WEBVTT - Bloomberg Businessweek Weekend - May 5th, 2023 0:00:01.360 --> 0:00:05.720 This is Bloomberg business Week Inside from the reporters and 0:00:05.880 --> 0:00:09.520 editors who bring you America's most trusted business magazine. 0:00:09.119 --> 0:00:12.039 Plus global business, finance and tech news. 0:00:12.200 --> 0:00:16.279 The Bloomberg Business Week Podcast with Carol Messer and Tim 0:00:16.320 --> 0:00:19.000 Stenebeck from Bloomberg Radio. 0:00:20.120 --> 0:00:23.079 Carol Masser, we are live at the Milk and Institute 0:00:23.079 --> 0:00:25.920 Global Conference and a highlight for us right now someone 0:00:25.960 --> 0:00:28.440 well known to the Bloomberg audience. We're talking about David Hunt, 0:00:28.440 --> 0:00:32.440 President CEO of the massive Global Asset Manager PGM. They've 0:00:32.440 --> 0:00:35.479 got one point two trillion of assets enter management. One 0:00:35.520 --> 0:00:37.560 hundred and sixty two of the largest three hundred global 0:00:37.560 --> 0:00:40.800 pension funds are clients. You see a lot. 0:00:41.040 --> 0:00:41.680 Hello, we do. 0:00:41.840 --> 0:00:43.159 Cal is so nice to be with you. 0:00:43.200 --> 0:00:43.920 Thank you for having me. 0:00:44.000 --> 0:00:46.199 David, It's nice to have you here. So when you 0:00:46.280 --> 0:00:49.960 talk with your clients, you hear their concerns. What is 0:00:50.000 --> 0:00:50.720 top of mind for that? 0:00:51.400 --> 0:00:54.400 I would say that, you know, although the media likes 0:00:54.400 --> 0:00:56.240 to cover are we going to have a recession of 0:00:56.240 --> 0:01:00.520 soft landing or hard landing? In general, our institution clients 0:01:00.560 --> 0:01:03.040 believe that the market is pretty good at pricing in 0:01:03.120 --> 0:01:06.080 those risks, and as more information comes, the kind of 0:01:06.120 --> 0:01:09.520 giant abacus will actually reprice the markets a bit. What 0:01:09.600 --> 0:01:12.039 they worry about is the things that the market doesn't 0:01:12.040 --> 0:01:16.280 price very well, and those are things which have lower probability, 0:01:16.600 --> 0:01:20.679 but if they happen, actually are quite damaging. And they also, 0:01:20.920 --> 0:01:23.399 in general are things where kind of, you know, the 0:01:23.440 --> 0:01:26.280 market relies on the rational man school of thought that 0:01:26.360 --> 0:01:28.240 people will at the end of the day be reasonable. 0:01:28.680 --> 0:01:31.000 But what happened, and the two. 0:01:30.959 --> 0:01:33.360 Biggest ones that our clients are worried about right now 0:01:33.560 --> 0:01:38.520 is one, what will happen if Putin increasingly feels like 0:01:38.560 --> 0:01:41.280 he's backed into a point, and what if he does 0:01:41.319 --> 0:01:44.520 decide that he is really going to escalate things? And 0:01:44.720 --> 0:01:46.640 are we going to have the backing in that case 0:01:46.680 --> 0:01:49.320 of a lot of the non aligned countries who have 0:01:49.480 --> 0:01:53.279 been waffling more recently on a lot of these topics. 0:01:53.120 --> 0:01:55.720 That's one to put that out there, but anyway, go ahead. 0:01:55.960 --> 0:01:59.120 And the second one comes more from our delightful hometown 0:01:59.160 --> 0:02:02.880 of Washington, DC, where the market at the moment would say, 0:02:03.000 --> 0:02:05.560 you know, any rational person will assume that these nice 0:02:05.560 --> 0:02:07.640 people will actually reach an agreement on this, and it 0:02:07.680 --> 0:02:11.040 may take till eleven fifty nine, right before the deadline, 0:02:11.480 --> 0:02:13.560 but ultimately they'll come to another group. And that is 0:02:13.600 --> 0:02:15.160 in fact what's happened in the past. 0:02:15.800 --> 0:02:17.440 But what if that doesn't. 0:02:17.160 --> 0:02:21.080 Happen, what if the political calculations now in Washington have changed, 0:02:21.760 --> 0:02:24.720 and don't we need to be thinking about what is 0:02:24.800 --> 0:02:27.680 the implication of that, what's the volatility