WEBVTT - The Age of Disruption with PIMCO 0:00:09.840 --> 0:00:13.880 Welcome to the Bloomberg Surveillance podcast name m Keene, jay Leie. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.720 Bloomberg dot Com, and of course on the Bloomberg Place 0:00:27.800 --> 0:00:30.800 to say, We're in Newport Beach, California, at Pimcoe's global 0:00:30.840 --> 0:00:34.400 headquarters alongside me as the CEO Money Roman and the 0:00:34.520 --> 0:00:37.120 c i O Dan Iverson. Guys Greater to catch up 0:00:37.120 --> 0:00:39.440 with you both. What a day to be speaking about 0:00:39.440 --> 0:00:41.760 the global bond market. I actually want to begin though 0:00:42.080 --> 0:00:46.760 in Q four the equity markets crater in the credit 0:00:46.800 --> 0:00:50.040 market arguably is seizing GARB, and pretty much every single 0:00:50.040 --> 0:00:53.920 one of the major funds here at Pimco delivers positive returns. 0:00:54.760 --> 0:00:58.280 How do we arrive at that moment? Monny Well, I 0:00:58.280 --> 0:01:02.240 would say that's the occasion to show we get tested, 0:01:03.000 --> 0:01:05.600 and we get tested in difficult markets, and we had 0:01:05.600 --> 0:01:09.120 a view thanks too down on value and what the 0:01:09.240 --> 0:01:13.800 right position was to have before QUE four. I wouldn't 0:01:13.800 --> 0:01:17.160 say we saw that coming, but proper risk management and 0:01:17.280 --> 0:01:20.600 proper liquidity medic avoid the problem and we're quite pleased 0:01:20.640 --> 0:01:24.080 about the result in QUE four defensive arguably twelve months 0:01:24.120 --> 0:01:28.440 ago down going into the key final quarter, coming out 0:01:28.480 --> 0:01:31.840 of it and deciding to re risk is a different proposition. 0:01:32.360 --> 0:01:35.319 De risking is one thing than having the I guess, 0:01:35.440 --> 0:01:38.280 enthusiasm confidence to say now is the time to re risk, 0:01:38.640 --> 0:01:42.000 that's a different question. You approached that by saying now 0:01:42.120 --> 0:01:44.680 is the time to re risk, slightly buy some of 0:01:44.720 --> 0:01:46.759 the weakness what we three, what you actually did coming 0:01:46.760 --> 0:01:49.680 into the new year. I think that's right. That you know, 0:01:49.840 --> 0:01:52.360 in response to an environment in the fourth quarter where 0:01:52.400 --> 0:01:56.600 we did sense that markets were overshooting fundamentals, we decided 0:01:56.640 --> 0:02:00.360 as a firm in across these strategies to add risk 0:02:00.520 --> 0:02:03.720 in liquid more liquid areas of the market, as more 0:02:03.720 --> 0:02:07.120 of a tactical view, uh, not trying to be too 0:02:07.200 --> 0:02:10.919 overconfident and looking at time bottoms and markets, but usually 0:02:10.919 --> 0:02:13.520 the opportunity where others needed liquidity at that point in 0:02:13.560 --> 0:02:16.400 time to add risk on the margin and look to 0:02:16.440 --> 0:02:19.000 generate a bit more total return, at least during the 0:02:19.040 --> 0:02:21.000 first half of the year. So many people talk about 0:02:21.000 --> 0:02:23.399 the process and how the process is different. It doesn't 0:02:23.400 --> 0:02:25.120 matter what asset manager I speak to, they say, our 0:02:25.120 --> 0:02:27.799 process is different. That gives us our ridge. What is 0:02:27.840 --> 0:02:30.600 so special about the process here down We have a 0:02:30.680 --> 0:02:33.760 large team, we have a global footprint. I think that 0:02:33.840 --> 0:02:36.880 it starts there um, so we have access to different 0:02:36.880 --> 0:02:40.280 areas of the markets that certain firms do not. And 0:02:40.280 --> 0:02:41.640 then I think the other key theme, and one of 0:02:41.639 --> 0:02:44.440 the reasons we're here discussing the secular outlook today is 0:02:44.440 --> 0:02:47.360 that we take a long term orientation. We don't try 0:02:47.360 --> 0:02:51.560 to time markets over different quarters, you know, even over 0:02:51.560 --> 0:02:54.240 the course of you know, a one year period. With 0:02:54.320 --> 0:02:56.880 that longer term orientation, you know, we try to protect 0:02:56.880 --> 0:02:59.880 our clients from areas of the market where from the 0:03:00.000 --> 0:03:02.680 ellups and where the ingredients are there for work extreme underperform. 