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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Goldman's president and chief operating Officer, John Waldron at a

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Speaker 2: conference where almost a decade ago you helped start in

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Speaker 2: the world of leverage finance. You and David Solomon had

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Speaker 2: cut your teeth in this industry, and it's a good

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Speaker 2: time to ask what's changed the most about this business.

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Speaker 3: Well, first of all, it's great to be here back

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Speaker 3: at this conference in California. We've been nine years now

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Speaker 3: doing this conference. We have about eighty issuers and about

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Speaker 3: four hundred and fifty investors, so it's a great convening

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Speaker 3: to bring the issuing side together with the investing side.

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Speaker 3: I would say the answer to your question is undoubtedly

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Speaker 3: the growth in private credit. So back nine or ten

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Speaker 3: years ago, it was mostly a syndicated market. Private credit

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Speaker 3: is not a new industry. It's been going on for

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Speaker 3: quite a long time. But if you think about the

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Speaker 3: size of the private credit market versus the syndicated market,

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Speaker 3: the private credit market has grown enormously and that's definitely

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Speaker 3: been the biggest change in the structure of the marketplace.

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Speaker 1: Goldman had its own plans. There are large plans.

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Speaker 2: You've told investors recently that you plan to grow your

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Speaker 2: private credit business into a three hundred billion dollar business

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Speaker 2: by assets in the next five years. How important is

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Speaker 2: scale to you? And where is this on your list

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Speaker 2: of priorities.

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Speaker 3: It's very important. I'm here for a reason. This is

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Speaker 3: an incredibly important client franchise for us. It's an incredibly

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Speaker 3: important set of constituencies to Goldman Sachs. Private credit is

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Speaker 3: a big growth opportunity for the firm. We have been

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Speaker 3: doing private credit for a long time. Goldman Sachs has

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Speaker 3: an over thirty year history of operating in the private markets,

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Speaker 3: private equity, private credit, real estate, infrastructure, and other elements

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Speaker 3: of the private markets. The big opportunity for us is

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Speaker 3: to take what we've built, which is over one hundred

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Speaker 3: billion dollars of AUM in private credit, and really double

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Speaker 3: and triple it. We've obviously got to double it before

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Speaker 3: we can triple it, so we've talked about three hundred

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Speaker 3: million dollars as a target. We've got to get to

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Speaker 3: two hundred million dollars first. We see a line of

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Speaker 3: sight to doing that. But at the same time, I

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Speaker 3: want to say that our syndicated business is a really

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Speaker 3: important business. Leverage finance is a long term core strength

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Speaker 3: of the firm. We've built a great business. We're number

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Speaker 3: one or number two to in all the major elements

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Speaker 3: of leverage finance, whether it's on the bank loan side

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Speaker 3: or on the high yield side. We intend to continue

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Speaker 3: to be there, and it's an incredibly important franchise. We

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Speaker 3: are unique because we have scale in both. We can

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Speaker 3: play in the syndicated market, we can play in the

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Speaker 3: private credit market. And what our people know to be

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Speaker 3: true is that their job is to go see our

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Speaker 3: clients and give them good advice which markets should you

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Speaker 3: be accessing at which point in the cycle, based on

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Speaker 3: pricing terms available at capital and that's what we're doing.

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Speaker 3: We're doing that, I think very effectively. I think we're

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Speaker 3: uniquely positioned to be able to access both markets and

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Speaker 3: be effective for our clients in that manner.

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Speaker 2: One thing that cannot be true is that of the

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Speaker 2: billions of dollars flowing into private credit, everybody is an

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Speaker 2: amazing underwriter. If you think through this market right now,

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Speaker 2: where is the risk and are people making mistakes?

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Speaker 3: Well, I don't know that there's clear risk in front

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Speaker 3: of us. I think I think the explosion of credit

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Speaker 3: broadly has been good for the economy is giving more

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Speaker 3: companies and issuers access to more credit. I think there

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Speaker 3: definitely has been distant mediation of parts of the banking system,

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Speaker 3: probably more pronounced in the regional banking system than in

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Speaker 3: the larger scale banking system.

