Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Intelligence
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Speaker 1: Bloomberg Intelligence with Alex Steele and Paul Sweeney on Bloomberg Radio.
Speaker 2: Today's Bloomberg Intelligence Show, we dig inside the big business
Speaker 2: stories impacting Wall Street and the global markets.
Speaker 3: Each and every week we provide dep research and data
Speaker 3: on some of the two thousand companies and one hundred
Speaker 3: and thirty industries our analysts cover worldwide.
Speaker 2: Today, we'll look at the growing dominance of private credit
Speaker 2: as traditional banks face stricter regulations.
Speaker 3: Plus we'll discuss the ball role of quantitative finance and
Speaker 3: artificial intelligence and asset management.
Speaker 2: And we begin with some of the best interviews from
Speaker 2: our live broadcast this week at Bloomberg invest There, we
Speaker 2: talked with leaders in asset management, banking, wealth and private
Speaker 2: markets in the heart of New York's Financial district.
Speaker 3: For our first conversation, we are joined by Mark Mahaney,
Speaker 3: Senior Managing director at Evercore ISI. We discussed the state
Speaker 3: of the tech sector and how artificial intelligence is reshaping
Speaker 3: the industry. We first asked Mark about how AI compares
Speaker 3: to the launch of the Internet.
Speaker 4: I don't know if it will be that transformative, but
Speaker 4: the amount of money that's going into them, paid by companies,
Speaker 4: put in by companies that have plenty of cash is
Speaker 4: something of a tell. And then we've seen a lot
Speaker 4: of examples of what I call OURAI, you know ROI
Speaker 4: return on investment ROAI. So you know, we're staring at
Speaker 4: it right now. Look at what's happened to Meta in
Speaker 4: the last two and a half years. How they've turned
Speaker 4: around their business both and they've dramatically improved their services
Speaker 4: for customers that's you and me as consumers. Our news
Speaker 4: feed has gotten to become more relevant because they've used
Speaker 4: AI to do better targeting, better recommendations. But also for advertisers,
Speaker 4: their return on ads ben ROAs has risen because the
Speaker 4: campaigns have become better targeted, better management, better managed. So
Speaker 4: I've seen a couple of really great ROAI examples and
Speaker 4: so I'm not sure it's transformative, but it's definitely improving
Speaker 4: the performance of these companies, and it shows up in
Speaker 4: the P and L.
Speaker 5: Two.
Speaker 4: I think you can also look at Google, twenty five
Speaker 4: percent of their code is now written by AI. Imagine
Speaker 4: the productivity improvement associated with that. And then Amazon is
Speaker 4: talking about twenty five percent lower cost to serve in
Speaker 4: its most advanced distribution centers. I mean, that's why their
Speaker 4: margins are going to continue to go up. So you're
Speaker 4: seeing it in a P and L. So I think
Speaker 4: it's actually a major productivity improvement, and I think this
Speaker 4: is going to play out for years.
Speaker 3: When do you think we're going to really understand how
Speaker 3: inferencing is going to impact us and companies? And like,
Speaker 3: when are you going to get me to buy in
Speaker 3: to an AI story?
Speaker 4: Well, I tried to lay out couple of examples already
Speaker 4: of where these companies are deploying AI and machine learning,
Speaker 4: and they have been for quite some time. We've just
Speaker 4: had a step up, like a hockey stick improvement. You
Speaker 4: just mentioned Kenda hockey stick inflection up in productivity gains
Speaker 4: because with these companies. So I'm sorry, I think we're
Speaker 4: already starting to see it, and I think we're seeing
Speaker 4: it in it.
Speaker 3: Why I see it, I mean maybe my news feed,
Speaker 3: but well I pay for it.
Speaker 4: Well, you want some really specific product examples, I got
Speaker 4: a really fun one for you.
Speaker 3: Okay, into it.
Speaker 4: You want to learn languages, There's this wonderful app called
Speaker 4: dual Lingo. You want to really learn a language, pay
Speaker 4: up for dual Lingo Max, where you can use an
Speaker 4: AI generated bot to actually practice your French, your Spanish,
Speaker 4: your German, your Russian, whatever we need to learn these days. Anyway,
Speaker 4: and I think you're going to see more of these
Speaker 4: kind of little one off examples. But you know, from
Speaker 4: a company's perspective, anything that produces internal productivity, improves relations
Speaker 4: with suppliers or customers. I mean, all of that's I
Speaker 4: don't think there's one. I don't think there's one AI
Speaker 4: revenue build. But you'll see a couple of products that
Speaker 4: wouldn't exist, And they do a Lingle example as one
Speaker 4: that wouldn't simply wouldn't exist if you didn't have AI.
Speaker 2: How about for Google and a traditional search business is
Speaker 2: AI a threat to Google or not.
Speaker 4: Google just put out a blog that said that because
Speaker 4: of AI overviews that they're actually seeing more commercial search queries. Really,
Speaker 4: that's that should raise all of our eyes. So, and
Speaker 4: I guess I'm not at the end of the day,
Speaker 4: not surprise. Google is a company that just consistently improved
Speaker 4: the product, made the search results faster and faster and
Speaker 4: more relevant. This just took that up a notch. And so, yeah,
Speaker 4: if they can get you the result you want more quickly,
Speaker 4: especially if it's leading to more commercial searches, Google is
Speaker 4: the one company in the world that knows how to
Speaker 4: monetize commercial searches.