0:03:02.840 --> 0:03:06.360 What do you think that froth is right now, there's 0:03:06.360 --> 0:03:08.680 froth you know, across different areas of the market, But 0:03:08.760 --> 0:03:11.000 by far the area of most concerned for us here 0:03:11.000 --> 0:03:14.079 at PIMCO is in the credit markets and specifically relating 0:03:14.080 --> 0:03:17.000 to corporate credit risk. That's an area where you know, 0:03:17.040 --> 0:03:19.639 we've had about a decade now, are very low yields 0:03:19.639 --> 0:03:21.960 in an area where we're getting you know, a lot 0:03:21.960 --> 0:03:24.560 more concerned about fundamentals. And it's course spader spading, and 0:03:24.600 --> 0:03:27.840 it's been a great time for week issuers to issue 0:03:27.880 --> 0:03:29.800 paper in Europe and in the US who was very 0:03:29.840 --> 0:03:31.760 weak covenant, and it's been good for them. And I 0:03:31.840 --> 0:03:35.920 think we've shy away from morning disposition. And when things 0:03:36.000 --> 0:03:38.880 get worse, do you think we'd have many opportunity to 0:03:38.960 --> 0:03:41.000 buy them cheap? You think things aren't gonna get worse 0:03:41.520 --> 0:03:43.840 for sure? On the on the week on the weak 0:03:44.040 --> 0:03:48.160 high credit was weak covenant in business which are cyclical. 0:03:49.320 --> 0:03:51.640 Of course, what was interesting about spending the day with 0:03:51.720 --> 0:03:56.160 you guys is actually how bearish you sound around corporate credit. 0:03:56.560 --> 0:03:59.320 But we bond managers were always barish, right well, typically 0:03:59.400 --> 0:04:01.920 that's the store, sorry, but but much more so relative 0:04:01.920 --> 0:04:04.320 to your competition. I speak to bond investors on a 0:04:04.400 --> 0:04:06.240 daily basis. I have to say I've been struck by 0:04:06.320 --> 0:04:09.040 just how bearished down the firm seems to be on 0:04:09.120 --> 0:04:12.000 corporate credit right now. It's a it's a subtle point. 0:04:12.200 --> 0:04:14.600 I think when we look at the world today, we 0:04:14.720 --> 0:04:18.120 see some near tournament certainty that could be resolved, at 0:04:18.200 --> 0:04:22.200 least to some degree, tremendous mental liquidity combinative central banks, 0:04:22.440 --> 0:04:25.600 so within the credit sector, spreads can certainly go tighter 0:04:25.640 --> 0:04:28.480 over the short term but this is the signal area 0:04:29.240 --> 0:04:31.760 of the financial markets that are prone to overshooting to 0:04:31.839 --> 0:04:35.760 the downside when people's views towards economic growth change, and 0:04:36.040 --> 0:04:39.680 as many said, as primarily fixed income managers, the most 0:04:39.760 --> 0:04:42.760 important task that we need to focus on is avoiding 0:04:42.880 --> 0:04:46.520 permanent capital impairment or the type of downside volatility that's 0:04:46.560 --> 0:04:49.559 likely to take place when people begin to fear credit 0:04:49.680 --> 0:04:51.800 risk once again money. You mentioned some of the excesses 0:04:51.920 --> 0:04:54.040 that we've experienced over the last couple of years. It's 0:04:54.040 --> 0:04:55.880 being with some members of the team. They think maybe 0:04:56.200 --> 0:04:58.480 things could get a whole lot more excessive in the 0:04:58.560 --> 0:05:01.400 coming years. There was a comparison used earlier on It's 0:05:01.400 --> 0:05:04.039 way now in the period approaching the mid two thousand's. 0:05:04.680 --> 0:05:07.640 Is that historical parallel that you're thinking about increasingly in 0:05:07.640 --> 0:05:09.760 the coming years. I think we do. I think I 0:05:09.800 --> 0:05:12.720 think we will both say it's very hard to call 0:05:13.760 --> 0:05:17.360 the turn of the market. But what you want to 0:05:17.440 --> 0:05:20.040 have is a framework where you think of value and 0:05:20.200 --> 0:05:23.520 you say, given us enario, what are you going to do? 0:05:23.680 --> 0:05:26.120 What are the things you want to buy? And make 0:05:26.200 --> 0:05:29.080 