WEBVTT - State Street’s Paglia on Performance and Scale 0:00:16.200 --> 0:00:19.040 Welcome to Inside Active, a podcast about active managers that 0:00:19.120 --> 0:00:21.680 goes beyond side bites and headlines and looks deeper into 0:00:21.720 --> 0:00:26.119 their processes, challenges and philosophies and security selection. I'm David Cohne, 0:00:26.160 --> 0:00:28.880 I lead mutual fund and active Research at Bloomberg Intelligence. 0:00:29.480 --> 0:00:32.680 Access to markets has changed dramatically over the past decade. 0:00:33.200 --> 0:00:35.800 Strategies that were once hard to reach are now being 0:00:35.800 --> 0:00:39.920 delivered through ETFs models and new structures designed to scale. 0:00:40.200 --> 0:00:42.800 But as access expands and raises a different set of 0:00:42.880 --> 0:00:46.840 questions about capacity outcomes and whether making something more accessible 0:00:47.200 --> 0:00:50.760 changes would investments actually get Today? I wanted to explore 0:00:50.800 --> 0:00:53.000 what that means for active management and how the industry 0:00:53.040 --> 0:00:56.920 is balancing innovation with discipline. Joining me to discuss that 0:00:57.160 --> 0:01:00.480 is A'm A Palia, Executive Vice president in chief business 0:01:00.480 --> 0:01:03.680 officer for State Street Investment Management. Anna. Thank you for 0:01:03.760 --> 0:01:04.360 joining me today. 0:01:04.520 --> 0:01:06.640 Thank you for having me, So let's. 0:01:06.400 --> 0:01:08.679 Dive right in. Do you think the industry has moved 0:01:08.720 --> 0:01:12.040 past the whole active versus passive debate or kind of 0:01:12.080 --> 0:01:13.600 you think it's still as a useful framing. 0:01:15.000 --> 0:01:19.080 Oh my goodness, I really hope that the industry is 0:01:19.160 --> 0:01:24.560 now past the active versus passive debate because as you 0:01:25.000 --> 0:01:27.280 as you may know, and I'm sure that you know 0:01:27.319 --> 0:01:30.520 it really, really well, we have been talking about this 0:01:30.720 --> 0:01:35.560 for the last thirty years, active versus passive, which became 0:01:35.760 --> 0:01:41.000 a musual fans of versus ETFs. Ultimately, it's not really 0:01:41.319 --> 0:01:45.800 an either or one is better than the other. Is 0:01:46.080 --> 0:01:51.760 really a matter of understanding how to use active strategies 0:01:51.960 --> 0:01:56.200 and passive strategies when building a portfolio. I also think 0:01:56.240 --> 0:01:59.960 that the industry is a lot of really good world 0:02:01.040 --> 0:02:08.359 educating clients, educating investors about the differences between the content 0:02:08.639 --> 0:02:13.560 and the technology. The idea of rapper is a technology. 0:02:13.919 --> 0:02:17.920 It's not a content, It's just the meme by which 0:02:18.200 --> 0:02:24.800 content is delivered to investors. Now historically IDA so only passive, 0:02:25.240 --> 0:02:29.679 hence the debate active versus passive. But in the end, 0:02:29.840 --> 0:02:33.240 the idea of rapper is just a phenomenal technology that 0:02:33.360 --> 0:02:37.280 is really upgrading the way by which we deliver content 0:02:37.400 --> 0:02:38.320 to our clients. 0:02:39.840 --> 0:02:41.359 So if we go a little further, do you think 0:02:41.600 --> 0:02:43.840 half of has gone too far anywhere where it's actually 0:02:43.840 --> 0:02:47.399 made markets less efficient, you know, creating opportunities for active. 0:02:48.639 --> 0:02:51.200 I don't think that. I don't think that passive has 0:02:51.240 --> 0:02:55.639 gone too far. I think that passive is doing exactly 0:02:55.919 --> 0:02:59.680 what the passive is designed to do. Passive was born 0:03:00.120 --> 0:03:05.200 as a market exposure in a way that is cost effective, 0:03:05.520 --> 0:03:08.959 tax efficients and allows investors to get a slice of 0:03:09.040 --> 0:03:14.760 the market. Passive is really meant to be predictable. So 0:03:15.440 --> 0:03:18.280 the way you are looking passive to a portfolio is 0:03:18.560 --> 0:03:22.119 using an old book. I don't take passive has gone 0:03:22.160 --> 0:03:25.520 too far. I actually think that there are other opportunities 0:03:25.560 --> 0:03:28.640 for ass IF to continue to innovate, even if the 0:03:28.680 --> 0:03:31.200 market is becoming more and more crowded as we go. 0:03:32.880 --> 0:03:34.680 And so if we kind of talk about how you 0:03:34.920 --> 0:03:39.360 active and passive both places, do you think that clients 0:03:39.360 --> 0:03:42.560 still have a misunderstanding of active management today? You know 0:03:42.640 --> 0:03:45.600 what they're actually asking for that you know doesn't necessarily 0:03:45.680 --> 0:03:47.680 lead to better outcomes? 