Speaker 3: What do you think is the biggest misconception about AI,
Speaker 3: Whether it's like what investors thing, what's priced into the stock,
Speaker 3: or justconceptually.
Speaker 4: I think the biggest mistake misconception probably occurred when Deep
Speaker 4: came out and there was concern that this would be
Speaker 4: highly disruptive for the hyperscalers. I actually took the exact
Speaker 4: opposite view, especially if you're at the application layer, and
Speaker 4: because the infrastructure potentially just got a lot cheaper, So
Speaker 4: you're going to all that money that you've spent on Capex,
Speaker 4: You're going to get a better return. That money wasn't wasted,
Speaker 4: You're going to get a better return than you would
Speaker 4: have had in the past. So I think that's probably
Speaker 4: the biggest recent misconception I've seen.
Speaker 2: For Meta It's had a great turnaround. As you talked
Speaker 2: about what percentage of that turnaround is simply cost cutting
Speaker 2: versus maybe just stepping away from the metaverse discussion somewhat.
Speaker 4: I think it's two or three things. Stepping away from metaverse,
Speaker 4: focusing on the year of efficiency that Zuckerberg talked about
Speaker 4: the beginning of twenty three and now it's become the
Speaker 4: years of efficiency. There has been a mind shift at
Speaker 4: Silicon Valley. It's not growth at all costs is much
Speaker 4: more of a focus on So there's a cultural shift
Speaker 4: I think is probably good. These companies are going through
Speaker 4: their middle life stage is not crisis, but stages, and
Speaker 4: as they do that, they shouldn't be They should be
Speaker 4: spending much less aggressively on growth. They should be focused
Speaker 4: more and profitability than they are. But then the tie
Speaker 4: into AI is their developers can produce more code with
Speaker 4: fewer developers. It's not like they need to cut people
Speaker 4: from this point on, but they can grow, They can
Speaker 4: sustain growth with less need to add headcount than they
Speaker 4: did in the past.
Speaker 2: Our thanks to Mark Mahaney, Senior managing director at Evercore, I.
Speaker 3: S I saying with Bloomberg and Bez Paul and I
Speaker 3: also spoke with Katie Fogerty, chief financial officer at the
Speaker 3: Burger chain Shake Shack, and we discussed the company's growth strategy,
Speaker 3: pricing dynamics, and expansion plans.
Speaker 2: We're first to ask Katie about the company's strategy and
Speaker 2: who the consumer is at shay Check these days.
Speaker 6: We have this amazing real estate strategy, and what we've
Speaker 6: done is we've put these great community gathering places in
Speaker 6: a lot of these you know, great communities, and where
Speaker 6: we have attracted is just really kind of more of
Speaker 6: a I would say, you know, more a middle income
Speaker 6: to higher income guests. And we've seen that guest be
Speaker 6: able to weather a lot more of the economic headwinds
Speaker 6: than other, you know, than the low income consumer has
Speaker 6: been facing. And you know, what we continue to see
Speaker 6: is by leaning into our strength, which is delivering a
Speaker 6: fine casual experience. So we think about kind of bringing
Speaker 6: all those great guts of fine dining elevated food, premium ingredients,
Speaker 6: doing the things that you know, other you know, fast
Speaker 6: casual and QSR just are not willing to do. Putting
Speaker 6: that an amazing hospital or hospitable environment and getting great
Speaker 6: guest service. That together has been a winning formula to
Speaker 6: help us outpunch what has been you know, some consumer
Speaker 6: headwinds that has been facing the industry, and we are
Speaker 6: going to continue to lean into that. It's it's helping
Speaker 6: us to differentiate and kind of pull apart from the pack.
Speaker 6: And it's it's been our strength. Where are our samples?
Speaker 3: I know, I mean what is this about?
Speaker 2: So who are.
Speaker 3: Your competitors then? So if you're a middle and high
Speaker 3: end consumer, who would you say as a competitor, Yeah,
Speaker 3: I mean we sell burgers, shakes, fries, I think the
Speaker 3: best chicken sandwich out there in the business. We view
Speaker 3: our competitors as being you know, anybody who you know
Speaker 3: you might consider having lunch at or dinner at. So
Speaker 3: that is a pretty wide array and it also can
Speaker 3: be you know, food at home. I mean that can
Speaker 3: also be in you know, in an area where you
Speaker 3: would have some share of stomach. So you know, for
Speaker 3: the vast amount of you know, of our restaurants out there.
Speaker 3: We are competing with a lot of people. Now we
Speaker 3: are differentiated and we are kind of in that category
Speaker 3: of one in the fine casual sector. But at the
Speaker 3: same time, we know that, you know, people have lots
Speaker 3: of different options where they can go out to eat, Katy.
Speaker 2: There's a lot of concern out there about inflation. If
Speaker 2: inflation were to come into your business, where would you
Speaker 2: see it and how do you plan for that?
Speaker 6: So we actually have been navigating through inflationary pressures for
Speaker 6: a number of years here and doing so quite successfully.
Speaker 6: I'll say, you know, we've had wage inflationary pressures in COVID.
Speaker 6: It was actually very hard to get restaurant talent in
Speaker 6: our restaurants to staff and to deliver our food. It
Speaker 6: was not a desirable job at the time. And we
Speaker 6: had we raised wages and had a very competitive and
Speaker 6: compelling opportunity for our team members. We also introduced tips
Speaker 6: as a way to compensate our team members as well
Speaker 6: and give them added benefit. And then last year with
Speaker 6: you know, with California Fast Food Wage Act, you know,
Speaker 6: we faced through that as well. We've also had on
Speaker 6: the food side, you know, inflationary pressures that have been.
