1 00:00:00,080 --> 00:00:02,360 Speaker 1: I want to head over to an interview. We all 2 00:00:02,400 --> 00:00:05,680 Speaker 1: are very much looking forward to Jonathan Farrow just high 3 00:00:05,720 --> 00:00:08,480 Speaker 1: tail the ADDA here to head over to Apollo sitting 4 00:00:08,520 --> 00:00:11,039 Speaker 1: down with Mark Rowan, who is the CEO. 5 00:00:11,160 --> 00:00:15,560 Speaker 2: John take it away, A Lisa, thank you. 6 00:00:15,600 --> 00:00:17,400 Speaker 3: This was the deal we agreed to it. If the 7 00:00:17,440 --> 00:00:20,040 Speaker 3: stock closed, it an all time hard investigate. Mark Rowan 8 00:00:20,079 --> 00:00:21,759 Speaker 3: would show up alongside me and it's a man of 9 00:00:21,800 --> 00:00:22,200 Speaker 3: its word. 10 00:00:22,239 --> 00:00:23,439 Speaker 2: Market morning. It's good to see you. 11 00:00:23,560 --> 00:00:26,280 Speaker 4: Thank you, and technically you're here. You came to visit us, 12 00:00:26,280 --> 00:00:26,800 Speaker 4: so thank you. 13 00:00:27,160 --> 00:00:28,840 Speaker 2: Thank you. You planned it this way. 14 00:00:28,880 --> 00:00:31,600 Speaker 3: I'm sure big target for twenty twenty nine ten billion 15 00:00:31,600 --> 00:00:33,120 Speaker 3: dollars of annual learning. So I think we have to 16 00:00:33,120 --> 00:00:35,720 Speaker 3: start with a pretty broad question. Race are coming down. 17 00:00:36,040 --> 00:00:39,720 Speaker 3: Economy is pretty decent. Let's just call financial conditions easy. 18 00:00:40,200 --> 00:00:42,800 Speaker 3: Why people coming to you instead of just issuing a 19 00:00:42,840 --> 00:00:44,479 Speaker 3: bond in public markets? 20 00:00:44,800 --> 00:00:46,319 Speaker 4: I think if they come to us, when they can 21 00:00:46,400 --> 00:00:49,080 Speaker 4: issue a bond in public markets and it's cant is 22 00:00:49,120 --> 00:00:51,600 Speaker 4: not that it's not open, It's that they want to 23 00:00:51,640 --> 00:00:54,840 Speaker 4: do something that the public markets will not allow. Public 24 00:00:54,880 --> 00:00:58,960 Speaker 4: markets over the past two decades have become very vanilla, 25 00:00:59,160 --> 00:00:59,920 Speaker 4: call it beta. 26 00:01:00,520 --> 00:01:01,880 Speaker 5: If you want to do something unique. 27 00:01:01,920 --> 00:01:05,040 Speaker 4: If you want to finance the next generation of infrastructure, 28 00:01:05,120 --> 00:01:07,200 Speaker 4: you want to build a project, you want to build 29 00:01:07,280 --> 00:01:09,559 Speaker 4: data centers, you want to build power, you want long data. 30 00:01:09,600 --> 00:01:13,200 Speaker 4: Do you want special features that's just not available, you 31 00:01:13,280 --> 00:01:17,560 Speaker 4: come to someone like us, and increasingly private markets are 32 00:01:17,600 --> 00:01:21,200 Speaker 4: offering really compelling solutions to investment grade borrowers. 33 00:01:21,319 --> 00:01:23,280 Speaker 3: Let's talk about some of those days, IC and c 34 00:01:23,840 --> 00:01:28,199 Speaker 3: IB and beth Intel recently. What's the common theme behind 35 00:01:28,200 --> 00:01:29,240 Speaker 3: those three companies for you? 36 00:01:29,640 --> 00:01:33,280 Speaker 4: The common theme for US is excess return relative to 37 00:01:33,319 --> 00:01:36,160 Speaker 4: the credit of the underlying borrower. The common theme for 38 00:01:36,240 --> 00:01:39,080 Speaker 4: the issuer is they are achieving something they could not 39 00:01:39,240 --> 00:01:43,440 Speaker 4: otherwise achieve. When we did ABMBV some six billion dollars 40 00:01:43,520 --> 00:01:47,560 Speaker 4: years ago, everyone around us, our peer group, that was interesting. 41 00:01:47,760 --> 00:01:49,880 Speaker 4: That was one off in COVID, You'll never do another 42 00:01:49,920 --> 00:01:53,960 Speaker 4: one another investment grade private deal. One hundred billion dollars later, 43 00:01:54,520 --> 00:01:58,000 Speaker 4: we're still doing investment grade private deals. And I see 44 00:01:58,040 --> 00:02:01,760 Speaker 4: nothing but a long line of of interesting borrowers and 45 00:02:01,800 --> 00:02:02,960 Speaker 4: interesting situations. 46 00:02:03,000 --> 00:02:05,440 Speaker 5: Because think about what we're doing in the world today. 47 00:02:05,800 --> 00:02:10,239 Speaker 4: We are building infrastructure, we are building and changing energy transition. 48 00:02:10,360 --> 00:02:12,360 Speaker 4: We're just at the beginning of this, and we are 49 00:02:12,360 --> 00:02:15,120 Speaker 4: building the next generation of data and power. Every one 50 00:02:15,160 --> 00:02:17,480 Speaker 4: of those things is long dated. Many of them are 51 00:02:17,560 --> 00:02:21,160 Speaker 4: complex financings. Some will go to the banking system, some 52 00:02:21,280 --> 00:02:25,280 Speaker 4: will go to public markets, But increasingly, for these more 53 00:02:25,280 --> 00:02:29,640 Speaker 4: complicated financings and long dated financings, private market investment grade 54 00:02:29,680 --> 00:02:30,760 Speaker 4: is where borrowers are coming. 