0:03:48.280 --> 0:03:54.320 Well, you know, David, returns are incredibly important, and I 0:03:54.360 --> 0:03:59.880 do believe that active management is struggling not because of 0:03:59.920 --> 0:04:04.720 the legal wrapper, but because the benchmarks are incredibly strong. 0:04:05.640 --> 0:04:11.400 We have seen several years of very strong epudy markets, 0:04:11.760 --> 0:04:16.120 especially US domestic epity markets, and it has been really 0:04:16.200 --> 0:04:21.279 hard for active managers to outperform the benchmarks. So I 0:04:21.400 --> 0:04:25.680 do think that the investors are driven by the outcome. 0:04:26.240 --> 0:04:30.640 They are driven by returns. And at a time when 0:04:30.880 --> 0:04:33.880 it's really easy to go in and out of a 0:04:33.960 --> 0:04:38.840 fund or to trade the ETFs out of digital wealth platforms, 0:04:39.320 --> 0:04:44.440 redoos are becoming incredibly important. I don't think that investors 0:04:44.680 --> 0:04:49.119 have the patients that they had before to say, well, 0:04:49.200 --> 0:04:53.279 the active strategy is underperforming. I'm gonna wait for the explanation. 0:04:53.640 --> 0:04:56.600 I'm gonna give it another year, two years, or five years. 0:04:57.440 --> 0:05:02.080 We live in an environment in which investment choices are 0:05:02.800 --> 0:05:06.320 the fingertips of our investors. And I think that the 0:05:06.360 --> 0:05:10.159 patience of longer term investors and that we saw in 0:05:10.160 --> 0:05:17.520 the last decade is slowly evaporating and showing very strong returns, 0:05:17.880 --> 0:05:22.880 showing a very strong strategy that generates alpha is the 0:05:23.000 --> 0:05:27.440 key between an investor choice between an active strategy and 0:05:27.480 --> 0:05:29.080 a passive exposure product. 0:05:30.800 --> 0:05:33.000 So one of the things we've noticed is, you know, 0:05:33.080 --> 0:05:36.080 especially kind of this kind of rebound and active management, 0:05:36.200 --> 0:05:38.520 you know where Pastor was kind of dominating for quite 0:05:38.520 --> 0:05:41.720 a while. And you know, obviously the VTF structure helps 0:05:41.720 --> 0:05:43.880 a lot. You know, it's you know, investors prefer that, 0:05:44.200 --> 0:05:45.960 but you know, we kind of looked at feet compression 0:05:46.040 --> 0:05:48.200 is another issue that I think has kind of helped 0:05:48.240 --> 0:05:51.839 active along. Do you think that fee compression has improved 0:05:51.839 --> 0:05:54.279 the quality of active management or you know, is there 0:05:54.360 --> 0:05:56.480 kind of a flip side where you know, it's less 0:05:56.520 --> 0:05:59.599 revenue and could make it harder to invest in talent. 0:06:01.120 --> 0:06:03.240 You know. The way I look at that is really simple. 0:06:04.080 --> 0:06:09.840 Investors are winning here because these active and passive I 0:06:10.160 --> 0:06:14.520 have some usual funds. The dynamic that we have been observing, 0:06:14.640 --> 0:06:19.760 especially in the last decade, really showed that for active 0:06:19.839 --> 0:06:26.240 managers to outperform their benchmarks and to have a favorite 0:06:26.279 --> 0:06:30.120 allocation within a client portfolio, they have to show competitive 0:06:30.160 --> 0:06:34.279 fees and they have to show outstanding performance. And I'm 0:06:34.279 --> 0:06:41.000 not just talking about you know, top half or top 0:06:41.160 --> 0:06:45.360 one third. You have to show very good, strong performance 0:06:45.520 --> 0:06:49.520 top desile to begin with. So to me, in this 0:06:49.640 --> 0:06:55.480 competitive environment, investors of really the winners because everything is 0:06:55.520 --> 0:07:03.080 fully transparent. Pis right there. You can get a slice 0:07:03.080 --> 0:07:05.760 of the sm P five hundred four as little as 0:07:06.040 --> 0:07:10.400 two paces points. And if active managers cannot beat the 0:07:10.520 --> 0:07:12.640 s m P five hundred and charge more than that, 0:07:12.920 --> 0:07:15.720 it's going to be really really hard for that strategy 0:07:16.040 --> 0:07:20.920 to have a favorite place in a client portfolio. However, 0:07:21.120 --> 0:07:24.960 the other thing that is happening is that really strong 0:07:25.120 --> 0:07:30.800 as locators are winning. We have seen that the new 0:07:30.840 --> 0:07:34.880 flexibility and the exemptive orders that the SEC has approved 0:07:35.760 --> 0:07:40.960 have opened the door to active strategies finding a place 0:07:41.200 --> 0:07:44.600 in the DF rapper. We have seen that with a 0:07:44.680 --> 0:07:48.080 mutual fund that WEDF conversion. We will see it and 0:07:48.120 --> 0:07:51.080 more and more again with the EDF share classes of 0:07:51.200 --> 0:07:57.520 mutual funds. So strong active strategies based on fundamentals, with 0:07:57.600 --> 0:08:02.040 a very strong truck reper that wrap, you know, very 0:08:02.160 --> 0:08:06.040 modern technology like itty apps is really going to continue 0:08:06.080 --> 0:08:09.760 to drive. And we have seen the results last year 0:08:10.040 --> 0:08:13.280 where five hundred and eighty billion dollars of net new 0:08:13.360 --> 0:08:17.840 assets in the ETF industry. We're really originating out of 0:08:18.080 --> 0:08:23.480 active strategies, either through conversions or new fund launchers. Now, 0:08:23.760 --> 0:08:29.680 not all active strategies are creative. Well, again, performance is paramounts. 0:08:30.000 --> 0:08:33.319 It's not a coincidence that there is a big difference 0:08:33.400 --> 0:08:37.680 between the growth of a fixed income activity apps and 0:08:37.720 --> 0:08:43.000 the growth of equity activity apps. In fixed income you 0:08:43.360 --> 0:08:49.600 can really use very thoughtful and very strategic active por 0:08:49.679 --> 0:08:54.800 foreign management strategies to us perform most of the benchmarks, 0:08:54.480 --> 0:08:58.480 and this is why active fixed income is going faster 0:08:58.600 --> 0:09:02.040 than active equity. But in the end, you know, performance 0:09:02.120 --> 0:09:04.120 is really going to drive flows. 0:09:05.160 --> 0:09:07.320 So if we you know, we talk about you know 0:09:07.360 --> 0:09:10.079 why active ETFs are doing so much better than active 0:09:10.160 --> 0:09:13.680 mutual funds. But can you think of a reason which 0:09:13.720 --> 0:09:15.920 would make an act strategy work better in a mutual 0:09:15.920 --> 0:09:17.240 fund as opposed to an ETF. 0:09:18.000 --> 0:09:20.160 Well, there are a number of reasons for that. I'm 0:09:20.200 --> 0:09:23.880 not saying I'm not saying that the ETFs are always 0:09:23.960 --> 0:09:28.559 the best possible rapper for a given strategy. The first 0:09:28.559 --> 0:09:32.880 thing that you have to look at is capacity. We 0:09:33.240 --> 0:09:36.840 you know at State Street Investment Management that we operate 0:09:37.520 --> 0:09:42.480 a wide platform aware. We are very much wrapper aware, 0:09:43.320 --> 0:09:45.880 and I don't like to see rap proagnostic because I 0:09:45.880 --> 0:09:49.160 think about proagnostic is a little bit of a mistake. 0:09:49.640 --> 0:09:55.600 Rapper aware being a rapper aware. It's really important we 0:09:55.679 --> 0:10:00.280 offer our capabilities a true ETFs. Some usual funds CI 0:10:00.679 --> 0:10:05.400 is in separate mandates. So for us, it's really relevant. 