
Speaker 3: think now with the fact that the FED was late
Speaker 3: in hiking rates, are they going to be late in
Speaker 3: cutting rates? They're about to embark on a cutting cycle.
Speaker 3: And if we have the President or Congress talk too
Speaker 3: much about what about FED policy. It's not great to
Speaker 3: inspire conference in the US capal markets, and we need
Speaker 3: we need foreign investments. And as the FED cut rates,
Speaker 3: I actually think foreigners will look at US fixed income,
Speaker 3: they look at the US equity market. So I do
Speaker 3: hope that that FED independence remains. I think it's something
Speaker 3: we should keep at the back of our mind as
Speaker 3: we think about market implications of the election.
Speaker 6: So the FED has taken rates high enough that money
Speaker 6: market funds are yielding over five percent. They now stand
Speaker 6: over six trillion dollars. That's a lot of money. What
Speaker 6: happens as the FED begins to cut rates, where does
Speaker 6: that capital go looking for yield?
Speaker 7: Sure?
Speaker 3: And that's the question I would say every asset management person,
Speaker 3: every wealth manager, is salivating at the.
Speaker 5: Thought of that six trillion.
Speaker 3: Historically, that money does move once the FED starts to
Speaker 3: cut rates, starts to move first into fixed income and
Speaker 3: then into risky assets. But here's the catch. We're in
Speaker 3: a soft landing, and soft landing rate cuts are rare,
Speaker 3: So can we apply the Historically the FED is cutting
Speaker 3: in a recession, so the money moves into fixed income
Speaker 3: because well, equities might look a little scary this time
Speaker 3: around if the soft landing is maintained, and that's a
Speaker 3: that's an if. I think there's a case we're in
Speaker 3: a good spot. If the FED was to cut rates
Speaker 3: quickly enough, we might stay in that soft landing.
Speaker 4: We have a chance.
Speaker 3: It's a narrow path, but I think there's a chance
Speaker 3: we stay there. I think that money moves into different
Speaker 3: asset classes, not all of it. There is a reason
Speaker 3: people own cash, liquidity, cash management, but a certain portion
Speaker 3: of it, especially as you realize that there's reinvestment risk.
Speaker 3: That money is not going to stay at five percent.
Speaker 3: As the FED cut rates and forwards are arguing for
Speaker 3: a little below three percent, that cash is going to
Speaker 3: give you three percent. As people start to internalize that,
Speaker 3: and I think the FED cutting starts that, that money then,
Speaker 3: in a soft lining, moves into equities, credit and government bonds.
Speaker 3: If the economy slows down, I think you're going to
Speaker 3: see more into fixed income. So there's a bit of
Speaker 3: a bifurcated outlook for that money depending on how the
Speaker 3: economy evolves from here.
Speaker 6: If the FED is starting on a longer cycle of
Speaker 6: rate cuts, and some people have talked about high three
Speaker 6: low four percent, is where they end up, what do
Speaker 6: you do with your duration? Where do you want to
Speaker 6: have your bonds? What sort of longevity you're looking for
Speaker 6: in the whole things.
Speaker 3: Sure, I think bonds finally give you income. So I
Speaker 3: joke that fixed income finally has income in it, which.
Speaker 5: Is good real income.
Speaker 3: You know, not only are you getting that nominal income,
Speaker 3: but net of inflation, you're actually earning real returns. The
Speaker 3: other thing bonds are giving you is diversification, which you
Speaker 3: talked about twenty two is the opposite of diversification. Because
Speaker 3: risk assets struggled and bond struggled. That's changed. And actually
Speaker 3: you don't have to take my word for it. Look
Speaker 3: at the last couple of months, just the last two
Speaker 3: payroll reports that come I've been a little weaker than before,
Speaker 3: and this fear of a hard landing or a recession
Speaker 3: starts to come up. Risk asset struggle and bonds do
Speaker 3: really well.
Speaker 2: That was Priamsra, portfolio manager of Global fixed Income, Currency
Speaker 2: and Commodities at JP Morgan Asset Management. We got another
Speaker 2: take on the investing environment from Sarah Mallik. She's chief
Speaker 2: investment officer and head of Equities and fixed Income of
Speaker 2: Nuveen Asset Management, one of the world's largest investment managers
Speaker 2: with one point two trillion dollars in assets under management.
Speaker 2: She is also president of Nouveene Equities and Fixed Income
Speaker 2: and a member of the executive management team.
Speaker 4: Let's start with technology.
Speaker 8: I think July tenth was an important day for tech
Speaker 8: stocks acts where in second quarter earnings people decided they
Speaker 8: weren't good enough. So even with Nvidia and there are
Speaker 8: one hundred and twenty two percent revenue growth in this
Speaker 8: second quarter, these socks had gotten crowded.
Speaker 4: And it just wasn't good enough and stock started.
Speaker 8: Sound crazy in your view, Well, it just you know,
Speaker 8: it's tough to say what's really priced in in terms
Speaker 8: of artificial intelligence. And I think what people are really
Speaker 8: waiting for, though, is some signs of return on investment
Speaker 8: or monetization from all these huge AI investments that companies
Speaker 8: have may and in any cycle where we're in this
Speaker 8: ultra growth cycle, you're not just going to see that immediately.
Speaker 8: So a bit of a pause here as we wait
Speaker 8: to see that these stocks are even though they're growing gangbusters,
Speaker 8: still there's there's so much crowding in them and the
Speaker 8: valuations and everything just I think you know, they roll
Speaker 8: over for a bit until we get the next catalyst, which,
Speaker 8: by the way, Jensen's on the road in early October
Speaker 8: that could be a catalyst.
Speaker 9: No more delays from Blackwell.
Speaker 8: And also, you know, the stock is not incredibly expensive,
Speaker 8: so I think that could also be another reason why
Speaker 8: Video does eventually bounce off the bottom and go up.
Speaker 8: But in the meantime, probably training range of one hundred,
Speaker 8: one hundred and forty.
Speaker 6: Okay, you know, we're almost done with September. We're coming
Speaker 6: up on you know, Q three earnings. By every estimate
Speaker 6: that looks like we're going to be at or near
Speaker 6: record earnings. Isn't that what's going to drive stock prices high?
Speaker 8: Well, before we get to those third quarter earnings, let's
Speaker 8: talk about being almost done with September, because it is
Speaker 8: the middle of September. For the past four years in
Speaker 8: a row, the second half of September has seasonally.
Speaker 4: Been the worst two weeks of the year for the
Speaker 4: stock market.
Speaker 10: Earnings have been strong.
Speaker 8: And even if a recession is coming, and we are
Speaker 8: in that camp, but the recession east to camp, as
Speaker 8: Bob was talking about earlier today on my panel, you know,
Speaker 8: the earnings are not showing that yet employment markets are
Speaker 8: still reasonably strong, consumer's showing some signs of cracking. So
Speaker 8: I think we're okay for now, but we do have
Speaker 8: the last two weeks of September to contend with.
Speaker 6: I got to ask a question because every time someone
Speaker 6: says the FED knows something we don't know. The FED
Speaker 6: didn't know inflation was coming they were eight. The FED
Speaker 6: didn't know inflation was peaked. They were eight. What do
Speaker 6: you say, ED didn't know that inflation had bottom. I'm
Speaker 6: saying they're a large, cautious institution that tends to move
Speaker 6: very deliberately, and so the FED knowing what we don't
Speaker 6: know is less of a concern than hey, when are
Speaker 6: these guys going to figure out what we've already figured out.
Speaker 6: I look at it differently than you.
Speaker 8: Well, I agree with you on the FED being cautious.
Speaker 8: Economy is slowing, but it's not on the precipice of
Speaker 8: a recession. But on the second part of you know,
Speaker 8: I guess it has a little bit more to do
Speaker 8: with if the Fed sneezes of the rest of us
Speaker 8: catch a cold. It's not necessarily do they know a
Speaker 8: recession is coming. It's that if they're so concerned about it,
Speaker 8: should the rest of the world be concerned about it?
Speaker 8: You have an SMP that's trading around fifty six hundred.
Speaker 8: Obviously the S and B five hundred is not concerned
Speaker 8: about a recession. It's this rate, So that would be
Speaker 8: I think what would get people unnerved.
Speaker 6: So my favorite question anytime we're talking about the FED
Speaker 6: is what's the terminal rate? Where did they end up
Speaker 6: when everything is said and done.
Speaker 5: I think that's the challenge.
Speaker 8: So, first of all, this year, so intellection, your FED
Speaker 8: tends to do more rather than less, So that's another
Speaker 8: reason I think they start slowly. You might get one
Speaker 8: or two more rate cuts by the end of this year.
Speaker 8: Then it just depends on are we going to get
Speaker 8: that recession that we've now talked about for two years
Speaker 8: straight or not. I think that we are. If we
Speaker 8: get to that, then I think we get multiple rate
Speaker 8: cuts next year.
Speaker 11: So our view is they start.
Speaker 9: Off a little bit slow, maybe more slowly than.
Speaker 8: The market expects, but then they start to accelerate as
Speaker 8: employment markets really crack and the consumer continues to slow,
Speaker 8: and then you know, we get to a level where
Speaker 8: you know, depending on the level of the recession. You know,
Speaker 8: then we'll sort of see where the FED finally ends
Speaker 8: up in terms of its terminal rate.
Speaker 5: Is there a trade that we should be talking about.
Speaker 8: I think we should first of all, Okay, so fixed
Speaker 8: income tends to outperform equities into twelve months after rate cuts,
Speaker 8: so we should be talking about fixed income. Secondarily, I
Speaker 8: think we should be talking about quality overall, if we
Speaker 8: are going into this recession, companies with strong balance sheet,
Speaker 8: companies with the ability to continue to grow their dividends.
Speaker 12: And provide income for investors.
Speaker 8: Also, rate sensitive sectors like reats, which tend to have
Speaker 8: lagged for the two years as a FED raise rates,
Speaker 8: reach should outperform as a FED cuts rates. So looking
Speaker 8: for this is a little different than what we've been
Speaker 8: thinking about last years has been about who can survive
Speaker 8: rate hikes, who can survive ultra high inflation. Now we're
Speaker 8: thinking about who performs well during rate cuts, Which companies
Speaker 8: might will be able to survive some form of a recession.
Speaker 6: So you mentioned some consumers are showing signs of cracking.
Speaker 6: A lot of the bottom half of the economy is
Speaker 6: reliant on credit cards. If we see rate cuts, does
Speaker 6: that start to alleviate some of that pain.
Speaker 9: I think it could.
Speaker 8: Already we're seeing we are seeing consumer delinquencies pick up.
Speaker 8: Second quarter earnings companies were not super optimistic on the
Speaker 8: consumer rate cuts I think.
Speaker 9: Will help, But the question will be will it be enough?
Speaker 9: Is it too little?
Speaker 11: Too late?
Speaker 8: I think given what you already, what we've experienced in
Speaker 8: terms of rate hikes for the last couple of years,
Speaker 8: and the fact that we think the FED starts slowly,
Speaker 8: I'm not sure that a couple of rate cuts is
Speaker 8: enough to get us into the soft landing camp that
Speaker 8: we all hope for.
Speaker 5: All Right, I was going to ask you what's the
Speaker 5: big risk that we have to worry about? Five seconds?