55 00:02:30,919 --> 00:02:32,839 Speaker 3: There was a theme an invested Day, and you've talked 56 00:02:32,880 --> 00:02:37,519 Speaker 3: about this with me yourself, privately global industrial renaissance. 57 00:02:37,760 --> 00:02:38,760 Speaker 2: What are you talking about? 58 00:02:39,040 --> 00:02:41,200 Speaker 5: We're talking about is this massive need for capital. 59 00:02:41,280 --> 00:02:43,440 Speaker 4: I mean, you can believe or not believe all the 60 00:02:43,480 --> 00:02:45,280 Speaker 4: figures that are out there, but when you add up 61 00:02:45,840 --> 00:02:48,240 Speaker 4: the amount of money that is needed for energy transition, 62 00:02:48,680 --> 00:02:51,120 Speaker 4: the amount of money that is needed to fix our infrastructure, 63 00:02:51,280 --> 00:02:53,200 Speaker 4: the amount of money that will be needed to build 64 00:02:53,400 --> 00:02:56,480 Speaker 4: data centers and power to supply them, much less to 65 00:02:56,520 --> 00:03:00,120 Speaker 4: connect and redo our power lines, you're talking about the 66 00:03:00,120 --> 00:03:02,480 Speaker 4: amount of money that's been spent since the invention of five, 67 00:03:03,440 --> 00:03:06,480 Speaker 4: all with the backdrop of the US government borrowing two 68 00:03:06,520 --> 00:03:10,480 Speaker 4: trillion dollars to finance itself. On a current basis, this 69 00:03:10,520 --> 00:03:13,320 Speaker 4: is not a question of will private markets grow. The 70 00:03:13,400 --> 00:03:16,680 Speaker 4: question will be how much, Yes, public markets will continue 71 00:03:16,720 --> 00:03:19,760 Speaker 4: to play a really important role banking system, really important role. 72 00:03:20,120 --> 00:03:23,160 Speaker 4: But this tool, this notion of private investment grade, has 73 00:03:23,240 --> 00:03:27,720 Speaker 4: really not been available to CFOs or others arranging financing, 74 00:03:28,200 --> 00:03:29,600 Speaker 4: and increasingly it will be. 75 00:03:29,800 --> 00:03:31,760 Speaker 2: How labor intensive is this for you? 76 00:03:32,320 --> 00:03:34,840 Speaker 3: And as you do more deals, do you get a 77 00:03:34,880 --> 00:03:37,600 Speaker 3: benefit from that that you better able to replicate things 78 00:03:37,640 --> 00:03:39,320 Speaker 3: and use less and less people. 79 00:03:39,520 --> 00:03:41,080 Speaker 5: This is scars of experience. 80 00:03:41,400 --> 00:03:44,280 Speaker 4: So these are all labor intensive, and that is actually 81 00:03:44,360 --> 00:03:47,840 Speaker 4: what the competitive advantage is. The investment grade bond market 82 00:03:47,880 --> 00:03:51,600 Speaker 4: became so efficient and so low cost that financial firms 83 00:03:51,640 --> 00:03:54,920 Speaker 4: stopped allocating resources to it. There were just not any 84 00:03:54,920 --> 00:03:57,560 Speaker 4: money in doing that, and so the market is very available, 85 00:03:57,640 --> 00:03:58,880 Speaker 4: but it is very plain vanilla. 86 00:04:00,200 --> 00:04:02,200 Speaker 5: One has built what we've built. 87 00:04:02,520 --> 00:04:05,880 Speaker 4: When you look at employment at Apollo, the greatest group 88 00:04:05,920 --> 00:04:09,600 Speaker 4: of employment four thousand people, some eight billion dollars that 89 00:04:09,600 --> 00:04:12,600 Speaker 4: we've spent over the past fifteen years all goes to 90 00:04:12,640 --> 00:04:15,840 Speaker 4: what we call origination. Now, not all of these originators 91 00:04:15,880 --> 00:04:19,120 Speaker 4: are out calling on investment grade borrowers. Some are running 92 00:04:19,640 --> 00:04:24,520 Speaker 4: other types of origination vehicles, aircraft finance, fleet finance, receivables finance, 93 00:04:24,560 --> 00:04:26,599 Speaker 4: inventory finance, infrastructure finance. 94 00:04:27,360 --> 00:04:30,640 Speaker 5: Increasingly, this is how America. 95 00:04:30,200 --> 00:04:35,039 Speaker 3: Borrows introduced City and a twenty five billion a dollar partnership. 96 00:04:35,800 --> 00:04:38,800 Speaker 3: What's behind that it's that acknowledgment from you that you've 97 00:04:38,839 --> 00:04:40,440 Speaker 3: got more cash than you know what to do with. 98 00:04:41,279 --> 00:04:45,159 Speaker 4: I think it's an acknowledgment that origination, the control of 99 00:04:45,200 --> 00:04:49,160 Speaker 4: the product is actually what has value. And some of 100 00:04:49,160 --> 00:04:51,320 Speaker 4: that origination we're going to build ourselves, and we've built 101 00:04:51,360 --> 00:04:53,840 Speaker 4: more of it than any But let's face it, we 102 00:04:54,200 --> 00:04:57,240 Speaker 4: a whole industry is short origination. To the extent we 103 00:04:57,279 --> 00:05:00,000 Speaker 4: can find a meeting of the minds with City, that's fabulous. 