0:10:05.559 --> 0:10:08.240 We don't have a view about what wrapper is best 0:10:08.360 --> 0:10:12.040 for a certain strategy, But what is really important is 0:10:12.600 --> 0:10:16.920 one what the client wants, what type of clients we 0:10:16.960 --> 0:10:22.560 are going to offer strategies to and capacity. Ultimately, when 0:10:22.600 --> 0:10:27.160 we make a decision about launching an ETF, we always 0:10:27.200 --> 0:10:31.600 have to ask ourselves what happens if we become the 0:10:31.760 --> 0:10:35.600 victims of our own success? What happens if this fund 0:10:35.760 --> 0:10:39.840 becomes widely successful and we're going to be able to 0:10:39.880 --> 0:10:43.600 operate this strategy yart of fifty billion dollars one hundred 0:10:43.679 --> 0:10:48.600 billion dollars over one hundred billion dollars Because unlike mutual funds, 0:10:48.800 --> 0:10:53.640 you cannot close an ETF, you cannot suspend the redemptions. 0:10:54.000 --> 0:10:57.480 The DF is going to have to continually trade. The 0:10:57.840 --> 0:11:00.160 EDF is going to have to be open for peacemas 0:11:00.400 --> 0:11:04.160 and provide a daily liquidity. And if there are strategies 0:11:04.360 --> 0:11:10.600 based on maybe concentrated strategies or securities that are less 0:11:10.640 --> 0:11:13.840 liquid then what you would like to see in an ETF, 0:11:14.280 --> 0:11:17.199 then the EDF may not be the best of rapper. Again, 0:11:17.280 --> 0:11:19.560 it's not the one in the other. There are some 0:11:19.800 --> 0:11:22.640 nuances that you have to take into account during the 0:11:22.679 --> 0:11:24.400 product development process. 0:11:25.280 --> 0:11:26.960 If we go a little deeper on that, you know, 0:11:27.400 --> 0:11:30.640 you know, as as a managers think about capacity and scalability, 0:11:30.679 --> 0:11:32.360 and you know, especially for firms that haven't made the 0:11:32.400 --> 0:11:35.600 move yet. How do flows play a role? I guess 0:11:35.720 --> 0:11:38.800 you know, even something like model portfolios, which can drive 0:11:38.840 --> 0:11:41.319 flows at scale. How how do you think about that 0:11:41.320 --> 0:11:42.480 that when it comes to capacity. 0:11:43.200 --> 0:11:46.240 Yeah, well you have to think about capacity, and there 0:11:46.240 --> 0:11:52.040 are many different lenses because our product innovation journey is 0:11:52.120 --> 0:11:56.440 not just that the manufacturing level. So capacity is not 0:11:56.520 --> 0:11:59.920 just about the building a fund, launching a usual fund, 0:12:00.160 --> 0:12:04.440 launching NDF. If you are launching andF, you have to 0:12:04.480 --> 0:12:08.439 think about how is this product going to be consumed. 0:12:09.200 --> 0:12:13.320 Mother portfolios are certainly gonna play a role that is 0:12:13.400 --> 0:12:16.200 going to be more and more important in the next 0:12:16.240 --> 0:12:20.880 three to five years because technology is making it possible 0:12:21.040 --> 0:12:25.120 for small clients to use moder portfolios and it tfs 0:12:25.200 --> 0:12:27.920 play a big role in there. But I'm also thinking 0:12:27.960 --> 0:12:34.200 about directing, daxing, directing vaxing and those you know taxa 0:12:34.320 --> 0:12:38.720 alpha generating platforms are using dfs. Some of them are 0:12:39.120 --> 0:12:42.359 are also using the musual funds, but most modern portfolios 0:12:42.360 --> 0:12:45.200 that we see are really using dfs as building blocks. 0:12:45.640 --> 0:12:49.479 So you have to look at many different dimensions of liquidity, 0:12:49.440 --> 0:12:53.160 in many different dimensions of flows. How much of the 0:12:53.200 --> 0:12:56.079 flow do you expect to come from mother portfolios, from 0:12:56.160 --> 0:13:01.600 directingdxing platforms, from digital world. That's the distribution network that 0:13:01.760 --> 0:13:06.880 is growing faster than wealth and institutional and those investors 0:13:07.000 --> 0:13:10.400 not buying usual funds, they buy dfs. So what type 0:13:10.440 --> 0:13:12.880 of strategies do you want to put the market And 0:13:13.679 --> 0:13:17.920 are you reasonably sure that the combination of the wealth 0:13:18.000 --> 0:13:22.880 institutional model, portfolios, direct indexing and digital wealth is not 0:13:23.000 --> 0:13:26.800 going to cause this funder to lose its liquidity and 0:13:27.760 --> 0:13:30.520 you know the strength of the Weber may be compromised. 