Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moven news.
Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
Speaker 1: Madison Mills Paul Sweeney here in the Bloomberg Interactor Broker's studio.
Speaker 1: Time for little tech talk, So we turned to Ashley Still,
Speaker 1: senior vice president and general manager, where the creative cloud
Speaker 1: and document cloud at a little tech firm. You might
Speaker 1: have heard of Adobe. So Ashley, we can talk about
Speaker 1: the cloud because that was the cool kid on the
Speaker 1: block until about a month ago, and then this thing
Speaker 1: AI came out of nowhere. At least that's how it
Speaker 1: seems to me. And now that's all anybody can talk about.
Speaker 1: I would love to get your based upon your background
Speaker 1: in tech technology, kind of what you believe AI is
Speaker 1: and what it can be.
Speaker 3: Well, first, thank you for having me. Really appreciate being
Speaker 3: on the show and talking with you today. So yes,
Speaker 3: I mean AI has been around for actually a long time,
Speaker 3: But certainly the technology is rapidly accelerating. And one of
Speaker 3: the things that changed is kind of the methodologies and
Speaker 3: being used in AI, where increasingly the algorithms can kind
Speaker 3: of produce content on their own versus historically more automating
Speaker 3: repetitive tasks. So in the case of images, obviously you
Speaker 3: think of Adobe, you tink of creativity. In the case
Speaker 3: of images, it's now possible to create content just by
Speaker 3: simply writing text prompts. So if you want to read balloon, right,
Speaker 3: you can just the technology can basically imagine, if you will,
Speaker 3: a red balloon for you, and and that is been
Speaker 3: advancing pretty rapidly over the past few years.
Speaker 4: Ashley, you're you're the perfect person to talk to you
Speaker 4: about this. You're a former corporate finance analyst. Can you
Speaker 4: talk to me about the calculation for some of these
Speaker 4: companies that are reallocating their budgets to throw money at AI.
Speaker 4: How do you rate that decision?
Speaker 3: Well, certainly, Todobe. I mean, we believe that it's incredibly
Speaker 3: innovative technology that will help make our products better for
Speaker 3: existing users and help us actually expand who can use
Speaker 3: our product. So the example that I just gave where
Speaker 3: you can now create content using simple text prompts that's
Speaker 3: much more accessible than going, you know, to design school
Speaker 3: and learning sophisticated applications and tools. But it also makes
Speaker 3: the sophisticated applications and tools like Photoshop better and more
Speaker 3: powerful for the creative professionals. And it's unusual when you
Speaker 3: have a technology that both expands your market opportunity but
Speaker 3: also makes your products better and more valuable for your
Speaker 3: existing customers. And that's why we're excited about generative AI.
Speaker 1: So how do you, I guess, integrate generative AI into
Speaker 1: what you're doing at Adobe? I mean, is this something
Speaker 1: that you guys have I guess maybe stepped up investment
Speaker 1: in time and effort and money over the last year two.
Speaker 1: How's that developed for you guys?
Speaker 5: Sure?
Speaker 3: Absolutely, I mean we've been investing in AI for a
Speaker 3: decade at least, but certainly we've been ramping up our
Speaker 3: efforts around gender AI. And there's a couple of things
Speaker 3: that we're doing. We announced incredibly exciting and very well
Speaker 3: received update to Photoshop last week. So we introduced a
Speaker 3: new beta a Photoshop where there's feature called generative Pill
Speaker 3: and this enables you to add, remove and extend your
Speaker 3: content in Photoshop again using simple text prompts. It's all
Speaker 3: non destructive. So again this is the power of Photoshop
Speaker 3: where you can accelerate your work and kind of have
Speaker 3: new ideas and explore creative possibilities in a really kind
Speaker 3: of low risk, so to speak way, and just have
Speaker 3: a lot of fun. So we've had seventy million images
Speaker 3: generated in Photoshop over the last week alone in a
Speaker 3: beta application, and again the response from our community has
Speaker 3: been fantastic. We also introduced an entirely new experience called
Speaker 3: Adobe Firefly, and you know, anyone can access this on
Speaker 3: firefly dot Adobe dot com. So go check out the website.