sure that we do what we say we're going to do. 0:05:29.640 --> 0:05:32.920 So you know, why do we take pride in what 0:05:33.400 --> 0:05:37.160 of funds offered because in times of turbanent market, when 0:05:37.200 --> 0:05:40.480 equity go down, we need to perform. We are the 0:05:40.560 --> 0:05:44.039 building block in people's portfolio where they want to count 0:05:44.080 --> 0:05:46.599 on us to perform in difficult markets, and the last 0:05:46.600 --> 0:05:49.520 thing they need is us to be overweight in lazy 0:05:49.680 --> 0:05:54.240 credit where the credit drops fifteen points and we haven't 0:05:54.279 --> 0:05:57.520 done property or work. Within the secular outlook, number five 0:05:57.880 --> 0:06:00.000 is the one that really stuck out. So make financial 0:06:00.080 --> 0:06:03.560 or market vulnerabilities the idea that the market no longer 0:06:03.640 --> 0:06:07.000 absorbs the news, it makes the news. Dan, talk to 0:06:07.040 --> 0:06:08.520 me a little bit more about that. How concerned are 0:06:08.560 --> 0:06:11.760 you about this financial market vulnerability that you've highlighted in 0:06:11.800 --> 0:06:17.080 the report. We're quite concerned. Now again, you know this dynamic. Uh. 0:06:17.800 --> 0:06:19.880 It may take some time for this dynamic to rear 0:06:19.880 --> 0:06:24.200 it's ugly head, but we're concerned about the markets being 0:06:24.240 --> 0:06:29.120 able to facilitate risk transfer when investor mindsets change. Uh. 0:06:29.320 --> 0:06:31.400 We saw a preview of that in the fourth quarter. 0:06:31.760 --> 0:06:34.400 So as an active manager, you need to be prepared 0:06:34.800 --> 0:06:38.000 for market overshooting and ideally, if you're prepared, you could 0:06:38.040 --> 0:06:41.840 profit from that. The keyword there many active UM. I 0:06:41.920 --> 0:06:44.120 imagine the argument for active is a whole lot stronger 0:06:44.160 --> 0:06:47.039 over the last twelve months that it once was were 0:06:47.480 --> 0:06:49.960 active for fixed income. So I think I think we 0:06:50.080 --> 0:06:53.000 have a very different view than most waiving active fixed 0:06:53.000 --> 0:06:55.680 income management, that it is the good and it's as 0:06:55.720 --> 0:06:57.600 simple as this, and there are reason why this is 0:06:57.640 --> 0:07:00.880 the case. They are structural reason in terms of how 0:07:00.920 --> 0:07:07.400 the indices are computed. There are behavior reasons why some 0:07:07.760 --> 0:07:11.640 agents in the market have none company non economic reason 0:07:11.720 --> 0:07:14.760 to buy papers. Think of the Central Bank. I think 0:07:14.880 --> 0:07:18.720 sometimes of insurance company who have servency issues. And so 0:07:19.520 --> 0:07:23.120 we think we can deliver constituentally axcess return of a 0:07:23.160 --> 0:07:26.960 benchmark in a much easier way than equity managers can. 0:07:27.320 --> 0:07:29.760 And so when I hear about active versis passive, I said, 0:07:29.760 --> 0:07:31.880 don't talk to us. We've delivered a good on a one, 0:07:31.960 --> 0:07:35.480 three or five, an ten year basis. But there are reasons, 0:07:35.680 --> 0:07:39.880 and our job is somehow easier than equity managers, and 0:07:39.960 --> 0:07:42.640 I think we we acknowledge this. But it's a lot 0:07:42.720 --> 0:07:44.840 of tools we can do. Imagine a company. A company 0:07:44.880 --> 0:07:49.720 always has two hundred bonds outstanding, some trading dollars, some 0:07:49.840 --> 0:07:53.280 trading years. You can serve them back there's so many 0:07:53.400 --> 0:07:55.360 things we can do. We can use derivative, there's so 0:07:55.400 --> 0:07:59.880 many things we can do to enhance value and deliver better. 0:08:00.560 --> 0:08:02.320 It sounds to me like, do you think you can 0:08:02.320 --> 0:08:05.440 avoid the right of department phase? You won't be part 0:08:05.520 --> 0:08:07.160 of that. We won't be part of this. You need 0:08:07.200 --> 0:08:09.200 to stigment your offering. You need to say this is 0:08:09.240 --> 0:08:12.440 a value proposition. We're never going to be the cheapest. 