1 00:00:00,080 --> 00:00:03,360 Speaker 1: There's a little place out west called California. They have 2 00:00:03,400 --> 00:00:07,640 Speaker 1: a lot of teachers. They do California and they taught 3 00:00:07,640 --> 00:00:10,440 Speaker 1: My youngest son actually graduated from my California high school. 4 00:00:10,840 --> 00:00:14,800 Speaker 1: And those folks say for retirement, somebody's got to manage 5 00:00:15,040 --> 00:00:18,200 Speaker 1: that money. It's our next guest is that does that? 6 00:00:18,280 --> 00:00:21,560 Speaker 1: Chris Alman, he's the CIO of Cowsters. California State teachers 7 00:00:21,920 --> 00:00:24,319 Speaker 1: retirement system got a little lost between the sixth and 8 00:00:24,320 --> 00:00:27,639 Speaker 1: fifth Florida. We found you, Uh, Chris, that was a 9 00:00:27,680 --> 00:00:31,120 Speaker 1: heck of a November for these markets. What happened there? 10 00:00:31,240 --> 00:00:37,639 Speaker 2: That was the soft landing? The soft landing rates are done? 11 00:00:37,840 --> 00:00:39,559 Speaker 1: You know, do we see peak rates? Do you think 12 00:00:39,560 --> 00:00:40,480 Speaker 1: we saw peak rates? 13 00:00:41,200 --> 00:00:43,720 Speaker 2: Maybe twenty five just for but I know we've hit 14 00:00:43,760 --> 00:00:46,120 Speaker 2: peak grades. Oh yeah, But I don't think they need 15 00:00:46,120 --> 00:00:48,720 Speaker 2: to ease anytime soon because that would imply a recession. 16 00:00:49,400 --> 00:00:52,879 Speaker 2: They'll gradually step down. But the streets ahead of itself, 17 00:00:52,920 --> 00:00:55,600 Speaker 2: and I think November was the signal that was a 18 00:00:55,640 --> 00:00:56,280 Speaker 2: soft landing. 19 00:00:56,920 --> 00:00:59,480 Speaker 3: So how do you view markets heading into year end 20 00:00:59,520 --> 00:01:01,760 Speaker 3: and what's your outlook for twenty twenty four As far 21 00:01:01,800 --> 00:01:04,960 Speaker 3: as when we're talking about that soft landing scenario, Yeah. 22 00:01:04,760 --> 00:01:07,279 Speaker 2: That's the interesting question is I don't think anybody's happy 23 00:01:07,280 --> 00:01:11,240 Speaker 2: about this soft landing and very worried because normally you 24 00:01:11,280 --> 00:01:13,080 Speaker 2: would think that that means the economy is going to 25 00:01:13,120 --> 00:01:15,720 Speaker 2: take off, but you don't get that sense. We had 26 00:01:15,720 --> 00:01:18,280 Speaker 2: a bit of a merger Monday, so maybe the market's 27 00:01:18,319 --> 00:01:21,959 Speaker 2: coming back that way. But cautious and absolutely neutral on 28 00:01:22,000 --> 00:01:24,199 Speaker 2: the asset classes. We're not going to take a bet 29 00:01:24,440 --> 00:01:27,200 Speaker 2: fixed in comes back. There's no bonds or back, so 30 00:01:27,240 --> 00:01:30,640 Speaker 2: you can buy and hold. I wouldn't trade, but uh, 31 00:01:30,680 --> 00:01:33,200 Speaker 2: private credit, there's just not a lot of opportunities. Everything's 32 00:01:33,200 --> 00:01:33,960 Speaker 2: priced to perfection. 33 00:01:34,160 --> 00:01:37,480 Speaker 4: It's interesting because there still is a lot of pessimism 34 00:01:37,560 --> 00:01:41,080 Speaker 4: out there from a sentiment standpoint, and when you square 35 00:01:41,120 --> 00:01:43,119 Speaker 4: that away with a lot of the consumer spinning data 36 00:01:43,120 --> 00:01:45,959 Speaker 4: that's still really strong. What is it that's really pushing 37 00:01:46,000 --> 00:01:48,640 Speaker 4: people who have a call going into next year thinking 38 00:01:48,680 --> 00:01:51,680 Speaker 4: that the economy is going to substantially slow. 39 00:01:51,800 --> 00:01:53,280 Speaker 3: What is going to be the catalyst? 