Speaker 5: What's the big risk?
Speaker 8: Probably geopolitics, one that we're not talking about as much anymore,
Speaker 8: and you know, will that bubble up in any of
Speaker 8: the you know, unfortunately where it's happening. I think, you know,
Speaker 8: non US markets are something that people aren't talking that
Speaker 8: much about right now.
Speaker 2: That's Sarah Malak, chief investment officer and head of Equities
Speaker 2: and fixed Income of New Veen Asset Management. You're listening
Speaker 2: to a special edition of Bloomberg Business Week featuring our
Speaker 2: favorite conversations from the future Proof Festival coming up. What
Speaker 2: happens when you focus on academic research, often drawn from
Speaker 2: Nobel laureates, and plow that into investment strategy. We find
Speaker 2: out from a firm that does just that. That's next
Speaker 2: on Bloomberg BusinessWeek.
Speaker 1: Question please see is Bloomberg Business Week with Carol Messer
Speaker 1: and Tim Stenebek Bloomberg Radio.
Speaker 2: I'm Carol Master along with Barry Ripholtz in for Tim
Speaker 2: this week. He of course is the host of the
Speaker 2: Masters in Business broadcast and podcast on Bloomberg. Our coverage
Speaker 2: of the future Proof Festival this past week in Huntington Beach,
Speaker 2: California continues. We were both there with Marlena Lee, global
Speaker 2: head of Investment Solutions at the registered investment advisor Dimensional Investing,
Speaker 2: which has seven hundred and forty billion dollars in firm
Speaker 2: wide assets under management. If you're not familiar with Dimensional, well,
Speaker 2: the firm was founded some forty years ago and historically
Speaker 2: applies academic research to practical investing. We wanted to know
Speaker 2: what research is top.
Speaker 11: Of mind from the very beginning.
Speaker 13: Our founders were actually folks who worked on some of
Speaker 13: the very first index funds and they kind of really
Speaker 13: liked some of the ideas that were coming out of
Speaker 13: the academic research around different drivers of expected return, but
Speaker 13: also just that flexibility has value. So from our very
Speaker 13: beginning we had these ideas that, hey, you want really
Speaker 13: low cost diversified portfolios that an index fund would give you,
Speaker 13: but you do leave money on the table when you
Speaker 13: have the rigidities of index funds. So adding some flexibility
Speaker 13: and using academic research to pursue out performance is a
Speaker 13: winning strategy and we have forty years of track record
Speaker 13: to show it.
Speaker 11: So we have I think five Nobel.
Speaker 13: Laureates that are associated in some way with the firm,
Speaker 13: either through as academic consultants, advisors to the firm, or
Speaker 13: on the fun board, so representing our investors in the fund.
Speaker 13: And they all joined and got involved before they want
Speaker 13: their Nobel laureates, so really deep academic ties. Yes, absolutely right, Barry.
Speaker 13: That our very first fund was focused on this small
Speaker 13: cap premium that was well before smart beta or factory investing.
Speaker 6: Was your original smart beta so well.
Speaker 13: I like to call it pioneers of factor based investing.
Speaker 13: You know, we're absolutely the first value came on the scene.
Speaker 13: Of course, right as Fama and French were writing their
Speaker 13: three factor model paper. These days we're looking at profitability
Speaker 13: adding that to the lineup. Profitability is a fantastic compliment
Speaker 13: for value because those premiums tend not to show up
Speaker 13: at the same times. So we do think that when
Speaker 13: you build a portfolio that focus on both, you can
Speaker 13: help smooth out the ride.
Speaker 2: You are a teaching assistant, right for Eugene Fama, I
Speaker 2: was tell us at how did that shape you? Or
Speaker 2: tell us a little bit about that experience.
Speaker 13: Oh my gosh, it was the best experience. I would
Speaker 13: have done it for free. Yeah, I was a Belle laureate.
Speaker 5: He wasn't at the time, right, but he did become so.
Speaker 13: Before arriving at Dimensional, I was doing my PhD at
Speaker 13: the University of Chicago, studied under Professor Fama, and then
Speaker 13: became his teaching assistant. And when I told him, he
Speaker 13: was also on my dissertation committee. And when I told
Speaker 13: him I didn't really want to do the academic thing,
Speaker 13: he was so kind because my other advisors they tried
Speaker 13: to convince me otherwise. But Fama he connected me to Dimensional,
Speaker 13: And it's such a perfect fit because I got to
Speaker 13: continue focusing on this academic research that I had spent
Speaker 13: five years of my life learning and studying, and instead
Speaker 13: being able to apply it and helping to explain it
Speaker 13: to investors who deeply care because it does help. Understanding
Speaker 13: the research just leads to a better investment dot com.
Speaker 13: I think if you understand that there's a more of robust,
Speaker 13: a better way to pursue higher returns than stock picking
Speaker 13: or trying to time the markets, and just the confidence
Speaker 13: that it gives someone to be a long term discipline investors,
Speaker 13: which I think is really important to be able to
Speaker 13: stick with market downturns and get.
Speaker 2: You an environment where trades move so quickly and react
Speaker 2: to day to day news events, whether it's company stock
Speaker 2: specific or just macro specific, that when you really understand
Speaker 2: the deep research behind something right, you can have a
Speaker 2: lot more conviction behind an investment, whether to buy or sell.
Speaker 8: Yeah.
Speaker 13: Absolutely, I think that we are most investors are investing
Speaker 13: for decades. Yeah, and we should have a decade long
Speaker 13: investment horizon.
Speaker 11: And the research speaks to dec its long of.
Speaker 13: Patterns and data as opposed to like what's going to
Speaker 13: happen tomorrow or what's going to happen in the you know,
Speaker 13: in the next few months.
Speaker 6: You're essentially an academic at heart. What's the most interesting
Speaker 6: new research you're finding that might eventually become some form
Speaker 6: of real life application of theory.
Speaker 13: Well, there's always little improvements that we can make, but
Speaker 13: I would say profitability was the last really big one.
Speaker 13: Some people might think of it as quality, and once
Speaker 13: you capture profitability, a lot of those other variables, they're
Speaker 13: not important.
Speaker 5: For explaining it over revenue growth.
Speaker 2: Well, revenue growth, so we it's just so funny we
Speaker 2: talk so much about the importance of like growing your
Speaker 2: business because profitability great profits you can play around with.
Speaker 13: Well, let's let's back it up and just talk about
Speaker 13: why profitability should help explain returns in the first place.
Speaker 11: When you invest in a company, you.
Speaker 13: Get future cash flows and it's all discounted back to
Speaker 13: a price today.
Speaker 9: That's the stock price.
Speaker 11: That discount rate is the expected return.
Speaker 13: So what we want is we don't get to look
Speaker 13: up the expected return in Bloomberg.
Speaker 11: Instead, we have.
Speaker 13: To infer it from two variables that we can sort
Speaker 13: of see. We definitely get to see price today, but
Speaker 13: we don't get a perfect view.
Speaker 9: Of those expected future cash flows.
Speaker 13: But it turns out today's profitability just levels our pretty
Speaker 13: dang good predictor of those profits several.
Speaker 11: Years out into the future.
Speaker 13: The most the most profitable companies today tend to stay
Speaker 13: the most profitable companies for many years now. Profitability growth
Speaker 13: is another aspect that does help a little bit, but
Speaker 13: the most important one to capture is the level of profits.
Speaker 13: And then the challenge with profitability growth is it does
Speaker 13: introduce a lot of additional turnover. So it's something that
Speaker 13: we're actively partnering with. Robert Novi marks another academic that
Speaker 13: we work very closely with to see if there's there's
Speaker 13: certainly something there in the data, but whether it would
Speaker 13: survive transactions, costs things like that are also very important
Speaker 13: before you add something to a live portfolio, where you
Speaker 13: have to patrading costs and things like that.
Speaker 6: Yeah, so I want to unpack why profitability has persistence
Speaker 6: into the future and what's so different from just profits
Speaker 6: because most people think of pe as their measure, but
Speaker 6: profitability means it's a company that sometimes has a moat
Speaker 6: and a strategic advantage that they're not carrying a lot
Speaker 6: of debt that can eventually eat into future profits. What
Speaker 6: other elements are you looking at that explain why profitability
Speaker 6: tends to persist out into the distance.
Speaker 13: That's a fantastic question, Barry, because actually, across a lot
Speaker 13: of different measures of profitability, you see that companies with
Speaker 13: higher profitability have higher returns than companies with low profitability.
Speaker 13: That's you can look at a very top line number
Speaker 13: like revenues, you can look at net income, so at
Speaker 13: the very bottom it all helps create spreads and returns.
Speaker 13: So that's really important because it gives you a better
Speaker 13: sense that's that's something that's real and the data. You're
Speaker 13: not just cherry picking something that's really like a fragile
Speaker 13: academic result, and so that's comforting. What we end up
Speaker 13: using in our portfolios we call operating profitability because we
Speaker 13: want something that's going to predict future profitability. So you
Speaker 13: don't want things that are super variable your year or
Speaker 13: one one time events. So operating profitability gets to the
Speaker 13: heart of what are kind of a more stable stream
Speaker 13: of revenues minus costs, and that's what we see or
Speaker 13: what we use in the portfolios.
Speaker 9: That is something that is stable enough where.
Speaker 13: We can run a portfolio that focuses on high profitability.
Speaker 13: Names in a portfolio without a lot of turnover.
Speaker 6: Is there an overlap between profitability and momentum or is
Speaker 6: that just something completely different?
Speaker 11: It turns out to be different.
Speaker 13: The thing that's more related to momentum or price momentum,
Speaker 13: which is what we usually think of as momentum, is
Speaker 13: earning's momentum is related.
Speaker 11: So Robert Novemarks.
Speaker 13: Did have a paper a few years back where he
Speaker 13: showed that those two things are quite related.
Speaker 11: We do take account momentum in.
Speaker 9: The portfolios as well.
Speaker 13: But the thing with momentum, just like I was saying
Speaker 13: with profitability growth, is that it does tend to have
Speaker 13: high turnover.
Speaker 9: If you try to pursue it directly.
Speaker 13: So a better way to take advantage of momentum is
Speaker 13: if you're already managing a portfolio. Let's just say that's
Speaker 13: pursuing size, value profitability. You want to trade a little
Speaker 13: bit every day in order to make sure you're focused
Speaker 13: on those premiums, not introducing style drift into the portfolios.
Speaker 13: But you can take into account something like price momentum
Speaker 13: at that point of trade. So I could say, hey,
Speaker 13: here's the stock I want to buy, but it's down momentum,
Speaker 13: Therefore it should continue to underperform for a little while,
Speaker 13: Let's just wait before I buy it, or vice versa.
Speaker 13: If I want to sell something that has up momentum,
Speaker 13: I could just wait a little.
Speaker 6: Just I just want to follow up with that because
Speaker 6: I understand the way we use dimensional funds in our shop.
Speaker 6: I understand the way they operate. But I want you
Speaker 6: to clarify something because I don't want people to misunderstand
Speaker 6: what you say. What you said, It's not that you
Speaker 6: think you have to trade every day for the sake
Speaker 6: of trading. You what I The way I know the
Speaker 6: way you guys have run various funds are you are
Speaker 6: opportunistically looking for your time and place to pick up
Speaker 6: specific things. And it's not like, hey, let's go trade today.