0:08:13.000 --> 0:08:15.440 We're trying to add value day after day. We want 0:08:15.440 --> 0:08:18.360 to be there when things are difficult, and we want 0:08:18.360 --> 0:08:20.360 to be too, you know, we need to invest into 0:08:20.400 --> 0:08:24.360 our business and have other things to offer which go 0:08:24.520 --> 0:08:27.760 beyond simple performance. Well, do do you think that's unique 0:08:27.760 --> 0:08:30.239 to PIMCO or just unique to fixed income bond investors? 0:08:30.280 --> 0:08:32.480 To to manage point quite clear that there's a big 0:08:32.520 --> 0:08:35.720 difference between the equity investor and the fixed income investors 0:08:35.760 --> 0:08:38.760 as specific to PIMP or specific to fixed income investing. 0:08:39.120 --> 0:08:42.679 But I think the advantages that we have relate to 0:08:42.760 --> 0:08:44.760 the fact that we're operating in the fixed in camacy 0:08:44.840 --> 0:08:48.719 class where you have noneconomic players that work, you know, 0:08:48.880 --> 0:08:52.600 literally every day that trading markets are open. I would 0:08:52.880 --> 0:08:55.640 uh and do believe that PIMCO has some advantages at 0:08:55.679 --> 0:08:58.240 this stage of the cycle. We've had about a decade 0:08:58.520 --> 0:09:03.160 of convergence in terms of beta compensation. Going forward, we 0:09:03.200 --> 0:09:05.760 think it's gonna be much more challenging environment and environment 0:09:05.840 --> 0:09:09.280 with lower base case returns but much higher volatility. And 0:09:09.640 --> 0:09:12.959 in that type of environment, Pimpco should excel given the 0:09:13.040 --> 0:09:16.079 depth and breadth of our resources across markets and size matters. 0:09:16.120 --> 0:09:18.839 I mean, the reality is we have a lot of 0:09:18.960 --> 0:09:22.439 people who helped them delivers the performance from you know, 0:09:22.559 --> 0:09:26.640 seventy credit analysts to a hundred quant and these people 0:09:26.800 --> 0:09:31.599 matter in terms of long term sustainable returns. So what 0:09:31.920 --> 0:09:35.319 what often people don't see is the need for investment 0:09:35.920 --> 0:09:39.920 inside the kitchen and the need for investment is growing. 0:09:40.040 --> 0:09:42.640 One way, if you needed twenty people twenty years ago, 0:09:42.920 --> 0:09:45.640 you need two hundreds today. Let's talk about that further. 0:09:45.760 --> 0:09:47.600 I have so many people say I need a bigger team, 0:09:47.640 --> 0:09:50.080 We need to invest in technology more digdator as the future. 0:09:50.840 --> 0:09:53.480 Help me understand what you guys are actually doing right now, 0:09:53.960 --> 0:09:57.960 how that you create alpha developed that story by investing 0:09:58.000 --> 0:10:00.240 in tech, investing in people actually can be so real. 0:10:00.320 --> 0:10:04.439 Examples down how does it work? There are one areas technology, 0:10:04.559 --> 0:10:10.360 technology and analytics, acquiring larger data sets, UH, utilizing those 0:10:10.440 --> 0:10:13.880 data sets, you know, understanding key drivers of return. We 0:10:13.960 --> 0:10:17.480 even use this big data for economic forecasting, UH, coming 0:10:17.559 --> 0:10:21.000 through a lot of offerings as well. So that's one area, 0:10:21.200 --> 0:10:24.480 you know, the highly technical aspects of data collection. Another 0:10:24.559 --> 0:10:26.000 area that we've been spending a lot of time and 0:10:26.040 --> 0:10:28.520 many has been quite helpful in this arena is in 0:10:28.720 --> 0:10:34.200 behavioral finance, UH, working with this research to make better 0:10:34.720 --> 0:10:37.880 personal decisions when we look to retract. And we've got 0:10:37.920 --> 0:10:39.520 a tough in amera. I mean, I mean the the 0:10:39.840 --> 0:10:44.439 the biggest problem of fund management is other confidence. And 0:10:44.559 --> 0:10:47.400 so we signed this partnership with University of Chicago. Why 0:10:47.520 --> 0:10:50.160 because we wanted to have a way to rationally see 0:10:50.160 --> 0:10:52.079 how we make decision, what we do well, what we 0:10:52.160 --> 0:10:55.400 do less well, how we optimize risk and a portfolio, 0:10:55.600 --> 0:10:57.800 and