40 00:01:53,840 --> 00:01:56,160 Speaker 2: You know, that's a tough question because I've been predicting 41 00:01:56,160 --> 00:01:59,320 Speaker 2: a recession for sixteen months, so I've been wrong the 42 00:01:59,360 --> 00:01:59,920 Speaker 2: whole time. 43 00:02:00,480 --> 00:02:01,080 Speaker 3: And I think that. 44 00:02:01,000 --> 00:02:03,440 Speaker 4: Because augment are also in that camp, and who have 45 00:02:03,560 --> 00:02:04,600 Speaker 4: not admitted that they were. 46 00:02:05,000 --> 00:02:07,320 Speaker 2: No, No, I'll fess up. I've been wrong a lot 47 00:02:07,360 --> 00:02:11,040 Speaker 2: in my career. It happens, So I don't know what 48 00:02:11,080 --> 00:02:14,120 Speaker 2: would cause that catalyst. I think the lower end consumer 49 00:02:14,200 --> 00:02:15,880 Speaker 2: is running out of money. When you have a weakness 50 00:02:15,960 --> 00:02:19,920 Speaker 2: out of Walmart, out of dollar store, Sprint, Airlines, Frontier 51 00:02:20,000 --> 00:02:23,040 Speaker 2: having a few open seats, maybe they're going to spend 52 00:02:23,040 --> 00:02:25,359 Speaker 2: at Christmas, they're going to overextend, and so maybe we 53 00:02:25,440 --> 00:02:28,440 Speaker 2: have a bit of a debt hangover in January February. 54 00:02:28,800 --> 00:02:31,000 Speaker 2: That's where we feel it. I'm getting nervous because you 55 00:02:31,080 --> 00:02:34,880 Speaker 2: still see like Spotify today, you still see layoff notices 56 00:02:34,960 --> 00:02:39,240 Speaker 2: and reductions. We'll wait to see the employment numbers on Friday. 57 00:02:39,280 --> 00:02:42,720 Speaker 2: They have been surprising us on the upside. So this 58 00:02:42,880 --> 00:02:45,359 Speaker 2: is also called muddling along, and I think in a 59 00:02:45,440 --> 00:02:48,880 Speaker 2: large extent, that's what twenty three was about and twenty 60 00:02:48,919 --> 00:02:49,680 Speaker 2: four will be about. 61 00:02:50,000 --> 00:02:52,079 Speaker 1: All Right, you've been doing this a long time here. 62 00:02:52,200 --> 00:02:54,200 Speaker 1: I'm not commenting on his age. I'm just saying you've 63 00:02:54,200 --> 00:02:57,240 Speaker 1: been around this a few times. When you see a 64 00:02:57,280 --> 00:02:59,720 Speaker 1: stock market up eighteen nineteen percent, what are the smp 65 00:02:59,800 --> 00:03:02,359 Speaker 1: is here? But when you back out six seven names 66 00:03:02,400 --> 00:03:05,440 Speaker 1: and it's basically four or five percent. What does that 67 00:03:05,480 --> 00:03:05,800 Speaker 1: tell you? 68 00:03:06,160 --> 00:03:08,560 Speaker 2: Worries the heck out ofmye. I listen to you guys 69 00:03:08,560 --> 00:03:10,720 Speaker 2: every day, so just a plug, I really do. I 70 00:03:10,800 --> 00:03:14,320 Speaker 2: listen to you every day driving into work California time. 71 00:03:14,400 --> 00:03:16,680 Speaker 2: That's right, you've been around along as I've been around. 72 00:03:18,520 --> 00:03:21,200 Speaker 2: I will just say that they that No, that always 73 00:03:21,280 --> 00:03:23,960 Speaker 2: causes for concern because we've seen that before in some 74 00:03:24,040 --> 00:03:29,280 Speaker 2: technology names. And this is so extreme with that magnificent seven. 75 00:03:29,400 --> 00:03:32,040 Speaker 2: So it's not healthy breadth in the market. I think 76 00:03:32,160 --> 00:03:35,320 Speaker 2: that's another downside. Jess As you said, what would cause 77 00:03:35,320 --> 00:03:38,080 Speaker 2: the market to down turn down? I think it's a 78 00:03:38,160 --> 00:03:41,520 Speaker 2: high inflation number or an up to inflation, a worry 79 00:03:41,560 --> 00:03:45,280 Speaker 2: about employment, and then everybody resettles their expectations. 