Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: You're listening to Bloomberg Business Week with Carol Masser and
Speaker 2: Tim Steneveek on Bloomberg Radio.
Speaker 1: Let's get to our first guest, because with us is
Speaker 1: Michael Harris and hy I see, vice chairman and global
Speaker 1: head of Capital Markets, who has been very patient as
Speaker 1: we set up this final hour. It has been such
Speaker 1: an interesting day. You were looking at the market close, Michael,
Speaker 1: a fair amount of volatility. What does that do for
Speaker 1: your environment your world?
Speaker 2: Yeah, well, first of all, thanks a lot for having me.
Speaker 2: It's great to be here. And you know, I think
Speaker 2: Lynn said it best in terms of don't panic. Obviously,
Speaker 2: I think we're in the middle of a volatile market environment.
Speaker 2: But again, you know, I think this is something that
Speaker 2: we anticipated when you have the backdrop of a lot
Speaker 2: of political, geopolitical uncertainty, and so that impacts not only
Speaker 2: the secondary markets, but it also can impact the primary
Speaker 2: markets too, as we think about companies that are in
Speaker 2: the process of raising capital or seeking to raise capital
Speaker 2: in the future. You know, when we look at our
Speaker 2: environment and we look at some of the companies that
Speaker 2: we speak to in the capital markets, I think there's
Speaker 2: a couple of big picture themes that we kind of
Speaker 2: look at, and I characterize the market right now as
Speaker 2: being favorable but with some challenging conditions in the backdrop.
Speaker 2: From a favorable standpoint, the thing to think about is
Speaker 2: that we're still at a run rate which is actually
Speaker 2: above where we were last year, and also above where
Speaker 2: we were in the kind of pre COVID years, so
Speaker 2: kind of normalized environment in many respects. That backdrop is
Speaker 2: also fairly normalized in terms of the types of companies
Speaker 2: that are coming to the marketplace, so pretty diversified set
Speaker 2: of issuers.
Speaker 1: So after some crazy years of was it twenty twenty
Speaker 1: one where we saw a record number of IPOs like
Speaker 1: those and I know Lin was talking about this, that's
Speaker 1: an outlier, absolutely, So pre pandemic is really what you
Speaker 1: need to think about is asmal.
Speaker 2: Absolutely, especially in an environment which has a much higher
Speaker 2: cost of capital than we saw during those years, So
Speaker 2: you are seeing kind of a much more normalized environment.
Speaker 2: You're seeing also the pipeline of companies that are coming
Speaker 2: forward that are fairly diverse, a lot of them coming
Speaker 2: with fairly older assets from the sponsored community. Those assets
Speaker 2: are like going to be much larger in size. That's
Speaker 2: good for a lot of buyers that want to look
Speaker 2: at getting larger allocations in the marketplace as well.
Speaker 3: So those are some.
Speaker 2: Of the positive things that we're seeing in the market. Obviously,
Speaker 2: some of the challenges that we're seeing are much more
Speaker 2: macro focused and some of that's playing out today. I
Speaker 2: think the uncertainty that you see in the marketplace is
Speaker 2: in kind of two different areas. So on one hand,
Speaker 2: I think the teriff uncertainty, obviously is the concern that
Speaker 2: you're seeing a lot of the market participants to react to.
Speaker 2: When you talk to corporate issuers, I think what they're
Speaker 2: really focusing on is really just trying to run their business,
Speaker 2: and they're really focused on trying to make sure that
Speaker 2: the predictability of their business models is intact and that
Speaker 2: they can try to forecast for companies and analysts and
Speaker 2: for the buy side community as best as possible. And
Speaker 2: when you have an uncertain geopolitical environment, that does got
Speaker 2: some challenges and that's what they're working through.
Speaker 3: Let's talk a little bit about that because we did
Speaker 3: speak a little earlier to Ryan Tolkien over at the
Speaker 3: multistrat Hedge Fund Shownfeld Strategic advisors. He talked about that uncertainty,
Speaker 3: and I'm wondering, if you're a company that wants to
Speaker 3: go public in an environment and you see the uncertainty
Speaker 3: emanate from Washington, DC about tariffs, Okay, there's questions about, like,
Speaker 3: who wants to spend on capex in an environment where
Speaker 3: we don't really know what things look like from regulatory
Speaker 3: perspective in the future. Does that delay IPOs.