0:13:31.600 --> 0:13:34.160 That makes sense. We switch scares just a little bit. 0:13:34.520 --> 0:13:37.360 I just want to talk about launching active products. And 0:13:37.480 --> 0:13:40.959 you know, when you're evaluating a potential launch of a product, 0:13:41.679 --> 0:13:44.160 you what separates a real need from just, you know, 0:13:44.240 --> 0:13:45.160 product proliferation. 0:13:47.440 --> 0:13:52.040 That's such a good question because last year we have 0:13:52.160 --> 0:13:57.360 seen a lot of product proliferation. I believe that the 0:13:57.720 --> 0:14:03.400 ETF market so something like one and seventy seven and 0:14:03.520 --> 0:14:06.200 new products are coming to market in twenty twenty five. 0:14:06.960 --> 0:14:10.360 But of those products, only a handful were able to 0:14:10.400 --> 0:14:15.880 cross one hundred billion dollars in one billion dollars in 0:14:15.880 --> 0:14:22.320 in the first twelve months of their life. And the 0:14:22.440 --> 0:14:28.080 reason for data is pretty simple. Launching products is easy. 0:14:28.920 --> 0:14:33.000 Launching the right products is not really easy. And I 0:14:33.040 --> 0:14:37.120 do think that those sponsors of those asset managers that 0:14:37.800 --> 0:14:43.000 are able to generate that type of growth, asset managers 0:14:43.080 --> 0:14:47.480 that do not innovate for the sake of innovation, they 0:14:48.160 --> 0:14:53.360 are able to step away from these vanity projects where 0:14:53.960 --> 0:14:57.120 you know, I have a great idea, I can manage 0:14:57.160 --> 0:14:59.520 a great portfolio, so I'm going to build it and 0:14:59.600 --> 0:15:02.800 they will can build it and they will come, or 0:15:02.880 --> 0:15:06.880 really doesn't work in an IF flaw and for what 0:15:07.000 --> 0:15:09.520 it's worth, it doesn't even work in a musual fund land. 0:15:10.240 --> 0:15:14.040 So we have pretty much moved the way from a 0:15:14.480 --> 0:15:21.160 manufacturer standpoints. Whenever we start a product innovation journey, we 0:15:21.240 --> 0:15:24.880 don't start from our own capabilities. We start from the 0:15:24.880 --> 0:15:28.680 other end of the process, which is the client. Everything 0:15:29.120 --> 0:15:33.600 is very much data driven. We look at flows, we 0:15:33.640 --> 0:15:37.680 look at the bottom up assessment of what we hear 0:15:38.040 --> 0:15:42.680 from clients on the ground. With you're you know, we 0:15:42.760 --> 0:15:46.040 have a very stronger salesforce puts on the ground every 0:15:46.120 --> 0:15:50.840 day talking to clients and bringing that intelligence back into 0:15:50.880 --> 0:15:55.640 our innovation hub. And whenever we assess gaps in markets, 0:15:55.680 --> 0:15:58.760 so this is where this is where our process starts. 0:15:59.080 --> 0:16:02.760 It doesn't start from the manufacturing side. It starts from 0:16:02.800 --> 0:16:06.600 our clients and then we work backwards. We try to 0:16:06.640 --> 0:16:10.640 build that capability and we also ask ourselves are we 0:16:10.960 --> 0:16:14.840 best in class with this? We have built a platebook 0:16:14.880 --> 0:16:18.840 that is really successful when it comes to partnerships. We 0:16:18.880 --> 0:16:22.080 don't have to be best in class of everything. You know, 0:16:21.800 --> 0:16:26.680 we know exactly where our strengths are. We know etrs, 0:16:26.800 --> 0:16:31.320 we know liquidity, we know secondary markets, we know primary markets. 0:16:31.680 --> 0:16:35.600 This is this isn't very much the strength of our platform, 0:16:35.800 --> 0:16:38.960 but if there are things that we are not already created, 0:16:39.200 --> 0:16:42.120 so we don't have an issue saying we are gonna 0:16:42.120 --> 0:16:44.720 call a friend here and we are gonna partner with 0:16:44.840 --> 0:16:48.520 somebody who is a best in class at this particular thing. 