80 00:03:45,640 --> 00:03:48,240 Speaker 3: Gina Martin Adams have to bring her up, who over 81 00:03:48,280 --> 00:03:51,760 Speaker 3: at Bloomberg Intelligence, who leads the equity side. She and 82 00:03:51,840 --> 00:03:54,480 Speaker 3: her team did research on the concentration when you are looking, 83 00:03:54,560 --> 00:03:58,200 Speaker 3: especially with megacap tac and even when there is heavy concentration, 84 00:03:58,280 --> 00:04:02,640 Speaker 3: there's still time to make money between that concentration and 85 00:04:02,720 --> 00:04:04,800 Speaker 3: when obviously there could be a flip in leadership. But 86 00:04:05,200 --> 00:04:07,720 Speaker 3: from your point of view, I mean, is there still 87 00:04:07,720 --> 00:04:10,080 Speaker 3: time where people will lose out If they're too concerned 88 00:04:10,120 --> 00:04:12,440 Speaker 3: for too long, Well, they end up losing out on 89 00:04:12,920 --> 00:04:17,280 Speaker 3: making money. I'm concerned about concerned for too long. Camp. 90 00:04:17,320 --> 00:04:19,400 Speaker 2: My staff will tell you I've been a permanent bear 91 00:04:19,480 --> 00:04:22,760 Speaker 2: through all of this, and it's not worked. Paul. I 92 00:04:22,800 --> 00:04:27,240 Speaker 2: thought a global pandemic was a bad thing, but I've 93 00:04:27,279 --> 00:04:29,039 Speaker 2: found out now in my career it's a good thing. 94 00:04:29,160 --> 00:04:32,359 Speaker 2: So I have been a bear and that has not 95 00:04:32,440 --> 00:04:35,800 Speaker 2: been the place to be. We're neutral on our equity 96 00:04:35,800 --> 00:04:40,279 Speaker 2: waiting and we have been over this sixteen month bear 97 00:04:40,360 --> 00:04:43,960 Speaker 2: market prediction and recession prediction because it's too expensive to 98 00:04:44,000 --> 00:04:46,520 Speaker 2: be out. So I think you have to be fully invested. 99 00:04:46,600 --> 00:04:49,520 Speaker 2: You have to pay attention to asset allocation again and be balanced. 100 00:04:49,560 --> 00:04:52,040 Speaker 2: You can't just be in the magnificent seven. 101 00:04:52,520 --> 00:04:54,920 Speaker 3: Nobody, really, what are you advising clients. 102 00:04:55,920 --> 00:04:58,240 Speaker 2: I've been telling people pay attention to fixed income again. 103 00:04:58,320 --> 00:05:01,320 Speaker 2: It's back rates are up, it's at a decent place 104 00:05:01,360 --> 00:05:04,640 Speaker 2: to invest. You know, we're not putting new money to 105 00:05:04,680 --> 00:05:07,320 Speaker 2: work in real estate or in private equity at these levels. 106 00:05:07,360 --> 00:05:10,840 Speaker 2: Just to steady investor in private equity, but really, private credit, 107 00:05:11,040 --> 00:05:13,640 Speaker 2: it's hard to find opportunities again because the. 108 00:05:13,560 --> 00:05:16,400 Speaker 3: Frend credit Paul's very private credit. 109 00:05:16,760 --> 00:05:19,960 Speaker 2: Well, you know, variable rate returns. You've got to do 110 00:05:20,040 --> 00:05:23,520 Speaker 2: your homework, You've got to look at your credit and analysis. Absolutely, 111 00:05:24,040 --> 00:05:26,160 Speaker 2: but that's been a very nice place to be because 112 00:05:26,160 --> 00:05:27,800 Speaker 2: the banks are out, so a lot of the big 113 00:05:27,839 --> 00:05:30,599 Speaker 2: pension plans, the Maple lay and Canada are investing in 114 00:05:30,640 --> 00:05:31,080 Speaker 2: that area. 115 00:05:31,240 --> 00:05:34,160 Speaker 1: So what is it for cowsters A typical asset allocation, 116 00:05:34,960 --> 00:05:38,159 Speaker 1: you know, equities, fixed income, alternates, what's typically been your model. 117 00:05:38,760 --> 00:05:40,960 Speaker 2: You know, we've adjusted it over time. We're going back 118 00:05:40,960 --> 00:05:43,159 Speaker 2: into fixed income. Our fixed income got all the way 119 00:05:43,160 --> 00:05:46,279 Speaker 2: down to twelve percent. We're going to oh yeah, because 120 00:05:46,360 --> 00:05:49,000 Speaker 2: there was just no return out of fixed income. So 121 00:05:49,360 --> 00:05:52,360 Speaker 2: you know, equities for a long time was over fifty percent. 