WEBVTT - Markets Press on Amid Fed Pressure 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:26.960 us live on YouTube. 0:00:27.080 --> 0:00:30.520 We start strong with a conversation for Global Wall Street 0:00:30.800 --> 0:00:34.800 out on LinkedIn. Wayy of Blackrock is a massive value 0:00:34.880 --> 0:00:40.720 add she publishes at a regular rate with wonderful informative charts. Whaley, 0:00:40.800 --> 0:00:44.159 let's dive right into that. And you have something that 0:00:44.240 --> 0:00:48.599 pushes against all of the zeitgeist. You say there is 0:00:48.680 --> 0:00:53.720 no rising tide lifting all boats. That's sacrilege. 0:00:53.880 --> 0:00:59.440 Discuss well, if we think about the peeriod after global 0:00:59.560 --> 0:01:03.920 finance crisis, with the injection of Emmas pool of liquidity, 0:01:04.520 --> 0:01:09.720 companies that didn't have good fundamentals were rallying alongside companies 0:01:09.880 --> 0:01:12.680 with very good fundamentals. And this is what I meant 0:01:12.720 --> 0:01:16.200 by rising tight lifting all boats. But we're now in 0:01:16.240 --> 0:01:21.120 an environment of greater dispersion. We're in an environment of 0:01:22.080 --> 0:01:27.319 secular transformations like AI that is likely going to imply 0:01:27.760 --> 0:01:30.760 winners take hold. So this is an environment where being 0:01:30.880 --> 0:01:34.720 active and selective pays off more. And this is not 0:01:34.959 --> 0:01:38.920 a hypothesis. Our study actually shows that in a period 0:01:39.080 --> 0:01:45.440 coming out of the pandemic, actually the additional alpha generated 0:01:45.560 --> 0:01:50.160 by good active managers is greater compared to the peerage 0:01:50.640 --> 0:01:52.920 when rising tight was lifting all boats. 0:01:53.000 --> 0:01:56.120 Adam Parker a week ago in Barons I Thank You 0:01:56.200 --> 0:02:00.160 Parnassis Funds had a paragraph on the value of gross 0:02:00.160 --> 0:02:06.400 margin analysis. Jacob sanashin yesterday at Barons recapitulates that with 0:02:06.480 --> 0:02:10.480 a lot of Adam Parker research and the income statement, 0:02:10.680 --> 0:02:15.560 those successful companies that are rising, what does their gross 0:02:15.560 --> 0:02:19.080 margin or other margins down the income statement look like. 0:02:21.000 --> 0:02:26.320 Honestly, it's incredible that margins in the US have held 0:02:26.400 --> 0:02:30.800 up so while they are testing a recent year high, 0:02:31.639 --> 0:02:37.720 and it's notably higher than the equivalent in Europe in Japan, 0:02:37.919 --> 0:02:43.160 for example, So there really are something exceptional about US companies. 0:02:43.680 --> 0:02:47.880 But again to the point of greater dispersion and differentiation, 0:02:48.800 --> 0:02:52.520 one would note, digging under the hoods that actually a 0:02:52.520 --> 0:02:57.560 lot of the margin staying elevated and pushing higher has 0:02:57.639 --> 0:03:04.960 been driven by names Magnificent seven that are growing their 0:03:05.040 --> 0:03:10.480 revenues without actually hiring a lot more people. On the 0:03:10.480 --> 0:03:14.240 other hand, you have companies smaller PABs. For example, they 0:03:14.280 --> 0:03:19.480 are more vulnerable to rates settling at a higher level 0:03:19.880 --> 0:03:22.680 compared to before. They are more vulnerable to having to 0:03:22.720 --> 0:03:26.000 refinance their dad they don't have immense amount of cash 0:03:26.040 --> 0:03:28.640 sitting on their balance you. So again, this paints the 0:03:28.760 --> 0:03:30.520 picture of being active and selected. 0:03:30.880 --> 0:03:32.960 Well, I must confess I am a huge fan of 0:03:33.000 --> 0:03:34.880 yours on social media. I need to know where you 0:03:34.920 --> 0:03:36.520 bought that slice of pizza the other day. But you 0:03:36.560 --> 0:03:39.880 had a post yesterday pointing out equity manager Alpha and 0:03:39.920 --> 0:03:42.720 how it's improving. I'd love for you to expand on that. 0:03:42.760 --> 0:03:44.680 I'd love for you to talk about active risk taking 0:03:44.680 --> 0:03:47.720 and how active risk takers are outperforming in the current environment. 