that will. 0:02:27.639 --> 0:02:28.360 Lead into that? 0:02:29.440 --> 0:02:31.200 On behalf of our clients. And so I would say 0:02:31.280 --> 0:02:35.280 those are the kinds of kind of scenario based work 0:02:35.280 --> 0:02:40.119 that we're doing with clients, almost beyond the classic market cycles, 0:02:40.680 --> 0:02:42.840 which the market price is in pretty well. 0:02:42.960 --> 0:02:45.799 So, David, take us there factor those in. Let's start 0:02:45.840 --> 0:02:49.160 with whot factor that in? What would be the implications 0:02:49.240 --> 0:02:51.760 potentially for global financial markets? 0:02:52.160 --> 0:02:54.119 Well, I think that you have to start with the 0:02:54.160 --> 0:02:57.480 obvious things there, which is that you know, we'd have 0:02:57.639 --> 0:03:01.560 energy prices that would probably really begin to rise up. 0:03:02.720 --> 0:03:06.800 You know, you would absolutely have a much bigger shift 0:03:06.840 --> 0:03:10.520 than we've had now on you know, who is actually 0:03:10.560 --> 0:03:14.880 going to align with NATO and who won't. So you know, 0:03:15.120 --> 0:03:17.600 for the most part, NATO has been I think, done 0:03:17.600 --> 0:03:19.840 a good job of staying very aligned. But they haven't 0:03:19.880 --> 0:03:22.400 brought in a lot of the global South. They haven't 0:03:22.400 --> 0:03:24.960 burned along India there's a whole variety of people that 0:03:25.280 --> 0:03:28.160 you know, China has played this very you know, cleverly 0:03:28.200 --> 0:03:31.640 in some ways. And you know, to what extent if 0:03:31.680 --> 0:03:35.080 Putin really escalates things will that no longer become acceptable 0:03:35.360 --> 0:03:38.080 and we will actually have more of a bipolar world 0:03:38.120 --> 0:03:40.760 than we do today. And that would fragment trade, it 0:03:40.760 --> 0:03:44.160 would fragment technology. So all of those implications are the 0:03:44.200 --> 0:03:46.200 kinds of things that we're beginning to kind of game 0:03:46.240 --> 0:03:47.480 theory our way through today. 0:03:47.680 --> 0:03:50.160 Interesting, So go all right, so game theory is through 0:03:50.960 --> 0:03:54.720 the debt seal, so in the worst case scenario. 0:03:54.920 --> 0:03:58.040 So that's particularly fascinating one because as long as the 0:03:58.200 --> 0:04:02.280 as the market based thinks that the politicians will solve this, 0:04:02.440 --> 0:04:05.360 the politicians don't actually have any real incentive to solve it, 0:04:05.400 --> 0:04:08.080 so there's no pressure on them. The only way pressure 0:04:08.080 --> 0:04:10.960 begins to build on them is to the extent that 0:04:11.040 --> 0:04:13.280 we start to see some volatility and we start to 0:04:13.280 --> 0:04:16.840 see the market saying, wow, now maybe this doesn't get solved. 0:04:17.560 --> 0:04:19.880 And so I do think you will see and you 0:04:19.960 --> 0:04:25.839 saw Yllen's comments to today about a June you know, kind. 0:04:25.680 --> 0:04:27.400 Of getting out of cash. 0:04:27.480 --> 0:04:30.400 So we are going to see in May the beginnings 0:04:30.440 --> 0:04:32.919 of that discussion of volatilty, you'll see it covered a 0:04:32.920 --> 0:04:36.159 lot more fundamentally, and you're going to have to see 0:04:36.160 --> 0:04:38.800 some of the game theory elements of Well, if we 0:04:39.160 --> 0:04:42.480 don't reach an agreement, what are the range of things 0:04:42.480 --> 0:04:44.880 that the government will have to start scaling back line 0:04:44.880 --> 0:04:46.560 and what will their priorities in orders be. 0:04:46.800 --> 0:04:49.599 So, if you're doing game or game theory right now, 0:04:49.680 --> 0:04:53.600 when do you know just to pull the trigger and 0:04:53.680 --> 0:04:54.760 putting those theories into. 0:04:55.080 --> 0:04:57.520 You don't And I think that's one of the really. 