Speaker 6: We've been navigating for a number of years as well.
Speaker 6: But through all of this, through leaning in on our strength,
Speaker 6: which is, you know, again delivering that elevated you know,
Speaker 6: experience to guests, giving them that you know, twenty five
Speaker 6: dollars uh, you know black truffle Burger that we were
Speaker 6: actually selling for ten dollars and giving them that great value.
Speaker 6: On that side, we've been able to both grow sales
Speaker 6: and grow margins at a faster pace. Just even last year,
Speaker 6: we expanded our margins in the fourth quarter by three
Speaker 6: hundred basis points. So I've never had Shakeshack, but it
Speaker 6: looked I know, I know, but it looks like I
Speaker 6: may be ab to now in Delta. Yes.
Speaker 3: So, and this really also goes to your expansion plans.
Speaker 3: So Delta is going to offer Shakeshack Burgers on additional
Speaker 3: domestic routs this year, and that could expand international flights
Speaker 3: next year. Talk about these expansion kind of plans.
Speaker 6: Yeah, I mean, if you look at Delta at its
Speaker 6: core and what this does, you know, this is an
Speaker 6: opportunity where we're able to surprise and delight our guests,
Speaker 6: give them that thing that they weren't really expecting. You know,
Speaker 6: you have your expectation for what airline food is like,
Speaker 6: and you know, this this opportunity to get a shake
Speaker 6: Shack Burger and are great. We have a special brownie
Speaker 6: that we've made for for Delta as well. Through this program.
Speaker 6: People are just absolutely elated at the opportunity to have
Speaker 6: that on their flights, and so much so that it's
Speaker 6: exceeded our internal expectations. We're rolling it out to more airports.
Speaker 6: You're gonna be able to get it, you know, New York, Atlanta,
Speaker 6: a number of airports, and that will just you know,
Speaker 6: probably continue to grow. And you know, if you look
Speaker 6: at that opportunity and I can make so many different
Speaker 6: parallels to how we've gone into an area where the
Speaker 6: consumer had a certain expectation and we just really raised
Speaker 6: the bar on it and out punched above our weight
Speaker 6: and transformed what people were expecting from you know, it's
Speaker 6: airline food, if it's roadside food, and across the board.
Speaker 2: Katie, in terms of growth, how many locations do you
Speaker 2: have today and what's your outlook for the next year
Speaker 2: or two.
Speaker 6: Yeah, we have, you know, across both our company operated
Speaker 6: and our license business. We're you know, about five hundred
Speaker 6: and fifty five hundred and seventy locations, but we are
Speaker 6: growing very fast. We're going to add another forty five
Speaker 6: domestic company operated shacks this year, and we're going to
Speaker 6: open about thirty five to forty licensed shacks as well.
Speaker 6: Those license shacks are ones that we operate, that our
Speaker 6: partners operate. We have locations in the US, but most
Speaker 6: of that is kind of outside of the US and Asia,
Speaker 6: and we have UK, the Middle East, Mexico, and most
Speaker 6: recently we opened up in Canada.
Speaker 3: Our thanks to Katie Fogerty, chief financial officer at Shakeshack.
Speaker 2: Coming up, we'll break down how private credit is being
Speaker 2: impacted as banks face stricter regulations.
Speaker 3: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 3: depth research and data on two thousand companies and one
Speaker 3: hundred and thirty industries. You can access Bloomberg Intelligence through
Speaker 3: Bigo on the terminal.
Speaker 2: I'm Alex Steele to Paul Sweeney.
Speaker 4: This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 3: We continue with some of our best interviews from our
Speaker 3: live broadcast at Bloomberg invest We talk with leaders and
Speaker 3: asset management, banking, wealth and private markets in the heart
Speaker 3: of New York's financial district.
Speaker 2: In this conversation, we spoke with Mark Lipschultz, co CEO
Speaker 2: at Blue Out Capital. We discussed the growing dominance of
Speaker 2: private credit as traditional banks face stricter regulations and reduced
Speaker 2: lending capacity.
Speaker 3: We first asked Mark to talk to us about Blue
Speaker 3: Owl and how they fit into the private credit business.
Speaker 5: Well, we've been very fortunate to be part of an
Speaker 5: asset class and you know, I play our role in
Speaker 5: helping evolve it. Look, private credit, to set the stage
Speaker 5: right is about taking long term capital from investors, and
Speaker 5: we've tried to broaden the range of people that have
Speaker 5: access to it and to be able to provide that
Speaker 5: capital to corporate users to support their growth with a
Speaker 5: view to the long term. And to be here on
Speaker 5: a day when you know the public market is so volatile,
Speaker 5: you know, in some ways very much a reminder of
Speaker 5: why private credit works for investors, but also why it's
Speaker 5: important because look, we're doing business today. We're making loans today,
Speaker 5: just like we were yesterday, just like we will tomorrow.
Speaker 5: You know, screen rater screen blue screen green, prefer green.