Speaker 3: It's completely free and there you can anyone and world
Speaker 3: with access to a browser can create content again just
Speaker 3: typing in simple text prompts and really just have a
Speaker 3: ton of fun.
Speaker 4: And Adobe offers the creative cloud across a lot of platforms,
Speaker 4: from desktop to of course mobile. And one of the
Speaker 4: big AI questions is how we're going to get the
Speaker 4: juice we need for lack of a better term, on
Speaker 4: our phones to power the AI tools that are going
Speaker 4: to be made available to us. Is that something that
Speaker 4: you all are thinking about Adobe when you think about
Speaker 4: AI questions.
Speaker 3: Absolutely, you know, and we actually on the document cloud side,
Speaker 3: we have a very powerful AI model called liquid Mode
Speaker 3: that's inside of Acrobat on mobile devices, both on iOS
Speaker 3: and Android, and that actually takes any PDF that's been
Speaker 3: created in the thirty year history of PDF and basically
Speaker 3: reformats it so you can read it on a phone. Right.
Speaker 3: It takes what would have otherwise been rendered, as you know,
Speaker 3: an eight and a half by eleven piece of paper
Speaker 3: which is unreadable, and basically reflows it into an HTML
Speaker 3: experience magically on your device. And so these devices are
Speaker 3: incredibly powerful. Certainly, technology always, you know, raises the bar,
Speaker 3: but we work closely with you know, folks like Google
Speaker 3: and Apple to constantly improve what's possible on devices.
Speaker 1: So Ashley, again you mentioned and we've heard from all
Speaker 1: this artificial intelligence has obviously been around for a while,
Speaker 1: but it just feels like maybe it's just the Nvidia,
Speaker 1: you know, raising their their outlooks so dramatically and the
Speaker 1: big increase in market capitalization that they saw and in
Speaker 1: their company that maybe it's just come to everybody's attention
Speaker 1: right now. But almost every single company in Y S
Speaker 1: and P five hundred and on their last earnings call
Speaker 1: mentioned AI. So I'm wondering, from your perspective, as you
Speaker 1: have been working with it for a long time, within
Speaker 1: the creative cloud and the document cloud, what's the biggest
Speaker 1: risk to I guess just AI and the development of AI.
Speaker 3: Do you think, Well, one of the risks that we're
Speaker 3: very focused on and kind of passionate about is the
Speaker 3: risk for misinformation. And you know, there's a lot of
Speaker 3: trust that we all put in content. When we see
Speaker 3: an image that's you know, on a news site or
Speaker 3: even you know, shared by family, there's there's a certain
Speaker 3: amount of trust that you have to have and how
Speaker 3: that content was created. And we feel strongly again just
Speaker 3: based on the pace of change and innovation in AI
Speaker 3: right now, that we all need what we refer to
Speaker 3: as nutrition labels for content. We're part of about a
Speaker 3: thousand member Consortius and open standard that's developing content credentials.
Speaker 3: Think of this again as a nutrition label for content,
Speaker 3: and we really believe consumers need this information so that
Speaker 3: we can trust what we see.
Speaker 1: YEP, very very important and that will be a challenge
Speaker 1: going forward, no doubt. Ashley Still, Senior Vice president and
Speaker 1: general manager of the Creative Cloud and the document Cloud
Speaker 1: at Adobe, one of the leading tech companies based in
Speaker 1: San Jose, California, talking about the Cloud AI. It's everywhere, folks,
Speaker 1: this is Bloomberg.
Speaker 6: You're listening to the team Ken's are Live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com,
Speaker 6: the iHeartRadio app and the Bloomberg Business App, or listen
Speaker 6: on demand wherever you get your podcasts.
Speaker 1: Let's talk markets here, Let's talk fixed income. We talked
Speaker 1: fixed income. We like to talk to Lared Landaman, general's
Speaker 1: portfolio manager at TCW. Laird, thanks so much for joining
Speaker 1: us here. We love getting your view here. It looks
Speaker 1: like our good friends in Washington, DC are going to
Speaker 1: avoid a debt default, a debt crisis. How do you
Speaker 1: kind of put that all into context?
