Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanibek. We're here every day bringing
Speaker 1: you the latest news from the world of business and finance,
Speaker 1: plus technology, politics, economics, all furnishing the power of Business
Speaker 1: Week reporters and editors, not to mention our journalists and
Speaker 1: analyst in more than one twenty countries. You can download
Speaker 1: Bloomberg Business Weekend iTunes, SoundCloud, or Bloomberg dot Com. You
Speaker 1: can also listen to our radio show at two pm
Speaker 1: Eastern Time on Bloomberg Radio, or watch us on YouTube
Speaker 1: search Bloomberg Global News. One of the feature conversations at
Speaker 1: the Milken Institute this year was Kathy Wood, founder CEO
Speaker 1: and ce IO of Ark and Vesh Ganner Company. About
Speaker 1: seven years ago, she gave Bloomberg Radio the first interview.
Speaker 1: She gave you the first interview myself in pim Fox.
Speaker 1: Uh and uh. I remember it really well and I
Speaker 1: gotta keep you know. We point out that she beat
Speaker 1: just about every stock picker. She did, beat actually every
Speaker 1: stock picker in she bet on the innovators in DNA development.
Speaker 1: I mean, just an outperformance this year. We know it's
Speaker 1: been tougher one of her names though, uh, you know
Speaker 1: that she's been in We know Tesla. We'll talk about
Speaker 1: that later, but she's also been in and out of
Speaker 1: China in terms of her exposure. There so so much
Speaker 1: to get into, and here's a little excerpt where we
Speaker 1: talked about her investment strategy in China. Our first move
Speaker 1: away from China was when China was you had a
Speaker 1: very strong move and you know, the innovation there was
Speaker 1: being deeply appreciated while ours was not. So that was
Speaker 1: that kind of move um. The second time we moved
Speaker 1: or then then we moved in why we saw the
Speaker 1: reaction to COVID and we got more interested because it
Speaker 1: was the most disciplined country in terms of both monetary
Speaker 1: and fiscal policy, uh during the crisis, and I thought
Speaker 1: that China had the possibility of becoming the Germany and
Speaker 1: Switzerland of the world, you know, in terms of discipline
Speaker 1: monetary um. As soon as jack Ma was banished effect
Speaker 1: of Lee last November, we started pulling back because what
Speaker 1: we're doing, and especially during February through May, where our
Speaker 1: strategy just to give you a sense how volatile it is.
Speaker 1: Our strategy from mid February through mid May. Most people
Speaker 1: wouldn't admit this maybe, but this this is how volatile
Speaker 1: transparency was down thirty peak to trough. So we have
Speaker 1: come back. But during that period, what we do, as
Speaker 1: we always do, we concentrated our portfolio towards our highest
Speaker 1: conviction names. China was moving away because almost every week
Speaker 1: and month there was a new regulatory move, crackdown and
Speaker 1: uh so, so it was easy to do that. It
Speaker 1: was great because I'm always scrambling looking for cash during
Speaker 1: a correction. Okay, where is the confidence lower? Where? Where
Speaker 1: where less buy into our favorites here? Uh now common prosperity?
Speaker 1: So what have we done? No China in our flagship.
Speaker 1: We do own some China in UM. A few of
Speaker 1: our portfolio is the ones focused on autonomous UH technology
Speaker 1: and robotics. But we're very particular, very low margin companies
Speaker 1: because margin is clearly not appreciated by the government anymore.
Speaker 1: Common prosperity UH and UH and very beneficially beneficial to
Speaker 1: Tier three, tier four cities Common prosperity. So j D
Speaker 1: Logistics JD dot Com can do. Does it stay this way?