Speaker 2: I think it becomes a company by company story, and
Speaker 2: for some companies where they may not be as impacted
Speaker 2: in terms of the tariffs, that may not be as
Speaker 2: much of an issue. I think if you're a manufacturing
Speaker 2: company or industrial based company, that probably will be more
Speaker 2: of an impact.
Speaker 3: I think the.
Speaker 2: Broader picture, in the broader consideration is really how you
Speaker 2: explain that to investors and to the extent that you
Speaker 2: can provide a story that's reasonable in sound and again
Speaker 2: goes back to being able to talk about dependable and
Speaker 2: reliable and predictable earnings and revenue. From a business model perspective,
Speaker 2: that's really what investors are going to focus on. Ultimately,
Speaker 2: from their perspective in a more conservative environment, they're much
Speaker 2: more focused on management teams that can actually come up
Speaker 2: with a story that they can deliver on and also repeat.
Speaker 2: And so to the extent that there is the ability
Speaker 2: for management teams to do that, that gives them greater comfort.
Speaker 1: I mean, how great is it? And this is one
Speaker 1: of the things I talked about with Lynn. But to
Speaker 1: have you know, Core Weave filing for its IPO, I mean,
Speaker 1: that's a big deal. We're talking about a company that
Speaker 1: had revenue that was a good, positive thing, and that's
Speaker 1: probably why they're feeling more comfortable. But you're talking about
Speaker 1: maybe evaluation greater than thirty five billion dollars in it's
Speaker 1: an IPO. I mean, is that the kind of IPOs
Speaker 1: you're anticipat seeing a lot.
Speaker 3: Of this year.
Speaker 2: There's a lot of companies, so a pretty broad range
Speaker 2: of companies, you know. I think when you have an
Speaker 2: asset of that size, that's obviously going to be impactful
Speaker 2: just for the overall pipeline and obviously, you know, without
Speaker 2: going into details on any one particular company or one
Speaker 2: particular issue WERK, I think it's safe to say that
Speaker 2: as you have larger sized companies that come to the
Speaker 2: marketplace where we have a broad participation of buyside firms
Speaker 2: that are participating those offerings. The success of those deals
Speaker 2: is going to be important for the overall health of
Speaker 2: the IPO pipeline.
Speaker 1: It does a lot, right, it does a lot in
Speaker 1: terms of juicing.
Speaker 2: Maybe SUTURE offers.
Speaker 3: Absolutely Caeryl mentioned Core Weave. It's going public on the NASDAQ,
Speaker 3: not the New York Stock Exchange, the big rivalry between
Speaker 3: the two firms. There certainly is no question how do
Speaker 3: you win more of the business coming from AI. Yeah?
Speaker 2: Sure, Look, I think we offer a wide range of
Speaker 2: things that we compete on in many different respects. So
Speaker 2: on one hand, there is a unique business model that
Speaker 2: we offer for our companies. From a liquidity perspective, the
Speaker 2: way that stocks trade on the New York Stock Exchange
Speaker 2: is different than on any other exchange venue globally. We
Speaker 2: think that offers for both investors but also for issuers
Speaker 2: lower volatility, better liquidity, and also the best environment for
Speaker 2: both their stakeholders and also for investors. But it's competitive, right,
Speaker 2: But it's highly competitive. But we also can also cooperate
Speaker 2: in a number of different areas. You know. I think
Speaker 2: if you speak to folks at NASDAK, you speak to
Speaker 2: folks the New York Stock Exchange. You'd probably find that
Speaker 2: we agree in many respects in terms of the US
Speaker 2: markets as a whole being the best place for capital formation,
Speaker 2: and that's one reason why you're seeing, for instance, companies
Speaker 2: from other parts of the world that are gravitating to
Speaker 2: the US markets to list their security.
Speaker 3: We've done a little bit of reporting over the last
Speaker 3: few months at Bloomberg News on the Texas Stock Exchange
Speaker 3: and the idea of this. It hasn't launched yet, but
Speaker 3: the idea of creating capital markets center in Texas. How
Speaker 3: do you look at competitions such as that.