0:16:49.480 --> 0:16:54.000 We partnered with a Bridge order to bring us into 0:16:54.120 --> 0:16:58.000 it apps. We partnered with Apollo to bring a private 0:16:58.040 --> 0:17:02.640 credit to it apps. We partnered with Galaxy to bring 0:17:02.840 --> 0:17:06.720 digital assets into it apps. So for us, it's really 0:17:06.760 --> 0:17:10.439 about filling a gap and then working backwards so to 0:17:10.600 --> 0:17:14.960 understand who has the cababilities to deliver about them. 0:17:15.400 --> 0:17:17.960 So if we think about the next wave of innovation, 0:17:18.640 --> 0:17:20.960 do you think you could be coming from asset classes 0:17:21.040 --> 0:17:23.920 like private markets or how I guess you would say 0:17:24.040 --> 0:17:26.040 strategies are packaged and distributed. 0:17:27.440 --> 0:17:35.600 Yeah, I don't really look at asset classes a versus strategies. Again, 0:17:35.720 --> 0:17:40.080 we look at we look at investors needs, and we 0:17:40.200 --> 0:17:43.919 follow the money because when you follow the money, you 0:17:43.960 --> 0:17:47.919 are never wrong. You know exactly what our clients are buying, 0:17:48.520 --> 0:17:52.720 and it gives you an idea of what particular teams 0:17:53.280 --> 0:17:56.919 they are focusing on today, but may driver flows in 0:17:56.960 --> 0:18:01.800 the future, and those teams may be low cost, it 0:18:01.880 --> 0:18:08.440 may be income. If you look at the biggest drivers 0:18:08.480 --> 0:18:11.560 of flows in the first four months of this year, 0:18:12.520 --> 0:18:14.639 which is also something that we have seen in twenty 0:18:14.680 --> 0:18:18.080 twenty five, so this is not just a change in trends, 0:18:18.720 --> 0:18:22.040 we see that half of the flows come from low 0:18:22.080 --> 0:18:26.119 cost low cost exposure. I don't know if this is 0:18:26.160 --> 0:18:30.119 going to change when a market markets start to crack, 0:18:30.560 --> 0:18:34.359 and right now we have had the luxury of living 0:18:34.920 --> 0:18:39.200 in a period of stronger everydy markets, so low cost 0:18:39.640 --> 0:18:43.119 has really been a driver. Fifty percent of the assets 0:18:43.280 --> 0:18:46.320 are really originated out of the desire to add as 0:18:46.359 --> 0:18:52.160 slice of the market at a very low price. Income 0:18:52.760 --> 0:18:56.960 is the need for income and not limiting that to 0:18:57.119 --> 0:19:02.400 dividends is what has really because the and propelled the 0:19:02.440 --> 0:19:09.520 proliferation of the income oriented products. So we have seen 0:19:09.960 --> 0:19:13.679 many of these examples in market, but also we have 0:19:13.720 --> 0:19:18.760 seen buffer dtfs really taking a fair share of flows 0:19:18.760 --> 0:19:23.359 the last year and this year, stemming from clients desires 0:19:23.520 --> 0:19:27.320 to control the downside a little, even if they are 0:19:27.520 --> 0:19:32.320 compromising the upside slightly. So what we do is really 0:19:32.400 --> 0:19:35.679 move away from as a classes and really look at 0:19:35.680 --> 0:19:40.240 these teams as a classes specific. If I really were 0:19:40.320 --> 0:19:43.000 to go there, I would tell you that the fixed 0:19:43.080 --> 0:19:46.679 InCom is a big focus of ours because we do 0:19:46.800 --> 0:19:51.000 believe that the active selection matters when it comes to 0:19:51.000 --> 0:19:54.639 fixed INCAM and we will continue to look at opportunities 0:19:54.680 --> 0:19:58.720 to innovate in active fixed income opposs trough usual funds 0:19:58.720 --> 0:19:59.360 of dfs. 0:20:00.640 --> 0:20:03.040 Okay, I do want to focus on one as a 0:20:03.119 --> 0:20:05.359 class for just a second. I do kind of want 0:20:05.359 --> 0:20:08.000 to go back to the private markets because products like 0:20:08.040 --> 0:20:11.240 Priver just really interesting to me, and you know, trying 0:20:11.280 --> 0:20:13.960 to bring less liquid exposures into you know, a more 0:20:14.000 --> 0:20:17.439 accessible rapper. You know, I know, I'd love to know 0:20:17.600 --> 0:20:20.119 and my listeners would love to know what had it changed. 0:20:20.800 --> 0:20:25.040 I guess internally to make something like it possible, that's a. 0:20:24.960 --> 0:20:29.880 Really good question. Two things have to change, price, transparency, 0:20:30.320 --> 0:20:36.800 and liquidity. Now, when we started working on prive or 0:20:36.960 --> 0:20:43.520 prive industry, it's really fifty to fifty. When we started 0:20:43.560 --> 0:20:47.640 working on these funds, we formed a number of beliefs. 