Speaker 1: Do you think in China for a while? Well, it's
Speaker 1: hard to say. But China is certainly country. When they
Speaker 1: make a decision, it's long longer term, it's longer term
Speaker 1: planning right to President g certainly seems to be on
Speaker 1: this mission, and I think he's very unsettled that the
Speaker 1: three child policy is not working, and so there's a
Speaker 1: big social engineering um. And by the way, this is
Speaker 1: all very forecastable. I mean demographics. You know, they knew
Speaker 1: fifty years ago what was going to happen, right, So
Speaker 1: I think that that's part of it. And uh, you know,
Speaker 1: there there is, there is, There are the haves and
Speaker 1: the have not in China like there are like there
Speaker 1: is around the world. I think China is taking it
Speaker 1: more seriously because there's probably more social unrest than we
Speaker 1: now appreciate. What I don't want to understand is they're
Speaker 1: going after real estate, which is seventy of the consumer
Speaker 1: savings in China, individual in China. And if if yes,
Speaker 1: individual saving, if if the prices are going down, which
Speaker 1: they have been, um, I think that could really hurt
Speaker 1: consumer confidence. I think it already is. And then last weekend,
Speaker 1: the weekend before the government, the national government went after
Speaker 1: the regulators, regulators who had focused on the financial industry
Speaker 1: as well as the financial institutions. And I'm just saying, Wow,
Speaker 1: they're playing with fire the movie. Yeah, and talk about
Speaker 1: a cyclical risk out there, think about that if we
Speaker 1: lose China. At the margin, China has been responsible for
Speaker 1: a tremendous amount of cyclical growth, right and commodity price inflation. Okay,
Speaker 1: And that of course was Cathy Wood, founder CEO, chief
Speaker 1: investment officer of ARC invest. So much to talk about,
Speaker 1: but it is interesting to have watched her investments in
Speaker 1: China specifically because she was in and then quickly got
Speaker 1: out and it was you know, you and I have
Speaker 1: had conversations with her on air too about just her
Speaker 1: back and forth with it. But she's very much watching
Speaker 1: what president she is up to. What I found really
Speaker 1: fascinating about that is the signal that she saw when
Speaker 1: jack Ma was um. I think she used the term
Speaker 1: benched or at least pushed the travel. Did you see
Speaker 1: the story There was a story in the Bloomberg I
Speaker 1: think he traveled for the first time today, maybe out
Speaker 1: of China, and that was to her a signal of
Speaker 1: what was to come in China. And certainly since then
Speaker 1: we've seen the government crackdown on nearly every industry. But
Speaker 1: as she mentioned, she's not out of the country, she's
Speaker 1: thinking about it differently in these different different cities that
Speaker 1: aren't necessarily getting the headlines very specific investments. I did
Speaker 1: think it was fascinating to what she said. She found
Speaker 1: it surprising for President g to be targeting real estate
Speaker 1: because so much of wealth Chinese individuals have bought property
Speaker 1: and that's really a big part of their wealth, so
Speaker 1: that if he is increasing oversight of it and reduces
Speaker 1: the value that will hit into their wealth, and then
Speaker 1: it kind of goes against the common prosperity idea that
Speaker 1: he's on, right, because prosperity in the country is so
Speaker 1: tied to real estate right, much more so, you would say,
Speaker 1: than the U S, where we are much more involved
Speaker 1: individuals in the equity market. This is Bloomberg Business Week
Speaker 1: with Carol Masser and Bloomberg Quick Takes Tim Stinovic on
Speaker 1: Bloomberg Radio. Kathy would, as we've mentioned, founder CEO CEO
Speaker 1: of ARC invest, one of the featured speakers here at
Speaker 1: Milk and she's been a long time investor in Tesla,
Speaker 1: and that's one of the things we talked about. Check
Speaker 1: it out and kind of thought we were behaving like
Speaker 1: a value manager, long term time horizon and looking for
Speaker 1: extreme values. Well, value investors are using price to book
Speaker 1: and dividend yield and that sort of thing. We're using growth,
Speaker 1: you know, we're using spectacular growth rates that no one
Speaker 1: is expecting. And Tesla was our first proof of concept,
Speaker 1: I would say, a very visible one where people are saying,
Speaker 1: what are they talking about? And all we had done
Speaker 1: was used rights law, which is the centerpiece of our
Speaker 1: our research, to try and figure out how quickly cost
Speaker 1: would decline in battery pack systems and therefore how how
Speaker 1: much prices would fall for electric vehicles and how quickly
Speaker 1: the uptake would be. And we saw, you know, on
Speaker 1: Musk magnificent things happening in too. But it wasn't so
Speaker 1: easy to be invested in Tesla early on. For us,
Speaker 1: it was easy because you just believe the story or
Speaker 1: we well, for the most porton call that we made
Speaker 1: initially with Tesla was alright. Tesla's battery technology is unlike
Speaker 1: any other auto manufacturers battery technology. Tesla was riding down
Speaker 1: the cost curve of the consumer electronics industry. So laptop
Speaker 1: cell phones image volumes, right, And when you get a
Speaker 1: scaling like that, costs come down. It's called a learning
Speaker 1: curve in in the tech industry. So, Ellen, you had
Speaker 1: auto manufacturers and auto analysts laughing at him. Ellen is
Speaker 1: building his car on top of cell phone batteries, Isn't
Speaker 1: that funny? And what they didn't believe was that the
Speaker 1: engineering was possible. So there was a It wasn't that,
Speaker 1: they just didn't think it was possible, and he did. Uh.
Speaker 1: And so even today, Uh, these cylindrical batteries that he's
Speaker 1: been using, relative to lithium my own pouch lower cost
Speaker 1: and will remain lower cost for at least three years,
Speaker 1: we think, which means that any other auto manufacturer who
Speaker 1: wants the same performance and the same range at the
Speaker 1: same price, we'll have to lose money on every car sold.