Speaker 6: It's let's see if anything that's on our by list
Speaker 6: that we're looking to accumulate has become a more attractive
Speaker 6: price point.
Speaker 14: Am I? Am I doing that?
Speaker 6: Any justice?
Speaker 12: So great?
Speaker 9: That's absolutely right. When I say we look to trade
Speaker 9: every day.
Speaker 13: The turnover in our portfolios are is very low, So
Speaker 13: a core portfolio might have something in the high single digits.
Speaker 13: A higher, more narrow portfolio like a small value portfolio,
Speaker 13: for example, might be somewhere between twenty to thirty percent turnover.
Speaker 13: Just to translate that a twenty five percent annualized turnover
Speaker 13: or means when I buy a stock, I expect to
Speaker 13: hold it for four years, So it's a long holding period,
Speaker 13: which we think is really important because as you're incurring
Speaker 13: trading costs, you can spread that across the long holding period.
Speaker 11: But the daily rebalancing.
Speaker 9: Also just gives us a lot of flexibility.
Speaker 13: So those are index like levels of turnover, like passive
Speaker 13: indices like level of turnover right, But whereas an index
Speaker 13: might try to drive all of that turnover into defined
Speaker 13: reconstitution dates once to four times per year, we can
Speaker 13: spread it across two hundred and twenty trading days a year,
Speaker 13: which makes it really easy to control training costs.
Speaker 8: More.
Speaker 5: Does the macro play into this?
Speaker 13: You know, I would love to be able to say
Speaker 13: here's when the premiums are going to be higher or lower,
Speaker 13: but the data is just too noisy. So we view,
Speaker 13: at least in these equity portfolios, we want to be
Speaker 13: focused on these premiums day and day out, and macro
Speaker 13: environments don't really change that view. And it goes back
Speaker 13: to that idea for why we see these premiums in
Speaker 13: the first it's low prices combined with good future cash flows,
Speaker 13: and that should always indicate higher expector returns than something
Speaker 13: with a high price and low cash flow. And that's
Speaker 13: true regardless of what the Fed's going to do. Recession, expansion, regardless.
Speaker 5: Of recession, long recession, doesn't matter.
Speaker 13: Those premiums are not correlated with all of these macroeconomic variables.
Speaker 13: And we would love to be able to figure out
Speaker 13: to crack the nut of how to focus on these
Speaker 13: premiums during certain times, but we think it's best to
Speaker 13: do it every day.
Speaker 2: Really interesting, very cool stuff in a nutshell ten seconds,
Speaker 2: the market environment an interesting one, a hard one, a
Speaker 2: complex one.
Speaker 5: How would you describe it?
Speaker 9: It's always complex, it's always changing.
Speaker 5: It is easy.
Speaker 11: But I do think that when you have a long term.
Speaker 5: View right now today, it doesn't matter or what.
Speaker 13: It doesn't matter, like we're going to be positioned on
Speaker 13: these premiums regardless of and that's part of why our
Speaker 13: clients like this because they know what to expect from us.
Speaker 2: That was Marlena Lee, global head of investment Solutions at
Speaker 2: the registered investment advisor Dimensional Investing. Our coverage of the
Speaker 2: future Proof Investival this past week continues still to come,
Speaker 2: the often cited and fast growing one point seven trillion
Speaker 2: dollar private credit market and what cracks, if any are
Speaker 2: showing up. We'll check in with Alona Gornik at Churchill
Speaker 2: Asset Management. Churchill It is the more than fifty billion
Speaker 2: dollar private capital affiliate of Nuvene, providing financing solutions to
Speaker 2: middle market private equity firms and their portfolio companies across
Speaker 2: the capital structure. You're listening to a special edition of
Speaker 2: Bloomberg BusinessWeek. This is Bloomberg.
Speaker 1: This is Bloomberg Business Week and inside from the reporters
Speaker 1: and editors who bring you America's most trusted business magazine
Speaker 1: plus global business, finance and tech news. As it happened
Speaker 1: this Bloomberg Business Week with Kroo Messer and Tim Stenebek
Speaker 1: on Bloomberg.
Speaker 2: I'm Kel Masser, along with Barry Ridholts, of course, the
Speaker 2: host of the Master's in Business broadcast and podcast on Bloomberg.
Speaker 2: Our coverage of the future Proof Festival held this past
Speaker 2: week in California, continuing with another voice well known to
Speaker 2: the Bloomberg community and audience. We are talking about David Kelly,
Speaker 2: who has been JP Morgan Asset Management's chief Global market
Speaker 2: strategists for more than sixteen and a half years. By
Speaker 2: the way, JP Morgan Asset Management is a partner in
Speaker 2: the event. David weighed in on the always important metric
Speaker 2: investor sentiment.
Speaker 15: Mean, it's been a very good year for markets, you know,
Speaker 15: the S and p FO. I found that it's up
Speaker 15: eighteen percent year today. Bondiels are down. The economy is
Speaker 15: doing fine. I mean, it's slowing down, but it was
Speaker 15: supposed to slow down, you know, but unemployment slow, inflations
Speaker 15: come down, so the backdrop is good. I think the
Speaker 15: financial industry is doing very well right now, and I
Speaker 15: just think that there's a little nervousness that the FED
Speaker 15: might somehow scare people.
Speaker 2: Bill Dudley, former head of the New York FED, you know,
Speaker 2: think the Fed should be more aggressive.
Speaker 5: I think that he should have done that. They should
Speaker 5: have done it probably already.
Speaker 16: Well.
Speaker 15: I agree that they should have started cutting earlier. Yes,
Speaker 15: but bringing interest rates down is like lowering a piano
Speaker 15: down from the fourth.
Speaker 14: Floor of a building.
Speaker 15: You need to do it slowly and carefully. And what
Speaker 15: I think the FED misses is the fact that initially
Speaker 15: you cut rates, you hurt the economy.
Speaker 6: Why is that?
Speaker 15: Because you know you talk about long and variable ags.
Speaker 5: What happen?
Speaker 15: There are three very bad things that happen with the
Speaker 15: FED cuts. And first of all, you squeeze the interest
Speaker 15: income of all those American consumers have got money in
Speaker 15: money market funds, particularly older Americans. Second of all, the
Speaker 15: thing is going to immediately happen is on programs like this,
Speaker 15: and all over all over American people say, what are.
Speaker 16: They so scared about it?
Speaker 15: They must see a recesion. They're gonna get all these numbers.
Speaker 15: So if I'm going to hire somebody, maybe I wait
Speaker 15: a while. I was going to buy a car, Maybe
Speaker 15: I should put that off. That's what people want to
Speaker 15: wait and see. The third thing that happens, which is terrible,
Speaker 15: is that you know you're thinking about taking out a mortgage.
Speaker 16: You're gonna take it a mortage day, you want to.
Speaker 10: Wait a while?
Speaker 15: I think I wait a while, right. The problem is
Speaker 15: they don't get this. I wish I could get people
Speaker 15: to understand this. There is a J curve effect. You
Speaker 15: actually hurt the economy before you help. But and that's
Speaker 15: what Frankly Bill Dudley doesn't get that's what all the
Speaker 15: people are calling for. Aggressive cutting. Don't get this economy
Speaker 15: is fine, don't mess with it. Take rates down slowly,
Speaker 15: nothing going.
Speaker 5: On over here, don't take great adjustment.
Speaker 15: Just take it down.
Speaker 16: It's a fine economy.
Speaker 5: When you're working on somebody's back, right, you know, just
Speaker 5: it's you.
Speaker 15: They're like, you know, it's like medieval medicine. I mean,
Speaker 15: you know, the most dangerous thing is when you're told
Speaker 15: the doctor is going to come to cure you, because
Speaker 15: they'll probably kill you.
Speaker 6: I mean, just just amputation. So let's let's take this
Speaker 6: down a couple of months. It feels like they're way
Speaker 6: behind the curve. Where do they end up? Where do
Speaker 6: you see this going by the first quarter of next year.
Speaker 15: Well, there is I mean, I don't think they're way
Speaker 15: behind the curve. I don't think they should have pushed
Speaker 15: rates up high as high as they did. I think
Speaker 15: they should have started earlier. But let's not overestimate the
Speaker 15: importance of all this for the economy. The rates are
Speaker 15: too high because the economy is basically good place, and
Speaker 15: you need to gradually bring rates down to a normal level.
Speaker 15: And I think normal is probably three and a half
Speaker 15: to four percent of the federal funds. So you need
Speaker 15: to gradually do that. They don't need to do this aggressively.
Speaker 15: The the damage they did by pushing rates up too
Speaker 15: high is already been done. But bringing it down to
Speaker 15: faust will actually make the problem worse.
Speaker 5: Recession off the table at this point, David.
Speaker 15: Recession is never off the table. What I say is
Speaker 15: we're not going to get an indulgenous recession. In other words,
Speaker 15: it's not something that's built in the system right now.
Speaker 6: An external shock.
Speaker 15: It's got to be an external shock.
Speaker 16: I mean, I'm looking at.
Speaker 5: So do you rule at external shocks?
Speaker 16: No, of course we're going to know.
Speaker 15: The history of the twenty first century is nothing but
Speaker 15: external shocks. I mean, that's what happens, and eventually that'll
Speaker 15: get us. But it is important to realize that the
Speaker 15: traditional business cycle, that stress is already behind us. The
Speaker 15: point at which high interest rates cause a collapse in investments,
Speaker 15: there has been no collapse in investments spending. There's been
Speaker 15: no collaps in GDP growth either. By the way, you know,
Speaker 15: GDP is up three point one percent a year of
Speaker 15: the year. In the second quarter, we think about two
Speaker 15: percent of the third, so there's really no pritical problem there.
Speaker 2: That's David Kelly, chief Global market Strategist at JP Morgan
Speaker 2: Asset Management. Well, you know, we talk a lot about
Speaker 2: private credit here at Bloomberg. Just last month, Bloomberg News
Speaker 2: out with a story noting how the one point seven
Speaker 2: trillion dollar private credit industry has grown rapidly in the
Speaker 2: past few years as higher rates forced buyout firms to
Speaker 2: look further afield for funding, while traditional lenders pulled back.
Speaker 2: Banks have become more competitive in recent months as they
Speaker 2: try to retain leverage loan market share. In response, credit
Speaker 2: funds started pushing their pricing down, raising concerns about a
Speaker 2: potential race to the bottom. For a view on whether
Speaker 2: that is indeed happening, we turned to Alona Gornik, Managing
Speaker 2: director and senior investment strategist at Churchill Asset Management, which,
Speaker 2: as we like to remind our audience, is the more
Speaker 2: than fifty billion dollar private capital affiliate of Novine, providing
Speaker 2: customized financing solutions to middle market private equity firms and
Speaker 2: their portfolio companies across the capital structure.
Speaker 17: Sure, it's been a really interesting competitive landscape as we
Speaker 17: think about the different segments of the middle market. I
Speaker 17: feel like they are individually, each facing this sort of
Speaker 17: bank pressure in a very different way. I think a
Speaker 17: lot of the activity you're talking about is largely hitting
Speaker 17: that upper middle market segment, which makes a lot of
Speaker 17: sense for corporate barers of the size that banks.