104 00:05:00,480 --> 00:05:03,680 Speaker 4: And I think the bigger theme here is the banking system, 105 00:05:03,720 --> 00:05:06,760 Speaker 4: particularly one of the big four banks, is actually figuring 106 00:05:06,800 --> 00:05:11,280 Speaker 4: out what we believe all along. We don't want what 107 00:05:11,360 --> 00:05:14,760 Speaker 4: the bank wants. We don't want the bank's customer. We 108 00:05:14,800 --> 00:05:19,560 Speaker 4: want the asset the bank. We can't offer advice, m 109 00:05:19,560 --> 00:05:24,080 Speaker 4: and A, derivatives hedging, foreign exchange payments, credit cards, or 110 00:05:24,120 --> 00:05:27,640 Speaker 4: any other service the bank wants to offer those things. 111 00:05:28,200 --> 00:05:30,960 Speaker 4: The bank sometimes wants the loan, but more often than 112 00:05:30,960 --> 00:05:32,000 Speaker 4: not does not want the loan. 113 00:05:32,120 --> 00:05:32,920 Speaker 2: Who do you think field it? 114 00:05:32,960 --> 00:05:35,600 Speaker 3: The most calls that day when that was announced that partnership, 115 00:05:35,680 --> 00:05:37,760 Speaker 3: was it Jane Fraser an annoyed asset managers or was 116 00:05:37,800 --> 00:05:39,200 Speaker 3: it you an annoyed bankers. 117 00:05:39,200 --> 00:05:41,599 Speaker 5: From the comparing of notes last night? It was Jane. 118 00:05:41,680 --> 00:05:44,960 Speaker 2: It was Jane. Did you get the calls you saw 119 00:05:45,040 --> 00:05:46,120 Speaker 2: from LOX. 120 00:05:45,800 --> 00:05:47,640 Speaker 5: We definitely got a few calls. 121 00:05:47,760 --> 00:05:49,080 Speaker 3: Do you get the sense that this is the beginning 122 00:05:49,120 --> 00:05:51,760 Speaker 3: of something bigger? Twenty five billions the number with citsy 123 00:05:52,120 --> 00:05:53,560 Speaker 3: just give me an idea of what this looks like 124 00:05:53,600 --> 00:05:54,360 Speaker 3: further down the line. 125 00:05:54,480 --> 00:05:55,720 Speaker 2: Does it include other banks too? 126 00:05:56,120 --> 00:05:57,719 Speaker 4: I think it does, and now I think it is 127 00:05:57,760 --> 00:06:00,200 Speaker 4: difficult to serve lots of people in the same way 128 00:06:00,240 --> 00:06:03,320 Speaker 4: with the same terms. But the City partnership is focused 129 00:06:03,440 --> 00:06:06,000 Speaker 4: on a certain type of borrower. I think you'll see 130 00:06:06,000 --> 00:06:09,240 Speaker 4: international partnerships. I think you'll see investment grade partnerships. I 131 00:06:09,279 --> 00:06:12,599 Speaker 4: think you'll see infrastructure related partnerships. I do think that 132 00:06:12,800 --> 00:06:15,919 Speaker 4: we are becoming a partner in some ways to the 133 00:06:15,960 --> 00:06:18,599 Speaker 4: banking system, rather than how it is portrayed in the press, 134 00:06:18,839 --> 00:06:21,400 Speaker 4: which is a fierce competition over everything. 135 00:06:21,800 --> 00:06:24,520 Speaker 3: This conversation so far has really been about how the 136 00:06:24,520 --> 00:06:27,880 Speaker 3: financing of companies, particularly in this country, is changing, how 137 00:06:27,920 --> 00:06:30,880 Speaker 3: the company's doing the financing is shifting. The emphasis being 138 00:06:30,920 --> 00:06:34,360 Speaker 3: on private markets. Part of your vision is how investing 139 00:06:34,440 --> 00:06:36,839 Speaker 3: is going to change as well, So let's spend some 140 00:06:36,920 --> 00:06:39,880 Speaker 3: time on that. How is investing going to change? How 141 00:06:39,920 --> 00:06:42,920 Speaker 3: do we think about public versus private now? And how 142 00:06:42,920 --> 00:06:44,599 Speaker 3: do you hope we're going to think about it in 143 00:06:44,720 --> 00:06:45,240 Speaker 3: years to come. 144 00:06:45,440 --> 00:06:47,040 Speaker 5: Look for me, this is year forty. 145 00:06:47,200 --> 00:06:49,920 Speaker 4: It's sometimes hard to believe I've been doing it this long, 146 00:06:50,080 --> 00:06:54,960 Speaker 4: but we grew up thinking private was risky and public 147 00:06:55,040 --> 00:06:58,119 Speaker 4: was safe, and probably forty years ago that was true. 148 00:06:58,360 --> 00:07:01,599 Speaker 4: Private was three products, equity, venture capital, and hedge funds, 149 00:07:01,640 --> 00:07:03,839 Speaker 4: all three of which can be risky, but done the 150 00:07:03,880 --> 00:07:07,239 Speaker 4: right way are excellent investments. And public was eight thousand 151 00:07:07,240 --> 00:07:10,320 Speaker 4: public companies, diversified portfolios of stocks and bonds. 152 00:07:11,080 --> 00:07:13,200 Speaker 5: Let's just say that's not how the world is today. 153 00:07:13,600 --> 00:07:16,840 Speaker 4: The world that we see private is safe and risky 154 00:07:17,360 --> 00:07:19,120 Speaker 4: and public is safe and risky. 