0:04:57.600 --> 0:04:59.640 You start to do it now, Well. 0:04:59.480 --> 0:05:01.120 You don't know which of them is going to happen, 0:05:01.120 --> 0:05:03.719 which is why you need to build in some real 0:05:03.760 --> 0:05:07.599 flexibility into your strategies and into and into your portfolios, 0:05:07.960 --> 0:05:10.880 because I don't think anybody here can predict how this 0:05:10.960 --> 0:05:11.600 is going to come out. 0:05:12.440 --> 0:05:15.120 I didn't really hear you talk about the FED. So 0:05:15.200 --> 0:05:18.080 where how does that factor in or do you feel 0:05:18.080 --> 0:05:19.960 like that's all factored into the markets already? 0:05:20.440 --> 0:05:24.320 Well, our internal view is that the market is not 0:05:24.440 --> 0:05:28.520 pricing the FED incorrectly. Our view is that markets are 0:05:28.560 --> 0:05:32.760 too optimistic at the moment that the US economy is 0:05:32.880 --> 0:05:36.599 stronger than the markets realize. That's going to cause the 0:05:36.640 --> 0:05:40.760 FED to need to keep rates higher for longer than 0:05:40.800 --> 0:05:43.760 the markets realized. I mean, remember the markets think, you know, 0:05:43.760 --> 0:05:46.800 we're going to have actually break cuts this year. We 0:05:46.880 --> 0:05:50.680 think that's quite unlinkedly, so our view would be that 0:05:51.080 --> 0:05:52.680 markets are too optimistic for that. 0:05:53.120 --> 0:05:54.480 But as I said before, those are. 0:05:54.400 --> 0:05:57.200 Things that the market will reprice as it gets better 0:05:57.240 --> 0:06:00.320 and more information, as opposed to some of these other risks, 0:06:00.320 --> 0:06:03.360 which actually the market really struggles with pricing well at all. 0:06:03.520 --> 0:06:05.479 David, you've seen a lot of market cycles. I'm not 0:06:05.480 --> 0:06:06.000 aging you. 0:06:06.000 --> 0:06:08.920 You've just seen nice I've seen a lot of market 0:06:09.000 --> 0:06:11.320 cycles too, But I do wonder, you know, in the 0:06:11.400 --> 0:06:14.520 last year, who would have predicted, right, the war in Ukraine, 0:06:14.720 --> 0:06:17.360 the crypto collapse, what we're you know, bank runs? 0:06:17.560 --> 0:06:19.599 Who would have thunk if you will? And you just 0:06:19.680 --> 0:06:23.840 laid out two significant things that could certainly change things dramatically. 0:06:24.920 --> 0:06:28.000 Is there something I don't know? You know, it does 0:06:28.040 --> 0:06:32.920 make your doing game theory, but it's challenging for investors. 0:06:33.240 --> 0:06:36.320 So how do they protect themselves or what do you Yeah. 0:06:36.240 --> 0:06:39.440 No, it's it's very challenging and obviously the great protection 0:06:39.640 --> 0:06:41.640 in a world where a well, where. 0:06:41.440 --> 0:06:43.200 Do you find that protection when we even started to 0:06:43.279 --> 0:06:44.279 question treasuries. 0:06:44.720 --> 0:06:47.880 So the place that you find it is in diversification. 0:06:48.800 --> 0:06:53.040 And so you know, we've really been great believers that 0:06:53.440 --> 0:06:56.640 the most diversified institutional portfolios are the ones that are 0:06:56.720 --> 0:06:59.240 best positioned for resiliency in these kinds of things. 0:06:59.320 --> 0:07:02.200 So what is diversification means? 0:07:02.400 --> 0:07:06.160 So if you went back twenty five years, most institutional 0:07:06.240 --> 0:07:10.200 investors would be in public stocks and box and then 0:07:10.240 --> 0:07:13.520 along came this rather strange thing called private equity, which 0:07:13.960 --> 0:07:15.800 people were a little worried about in the beginning and 0:07:15.800 --> 0:07:19.080 then ultimately sort of became an asset class. And now 0:07:19.200 --> 0:07:23.320 we're actually seeing private alternatives more broadly really coming into 0:07:23.400 --> 0:07:26.680 their own. So private alternatives, which are in addition to 0:07:26.720 --> 0:07:29.760 private equity but includes real estate and private credit, I 0:07:29.760 --> 0:07:34.400 think importantly have been for us and for many others, 0:07:34.800 --> 0:07:37.200 you know, really our fastest growing businesses. So we manage 