Speaker 12: Really want to attract.
Speaker 17: In the core middle market, where Churchill's focus, we generally
Speaker 17: see a little bit less of that bank interaction or
Speaker 17: bank threat if you will, in that same traditional sense.
Speaker 17: But generally what we are seeing is a little bit
Speaker 17: more competition for the most part, with some upper middle
Speaker 17: market direct lenders somewhat coming down market, given there isn't
Speaker 17: as much activity that they can pursue in that upper
Speaker 17: middle market, or a little bit more of a competitive threat,
Speaker 17: they might want to expand their wings, if you will.
Speaker 17: But there are ways in the core middle market where
Speaker 17: we can really expand and stay disciplined and avoid some
Speaker 17: of that race to the bottom, which can come in
Speaker 17: the form of maybe tighter spreads, looser.
Speaker 12: Covenants to no covenants.
Speaker 17: Coming down in market in terms of the size of
Speaker 17: the business is really where we want to stay away from.
Speaker 17: So private credit has generally been very focused on the
Speaker 17: institutional market. It really makes a lot of sense to
Speaker 17: have committed capital locked up where you can draw it
Speaker 17: down over time as a manager.
Speaker 12: But what'll be seen has.
Speaker 17: Been incredible opportunity set in the wealth market that is
Speaker 17: just tapping the surface right of starting to explore private markets,
Speaker 17: private equity, private credit. But in size the wealth market
Speaker 17: is equal in terms of the institutional market. So think
Speaker 17: about going from zero percent effectively up to five percent.
Speaker 17: When you think about institutions and their exposure private credit,
Speaker 17: they're generally anywhere between five to fifteen percent. I mean
Speaker 17: Kelper's was out I think last week talking about targeting
Speaker 17: five going to eight percent massive institution. Think about the
Speaker 17: wealth channel getting from zero to even five. That's a
Speaker 17: huge untapped opportunity that we would like to meet. But
Speaker 17: to do that we need more accessful products. It has
Speaker 17: been very difficult to think about wealth coming into a
Speaker 17: product that has a five million dollar minimum that is
Speaker 17: nowhere near what a wealth manager or an advisor can touch.
Speaker 17: So we're really focused on this market. This is a
Speaker 17: great conference to do it. There's about two thousand advisors here,
Speaker 17: but when I think about the wealth channel, I think
Speaker 17: there's about three hundred thousand advisors. It's so fragmented. How
Speaker 17: is Churchill going to access this market? So we absolutely
Speaker 17: need education, We need resources, We need distribution folks on
Speaker 17: the ground all over the country, We need specialists to
Speaker 17: help with that education. And we need partners, you know,
Speaker 17: like technology platforms like case and I Capital help us
Speaker 17: create funds and ultimately product development that have lower minimums.
Speaker 17: These non traded, perpetually non traded BDCs that allow you
Speaker 17: to come in for twenty five hundred dollars instead of
Speaker 17: five million and ten ninety nine's much more easy to access,
Speaker 17: really simple.
Speaker 2: Do you think investors are ready for the possibility of
Speaker 2: it having higher risk as an investment or also having
Speaker 2: their money maybe locked up and not as liquid in
Speaker 2: these kinds of deals.
Speaker 17: I'd say the top three concerns or at least hesitation
Speaker 17: points that advisors have when I'm on the road are
Speaker 17: number one, the liquidity risk, Number two default risk in
Speaker 17: the asset class that they're not very familiar with, and
Speaker 17: number three it would generally be accessibility, like how am
Speaker 17: I going to get access to this product and comfortably
Speaker 17: get it if in fact we are in a rate
Speaker 17: declining environment? How will that impact my return picture. With liquidity,
Speaker 17: you have to really educate folks that these are ultimately
Speaker 17: not traded assets.
Speaker 5: Right.
Speaker 17: We're putting it in a wrapper that affords you potentially
Speaker 17: some liquidity and a quarterly redemption, but underneath it, the
Speaker 17: assets aren't really meant to trade. So you really have
Speaker 17: to educate the client and thinking if this is something
Speaker 17: your portfolio that you will not touch for a very
Speaker 17: long time, enjoy current income along the way. That's what
Speaker 17: you want to really think about and diversify the portfolio
Speaker 17: with an enhanced return.
Speaker 12: I think that's what's really resonating.
Speaker 6: What's the typical lockup period?
Speaker 17: So we don't have one in these funds and a
Speaker 17: non traded BDC, you're actually first twelve months, you'll have
Speaker 17: a soft lock at ninety eight, but then after that
Speaker 17: you can really read your entire amount up to a
Speaker 17: cap where we as a manager would cap it at
Speaker 17: five percent of the enemy of the fund.
Speaker 6: For three years, five years, seven years. What sort of
Speaker 6: expectation do you have.
Speaker 17: I think what's great with advisors is really trying to
Speaker 17: help them educate their clients about a very long term
Speaker 17: hold here. I think what's really resonating in terms of
Speaker 17: benefits about private credit are one that income generation. It's
Speaker 17: incredible to think about income generation in terms of a
Speaker 17: predictable path to retirement. So if it's on your way
Speaker 17: or when you're in retirement, that is a multi year
Speaker 17: potential investment addition to your portfolio.
Speaker 10: But if you think.
Speaker 17: About the income component of that, it's very similar to
Speaker 17: fixed income and public credit, but with a really nice
Speaker 17: yield premium to it.
Speaker 12: And you were talking about this earlier.
Speaker 17: Historically, the yield premium for private credit, particularly direct lending
Speaker 17: versus the upper kind of large corporate credit has been
Speaker 17: anywhere between one hundred and fifty to two hundred and
Speaker 17: fifty basis points. That's pretty historically kind of where the
Speaker 17: average has been around two hundred. Right now we're actually
Speaker 17: seeing it widen out to about two fifty two sixty five,
Speaker 17: which has been beca because of that really that.
Speaker 12: Comeback in the bank market.
Speaker 17: When things come back, activity picks up, spreads tighten out,
Speaker 17: but not as much in that middle market.
Speaker 12: So our premium is actually increasing.
Speaker 17: So current income is really going to be really attractive
Speaker 17: for advisors when they think about multi year in terms
Speaker 17: of at three, is it, five, is it seven.
Speaker 12: Is it for the long haul?
Speaker 2: Is there any stress that you guys are seeing. I mean,
Speaker 2: I do think that there was, you know, milk in
Speaker 2: the last couple of years and milk in this year.
Speaker 2: Like the concerns about stresses in the private credit area
Speaker 2: because we feel like that there isn't enough transparency.
Speaker 5: You know, you know the arguments, but I'm just.
Speaker 2: Curious, you know, re renegotiating the terms of deals to
Speaker 2: make sure that you know there's no defaults and that
Speaker 2: you can kind of see the deal through.
Speaker 5: What are you seeing on that front?
Speaker 17: I think that there are pockets of stress or distress
Speaker 17: happening in the market, and I think it's going to
Speaker 17: be vintage specific still, yes, and actually showing it's it's
Speaker 17: it's ugly head a little bit more so when you
Speaker 17: think about the most aggressive deals we're generally done in
Speaker 17: our around the time where we saw massive recovery post
Speaker 17: COVID Alah twenty twenty one, valuations were really high, really
Speaker 17: fantastic software healthcare services businesses were getting bought from double
Speaker 17: digit multiples, and along with that came a pretty heavy
Speaker 17: dose of leverage, pretty easy kind of money, very low
Speaker 17: to no covenants, it's that which we're seeing.
Speaker 12: If you had any.
Speaker 17: Issue before COVID and now in an interest rate environment
Speaker 17: that's been twice as high as it was two years ago,
Speaker 17: you're going to feel a little bit of pain right now.
Speaker 17: So we're starting to see a little bit of that unfold.
Speaker 17: So that stress that those cracks. But I'd say it
Speaker 17: isn't broad based across all of private credit. I'd say
Speaker 17: it's sort of isolated to vintages and then even certain
Speaker 17: parts of the market where you took a little too
Speaker 17: much leverage than the business should be able to handle.
Speaker 2: That's a load of Gornick, Managing Director, senior investment strategist
Speaker 2: at Churchill Acid Management. And that wraps up our first
Speaker 2: hour of the weekend edition of Bloomberg Business Week from
Speaker 2: Bloomberg Radio. Ahead in our next hour, more from the
Speaker 2: future Proof Festival, including a financial advisor oversees some three
Speaker 2: hundred billion dollars in investor assets. Also Joe Anne Bradford,
Speaker 2: president at Domain Money. You know that's the company that
Speaker 2: Ashton Kutcher and Mark Bennioff of Salesforce invested in. Plus
Speaker 2: Betterment CEO Sarah Levy on the next generation of investors
Speaker 2: our coverage from future Proof continues. I'm Carol Masser with
Speaker 2: Barry Rittholtz in for Tim. Stay with us. Today's top
Speaker 2: stories and global business headlines are coming up right now.
Speaker 1: This is Bloomberg Business Week inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine plus
Speaker 1: global business, finance and tech news as it happens. Bloomberg
Speaker 1: Business Week with Carol Messer and Tim Stenebeck on Bloomberg Radio.
Speaker 2: Hi, everyone, welcome to the second hour of the weekend
Speaker 2: edition of Bloomberg Business Week. Tim is off this week.
Speaker 2: As you know, we are highlighting our coverage of the
Speaker 2: future Proof Festival that was held early in the week
Speaker 2: in Huntington Beach, California. The event brings together financial advisors,
Speaker 2: wealth managers, and the company executives all involved in the
Speaker 2: wealth ecosystem to talk about the future of the business
Speaker 2: and the factors impacting investor money. With me at Futureproof.
Speaker 2: Barry Ridholts, host of the Bloomberg podcasts and broadcast Masters
Speaker 2: in Business and at the Money. He's also chairman and
Speaker 2: CIO of Ridtholt's Wealth Management, which is a close partner
Speaker 2: with the future Proof event. Coming up from Futureproof in
Speaker 2: this second hour, Betterman CEO Sarah Levy plus Peter Maluke,
Speaker 2: who has been named as the top independent financial advisor
Speaker 2: in America by Barons for several.
Speaker 5: Years in a row.
Speaker 2: And a residential real estate play by one fintech entrepreneur
Speaker 2: who left London for the sunny West coast of the
Speaker 2: United States. Let's get it going though with joe Ann Bradford.
Speaker 2: She is President and Chief Money Officer at Domain Money,
Speaker 2: which was founded in twenty twenty two by Adam Dell,
Speaker 2: former head of Product at Marcus by Goldman Sachs. The
Speaker 2: financial advisory firm handles everything from real estate and retirement planning,
Speaker 2: to education planning, tax strategy, and more. Joanne's background includes
Speaker 2: executive roles as President of Honey, COO of Sofi, Chief
Speaker 2: revenue Officer at Microsoft, and Head of Partnerships at Pinterest.