Speaker 5: Here?
Speaker 1: Were you ever? What was your level of concern? And
Speaker 1: how do you think we go from here?
Speaker 3: Well?
Speaker 7: I think we have to say they avoided again. This
Speaker 7: is sort of a uniquely American thing. It's kind of
Speaker 7: like country line dancing or something that we go through
Speaker 7: this dance every once in a while. Yeah, you know,
Speaker 7: the bigger mistakes are the more likely cooler heads are
Speaker 7: to prevail, so we never had that much concern about it.
Speaker 7: We obviously went to a lot of operational hoops to
Speaker 7: make sure in case there was a brief period of
Speaker 7: default that you know, we could you know, as a manager,
Speaker 7: we could manage that. But I don't think we had
Speaker 7: any real belief that we were going to have a
Speaker 7: default at this point.
Speaker 4: Are you thinking more than about the next FED meeting?
Speaker 4: Does that feel like the bigger question.
Speaker 1: Mark for you?
Speaker 7: Well, I think it is. I mean, I think, you know,
Speaker 7: the market consensus is certainly one hundred percent over the
Speaker 7: next two meetings for another hike, and certainly if we
Speaker 7: got a strong jobs number, and again like the Jolts number,
Speaker 7: these numbers can bounce around quite a bit, and the
Speaker 7: market generally overreacts to this short term news. So we
Speaker 7: could see short rates get pushed back up near their
Speaker 7: highs again if we get a strong jobs number, but
Speaker 7: certainly over the long term, you know, you look at
Speaker 7: some of the effects that the higher rates are having,
Speaker 7: whether it's what happened with banks in March or what's
Speaker 7: happening to the interest expense on US debt right now.
Speaker 7: Really moving up from nineteen percent of tax resort tax
Speaker 7: dollars to thirty three percent is now being used for
Speaker 7: interest expense. This is going to have a pretty big
Speaker 7: hit to the economy, and I think the FED is
Speaker 7: kind of dancing right on the edge here, not realizing
Speaker 7: that these you know, the monetary policy hits with longer delays.
Speaker 1: So lard giving that backdrop. Given where we are with
Speaker 1: a FED and I guess the debt ceiling, where are
Speaker 1: you seeing opportunities here at TCW?
Speaker 7: Well, I think I think that we think fixed income,
Speaker 7: you know, is setting up for probably close to double
Speaker 7: digit types of returns. I think that you you want
Speaker 7: to be in the intermediate part of the yield curve.
Speaker 7: The FED is going to have to ease at some
Speaker 7: point here. The banking system will continue to be under
Speaker 7: stressed as long as they keep increasing rates or holding
Speaker 7: them higher, and so eventually they're going to have to
Speaker 7: turn this around. The market thinks the fourth quarter of
Speaker 7: this year is when we start seeing easing, and that
Speaker 7: will also bring about lower interest rate volatility. I think
Speaker 7: you're very aware that interest rate volatility has been very high.
Speaker 7: Sectors like agency mortgages are pretty much as cheap as
Speaker 7: we've ever seen them because they've been hit by the
Speaker 7: high volatility. We would go all in right now pretty
Speaker 7: much on the agency mortgage basis. We think that that's probably,
Speaker 7: you know, one of the most liquid and cheapest sectors
Speaker 7: out there. Avoid sort of large scale exposure to corporates
Speaker 7: at this point because they could see some spread widening
Speaker 7: as the economy begins to deteriorate.
Speaker 4: What are you thinking about in terms of the biggest
Speaker 4: losers potentially heading into the second half of twenty twenty four,
Speaker 4: where are you saying we need to kind of get
Speaker 4: out of.