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Speaker 1: I think that's something that.

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Speaker 3: The market, that the regulatory apparatus should be paying attention to.

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Speaker 3: But fundamentally, I'm not sure that there's lots of mistakes

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Speaker 3: being made. I think that at some point we will

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Speaker 3: have a credit cycle. When we have a credit cycle,

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Speaker 3: my guess is there'll be some dispersion in the performance

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Speaker 3: of different players in private credit. For US, we've been

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Speaker 3: doing this a long time. We care a lot about structure,

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Speaker 3: we care a lot about terms, we care a lot

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Speaker 3: about underwriting standards, and we intend to be a good

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Speaker 3: performer through the cycle.

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Speaker 2: You kind of have to have a crystal mole heading

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Speaker 2: into that cycle, don't you. I'm wondering when you think

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Speaker 2: that cycle will come and what it looks like when

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Speaker 2: it starts to turn south.

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Speaker 3: Well, it's very dependent upon economic growth. You know, if

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Speaker 3: we have a two plus percent GDP performance in the

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Speaker 3: US economy or in the global economy for the next

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Speaker 3: few years, we won't have a credit cycle. At some point,

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Speaker 3: we're likely to see a contraction in the economy, or

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Speaker 3: at least a significant slowing in the economy. When that happens,

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Speaker 3: that will be likely a trigger for more more default,

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Speaker 3: more challenges in the credit market, and we'll be prepared

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Speaker 3: for that.

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Speaker 1: Now.

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Speaker 2: Another thing that a lot of people are waiting for

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Speaker 2: is the revival of an M and A market to

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Speaker 2: fuel this leverage finance market that you've been talking about here.

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Speaker 2: One of your top bankers just earlier was talking to

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Speaker 2: a group of people saying that this could be a

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Speaker 2: four trillion dollar market or more again by the end

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Speaker 2: of next year. Do you see that and how fast

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Speaker 2: can we get there?

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Speaker 3: We're definitely optimistic about the merger market. I think that

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Speaker 3: we need the private equity community to be more active.

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Speaker 3: We need the debt markets to be very open and available,

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Speaker 3: whether it's on the private credit side or on the

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Speaker 3: syndicated site. That's starting to happen. So the conditions are

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Speaker 3: there for a much better M and A market. But

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Speaker 3: the way I think about the M and A market,

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Speaker 3: you've got regular way kind of corporate transaction flow, You've

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Speaker 3: got very big deals and then you've got kind of

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Speaker 3: a broad private equity driven marketplace, which has been the

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Speaker 3: biggest grower in the merger market. The regular way activity

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Speaker 3: is pretty solid. The private equity activity is getting untracked,

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Speaker 3: but it's not anywhere near what it can be, which

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Speaker 3: I think is probably our colleague was referring to. And

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Speaker 3: the big deal market is kind of sluggish. Any trust

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Speaker 3: is tougher, it's not the best environment to go try

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Speaker 3: to do transformational transactions. So if you've got the big

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Speaker 3: deal market firing and the private equity market firing, we

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Speaker 3: can have a much bigger merger market. We expect both

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Speaker 3: of those to happen, but I think everybody's kind of

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Speaker 3: a rush for it to happen sooner. These things take

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Speaker 3: a while to unfold, and I would just caution that

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Speaker 3: I don't think you're going to see tons of new

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Speaker 3: activity in the next couple of weeks or months. I

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Speaker 3: think it's going to take us a little bit of

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Speaker 3: time to get going, and very much depending upon economic growth.

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Speaker 3: So if we have strong GDP for the next couple

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Speaker 3: of years, you're going to see the merger market start

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Speaker 3: to really grow. It is clearly underrepresented as a percentage

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Speaker 3: of equity market cap. That's a metric that we look at.

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Speaker 3: I think it's three or three and a half percent

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Speaker 3: of total equity market cap. Really ought to be five

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Speaker 3: or six percent of equity market cap. So there's a

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Speaker 3: lot of room to run here, which could and should

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Speaker 3: likely be the case over the next couple of years.