be able to back that with data. Can you 0:10:57.840 --> 0:10:59.800 give us a real life example of how this is 0:10:59.800 --> 0:11:02.679 how in the last twelve months I've done sure. We 0:11:02.920 --> 0:11:07.800 literally have teams that look at senior portfolio managers how 0:11:07.880 --> 0:11:11.839 we make decisions across markets relative to what's optimal. So, 0:11:11.960 --> 0:11:15.240 for example, do we tend to hold out to losers 0:11:15.400 --> 0:11:17.880 a little bit longer than we should do. We run 0:11:18.040 --> 0:11:20.400 with trades that are working out on behalf of investors 0:11:21.120 --> 0:11:25.600 long enough. Uh, we get that information. It's sometimes puts 0:11:25.679 --> 0:11:27.439 us a little bit of an uncomfortable area because it 0:11:27.480 --> 0:11:30.319 reminds you of how the brain is playing tricks. But 0:11:30.400 --> 0:11:32.240 at the end of the day, it leads to better 0:11:32.320 --> 0:11:35.599 structure where we can understand our own tendencies and biases, 0:11:35.760 --> 0:11:38.920 even within the PIMCO group, ideally learned from it, and 0:11:39.000 --> 0:11:41.480 then make better decisions going forward. And this is a 0:11:41.559 --> 0:11:44.679 type of research stream that we intend to continue for 0:11:44.760 --> 0:11:47.800 many years to come. You've acted on these conclusions, Manti, Yes, 0:11:47.880 --> 0:11:49.240 we do, we do, and I think I think it's 0:11:49.280 --> 0:11:52.240 a constant evolution. Right, There's plenty of things we learned, 0:11:52.240 --> 0:11:54.959 you know, we we were just were is welcome, Richard 0:11:55.000 --> 0:11:57.960 THEATO is a consultant, you know, to think about a retirement, 0:11:57.960 --> 0:12:00.760 but also to think of how we may decision. You know. 0:12:00.960 --> 0:12:03.240 Then there's something great in the I. C is always 0:12:03.240 --> 0:12:05.720 the last one to talk, so everyone has a chance 0:12:05.760 --> 0:12:09.040 to opine, and the most senior guy is not the 0:12:09.160 --> 0:12:11.520 one who lecture everybody for ten minutes before everyone has 0:12:11.520 --> 0:12:13.920 a chance to talk with Guess what you know? People 0:12:14.400 --> 0:12:16.839 usually don't disagree with the buss once it's talk for 0:12:16.960 --> 0:12:19.839 ten minutes and so and so you need to have 0:12:19.920 --> 0:12:22.360 a process and you need to think about the process, 0:12:22.480 --> 0:12:26.719 so everyone has a voice from other portfolio managers to 0:12:26.880 --> 0:12:29.280 quant to behavior, finance and be able to kind of 0:12:29.360 --> 0:12:31.920 combine all of this together to you know, make the 0:12:32.000 --> 0:12:35.120 best possible portrait, even in the new office outside of 0:12:35.160 --> 0:12:37.760 the comfort of the West coast. How's that going and 0:12:37.800 --> 0:12:40.440 how does that attract the kind of talent Ultimately one 0:12:40.440 --> 0:12:42.960 of attracts at them card. So we thought, I mean, 0:12:43.000 --> 0:12:45.360 I think Dan and I an executive committee, thought that 0:12:45.520 --> 0:12:48.760 we needed an office to be able to hire talent 0:12:48.960 --> 0:12:52.319 and technology. And I think it's fair to say than 0:12:52.440 --> 0:12:56.000 when it comes to hire tech people, we compete against 0:12:56.040 --> 0:13:00.480 other financial companies, but we also compete against big tech 0:13:00.559 --> 0:13:04.720 company and also startup And we looked at six different 0:13:04.800 --> 0:13:11.959 locations and concluded that Austin, given the university, was the 0:13:12.040 --> 0:13:14.319 best place for us over the next twenty years to 0:13:14.480 --> 0:13:17.760 hire significant amount of talent and technology. And then we're 0:13:17.760 --> 0:13:19.719 going to move, you know, some small part of the 0:13:19.760 --> 0:13:22.719 businesses which makes sense to be in Texas, and so 0:13:22.880 --> 0:13:24.800 that was quite attractive and we did a quite in 0:13:24.880 --> 0:13:27.760 depth study and and and and you know, so far 0:13:27.880 --> 0:13:30.320 we have a better hundred people down there. You've been expanding, 0:13:30.840 --> 0:13:34.000 you've