Speaker 7: Well, if we're looking out over the next year, certainly
Speaker 7: anything commercial real estate related, particularly around the office office
Speaker 7: sector is going to be under pressure. But it'll expand
Speaker 7: beyond that because, as we're very aware, small and mid
Speaker 7: sized banks are going to be cutting back lending over
Speaker 7: the next year, and they support a lot of not
Speaker 7: necessarily office properties, but they support a lot of smaller
Speaker 7: projects that can get rolled up into some of the
Speaker 7: conduit deals that might be residential, multifamily, they might be
Speaker 7: strip malls, things like that. I think there's going to
Speaker 7: be general carnage there. We're seeing appraisals coming down in
Speaker 7: LA on office properties, you know, fifty sixty percent from
Speaker 7: twenty nineteen levels, and we certainly think that, you know,
Speaker 7: you got to avoid office properties La San Francisco, Chicago,
Speaker 7: New York, and Houston. Those are sort of the big
Speaker 7: sectors that we're trying to avoid in our portfolio. And
Speaker 7: we think there could be individual securities that are tied
Speaker 7: to those office properties that could take very, very large losses.
Speaker 7: So that to us is a priority to be avoiding
Speaker 7: those pitfalls in the portfolio.
Speaker 1: How about emerging markets, lair, Is that something that's attractive
Speaker 1: to you guys at this point?
Speaker 7: Well, I would always refer to Pennyfolio, our team leader
Speaker 7: who's done it for forty plus years. They certainly think
Speaker 7: that they're seeing some opportunities there. As we look at
Speaker 7: the type of credit risk you have to take in
Speaker 7: emerging markets for a largely US based portfolio that we manage,
Speaker 7: we certainly see better value in things like agency mortgages.
Speaker 7: As I mentioned, you're not taking a lot of credit risk,
Speaker 7: at least as long as this debt deal passes. You're
Speaker 7: not taking a lot of credit risk, and you're getting
Speaker 7: spreads that are abu many of the investment grade emerging
Speaker 7: market countries. So we're going to stick with sort of
Speaker 7: what we think is cheapest and simplest in the portfolio here,
Speaker 7: and we'll benefit most from a FED tightening. And that's
Speaker 7: the agency mortgage basis.
Speaker 6: All right, good.
Speaker 1: Stuff, Laird Landman, thanks so much for joining us. Laird
Speaker 1: Landman is the generalist portfolio manager at TCW and that
Speaker 1: is a trust company of the West back in the days,
Speaker 1: big big asset management firm, huge inequities, huge in fixed income,
Speaker 1: based out in Los Angeles, a big account out there.
Speaker 6: You're listening to the tape kens our live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 6: You can also listen live on Amazon Alexa from our
Speaker 6: flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
Speaker 1: Let's check in with a professional here, Quincy Crosby. She
Speaker 1: is the chief global strategist for LPL Financial, that is
Speaker 1: the Nasdaq traded company. Lp LA is a ticker to
Speaker 1: load into your Bloomberg terminal there, Quincy, it looks like
Speaker 1: the uncertainty surrounding the debt deal to the extent there
Speaker 1: was some uncertainty for some people, some people more so
Speaker 1: than others. Looks like that's been kind of lifted here.
Speaker 1: Is that important to you or if it is kind
Speaker 1: of maybe, what else are you looking at now for
Speaker 1: the next kind of big, big catalyst for this market
Speaker 1: one way or the other?
Speaker 5: Well, yeah, absolutely, I mean the market does think that
Speaker 5: they're going to get the vote that it's been going
Speaker 5: to obviously go through the House and then to the Senate,
Speaker 5: and obviously they want to do it expeditiously. But the
Speaker 5: market is also focused on the set and you may
Speaker 5: have seen, you know, this morning, the probability, it's the futures.
Speaker 5: It's about sixty percent for rat high June fourteenth. That's
Speaker 5: client higher of following Loretta Mester's comments. Now she doesn't vote,
Speaker 5: you know, many many of the because don't vote, but
Speaker 5: nonetheless they are part of the discussion and she's highly regarded.
Speaker 5: The question is whether or not the said actually does
Speaker 5: come in with a raid hike, and the other question
Speaker 5: is if they do, well it be one or two
Speaker 5: that the market can expect. So this is something that
Speaker 5: the market is trying to piece together how the SAID
Speaker 5: will see the data coming in, particularly the payroll data
Speaker 5: and probably the ISM report next week on the price
Speaker 5: is paid in the service sector. So there's so much
Speaker 5: for the market to have to digest. But that really
Speaker 5: does matter for the market, and so does the debt ceiling,
Speaker 5: needless to say, and you know, the market has quite
Speaker 5: a bit of a wall of worry yet yet the
Speaker 5: market is up for the year, and that is the
Speaker 5: price action that says, hey, wall of worry, don't stop worrying.