Speaker 1: So it keeps him in a really great position. And
Speaker 1: that's only one of four, barring one entry. Well, but
Speaker 1: that was the first call we had to make, so
Speaker 1: elon Musk and Tesla. So there is a point that
Speaker 1: you would get out. I know there's a story you've
Speaker 1: talked about. You've put a mark on the stock price.
Speaker 1: I think it was three thousand, Yeah, three thousand is
Speaker 1: our base case, not our bull case, but our base case.
Speaker 1: So we've talked Tesla, we've talked a little bit. Tell
Speaker 1: me a bit more about bitcoin and where you see
Speaker 1: I mean, I've never seen anything so debated. Obviously, we're
Speaker 1: seeing more legitimization as we see regulators, certainly in the
Speaker 1: US and around the world moving forward. Today was a
Speaker 1: big day. Um, what is the long term play when
Speaker 1: it comes to something like cryptocurrencies in bitcoin? So bitcoin specifically, Um,
Speaker 1: we we got involved when it was a six billion
Speaker 1: dollar market cap and here's Art Laugher again in in
Speaker 1: My Life and in arts life. Um, it was a
Speaker 1: six billion dollar cap. Fan. Now it's over a trillion,
Speaker 1: which is But we were asking the question this was
Speaker 1: two thousand fifteen. Could bitcoin serve the three rolls of money?
Speaker 1: And we came to the conclusion that it was possible.
Speaker 1: Art Laugher collaborated. He tore our original paper up and
Speaker 1: as we were going through it, he said, this is
Speaker 1: the first this is the rules based monus monetary system
Speaker 1: I've been waiting for since we left the gold exchange standards, right,
Speaker 1: And I said to him, oh, how big could this be?
Speaker 1: And he said, well, how big is the U S
Speaker 1: monetary base? And back then, remember this is six billion
Speaker 1: dollar cap. Back then it was a four and a
Speaker 1: half trillion all our monetary base today where they'd and
Speaker 1: half trillion? All right? That was Kathy Would of course
Speaker 1: of our invest CEO ce IO founder Tesla, which reports
Speaker 1: after the clothes that stocks up just fractually. Bitcoin though
Speaker 1: surging today right here, record high. Uh, And these are
Speaker 1: things that she is very optimistic about. For more of
Speaker 1: that interview, check it out at the Bloomberg and of
Speaker 1: course on Bloomberg dot com. You're listening to Bloomberg Business
Speaker 1: Week with Carol Messer and Bloomberg Quick Takes Tim Stenovich
Speaker 1: on Bloomberg Radio. Well, here at the Milk and Institute
Speaker 1: Global Conference, talking a lot about investors investing to make
Speaker 1: things in a world better. It all falls under the
Speaker 1: umbrella vs G and impact investing for the most part.
Speaker 1: And on part with that is the story online of
Speaker 1: Bloomberg Business Week. Yeah, it's by Mark Champion, and it's
Speaker 1: about retrofitting buildings in the unsexy climate fix that the
Speaker 1: world needs, installation in HVAC. Well, they don't get a
Speaker 1: lot of hype, but making buildings energy efficient on a
Speaker 1: large scale could slash carbon emissions. Joining us now lie
Speaker 1: from the Bloomberg Interactive Broker Studios in New York is
Speaker 1: Joel Webber, editor at Bloomberg Business Week. Joel, when we
Speaker 1: think about climate change, we oftentimes think about industries and
Speaker 1: governments and what they need to do in order to
Speaker 1: curb emissions. What we don't often talk about are the
Speaker 1: buildings that already exist in our built world, or even
Speaker 1: buildings in general. Right, I think it's much more seductive
Speaker 1: to think about, you know, an vehicle transformation, right and
Speaker 1: like switching to electric vehicles, which you know sounds pretty
Speaker 1: good because you get a new car, but you know,
Speaker 1: living in an old building is actually uh potentially um
Speaker 1: worldwide a thing that you know, if we if we
Speaker 1: were able to optimize it, it it might have even larger impacts. Yeah,
Speaker 1: it's really fascinating. It's funny. We caught up with um
Speaker 1: the CEO of Siemens Us, and she's talked about, you know,
Speaker 1: what they are doing in terms of air purification, like
Speaker 1: this is a big part of their business, like coming
Speaker 1: out of COVID and you do think about not sexy, right,
Speaker 1: I mean, we all are focusing so much an alternative
Speaker 1: energy and new methods and so on and so forth,
Speaker 1: but there's some really basic things that we could be
Speaker 1: doing that would make a difference. Job. So so to
Speaker 1: bring it back to um mark champions story UM and
Speaker 1: and also you know, to even step back further, we're
Speaker 1: gonna hear a lot more about climate change in the
Speaker 1: coming days and weeks because of what's gonna happen in
Speaker 1: Glasgow with copy and so this is uh, you know,
Speaker 1: a version of a story that kind of sets this
Speaker 1: stage for that. UM. But what he talks about, UM,
Speaker 1: I thought this was just a fascinating statistic, which is,
Speaker 1: if we think out to fifty of the buildings that
Speaker 1: are currently in existence will still be here in so
Speaker 1: for us to make a transformative, a transformative societal and
Speaker 1: global change in that time, we have to look at
Speaker 1: what's existing and basically deal with it right and and
Speaker 1: buildings are the epitome of that, because like how often
Speaker 1: do you rip open walls and actually reinsulate, which would
Speaker 1: maybe help you use less uh propane to heat your house, which,
Speaker 1: by the way, that's going to have pretty interesting winter
Speaker 1: coming as we kind of suddenly have temperatures cooled down
Speaker 1: I know that, you know, being out in California, you
Speaker 1: probably don't have to think about that so much right now.