Speaker 3: I should disclose that to my money manager. I do
Speaker 3: own shares in blue Owl private credit. Finally, I do
Speaker 3: have some of that feel like I need to say that,
Speaker 3: but not through me. It's through my money guy. So
Speaker 3: help me understand the competitive landscape though, because it feels
Speaker 3: like banks now want to get a slice of the
Speaker 3: private credit market that they had to give up, and
Speaker 3: now we're seeing some partnerships with private credit shops. How
Speaker 3: do you look at it?
Speaker 5: Yeah, the evolving landscape with the banks is pretty interesting.
Speaker 5: Let's make a couple observations. The word like referencing the
Speaker 5: bank market. I think it's worth unpacking a little bit because,
Speaker 5: as obviously you will know, when we go back to
Speaker 5: thirty years ago, I started in the private markets. The
Speaker 5: alternative market wasn't called that at the time, and we
Speaker 5: actually borrowed money from the banks when we were doing
Speaker 5: an LBO as it was called then, literally from their
Speaker 5: balance sheets. That over the last thirty years has been
Speaker 5: on a long trajectory changing from being a lender to now,
Speaker 5: the banks don't lend to these companies at all, and
Speaker 5: that's been true for a while. They intermediate, right, They'll
Speaker 5: go in and they'll underwrite a loan and then sell
Speaker 5: it into the market, cut it into pieces, sell it
Speaker 5: and so in that regard, of course, that's an alternative
Speaker 5: way to finance a business. And we could talk about
Speaker 5: the pluses and minuses of both. It's great to have
Speaker 5: both markets. You want to have a good, vibrant bank
Speaker 5: intermediated market. But remember what the bank cares about is
Speaker 5: can I underwrite the loan and sell it in the
Speaker 5: next sixty days. So the red screen is dramatic for
Speaker 5: a decision for a bank to underwrite a loan. On
Speaker 5: the other hand, word at the exact opposite, it doesn't
Speaker 5: really matter to us what's happening in the market today.
Speaker 5: What matters to us is do we get paid back five, six,
Speaker 5: seven years from out. That's our decision, that's what we're
Speaker 5: focused on. So in that sense, we really live in
Speaker 5: kind of with different incentives and serve a different function. However,
Speaker 5: to the good point, the banks are saying, okay, but
Speaker 5: turns out private credit really does work, right. They spent
Speaker 5: a lot of time criticizing the market and trying different
Speaker 5: ways to maybe scare up the boogeyman. But now they
Speaker 5: in fact are actually launching funds to do private credit.
Speaker 5: So I'd start with, look, if you can't beat them,
Speaker 5: join them, and we that's right, We'll take the endorsement
Speaker 5: of the market. It's a big world credit. It's a
Speaker 5: multi trillion dollar asset class, multi trillion dollar marketplace. We
Speaker 5: need vibrant available capital. And having bank launch a fund,
Speaker 5: you know great. There's a lot of funds in the world,
Speaker 5: and some of those will be done in partnerships as
Speaker 5: you noted, and someone just be standalone efforts, and some
Speaker 5: will just continue to stay the course and do their
Speaker 5: traditional underwriting.
Speaker 2: What's a typical deal for blue out these days?
Speaker 5: So a typical deal for us. And this has been
Speaker 5: true for us from the beginning. Now, obviously the attributes
Speaker 5: and the size have changed, but over the last roughly
Speaker 5: ten years that we've built Blue Owl, our reason to
Speaker 5: be was to come in and say, look, we want
Speaker 5: private credit to become the lender of first choice as
Speaker 5: opposed to the lender of last resort, and private credit,
Speaker 5: if you go back before that time was really a
Speaker 5: lender of last resort. It's where you went if you
Speaker 5: couldn't get money from a mainstream source. As I said,
Speaker 5: I was at KKR for twenty one years, and during
Speaker 5: that time I don't recall ever working with a private
Speaker 5: lender that this wasn't what you did if you were
Speaker 5: a mainstream borrower. But the idea for Blualla and today,
Speaker 5: so to answer this question has been to create actually
Speaker 5: a real value proposition in having a partner to really
Speaker 5: work with a long dated capital pool for someone who
Speaker 5: has long dated needs and long dated ambitions with their business.
Speaker 5: So our typical company today often backed by a private
Speaker 5: equity firm, a sponsor. Sometimes it's just private family owned
Speaker 5: businesses or other corporate enterprises, but typically a private equity
Speaker 5: backed business and they're buying a very large company and
Speaker 5: they're looking for a long term partner to buy it.
Speaker 5: So typically when we do a transaction, we're lending maybe
Speaker 5: forty percent of the purchase price and the buyer is
Speaker 5: putting up sixty percent of the capital. So that's a
Speaker 5: very very low leverage structure compared to what people are
Speaker 5: used to. If you go back again ten years and
Speaker 5: twenty years and the company today Our average company in
Speaker 5: our portfolio has over two hundred million dollars of even
Speaker 5: I mean, these are big companies today, and that's been
Speaker 5: a dramatic shift from ten years ago when it was
Speaker 5: really a market for smaller businesses.
Speaker 3: So let's get to that five to seven year time horizon,
Speaker 3: because ten years ago that's the exact same conversation I'd
Speaker 3: be having with private equity, right, and then we see
Speaker 3: where things get tough and things get stickier, when vintages
Speaker 3: don't work out or there come under different times of
Speaker 3: market stress. How does that apply to the credit space?