155 00:07:19,560 --> 00:07:20,400 Speaker 5: And if that's. 156 00:07:20,200 --> 00:07:23,840 Speaker 4: True, everything we know about portfolio management, the way we 157 00:07:23,880 --> 00:07:27,280 Speaker 4: construct portfolios today is going to change. Think of the 158 00:07:27,360 --> 00:07:30,600 Speaker 4: typical investor a very bland I say, a three flavor 159 00:07:30,640 --> 00:07:34,560 Speaker 4: ice cream portfolio, stocks, bonds, and a little bit of alternatives. 160 00:07:35,760 --> 00:07:38,840 Speaker 4: Why well, because when something is risky, you put it 161 00:07:38,840 --> 00:07:42,040 Speaker 4: in a small bucket called alternatives. You watch it carefully 162 00:07:42,160 --> 00:07:44,880 Speaker 4: and you demand high returns out of it. But if 163 00:07:45,000 --> 00:07:48,480 Speaker 4: private is just another form, I think what you're going 164 00:07:48,560 --> 00:07:50,720 Speaker 4: to see is the whole business of what I call 165 00:07:50,760 --> 00:07:55,560 Speaker 4: replacement fixed income, which today means investment grade public credit. 166 00:07:56,080 --> 00:07:58,400 Speaker 4: I think is going to be investment grade public and 167 00:07:58,480 --> 00:08:01,520 Speaker 4: investment grade private teen months from now. I do not 168 00:08:01,600 --> 00:08:04,600 Speaker 4: believe investors will actually know the difference between investment grade 169 00:08:04,640 --> 00:08:07,680 Speaker 4: public and investment grade private. It will not be the issuers, 170 00:08:07,880 --> 00:08:09,920 Speaker 4: it will not be the size, it will not be 171 00:08:09,960 --> 00:08:12,840 Speaker 4: the ratings, it will not even be the liquidity. Everything 172 00:08:12,880 --> 00:08:16,840 Speaker 4: that exists in the public markets, repo borrowing, market making, 173 00:08:17,000 --> 00:08:19,680 Speaker 4: daily pricing, is coming to the private markets. 174 00:08:19,920 --> 00:08:22,239 Speaker 3: What is the total addressable market? What kind of numbers 175 00:08:22,280 --> 00:08:22,960 Speaker 3: are we thinking about? 176 00:08:23,240 --> 00:08:26,360 Speaker 4: We're talking about massive marketplace when we look at the 177 00:08:26,560 --> 00:08:28,360 Speaker 4: entirety of our industry. 178 00:08:28,520 --> 00:08:29,520 Speaker 5: The entirety of our. 179 00:08:29,400 --> 00:08:32,160 Speaker 4: Industry has been built out of the alternative bucket of 180 00:08:32,200 --> 00:08:36,160 Speaker 4: institutional investors. The fixed income bucket, which is the one 181 00:08:36,200 --> 00:08:38,679 Speaker 4: I'm talking about now, is fifty percent larger than the 182 00:08:38,720 --> 00:08:41,880 Speaker 4: alternative bucket and is mostly one hundred percent private. 183 00:08:42,160 --> 00:08:43,280 Speaker 5: Work to me public. 184 00:08:43,000 --> 00:08:46,840 Speaker 2: Investment grade iquitcy different to debt. 185 00:08:47,200 --> 00:08:48,960 Speaker 3: Can you tell me how that's going to be transformed, 186 00:08:48,960 --> 00:08:51,079 Speaker 3: and whether some of the companies that typically would becoming 187 00:08:51,120 --> 00:08:54,160 Speaker 3: public are going to state private. Whether we've got to 188 00:08:54,200 --> 00:08:56,520 Speaker 3: see a big shift in capital markets over the next 189 00:08:56,800 --> 00:08:58,080 Speaker 3: five years or so on that front. 190 00:08:58,120 --> 00:08:59,120 Speaker 5: Well, we're seeing it already. 191 00:08:59,160 --> 00:09:01,760 Speaker 4: So this is this This is a two pronged to answer, 192 00:09:01,800 --> 00:09:04,520 Speaker 4: which is eight thousand public companies? Is now four thousand 193 00:09:04,520 --> 00:09:07,640 Speaker 4: public companies. Fewer than one hundred companies go public every 194 00:09:07,679 --> 00:09:10,240 Speaker 4: year and more than one hundred companies go private. There 195 00:09:10,280 --> 00:09:12,880 Speaker 4: do not seem to be compelling reasons for companies to 196 00:09:13,000 --> 00:09:16,920 Speaker 4: be public, particularly with what's happened on the investing side. 197 00:09:17,120 --> 00:09:20,120 Speaker 4: So much of our market today is indexed and correlated. 198 00:09:20,559 --> 00:09:24,080 Speaker 4: Think of passive now sixty seventy percent of the overall marketplace. 199 00:09:24,880 --> 00:09:27,480 Speaker 4: Active management, which historically has been the buying and selling 200 00:09:27,559 --> 00:09:30,400 Speaker 4: of stocks, has really been a very, very difficult place 201 00:09:30,440 --> 00:09:32,480 Speaker 4: to be, has failed to be at the index ninety 202 00:09:32,480 --> 00:09:35,240 Speaker 4: plus percent of the time for twenty years. I think 203 00:09:35,280 --> 00:09:38,040 Speaker 4: we're going to see an evolution also take place in equity. 