expanded in some municiples as well. What's left any 0:13:34.040 --> 0:13:36.120 gaps here at PIMCOW that you're looking to fill and 0:13:36.240 --> 0:13:37.880 it holds that you'd like to fill out the next 0:13:37.920 --> 0:13:40.839 coming years. I think the main thing is not so 0:13:40.960 --> 0:13:42.880 much what you need to feel, is whether you know 0:13:43.040 --> 0:13:45.120 something about it and how you're going to grow it. 0:13:45.600 --> 0:13:48.319 And I think we are of the view that we 0:13:48.440 --> 0:13:51.480 want to grow organically and that from time to time 0:13:51.559 --> 0:13:55.360 there may be small things we can do and bring 0:13:55.520 --> 0:14:00.319 to the PIMCO organization, but by large, it's hurrying people, 0:14:00.440 --> 0:14:03.240 and it's make sure that we understand what we're good 0:14:03.280 --> 0:14:05.319 at and what we're not good at, and and and 0:14:06.160 --> 0:14:08.439 and there's a lot of introspection which comes into this 0:14:08.640 --> 0:14:10.880 and making sure that we do that well. And a 0:14:10.920 --> 0:14:12.360 lot of what we're trying to do is anticipate the 0:14:12.440 --> 0:14:15.599 next investment opportunity for our clients. So, you know, we 0:14:15.640 --> 0:14:19.440 talked about credit, credit issuance, development of markets. A lot 0:14:19.480 --> 0:14:21.880 of that's a credit outside the United States with an 0:14:21.880 --> 0:14:25.520 emerging markets across Asia. You know, even in pockets of Europe. 0:14:25.680 --> 0:14:29.120 So a lot of our growth areas are focused on 0:14:29.240 --> 0:14:32.280 where we anticipate there to be the best return. In 0:14:32.360 --> 0:14:36.160 this business, you have to start sometimes multiple years before 0:14:36.760 --> 0:14:39.200 that opportunity actually is out there and ready to be 0:14:39.280 --> 0:14:41.520 realized upon. So that's one of the key areas of 0:14:41.600 --> 0:14:45.440 our focus resources with a slight tilt towards credit outside 0:14:45.440 --> 0:14:48.440 the United States, let's talk about private credit markets. Is 0:14:48.440 --> 0:14:50.760 that an opportunity money that you'd like to ded what 0:14:50.880 --> 0:14:52.720 it is? An opportunity and it's something that we've been 0:14:52.760 --> 0:14:57.120 doing for limited that right, eleven years and it's an 0:14:57.120 --> 0:15:00.400 opportunity and it's going to become even more attractive when 0:15:00.440 --> 0:15:03.880 the business cycle turns. How scalable is it, Well, it's 0:15:04.000 --> 0:15:06.600 never going to be as scalable as what PIMCO does 0:15:06.920 --> 0:15:09.960 on the liquid side, and you know what, it doesn't matter. 0:15:10.600 --> 0:15:14.520 But what we do think is that there are opportunity 0:15:14.600 --> 0:15:17.120 because of what banks used to do that they don't 0:15:17.160 --> 0:15:20.880 do anymore, for us to do various things. And it 0:15:21.040 --> 0:15:27.440 goes from lending against real estate to buying securities in housing, 0:15:27.640 --> 0:15:32.600 to being able to opportunistically do direct lending, to do 0:15:33.000 --> 0:15:39.000 various private credit transaction which if managed properly and constructed 0:15:39.040 --> 0:15:42.560 the right way, should deliver ten to twelve of the 0:15:42.600 --> 0:15:44.680 business cycle, never fit and and and and that's the 0:15:44.760 --> 0:15:47.480 opportunity for us and for other people and then big returns. 0:15:47.480 --> 0:15:49.840 And they key question is other people. I mean, it's 0:15:49.840 --> 0:15:52.880 an incredibly competitive environment right now. And we've talked about 0:15:53.040 --> 0:15:55.120 areas whether it might be froth. Is that an area 0:15:55.160 --> 0:15:58.480 down where that might be a better froth? Well, again, 0:15:58.640 --> 0:16:00.840 you know, consistent with our views are corporate credit on 0:16:00.920 --> 0:16:03.560 the public side. That's where we see the froth in 0:16:03.720 --> 0:16:07.480 terms of direct corporate credit issuance. Outside the financial space. 