Speaker 5: So I think it applies for sure in the sense
Speaker 5: that every market evolves, and every market we'll have it's
Speaker 5: maybe slightly higher and lower moments, But there's an important distinction. Okay,
Speaker 5: at the end of the day, Private equity, if I
Speaker 5: kind of use this metaphor, private equity, which is a
Speaker 5: business I personally participated in for decades, is about mining
Speaker 5: for gold. Right, It's about going out and maybe in
Speaker 5: our simplified parlance, might call and to get rich strategies,
Speaker 5: how do you out there and shoot the moon on
Speaker 5: great returns? So they're mining for gold. Our business in
Speaker 5: private credit is to be the picks and shovels provider
Speaker 5: to those miners. So we're not trying to find a
Speaker 5: big gold vein. We're not betting on the price of gold.
Speaker 5: What we're saying is if the miners are active, and
Speaker 5: miners in this case would be any corporate user of capital,
Speaker 5: so they are always active, we want to supply them
Speaker 5: and we take a less risky position and we expect
Speaker 5: a corollary attractive return. So on the one hand, of course,
Speaker 5: every market evolves, and I want to suggest anybody that
Speaker 5: lives in a vacuum. But the purpose of our strategies
Speaker 5: and the purpose of Crivate credit from an investor's point
Speaker 5: of view, is to have something that's much more about
Speaker 5: downside protection, stability, and income generation through times of uncertainty,
Speaker 5: which is a bit why I say this sort of
Speaker 5: red environment today is actually a good time to have
Speaker 5: the conversation because what we're trying to build our portfolios
Speaker 5: and successfully have down over one hundred billion dollars of loans,
Speaker 5: and our running loss rates have been eleven basis points,
Speaker 5: and I think it speaks to the idea that this
Speaker 5: is about durability and predictability when times are uncertain, and
Speaker 5: I think probably safe to say everyone's looking around saying, gosh,
Speaker 5: it feels uncertain out there.
Speaker 2: Mark, we've got about a minute left. What do you
Speaker 2: say to those folks who say, as the business evolves,
Speaker 2: the dollars get bigger, regulation is needed.
Speaker 4: What do you say to those folks.
Speaker 5: Well, we're a highly regulated business as is, so you
Speaker 5: know today. Look, we're regulated by the SEC, where public
Speaker 5: company as a manager, we have public vehicles, We have
Speaker 5: a lot of regulators we work with, constructively, happy to
Speaker 5: do it. I don't think if what we mean by
Speaker 5: more regulation is more direction from sort of a central
Speaker 5: source as to what you should or shouldn't lend money
Speaker 5: to Remember, when we look back where the sources of
Speaker 5: problems have been, they actually tend to be in the
Speaker 5: regulated institutions, not outside. Even recently. Of course, everyone remembers
Speaker 5: the financial crisis, but don't forget over the last few
Speaker 5: years as private credit is thrived. One of the moments
Speaker 5: we worked through was the run on the bank at
Speaker 5: Silicon Valley Bank. Ye, so you know, what's old is new.
Speaker 5: If you have one day capital and you do long
Speaker 5: term things with it, that's challenging. We have long term
Speaker 5: capital to do long term things. So I think at
Speaker 5: the end of the day, look, we don't touch depositors.
Speaker 5: We're not systemic. So it's a nice compliment to a
Speaker 5: traditional banking market and a public marketplace.
Speaker 2: All right, thanks to market Lipscheltz, co CEO at Blue
Speaker 2: Oul Capital.
Speaker 3: Staying with Bloomberg invest Paul and I also spoke with Yupkim,
Speaker 3: chief investment officer at the Texas Municipal Retirement System. Now
Speaker 3: he discussed how the firm is managing a more than
Speaker 3: forty billion plus pension fund in today's complex economic landscape.
Speaker 2: You first asked, Yep, what he thinks the best allocation
Speaker 2: is right now in what can be considered very strange,
Speaker 2: difficult economic environment.
Speaker 7: I think, on a very holistic basis, we are long
Speaker 7: term investors, and so our long term strategy remains unchanged.
Speaker 7: You know, it's really predicated upon three pillars. Number one,
Speaker 7: attract higher and retain the best talent possible and also
Speaker 7: attracted and partner with the world class investment managers around
Speaker 7: the globe. Secondly, it's really about taking a low cost,
Speaker 7: public markets benchmark aligned approach to to investing. I do
Speaker 7: think we all recognize going forward there are more alph opportunities,
Speaker 7: and beta might be you know, there might be some
Speaker 7: headwinds to beta going forward. So I do think increasing
Speaker 7: the share of active management and public markets will be
Speaker 7: a critical a critical approach. And lastly, really endeavoring to
Speaker 7: generate a lot of the outperformance going forward in private
Speaker 7: markets will be absolutely critical. And you know, and so
Speaker 7: I do think kind of with the you know, with
Speaker 7: the confluence of a lot of market volatility, it's it's
Speaker 7: easy to be swayed left and right. But I do
Speaker 7: think kind of sticking to your core long term strategy
Speaker 7: is you know, very important in this environment.
Speaker 2: How does an asset allocation work for you guys down
Speaker 2: in Austin stocks, bonds, alternatives, Let's hold it with alternatives playing.