122 00:05:52,440 --> 00:05:55,800 Speaker 2: That's coming down a little bit into the forties. We're 123 00:05:55,800 --> 00:05:59,320 Speaker 2: going to go to fifteen in fixed income. But we're 124 00:05:59,360 --> 00:06:03,680 Speaker 2: also heavily invested fifteen in real estate, fifteen in private equity. 125 00:06:04,080 --> 00:06:08,040 Speaker 2: We've got some inflation sensitive assets, and we have another 126 00:06:08,080 --> 00:06:11,960 Speaker 2: category we call risk mitigating strategies, a bucket of things 127 00:06:12,279 --> 00:06:16,400 Speaker 2: publics and privates that diversify the portfolio. So if you 128 00:06:16,440 --> 00:06:19,080 Speaker 2: go back to the big picture, we're eighty twenty and 129 00:06:19,080 --> 00:06:21,760 Speaker 2: we always have been. It's just the subcomponents have changed 130 00:06:21,760 --> 00:06:22,159 Speaker 2: over time. 131 00:06:22,200 --> 00:06:24,680 Speaker 1: How concerned are you about this private credit business, because 132 00:06:24,720 --> 00:06:27,120 Speaker 1: it just feels like we're one or two big blow 133 00:06:27,200 --> 00:06:30,520 Speaker 1: ups away from everybody's eyes going to private credit saying, 134 00:06:30,560 --> 00:06:33,279 Speaker 1: oh my goodness, how much capital do these people have 135 00:06:33,400 --> 00:06:36,080 Speaker 1: over there? I just feel like there's no really anybody 136 00:06:36,320 --> 00:06:38,240 Speaker 1: kind of the wild West. Nobody's really looking at it. 137 00:06:38,520 --> 00:06:41,240 Speaker 2: I hear you. I think that, and you will. If 138 00:06:41,240 --> 00:06:43,520 Speaker 2: you have a recession, you'll have some blow ups and 139 00:06:43,560 --> 00:06:47,480 Speaker 2: credit because people didn't do their homework. Covenant light will 140 00:06:47,480 --> 00:06:50,719 Speaker 2: come back as a real concern paying attention. Credit work 141 00:06:50,720 --> 00:06:54,840 Speaker 2: has always been about the underlying credit, the due diligence 142 00:06:54,880 --> 00:06:57,880 Speaker 2: on the construction of the loan. That all still matters 143 00:06:57,920 --> 00:07:01,400 Speaker 2: and always has. The big banks have stepped away from 144 00:07:01,400 --> 00:07:03,760 Speaker 2: that middle market lending, and that's why we've been able 145 00:07:03,800 --> 00:07:07,040 Speaker 2: to come in. So, yes, you're now seeing this wave 146 00:07:07,120 --> 00:07:09,520 Speaker 2: of capital going in, but it's been going in place 147 00:07:09,560 --> 00:07:12,440 Speaker 2: for about four to five years. It's not brand new. 148 00:07:12,480 --> 00:07:15,880 Speaker 2: It's just using that term as more recent. I think 149 00:07:15,920 --> 00:07:18,600 Speaker 2: it's gonna be an investable area, but it will always 150 00:07:18,640 --> 00:07:21,120 Speaker 2: have its stories. You're gonna have your silicon valley banks 151 00:07:21,400 --> 00:07:23,720 Speaker 2: and your first reserves. That's just natural life. 152 00:07:24,040 --> 00:07:29,520 Speaker 3: So no red flags brewing in private credit from your purview. 153 00:07:29,440 --> 00:07:31,720 Speaker 2: I don't think so, because you know, spreads are tight, 154 00:07:31,880 --> 00:07:33,800 Speaker 2: so that's a concern. But spreads are tight in the 155 00:07:33,800 --> 00:07:36,920 Speaker 2: corporate bond market. But no, I don't think it needs 156 00:07:36,960 --> 00:07:39,920 Speaker 2: added regulation, and I think people I will just constantly 157 00:07:39,960 --> 00:07:43,040 Speaker 2: caution people, do your homework on your credit analysis. Don't 158 00:07:43,080 --> 00:07:46,000 Speaker 2: loan money to people who can't pay it back Ultimately 159 00:07:46,040 --> 00:07:46,880 Speaker 2: they won't. 160 00:07:47,600 --> 00:07:49,720 Speaker 1: California, how's the economy out there? 