204 00:09:38,360 --> 00:09:41,600 Speaker 4: It's going to happen more slowly. In fixed income. We 205 00:09:41,679 --> 00:09:45,040 Speaker 4: are going to see fixed income replacement public and private 206 00:09:45,160 --> 00:09:47,240 Speaker 4: essentially come together. And the reason I know that is 207 00:09:47,240 --> 00:09:50,319 Speaker 4: we're seeing it every single day. And in fixed income 208 00:09:50,400 --> 00:09:54,720 Speaker 4: we have arbiters of credit quality rating agencies who tell 209 00:09:54,760 --> 00:09:57,240 Speaker 4: investors that something public and something private is of the 210 00:09:57,240 --> 00:09:57,960 Speaker 4: same quality. 211 00:09:58,280 --> 00:09:59,880 Speaker 5: In equity, we lack those. 212 00:09:59,760 --> 00:10:04,239 Speaker 4: Our But nonetheless, I think investors are beginning to understand 213 00:10:04,600 --> 00:10:07,160 Speaker 4: when ten stocks are thirty five to forty percent of 214 00:10:07,200 --> 00:10:10,680 Speaker 4: your portfolio and four stocks have determined all your returns 215 00:10:10,880 --> 00:10:14,520 Speaker 4: for the past four years, and one stock has basically 216 00:10:14,600 --> 00:10:16,880 Speaker 4: been one hundred percent of your quarter. I mean, think 217 00:10:16,920 --> 00:10:19,320 Speaker 4: of what we've done as a country. We've taken the 218 00:10:19,440 --> 00:10:22,200 Speaker 4: largest pool of savings in the world, four oh one 219 00:10:22,280 --> 00:10:25,360 Speaker 4: k twelve to thirteen trillion dollars from a group of 220 00:10:25,360 --> 00:10:27,439 Speaker 4: people who need retirement savings more than ever. 221 00:10:28,120 --> 00:10:28,720 Speaker 5: What are they own? 222 00:10:29,800 --> 00:10:33,960 Speaker 4: They own daily liquid stock index funds generally S and 223 00:10:34,000 --> 00:10:38,720 Speaker 4: P for fifty years. Why well, we have a mistaken 224 00:10:38,760 --> 00:10:42,440 Speaker 4: belief that public is safe and private is risky. You 225 00:10:42,480 --> 00:10:45,040 Speaker 4: look at the best retirement system anywhere in the Western 226 00:10:45,080 --> 00:10:48,760 Speaker 4: world in Australia, where they've introduced superannuation forty years ago. 227 00:10:49,559 --> 00:10:51,280 Speaker 4: Just a fancy way of saying is they gave the 228 00:10:51,320 --> 00:10:54,400 Speaker 4: equivalent of four oh one k investors access to private markets. 229 00:10:54,760 --> 00:10:57,960 Speaker 4: The returns have been nothing short of spectacular. Outcomes for 230 00:10:58,080 --> 00:11:01,400 Speaker 4: investors can be not a little bit better, fifty and 231 00:11:01,480 --> 00:11:02,520 Speaker 4: sixty percent better. 232 00:11:03,160 --> 00:11:06,760 Speaker 3: You know the view here public is transparent and privates 233 00:11:06,800 --> 00:11:07,199 Speaker 3: a payek. 234 00:11:07,800 --> 00:11:08,800 Speaker 2: How do you change that view? 235 00:11:09,320 --> 00:11:11,240 Speaker 4: Well, I think it's going to happen in fixed income. 236 00:11:11,280 --> 00:11:13,920 Speaker 4: I think when you get to daily pricing, when you 237 00:11:13,960 --> 00:11:17,000 Speaker 4: get to daily liquidity, when you can see a market. 238 00:11:17,400 --> 00:11:20,200 Speaker 4: But let's not fool ourselves. Markets are different than we 239 00:11:20,280 --> 00:11:24,000 Speaker 4: think they are. Everything changed in two thousand and eight, 240 00:11:24,080 --> 00:11:26,640 Speaker 4: as it should as a response to the financial crisis, 241 00:11:26,880 --> 00:11:29,520 Speaker 4: but we just did not experience as investors those changes 242 00:11:29,559 --> 00:11:31,600 Speaker 4: because right after we change the rules, we printed eight 243 00:11:31,640 --> 00:11:34,600 Speaker 4: trillion dollars and everything went up into the right. One 244 00:11:34,640 --> 00:11:37,480 Speaker 4: of the most interesting things that changed there is no 245 00:11:37,559 --> 00:11:40,960 Speaker 4: liquidity in public fixed income the SATs I've seen it 246 00:11:40,960 --> 00:11:44,000 Speaker 4: takes five days to sell an investment grade corporate bond. 247 00:11:44,480 --> 00:11:47,439 Speaker 4: So when you see a quote, is that liquid, Well, 248 00:11:47,480 --> 00:11:49,640 Speaker 4: we feel good because it's public, it's there, we can 249 00:11:49,679 --> 00:11:52,480 Speaker 4: see it. I do think we're going to end up 250 00:11:52,600 --> 00:11:55,760 Speaker 4: not caring in fixed income in the next eighteen months 251 00:11:55,840 --> 00:11:58,560 Speaker 4: as to whether something is public or private. The comfort 252 00:11:58,640 --> 00:12:01,240 Speaker 4: that people are developing in private markets on the fixed 253 00:12:01,280 --> 00:12:04,760 Speaker 4: income side, I believe will eventually extend to equity, and 254 00:12:04,800 --> 00:12:10,720 Speaker 4: we will see equity also adopt private side by side 255 00:12:10,720 --> 00:12:13,920 Speaker 4: with public. As I sometimes joke, investors will own equity 256 00:12:13,920 --> 00:12:16,800 Speaker 4: that is private rather than private equity, the difference being 257 00:12:16,800 --> 00:12:17,439 Speaker 4: the leverage. 