WEBVTT - NASDAQ Chair/CEO Adena Friedman Talks IPO Pipeline

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Joining us now is Dina Friedman, Chair and CEO of NASDAC,

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<v Speaker 2>and of course there is a lot of excitement investor

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<v Speaker 2>excitement for the IPO market to be coming back the

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<v Speaker 2>largest IPO.

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<v Speaker 1>Of the year.

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<v Speaker 2>Of course, listing on NASDAC, what does the pipeline look like?

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<v Speaker 2>Can you say the second half of the year has

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<v Speaker 2>more room to run, especially when you have the election ahead.

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<v Speaker 1>Well, first of all, thank you so much for having me.

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<v Speaker 3>It's great to be on your set, and we are

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<v Speaker 3>really really proud of the overall results that we've delivered

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<v Speaker 3>for the quarter with ten percent overall growth. We've had

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<v Speaker 3>twenty nine percent growth in our index business and sixteen

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<v Speaker 3>percent growth in our financial technology business, which of course

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<v Speaker 3>has been an area of real strategic focus for us

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<v Speaker 3>as we look at the IPO landscape and the market's

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<v Speaker 3>part of our business, and we've seen slow progression, I

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<v Speaker 3>would say, in the IPO market. Were coming off of

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<v Speaker 3>a very tough year in twenty twenty three, so we're

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<v Speaker 3>seeing slow progression. Very excited about lineage this morning, join

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<v Speaker 3>the NASA family of companies.

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<v Speaker 1>We had one.

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<v Speaker 3>Stream yesterday, so you're starting to see the investor appetite

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<v Speaker 3>increase for taking risk with the IPOs, But I would

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<v Speaker 3>have to say that we still think that it'll be

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<v Speaker 3>slow progression as we continue through the year. The monetary

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<v Speaker 3>policy outlook and other geopolitical factors I think are still

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<v Speaker 3>keeping investors a little bit more risk of.

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<v Speaker 1>Our you know, they have a little bit more risk aversion.

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<v Speaker 3>But we're seeing some really good progress and we think

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<v Speaker 3>that going into twenty twenty five, we should see more

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<v Speaker 3>momentum in terms of the pipeline of companies that we've

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<v Speaker 3>been talking to.

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<v Speaker 2>When you think about the competition ahead in this market

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<v Speaker 2>as well, do you think that Nasdaq has an ability

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<v Speaker 2>to gain even more share? What does it look like

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<v Speaker 2>behind the scenes. Are you out there courting every twenty

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<v Speaker 2>twenty five potential right now?

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<v Speaker 3>We meet with companies what years before they go public,

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<v Speaker 3>so we really focus on the complete life cycle of

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<v Speaker 3>a company. When they are early stage companies, we work

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<v Speaker 3>with them in terms of helping them in the private

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<v Speaker 3>markets manage their liquidity. With Nazek private market, we work

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<v Speaker 3>with them on their governance practices and making sure they're.

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<v Speaker 1>Maturing their governance.

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<v Speaker 3>We start to introduce them to investors who are IR

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<v Speaker 3>services before they go public, and then of course they

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<v Speaker 3>go public, and then they become public companies, and that's

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<v Speaker 3>where we have a whole cadre of capabilities that help

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<v Speaker 3>them become great public companies. But we're talking to invest

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<v Speaker 3>companies well before their IPO plans, so that as they

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<v Speaker 3>think about the public markets, they think about NASAC. We

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<v Speaker 3>had a seventy two percent win rate in the quarter.

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<v Speaker 3>You know, we're continuing to show that NASAC is the

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<v Speaker 3>venue of choice.

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<v Speaker 4>You know, we saw a global IT outage a couple

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<v Speaker 4>of days ago, reminded the world how fragile things are.

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<v Speaker 4>Nasdaq was fine, actually, and you offer a suite of

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<v Speaker 4>IT services to exchanges to guard against those things and

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<v Speaker 4>financial crimes that I didn't even really know about.

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<v Speaker 1>Showing huge growth.

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<v Speaker 4>Talk to us about the new businesses that you've diversified into.

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<v Speaker 1>Sure.

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<v Speaker 3>Yeah, So with the cross strike challenge, our markets were

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<v Speaker 3>not affected. The technology we provide to other markets and

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<v Speaker 3>to the entire financial community were not affected. But of

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<v Speaker 3>course you can always learn lessons from those types of situations.

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<v Speaker 1>And we are partners with our clients.

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<v Speaker 3>We talk to them and work with them on run

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<v Speaker 3>resilience and redundancy and all of the things too that

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<v Speaker 3>they can effectuate to help manage those types of challenges

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<v Speaker 3>or at least prevent those types of challenges. As say now,

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<v Speaker 3>our fintech division is where we sell technology to other exchanges.