Speaker 7: Absolutely Look, I think when you think about alternatives, the
Speaker 7: delta between a media and manager and a top five
Speaker 7: percentile manager in alternatives and privates can be upwards of
Speaker 7: fifteen hundred to eighteen hundred basis points. That equivalent number
Speaker 7: in public markets is two hundred and fifty to three hundred
Speaker 7: basis points. And so you are really compensated for good
Speaker 7: manager selection but also a good deal selection. And so
Speaker 7: I do think there's still you know, when you think
Speaker 7: about the next ten years, there's a lot of equity
Speaker 7: value creation that will occur in the private markets, and
Speaker 7: so it really you know, kind of provides that long
Speaker 7: term you know, kind of alp engine to the overall portfolio.
Speaker 3: I mean, so surprised that you did private equity in
Speaker 3: your last job and then now we're taking over at
Speaker 3: the Texas Pension Fund. How well funded or pensions right now?
Speaker 7: Yes, and so pension funds are definitely better funded kind
Speaker 7: of really on the backs of two incredible years in
Speaker 7: you know, the equity public markets, and I do think
Speaker 7: public pensions typically have higher allocations to public equities since
Speaker 7: that's that's certainly helped. At Texas, we're you know, above
Speaker 7: ninety percent funded and so and just given that we
Speaker 7: serve cities that are growing, you know, you know, our
Speaker 7: net cash outflow for the past two years has been
Speaker 7: less than a percent, and so that really empowers us
Speaker 7: to harvest, you know, thelquided premium of our private market book,
Speaker 7: but also really helps us risk manage on the liquidity side.
Speaker 2: How do you feel about just the opportunities today? Where
Speaker 2: do you guys see the best opportunities?
Speaker 7: Sure, sure, you know, like I think, maybe three things
Speaker 7: I'll share there is, you know, number one, the core
Speaker 7: building blocks on why people were excited about this US exceptionalism.
Speaker 7: The core building blocks have not changed. Right when I
Speaker 7: talk to my peers in Asia and Europe and the
Speaker 7: Middle East, the US continues to be the top destination,
Speaker 7: you know, for their investment capital. You have the top
Speaker 7: academic institutions in the United States, presumably with the greatest founders,
Speaker 7: the most tenured management teams. You have access to cheap energy.
Speaker 7: You have a risk taking culture that's celebrated that's really
Speaker 7: not found in many parts of the world. And the
Speaker 7: question we ask is not how do we generate our
Speaker 7: performs in twenty twenty five, but how do we generate
Speaker 7: outperforms in the next decade. And we do view the
Speaker 7: US to continue to take an asymantic share of that equity.
Speaker 7: You value creation in our total portfolio.
Speaker 2: Our thanks to Yup Kim, chief investment officer at the
Speaker 2: Texas Municipal Retirement System.
Speaker 3: Coming up on the program, we're going to break down
Speaker 3: the evolving role of quantitative finance and artificial intelligence in
Speaker 3: asset management.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth research and data on two thousand companies and one
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 2: b I go on the terminal. I'm Paul Sweeney and.
Speaker 3: I'm Alex Steele, and this is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch the program
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Speaker 1: listen live on Amazon Alexa from our flagship New York
Speaker 1: station Alexa Play Bloomberg eleven thirty.
Speaker 3: We continue with some of our best interviews from our
Speaker 3: live broadcast at Bloomberg and Best. We talk with leaders
Speaker 3: in asset management, banking, wealth and private markets in the
Speaker 3: heart of New York's Financial district.
Speaker 2: In this conversation, we spoke with Ben Wren, CEO of
Speaker 2: the London based fintech company tech. Ben discusses the evolving
Speaker 2: role of quantitative finance and artificial intelligence in asset management.
Speaker 3: We first asked Ben to give us his quick pitch
Speaker 3: on what sigtech actually does.
Speaker 8: Sigtag we build specialist agents these days to help people
Speaker 8: make better decisions in cup to markets, but also to
Speaker 8: ultimate a lot of the very high value intellectual but
Speaker 8: not very creative workflows. You know, we can reduce a
Speaker 8: lot of the things people do today, which a bit boring,
Speaker 8: you know, down from many hours to thirty seconds. I
Speaker 8: think that makes a big difference in terms of productivities.
Speaker 2: All Right, here's here's an example that I can think
Speaker 2: of for my Okay, tell me being at the printer
Speaker 2: not far from here, a couple of blocks from here,
Speaker 2: don Linny at the two three o'clock in the morning,
Speaker 2: going over a bond perspectives, that's probably something that AI
Speaker 2: can help with. So been, how much our asset managers
Speaker 2: generally speaking, how much are they using technology today help
Speaker 2: computerize this?
Speaker 8: Is it?
Speaker 2: How quantitative is it?
Speaker 8: I think in the last fifteen years there's a big
Speaker 8: trend in asset management to to adopt more and more technology.
Speaker 8: And we can see this shift in terms of, you know,
Speaker 8: people using more data driven investment processes and people hire
Speaker 8: data analysts and but Jenney and I jenei in the
Speaker 8: last few years is a big step change. It's I
Speaker 8: would say, it's it's an unprecedented, unprecedented change in you know,
Speaker 8: in this trend just in terms of it's no longer incremental.
Speaker 8: There's a before and after. And you know, when we
Speaker 8: when we think about previous technologies, you know, we mainly
Speaker 8: focus on what we call explicit knowledge, knowledge that we
Speaker 8: can codify, describe, and there for use programming language to automate.
Speaker 8: But only until now we're able to distill and automate
Speaker 8: so called tested knowledge, the knowledge that resides in our head,
Speaker 8: but we can't really so easily write it down and
Speaker 8: describe and codify. But now we can actually automate those
Speaker 8: and there are plenty of those workflows and processes, especially
Speaker 8: in financial services.