0:20:48.080 --> 0:20:53.080 Belief number one is that private markets and public markets 0:20:53.200 --> 0:20:57.520 will converge. We have seen this movie before, we have 0:20:57.720 --> 0:21:01.720 watched it. It sounds like a rep heat of what 0:21:01.960 --> 0:21:09.399 we observed with senior loans, emergeny markets, emergy markets, debts. 0:21:09.960 --> 0:21:14.960 You know, those markets were inaccessible, ill liquid and then 0:21:15.119 --> 0:21:21.040 slowly that liquidity was created and markets conversion. And we 0:21:21.080 --> 0:21:23.920 do believe that this is the beginning of the journey 0:21:24.040 --> 0:21:28.720 between a public market and private markets. We also formed 0:21:28.760 --> 0:21:32.919 another belief which is especially when it times to private credit, 0:21:33.640 --> 0:21:38.720 private credit can still command the higher yells compared to 0:21:38.800 --> 0:21:42.640 the more traditional public side of credit. And we also 0:21:42.680 --> 0:21:48.159 believe that quality matters, so selection matters. Not all private 0:21:48.240 --> 0:21:53.439 credit is created equal. And when we built this fund, 0:21:54.040 --> 0:22:01.200 we really thought about fixing an exposure that provides out 0:22:01.359 --> 0:22:05.879 performance compared to the benchmark. With the inclusion of a 0:22:05.960 --> 0:22:11.880 private credit component. Now, our partnership with Apolo really helped 0:22:11.920 --> 0:22:15.639 us make ourselves comfortable when it comes to the liquidity 0:22:16.200 --> 0:22:21.520 so a'poloys providing a liquidity backstop to the funds. So 0:22:21.880 --> 0:22:25.320 in cases in which we decide that we want to 0:22:25.359 --> 0:22:28.560 sell those assets, I've always agreed to buy them back 0:22:29.359 --> 0:22:33.600 Upolo is also giving us price transparency. We get three 0:22:33.840 --> 0:22:37.160 puts a day on each one of those assets from Apolo. 0:22:37.960 --> 0:22:42.040 We value those acsets internally independently of the bole, and 0:22:42.080 --> 0:22:46.359 we also hire an independent data because we are not 0:22:46.440 --> 0:22:50.480 satisfied with the first two sets of data, so we 0:22:50.560 --> 0:22:54.960 converge all of these different data points and we come 0:22:55.040 --> 0:22:57.840 up with a pricing that we believe is in bigadiva 0:22:57.960 --> 0:23:01.600 of the value of the security, and we put that 0:23:01.640 --> 0:23:06.280 price on our website. Again, the transformative thing about this 0:23:06.560 --> 0:23:10.680 product is that we are providing a level of transparency 0:23:10.720 --> 0:23:15.199 about these assets that did not exist before. And thirty 0:23:15.280 --> 0:23:19.320 years ago when the first idiods were launched, what we 0:23:19.440 --> 0:23:25.359 discovered was that a transparency enables arbitrash, and arbitrash makes 0:23:25.359 --> 0:23:28.639 everybody honest. So I mean, we have seen this fund 0:23:28.640 --> 0:23:32.800 the first of all, delivering the results that we expected 0:23:32.840 --> 0:23:37.520 to see right now the fund is outperforming, is benchmarkt 0:23:37.600 --> 0:23:40.080 in a way that is meaningful. We are talking about 0:23:40.320 --> 0:23:45.240 nineteen ninety five basis pints depending on the period, and 0:23:45.359 --> 0:23:48.720 we are really satisfied and pleased with the liquidity of 0:23:48.760 --> 0:23:52.800 the assets that were including the private segment of the portfolio. 0:23:53.400 --> 0:23:57.600 So we didn't go one hundred percent pilots because we 0:23:57.680 --> 0:24:00.920 don't think the market is right for that. We don't 0:24:00.960 --> 0:24:04.879 think that there is enough liquidity to support a fund 0:24:05.000 --> 0:24:09.000 that is one hundred percent private and provides daily liquidity. 