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<v Speaker 3>We have risk management technology, anti financial crime, regulatory reporting,

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<v Speaker 3>all the core challenges that banks and brokers face and

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<v Speaker 3>managing their lives across the capital markets and banking and

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<v Speaker 3>that actually grew sixteen percent. As we mentioned in the quarter,

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<v Speaker 3>we're seeing a huge amount of demand from our clients.

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<v Speaker 3>We had sixty seven new clients sign up for technology.

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<v Speaker 3>We had almost one hundred of seals and four cross sales,

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<v Speaker 3>which actually is really starting to show the power of

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<v Speaker 3>the NASAC platform across those vectors of risk.

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<v Speaker 4>As we prepare as we look forward to an election

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<v Speaker 4>in a November and prepare for a slate of maybe

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<v Speaker 4>new regulations or fewer regulations, how do you think about

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<v Speaker 4>the outcome of the November election for your clients.

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<v Speaker 3>Yeah, we kind of look at the fact that Nazek

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<v Speaker 3>of course as a market we're successful in any administration.

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<v Speaker 1>I think that Nazac as.

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<v Speaker 3>A company, we really focus on managing through political cycles,

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<v Speaker 3>and we're you know, we've been here for fifty two years,

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<v Speaker 3>the expect to be here for another two hundred and

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<v Speaker 3>fifty two years. But I think that when it comes

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<v Speaker 3>to overall, what are the corporate environment?

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<v Speaker 1>What do corporates really look for?

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<v Speaker 3>I think they look for consistency, predictability, and in an

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<v Speaker 3>administration that really fosters growth and innovation because that really

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<v Speaker 3>fosters economic growth. And so regardless of the you know,

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<v Speaker 3>who's ultimately in office, can they create consistency, can they

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<v Speaker 3>create some predictability in the regulatory environment, and can they

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<v Speaker 3>put in policies and practices that really drive innovation and growth.

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<v Speaker 3>I think that's what companies in general look for.

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<v Speaker 2>I want to go back to to what Matt was

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<v Speaker 2>asking about these other businesses that are not IPOs, the

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<v Speaker 2>financial technology businesses. When you think about artificial intelligence generative AI,

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<v Speaker 2>where are you seeing the biggest payoff? Because you look

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<v Speaker 2>across corporate America and people are investing, investing, investing, So

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<v Speaker 2>where where are the dollars at the end of the road.

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<v Speaker 3>Well, first, I would say it's super important to get

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<v Speaker 3>the right infrastructure in place and the right architecture of

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<v Speaker 3>your solution. So NAZEC has been investing in moving all

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<v Speaker 3>of our technology solutions into a cloud environment now for

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<v Speaker 3>over ten years, and that is really paying off because

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<v Speaker 3>by doing that, you're modernizing your data infrastructure, you're modernizing

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<v Speaker 3>your architecture, and you're making it so that you can

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<v Speaker 3>bring new technologies in faster and you can play with

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<v Speaker 3>i'd say offense much more quickly. So a couple of

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<v Speaker 3>things that we've been looking at that we've been doing.

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<v Speaker 3>First is in our markets, we launched something called the

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<v Speaker 3>Midpoint Extended Life Order, which is an AI driven order type,

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<v Speaker 3>the first one that's SEC approved. We've seen a twenty

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<v Speaker 3>percent improvement of field and fil rates and a twenty

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<v Speaker 3>percent improvement in our volumes and that order type since

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<v Speaker 3>we launched that in April. So that's an algorithmic AI capability.

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<v Speaker 3>And then JENAI is a new technology that's really come

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<v Speaker 3>onto the scene very quickly.

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<v Speaker 1>If you already have all of your.

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<v Speaker 3>Infrastructure and data in a cloud environment, it allows you

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<v Speaker 3>therefore then to take those capabilities in So in verifin

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<v Speaker 3>cloud based anti financial crime tool we launched an entity

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<v Speaker 3>research copilot that automates the process of researching entities that

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<v Speaker 3>might that have generated an alert in the system takes

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<v Speaker 3>down the time to do that research by ninety percent,

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<v Speaker 3>So it's really a great way to automate.

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<v Speaker 1>More of those workflows.

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<v Speaker 3>And we have a new one that's come out in

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<v Speaker 3>our investment tool for asset managers to summarize the pensions

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<v Speaker 3>board meetings, which gives them really really quick insights into

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<v Speaker 3>the strategies of the pensions, allows them with their business

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<v Speaker 3>development to engage better.

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<v Speaker 2>As a CEO, how do you think about future investment

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<v Speaker 2>in aijen Ai? Is most of that investment going toward

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<v Speaker 2>new technology or retraining your workforce?