Speaker 1: But we're gonna stay here. Actually gonna say, it's been
Speaker 1: a little chilly at night. It's getting brisk here here
Speaker 1: in New York. It definitely feels like it's it's we're
Speaker 1: rounding that corner. So, you know, how do you incentivize homeowners,
Speaker 1: contractors in a bigger way, you know, commercial buildings to
Speaker 1: actually deal with this, uh and incentivize them. And that's
Speaker 1: something that like, you know, we haven't really wrestled with yet.
Speaker 1: So it usually comes down to governments and countries, but
Speaker 1: it doesn't trickle down below that. Well, how do you
Speaker 1: do that? Is it? Is it tax incentives? Is it?
Speaker 1: Is it telling homeowners, Hey, if you replace these windows
Speaker 1: that were installed on your on your in your apartment
Speaker 1: building in the nineteen seventies, you will get a tax
Speaker 1: break because you'll not only save energy, but you will
Speaker 1: be doing good for the climate. That's right in our Yeah,
Speaker 1: and you know a lot of that stuff already exists.
Speaker 1: But now it's like, how do you even sweeten the
Speaker 1: pot more and turn up the volume on it so
Speaker 1: that there's it becomes like a now just such a
Speaker 1: no brainer. And then obviously, like you know, there's gonna
Speaker 1: be new construction too, and so making sure that new
Speaker 1: construction is uh, you know, completely up to stuff is
Speaker 1: going to be part of that part of that game too,
Speaker 1: and some of that has been rather lack still. Yeah,
Speaker 1: I'm just going to it. I know you mentioned some
Speaker 1: of these data points. Construction and operation of buildings accounts
Speaker 1: for thirty of the world's energy use and of all
Speaker 1: carbon emissions, according to the edition of the Global Status
Speaker 1: Report for Buildings and Construction. I mean these are I
Speaker 1: guess what some would say, Joel, you know, low hanging fruit, right,
Speaker 1: and the technologies are there to make the difference that
Speaker 1: will make these buildings, whether it's new or old, more
Speaker 1: energy efficient. Yeah. You know. Another one that Mark talks
Speaker 1: about in the story um takes us to Italy where
Speaker 1: they introduced a credit called the super Bonus, and so
Speaker 1: homeowners get to claim hun of the cost of an
Speaker 1: energy retrofit and gets their taxes over a five year period.
Speaker 1: So it's basically like, you know, you have to dumb
Speaker 1: this down in order to make it work. I think
Speaker 1: it's it's not just you can't. You can't just lean
Speaker 1: on people from an altruistic standpoint. You have to actually
Speaker 1: incentivize them. And I think that ten percent of the
Speaker 1: cost of an energy regimic gets there because it's basically
Speaker 1: like you're you're you're making it so easy that you
Speaker 1: can't not do it. And when you think back to
Speaker 1: that that stand of nine percent in the buildings were
Speaker 1: inhabiting are basically gonna be the same ones that we
Speaker 1: have in That's the kind of thing that could maybe
Speaker 1: move that needle. Well. Homeowners are certainly a big part
Speaker 1: of this discussion, but what's happening here at Melcoln too.
Speaker 1: We're talking a lot about the return to office and
Speaker 1: the way that executives are grappling with getting their employees
Speaker 1: back to offices. So what about when it comes to
Speaker 1: corporations and the buildings that they occupy in order to
Speaker 1: make sure that those are energy efficient. And I will say,
Speaker 1: just based on my own experience in New York, it
Speaker 1: does seem like, uh, commercial buildings are pretty far ahead.