0:24:09.280 --> 0:24:11.479 But we do believe that we are at the beginning 0:24:11.520 --> 0:24:14.640 of the journey, and that journey is going to end 0:24:14.960 --> 0:24:19.200 in three years or five years in a place where 0:24:19.400 --> 0:24:22.399 we are going to have price transparency, we are going 0:24:22.480 --> 0:24:26.520 to have liquidity, and investors will really be able to 0:24:26.520 --> 0:24:29.199 take advantage of that. I mean, in the end, the 0:24:29.359 --> 0:24:33.120 mission of ETFs over the last thirty years has been 0:24:33.200 --> 0:24:38.399 one of democratizing access. It has not been passive. I 0:24:38.400 --> 0:24:42.640 mean people people always equate the ETFs so with passive, 0:24:43.040 --> 0:24:45.840 that's not the mission of this product. The mission of 0:24:45.880 --> 0:24:51.359 this product is breaking down bar years democratizing access to 0:24:51.400 --> 0:24:56.480 financial instruments and democratizing accessor to the active performance of 0:24:56.560 --> 0:24:59.280 private markets is going to be the X frontier of 0:24:59.359 --> 0:24:59.959 this market. 0:25:01.560 --> 0:25:04.879 But for now, if investors are looking at prove, should 0:25:04.920 --> 0:25:08.960 they consider that a fixed income exposure where they're getting 0:25:09.000 --> 0:25:12.320 access to both public and private as opposed to know, 0:25:12.359 --> 0:25:14.840 an alternative allocation in their portfolio. 0:25:15.440 --> 0:25:18.040 Yeah, that's a really good question. We don't consider that 0:25:18.560 --> 0:25:23.119 an alternative a location. We build this fund and we 0:25:23.240 --> 0:25:28.680 continue to market this fund is a reinvention of court plus. 0:25:29.520 --> 0:25:33.280 We really looked at the core plus category. We didn't 0:25:33.280 --> 0:25:36.560 want to do a court plus plus, but we said 0:25:36.960 --> 0:25:41.119 if we are able to incorporate that is additional eels 0:25:41.160 --> 0:25:45.000 and to this portfolio, we will be able to ramagic 0:25:45.119 --> 0:25:48.280 cored cluss a reinvent cored cluss. So this is not 0:25:48.400 --> 0:25:51.240 going to be something that fits the also bucket in 0:25:51.280 --> 0:25:54.840 a client portfolio. To me, this is a compliment to 0:25:54.880 --> 0:25:57.960 the fixed income exposure where if you are looking for 0:25:58.000 --> 0:26:01.120 a core CLUS allocation, this fund is going to give 0:26:01.160 --> 0:26:05.080 you cord clus the same risk profile or a similar 0:26:05.240 --> 0:26:09.800 risk profile of traditional core class strategies with the other 0:26:10.040 --> 0:26:12.200 benefit of the additional private yield. 0:26:14.240 --> 0:26:17.200 You know, one thing you had mentioned is democratizing the markets, 0:26:17.200 --> 0:26:19.639 and I guess My question is how does the active 0:26:19.640 --> 0:26:22.119 management fit into that mission? You know, just giving it. 0:26:22.440 --> 0:26:25.359 You know, I should say historically higher cost structure. I mean, 0:26:25.359 --> 0:26:27.879 obviously fees are going down, but I guess how do 0:26:27.920 --> 0:26:29.360 you view that as part of it? 0:26:30.080 --> 0:26:36.200 Yes, well, alpha s paramount. Usually when investors look at 0:26:36.320 --> 0:26:40.720 the returns, they look at returns net of fees. So 0:26:40.920 --> 0:26:46.320 if you can, if you can deliver outstanding returns net 0:26:46.359 --> 0:26:50.919 of fees, fees are going to become a relevant I mean, ultimately, 0:26:51.119 --> 0:26:56.240 fees are really important. If you are producing mediocre returns 0:26:56.480 --> 0:26:59.679 and the fiz are eating gap on the returns, this 0:26:59.800 --> 0:27:02.439 is our investors are gonna look at S and P 0:27:02.520 --> 0:27:06.200 five hundred to business points and this is what I get. 0:27:06.520 --> 0:27:08.760 I get the performance of the S and P five hundred. 0:27:08.840 --> 0:27:11.560 I only have to pay two pips for that. But 0:27:11.680 --> 0:27:15.159 if you have strong active merchants. You know, I am 0:27:15.200 --> 0:27:18.240 an IDF geek, so everybody looks at me as the 0:27:18.320 --> 0:27:23.440 passive goal, but I am not at all a supporter 0:27:23.560 --> 0:27:27.959 of passive I am a supporter of good performance and 0:27:28.040 --> 0:27:32.320 good returns for our investors because this is our purpose, 0:27:32.840 --> 0:27:35.400 this is why we do what we do. And if 0:27:35.520 --> 0:27:40.240