Speaker 3: So how would you help, Like a regular quant manager,
Speaker 3: like I go to you and I'm like, hey, I
Speaker 3: need your product to help me get better faster, find
Speaker 3: better trends in the market.
Speaker 8: Yeah, for quants, I think quants started with more number driven.
Speaker 8: You know, trend following is if you do it like
Speaker 8: in a very simple way, it's entirely number driven. But
Speaker 8: these days we are moving to a world where we
Speaker 8: have to deal with numbers and text as too, modalities.
Speaker 8: At the same time, it's no longer just about technical analysis,
Speaker 8: but it's also about all been new information and turn
Speaker 8: you know, non numerical information into numerical information. And that's
Speaker 8: something that Jen and I does really well because fundamentally,
Speaker 8: if you think about how it's trained, it has been
Speaker 8: trained on trillions of tokens of textual data and a
Speaker 8: lot of things we used to do either bespoke or
Speaker 8: preparatory fashion. This day we get autobox such as sentiment
Speaker 8: analysis or extracting relative and information from very long pieces
Speaker 8: of text. These sort of things actually change how qualms,
Speaker 8: even how qualms approach their daily jobs.
Speaker 2: Are the big Wall Street firms making these investments or
Speaker 2: is it more of the hedge fund community that is
Speaker 2: more receptive. Who are your customers?
Speaker 8: Typically these days we mainly focus on byside, okay, but
Speaker 8: we also have very big clients in terms of in
Speaker 8: terms of like commercial banks, you know, using our technology
Speaker 8: to completely change how they underwrite commercial loans. I think
Speaker 8: so I wouldn't say it's a cell side or buyside
Speaker 8: or big firm or small firm. I don't think that's
Speaker 8: the main reason in terms of adoption. I would say
Speaker 8: the main reason is is the leadership. You know, when
Speaker 8: when when you approach something so unprecedented, it takes some
Speaker 8: time to build a consensus inside the organization about you know,
Speaker 8: what's the strategy, what do we do? But you know
Speaker 8: that may take two months, three months, and given how
Speaker 8: fast things change after three months is a different world. Yeah, right,
Speaker 8: So it really takes some kind of conviction from a
Speaker 8: visionary leadership team to adopt this technology very confidently.
Speaker 3: Yeah, af for twenty four hours, it can be a
Speaker 3: different investing landscape. So what's the best partnership between AI
Speaker 3: and humans? Fifty to fifty? Is it AI seventy five
Speaker 3: percent of the decision making process twenty five percent for
Speaker 3: human How do you think about that?
Speaker 8: Yeah, I think if I think about the knowledge work
Speaker 8: we do every day, I would describe them as most
Speaker 8: of them may be not creative but intellectual. Right, analyze
Speaker 8: a lot of documents picking out the right information is intellectual,
Speaker 8: but it's not creative. So in the future, humans should
Speaker 8: devote almost all the time to creative stuff what makes
Speaker 8: us different, whereas the boring intellectual stuff can be automated
Speaker 8: by AI agents. On the other hand, we are certainly
Speaker 8: seeing a big change in the user experience, the user
Speaker 8: interface because you know, up to on to this point,
Speaker 8: people approach GENI mainly through a chetbot. You know, there's
Speaker 8: a chet box. You're typing into it to gets some response.
Speaker 8: It's very nice and it's really started the error. But
Speaker 8: going forward, we are looking at a user user interface
Speaker 8: that allow human to essentially collaborate with a large number
Speaker 8: of AI agents who specialize in different things. So how
Speaker 8: does that user interface look like? And how does that
Speaker 8: AI human fusion, intelligence and CLI like. It's it's a
Speaker 8: very active, a feld of research, trial and errors.
Speaker 2: So this sounds like from what I understand of AI,
Speaker 2: a lot of computing power requirements. Talk about the investments
Speaker 2: that you think these financial firms need to make are
Speaker 2: making or you know, maybe need to step up.
Speaker 8: Yeah, in terms of intelligence and the way I think
Speaker 8: about it is and so it's very similar to electricity.
Speaker 8: You know that we are currently in the in the
Speaker 8: first stage of investing in the infrastructure, right and if
Speaker 8: you're going back in history in the last two hundred
Speaker 8: years and then the way we started building electric electricity grid,
Speaker 8: there's one magical number, which is one percent. You know,
Speaker 8: the countries throughout the history spent about one percent of
Speaker 8: nominal GDP on building power grid from two hundred years
Speaker 8: ago in Britain all the way to today. So the
Speaker 8: Big Tech this year announced three hundred billion dollars of
Speaker 8: investment into Genini data centers. That's almost exactly one percent
Speaker 8: of the US GDP today it's about thirty trillions. So
Speaker 8: in terms of infrastructure investment, we are there and people
Speaker 8: are building incredibly big mega AI clusters across the country now.
Speaker 8: But we are shifting toward the application later right because
Speaker 8: once you have electricity, it's not about the electricity per se,
Speaker 8: it's about what kind of appliances you can build powered
Speaker 8: by electricity. So we are moving into that stage too,
Speaker 8: where there are a lot of investment both in terms
Speaker 8: of talent and capital into building the right applications that
Speaker 8: they actually make a big difference to the knowledge workers
Speaker 8: in terms of productivity. So we are starting that phase.