0:03:49.080 --> 0:03:52.000 Well, so that's really important. Then, this is why we 0:03:52.080 --> 0:03:54.360 think that this is really the golden age for being 0:03:54.640 --> 0:03:58.520 active right now. This is an environment of dispersion. You 0:03:58.560 --> 0:04:02.240 look at company is large cap versus small cap, tech 0:04:02.400 --> 0:04:07.600 versus consumers. Their margins, their earnest momentum very very different. 0:04:07.760 --> 0:04:10.440 I only talked about them on the level of sectors. 0:04:10.760 --> 0:04:14.640 Dispersion is even greater with in sectors along on the 0:04:14.720 --> 0:04:17.880 level of single names as well. So our study shows 0:04:17.880 --> 0:04:21.400 that for good managers they're being paid more for taking 0:04:21.720 --> 0:04:27.440 active risk and for median managers if they keep static 0:04:27.760 --> 0:04:32.839 macro factor exposure. It would have been okay in an 0:04:32.960 --> 0:04:36.680 environment where rising tight was lifting all boat coming out 0:04:36.680 --> 0:04:40.200 of global financial crisis. But now if they have static 0:04:40.279 --> 0:04:44.400 exposure to macro factors that are becoming less friendly, that 0:04:44.560 --> 0:04:48.560 actually becomes more punitive in this environment. So one can 0:04:48.600 --> 0:04:50.960 no longer get away with sitting on kind of macro 0:04:51.080 --> 0:04:53.279 factors and let them drift. We've got to be a 0:04:53.279 --> 0:04:56.159 lot more dynamic and active in our management style. 0:04:56.360 --> 0:04:59.080 Where you alluded to the data center build out, right, 0:04:59.160 --> 0:05:02.240 I mean the world of private markets in funding infrastructure 0:05:02.320 --> 0:05:04.159 and the AI build out and all that good stuff. 0:05:04.160 --> 0:05:05.640 And I just you know, I'm looking at some of 0:05:05.680 --> 0:05:08.279 the you know, high frequency cappecks indicators here in twenty 0:05:08.320 --> 0:05:10.720 twenty five, and it looks like things are pouncing back. 0:05:10.760 --> 0:05:12.280 It's unlike what I would have thought with all the 0:05:12.360 --> 0:05:15.680 uncertainty regarding tariffs in trade. You wouldn't think that corporates 0:05:15.680 --> 0:05:18.200 that the c suitely spending money in this way. What 0:05:18.240 --> 0:05:20.160 are your thoughts? What are you guys seeing over black Rock? 0:05:22.360 --> 0:05:29.160 The tariffs uncertainty is a timed uncertainty things are happening 0:05:29.240 --> 0:05:31.680 very very quickly, but I think the expectation is that 0:05:31.720 --> 0:05:37.760 we're going to see Lending Spot in the coming weeks, months, 0:05:37.920 --> 0:05:46.479 and quarters. Whereas the AI competition is a multi decade 0:05:46.960 --> 0:05:50.600 competition that goes beyond the cyclic code, apps and flows, 0:05:50.640 --> 0:05:55.040 and I think companies are viewing that as existential competition. 0:05:55.160 --> 0:05:58.359 You either spend and stay on the table or you 0:05:59.040 --> 0:06:02.000 could be at did the competition right, which is why 0:06:02.000 --> 0:06:05.239 we see Kapecks coming and continuing to be very strong, 0:06:05.279 --> 0:06:06.800 which is why we also think that there's a lot 0:06:06.839 --> 0:06:07.480 more to go in. 0:06:07.440 --> 0:06:09.200 The AI across the nation. 0:06:09.320 --> 0:06:13.040 Wayey with Black record, as we continue with Wayley here 0:06:13.080 --> 0:06:15.039 with Green and the screen ever so slight the vics 0:06:15.160 --> 0:06:18.960 nicely under seventeen sixteen point sixty three. Damien said he 0:06:18.960 --> 0:06:21.680 wouldn't show up unless I quoted yen one forty eight 0:06:21.800 --> 0:06:24.720 fifty one. Yeah, and really a surprise can get out 0:06:24.720 --> 0:06:28.599 to a weaker one fifty. We welcome all of you 0:06:28.760 --> 0:06:32.720 on Serious XM Channel one twenty one in Washington, Boston, 0:06:32.960 --> 0:06:36.760 in New York in a special good Morning out on YouTube. 