Speaker 1: Again just anecdotally speaking in New York of residential well,
Speaker 1: the scale of it. I think you have capital and
Speaker 1: and you have often publicly traded companies that can come
Speaker 1: in and and retrofit at at scale. And you know,
Speaker 1: often when you're thinking about this on a on a
Speaker 1: private matter, on a on a local level, you know,
Speaker 1: that becomes a much more difficult proposition when you're dealing
Speaker 1: with individual homeowners or apartment buildings or you know, New
Speaker 1: York co ops. But you know, I think I think
Speaker 1: one thing that's going to be interesting is is and
Speaker 1: this I think goes to commercial as well as well
Speaker 1: as residential. Is like as existing buildings have ongoing maintenance
Speaker 1: and thing like having roofs redone that kind of stuff,
Speaker 1: you're gonna you're gonna end up with moments that there
Speaker 1: can be capital and fusion sort of organically and you know,
Speaker 1: people maybe redoing a roof and then financing to get
Speaker 1: solar on top of it, right or battery storages that
Speaker 1: comes online. So you're gonna see organically moments in time
Speaker 1: in the life cycle of of home, you know, residential
Speaker 1: ownership or commercial ownership that incentivizes people to actually think
Speaker 1: about how do you take this to the next level
Speaker 1: and and do that retrofitting that you know you may
Speaker 1: may have put off. Yeah, and Mark Star also gets
Speaker 1: into making sure. Here we are with supplies, chain constraints,
Speaker 1: labor constraints, and one of the individuals he interviewed for
Speaker 1: a story, Uh, he says, how will we make enough
Speaker 1: materials and skills capacity? Because if these things aren't fitted right,
Speaker 1: it will be for nothing. So they've got to make
Speaker 1: sure that the people have the right skills to do
Speaker 1: these things differently. Uh and so yeah, and you know,
Speaker 1: just good luck finding people right. Something. Just almost everybody
Speaker 1: we've talked to here just says we can't get enough
Speaker 1: workers and jobs right. But yet here we see an
Speaker 1: opportunity with you know, potentially you know, high earning jobs
Speaker 1: in a in a field that seems like I might
Speaker 1: have growth potential. So you start connecting these things and
Speaker 1: I think a lot of businesses we'll see the opportunity
Speaker 1: that might lie in front of them. Here. Check out
Speaker 1: marks story. It's on the Bloomberg and at Bloomberg dot com,
Speaker 1: Slash business Week. Joel Webber, editor at Bloomberg Business Week
Speaker 1: from the Bloomberg Interactor Broker Studios in New York. Joe Webber,
Speaker 1: thank you so much. This is Bloomber Business Week and
Speaker 1: this is Bloomberg Radio. You're listening to Bloomberg Business Week
Speaker 1: with Carol Masser and Bloomberg Quick Takes Tim Stinovic on
Speaker 1: Bloomberg Radio. So yes, day three at the Milk and
Speaker 1: Institute Global Conference, talking with a lot of investors when
Speaker 1: it comes to various aspects of the financial market. Yeah,
Speaker 1: one of those investors we spoke to earlier this week
Speaker 1: was Mark Jenkins, head of Global Credit at Carlisle. We
Speaker 1: spoke to him just a couple of days ago, and
Speaker 1: this excerpt of our interview. Jenkins talked all about his
Speaker 1: outlook for credit markets and also how yes G factors
Speaker 1: in check it out think what we've seen in the markets,
Speaker 1: and and by the way, like we cover over credits
Speaker 1: in our clos and you know, hundreds of credits in
Speaker 1: our private books, so we have a good insight into
Speaker 1: what's going on right now. You know, we still see
Speaker 1: relatively strong revenue growth and we've seen very good um
Speaker 1: you know, cost containment. You know, absently inflationary pressures we're
Speaker 1: seeing right now. So as the numbers come in, we're
Speaker 1: sure that's going to change. But generally the health of
Speaker 1: our portfolios is quite good. UM. So you know, despite
Speaker 1: everything you see, everything you read and the volatility in
Speaker 1: the market, I would say in the private markets the
Speaker 1: companies that we're dealing with, you know, there's some wage
Speaker 1: and inflationary pressure for sure, but generally speaking, there in
Speaker 1: very good shake. Well, and let me just follow up,
Speaker 1: because I think in the environment we've been, you've had
Speaker 1: interest rate starved investors, right, You've had an economy that's
Speaker 1: been reopening, and credits are cheap that pretty much any
Speaker 1: company that wanted to could tack the credit markets. So
Speaker 1: what happens as we reopen we move along, if those
Speaker 1: underlying premises that were pretty optimistic don't pan out, what
Speaker 1: happens that d of mind. Well, here's a good thing
Speaker 1: as a credit investor which I always like to point out,
Speaker 1: which is what's happened in the past eighteen to twenty months,
Speaker 1: is that the actual equity cushion that we have in
Speaker 1: a lot of our investments is actually wider now or thicker,
Speaker 1: if you will, than pre pandemic. So from a from
Speaker 1: a marginal safety perspective, when you think about that, yes,
Speaker 1: we worry about where the economy is going, to the
Speaker 1: macro all those effects, but we really look to what's
Speaker 1: that margin of safety today? And even if things go
Speaker 1: down dramatically, how much of a margin's safety do we
Speaker 1: still have? So when you look at debt to even daw,
Speaker 1: it's quite high from historic level people talk to But
Speaker 1: if you actually look at Eva Duck coverage ratios, they're
Speaker 1: actually high from a historical perspective on a broad aggregate basis. Right,
Speaker 1: it depends where you go, obviously, So all those things
Speaker 1: together it makes us feel very comfortable with the environment
Speaker 1: we're in. But we have to be more thoughtful with
Speaker 1: respect to the under rights that we did. Carol brought
Speaker 1: up sectors. You gotta ask what sectors you think are
Speaker 1: particularly exciting to you right now? Well, we like, you know,
Speaker 1: I think we're slightly different than on the equity side,
Speaker 1: where we can drive a lot of value creations. So
Speaker 1: what we look at our companies that allow that a
Speaker 1: can be part of that um part of the value
Speaker 1: chain with respect to cast agains for instance. Right, So
Speaker 1: do you do you have a product or a service
Speaker 1: that allows you to, you know, bring the cost of
Speaker 1: what you offer down. That's that's point one. We're not
Speaker 1: necessarily looking at companies that have this unbelievable top line growth.