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<v Speaker 3>Well, it's actually we say it's on the business and

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<v Speaker 3>in the product. So we're quickly launching these cabilities in

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<v Speaker 3>the product and then teaching our clients how to use

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<v Speaker 3>them and automate and make it so they can be

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<v Speaker 3>more efficient. But then we're also introducing new tools, so

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<v Speaker 3>we've introduced the copilot tools for our development organization. We

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<v Speaker 3>should be fully rolled out across all our developers.

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<v Speaker 1>By the end of Q three.

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<v Speaker 3>But then you have to educate, and so we've been

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<v Speaker 3>managing our education throughout the year making sure they understand

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<v Speaker 3>how to use them. What is it good for where

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<v Speaker 3>do we see the most benefit. And we've had hackathons.

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<v Speaker 3>We've done had over six hundred and fifty employees participating

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<v Speaker 3>in some hackathons we ran this quarter, so that you're

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<v Speaker 3>starting to really get them to understand what's the power

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<v Speaker 3>of this technology. How can we drive productivity? How can

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<v Speaker 3>we drive efficiency? But then how do we also create

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<v Speaker 3>new cabilities in the products and to us, that's a

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<v Speaker 3>big part.

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<v Speaker 1>Of our future. I want to ask separately from Nasdaq.

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<v Speaker 4>You're on the board of the New York Federal Reserve

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<v Speaker 4>and we've got some pretty stunning GDP numbers in today.

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<v Speaker 4>Two point eight percent, we got higher quarterly PCE.

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<v Speaker 1>Than had been expected.

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<v Speaker 4>Two point nine percent, we got lower jobless claims then

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<v Speaker 4>had been expected. What's your view on the economy here

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<v Speaker 4>and do we need rate cuts?

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<v Speaker 1>Yeah?

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<v Speaker 3>I mean at the highest level, the economy continues to

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<v Speaker 3>be quite resilient. Now we all are seeing that inflation

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<v Speaker 3>is coming down, and so it's coming down and normalizing.

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<v Speaker 3>You're seeing GDP growth slowing but still robust, which is fantastic,

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<v Speaker 3>but you are seeing the higher cost of capital start

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<v Speaker 3>to impact larger parts of the population and citizens are

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<v Speaker 3>really starting to be impacted by that cost of capital,

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<v Speaker 3>So that's all, you know, that's a hard that's an

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<v Speaker 3>interesting calculus for the FED to have to manage through.

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<v Speaker 3>And then with rates at what I would say restricted

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<v Speaker 3>levels at five and a half percent, you know, you

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<v Speaker 3>do have a pretty big delta between GDP growth and

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<v Speaker 3>the cost of capital. So there is an opportunity there

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<v Speaker 3>for the FED to start to think about how do

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<v Speaker 3>they moderate that and get that more in line. Now

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<v Speaker 3>that even though you know, PC maybe came up a

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<v Speaker 3>little bit higher, it's really still coming down quite precipitously

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<v Speaker 3>from last year.

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<v Speaker 4>Do rates and IPOs I mean, is there an inverse

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<v Speaker 4>relationship there? I would imagine if rates are high, than

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<v Speaker 4>the cost of capital from private credit lenders is higher,

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<v Speaker 4>and you might prefer an IPO, and the opposite must

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<v Speaker 4>be true.

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<v Speaker 3>Well, actually I would look at a little differently. So

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<v Speaker 3>when investors evaluate a company for an IPO, they look

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<v Speaker 3>at what is the potential future earnings of that business,

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<v Speaker 3>and they do what we call discount of cash flow analysis,

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<v Speaker 3>and if the cost of capital is higher, they're going

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<v Speaker 3>to discount the future cash flows more and so they

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<v Speaker 3>actually so it actually has an interesting inverse reaction, where

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<v Speaker 3>the higher the cost of capital, the lower they put

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<v Speaker 3>on the lower value they put on future earnings, and

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<v Speaker 3>that is therefore, I think, had the effect that we've

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<v Speaker 3>seen on IPOs. Why has the IPO environment been so difficult,

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<v Speaker 3>it's because the cost of capital has gone up precipitously.

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<v Speaker 3>Investors have a hard time modeling future cash flows. Now

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<v Speaker 3>we're starting to think that perhaps the cost of capital

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<v Speaker 3>could moderate.

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<v Speaker 1>That makes it easier for them to.

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<v Speaker 3>Predict future cash flows, and we actually think that could

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<v Speaker 3>be a catalyst for more IPOs going forward.

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<v Speaker 2>It's a whole market working on that valuation, said Adina,

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<v Speaker 2>We thank you so very much for your time. Of course,

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<v Speaker 2>that as Adena Friedman, chir and CEO of Nasdaq