0:06:36.800 --> 0:06:41.240 It's our new distribution, humbled by the success of the 0:06:41.279 --> 0:06:47.920 YouTube product, including Tracy Alloway and Joe Wisenthal there as well. Wait, 0:06:48.400 --> 0:06:52.279 if we define exuberance is something to do with Alan 0:06:52.320 --> 0:06:55.839 Greenspan or something to do with Robert Schuller at Yale, 0:06:56.320 --> 0:07:02.000 how does Wayley measure the exuberance the equity market this 0:07:02.160 --> 0:07:04.120 summer of twenty twenty five. 0:07:05.640 --> 0:07:10.440 I think by historical standards, if you compare to average 0:07:10.960 --> 0:07:16.400 multiples right now, multiples look stretched. But I think that 0:07:16.640 --> 0:07:21.360 is a big kind of statement to compare to historical 0:07:21.400 --> 0:07:24.800 averages because we're not in an environment where things are 0:07:24.920 --> 0:07:29.200 expected to revert back to historical mean. We're in an 0:07:29.280 --> 0:07:34.640 environment of transformations, right, So what is the benchmark? What 0:07:34.920 --> 0:07:37.320 is the fair value? I think all of them needs 0:07:37.320 --> 0:07:40.640 to be scrutinized a lot more in this environment, I 0:07:40.680 --> 0:07:44.400 would observe whilst versus historical long term You know, you 0:07:44.400 --> 0:07:47.160 look at Sharpe for example, they look stretched. You look 0:07:47.160 --> 0:07:51.200 at Magnificent seven, they're forward. Ky's actually right now in 0:07:51.240 --> 0:07:54.400 the middle that they are thirty times a pe right now, 0:07:54.480 --> 0:08:00.200 in the middle of the range since the launch of CHGBT, Right, So, 0:08:00.200 --> 0:08:06.600 so I think really scrutinizing the level against which we 0:08:06.880 --> 0:08:11.240 make our comparative statement is the key. I would also say, 0:08:11.560 --> 0:08:13.280 right now, you know, like we are, we're risk on 0:08:13.440 --> 0:08:19.200 despite multiples looking a little stretched because technical and positioning 0:08:19.360 --> 0:08:22.320 is not as stretched as compared to the beginning of 0:08:22.320 --> 0:08:27.239 the year. This has not been a much participated, heavily 0:08:27.280 --> 0:08:32.360 participated rally, especially by institutional investors from what we're hearing, 0:08:33.120 --> 0:08:36.280 and alongside the fact that fundamentals are holding up, alongside 0:08:36.280 --> 0:08:38.440 the fact that you know, we're talking about lots of 0:08:38.480 --> 0:08:42.640 headlines on tariffs flying around, but considerations for US that 0:08:42.760 --> 0:08:45.720 sustainability should take out some of the extreme left tails. 0:08:45.760 --> 0:08:50.400 So this is why we're risk on despite val Well, wait, I. 0:08:50.400 --> 0:08:52.800 Mean, look at US equity earning season, right despite all 0:08:52.800 --> 0:08:55.520 this ongoing trade uncertainty, they were surprisingly good in the 0:08:55.559 --> 0:08:57.880 first quarter. They're looking rather rosi here in the beginning 0:08:57.920 --> 0:09:00.400 of two Q and sorry to borrow baseball now during 0:09:00.440 --> 0:09:02.840 All Star break, But you know, what inning are we 0:09:03.000 --> 0:09:05.280 in exactly? I mean, most argue that we're late in 0:09:05.320 --> 0:09:07.600 the business cycle, but many still feel that, you know, 0:09:07.600 --> 0:09:10.199 the US exceptionalism narrative is merely taking a modest breather. 0:09:10.280 --> 0:09:11.320 What are your thoughts there? 0:09:12.600 --> 0:09:17.720 How many innings are there in the analogy all the time. 0:09:18.160 --> 0:09:22.640 This is the first guest, we've ever had great point, 0:09:22.800 --> 0:09:25.720 great question this afternoon. I mean Carpedo and you know, 0:09:26.000 --> 0:09:28.440 Rick Reader, when they want to hear from you on 0:09:28.520 --> 0:09:32.480 the equity markets at two pm, you just say, I'm sorry, Rick, 0:09:32.640 --> 0:09:36.080 I've got to watch Red Sox Cubs for nine innings. 