Speaker 2: Yeah, well, look, we actually are starting an exchange in Texas. Well.
Speaker 3: We reported on that too. Well there's two. There's the
Speaker 3: Texas Stock Exchange and then there's one that you guys
Speaker 3: are doing as well. But is that a direct response
Speaker 3: to what the Texas Stock Exchange? Is it something that
Speaker 3: we have been actually working on for a bit. Some
Speaker 3: of the largest number of companies that are listed on
Speaker 3: our exchange are actually based in Texas. If you look
Speaker 3: at the movement from the state's perspective in terms of
Speaker 3: attracting new companies to list it within the state, we
Speaker 3: think that's a great thing in terms of being able
Speaker 3: to get just more companies that are interested in growing
Speaker 3: their businesses. We want to be a part of that.
Speaker 3: We're hearing and really responding to what our clients are saying,
Speaker 3: and so we are obviously trying to respond to that.
Speaker 3: We're fortunate in terms also of having a lot of
Speaker 3: our own employees that are actually based in Texas and
Speaker 3: most importantly based in the Dallas area. We're going to
Speaker 3: have the headquarters, So we have over one hundred employees
Speaker 3: that are going to be based there and we're going
Speaker 3: to be building headquarters there very shortly.
Speaker 1: All right, just real quickly. Does that mean that there's
Speaker 1: going to be more like could you see other exchanges
Speaker 1: in other states like.
Speaker 3: A Silicon Valley exchange or something I.
Speaker 1: Don't know, or Florida. There's so much happening in Florida,
Speaker 1: wait and see see.
Speaker 3: All right, great stuff.
Speaker 1: Thank you so much, really appreciate Michael Harris, NYSC Vice
Speaker 1: Chairman and global head of Capital Markets, Thanks so much.
Speaker 1: Thanks for having me Carol Master along with Tim Stanoviek
Speaker 1: live at Bloomberg invest in downtown Manhattan. We want to
Speaker 1: get to our next guest. We do want to mention
Speaker 1: though some headline just crossing the Bloomberg turm on. This
Speaker 1: is coming from the Commerce Secretary, Howard Lutnik.
Speaker 3: Yeah, he's saying in an interview that Trump to move
Speaker 3: with Canada and Mexico. But I'm just getting pulling these up,
Speaker 3: but not all the way. Tariff's compromise announcement likely tomorrow.
Speaker 3: Lutnik says Trump is considering relief for USMCA compliant goods.
Speaker 3: And Howard Lutnik, the Commerce Secretary, saying Trump may roll
Speaker 3: back Canada and Mexico tariffs tomorrow.
Speaker 1: I was looking at a s A P five hundred
Speaker 1: e mini features to see any kind of movement. They're
Speaker 1: still down about four tens of a percent in the
Speaker 1: after market, so we'll continue to watch. Let's get to
Speaker 1: our guests, because this individual is watching the investment landscape
Speaker 1: very closely.
Speaker 3: And I do just want to say, this is an
Speaker 3: interview on Fox Business.
Speaker 1: Okay, good good Good Aria's management. We want to talk
Speaker 1: about them because they're publicly held. They're a global alternative
Speaker 1: investment manager. They've got more than a fifty one billion
Speaker 1: dollar market cap and about four hundred and eighty four
Speaker 1: billion dollars in assets under management. They raised a record
Speaker 1: almost ninety three billion dollars in new capital last year,
Speaker 1: which was a twenty five percent increase from twenty twenty three,
Speaker 1: driven by direct lending, opportunistic credit, and also diversifying its
Speaker 1: distribution through wealth channels, which brings us nicely to our
Speaker 1: next guest with us here at Blomberg Investor is rajdnd a,
Speaker 1: Global head of wealth management at Areas Management. How are you.
Speaker 4: I'm great, Carol.
Speaker 3: Good to be here.
Speaker 1: It's great to have you here on a day where
Speaker 1: there's just an interesting market story. Again, if you will,
Speaker 1: I am curious about the market volatility and what your
Speaker 1: read is on that, and I am also curious your
Speaker 1: client base is a day like this disturb them?