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Speaker 2: There's a real sense here that you and the bankers

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Speaker 2: at Goldman Sachs are trying to put the M and

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Speaker 2: A train back on the rails in.

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Speaker 1: A significant manner.

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Speaker 2: But is there anything that could really hit pause on

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Speaker 2: that trajectory.

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Speaker 3: It's not off the rails. I mean, we're having a

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Speaker 3: very good M and A year this year. It's just

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Speaker 3: not as good as it was when we had the

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Speaker 3: kind of euphoria in twenty twenty one. But by any

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Speaker 3: historical standard, this is a pretty good environment. I think

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Speaker 3: we're fifteen percent below the market volumes are like fifteen

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Speaker 3: percent below five year averages, so we're not at five

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Speaker 3: year averages, but we're not that far below five year averages,

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Speaker 3: and it doesn't take a lot for it to really

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Speaker 3: start to turn on. The deterrent to that would be

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Speaker 3: economic contraction. It's very reliant on CEO confidence and GDP growth.

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Speaker 3: I would say the two main factors driving the upswing

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Speaker 3: and the M and I cycle.

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Speaker 1: What about the election cycle.

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Speaker 2: We were talking to David Costin, your chief equity strategist,

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Speaker 2: a little bit earlier in the United States, and we're

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Speaker 2: talking about volatility around the election. What does that conversation

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Speaker 2: look like with clients.

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Speaker 3: I think clients are starting to pay attention to the

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Speaker 3: election about now. For the most part of the of

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Speaker 3: the year, it hasn't really been a major factor. Gets

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Speaker 3: written a lot about, But I wouldn't say in decision

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Speaker 3: making we've seen a lot of impact yet. But I

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Speaker 3: think we're starting to get to a place where policy

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Speaker 3: differential and the outcome is starting to become more more

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Speaker 3: part of the narrative and part of the discussion and

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Speaker 3: meetings that we're in and I'm sure others are in it.

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Speaker 3: So I think we're going to go through the summer,

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Speaker 3: We're gonna have more conversations as we get into the fall.

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Speaker 3: I think it's going to become much more prominent in

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Speaker 3: everybody's mind.

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Speaker 2: Are there specific policies investors are talking about with you,

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Speaker 2: particularly when it pertains to either Trump two point zero

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Speaker 2: or Biden two point zero.

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Speaker 3: I think taxation, regulation, I think policy on China. Those

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Speaker 3: are major, Those are probably major areas of focus. You know,

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Speaker 3: there are other important areas of focus. It might not

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Speaker 3: be as much economic, whether it's social issues or immigration

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Speaker 3: or other issues that are important. But I think if

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Speaker 3: you're talking about the things that really speak to the economy,

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Speaker 3: it's global trade, it's regulation, it's taxation.

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Speaker 2: On China in particular, you had President Biden announcing more

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Speaker 2: tariffs and China vowing resolute measures in return. You've spent

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Speaker 2: a lot of time in China yourself. How are investors

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Speaker 2: thinking about this dynamic of more terrorists.

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Speaker 3: Well, it's not surprising to me that the Biden administration

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Speaker 3: is deploying tariffs. They obviously kept the tariffs in place

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Speaker 3: that the Trump administration put put forward and are now,

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Speaker 3: you know, kind of raising the ante a little bit.

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Speaker 3: It's not surprising. I think that US policy, frankly, from

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Speaker 3: both sides of the of the isle, is turning much

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Speaker 3: more hawkish and is of the opinion that we have

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Speaker 3: to protect and safeguard American interests and also invest in

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Speaker 3: the industries that we need to be globally competitive in.