0:09:36.440 --> 0:09:37.559 Damian continue here. 0:09:37.840 --> 0:09:40.240 I mean just in terms of the business cycle, and 0:09:40.240 --> 0:09:42.120 again it goes back to your point on CAPEX, which 0:09:42.160 --> 0:09:44.360 is so important. I mean, like put you rightly point out. 0:09:44.400 --> 0:09:46.880 I think the tech sector the mag seven we're responsible 0:09:46.920 --> 0:09:49.240 for eighty percent, upwards of eighty percent of all CAPECS 0:09:49.240 --> 0:09:51.200 spending twenty twenty four. Somebody told me that I don't know, 0:09:51.360 --> 0:09:52.880 but you know, cap X is what we should be 0:09:52.920 --> 0:09:54.960 focusing on here, and it seems like in the US 0:09:55.000 --> 0:09:57.160 at least it's okay. I mean, you seeing the same thing. 0:09:58.520 --> 0:10:01.440 I agree with you hundred percent. Corpex is what we 0:10:01.520 --> 0:10:08.239 should be focusing on, and also companies tech budget upgrades. 0:10:08.360 --> 0:10:10.720 You know, these are the things that we pay attention 0:10:10.760 --> 0:10:13.120 to understand how much more there is to go in 0:10:13.160 --> 0:10:19.520 the AI build out phase. But specifically back to earnings, 0:10:19.840 --> 0:10:22.320 like you said, Q one was very good. Q two 0:10:22.720 --> 0:10:26.640 expectation was for SMP to row about five percent six 0:10:26.720 --> 0:10:29.800 percent on a year on year basis. That's not hard 0:10:29.920 --> 0:10:32.840 to beat. I am pretty confident that we will beat that. 0:10:33.559 --> 0:10:35.920 You know, like it's mostly driven by tech, of course, 0:10:36.000 --> 0:10:40.840 but we're in the early innings of the tech AI supersycho, 0:10:41.160 --> 0:10:43.880 so we definitely think that there is there is more 0:10:43.920 --> 0:10:47.760 to go. Yeah, so we continue to be overweight driven 0:10:47.800 --> 0:10:49.040 by our conviction in tech. 0:10:49.200 --> 0:10:52.080 Well, well, how do you rationalize okay ai tech I 0:10:52.120 --> 0:10:54.600 get it even three m now with a nice recovery 0:10:54.640 --> 0:10:59.280 after a decade of mediocrity. How do you rationalize a 0:10:59.320 --> 0:11:04.680 thirty time times plus multiple for a large grocery store, 0:11:05.679 --> 0:11:09.480 big box store. That man has a grocery bolt and 0:11:09.840 --> 0:11:14.280 called Walmart. How do you it's grown single digit it 0:11:14.440 --> 0:11:17.520 makes nice even How does that thing get priced out 0:11:18.080 --> 0:11:19.880 it over thirty times earnings? 0:11:21.160 --> 0:11:23.679 I can comment on single names, as you know, Tom, 0:11:23.720 --> 0:11:25.480 but I would say that this is why we need 0:11:25.520 --> 0:11:30.160 to be selected right. There are companies that we legitimately 0:11:30.240 --> 0:11:36.240 can see a case for AI boosting productivity profits, and 0:11:36.280 --> 0:11:39.760 there are companies where such estimate is a bit stretched 0:11:39.880 --> 0:11:43.040 and hard to justify, which is why, even though we 0:11:43.080 --> 0:11:46.560 have the broader overweight within that we focus on companies 0:11:46.600 --> 0:11:50.960 that are likely going to benefit from a greater AI adoption, 0:11:51.080 --> 0:11:56.520 boosting productivity, including healthcare, including financials. But of course tag 0:11:56.720 --> 0:11:58.320 consumer discussionary and so and so. 0:11:59.120 --> 0:12:02.120 How does Wley with Chris Waller coming up at forty minutes, 0:12:02.120 --> 0:12:06.080 how does Wayley translate this FED debate with the President? 0:12:07.880 --> 0:12:10.880 Yeah, I think the bigger micro picture is that we're 0:12:10.880 --> 0:12:15.880 in an environment of high for longer because of inflationary pressure, 0:12:16.280 --> 0:12:20.280 in part thinking about kind of the tariffs new regime, 0:12:20.360 --> 0:12:23.840 but in part because of the environment shaped by supply, 0:12:24.040 --> 0:12:29.840 including labor supply shortages, right, so thinking about aging population 0:12:30.120 --> 0:12:35.200 and persistent wage So that being the case, persistent inflationary 0:12:35.240 --> 0:12:39.240 pressure should mean rates would settle at a higher level 0:12:39.400 --> 0:12:42.880 compare to before. But it means that income is back, 0:12:42.960 --> 0:12:44.520 you know, for the first time in a long time. 0:12:45.160 --> 0:12:47.959 Eighty percent of global fixed income is yielding four percent 0:12:48.040 --> 0:12:51.160 and higher. It will be very different two before. This 0:12:51.280 --> 0:12:52.720 is an environment for income. 