Speaker 4: A day like this is actually the poster child for
Speaker 4: the value proposition of the private markets. The advisors we
Speaker 4: talk to and their clients are really frustrated by this
Speaker 4: type of volatility. You know, we're essentially where we were,
Speaker 4: you know, early November, right in the public markets, and
Speaker 4: that backdrop makes it really hard to work diligently on
Speaker 4: a portfolio that has above at or above target returns.
Speaker 4: And at the end of the day, individuals have almost
Speaker 4: as much wealth as institutional clients, they've just never had
Speaker 4: the access to the private markets, and that's starting to change.
Speaker 4: A lot of our discussion is not just should they
Speaker 4: invest in the private markets, but it's how all that said,
Speaker 4: A day like today is distracting at a minimum, because
Speaker 4: most of our clients still have eighty or ninety percent
Speaker 4: in the markets, and the headlines and the volatility are
Speaker 4: going to certainly be a distraction at a minimum.
Speaker 3: So would you say that yesterday's a poster child certainly
Speaker 3: of why people invest in privates, But would you say
Speaker 3: it's also a reason why people should consider allocating more
Speaker 3: of their portfolios to privates. I would, and I think the.
Speaker 4: Investment thesis is what really comes out at a time
Speaker 4: like this. We're quite clear that the private markets are illiquid.
Speaker 4: That's why you got to higher risk adjusted return.
Speaker 3: You can't just call up and sell when you want to.
Speaker 2: And.
Speaker 4: The top advisors that we work with will tell you
Speaker 4: that keeping their clients invested can be challenging, particularly again
Speaker 4: at times like this. Imagine if you sold earlier today
Speaker 4: and then the headlines tonight potentially reverse some of the
Speaker 4: momentum behind the down trade, right, that would just be
Speaker 4: a really tough day. But the private markets in twenty
Speaker 4: years have changed completely in terms of the breath of solutions.
Speaker 4: You can invest in sports and media assets, you can
Speaker 4: invest in real estate and infrastructure. You can have some
Speaker 4: durbal income solutions from private credit. So the way we
Speaker 4: think about it is you should have equity exposure. You
Speaker 4: can do that in both the public and the fixed
Speaker 4: income markets. You should have some kind of credit or income.
Speaker 4: You can do that in public and private markets. And
Speaker 4: then you should have some real assets. You should own
Speaker 4: some real estate, you should own some form of infrastructure.
Speaker 4: Is a really tax efficient solution. So and you can
Speaker 4: do all of that in both the public and private markets.
Speaker 4: You couldn't do that twenty years ago, even ten years ago.
Speaker 1: I am curious. You know, we're so Washington focused right now,
Speaker 1: and you can understand why, right because there's so much
Speaker 1: that's coming down, and some of it does impact the markets.
Speaker 1: You know, we mentioned the headlines from the Commerce Secretary
Speaker 1: Howard Lutnik that the present may now lower Canada exee
Speaker 1: terras tomorrow and so this is our world where it
Speaker 1: can turn oneint eighty in less than twenty four hours.
Speaker 1: We're going to actually be talking to the Commerce Secretary
Speaker 1: tomorrow on Bloomberg. What I'm curious about is when it
Speaker 1: comes to private markets, are there constructive conversations you guys
Speaker 1: are yet having with the administration or that you think
Speaker 1: have to be had when it comes to private markets.
Speaker 4: There are certainly conversations to have with any administration around
Speaker 4: the evolution of the private markets and how to make
Speaker 4: it easier to invest in the private markets. Areas has
Speaker 4: been in business for over twenty five years, and so
Speaker 4: we've worked with many administrations. This one is just getting
Speaker 4: their feet on the ground.
Speaker 3: It's early.
Speaker 4: They're certainly pro growth and pro business, and so some
Speaker 4: of that narrative we support and are happy about, but
Speaker 4: I would say they haven't yet really dug in on
Speaker 4: the type of change that would have a day to
Speaker 4: day impact on what we're doing.
Speaker 1: And maybe a smarter question, as you're right, it's early on,
Speaker 1: but I mean, what would you like to see in
Speaker 1: terms of what happens for oversight in terms of private markets.