Speaker 18: I do two things here. I advise a company called
Speaker 18: wealth dot Com and they announced a thirty million dollars
Speaker 18: Series A led by Google Ventures and City Congratulations, which
Speaker 18: was exciting and it shows you that like, hey, look,
Speaker 18: it's time for some automation and some technology and for
Speaker 18: some AI to be applied to this category because it's
Speaker 18: sort of the last one to break, you know. I
Speaker 18: was in the advertising business, which they said will always
Speaker 18: be sold over Martini's people to people, and this business
Speaker 18: has said the same. And I think we're sort of
Speaker 18: seeing the beginnings of that in this part of the business,
Speaker 18: not you know, like the Visa's MasterCards, plaid stripes, those things,
Speaker 18: but actually in the in the wealth management side of it.
Speaker 18: So it's exciting to see that to be a part
Speaker 18: of it. I think there are sort of two camps here,
Speaker 18: and all the people I've talked to one is, hey, look,
Speaker 18: I'm just going to keep doing what I'm doing and
Speaker 18: I hope that I get to the end of my
Speaker 18: career before the iceberg melts. And then there's other people
Speaker 18: that are like, no, I actually I'm going to try
Speaker 18: to change this. I want to be digital first. I
Speaker 18: want to go after millennials. I want to talk about
Speaker 18: how people have different needs around their money today.
Speaker 5: You know.
Speaker 18: So those are the two sort of camps, and I
Speaker 18: think it sort of happens in every industry, but it's
Speaker 18: clear it's playing out here, Joanne.
Speaker 6: Are those two very different generations? Is it philosophical or
Speaker 6: is it the fifty and older group is like, I'm
Speaker 6: just going to run out the clock, and the thirty
Speaker 6: forty somethings are like, no, it's got to be digital.
Speaker 6: It's got to be technology. That's what our clients want.
Speaker 18: I think it's both the providers and the customers right,
Speaker 18: because you know, I think the last conference we were at
Speaker 18: they said, you know, in the next ten years, a
Speaker 18: third of this industry is going to retire. And then
Speaker 18: you know, I worked at so Far and we built
Speaker 18: a digital first tool right where everybody wants to do
Speaker 18: everything on a device, wants to have it done, and
Speaker 18: then they still do want to know that there's human
Speaker 18: and a person that understands their values on the other
Speaker 18: side of it.
Speaker 7: I think it's happened.
Speaker 18: Everywhere in life except in personal wealth management. So it's
Speaker 18: finally going to show up here, but it's not. We're
Speaker 18: not quite ready for it yet.
Speaker 5: But how does it change?
Speaker 2: How do you see the transformation in terms of it
Speaker 2: becoming more digital or digital, you know, and embracing of technology.
Speaker 18: Yeah, I mean I literally I have a private wealth manager.
Speaker 18: I don't really want to talk to them. I just
Speaker 18: open up my schwab every day and look.
Speaker 6: At it and we'll first stop opening it every day.
Speaker 18: Please every No, I like it once a week.
Speaker 7: It makes me feel good.
Speaker 5: Just had a conversation about long term investing.
Speaker 6: Every day is too much.
Speaker 18: Every day? I look at my AMEX bill every day.
Speaker 18: You want to show me your AMEX bill on the
Speaker 18: credit card?
Speaker 7: Like, what did I buy?
Speaker 5: Well, my husband says, let's look at the AMEX bill.
Speaker 18: I'm like, my husband calls it the BOD and he's
Speaker 18: not talking about Board of directors box of the day.
Speaker 7: So he's like a box of the day showed up
Speaker 7: for you.
Speaker 2: But what does it mean for estate planning and tax
Speaker 2: planning and educational planning?
Speaker 5: Like, how do you guys think about because that's your world.
Speaker 18: Yeah, so when we want to let's talk about domain
Speaker 18: money for a second. So our average customer is thirty
Speaker 18: nine years old, makes two hundred and fifty thousand dollars
Speaker 18: a year, and doesn't really want to put their money
Speaker 18: into aum. They have made some money, they're trying to
Speaker 18: figure it out. They might have some stock, they get
Speaker 18: a bonus, and they just don't know what to do.
Speaker 18: They're overwhelmed. They may have gotten married, may have gotten divorced,
Speaker 18: and they want some professional help. So it's a flat
Speaker 18: fee financial plan. We saw one for twenty five hundred dollars.
Speaker 18: We look at all your expend to, we look at
Speaker 18: all your spending, we analyze it. We use a bunch
Speaker 18: of technologies in AI. We put together a plan with
Speaker 18: a paraplanner, and then we give it back to you
Speaker 18: in a ninety minute discussion, and then we set up
Speaker 18: a discussion after that with all.
Speaker 7: Your to dos and follow ups.
Speaker 18: Well, actually log into Zoom your Schwab account on Zoom
Speaker 18: with you and help you change, like move that there,
Speaker 18: because that's really where people freak out is they don't
Speaker 18: know how to do that. Our NPS score is ten
Speaker 18: out of ten. Its NPS Net Promoter score. It means
Speaker 18: would you recommend it? And we use it again? And
Speaker 18: on a one out of ten that's unheard of, get it,
Speaker 18: we get a ten.
Speaker 6: That's a perfect score.
Speaker 18: It is a perfect score because everybody at the end
Speaker 18: of it is like, Wow, you helped me, you heard me,
Speaker 18: I got value and I know what to do. We
Speaker 18: have a twenty five hundred dollars version of forty five
Speaker 18: hundred dollars version, and that's seventy five hundred dollars version.
Speaker 18: Most people end up taking forty five hundred because they
Speaker 18: want actually a year or one time plenty and then
Speaker 18: they can come back to us for three to five
Speaker 18: hundred dollars an hour to be like, hey, I want
Speaker 18: to check to get is.
Speaker 5: That How long do people stay with you guys?
Speaker 18: Well, I mean, you know, it's they come back a
Speaker 18: little bit every couple of years. But I think it
Speaker 18: should be like the dentist you you know, right, you
Speaker 18: you know, if you're using a sonic toothbrush, maybe you
Speaker 18: don't go every year, right, you know, you know, the
Speaker 18: dental industry came up with you need to go every
Speaker 18: six months.
Speaker 6: That's three times a year. They want cleaning three times
Speaker 6: a year.
Speaker 7: That's really But I.
Speaker 2: Wonder if you can tell there's a trajectory of somebody
Speaker 2: who comes to you when they first get married, and
Speaker 2: then maybe they go through a divorce, they come back,
Speaker 2: and then they get married again, and then they have
Speaker 2: kids and they have to think about college planning, and
Speaker 2: then they have to think about, you know, retirement.
Speaker 5: So do you see that trajectory.
Speaker 7: There's four there's four personas.
Speaker 18: There's the twenty nine year old that's like, hey, I
Speaker 18: need some help here. I have a good paying job
Speaker 18: and I just I like to be prepared. I call
Speaker 18: them like sharp pencil people, you know. They're like, I
Speaker 18: want help. I'm going to hire a trainer, I'm going
Speaker 18: to go to a therapist. I'm going to have the
Speaker 18: best to check check. Then the next group is like
Speaker 18: a thirty nine year old that's like, I didn't do anything,
Speaker 18: and please help me catch up very fast so we
Speaker 18: can do that. The next group is a fifty year
Speaker 18: old who is like, wow, I had something happen in
Speaker 18: my life, health, in my family, divorce, partner, I hate
Speaker 18: my career, I can't do it for the rest of
Speaker 18: my life, and I need to know how do I
Speaker 18: get out of this, and they want a financial plan
Speaker 18: for that. And then there's a group of people that
Speaker 18: need to help family members where they're like, hey, I'm
Speaker 18: now the Sandwich generation. I have to take care of
Speaker 18: a parent and I have to take care of a kid.
Speaker 7: And there's really not anybody that serves that right.
Speaker 18: So real, So like scrip you know, and I've talked,
Speaker 18: I've I listened to every conversation. I know this audience
Speaker 18: from my time at so far, and there's nobody really
Speaker 18: serving that market, right. We don't tell them what products
Speaker 18: you use. We're like, use Fidelity, U Schwab, do whatever.
Speaker 18: In my entire your sort of mission in life is
Speaker 18: I don't care who you use for your financial plan.
Speaker 18: I just want you to actually have one. I don't
Speaker 18: care if you do it yourself. I don't care if
Speaker 18: you sign up for you know, missus dow Jane's and
Speaker 18: take the course.
Speaker 7: A friend of mine the.
Speaker 18: Other day she works at Apple, she has worked there
Speaker 18: for thirteen years, never sold a sheriff's stock. I said,
Speaker 18: how do you manage your money? And she said, oh,
Speaker 18: I'm taking a course on the weekend. Yes, And I said, okay, great.
Speaker 18: And you know, she's mother of three. She's like, I
Speaker 18: got a safe for college. I have to do these things.
Speaker 7: Da da da dah.
Speaker 18: And I'm like, well, I'm glad you have a plan, right,
Speaker 18: And she paid three thousand dollars for that course, and
Speaker 18: I'm like, well, you could have just paid someone to
Speaker 18: do it for you and not spent your sundays and
Speaker 18: a course. But like whatever, you know, I'm just happy
Speaker 18: that people are doing it doing something because you and
Speaker 18: I know the power of compounding the power of starting
Speaker 18: it off and it just really matters. And so at SOFI,
Speaker 18: I saw so many people with student loan debt. I
Speaker 18: you know, met thousands and thousands of people at dinners
Speaker 18: with them once a week, and I know this customer
Speaker 18: and I know most people do not pay attention to
Speaker 18: their finance.
Speaker 6: So, Joanne, you started out by discussing how it's digital first,
Speaker 6: there's technology driven. But what I'm really hearing from you
Speaker 6: with these four different categories of people are that they
Speaker 6: want somebody, a live human to talk to yes and
Speaker 6: hear what their issues are. How do you marry technology
Speaker 6: with live human advice.
Speaker 7: Well, we do it all on Zoom.
Speaker 18: We have an app where they upload all their documents,
Speaker 18: makes it easy for them. We give them the report
Speaker 18: and the action items. Afterwards, we let them schedule all
Speaker 18: their meetings and times via technology. We follow up with them.
Speaker 18: So everything that is possible to take out of the
Speaker 18: process of friction of humans, we do accept that conversation
Speaker 18: and the review of the plan and the input and
Speaker 18: really understanding your values. Some people are like, I want adventures.
Speaker 18: Some people are like I want a career. Some people
Speaker 18: are like, I'd like to get rid of my spouse,
Speaker 18: you know, you know, there's just everybody has something and
Speaker 18: they want someone on the other end of it to
Speaker 18: hear them and to acknowledge.
Speaker 5: What's the most common mistake? Is it just people not
Speaker 5: having a plan.
Speaker 18: It is just not knowing the number, not ever looking
Speaker 18: at the numbers.
Speaker 5: What do you mean just everything?
Speaker 14: Yeah, it's in their head.
Speaker 6: It's sort of juggled, like what's your checking balance? I
Speaker 6: don't know, it's around this.
Speaker 7: I'll give you a perfect example.
Speaker 5: I was talking to a and just got about forty seconds.
Speaker 18: Yeah, a Bloomberg reporter one day and she said, not me,
Speaker 18: I have student loans And I said, how much do
Speaker 18: you owe? What's your interest rate? And when will you
Speaker 18: be done? And she said, I don't know. I just
Speaker 18: know one day it'll be gone. Okay, so I don't
Speaker 18: care who you are.
Speaker 7: You got to look at the number.
Speaker 6: Really interesting me.
Speaker 5: If you don't know what you have, how do you
Speaker 5: figure out?