Speaker 5: We're still going to prevail.
Speaker 4: Hey, Quincy, I wanted to reach out to you about this,
Speaker 4: so it's perfectly you're on our show today to ask
Speaker 4: you about how US potentially approaching the end of the
Speaker 4: FED rate hiking cycle, uh might lead to more weakness
Speaker 4: in the US dollar. And if that is something that
Speaker 4: you're anticipating and maybe changing some of your thinking and
Speaker 4: positioning around.
Speaker 5: You know, that's that's logical. You know, there's there's there's
Speaker 5: an entire story about the dollar, whether or not you know,
Speaker 5: king dollar is finished. And that's one thing, whether or
Speaker 5: not you know it is China trying to push us
Speaker 5: the dollar out of the reserve currency status or put
Speaker 5: the U on right up there with the US dollar.
Speaker 5: But the other one is predicated on on the economy.
Speaker 5: It's predicated on on whether or not we do stop
Speaker 5: raising rates and we lose the interest rate differential. That's normal,
Speaker 5: and you know, if the FED does finish when we
Speaker 5: do expect the FED to be finished, you know, if
Speaker 5: it's not in June, it'll be sometime in the summer
Speaker 5: that the dollar will ease further. And that does help
Speaker 5: global financial conditions. A weaker dollar does help. It helps
Speaker 5: many of the big tech names. There are global leaders
Speaker 5: that got a global footprint, and a software dollar does help.
Speaker 5: It also helps other companies, you know, the companies in
Speaker 5: the S and P five hundred that have nothing to
Speaker 5: do with technology, but that you know, sell overseas. But
Speaker 5: it also helps emerging markets in that we know from
Speaker 5: many of the reports coming out that are having trouble
Speaker 5: servicing their debt dollar denominated debt. The weaker dollar does help.
Speaker 5: It also helps commodities. So all of the all of
Speaker 5: that together should help, should help the overall economy and
Speaker 5: also help you know, the big companies and help help
Speaker 5: emerging markets to some degree.
Speaker 4: You mentioned some of the companies that have a big
Speaker 4: presence overseas being some of the bigger beneficiaries within specifically
Speaker 4: the consumer discretionary and staples sectors. Who do you think
Speaker 4: the biggest potential winners are because of that overseas presence?
Speaker 5: Well, you know, now, all all of the all the companies,
Speaker 5: I mean, you even have Walmart is active overseas. You
Speaker 5: have Procter and Gamble, the host raft of names that
Speaker 5: came out, the pharmaceuticals that sell overseas. All of those companies,
Speaker 5: coupled with the Microsoft, coupled with Apple, all of those
Speaker 5: are major beneficiaries of the weaker dollar. In fact, Nike
Speaker 5: I could go on and on because remember when the
Speaker 5: dollar was at its you know, full strength, all we
Speaker 5: would hear during the early season was how it was
Speaker 5: hindering their ability to do well. Now we're on the
Speaker 5: road towards the other extreme with the dollar easing, and
Speaker 5: it will ease. It's part of the it's part of
Speaker 5: the natural equilibrium in currency market that when your central bank,
Speaker 5: particularly when it's the FED, begins to tail off, your
Speaker 5: currency is going a week and you still have the
Speaker 5: euro climbing higher because the European central bank is most
Speaker 5: likely has a number of more rate hikes in the pipeline.
Speaker 4: So you think even a retailer like a Nike has
Speaker 4: a chance despite some of the bad earnings that we
Speaker 4: just got from them because of weakening dollar.
Speaker 5: Well, no, it won't change a dynamic that is, you know,
Speaker 5: if you don't have customers or the global economy is
Speaker 5: slowing dramatically. But what it does do it gives you
Speaker 5: an edge. It helps your competitiveness overseas. But you know,
Speaker 5: you still need to have demand, you still need to
Speaker 5: have top line revenue growth. But what a weaker dollar
Speaker 5: does do it helps? It gives you an edge.