Speaker 1: You and I talked ahead of this conversation, and one
Speaker 1: of the issues is the transparency issues, and I know
Speaker 1: you talked about what you guys do in terms of
Speaker 1: I guess spreading around risk, Right, It's not like you're
Speaker 1: one investment in one particular investment. When it's the private markets,
Speaker 1: it's multiple investments. But what do you think needs to
Speaker 1: be government oversight or what you provide transparency to your investors?
Speaker 1: But does there need to be something more?
Speaker 3: Well, I'd step.
Speaker 4: Back because you're going to get something that's sort of
Speaker 4: paramount to any type of investment approach, which is manager
Speaker 4: selection and the diligence that goes into an investment firms
Speaker 4: track record. And so as the private markets grow and
Speaker 4: as there's a significant amount of new entrants, there are
Speaker 4: going to be firms that may not have a twenty
Speaker 4: five year track record or may not be able to
Speaker 4: speak to prior periods, whether it was the GFC or
Speaker 4: the emerging markets or other challenging times. So we definitely
Speaker 4: think in any of the whether it's private credit, or
Speaker 4: real estate or secondaries, all these areas, a twenty twenty
Speaker 4: five year track record is really helpful, right, and not
Speaker 4: everyone has it today in the private markets, you know,
Speaker 4: we think the expectations related to transparency are no less
Speaker 4: than the private markets than the public markets. Institutional and
Speaker 4: high net worth clients expect us to provide them a
Speaker 4: significant amount of transfer today already today, So we don't
Speaker 4: think of what we do as changing that commitment to
Speaker 4: our investors.
Speaker 1: What do you think about private opening up to more
Speaker 1: retail investors and then does that change in terms of
Speaker 1: the transparency issues?
Speaker 4: Well, so, of course the growth that you reference that
Speaker 4: we talked about on our earnings call it areas. This
Speaker 4: sort of marriage of alternatives in the wealth channel, right,
Speaker 4: is a secular trend, democratization of alternatives. That growth is
Speaker 4: being driven primarily by in vigils with over a million
Speaker 4: to invest in the US, that addressable market is an
Speaker 4: excess of eighty trillion and grew beyond that last year,
Speaker 4: so that's plenty to do. They all are still struggling
Speaker 4: to grow an allocation. Some of the limits in their
Speaker 4: allocations are where you're going, which is there are state
Speaker 4: limits on how much they can allocate there or in
Speaker 4: some cases federal oversight that limits the allocation. Individual banks
Speaker 4: have their own suitability requirements, but fundamentally, this high net
Speaker 4: worth individual that has over a million dollars to invest
Speaker 4: gives us a massive runway to provide education and new solutions.
Speaker 3: So you're referring to accredited investors. Correct, that's right. There
Speaker 3: are some folks in your industry who say we need
Speaker 3: to essentially say, we need to get rid of those
Speaker 3: rules about accredited investors because it will give more opportunities
Speaker 3: to folks to get in on deals early and have
Speaker 3: more upside. It doesn't sound like you're actually saying that.
Speaker 3: You're saying that a credit investors, there's enough dry powder
Speaker 3: there essentially for you.
Speaker 2: No.
Speaker 4: I mean, I do think that over time, as we
Speaker 4: work to investors that even less to deploy lower sophistication,
Speaker 4: there's an opportunity to provide them solutions they don't get today.
Speaker 4: But you know, a big part of what we do
Speaker 4: is not just raise money but deploy it. And the
Speaker 4: fundraising and the growth in the private markets is you know,
Speaker 4: driving a lot of the headlines, but one of the
Speaker 4: things we want to make sure is it's deployed reasonably, thoughtfully,
Speaker 4: and ARES has got a a real commitment to local origination,
Speaker 4: whether in real estate or credit or any of our areas.
Speaker 4: And we were talking before the all about how important
Speaker 4: it is to build portfolios with small single investments so
Speaker 4: you're very diversified. ARCC, which is one of the largest
Speaker 4: public BDC's you know, the single name exposure there is
Speaker 4: two two and a half points.
Speaker 3: It's not a concentrated set of bets really spread out.
Speaker 3: To build that type of.
Speaker 4: A portfolio, you need to be able to have a
Speaker 4: significant feet on the ground and origination. But yes, do
Speaker 4: we think that not accredited investors are a growth area
Speaker 4: for the firm. Absolutely, But we think we're in the
Speaker 4: early innings of the high net worth investor allocating more
Speaker 4: to the wealth channel, and there will be a time
Speaker 4: when you know, not accredited investors will also get access
Speaker 4: to what we do.