258 00:12:17,559 --> 00:12:20,880 Speaker 3: You say, wait, you mean investors to regulate to say 259 00:12:20,880 --> 00:12:21,720 Speaker 3: it the same way. 260 00:12:21,920 --> 00:12:22,640 Speaker 5: I think they do. 261 00:12:22,880 --> 00:12:25,959 Speaker 4: I mean, the conversation with regulators is actually a fascinating 262 00:12:25,960 --> 00:12:27,720 Speaker 4: one because clearly. 263 00:12:28,000 --> 00:12:29,640 Speaker 5: Change is scary. 264 00:12:29,679 --> 00:12:34,280 Speaker 4: But the typical conversation is every dollar of borrowing that 265 00:12:34,360 --> 00:12:37,520 Speaker 4: moves outside of the banking system to the investment marketplace. 266 00:12:37,600 --> 00:12:40,040 Speaker 4: And let's face it, there are only two choices for regulators. 267 00:12:40,559 --> 00:12:43,360 Speaker 4: Money in an economy can come from investors or from banks. 268 00:12:43,400 --> 00:12:44,480 Speaker 5: There's no third choice. 269 00:12:44,960 --> 00:12:48,360 Speaker 4: So every dollar that moves actually delevers the banking system 270 00:12:48,360 --> 00:12:51,560 Speaker 4: and makes it safer, and people recoil and shock. And 271 00:12:51,600 --> 00:12:54,000 Speaker 4: this is just math. A bank is levered twelve to 272 00:12:54,040 --> 00:12:57,360 Speaker 4: fourteen times. The typical institutional investor is levered zero, the 273 00:12:57,400 --> 00:13:00,960 Speaker 4: typical mutual fund levered zero, typical bde levered one point 274 00:13:01,040 --> 00:13:04,640 Speaker 4: five times, typical retirement services company levered eight times. It 275 00:13:04,679 --> 00:13:10,800 Speaker 4: is deleveraging. The second is disclosure. We think it's not transparent. 276 00:13:11,200 --> 00:13:14,079 Speaker 4: The typical bank disclosure says loans to customers and loans 277 00:13:14,080 --> 00:13:16,960 Speaker 4: to companies. You click on our website you can see 278 00:13:16,960 --> 00:13:20,680 Speaker 4: every security we own every quarter. Then you talk about 279 00:13:21,720 --> 00:13:25,880 Speaker 4: maturity transformation. Maturity transformation is really where the economy has 280 00:13:25,920 --> 00:13:30,560 Speaker 4: suffered and financial markets have suffered. Banks are in business 281 00:13:30,559 --> 00:13:33,640 Speaker 4: to do maturity transformation. They borrow shortened form of deposits 282 00:13:33,640 --> 00:13:35,840 Speaker 4: and lend long in form of loans. That's not a 283 00:13:35,880 --> 00:13:38,360 Speaker 4: bad thing, that's just how they're set up. In the 284 00:13:38,360 --> 00:13:42,439 Speaker 4: investment marketplace, generally, you're talking about investors who are matched 285 00:13:42,559 --> 00:13:45,280 Speaker 4: from a maturity point of view. And the final thing 286 00:13:45,280 --> 00:13:48,160 Speaker 4: that I always sit with regulators, what percentage of assets 287 00:13:48,160 --> 00:13:50,800 Speaker 4: in the US banking system are investment grade? 288 00:13:51,400 --> 00:13:51,880 Speaker 5: They don't know. 289 00:13:53,000 --> 00:13:55,280 Speaker 4: We have a perception that they're all investment grade, but 290 00:13:55,320 --> 00:13:57,480 Speaker 4: the reality is about sixty percent of bank. 291 00:13:57,320 --> 00:13:58,880 Speaker 5: Assets are investment grade. 292 00:13:59,080 --> 00:14:01,160 Speaker 4: You look at a balance sheet like ours and just 293 00:14:01,160 --> 00:14:05,120 Speaker 4: as an example, we're ninety plus percent investment grade. And 294 00:14:05,160 --> 00:14:08,440 Speaker 4: so it's change, but it is actually changed. That is 295 00:14:08,480 --> 00:14:11,480 Speaker 4: making the system more robust and more diversified. And we 296 00:14:11,679 --> 00:14:14,280 Speaker 4: let's make no mistake we are the envy of the world. 297 00:14:14,320 --> 00:14:17,640 Speaker 4: We the US are the envy of the world. In Europe, 298 00:14:18,040 --> 00:14:21,360 Speaker 4: they are squeezing the banking system through Vaslin game, but 299 00:14:21,440 --> 00:14:24,400 Speaker 4: they haven't yet decided to allow investors to fill that gap. 300 00:14:24,920 --> 00:14:28,760 Speaker 4: And there are questions, why are we struggling with financial markets? Well, 301 00:14:29,080 --> 00:14:31,640 Speaker 4: you're squeezing the banking system and you're not allowing investors 302 00:14:31,640 --> 00:14:32,400 Speaker 4: to fill the gap. 303 00:14:32,680 --> 00:14:35,640 Speaker 3: Have you had this conversation with a senator from Massachusetts 304 00:14:36,320 --> 00:14:38,200 Speaker 3: As that conversation ever happened. 