0:12:52.640 --> 0:12:56.440 Beautifully described the ambiguity here of a sustained higher rate. 0:12:56.720 --> 0:12:59.480 Most people go OMG, the gloom of it all, and 0:12:59.520 --> 0:13:02.120 others that think of John Riding formerly at bear Stearns 0:13:02.160 --> 0:13:05.960 now Bring and Wayley at Blackrock saying there's an opportunity 0:13:06.000 --> 0:13:09.600 there for the coupon and the paths forward. Wayley is 0:13:09.640 --> 0:13:11.040 with Blackrock. 0:13:17.760 --> 0:13:21.320 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:13:21.400 --> 0:13:24.600 weekday afternoons from seven to ten am Eastern. Listen on 0:13:24.640 --> 0:13:28.320 Applecarplay and Android Otto with the Bloomberg Business app, or 0:13:28.480 --> 0:13:30.040 watch us live on YouTube. 0:13:30.120 --> 0:13:32.440 There are people that talk and there are people that do. 0:13:32.600 --> 0:13:35.000 And out in Chicago, Ta Konig is one of the 0:13:35.000 --> 0:13:40.880 people at Monroe Capitol does these huge commitment to Northwestern Medical, 0:13:41.000 --> 0:13:44.000 of Northwestern University and all of that, and of course 0:13:44.120 --> 0:13:47.720 his work is academics, i should say, in Indiana University, 0:13:48.720 --> 0:13:50.920 a bit ago and Damian. Why don't you bring in 0:13:51.400 --> 0:13:53.720 Ted because this is sort of in the wheelhouse of 0:13:54.200 --> 0:13:57.880 this expansion of alternative investments. 0:13:57.960 --> 0:14:00.000 Yeah, Tad, will you and the team at Mono Capitol 0:14:00.040 --> 0:14:03.160 focus on middle market middle market credit, really private credit 0:14:03.160 --> 0:14:04.839 to be serious? But here, you know, we know the 0:14:04.880 --> 0:14:07.000 private credit markets are consolidating, and we were just talking 0:14:07.040 --> 0:14:09.800 about the private equity space. My goodness, fundraising is plunged. 0:14:09.840 --> 0:14:11.880 And so my question for you is what are your 0:14:11.880 --> 0:14:15.400 thoughts on the emergence of all these continuation vehicles? Colo 0:14:15.520 --> 0:14:18.360 demand this week MNA activity. I mean, is the market healthy. 0:14:18.840 --> 0:14:22.480 Yeah, the market's healthy, Damien. But we're seeing today it's 0:14:22.480 --> 0:14:24.760 a unique phenomenon. We came off of two or three 0:14:24.840 --> 0:14:28.560 really solid years of M and A and private equity. 0:14:28.680 --> 0:14:32.000 Dry powder today sits in about a one point seven 0:14:32.120 --> 0:14:35.480 trillion dollars. It's the highest it's ever been. This is 0:14:35.520 --> 0:14:36.480 money on the sidelines. 0:14:36.640 --> 0:14:38.640 We find all work and. 0:14:38.760 --> 0:14:42.160 Because of the challenges let's say in the last year 0:14:42.280 --> 0:14:48.920 or so with prognosticating tariffs and regulation, inflation, interest rates, 0:14:49.480 --> 0:14:52.000 there's a lot of PE firms that are sitting on 0:14:52.080 --> 0:14:56.440 companies and not able to sell because the market's not clear. 0:14:56.800 --> 0:15:00.560 And when that happens, the system gets backed up, and 0:15:00.600 --> 0:15:04.280 what we see is a proliferation of continuation vehicles. We 0:15:04.400 --> 0:15:07.800 see second can down the roads and you know the 0:15:07.880 --> 0:15:10.320 challenges you're seeing kind of the results of that right 0:15:10.360 --> 0:15:14.280 now when you see these endowments selling private equity portfolios. 0:15:14.280 --> 0:15:16.960 We've never seen a year where there's been more private 0:15:17.000 --> 0:15:21.520 equity sales of portfolios into the marketplace. Secondaries. 