Speaker 1: Rus how much bigger do you think the private credit
Speaker 1: market gets? I mean, it's just an incredible kind of
Speaker 1: the explosive growth that we've seen just in the last
Speaker 1: couple of years. And you and I talked on the
Speaker 1: call any great context reminding us that still the public
Speaker 1: markets are so much larger. But does it get to
Speaker 1: a point where the private market's rival, certainly on the
Speaker 1: equity side of things or is that just crazy?
Speaker 4: Well, I think it provides a really attractive solution. It's
Speaker 4: floating rate. In ninety ninety six percent of the loans
Speaker 4: are floating rate. That's an important aspect because it minimizes
Speaker 4: the volatility that we've now seen with fixed income. Private
Speaker 4: credit is also higher yielding, and we're asked often, you
Speaker 4: know how much you know, what do we think of
Speaker 4: the growth? It's it's actually the growth is not really
Speaker 4: outsized versus private equity. It just has gotten a lot
Speaker 4: of attention in the last few years. Think about any
Speaker 4: sort of typical LBO, you need two quantums of debt
Speaker 4: for every amount of equity. So to have a proper
Speaker 4: functioning economy, the private credits have really Private credit has
Speaker 4: really stepped in and addressed some of the concerns where
Speaker 4: banks don't provide as much capital, where you don't find
Speaker 4: other solutions.
Speaker 3: So I was just going to say, there are there
Speaker 3: are some critics out there who say that, you know,
Speaker 3: there's not the same oversight with private credit that there
Speaker 3: is with traditional lending through banks. Banks. Would like to
Speaker 3: say that I'm wondering if on your radar there's concern
Speaker 3: that there could be more regulation coming for private credit.
Speaker 4: I worked at a large bank for a while, and
Speaker 4: I understand that there is not the same leverage with
Speaker 4: the investment managers as there is or there used to
Speaker 4: be with banks. There's also an appropriate matching of capital and.
Speaker 3: Deploying it.
Speaker 4: So we have investors that provide us long term capital
Speaker 4: and it can't be called on a short on the
Speaker 4: short term. So actually, the large players in the private
Speaker 4: credit markets are very very different than banks when they
Speaker 4: were lending, either at the peak or even after the GFC.
Speaker 4: They don't have the same leverage. You might have one
Speaker 4: times leverage. They don't have the same volatility in the
Speaker 4: capital they're deploying. So it's a very different value proposition.
Speaker 4: It's not the same threat to the economy. We're not
Speaker 4: taking deposits from individuals.
Speaker 3: And so on.
Speaker 1: In terms of the macro conversations that are out there,
Speaker 1: whether it's over fed policy or rates or regulatory oversight,
Speaker 1: whether it's about war, what is the most important macro
Speaker 1: conversation to your world right now?
Speaker 4: Most important thing around the macro conversations is that we're
Speaker 4: aware of all of it, but we think of ourselves
Speaker 4: as micro and you know, in a position to really
Speaker 4: focus on two three thousand middle market companies across the
Speaker 4: US that we invest in and not get too caught
Speaker 4: up in the macro which we've been through, as I
Speaker 4: said earlier, for over twenty five years.
Speaker 1: Just one follow up on that love the middle market
Speaker 1: I think is such a great slice of the economy.
Speaker 1: Those middle market companies doing okay, Are they seeing stressed?
Speaker 1: Are they seeing strained? Yeah, and I know it's hard
Speaker 1: to lump everything, but I'm just curious.
Speaker 4: Yeah, so we tend to avoid some of the more
Speaker 4: cyclical sectors. We focus on services as opposed to goods
Speaker 4: in a lot of cases. But yes, we are buy
Speaker 4: and large, seeing better cash flow, better performing balance sheets
Speaker 4: than some of the markets might suggest.
Speaker 1: Okay, so that's optimistic. Yeah, hey, listen, thank you so much.
Speaker 1: Of course, really appreciate it. Rush down to he's global
Speaker 1: head of wealth Management. Over it areas Management