0:16:08.160 --> 0:16:11.520 We look at areas like commercial real estate, residential real estate, 0:16:12.000 --> 0:16:16.040 private or public, we continue to see considerable opportunity. That's 0:16:16.040 --> 0:16:19.880 a sector that, despite the global financial crisis being eleven 0:16:20.040 --> 0:16:24.320 years past, where we still see frictions and markets where 0:16:24.360 --> 0:16:27.880 we still see opportunities for investors on the private side 0:16:27.920 --> 0:16:29.680 as well as the public side. And that's really been 0:16:29.720 --> 0:16:32.880 our focus for now looking at the harvest opportunities within 0:16:33.000 --> 0:16:36.160 that space. How important is that alquidity premium so to speak, 0:16:36.240 --> 0:16:39.760 that you can get out of private credit markets money, Well, 0:16:39.960 --> 0:16:42.000 it's it's two fold. I think I think we were 0:16:42.040 --> 0:16:44.320 just written a paper on this. It's probably a couple 0:16:44.360 --> 0:16:48.520 of percent and and and I'm I'm so over simplifying 0:16:48.880 --> 0:16:52.880 what the paper is about. But people get compensated for 0:16:53.040 --> 0:16:55.880 holding eloquent securities and and and there are people who 0:16:56.320 --> 0:16:59.280 can very easily hold this kind of paper. I think 0:16:59.320 --> 0:17:01.560 offensition plan for example, who don't need the liquidity you 0:17:01.600 --> 0:17:04.080 think of insurance company. And so there are people who 0:17:04.119 --> 0:17:06.520 can own this. And clearly it's one of the most 0:17:06.640 --> 0:17:10.200 interesting risk preming. But more importantly, it's also a way 0:17:10.760 --> 0:17:13.920 to structure transaction where you think you have an edge 0:17:14.359 --> 0:17:18.680 and where you understand an industry better than most. And 0:17:19.640 --> 0:17:23.160 we're going to find part of what we're currently doing 0:17:23.320 --> 0:17:26.320 very very attractive and some other things not so attractive. 0:17:26.359 --> 0:17:29.240 And I think we we're quite cognizant of that. We're 0:17:29.280 --> 0:17:32.720 recognizing the liquidity is one thing. The liquidity illusion in 0:17:32.760 --> 0:17:35.200 public markets down is something you've talked about in the past, 0:17:35.240 --> 0:17:36.600 and I'd like to talk to you about it now. 0:17:37.600 --> 0:17:39.680 Do you think enough people are focused on that You've 0:17:39.680 --> 0:17:42.560 talked about financial market vulnerability is the potential for more 0:17:42.720 --> 0:17:46.600 gaping markets. It's a market that's got bigger participation, arguably 0:17:46.680 --> 0:17:50.400 is increased over the last several years. And yet fundamentally, 0:17:50.480 --> 0:17:52.280 just in term sort of structure, it's a market that's 0:17:52.280 --> 0:17:55.639 got weaker. Just makes sense of that for people, Well, 0:17:55.680 --> 0:17:59.280 people talk about it, people are aware of the risks. 0:18:00.080 --> 0:18:02.200 Then you'll have a volatility event like the fourth quarter 0:18:02.320 --> 0:18:05.000 last year. When you look at returns, it appears that 0:18:05.080 --> 0:18:08.440 people are more exposed to this. Uh. These less liquid 0:18:08.480 --> 0:18:11.040 areas of the market then would be suggested from the rhetoric, 0:18:11.960 --> 0:18:15.359 but we haven't been tested yet. Volatilities have been relatively 0:18:15.480 --> 0:18:19.280 low the last several years. UM. You just have to 0:18:19.440 --> 0:18:21.760 take a look and feel the markets from a day 0:18:21.800 --> 0:18:25.919 to day trading perspective to know that when views shift, 0:18:26.280 --> 0:18:28.920 there's going to be overshooting. Uh. And we don't necessarily 0:18:28.960 --> 0:18:30.640 mean that this is going to lead to another financial 0:18:30.720 --> 0:18:33.440 crisis per se. We do think it's gonna lead a 0:18:33.480 --> 0:18:37.040 disappointment in the form of overshooting. You'll constantly in and 0:18:37.080 --> 0:18:39.000 out of the market. What's changed in the last five years? 0:18:39.080 --> 0:18:41.000 What is it that has changed that you can identify 0:18:41.119 --> 0:18:43.000 just in terms of being in and out of the market. 