Speaker 1: But if it hasn't great that's good for us. And
Speaker 1: then the difference between I think the investing we look
Speaker 1: at is we're cash flow investors, so we're looking at
Speaker 1: what are those near term cash flows because you know,
Speaker 1: the duration of our investments are relatively short. So you know,
Speaker 1: if you're in the tech sector where your cash flows
Speaker 1: are pushed out ten or fifty years, that's probably not
Speaker 1: that attractive to us, because you know, we need cash
Speaker 1: flow for our loans. But if you're in a service
Speaker 1: sector that provides something that you know, for instance, we
Speaker 1: have a company that provides um uh software that allows
Speaker 1: you to more efficiently manage healthcare claim and guess what,
Speaker 1: that's a pretty attractive It's a small input cost for
Speaker 1: a very big problem. So it sounds like it's not
Speaker 1: necessarily the headline companies, right, or that it's those companies
Speaker 1: maybe the mid tier or something that are really interesting
Speaker 1: to you guys. Yeah, I think I think if you
Speaker 1: look at private credit as a whole, generally you're not
Speaker 1: dealing with what I would call the larger cap companies
Speaker 1: that you see in the in the leverage loan space
Speaker 1: and the banks indicated loan space. I mean, we do
Speaker 1: deal with those companies at times, and we do have
Speaker 1: large you know, one of the largest CLO managers in
Speaker 1: the world, so we do have a lot of those.
Speaker 1: But I think on the private credit side, more or
Speaker 1: less you're looking at middle market companies and companies that have,
Speaker 1: you know, that don't have access to the capital markets traditionally.
Speaker 1: I'm wondering where you see private credit going over the
Speaker 1: next ten to fifteen years if you think about where
Speaker 1: it is right now versus where you think it will be.
Speaker 1: I think private credit is like where private equity was
Speaker 1: ten or fifteen years ago. I mean, if you think
Speaker 1: about all of alternatives, which are roughly eight trillion dollars,
Speaker 1: one trillion is in private credit. If you think about
Speaker 1: all bonds and equities, it's about twenty five billion dollar markets.
Speaker 1: So we're relatively small as a portion of the alternatives,
Speaker 1: but we're even a smaller portion of the overall market itself.
Speaker 1: And there's a number of drivers right now. One is
Speaker 1: people are rotating from public into private for that pickup
Speaker 1: because they need that incremental yield in a low right environment.
Speaker 1: Number two is public companies. There's not as many public
Speaker 1: companies as they're where it's ten years ago. As I'm sure.
Speaker 1: You know, there's actually twice as many private companies and
Speaker 1: they're staying private longer, you know. And I think the
Speaker 1: third thing is is that you've seen a retrenchment from
Speaker 1: the banks who have kind of got out of the
Speaker 1: leverage lending space, mostly regulated out after the Great Financial Crisis.
Speaker 1: And then finally you've got to grow the retail where
Speaker 1: retail investors are saying, hey, I need to diversify my portfolio.
Speaker 1: So you get all that together, we think, you know, alternatives.
Speaker 1: I mean, there's a lot of demand factors and we
Speaker 1: see growth at ten to fifteen percent a year. How
Speaker 1: does E s G play into all of this, because
Speaker 1: I feel like that's a big factor. I feel like
Speaker 1: the legitimization of E s G is really happening. Yeah,
Speaker 1: it is, it is, I mean, it's it's The good
Speaker 1: thing is investors are demanding it. And that's the point
Speaker 1: one if if if the customer demands it, then you
Speaker 1: should respond to it. And I think we are all
Speaker 1: of us across the industry. I think for us, we've
Speaker 1: decided that we wanted to permeate all of our investments
Speaker 1: as opposed to have a special impact fund, and so
Speaker 1: we have ahead of v s D or Impact Mix Star.