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Speaker 3: And so I think you're going to see more of that. Frankly,

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Speaker 3: whichever direct whichever president we have in the next uh,

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Speaker 3: you know, in the next election, and I think that's

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Speaker 3: going to that's that's a reasonable place for the US

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Speaker 3: to be is to continue to invest, to be globally competitive,

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Speaker 3: continue to focus on our own competitiveness and investing in

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Speaker 3: our industries. I also would say, and I saw it

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Speaker 3: Secretary Yellen's comments, which I think we're good comments about

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Speaker 3: continued engagement. You know, we don't want to have I

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Speaker 3: hope we don't have a zero sum game here where

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Speaker 3: it's kind of tariffs on tariff's. Hopefully we can continue

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Speaker 3: to have a rational approach from both sides. And I

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Speaker 3: think that this administration deserves a lot of credit in

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Speaker 3: my opinion, for having constructed engagement and putting the relationship

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Speaker 3: in a firmer, you know, on a firmer footing and

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Speaker 3: having more dialogue, which I think is going to be important.

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Speaker 3: We're not going to agree on a lot of these areas,

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Speaker 3: but it's going to be important that we continue to

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Speaker 3: engage with each other.

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Speaker 1: As you think about future administrations.

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Speaker 2: Also, you and David Solomon, your CEO, both have been

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Speaker 2: quite critical when it comes to the US debtload and

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Speaker 2: what it means for the United States moving forward under

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Speaker 2: both administrations, there's a sense from investors that that fiscal

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Speaker 2: responsibility will not be rained in paint a picture of

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Speaker 2: what the world for the United States looks like if

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Speaker 2: this continues.

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Speaker 3: I think the points that we're trying to make, and

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Speaker 3: that we discussed a lot inside the Four Walls of

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Speaker 3: Gold and Sachs, are we can't be complacent about continuing

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Speaker 3: to spend and at this pace and assume because we

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Speaker 3: enjoy the reserve currency status that that will always be

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Speaker 3: the case and that there's not any risk to that.

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Speaker 3: So I think we're looking for both parties to find

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Speaker 3: a way to create more discipline in the fiscal spend.

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Speaker 3: It's not that we shouldn't be spending. A country needs

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Speaker 3: to be spending. There are certainly areas where we need

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Speaker 3: to be stimulative from a fiscal standpoint, but broadly speaking,

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Speaker 3: we think the pace is unsustainable. You're really now reliant

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Speaker 3: heavily on US households to continue to fund the treasury spend,

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Speaker 3: which I think is a perfectly okay assumption, but it's

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Speaker 3: not an infinite assumption, and it needs to be. It

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Speaker 3: needs to be thought about, and I think that we

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Speaker 3: need both sides of the altbu come together and be

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Speaker 3: more disciplined in the spend.

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Speaker 2: At the same time, treasury issuance has been significant, and

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Speaker 2: there are a lot of worries about, as you say,

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Speaker 2: who absorbs all of that issuance. We haven't seen any

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Speaker 2: real hiccups yet, but do you worry that we will

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Speaker 2: at some point if we continue at this pace of issuance.

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Speaker 3: We haven't seen hiccups. There's no evidence yet to suggest

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Speaker 3: that we can't keep going in this direction. But I

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Speaker 3: think those of us have been watching this for a

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Speaker 3: long time are worried that this is an unsustainable pace

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Speaker 3: and that we need to show more discipline in the system.

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Speaker 3: And you know, I think the US continues to be

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Speaker 3: a great place to invest. There's a lot of demand

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Speaker 3: for US assets, including for US treasuries, but we have

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Speaker 3: to make sure that we show the right kind of

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Speaker 3: discipline fiscally and financially so that those investors want to

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Speaker 3: continue to put money here.

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Speaker 2: John, we're hours away from another inflation print, and there

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Speaker 2: are a lot of worries about what inflation means for

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Speaker 2: the economy and the trajectory of interest rates.

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Speaker 1: How are you thinking about it?

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Speaker 3: I think that we are continuing to be fairly constructive

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Speaker 3: on what's happening. You have to give the Fed a

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Speaker 3: lot of credit for engineering what appears at this moment

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Speaker 3: to be a soft landing. We're not calling it quite yet.

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Speaker 3: I think we have a lot of debate inside the

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Speaker 3: four walls of our firm about word the direction of

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Speaker 3: the economy will go. But it looks to us like

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Speaker 3: the soft landing is very likely, and the FED deserves

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Speaker 3: credit for bringing inflation down and engineering, you know, a

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Speaker 3: reasonably good economic outcome. We'll see what the CPI print brings.