0:15:21.720 --> 0:15:23.680 Yeah, well, I mean we had way lea of Blackrock 0:15:23.720 --> 0:15:27.320 on earlier, and we had this wonderful discussion about CAPEX 0:15:27.320 --> 0:15:28.880 here in the US, and we know that it's the 0:15:28.920 --> 0:15:31.680 big tech, the mag seven that's driving a lot of 0:15:31.680 --> 0:15:34.240 the data center build out. But what's going on in 0:15:34.240 --> 0:15:37.000 the middle markets in middle market America and your wheelhouse? 0:15:37.080 --> 0:15:38.920 You know, what are the proceeds being used for? Is 0:15:38.960 --> 0:15:41.600 it for you know, recaps in restructuring or is it 0:15:41.640 --> 0:15:42.480 being put to use? 0:15:42.840 --> 0:15:45.600 Yeah, so it's interesting. We've got about five hundred and 0:15:45.680 --> 0:15:48.680 twenty companies in our portfolio. We're the largest middle market 0:15:48.720 --> 0:15:50.080 finance company in the country. 0:15:50.440 --> 0:15:53.120 So you like the new Chemical Bank, that's really what 0:15:53.120 --> 0:15:53.800 we're talking about. 0:15:53.920 --> 0:15:56.400 Yeah, you know, the key is is that all the 0:15:56.400 --> 0:15:59.280 financing has come out of the regulated banking system for 0:15:59.360 --> 0:16:02.840 buyouts and it's going into the alternative assets system. And 0:16:03.000 --> 0:16:05.480 we've been the beneficiary of that because that's been our focus. 0:16:05.760 --> 0:16:08.200 Most of our competitors have kind of morphed up market 0:16:08.480 --> 0:16:11.040 and done larger deals. We've kind of stayed in our wheelhouse. 0:16:11.080 --> 0:16:12.840 Do you compete with Jamie Diamond? 0:16:13.040 --> 0:16:15.480 No, Jamie's a good guy. He's never going to be 0:16:15.520 --> 0:16:17.120 in our business and we're never going to be in 0:16:17.120 --> 0:16:17.680 his business. 0:16:18.280 --> 0:16:20.040 He's trying to be in your business. I mean, let 0:16:20.080 --> 0:16:21.880 me ask you this though, I mean, there has been 0:16:21.880 --> 0:16:23.880 a lot of talk about how you know, private credit 0:16:23.920 --> 0:16:27.080 really is, you know, eating Wall Street's cooking here. I mean, 0:16:27.440 --> 0:16:28.840 is there any truth to that? I mean, is there 0:16:28.840 --> 0:16:30.840 any way that the big banks can crack that nut? 0:16:31.120 --> 0:16:34.000 You know? It's interesting. There's two ways banks work. One 0:16:34.160 --> 0:16:36.200 is there either in a distribution business or they're in 0:16:36.240 --> 0:16:38.400 a storage business. They make a hell of a lot 0:16:38.440 --> 0:16:40.800 more money in the distribution business than they do in 0:16:40.840 --> 0:16:43.720 the storage business. So what they want to do is 0:16:44.400 --> 0:16:48.000 take the deals, pack the deals, distribute the deals, and 0:16:48.000 --> 0:16:52.120 make fees. It doesn't require regulatory capital, it doesn't require 0:16:52.240 --> 0:16:55.360 risk capital, and it generates significant earnings. 0:16:55.600 --> 0:16:59.520 Surveillance Audibo Damien sas a fight up about alternative investment 0:17:00.520 --> 0:17:03.560 Monroe CAPITALO, I don't care. I have the golf stream 0:17:03.600 --> 0:17:06.359 after the show and I'm going out through a hair 0:17:07.240 --> 0:17:11.000 and for the first time in ninety years, the Boston 0:17:11.080 --> 0:17:14.960 Red Sox play at Ridley Field. And what I want 0:17:14.960 --> 0:17:17.560 to know, Ted, is do I I'm looking at stub 0:17:17.600 --> 0:17:20.080 ub right now. You gotta help me. Do I go 0:17:20.119 --> 0:17:24.520 with section eighteen just to the left for twelve hundred bucks, 0:17:24.520 --> 0:17:27.159 two seats. Missus Keane says she's got to go or 0:17:27.200 --> 0:17:29.640 do I pump it up for twenty six hundred dollars. 0:17:29.760 --> 0:17:33.119 Excuse me to check that twenty eight hundred dollars for 0:17:33.160 --> 0:17:36.560 where you sit Section AA nineteen. Which is it? I 0:17:36.600 --> 0:17:37.320 tell you what you do? 0:17:37.359 --> 0:17:39.560 You call me and I'll call my pale Tom Ricketts, 0:17:39.560 --> 0:17:41.040 and I'll put you next to the double game. 0:17:42.400 --> 0:17:46.200 Say good morning to mister Ricketts. I have goosebumps. I'm 0:17:46.240 --> 0:17:50.359 going home, folks. I have a younger children birthday party. 