Speaker 1: Hey, Quin, I'm not sure if I'm representative, but boy,
Speaker 1: up until a few months ago, I didn't even really
Speaker 1: think about this whole thing called AI, what the kids
Speaker 1: call AI artificial intelligence. But boy, every CEO on every
Speaker 1: earnest call talks about how AI is going to be
Speaker 1: the greatest thing for their business, and it doesn't matter
Speaker 1: what business they're in. But then you see Nvidia raised
Speaker 1: their guidance last week and just an explosion in market
Speaker 1: capitalization for that company. I don't think I've ever seen
Speaker 1: that before. I mean, what do you make of this
Speaker 1: whole AI thing? Is it something that you think about
Speaker 1: as you think about companies and investments.
Speaker 5: Well, yeah, absolutely. I mean, you know, I have returned
Speaker 5: things to Amazon, and the first time I did it,
Speaker 5: I didn't know how to do it, and the kids
Speaker 5: weren't around to tell me or to actually do it
Speaker 5: for me. So I called the number and the guy
Speaker 5: who answered wasn't real, but boy was he nice. I
Speaker 5: felt like calling up again, just so easy to talk
Speaker 5: to answering my questions. What the AI we have to
Speaker 5: you know, put it in the context of why are
Speaker 5: the companies, the large companies going into this area, why
Speaker 5: are they working with in the video, for example, Microsoft
Speaker 5: continuing to present it because they will be able to
Speaker 5: sell it to other companies so that they could cut costs.
Speaker 5: This is about cutting costs, and that is that is
Speaker 5: why it is important because it's the development which has
Speaker 5: already begun. But if it intensifies with the attention that
Speaker 5: we see that in the video has sort of unwound,
Speaker 5: it's going to be important and companies are going to
Speaker 5: be able to save money. Customer service is a you know,
Speaker 5: primary example of how much AI can help. Now, the
Speaker 5: thing is you need to have strong balance sheets, and
Speaker 5: companies that are such such as I'm not suggesting it,
Speaker 5: recommending it that such as a Microsoft to develop it
Speaker 5: and and fine tune it towards how they can all
Speaker 5: evan to other companies. And that's going to be extremely important.
Speaker 5: You know, you see it and Sada I say this
Speaker 5: on the internet. Even with Bloomberg write help with automation,
Speaker 5: that's going to intensify and it's going to become a
Speaker 5: much more tvalent part of the of the landscape, of
Speaker 5: the economic landscape. So, by the way, just having the
Speaker 5: video in that cohort to begin with this is before
Speaker 5: their earnings, was pretty amazing. Just you know, I've asked
Speaker 5: you said, what is it? How do you pronounce it?
Speaker 5: How does this fit in with you know, the megacat
Speaker 5: techniques they are part of now the cohort it.
Speaker 1: Is actually well the others there will be other Quincy,
Speaker 1: thank you so much for joining us. Quincy Crosby, chief
Speaker 1: Global Strategists at LPL Financial talking about these markets, talking
Speaker 1: about AI. It's a thing. Folks in Vidio knows it.
Speaker 1: This is Bloomberg.
Speaker 6: You're listening to the Team Cancer Line program Bloomberg Markets
Speaker 6: weekdays at ten am Eastern Burk dot Com. The iHeartRadio
Speaker 6: app and the blow Burg Business app, or listen on
Speaker 6: demand wherever you get your podcasts.
Speaker 1: You know, I always say, or I have been saying recently, that, well,
Speaker 1: if I were to come back again and do this
Speaker 1: Wall Street thing again, I might look at private credit.
Speaker 1: That is a business that I think is just booming.
Speaker 1: It's got a great presence in the marketplace. It's desperately needed,
Speaker 1: particularly after the Great Financial Crisis, when the banks have
Speaker 1: been kind of pulling back a little bit. So I
Speaker 1: want to get the latest on what's happening private credit market.