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Speaker 3: Anytime you try to do what they're doing, which is

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Speaker 3: an extraordinary amount of stimulus and then are really heavy

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Speaker 3: amount of tightening in a short period of time, there's

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Speaker 3: going to be bumpy outcomes. And I think we're seeing

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Speaker 3: it's not a straight line down. There's been lots of disinflation,

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Speaker 3: but inflation is proving a little sticky here. As we're

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Speaker 3: getting closer to trying to get to the two percent target,

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Speaker 3: we expect that to continue to be the case. The

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Speaker 3: PPI number, I think showed that that's continuing to be

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Speaker 3: the case, we'll see what the CPI number brings. I

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Speaker 3: think our estimate is for twenty eight basis points and

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Speaker 3: the market's estimate is thirty basis points. So we're in

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Speaker 3: and around consensus and we'll see what it brings. But

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Speaker 3: I think you're going to continue to see bumpy prints

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Speaker 3: along the way.

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Speaker 2: Now before I let you go, also, I want to

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Speaker 2: talk about Goldmansax for a moment here, because we're almost

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Speaker 2: halfway into the year. You were one of the earlier

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Speaker 2: banks to cut headcount when things got rough, and activity

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Speaker 2: is now coming back across the industry. What does this

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Speaker 2: mean for headcount moving forward.

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Speaker 3: We're continuing to invest in our firm. I'd say most

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Speaker 3: of the investment we're making is in the infrastructure of

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Speaker 3: our firm. We're continuing to try to find ways to

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Speaker 3: create the infrastructure that we can scale against, and so

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Speaker 3: we're going to make more investments there. And we're investing

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Speaker 3: in our assonal wealth management franchise most so we want

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Speaker 3: to build a much bigger asset and wealth management business.

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Speaker 3: We're investing in our wealth management franchise, which is really

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Speaker 3: more in people, advisors, support for advisors, technology around the

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Speaker 3: advisors to make sure we can continue to grow our

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Speaker 3: business there and to serve our clients more effectively. We

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Speaker 3: think that that generational transfer of wealth will need and

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Speaker 3: require a lot more technology, and so we want to

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Speaker 3: meet our clients where they want to be met, which

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Speaker 3: is really in a more mobile world, and we continue

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Speaker 3: to invest heavily in technology across the firm. I think

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Speaker 3: generative AI will be a big unlock for firms in

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Speaker 3: our industry, and we're going to be no different. So

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Speaker 3: I think you're going to see over the next handful

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Speaker 3: of years a much bigger spend in terms of looking

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Speaker 3: for ways to deploy generative AI, particularly around automation and

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Speaker 3: resiliency and doing things that are more maybe clerical and

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Speaker 3: lower level activities that are more human process that can

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Speaker 3: be uplifted into more automative, automated technology driven AI lead activities.

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Speaker 2: It's clear that you're putting that spend across different areas

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Speaker 2: of the business.

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Speaker 1: Does this mean the hiring sign is up at Goldman

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Speaker 1: Sachs today.

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Speaker 3: I wouldn't say that. I'd say that you're going to

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Speaker 3: see us grow our headcount in a measured way. We

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Speaker 3: obviously made the moves you talked about, you know, eighteen

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Speaker 3: months or so ago, we saw a need to reduce

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Speaker 3: our headcount from where we were coming out of the pandemic.

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Speaker 3: I don't think that's very different from many companies that

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Speaker 3: I certainly talked to and others talk to now. At

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Speaker 3: this point, I think we're in a place where we've

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Speaker 3: created a good base. We've got places we want to invest.

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Speaker 3: As I said, wealth management, asset management, technology, and infrastructure.

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Speaker 3: You'll see us at headcount at a measured pace in doing that,

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Speaker 3: but it will be at a measured pace.

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Speaker 2: John, We thank you so much for your time. That

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Speaker 2: is Golden in Sacks, President and Chief operating Officer, John

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Speaker 2: Waldron