0:17:50.680 --> 0:17:53.520 I'm told I have grandchildren haircuts, and I said it 0:17:53.560 --> 0:17:57.560 may be divorced. But Red Sox cubs at ridley Field, 0:17:57.680 --> 0:18:00.400 I have at least I got ducky bumps. Right now, 0:18:00.640 --> 0:18:02.840 Bill Murray, I'm sure will be there. This is like 0:18:02.880 --> 0:18:05.440 a huge deal. Would you like to ask a question? 0:18:06.000 --> 0:18:07.480 Look at your eye back on the ball here. I 0:18:07.480 --> 0:18:09.960 mean what I need to know here is will the 0:18:10.000 --> 0:18:13.959 one big beautiful bill be good for middle market America 0:18:14.000 --> 0:18:14.720 and for your space? 0:18:16.000 --> 0:18:18.240 You know it's there's two ways to look at it. 0:18:19.119 --> 0:18:22.359 I think anything that provides certainty is good, and we 0:18:22.440 --> 0:18:26.199 finally have some certainty on tax policy. The challenge that 0:18:26.240 --> 0:18:30.960 Tom was referring to is middle market companies based decisions 0:18:31.040 --> 0:18:34.840 on capex and growth and those are five ten year decisions. 0:18:35.240 --> 0:18:38.240 If you're a manager, private equity firm, an owner, a 0:18:38.280 --> 0:18:42.280 family business, second third, fourth generation business, significant business, you 0:18:42.840 --> 0:18:46.920 have to make decisions based on projected cash flows and 0:18:46.960 --> 0:18:50.520 payback periods. If you don't have certainty on what that's 0:18:50.520 --> 0:18:53.320 going to look like, it's very hard to make those decisions. 0:18:53.400 --> 0:18:56.040 That's why over the last six months nine months, we 0:18:56.080 --> 0:18:59.240 haven't seen a lot of big capex. We'd put about 0:18:59.240 --> 0:19:02.000 ten billion dollars a year into the ground in middle 0:19:02.040 --> 0:19:06.119 market companies. This year we did about four and a 0:19:06.160 --> 0:19:08.080 half billion in the first six months of the year, 0:19:08.200 --> 0:19:11.080 which we're on target. But what's interesting that this year 0:19:11.680 --> 0:19:14.600 eighty percent of our deals came out of our portfolio 0:19:15.040 --> 0:19:18.760 add ons, tuck ins, and dividend recaps, dividend transactions, not 0:19:18.960 --> 0:19:22.520 new platform buys, not new M and A, but dividends 0:19:22.560 --> 0:19:25.120 to sponsors that wanted to take money out of companies 0:19:25.600 --> 0:19:28.280 to create value to their LPs because their alps are 0:19:28.320 --> 0:19:29.719 clamoring for return of capital. 0:19:29.800 --> 0:19:31.320 Yeah, so, I mean, let me ask you this, I mean, 0:19:31.359 --> 0:19:33.240 what typpy yields. I mean, I know it's very different. 0:19:33.240 --> 0:19:34.720 I don't want to get into the weeds here, but 0:19:34.760 --> 0:19:37.520 I'm thinking mid to high double digit yields in your space? 0:19:37.560 --> 0:19:39.560 I mean, is that is that something that you see often? 0:19:39.960 --> 0:19:43.080 No, I mean we're We've done double digit yields to 0:19:43.119 --> 0:19:46.880 our LP investors for twenty six years now, so think 0:19:46.920 --> 0:19:49.480 ten to twelve percent. That's what our LPs want. And 0:19:49.520 --> 0:19:51.840 if you're a pension fund or you're an insurance company, 0:19:52.200 --> 0:19:53.280 that's as good as you can get. 0:19:53.560 --> 0:19:56.800 Should Lisa have private credit in her IRA? 0:19:58.359 --> 0:20:02.159 Great question, Great question. Lisa should have private credit in 0:20:02.280 --> 0:20:05.000 her portfolio. The question is whether it's in her IRA 0:20:05.160 --> 0:20:08.120 or not. Lisa can do it because she's more sophisticated 0:20:08.280 --> 0:20:11.480 than ninety nine percent of the population, but the rest 0:20:11.520 --> 0:20:14.280 of the population doesn't necessarily understand this. 0:20:14.520 --> 0:20:17.400 Are they going to get a second rate piece from 0:20:17.400 --> 0:20:20.439 the private credit vendor because fancy guys like you? 0:20:20.520 --> 0:20:25.320 Great question, Great question. I'm concerned that the acid aggregators 0:20:25.359 --> 0:20:29.320 will start creating detailed products only, and that's a challenge 0:20:29.440 --> 0:20:31.119 and something back on the stuff. 