Speaker 7: No, And most people don't. Yeah, they just don't.
Speaker 5: Really cool stuff, so fun, really cool.
Speaker 6: Stuff, really really cool stuff.
Speaker 5: I'm kind of taking note. It's going to share, folks.
Speaker 6: I told you before. That's where she came on. She's
Speaker 6: a fascinating person with an amazing background, and I love
Speaker 6: how she's combined technology and human advice into one and
Speaker 6: bringing so far in with the student loans on top
Speaker 6: of it.
Speaker 5: It is pretty cool, Like how all the stuff you
Speaker 5: did led up to where you are.
Speaker 18: Honey coupon code, one click coupon code. We sold it
Speaker 18: for four billion dollars. There's always a tech solution there.
Speaker 18: There you go.
Speaker 2: That's Joanne Bradford, President, Chief money Officer at Domain Money.
Speaker 2: You're listening to a special edition of Bloomberg Business Week
Speaker 2: featuring our favorite conversations from the future Proof Festival. Coming
Speaker 2: up Betterman CEO Sarah Levy on the next generation of investors.
Speaker 5: This is Bloomberg.
Speaker 1: This is Bloomberg Business Week inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news as it happens. Bloomberg
Speaker 1: Business Week with Carol Messer and Tim Stenebeck on Bloomberg Radio.
Speaker 2: I'm Carol Masser, back with Barry Ride, host of the
Speaker 2: Masters in Business podcast and broadcast on Bloomberg. Throughout the
Speaker 2: day at the future Proof Festival, there were various panels
Speaker 2: and discussions, including well with Jeff Goodlock of Double Lime.
Speaker 2: He was one of the key speakers, which was timely
Speaker 2: ahead of the FED meeting this past week. For full
Speaker 2: coverage of the fed's half a point cut, be sure
Speaker 2: to check out Bloomberg dot com or head to the
Speaker 2: Bloomberg terminal. Meantime, With the FED in the raid environment
Speaker 2: in mind, we wanted to include this next conversation from
Speaker 2: future Proof. It was with Callie Cox, chief market strategist
Speaker 2: at Ridtholt's Wealth Management. It's the firm that, of course
Speaker 2: bears Barry's name and of which he is chairman and CIO.
Speaker 6: Let's talk a little bit about how you look at
Speaker 6: the world. You're relatively young compared to old timers like me.
Speaker 6: Do you what is the lens that optimistic Cali the
Speaker 6: name of your regular publication, How do you see the world?
Speaker 19: Yeah, well it's in the name Barry I like to
Speaker 19: call myself. I would say I'm an optimist. Of course,
Speaker 19: I have those risks that I see around me, and
Speaker 19: I think it's I think it's naive to be blind
Speaker 19: to risk. But in my letter that you mentioned, Verry Optimistically,
Speaker 19: I try to focus on the context that investors need
Speaker 19: to understand this rapid fire of information that they're reading
Speaker 19: every day, looking back to how markets work, have they
Speaker 19: worked in the past, what really matters for the economy,
Speaker 19: And I bring the data along with me too. I've
Speaker 19: been an analyst for over a decade now, and I
Speaker 19: like to have number former Bloomberger for former Bloomberger as
Speaker 19: well a reporter in the options market, right yeah, yeah,
Speaker 19: which is big on data applied volatilities, So you know,
Speaker 19: I like to hone in on that background, but also
Speaker 19: bring it down to an average investor level, so anybody
Speaker 19: can understand how you know their money works and markets work.
Speaker 2: How do you wead through the information then, I mean,
Speaker 2: there is so much information out there, but then you've
Speaker 2: got to weed through and kind of figure out what
Speaker 2: really matters.
Speaker 10: Well, I'm going to go back to my Bloomberg days.
Speaker 19: Bloomberg taught me how to do size and scope, which
Speaker 19: was if there's a number or if there's a move
Speaker 19: in markets that hasn't happened in a while, it's probably important.
Speaker 19: It's probably news and there's a story behind it. So
Speaker 19: that was the nugget that got me started, and I've
Speaker 19: essentially built my analysis off of that. Of course, I've
Speaker 19: learned the fundamentals of stock the stock market. I've you know,
Speaker 19: learned the fundamentals of you know, the time value of
Speaker 19: money and compounding over time. But it all kind of
Speaker 19: goes back to that. If I see a weird jump
Speaker 19: in prices, if I see a weird move in data,
Speaker 19: then I dig into the story behind it, and I
Speaker 19: really hone into that journalist attitude.
Speaker 6: So let's let's talk about size and scope. You recently
Speaker 6: had a piece that I really liked talking about one
Speaker 6: percent days, and you dug into the data of how
Speaker 6: often we get these half a percent, one percent, three
Speaker 6: percent days. Tell us what your research found.
Speaker 19: Well, first of all, most days in the stock market
Speaker 19: are pretty boring, which is kind of crazy to think about,
Speaker 19: because the news is screaming at you every day about
Speaker 19: how important it is. I believe I think it was
Speaker 19: more than half of days where twenty five basis points
Speaker 19: or excuse me, fifty bases point point.
Speaker 6: Sure, data is fifty three percent of the days is
Speaker 6: fifty half of fifty BIPs of half a percent.
Speaker 9: Or less correct, which is kind of crazy.
Speaker 5: More than half the day is like nothing's really going on.
Speaker 19: Exactly, and stock market math is a little weird, right.
Speaker 19: I mean when I think about percents, I think about sales,
Speaker 19: like going to a clothing store and seeing a sale,
Speaker 19: and if I saw one percent off, a one percent
Speaker 19: drop in prices, I'd be like, Okay, see you tomorrow.
Speaker 19: Give me something a little bit better. But in the
Speaker 19: stock market, that's actually quite.
Speaker 10: A big day. I mean about twenty percent, less than
Speaker 10: twenty percent of.
Speaker 5: Days context or when we see a.
Speaker 19: One percent move, So one percent is important, and being
Speaker 19: able to provide that kind of information can really help
Speaker 19: an average investor understand those headlines that say, oh my god,
Speaker 19: the S and P fell one percent. It's important to
Speaker 19: our clients too, write Barry, because we get more questions,
Speaker 19: more contact with our advisors when they see those headlines
Speaker 19: and those big moves in.
Speaker 6: Markets, and it's our job to anticipate that and tell
Speaker 6: people in advance, hey, this is normal. So let's let's
Speaker 6: stay with this line. How often do we see two
Speaker 6: or three percent moves in.
Speaker 19: The market, So that's less often. I know, we've seen
Speaker 19: a couple of those in the past month or so.
Speaker 19: You know, Barry, you're putting me on the spot, But
Speaker 19: it doesn't happen a lot. Remember twenty percent of days
Speaker 19: you see a one percent move higher or lower, and
Speaker 19: you also have to remember a two percent move higher.
Speaker 19: People care a little bit less about that because we're
Speaker 19: all happy we're making money. So you know, two percent days,
Speaker 19: three percent days, they're a lot more rare. I know
Speaker 19: one point five percent days happened about ten percent of
Speaker 19: the time. And that's the point in my mind where
Speaker 19: I say this is serious, especially if there's a headline
Speaker 19: behind it. So you know, if we say sea days
Speaker 19: like August fifth, you know where the market melted down
Speaker 19: because of the young carry trade imploding.
Speaker 5: August is just a bad month for stocks. Go on vacation.
Speaker 5: I'm all through.
Speaker 6: I though, if they say that about September, yeah, September.
Speaker 5: Supposed to be a bit it's supposed to be.
Speaker 2: But I have to tell you, I mean I often
Speaker 2: go on vacation in August and there's always something going
Speaker 2: on or something bad happening.
Speaker 10: Well, there's not as much volume, so it makes sense
Speaker 10: there's a big gap.
Speaker 6: I always used to hear the expression rookies manning the
Speaker 6: terminals because everybody who was senior would be away for
Speaker 6: the month of August, and they left the kids on
Speaker 6: the trading desk.
Speaker 10: Yeah, you're not wrong. I mean I go to the
Speaker 10: beach in August too.
Speaker 2: I am curious how you think about the markets as
Speaker 2: kind of a more efficient clearing house because there is
Speaker 2: so much information and then if there are worries out there,
Speaker 2: they kind of get it gets out there and we
Speaker 2: will often see kind of a big move in I
Speaker 2: feel like from peak to trough in an individual name
Speaker 2: or even in the markets, and we kind of clear
Speaker 2: out some noise and then we see investors come back in.
Speaker 16: Yeah.
Speaker 10: Well, I think you're absolutely right, Carol.
Speaker 19: I think a lot about that since the drop we
Speaker 19: saw in twenty twenty and one of the fastest bear
Speaker 19: markets ever that special situation. It was a special situation.
Speaker 19: I mean that was a once in a hundred years pandemic.
Speaker 19: But the flow of information is just so fast these
Speaker 19: days that you do see it manifested markets, and what
Speaker 19: that leads to is more emotions, you know, more contexts
Speaker 19: that we need to manage on the advisor side, and
Speaker 19: that's where roles like mine, rolls like berries are quite important.
Speaker 2: That's Kelly Cox, chief Market Strategies at Ridthill's Wealth Management.
Speaker 2: We caught up with her just before that FED decision.
Speaker 2: Now not sure if Cali is a gen Z, maybe
Speaker 2: probably close to it. On that we've talked about gen
Speaker 2: Z shunning the sixty to forty investment portfolio and opting
Speaker 2: for investing in things like sneakers and crypto, or perhaps
Speaker 2: taking on too much risk and not having enough diversification
Speaker 2: despite being better educated on the investing environment. We've also
Speaker 2: talked a lot and often about the great wealth transfer,
Speaker 2: as baby boomers and the silent generation will pass down
Speaker 2: to combined eighty four point four trillion dollars in assets
Speaker 2: to younger generations. Well, our next guest participated in a
Speaker 2: panel at the future Proof Festival. It was about capturing
Speaker 2: the next generation of investors. She's the CEO of the
Speaker 2: independent digital investment advisor Betterment. Here's Sarah Levy.
Speaker 20: So, Betterment Advisor Solutions is really our ria platform that
Speaker 20: helps this next generation of advisors reach the next generation
Speaker 20: of investors, right and so one step removed, if you will,
Speaker 20: And what we offer is really a seamless platform to
Speaker 20: move between investing and cash and retirement, and I think
Speaker 20: the key to this generation. There's a lot that is
Speaker 20: the same with this generation as the prior generation, right,
Speaker 20: a long term outlook. I want to be better off
Speaker 20: down the road than I am today. I want to
Speaker 20: pay low taxes. But what's different is their expectation of technology.
Speaker 5: Right.
Speaker 20: Fundamentally, they have grown up in a world where everything
Speaker 20: from e commerce to streaming is delightful and easy, and
Speaker 20: they expect the same of the platform they use for
Speaker 20: financial advice.
Speaker 5: And I can access on my phone.
Speaker 4: I can access on my phone whenever I want.
Speaker 6: Right, So latest use of technology, friction free. What else
Speaker 6: are they looking for? Are they different than their parents
Speaker 6: in terms of what they want? In terms of their portfolios?
Speaker 20: I don't think they're different. We don't see them being
Speaker 20: different in terms of their portfolios. I mean, I think
Speaker 20: there's a lot of theory around how the sixty forty
Speaker 20: portfolio has evolved, because.