Speaker 1: How's it performing in a rate where in a world
Speaker 1: where rates are arising. Jess Larson can help us out
Speaker 1: on that. He is the CEO and founder of Briarcliffe
Speaker 1: Credit Partners. Jess again, I love your business. I love
Speaker 1: the private credit business. I got my credit training at
Speaker 1: the Chase Manhattan Bank, so I will stack my skills
Speaker 1: against anybody out there. Talk to just about the private
Speaker 1: credit market. How it's behaving, you know, over the last
Speaker 1: twelve eighteen months in this rising interest rate environment.
Speaker 8: Mm hmm. Sould first, Well, good to be back on
Speaker 8: the show. It's always a pleasure and I'm so glad
Speaker 8: to hear that in your next life you're going to
Speaker 8: be a private credit Yes, personal, right, we can do
Speaker 8: this together.
Speaker 1: Very good.
Speaker 8: Well, you know it's so interesting when you hear the
Speaker 8: Bloomberg class, it sounds it's almost a little depressing, right,
Speaker 8: with all the various equity indices down. So I'm glad
Speaker 8: that we turn into much more positive news and positive
Speaker 8: subjects such as the private credit because private credit is
Speaker 8: not just doing well. We're in a bull market poll,
Speaker 8: we're in an absolute bull market. And when we're sitting
Speaker 8: here in with rates going up, the beautiful thing about
Speaker 8: private credit is is predominantly floating break So the investors
Speaker 8: are benefiting from rates going up.
Speaker 4: Is that true across the board, I guess globally? Or
Speaker 4: is that is that something that you're seeing in some
Speaker 4: regions more than others.
Speaker 8: Well, first of all, I think what we need to
Speaker 8: think about private credit really consists of twenty six substrategies.
Speaker 8: But the vasa joys of those strategies are floating rate.
Speaker 8: So whether you are in the Euro market or you're
Speaker 8: sitting here in the US, if rates going up, your
Speaker 8: private credit returns will go up, irrespectable of where you
Speaker 8: find yourself so.
Speaker 1: Jess, A big part of your businesses helping these private
Speaker 1: equity guys finance their deals, and they can go to
Speaker 1: a you know, a Bank of America JP Morgan, or
Speaker 1: they can also come to private credit providers. Talk to
Speaker 1: us about the deal flow you're seeing, because we ain't
Speaker 1: seeing much on Wall Street.
Speaker 8: No, that's exactly what we're all seeing. Is it is
Speaker 8: kind of quiet right on the private equity side of things.
Speaker 8: But that doesn't that doesn't stop mid market US companies
Speaker 8: for needing capital. It's just a question or not where
Speaker 8: do you go. You can't really go to the private
Speaker 8: equity market anymore because valuations are low and the last
Speaker 8: thing you want to do if you want to access
Speaker 8: capital as a mid market borer is going into a
Speaker 8: down round.
Speaker 7: Right.
Speaker 8: We don't want to have low evaluation two years ago,
Speaker 8: So you want to look at the credit market now
Speaker 8: three four months ago you could have been forgiven for
Speaker 8: looking at the banks, but then we saw ISBB Signature Bank,
Speaker 8: person Public all having trouble. So if you are a
Speaker 8: mid market company and you need capital, you will be
Speaker 8: going to the private credit market, are you?
Speaker 4: I have to ask this because we can't stop talking
Speaker 4: about AI are you seeing any increase in AI related
Speaker 4: deals or are you thinking about it more frequently than
Speaker 4: you previously did.
Speaker 8: I think there's a lot of talk, a lot of headlines,
Speaker 8: and it's exciting what's going to happen in the future
Speaker 8: on AI. Right now, we are just more concerned about
Speaker 8: any type of mid market US companies or borer that
Speaker 8: needs access to capital. So that's from our daily work.
Speaker 8: It's less about AI, but it's very interesting to read.
Speaker 6: All right.
Speaker 1: So just in the US, a mid market company, if
Speaker 1: I come to I need, you know, a couple one
Speaker 1: hundred million dollars of credit debt capital, and I go
Speaker 1: to my choices, are I don't know, a good quality
Speaker 1: mid sized bank and M and T bank out of Buffalo.
Speaker 1: What's the difference in the cost to me them versus
Speaker 1: maybe coming to you.