Speaker 1: I know she's been on your shows before and she's excellent,
Speaker 1: and so she's done things like in credit in particular,
Speaker 1: where I said, I want us to figure out how
Speaker 1: we can measure the risk of our credit portfolio from
Speaker 1: the E s G perspective. So we have an E
Speaker 1: s G, a risk assessment profile that we use and
Speaker 1: we look at all of our credits and we have
Speaker 1: a risk assessment for that going into the investment, and
Speaker 1: we have a risk assessment of what our portfolio looks like,
Speaker 1: which is powerful and that you know, we just recently
Speaker 1: put a two billion dollar credit facility in place from
Speaker 1: Bank of America where it is tied to those targets,
Speaker 1: and so the cost of that leverage facility, which benefits
Speaker 1: our investors, is going down as a result of our
Speaker 1: ability to measure that risk and manage that us such
Speaker 1: an important part of our financial markets, the credit markets.
Speaker 1: That was Mark Jenkins, head of Global Credit at Carlisle Group,
Speaker 1: the private equity firm. We know them well, but it
Speaker 1: is interesting to see, I mean, the debt markets can
Speaker 1: tell you so much about the health of the corporate
Speaker 1: economy and the corporate outlook and we know that it's
Speaker 1: been really easy for so many corporations to tap into
Speaker 1: low money, very accessible, but you do wonder what happens
Speaker 1: on the other side of it the economic expectations don't
Speaker 1: play out. I was also struck by his prediction that
Speaker 1: private equity in today is basically the level he thinks
Speaker 1: that private credit will be at ten of fifteen years
Speaker 1: from now, which means it could just take off gangbusters
Speaker 1: all right again, Mark Jenkins, head of Global Credit at
Speaker 1: Carlisle Group. This is Bloomberg Business Week with Carol Masser
Speaker 1: and Bloomberg Quick Takes Tim Stinovich from Bloomberg Radio. Well
Speaker 1: later this month, at the G twenty summit in Rome,
Speaker 1: a vast overhaul of corporate taxation will likely take another
Speaker 1: step forward. Tim. Already we know what a hundred and
Speaker 1: thirty six nations have resolved key differences over the level
Speaker 1: of a global minimum rate, but there's still some things
Speaker 1: to be worked out. It's something we talked extensively about
Speaker 1: with Kate Barton. She's e WISE Global Vice Chair of
Speaker 1: tax and she's been at the Milk and Institute Global Conference.
Speaker 1: We caught up with her this morning. In this excerpt,
Speaker 1: Barton discusses global corporate taxation on the table at the
Speaker 1: upcoming twenty summit. I think what we're expecting in Rome
Speaker 1: is just further ratification of the inclusive framework that was
Speaker 1: just released in early October, and so this is talk
Speaker 1: of the town right now. As you can imagine, to
Speaker 1: have a hundred and thirty six countries agree to a
Speaker 1: global minimum tax at a time when countries are very
Speaker 1: nationalistic and very focused on their own fiscal situation. It's
Speaker 1: really on landmark decision and agreement. Are your clients happy
Speaker 1: about it? Our clients are really worried. So you know,
Speaker 1: there's not enough detail for US tax folks yet to
Speaker 1: be comfortable with how this is gonna work. So companies
Speaker 1: right now are trying to model it out, but were
Speaker 1: expecting a lot more detail to come out at the
Speaker 1: end of October early November, and that will help a lot.
Speaker 1: We need the questions answer, right, We know some details
Speaker 1: a hundred thirty six countries minimum global tax profits over
Speaker 1: though for some of the biggest tech companies, who are
Speaker 1: the winners and who are the losers? Well, it depends
Speaker 1: by country and by sectors, you can imagine. So let's
Speaker 1: stick with pillar to which is the global minimum tax.
Speaker 1: That's the one that's probably most detailed at this point. Um,
Speaker 1: what we're expecting to happen next is the US is
Speaker 1: sort of front running the implementation of this with the
Speaker 1: Joe Biden proposals. A lot of what is in the
Speaker 1: Reconciliation Act is actually really coalescing with thecent minimum tax.
Speaker 1: So the US is one of the few countries that
Speaker 1: actually has a minimum tax right now. But the issue
Speaker 1: is bringing that rate up from when you cut through
Speaker 1: all the deductions, is at thirteen and he would like
Speaker 1: to bring it north of the percent. Well, here's part
Speaker 1: of the problem in Kate, and I'm gonna play devil's advocate.
Speaker 1: I mean, many would say that corporations, Global corporations have
Speaker 1: been able to game the tax system by going to
Speaker 1: countries that have a lower corporate tax rate and maybe
Speaker 1: not having huge operations, but they're able to whether it's
Speaker 1: I P. Intellectual property or something, and they benefit and
Speaker 1: they end up playing a pretty low effective tax rate.