Speaker 3: Last question here for us is what's the biggest misconsumption
Speaker 3: right now when it comes to AI and using it.
Speaker 8: I think the biggest conception is I think people tend
Speaker 8: to either underappreciate its capabilities or sometimes getting over optimistic,
Speaker 8: and it's quite hard to get it right.
Speaker 3: So it's like too much or too much or too little.
Speaker 8: So I mean I think most people are either under
Speaker 8: you know, under hyping it or over hyping. It's very
Speaker 8: hard to get it right. But one thing is very
Speaker 8: obvious to us is that the pace of the change
Speaker 8: is unprecedented and it's getting better. Like the Deep Seak
Speaker 8: just introduced open sourced all their efficiency engineering tricks to
Speaker 8: the whole world and then everybody is going to adopt it.
Speaker 8: So all of this is pushing the efficiency frontier. So
Speaker 8: we're getting better and faster every day, so people should
Speaker 8: be prepared for the big change.
Speaker 3: Our thanks to Bin ren CEO of sick Pech staying
Speaker 3: with Bloomberg and Best. Paul and I also spoke with
Speaker 3: Stephen Meyer, chief investment Officer and Deputy Comptroller for asset
Speaker 3: management at New York City Retirement Systems.
Speaker 2: Stephen discussed how his group is approaching market volatility, rising
Speaker 2: interest rates, and long term pension obligations.
Speaker 3: We first asked Steven how he's been navigating recent months
Speaker 3: during economic uncertainty.
Speaker 9: It's certainly been interesting, and we try to do those
Speaker 9: adhere to a long term strategic plan. So a lot
Speaker 9: for us, a lot of this is noise in terms
Speaker 9: of what's going on in the change of policy in Washington,
Speaker 9: so we're really trying to stick to our north star,
Speaker 9: which is our strategic ass allocation. Again, we have multi
Speaker 9: generational liabilities that we're trying to satisfy. So again a
Speaker 9: long term investment horizon and a long term discipline. Now,
Speaker 9: having said that, our trustees and our beneficiaries and our
Speaker 9: participants do call. We have the privilege of servicing eight
Speaker 9: hundred thousand public workers here in the City of New York,
Speaker 9: so they are concerned. So we need to stay on
Speaker 9: top of it in terms of just increasing the information
Speaker 9: flow of how our assets are diversified and they continue
Speaker 9: to perform as.
Speaker 3: Expected, So how are they like forty sixty or sixty
Speaker 3: forty maybe a thing of the past. There's different mix
Speaker 3: in there, especially when it comes to alternative assets. What's
Speaker 3: the best mix.
Speaker 9: We're about thirty five percent in alternative assets at this point.
Speaker 9: That's a lot, yeah, yeah, yeah, And that includes you know,
Speaker 9: private equity, infrastructure, private credit, some small all exposure to
Speaker 9: hedge funds in real estate. Of this other sixty five percent,
Speaker 9: we're about almost forty percent of that is in equity,
Speaker 9: dominated by US equity, about eighty five percent US large
Speaker 9: cap in particular. And then an allocation to develop market
Speaker 9: actually US and emerging market. So we're balanced. We're balanced
Speaker 9: from a private perspective, we're balanced from a public perspective,
Speaker 9: and again, I think that's going to benefit us over time.
Speaker 9: With the increase in volatility, have.
Speaker 2: You changed your views on the economy out of the
Speaker 2: US economy or global economy given some of these trade
Speaker 2: tensions that are coming into the marketplace.
Speaker 9: Well, we're concerned about inflation, and we do think we
Speaker 9: have some natural hedges against inflation and a portfolio terms
Speaker 9: of a real asset allocation, real estate, infrastructure. I think
Speaker 9: our public equities will actually perform well over time in
Speaker 9: a higher inflationary environment. So we're not necessarily overly concerned.
Speaker 9: We did expect to see some uplift in inflation expectations
Speaker 9: given concerns about you know, the imposition riffs, the mass
Speaker 9: deportations that we're talked about anyway in terms of potentially
Speaker 9: impacting the price of labor. So again, haven't really changed
Speaker 9: what we're doing or how we're doing it, but we're
Speaker 9: certainly mindful and we continue to monitor the situations.
Speaker 3: Before we let you go, you mentioned thirty five percent
Speaker 3: in alternatives.
Speaker 2: Seems like a lot.
Speaker 3: Is there a liquidity issue there?
Speaker 9: Not really compared to some of our peers, and I know,
Speaker 9: you know, other institutional investors were just under three hundred
Speaker 9: billion dollars in assets, So I understand that there are
Speaker 9: other managers out there that have forty forty five fifty
Speaker 9: percent allocation to alternatives. We have ample liquidity through the
Speaker 9: sixty five percent in public markets. Again, we're disciplined in
Speaker 9: terms of putting money to work. Over time, we're benefiting
Speaker 9: from vintage your diversification. We've actually been putting more money
Speaker 9: to work in private assets over the last two years
Speaker 9: with a change of our strategic as allocation, which has
Speaker 9: been beneficial as others have pulled away from the markets.
Speaker 9: We've been actually putting money to work, getting better economics,
Speaker 9: better access to the top managers co investment, as well
Speaker 9: to average down the feed expense.
Speaker 5: All right.
Speaker 3: Thanks to Stephen Meyer, chief Investment Officer and Deputy Comptroller
Speaker 3: for Asset Management at New York City Retirement Systems.
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