0:20:30.920 --> 0:20:33.160 In there, come back. I'll see in Chicago and your 0:20:33.160 --> 0:20:36.520 Red Sox cubs here really history being made right now, 0:20:36.920 --> 0:20:38.959 Tech County. Thank you so much for running your capital. 0:20:39.359 --> 0:20:43.240 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:20:43.280 --> 0:20:46.320 starting at seven am Eastern on Apple Corplay and Android 0:20:46.320 --> 0:20:49.359 Auto with the Bloomberg Business app. You can also listen 0:20:49.440 --> 0:20:52.720 live on Amazon Alexa from our flagship New York station. 0:20:53.240 --> 0:20:55.879 Just say Alexa, play Bloomberg eleven thirty. 0:20:56.000 --> 0:20:59.800 We get lucky. That's all there is at Chewett Brandon o' lindsey, 0:20:59.840 --> 0:21:02.680 and you're on the airlines are a huge out of 0:21:02.720 --> 0:21:08.879 Georgia tech. I'm incredible vista on transportation in America. I 0:21:08.920 --> 0:21:10.679 got to start with two things. Let me start with 0:21:10.720 --> 0:21:13.960 the railroads. I got a two hundred billion dollar railroad. 0:21:14.240 --> 0:21:16.840 They're only doing this because Trump's president, right. 0:21:17.240 --> 0:21:19.000 I mean I think so, because I've been doing this 0:21:19.040 --> 0:21:21.320 for twenty years, and for twenty years I've heard a 0:21:21.359 --> 0:21:24.240 transcontinental merger is just a no go because we tried 0:21:24.240 --> 0:21:24.560 this one. 0:21:24.800 --> 0:21:26.840 If they tried it, well, that's right, we tried. 0:21:27.160 --> 0:21:29.040 Canadian National was the last one to try to buy 0:21:29.160 --> 0:21:32.520 Burlington back in the year two thousand and It's spurred 0:21:32.720 --> 0:21:35.840 enhanced M and A regulations now. But I think the 0:21:35.880 --> 0:21:38.199 CEOs look at this and say, look, industrial productions has 0:21:38.200 --> 0:21:40.720 been flat for three years. We've kind of gotten all 0:21:40.720 --> 0:21:43.639 the costs out with precision scheduled railroad. And what's next, Well, 0:21:43.680 --> 0:21:44.119 it's merger. 0:21:44.240 --> 0:21:46.439 Do you think this will go through? Brian Olenski, what 0:21:46.480 --> 0:21:46.880 do you think? 0:21:48.840 --> 0:21:52.240 I think the odds are possible here. Look the way 0:21:52.280 --> 0:21:56.320 we do things today with these regional networks is Union Pacific. 0:21:56.320 --> 0:21:59.160 We'll have traffic going from La maybe to Atlanta. Yeah, 0:21:59.200 --> 0:22:01.720 they'll push it to Cho to connect it to Norfolk 0:22:01.760 --> 0:22:04.119 Southern that will then take it down to Atlanta. And 0:22:04.200 --> 0:22:08.040 that's in both carriers' interests because they're maximizing revenue and profitability. 0:22:08.480 --> 0:22:11.120 If now you own an East West rail line, you'd say, 0:22:11.200 --> 0:22:13.680 I'll just flow that right through Saint Louis or Memphis. 0:22:13.840 --> 0:22:16.040 So I think there's a lot of potential efficiency here 0:22:16.080 --> 0:22:18.399 and actually economic benefit for the country. 0:22:18.480 --> 0:22:20.960 Hey, fabulous, love it. Thank you so much for that. 0:22:21.119 --> 0:22:24.639 I have a personal question. We rarely do we have 0:22:24.720 --> 0:22:29.320 someone come in that actually flies an airplane. For all 0:22:29.400 --> 0:22:33.399 of our listeners and viewers with this horrific twenty twenty five, 0:22:34.000 --> 0:22:37.840 they feel safe in the American airspace now, the commercial 0:22:38.200 --> 0:22:40.000 American airspace. 0:22:39.640 --> 0:22:42.119 Oh fully. And I am a commercial pilot and I 0:22:42.200 --> 0:22:46.240 understand the airspace system quite well. There's so much redundancy. 0:22:46.400 --> 0:22:48.919 I mean, I know, the media attention on Newark was 0:22:48.960 --> 0:22:52.120