305 00:14:38,240 --> 00:14:39,760 Speaker 5: It hasn't, but I welcome it. 306 00:14:40,080 --> 00:14:43,200 Speaker 4: I've spent I spend lots of time in DC and 307 00:14:43,280 --> 00:14:46,760 Speaker 4: elsewhere speaking to regulators because we are in a really 308 00:14:46,840 --> 00:14:50,280 Speaker 4: dynamic phase. Everything that we think works the way it 309 00:14:50,320 --> 00:14:53,960 Speaker 4: works has changed, and we're about to experience and are 310 00:14:54,080 --> 00:14:57,440 Speaker 4: experiencing the changes that were made in two thousand and 311 00:14:57,480 --> 00:14:59,160 Speaker 4: eight in response to the financial crisis. 312 00:14:59,240 --> 00:15:04,360 Speaker 3: Speaking of change, which is Washington, DC is becoming increasingly interventionist. 313 00:15:04,680 --> 00:15:06,920 Speaker 3: You compared some of the benefits of doing business in 314 00:15:06,960 --> 00:15:11,360 Speaker 3: America and doing business in Europe. Doing business in America 315 00:15:11,400 --> 00:15:13,120 Speaker 3: is aren'turally not as easy as it used to be, 316 00:15:13,480 --> 00:15:14,760 Speaker 3: and it may well get harder. 317 00:15:15,280 --> 00:15:16,680 Speaker 2: What's your view on where we're heading. 318 00:15:18,000 --> 00:15:20,320 Speaker 5: You may be right, but it's all relative. 319 00:15:20,880 --> 00:15:22,800 Speaker 4: This is the single best market to be in at 320 00:15:22,800 --> 00:15:24,120 Speaker 4: this point in time, Barnutt. 321 00:15:24,880 --> 00:15:27,400 Speaker 3: When we spoke before Christmas and we talked about the 322 00:15:27,440 --> 00:15:30,240 Speaker 3: choices on the menu, then for the upcoming election, you 323 00:15:30,320 --> 00:15:31,200 Speaker 3: went too impressed. 324 00:15:31,600 --> 00:15:34,160 Speaker 2: The menu's changed a little bit. What's your view? 325 00:15:34,880 --> 00:15:38,200 Speaker 4: Well, since i'll be under banishment here if I give 326 00:15:38,240 --> 00:15:40,080 Speaker 4: you a direct view, let me to say. The way 327 00:15:40,120 --> 00:15:43,600 Speaker 4: I frame this is you are either more scared of 328 00:15:43,640 --> 00:15:46,360 Speaker 4: four years of the status quo or more scared of 329 00:15:46,400 --> 00:15:48,520 Speaker 4: four years of change. You just have to decide what 330 00:15:48,560 --> 00:15:51,640 Speaker 4: you're more scared of. Me personally, I'm more scared of 331 00:15:51,640 --> 00:15:52,800 Speaker 4: four years of the status quo. 332 00:15:53,040 --> 00:15:54,200 Speaker 2: What's wrong with the status quo? 333 00:15:55,840 --> 00:15:59,960 Speaker 4: I see a direction where the trend is not our friend. 334 00:16:00,160 --> 00:16:03,560 Speaker 4: Right now, we are, as you suggest, we are the 335 00:16:03,600 --> 00:16:05,400 Speaker 4: single best place to do business in the world. We 336 00:16:05,440 --> 00:16:09,040 Speaker 4: are the luckiest people in the world. Can we screw 337 00:16:09,040 --> 00:16:09,360 Speaker 4: it up? 338 00:16:09,880 --> 00:16:10,440 Speaker 5: Yeah? We can. 339 00:16:12,120 --> 00:16:15,120 Speaker 4: The notion that we are spending two trillion and excess 340 00:16:15,160 --> 00:16:18,200 Speaker 4: of what we take in in peacetime with full employment 341 00:16:19,000 --> 00:16:21,960 Speaker 4: does not bode well for the availability of capital to 342 00:16:22,000 --> 00:16:23,760 Speaker 4: do what we need to do for the next generation. 343 00:16:24,360 --> 00:16:26,520 Speaker 4: We're spending the next generation's money currently. 344 00:16:27,080 --> 00:16:28,920 Speaker 2: Do you see anyone in the campaign trail that's waiting 345 00:16:28,960 --> 00:16:29,600 Speaker 2: to do And I think. 346 00:16:29,440 --> 00:16:33,800 Speaker 5: About that on the campaign trail, not in reality. Let's hope. 347 00:16:34,280 --> 00:16:36,000 Speaker 5: All we can hope for is better governance. 348 00:16:36,280 --> 00:16:40,400 Speaker 3: I've said repeatedly on Bloomberg Surveymance, on Bloomberg TV, on 349 00:16:40,440 --> 00:16:43,000 Speaker 3: Bloomback Radio for years that America has the privilege, the 350 00:16:43,080 --> 00:16:45,160 Speaker 3: unique privilege of acting recklessly. 351 00:16:45,880 --> 00:16:46,720 Speaker 2: Are we losing that? 352 00:16:47,600 --> 00:16:49,720 Speaker 5: Not yet? We have a long way to go. 353 00:16:49,760 --> 00:16:52,560 Speaker 4: We have lots of examples around the globe of people 354 00:16:52,560 --> 00:16:54,840 Speaker 4: who have acted recklessly for a much longer period of 355 00:16:54,840 --> 00:16:57,320 Speaker 4: time than we have been acting recklessly. But we also 356 00:16:57,400 --> 00:17:00,720 Speaker 4: have obligations that others do not. Right now, we are 357 00:17:00,760 --> 00:17:04,840 Speaker 4: the beneficiary of being the strongest economy, the strongest capital market, 358 00:17:05,080 --> 00:17:06,120 Speaker 4: the strongest. 