161 00:07:50,280 --> 00:07:53,600 Speaker 2: You know, very mixed. People don't like an inflations. 162 00:07:53,720 --> 00:07:54,560 Speaker 1: That's a big state. 163 00:07:54,680 --> 00:07:57,600 Speaker 2: Oh yeah, very diverse. Well, and you guys, you know 164 00:07:57,720 --> 00:08:01,560 Speaker 2: San Francisco is in spotlight with APAC not as bad 165 00:08:01,600 --> 00:08:03,520 Speaker 2: as some people made it out. All the big cities 166 00:08:03,560 --> 00:08:08,200 Speaker 2: are having trouble with homelessness. Southern California is doing okay. 167 00:08:09,240 --> 00:08:12,280 Speaker 2: We get hit by higher fuel prices and higher energy prices, 168 00:08:13,080 --> 00:08:15,440 Speaker 2: and I think we're going to be continually impacted by 169 00:08:15,560 --> 00:08:18,080 Speaker 2: climate change and people aren't paying enough attention to that. 170 00:08:18,440 --> 00:08:20,280 Speaker 2: Stronger storms, aberate weather. 171 00:08:21,120 --> 00:08:23,520 Speaker 1: How do you incorporate that? Because we have a like 172 00:08:23,560 --> 00:08:26,280 Speaker 1: everywhere else, we have a big ESG focus at Bloomberg. 173 00:08:26,320 --> 00:08:28,520 Speaker 1: We allocate a lot of resources to it, but it's 174 00:08:28,560 --> 00:08:30,800 Speaker 1: become politicized in the US, and I kind of feel 175 00:08:30,840 --> 00:08:33,800 Speaker 1: like it's losing some of its time in the spotlight, 176 00:08:33,800 --> 00:08:35,680 Speaker 1: at least here in US. I know it's different in Europe. 177 00:08:35,679 --> 00:08:39,000 Speaker 1: How does ESG go into your investment process? 178 00:08:39,320 --> 00:08:43,280 Speaker 2: Absolutely integrained, ingrained into everything we do. It's part of 179 00:08:43,280 --> 00:08:45,880 Speaker 2: our core and our center. Larry Fink said he won't 180 00:08:45,960 --> 00:08:49,359 Speaker 2: use the letters E, S and G. That's become politicized. 181 00:08:49,760 --> 00:08:55,960 Speaker 2: The idea of governance risks, environmental risk, employment, social risks 182 00:08:56,000 --> 00:08:59,320 Speaker 2: still matter and they're just part of long term investment risk. 183 00:08:59,520 --> 00:09:01,640 Speaker 2: And I think we've got to get away from the 184 00:09:01,679 --> 00:09:04,760 Speaker 2: initials and the political side and really focus in on 185 00:09:04,880 --> 00:09:08,640 Speaker 2: long term business risks, which absolutely matter. CEOs pay attention 186 00:09:08,679 --> 00:09:10,479 Speaker 2: to this, they just don't use those initials. 187 00:09:10,520 --> 00:09:12,160 Speaker 1: Just real quick twenty seconds. Do you think there's a 188 00:09:12,200 --> 00:09:16,360 Speaker 1: positive correlation between climate change in your investment process and returns? 189 00:09:16,800 --> 00:09:18,800 Speaker 2: I think there will be over time. I think it 190 00:09:18,880 --> 00:09:21,000 Speaker 2: is the biggest mega trend poll that we're going to 191 00:09:21,040 --> 00:09:23,440 Speaker 2: see in the next ten years. It is absolutely going 192 00:09:23,480 --> 00:09:26,520 Speaker 2: to dominate the investment landsape. We have to go through 193 00:09:26,559 --> 00:09:28,240 Speaker 2: a huge energy transition. 194 00:09:28,480 --> 00:09:30,480 Speaker 1: I would love to be at a table. Maybe I'll 195 00:09:30,480 --> 00:09:33,560 Speaker 1: get this dinner him. His kind of part in Texas 196 00:09:33,600 --> 00:09:36,000 Speaker 1: is kind of part in Florida. 197 00:09:36,200 --> 00:09:40,760 Speaker 2: I talked to Jason Alby, Texas good friends of Florida. 198 00:09:41,120 --> 00:09:42,800 Speaker 2: Let met you at your tea time on front. 199 00:09:42,760 --> 00:09:45,160 Speaker 1: Exactly very good, chrisy allmen, thank you so much for journeys. 200 00:09:45,200 --> 00:09:46,000 Speaker 1: Really appreciate it.