Speaker 8: I think what we will see is with the failure
Speaker 8: of it be signature ins versus public even though we're
Speaker 8: not having another way, what we are seeing is there's
Speaker 8: certainly some lack of regulatory environment that needs to be
Speaker 8: tightened up a bit. When that tightens up, it will
Speaker 8: be even more difficult for these banks to actually be
Speaker 8: a capital provider to borrowers, so the cost of it
Speaker 8: will go up. But what's really interesting here is what
Speaker 8: we learned from ASBB signature and versus public is there's
Speaker 8: a mismatch between accid and liability. There's also regulatory risk,
Speaker 8: and there's the whole new risk we never thought about before,
Speaker 8: the depositor risk. When people start leaving your bank and
Speaker 8: take that it positive with them, it hampers the bank's
Speaker 8: ability to lend money and that we do not have
Speaker 8: in the private credit space, and so we will still
Speaker 8: be seeing people flock into private credit.
Speaker 4: Do you anticipate us seeing more of that moving forward,
Speaker 4: that deposit flight?
Speaker 8: I really hope not right because I think they I
Speaker 8: think we stabilize the situation pretty well. There are still
Speaker 8: some issues out there, but I don't think it is
Speaker 8: necessarily terribly grim. But we have seen you know, depositive
Speaker 8: makeup from some of the smaller risky banks into some
Speaker 8: of the largest so you know, less risky banks so
Speaker 8: to speak, and so there may be a little bit
Speaker 8: of movement, but I don't think we'll see much movement
Speaker 8: in the depositors.
Speaker 1: So just you know, when when rates were really low,
Speaker 1: near near zero, the returns that you know, private credit
Speaker 1: offered a lot of investors were just compelling. Now I
Speaker 1: can stick money into two year treasure can get four
Speaker 1: and a half percent. Here, what's the am I?
Speaker 6: Am?
Speaker 1: I still getting a relative outperformance from investing in private credit.
Speaker 1: What are you seeing in terms of the fund flow
Speaker 1: to private credit these days?
Speaker 8: Listen, Paul, you're asking exactly the right question, right because
Speaker 8: you may think that sounds like a good return compared
Speaker 8: to where we were when we had zero percent rates.
Speaker 8: But look at this the ten year analyzed growth returns
Speaker 8: in leverage loans three point eight percent, high yield three
Speaker 8: point nine, direct lending nine point eight percent, right, so
Speaker 8: we will still see that thread between your high yield
Speaker 8: and your direct lending and your private credit. So definitely
Speaker 8: you still want you always wanted to take a look
Speaker 8: at the private credit if you can take the liquid
Speaker 8: liquid essay class.
Speaker 1: Exactly, So just like twenty seconds left, what's a typical
Speaker 1: holding time frame for private credit?
Speaker 8: Well, the private credit funds tend to be five to
Speaker 8: seven years, where on the private equity it is probably
Speaker 8: into twelve years. So you're getting a little bit fatter
Speaker 8: liquidity from your private credit Interactually, and nowadays Paula here
Speaker 8: this nowadays, you're probably getting very similar rate of returns
Speaker 8: as we are in a slow growth or a recessionary environment,
Speaker 8: you equity returns will continue to be volatized, but also
Speaker 8: lower equity return Yep.
Speaker 1: Well all right, Jess, that's gray. So I've have to
Speaker 1: leave it there just because of the time. JUSTS Larson,
Speaker 1: CEO and founder Briar Criff Briar Cliff Credit Partners, Private Credit.
Speaker 1: I'm telling you, folks, it is a awesome business. It
Speaker 1: looks like a very interesting asset class from a relative
Speaker 1: return perspective.
Speaker 2: This is bloomber Thanks for listening to the Bloomberg Markets podcast.
Speaker 2: You can subscribe and listen to interviews at Apple Podcasts
Speaker 2: or whatever podcast platform you prefer. I'm Matt Miller. I'm
Speaker 2: on Twitter at Matt Miller nineteen seventy three and on.
Speaker 1: Ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast,
Speaker 1: you can always catch us worldwide at Bloomberg Radio.