359 00:17:05,640 --> 00:17:07,240 Speaker 5: Military, and the best place to do business. 360 00:17:07,320 --> 00:17:09,080 Speaker 4: I mean, if you tick off what's happened over the 361 00:17:09,119 --> 00:17:11,600 Speaker 4: past years here, we may not like how we got 362 00:17:11,600 --> 00:17:13,879 Speaker 4: here and how we financed it. Three years ago we 363 00:17:13,920 --> 00:17:17,040 Speaker 4: decided to build infrastructure. We allocated two trillion dollars. None 364 00:17:17,080 --> 00:17:19,600 Speaker 4: of that's built yet, it's all being built. Two years 365 00:17:19,640 --> 00:17:22,840 Speaker 4: ago we spent fifty two billion dollars of semiconductor subsidies 366 00:17:22,880 --> 00:17:25,520 Speaker 4: to build semiconductors here. Not a single plant is open. 367 00:17:25,600 --> 00:17:28,880 Speaker 4: It's all being built a year ago. Inflation Reduction Act 368 00:17:28,960 --> 00:17:32,679 Speaker 4: to encourage the manufacturer renewables one point three to two 369 00:17:32,720 --> 00:17:33,560 Speaker 4: point three trillion. 370 00:17:33,800 --> 00:17:36,359 Speaker 5: No one really knows. Not a single plant is opened. 371 00:17:37,240 --> 00:17:40,440 Speaker 4: We are the beneficiary and the largest recipient of foreign 372 00:17:40,480 --> 00:17:43,080 Speaker 4: direct investment three years in a row. So people around 373 00:17:43,119 --> 00:17:45,640 Speaker 4: the globe are actually figuring out we're better off here. 374 00:17:46,280 --> 00:17:48,720 Speaker 5: And something tells me we're ramping defense production. 375 00:17:49,400 --> 00:17:53,600 Speaker 4: All of those things are fiscally stimultive and positive fore employment. Oh, 376 00:17:53,640 --> 00:17:57,000 Speaker 4: by the way, we have no legal immigration. This sets 377 00:17:57,080 --> 00:18:01,200 Speaker 4: us up very well fiscally. A strong economy, which I 378 00:18:01,240 --> 00:18:01,879 Speaker 4: think we're seeing. 379 00:18:02,760 --> 00:18:05,240 Speaker 3: Federal Reserve is kind of interest rates by fifty basis points. 380 00:18:05,280 --> 00:18:07,679 Speaker 3: Are you in Toulston slot camp? And you can agree with, 381 00:18:07,960 --> 00:18:11,000 Speaker 3: agree or disagree with. Tulson of course works here. He 382 00:18:11,119 --> 00:18:13,240 Speaker 3: believes this economy doesn't need rate cuts. We're in a 383 00:18:13,240 --> 00:18:14,600 Speaker 3: great place. Do you share that view? 384 00:18:14,680 --> 00:18:15,399 Speaker 5: I said it. 385 00:18:15,560 --> 00:18:19,600 Speaker 4: I was, I guess unfortunate to be on TV an 386 00:18:19,600 --> 00:18:21,879 Speaker 4: hour after the raid cut, and I said, this was 387 00:18:21,920 --> 00:18:24,080 Speaker 4: a very very expensive insurance policy. 388 00:18:24,359 --> 00:18:25,440 Speaker 2: What's expensive about it? 389 00:18:25,920 --> 00:18:28,199 Speaker 5: The notion that we would cut rates. 390 00:18:28,320 --> 00:18:31,000 Speaker 4: Financial markets are wide open, equities are at all time high, 391 00:18:31,080 --> 00:18:33,919 Speaker 4: financing is available, real estate prices are going up in 392 00:18:33,960 --> 00:18:39,040 Speaker 4: every market, and yet we're stimulating, and we're stimulating fiscally. 393 00:18:39,600 --> 00:18:43,120 Speaker 4: It is not clear that we need more rate cuts 394 00:18:43,160 --> 00:18:45,200 Speaker 4: at this point in time. And to the extent we 395 00:18:45,920 --> 00:18:48,520 Speaker 4: encourage growth, and growth was very strong, as you saw 396 00:18:48,600 --> 00:18:53,000 Speaker 4: from GDP for the quarter. To the extent we accelerate 397 00:18:53,040 --> 00:18:55,119 Speaker 4: the economy and have to go in the other direction, 398 00:18:55,359 --> 00:18:56,400 Speaker 4: that would not be a good deck. 399 00:18:56,840 --> 00:18:58,840 Speaker 2: Just pause. You think the Fed might have to start 400 00:18:58,920 --> 00:19:00,080 Speaker 2: hiking interest rates again. 401 00:19:01,119 --> 00:19:03,800 Speaker 4: I'm not saying that yet. I'm just saying I see 402 00:19:03,840 --> 00:19:06,639 Speaker 4: no reason for the cutting of rates right now. So 403 00:19:06,720 --> 00:19:09,159 Speaker 4: am I in the Torston camp? I'm absolutely in the 404 00:19:09,160 --> 00:19:11,359 Speaker 4: Torston camp and it's my privilege to have him down 405 00:19:11,400 --> 00:19:11,680 Speaker 4: the hall. 406 00:19:11,760 --> 00:19:13,359 Speaker 5: I make sure to check in with him every morning. 407 00:19:13,600 --> 00:19:15,600 Speaker 3: I do as well, Mark, Ryan, this was a privilege, 408 00:19:15,680 --> 00:19:17,760 Speaker 3: a pleasure. Good luck for the next five years. And 409 00:19:17,800 --> 00:19:18,960 Speaker 3: I hope it's told you every year. 410 00:19:19,280 --> 00:19:20,240 Speaker 5: Every year you get to do it. 411 00:19:20,280 --> 00:19:22,000 Speaker 2: Thank Mark, Thank you, sir, appreciate it.