Speaker 2: We've done stories about gen Z kind of shunning the
Speaker 2: sixty forty and more interested in, you know, investing in
Speaker 2: things like sneakers and you know, rather than stock. So
Speaker 2: help us understand, well, can you say that they kind
Speaker 2: of have the same goals?
Speaker 20: Well, I think ultimately their goals are to retire comfortably,
Speaker 20: and when you think about social security and the challenges that,
Speaker 20: you know, they're unlike their predecessors, you know, and the
Speaker 20: prior generations. They're not as comfortable with the role government
Speaker 20: is going to play, and they're fearful about what's going
Speaker 20: to happen in social security. They don't have the luxury
Speaker 20: of a pension right which their predecessors had. And so
Speaker 20: I think the idea that personal investing and a defined
Speaker 20: contribution plan is is their future. Means they have to
Speaker 20: take more control. And I think what's challenging about taking
Speaker 20: more control is that there's tons of information out there,
Speaker 20: and there's disinformation. There's misinformation, right, So how do you
Speaker 20: make sense of it all? I think is the biggest
Speaker 20: struggle for them. And so they're seeking advice, and the
Speaker 20: ones who get great advice from advisors are the ones
Speaker 20: who are more confident that they will be able to
Speaker 20: retire comfortably.
Speaker 6: Huh. Really interesting. So technology, we've talking about AI constantly
Speaker 6: this whole week. You guys have been embracing AI. Explain
Speaker 6: how you use AI to deliver a better product and
Speaker 6: better performance for your clients and their clients.
Speaker 20: So I think of AI really as a continuum from automation.
Speaker 20: We've been delivering fantastic automation for advisors and for retail
Speaker 20: customers for a decade and a half, and AI really
Speaker 20: supercharges what we've been doing right. You know, there's a
Speaker 20: lot of fear around which I think is unnecessary, around
Speaker 20: you know, is AI going to take over the jobs?
Speaker 20: And I think the better way to think about it
Speaker 20: is AI. People who don't understand AI, those are the
Speaker 20: ones who are whose jobs are going to be threatened
Speaker 20: because you need to harness the power of AI to
Speaker 20: basically accelerate and supercharge everything the humans are doing right.
Speaker 20: And so whether that's paraplanning, whether that's marketing, collateral customer service,
Speaker 20: there are all sorts of ways where generative AI can
Speaker 20: basically strengthen the advisor's relationship with their customer by freeing
Speaker 20: up time and money, which is ultimately what they're after.
Speaker 5: I mean, it's all about making things easier, right and seamless, easier, faster, cheaper.
Speaker 2: I am curious too in terms of the younger generation.
Speaker 2: I mean, are they feeling like it is going to
Speaker 2: be largely you talked about four O one k's and
Speaker 2: that it's going to be the financial markets, Because I
Speaker 2: think I have you know, I had a dad who
Speaker 2: had a pension and VA benefits and four oh one
Speaker 2: K and like just multiple things. And there's a generation
Speaker 2: that isn't going to have it. Is it going to
Speaker 2: be all about the markets? And they've got to figure
Speaker 2: this out.
Speaker 20: Well, you're exactly right, and I think that is the
Speaker 20: fear that they have, right, is that I'm not going
Speaker 20: to have the same kind of social safety net that
Speaker 20: my parents had, and so I'm going to need defend
Speaker 20: for myself. And then to the sort of asset class
Speaker 20: question they're wondering also, some of them have a different
Speaker 20: set of beliefs or you know, a social frame that
Speaker 20: they want to put around their investing, and so they
Speaker 20: want to make choices, whether that's at the margin or
Speaker 20: completely about where is that money going ultimately in service
Speaker 20: of a comfortable retirement.
Speaker 6: So you'd mentioned there's not that different goal, but a
Speaker 6: different method to get there. If you're a twenty something
Speaker 6: or a thirty something, does a sixty forty really make sense?
Speaker 6: You have decades before you retire. How do you feel
Speaker 6: about the people who advocate just straight equity, no bonds.
Speaker 20: So we think about diversification and we believe from a
Speaker 20: long term perspective, you want to be diversified domestic, international, equity, bonds,
Speaker 20: some alternatives as a part of that portfolio. And I
Speaker 20: think where you are in your life stage that that
Speaker 20: affects the mix.
Speaker 6: So not necessarily sixty forty seventy thirty eighty twenty.
Speaker 4: Correcting, correct, The mix is about your risk tolerance and
Speaker 4: your timeline.
Speaker 5: Last question, and just got about ten to fifteen seconds.
Speaker 5: Does a younger generation want investment advice or do they
Speaker 5: want to do more on their own or is it
Speaker 5: a combination.
Speaker 4: The smart ones want investment advice, they do so they
Speaker 4: just go.
Speaker 20: Back absolutely, particularly as their lives get more complicated.
Speaker 2: That was betterman CEO Sarah Levy. Bloomberg BusinessWeek from future
Speaker 2: Proof continues featuring some of our favorite conversations from our
Speaker 2: two day coverage of the event out on the West Coast.
Speaker 2: Straight Ahead, Top financial advisor Peter bl Luke on today's
Speaker 2: investing environment and figuring out success.
Speaker 5: This is Bloomberg.
Speaker 1: Please see is Bloomberg Business Week with Carol Messer and
Speaker 1: Tim Stenebeck from Bloomberg Radio.
Speaker 2: He's a lawyer recognized successful financial planner who has been
Speaker 2: given various accolades, including being named as the top independent
Speaker 2: financial advisor to America by Barons for several years in
Speaker 2: a row. He co hosts the Down the Middle podcast.
Speaker 2: He's a New York Times bestselling author, and he was
Speaker 2: fresh off the Ocean stage at the future Proof Festival
Speaker 2: talking about how he's done so much so successfully, sharing
Speaker 2: his blueprint for success. Here's Barry Ridtholts of Master's in
Speaker 2: Business on Bloomberg in my conversation with Peter Bluke, who
Speaker 2: is president and CEO of the registered investment advisor Creative Planning,
Speaker 2: which has, as we said, been recognized as being among
Speaker 2: the top ARIA firms by Barons and the Financial Times.
Speaker 2: Creative Planning and its affiliates have combined assets under management
Speaker 2: or advisement of three hundred billion dollars as of the
Speaker 2: end of last year.
Speaker 16: Things couldn't be better. Nothing to complain about.
Speaker 5: Is it really?
Speaker 8: No?
Speaker 16: Seriously, Yeah, things are fantastic.
Speaker 5: I think a lot of running a firm or just
Speaker 5: money coming in well.
Speaker 16: I think both.
Speaker 21: You can't be running a firm and having it going
Speaker 21: well if money's not coming in. That's ultimately the sign
Speaker 21: that the market likes what you're doing.
Speaker 16: So we're the one thing.
Speaker 21: I look at every day is are people coming to
Speaker 21: creative planning? And that net inflow tells us that.
Speaker 16: We're doing the right things.
Speaker 21: And so we're really looking and saying for that ultra
Speaker 21: fluent client or that highitworth client, are they hiring creative
Speaker 21: planning many many more times than they might have money leave?
Speaker 21: And if that's the case, things are going well.
Speaker 6: And you know, when I first met Peter back in
Speaker 6: twenty eighteen, twenty nineteen, you were still a reasonable sized firm,
Speaker 6: but you were like forty or so billion dollars. Five
Speaker 6: years later nearly.
Speaker 16: A ten x.
Speaker 6: That's a giant gain. How have you been growing the
Speaker 6: business so successfully? What has made creative planning such a
Speaker 6: force in the industry?
Speaker 16: Well, I think we're for the end client.
Speaker 21: We're known for working with that high net worth investor
Speaker 21: that has the million dollars or two million dollars, But
Speaker 21: we also have sixteen hundred clients that have twenty five
Speaker 21: million on average with us, and that group is the
Speaker 21: group growing the fastest.
Speaker 16: But both of these are growing at a rapid clip.
Speaker 21: But I think that they like Number one, you see
Speaker 21: people moving from brokerage firms to independent first, they're also
Speaker 21: moving to larger independent firms where they know there's more services,
Speaker 21: There might be more due diligence, better cybersecurity, all of
Speaker 21: those things that give those high networth clients comfort.
Speaker 16: And they also like the specialization of services we have.
Speaker 21: We look at the investment portfolio through a tax lens
Speaker 21: and an estate planning lens, and the world has gotten
Speaker 21: so complicated that you know, whether someone's got five hundred
Speaker 21: thousand or fifty million, they tend to value that more
Speaker 21: than they did in a decade ago.
Speaker 6: So talk about that. You use the phrase that I'm
Speaker 6: very much enamored with of being the quarterback for their
Speaker 6: entire financial life. What does that mean to the average creating,
Speaker 6: creative planning client.
Speaker 21: It's like a creative planning client knows, Okay, they're not
Speaker 21: just going to take my money and say this is
Speaker 21: my age or this is my risk tolerance and I'm
Speaker 21: just going to go invest.
Speaker 16: In ABC, plug and play. Right that.
Speaker 21: They know that's not happening. So they're coming to us saying, Okay,
Speaker 21: this is a firm that's going to have a certified
Speaker 21: financial planner. Figure out where am I, what am I
Speaker 21: trying to accomplish, what state do I live in, what's
Speaker 21: my tax bracket, what's my legal situation?
Speaker 16: What am I trying to accomplish?
Speaker 21: Am I charitably inclined to or onably the biggest inheritance
Speaker 21: possible for my kids and my short of retirement. We
Speaker 21: go through this pretty long multi meeting exercise to figure out, well,
Speaker 21: where are they, what they want to do, and then
Speaker 21: we construct a portfolio that we think has the highest
Speaker 21: probability of creating the outcome they want, taking into account
Speaker 21: what's already going on in their life. If they own
Speaker 21: a bunch of real estate, they're not gonna get real
Speaker 21: estate in the portfolio. I think that customization, then adding
Speaker 21: the tax sensitivity to it really being able to help
Speaker 21: them have a much better return on an.
Speaker 16: After tax basis.
Speaker 21: I think high net worth people appreciate that approach, and
Speaker 21: I think we're sitting at the center of that.
Speaker 2: You mentioned sexy earlier, But how much of your investors
Speaker 2: are looking for, especially the higher net worth individuals are
Speaker 2: looking for sexier investments, and especially I think about the
Speaker 2: private world, private credit, private equity, private equity, but especially
Speaker 2: private credit.
Speaker 5: Are they pushing for something with something more?
Speaker 16: Yes, So we do at creative planning.
Speaker 21: We're a very big believer in private investment, so we
Speaker 21: do use private equity, private credit, private real estate. Private
Speaker 21: credit is obviously kind of taken the world by storm,
Speaker 21: and I don't know that people fully appreciate the risk
Speaker 21: reward there.
Speaker 16: I'm a big believer in private credit.
Speaker 21: Talked about talking with a lot of explanation to people
Speaker 21: really understand, you know, and private credits.
Speaker 16: It's like saying bonds.
Speaker 21: You know, there's all kinds of bonds and all kinds
Speaker 21: of different profiles, and so really understanding what you're getting
Speaker 21: into is a very big deal. But you know a
Speaker 21: lot of them want those types of investments or hedge funds.