Speaker 1: What these companies are trying to do is to prevent
Speaker 1: this from happening, right, Um, what do you say to that, well,
Speaker 1: or what do you what? What is the thinking here?
Speaker 1: You know, countries have long had as a habit to
Speaker 1: look at their headline corporate tax rate to sort of
Speaker 1: invite companies to do business in their jurisdictions, especially smaller
Speaker 1: countries like Ireland has really had a lower tax rate
Speaker 1: twelve and a half percent, and that has invited companies in.
Speaker 1: And then what they do is they tax the wage.
Speaker 1: Journal that's been a longstanding policy and one of their
Speaker 1: you know, countries feel like it's a sovereign right. So
Speaker 1: now they will do is increase the attax rate for
Speaker 1: companies over a certain revenue threshold. And I think we're
Speaker 1: going to see that around the world. Every country will
Speaker 1: decide what to do because what happens under these rules
Speaker 1: that's so complicated. But in short, the country either moves
Speaker 1: their rate up or the headquarters location, through some complex rules,
Speaker 1: will tax the income at a minimum of fIF or higher.
Speaker 1: So in some ways you're a stakeholder. What is on
Speaker 1: the minds of our companies is they just don't want
Speaker 1: double taxation. In some ways they're a stakeholder, but they
Speaker 1: need to make sure that on every dollar or a profit,
Speaker 1: they don't have to jurisdictions claiming taxing rates over that dollar.
Speaker 1: So the coordination here is really important. I do want
Speaker 1: to clarify something. I believe I've had ten percent of profits,
Speaker 1: but it was of profits over a ten percent margin
Speaker 1: from some of the biggest multinationals. Yes, So that's what
Speaker 1: we call pillar one, and that's the one that is
Speaker 1: still being remanded for further consideration. That's less, but that's
Speaker 1: really important because that's what the high tech companies are
Speaker 1: waiting for because that with that provision will come the
Speaker 1: elimination of the digital services taxes, which, as you know,
Speaker 1: many countries right now have those on the books and
Speaker 1: some are looking to implement further all right, and that
Speaker 1: of course with Kate Barton, E Wise, Global Vice Chair
Speaker 1: of tax joining us here at the Milk and Institute
Speaker 1: Global Conference. And you know, taxes. We always joke about it,
Speaker 1: but you put tax or taxation in the headline of
Speaker 1: a Bloomberg story, it often resonates very highly among our
Speaker 1: our readers, and among will often be among the most
Speaker 1: read stories. But this is a big deal about companies
Speaker 1: who have you know, relocated overseas to take advantage of
Speaker 1: a lower corporate tax rate, and yet they maybe don't
Speaker 1: have much of an operation here, right, but sometimes I
Speaker 1: p or in intellectual property or something is parked here
Speaker 1: and enables enables them, especially when it comes to global revenues.
Speaker 1: Right to tax at a lower tax rate. Yea. And
Speaker 1: one of the challenges that comes along with that, of course,
Speaker 1: is the United States. If it is traditionally in American
Speaker 1: company in the United States misses out on that tax
Speaker 1: revenue right, right. And then we always talk about the repatriation.
Speaker 1: Right We've seen that with an administration where you get
Speaker 1: kind of tax forgiveness, you can bring those profits back
Speaker 1: to the United States. And and then companies say, listen,
Speaker 1: we're gonna do We're gonna invest workers more, and they don't.
Speaker 1: They do buy backs. When I was exactly when I
Speaker 1: was preparing for this interview this morning, I was thinking
Speaker 1: back to something that you say all the time when
Speaker 1: it comes to this stuff, is just look at the
Speaker 1: effective tax rate that a company. You know, every year
Speaker 1: and every quarter that we can see or every year
Speaker 1: in a company's anual report, the effective tax rate is
Speaker 1: oftentimes even lower. Right Exactly, Companies find a way, and
Speaker 1: most people would argue, listen, you don't want to make
Speaker 1: it so prohibitive that companies are finding it difficult to
Speaker 1: invest in their future business. But come on, you're saying,
Speaker 1: maybe pay fair share, pay fair share, and maybe this
Speaker 1: will create a much more level playing field so there
Speaker 1: isn't so much competitions among countries. We shall see, and
Speaker 1: we'll be watching that G twenty summit in Rome that's
Speaker 1: happening later this month. Thanks for listening to Bloomberg Business Week.
Speaker 1: Download the podcast on iTunes, SoundCloud, or Bloomberg dot com,
Speaker 1: and you can also listen to our radio show at
Speaker 1: two pm Eastern on Bloomberg Radio or watch us on
Speaker 1: YouTube search Bloomberg Global News m