0:18:43.080 --> 0:18:46.040 What's different it's really been the last decade. UM. There's 0:18:46.280 --> 0:18:49.399 less willingness for market participants to step in and provide 0:18:49.400 --> 0:18:53.200 a buffer when investor views change. More often than not, 0:18:53.280 --> 0:18:55.879 in the type of markets we operate in today, it's 0:18:55.920 --> 0:18:59.080 about lining up a buyron seller on the other side. 0:18:59.359 --> 0:19:02.359 If that buyer does it happen to be there or 0:19:02.400 --> 0:19:04.520 seller does it happen to be there, you end up 0:19:04.520 --> 0:19:08.280 with this overshooting dynamic. So liquidity management from the standpoint 0:19:08.280 --> 0:19:11.000 of an active asset manager needs to be top of 0:19:11.080 --> 0:19:13.720 mind today and I think that that's going to be 0:19:14.680 --> 0:19:17.200 likely one of the route awakenings that we referred to 0:19:17.760 --> 0:19:19.680 in our in our more recent secular out And I 0:19:19.720 --> 0:19:23.080 think generational experience also matters, and that's one of the 0:19:23.160 --> 0:19:25.320 things that we've explored in terms of behavioral finance, the 0:19:25.400 --> 0:19:29.440 fact that that when you've seen different business cycle you 0:19:29.600 --> 0:19:32.680 sort of recognize pattern. You know, this looks like nineteen 0:19:32.960 --> 0:19:35.600 one and this looks like nine, And I think what 0:19:35.760 --> 0:19:38.560 has changes. You have a whole generation of people who 0:19:38.680 --> 0:19:41.199 basically sort of greatest boolmarket since two dozand and nine 0:19:41.240 --> 0:19:45.680 and us keep on going up really steadily for a 0:19:45.920 --> 0:19:48.200 very very long time. When you have the committe's meetings, 0:19:48.280 --> 0:19:50.480 do you see the difference in terms of investor buses 0:19:50.680 --> 0:19:53.840 within PIMCO based on the age, based on the demographics. 0:19:53.960 --> 0:19:58.560 Is that something you see quite clearly, we noticed differences 0:19:58.600 --> 0:20:01.320 of you. Now, whether that's I s or perspective is 0:20:01.400 --> 0:20:04.760 always tough to up front. I think it's a little 0:20:04.760 --> 0:20:07.159 bit of both. From time to time, it is a 0:20:07.560 --> 0:20:10.760 worry that it's been a long long time since people 0:20:10.800 --> 0:20:14.080 have gone through a period of heightened volatility or have 0:20:14.200 --> 0:20:17.480 gone through a credit cycle. And that's why sometimes you know, 0:20:17.520 --> 0:20:20.320 as an active asset manager, it's best to sit back, 0:20:20.400 --> 0:20:23.359 be patient and read economic history books as opposed to 0:20:23.400 --> 0:20:25.600 be on your terminal trading every day. I mean, it 0:20:25.640 --> 0:20:28.320 gives you Bloomberg come on money one bias and give 0:20:28.320 --> 0:20:30.920 you one bias one biases. You know, we do like 0:20:31.080 --> 0:20:33.800 company who eventually makes money. Now, it's okay to lose 0:20:33.880 --> 0:20:36.720 money for a while. It's even okay to lose money 0:20:36.800 --> 0:20:38.880 for a long time if you're acquiring a lot of customers. 0:20:38.880 --> 0:20:40.520 But at the end of the day, we're sort of 0:20:40.600 --> 0:20:42.680 hoping that there will be an at some point in 0:20:42.760 --> 0:20:44.720 time and people do make money. So you guys, I 0:20:44.800 --> 0:20:47.000 think that's that's that's there's a generation of people who 0:20:47.080 --> 0:20:50.520 clearly think it doesn't matter. Essentially, you guys, then therefore 0:20:50.640 --> 0:20:53.879 looking to be what you called liquidity providers and not 0:20:54.080 --> 0:20:57.879 liquidity demanders. There's a period of time that you're waiting 0:20:57.960 --> 0:20:59.800 for that's building a moment where you want to keep 0:20:59.840 --> 0:21:02.720 this dry powderforn have senced it all day speaking to you, guys, 0:21:03.160 --> 0:21:04.960 I mean this could be several years away. Are you 0:21:05.119 --> 0:21:08.480 willing to sit out the period of excess that could develop? 0:21:09.080 --> 0:21:11.080 I've prepaired us a couple of years. Then are you 0:21:11.160 --> 0:21:13.239 willing to want to perform what say some of your 0:21:13.240 --> 0:21:16.520