Speaker 21: We were not a big believer in hedge funds, so
Speaker 21: we don't use them. But I would say, is the
Speaker 21: higher networth you go, the more demand there is for
Speaker 21: private credit, private equity.
Speaker 5: I want to ask you, do you think private credit
Speaker 5: should be available to the masses, whether it's even fractional
Speaker 5: ownership of some sort.
Speaker 21: I think if if you have semi liquid I don't
Speaker 21: like that word very much, if you have things that
Speaker 21: people can get out of every six months or every year,
Speaker 21: then I think these sorts of investments should be available
Speaker 21: to people that have less money. I mean this idea
Speaker 21: they have to be a qualified purchaser and a credit investor.
Speaker 21: I think it made sense five or ten, maybe say
Speaker 21: ten years ago when these were tied up for seven
Speaker 21: years and you had a very very sophisticated to understand it.
Speaker 21: What happened in O eight oh nine is the government
Speaker 21: really pushed credit out of the banks and into the
Speaker 21: private markets. They didn't want the destabilization of the banking system.
Speaker 21: Banks that we can't do the due diligence to do this. Now,
Speaker 21: if you look at firms with revenues of twenty five
Speaker 21: million to over a billion, eighty three percent of their
Speaker 21: borrowing is coming from private credit. Basically, these eight thousand
Speaker 21: public companies are now only forty five hundred or so.
Speaker 21: Private companies can stay private longer because of all the
Speaker 21: private credit available. So it's become a very mainstream asset clash.
Speaker 21: You can't freeze out the average American from that.
Speaker 6: And growing really fast. This is probably the fastest attracting cash.
Speaker 6: Maybe Crypto various times in its cycle is a little faster.
Speaker 6: We've seen it certainly explode and then pull back, but
Speaker 6: private credit seems to be growing so rapidly what percentage
Speaker 6: of someone's portfolio should they be thinking about for private credit,
Speaker 6: especially in the mid both the mid level and the
Speaker 6: high net worth level.
Speaker 21: So I always start by telling clients like, there's only
Speaker 21: really only two investments. You're an owner or you're a
Speaker 21: lender with everything right, and so when you're a lender,
Speaker 21: the next question becomes, well, how much of my portfolio should.
Speaker 16: I be a lender?
Speaker 21: Because you really accumulate wealth being an owner, whether it's
Speaker 21: private equity or stocks or a business or real estate,
Speaker 21: and a lender is more preservation or you know what
Speaker 21: your income is going to be, but you can't compete
Speaker 21: with being an owner. It's why the Forbes list is
Speaker 21: full of owners, not lenders.
Speaker 16: Right.
Speaker 21: So but if you look at that private side, then
Speaker 21: you could say, well, what part of the private of
Speaker 21: the lending side, what part of the lending side of
Speaker 21: my portfolio do I not need access to for the
Speaker 21: next couple months or a couple of years. If you've
Speaker 21: got money that's years out, that's the part of the
Speaker 21: lending part of the portfolio that can be private credit.
Speaker 21: And that's how I back into the allocation.
Speaker 2: Do you think it becomes much more ACCESSI I don't
Speaker 2: know in a few years, like what does it take.
Speaker 21: Oh, I think it's happening at lightning speed. I think
Speaker 21: we're at Creative Planning. We're starting to added private equity
Speaker 21: into for when Kate plans will be one of the
Speaker 21: first firms in the country, if.
Speaker 16: Not the first to do that.
Speaker 21: Really, I think private credit is going to come very
Speaker 21: very quickly.
Speaker 17: Thereafter.
Speaker 2: That's Peter Maluke, President and CEO of the RIA Creative Planning.
Speaker 2: Before we wrap up our coverage from future Proof, we
Speaker 2: wanted to share our chat with Christian Phase, founder and
Speaker 2: CEO Phasing Company, which is an investment firm that actively
Speaker 2: builds an invest in technology enabled direct lending businesses across
Speaker 2: the UK, Ireland, Australia and the United States. He is
Speaker 2: also founder of the fintech and property mortgage firm lend Invest,
Speaker 2: which is listed in London. We kicked it all off
Speaker 2: with what he is doing though right now.
Speaker 14: So we we're a private credit fund. We run a
Speaker 14: private credit fund that gives a credited investors the opportunity
Speaker 14: to get exposure to what we think is a really
Speaker 14: interesting asset class, and that's real estate. Bridging fondants against
Speaker 14: residential property.
Speaker 5: Something you know a little bit about.
Speaker 14: I do know a little bit about. Yeah, so ive
Speaker 14: been involved in the sector for almost twenty years. Originally
Speaker 14: was a lawyer. Grew up in Australia, which it might
Speaker 14: be able to tell from.
Speaker 5: My accent, spend time over in London.
Speaker 14: Spent time in London. Yeah, so recovering lawyer as well.
Speaker 14: Barry so a lawyer.
Speaker 6: That's half of the lawyers aren't practicing seven years after graduation.
Speaker 5: Why is it that? Because another podcast, that's.
Speaker 6: A whole nother conversation. So what sort of real estate
Speaker 6: p you guys focus on? Is it just residential or
Speaker 6: is it a variety of sectors.
Speaker 14: No, it's residential, So we're very careful to explain that
Speaker 14: to to investors. Obviously, there's parts of the real estate
Speaker 14: market that are quite troubled and sort of making headlines,
Speaker 14: like commercial and different parts. But we're small, balanced, single
Speaker 14: family residential. Our average loan size is four hundred and
Speaker 14: fifty thousand dollars, so it is kind of really targeting
Speaker 14: what we describe as property entrepreneurs buying the worst house
Speaker 14: on a nice street, replacing the bathrooms, kitchen, and then
Speaker 14: selling for the flip. Right, Yeah, it's fix and flip.
Speaker 14: It is fix and flip finance, and you know, it's
Speaker 14: a big market in the US. It's a big opportunity.
Speaker 14: Like you're saying, I've done a lot of business in
Speaker 14: the UK. There was very active in the fixed and
Speaker 14: flip market. That's now the largest non bank mortgage lender
Speaker 14: in the UK and now being active in the US
Speaker 14: for the last two years. And it's a huge market here.
Speaker 2: I these the investors who are like constantly sending me
Speaker 2: texts and then I want to buy your house?
Speaker 5: Are these the people that you like are dealing no
Speaker 5: all the time?
Speaker 11: Right?
Speaker 6: I guess those on houses I don't even know them.
Speaker 14: I'm like, yes, send me, you definitely want to sell
Speaker 14: that one.
Speaker 5: Here's my price, and it's like you know some crazy
Speaker 5: number you want it? It's yours.
Speaker 14: But now tell me like like we're dealing with We
Speaker 14: described them as property entrepreneurs. I mean, I think that
Speaker 14: it's a bit of a misnomer because a lot of
Speaker 14: people turn on the TV and see the glamorous couple,
Speaker 14: you know, flipping houses, making lots of money, and it
Speaker 14: all looks quite easy. It's not that. In reality, it
Speaker 14: is kind of they're real hustlers. They have to work hard,
Speaker 14: and we target property professionals. They're they're doing this full time,
Speaker 14: and they do it multiple times a year, so five,
Speaker 14: ten times a year, and so they're good customers for us.
Speaker 14: Once we acquire them, we can be their funding partner
Speaker 14: of choice. They keep coming back to us, and so yeah,
Speaker 14: so it's a very entrepreneurial borrow.
Speaker 6: But so my brother has been doing this for years, right,
Speaker 6: sort of a side hustle, but he does four or
Speaker 6: five houses a year, and the conversation has always been, hey,
Speaker 6: I'm funding this primarily with my own money. I asked him,
Speaker 6: have you thought about getting venture funding or any sort
Speaker 6: of credit for this, because you could turn this into
Speaker 6: eight or ten houses a year if you really want to.
Speaker 6: And it's some of these houses are fairly it's not
Speaker 6: always the worst house in a nice block. Sometimes it's
Speaker 6: a very nice house on a really nice block.
Speaker 15: Yeah.
Speaker 14: Yeah, well, I'll have to give you my number you
Speaker 14: can give to your brother for afterwards.
Speaker 5: And we see the deals happening.
Speaker 14: I prooved people that are not trying to sort of
Speaker 14: maximize leverage. So the average LTV across our books less
Speaker 14: than sixty percent. So they're pretty conservative, but with a
Speaker 14: bit of leverage, they can do a couple of projects
Speaker 14: as opposed to being exposed to just a few, you know,
Speaker 14: the lesser number, and there's a lot of tailwinds for
Speaker 14: the asset class. You know, there's just fundamentally not enough
Speaker 14: houses being built here in the US, the same as
Speaker 14: in many parts of the world.
Speaker 2: But that's a whole other story because it's in terms of,
Speaker 2: you know, acquisition of land and you've got to get
Speaker 2: neighborhoods to sign on. It's not just a case of
Speaker 2: here's the money and build.
Speaker 14: Oh sure, it's not just a funding issue. But then
Speaker 14: the other sort of addition to that is that over
Speaker 14: sixty percent of housing stock in the US is over
Speaker 14: forty years old, so you do have a lot of
Speaker 14: aging stock that does need to be referbed. And so
Speaker 14: with not enough housing stock and a lot of older
Speaker 14: stock in the market, you know, referbing is kind of
Speaker 14: is something that's very much needed.
Speaker 2: Something I've got to ask you though, and I'm curious
Speaker 2: about what your brother says, is that you know, there
Speaker 2: are people who want to do projects. There aren't plumbers,
Speaker 2: there aren't electricians, there aren't contractors, and there isn't a
Speaker 2: younger generation. I have two contractors in the family too,
Speaker 2: and but there is not a younger generation who wants
Speaker 2: to do this kind of stuff.
Speaker 14: Yeah, definitely, and I think through COVID that's been a
Speaker 14: difficult time as well, you know, costs or even crease,
Speaker 14: yeah even still, Yeah, it's tough. And also you don't
Speaker 14: have a lot of end borrowers that want to take
Speaker 14: a seven percent mortgage, you know, to buy the end product.
Speaker 14: So it's kind of a time of disruption. I kind
Speaker 14: of see that as a time of opportunity in many respects.
Speaker 14: You know, banks aren't actively in this market. They're just
Speaker 14: not really equipped to provide the quick sort of stream
Speaker 14: on finance that we provide, and so so I think
Speaker 14: it's a great opportunity for investors to get a superior
Speaker 14: risk adjusted return against what is a relatively liquid underlying
Speaker 14: asset class.
Speaker 2: That's Christian Phase, founder and CEO a phasing company. And
Speaker 2: that wraps up the weekend edition oft Bloomberg Business Week
Speaker 2: from Bloomberg Radio, featuring highlights from the future Proof Festival.
Speaker 2: If you want to hear more, just head to our
Speaker 2: podcast feed. Thanks so much to you, Barry Ridholtz for
Speaker 2: filling in for Tim this week, and thank you so
Speaker 2: much for joining us. Be sure to tune into Bloomberg
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Speaker 2: I'm Carol Master, along with Barry Ridholts and for Tim.
Speaker 2: Have a good and safe weekend, everyone, Stay with us
Speaker 2: today's top stories and global business headlines coming up right now.
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