0:07:37.200 --> 0:07:41.600 about three hundred billion in private alternatives. And our view 0:07:41.680 --> 0:07:46.320 is as the banking system continues to be very capital constrained, 0:07:46.360 --> 0:07:48.360 and I think they're going to get some new regulations 0:07:48.400 --> 0:07:50.760 on top of what they've already got that's even going 0:07:50.800 --> 0:07:54.520 to constrain their credit to supply more. That is going 0:07:54.560 --> 0:07:56.720 to mean more and more companies are going to look 0:07:56.760 --> 0:08:00.160 to non bank lenders such as US to meet their needs, 0:08:00.200 --> 0:08:02.320 and so that is going to be a business which 0:08:02.360 --> 0:08:06.760 will also help diversify institutional portfolios away from the treasury 0:08:06.800 --> 0:08:09.120 problems and other things that we started our conversational. 0:08:09.240 --> 0:08:13.360 Well, it's interesting, you know, in terms of your institutional 0:08:13.560 --> 0:08:15.880 and global pension funds that you guys are that are 0:08:15.920 --> 0:08:19.520 investing with you, what kind of managing are you having 0:08:19.520 --> 0:08:22.520 to do of performance or not because you're not feeling 0:08:22.520 --> 0:08:26.760 any kind of performance hits in this environment by firms 0:08:26.760 --> 0:08:30.360 you mean defaults or not even defaults, but just expectations 0:08:30.400 --> 0:08:31.400 in terms of returns. 0:08:32.440 --> 0:08:36.120 So return expectations, you know, I would say for private 0:08:36.120 --> 0:08:38.960 ac what do you have come down a little bit? Yeah, 0:08:39.000 --> 0:08:42.320 in private credit actually because much of that, particularly direct lending, 0:08:42.440 --> 0:08:45.480 is floating rate, the returns are actually going up and 0:08:45.840 --> 0:08:48.280 have been actually quite robust. And I think that's one 0:08:48.360 --> 0:08:51.480 of the reasons that many institutional investors have been looking 0:08:51.520 --> 0:08:54.720 to add that to their portfolio because that's actually returning 0:08:54.840 --> 0:08:58.120 better than it did and there are in some ways 0:08:58.240 --> 0:09:01.720 using that as opposed to real estate that which they liked. 0:09:01.720 --> 0:09:04.240 The income from but now worries a little bit riskier 0:09:04.640 --> 0:09:06.680 and they're liking the direct lending piece better. 0:09:06.800 --> 0:09:09.880 Have you seen an uptick in terms of your private 0:09:09.920 --> 0:09:12.600 credit demand because of what's happened in the bank and 0:09:13.720 --> 0:09:15.199 the collapses. 0:09:15.080 --> 0:09:17.800 We have, And that's obviously a long term trend. I mean, 0:09:18.160 --> 0:09:21.400 ever since the GFC, the banks have been lending at 0:09:21.400 --> 0:09:24.640 a much less rate because of all the new regulation 0:09:24.760 --> 0:09:28.600 that came on. But in the last four or five months, 0:09:28.640 --> 0:09:32.360 as people have had questions about banks and people began 0:09:32.480 --> 0:09:34.560 to think that rates we're going to go up, we've 0:09:34.600 --> 0:09:39.440 seen very robust demand from middle market companies for borrowing fu. 0:09:39.360 --> 0:09:41.640 And that's where it's middle market companies in particular. Thing 0:09:41.679 --> 0:09:43.280 you really see you expect that to continue? 0:09:43.320 --> 0:09:43.560 I do. 0:09:43.800 --> 0:09:47.960 I do, and I think that'll be true, particularly as 0:09:48.040 --> 0:09:52.000 these regional lenders find that they aren't really able to 0:09:52.240 --> 0:09:53.520 continue to expand their lending. 0:09:53.800 --> 0:09:56.600 Yeah, it's interesting. When we were talking about global real estate, 0:09:56.679 --> 0:09:59.360 the real concerns were about the middle market because they're 0:09:59.480 --> 0:10:01.640 just not a both the banks aren't there for them, right, 0:10:01.800 --> 0:10:06.520 So interesting you feel comfortable mid market real estate lending, to. 0:10:07.880 --> 0:10:11.559 Our our view is first of all, everybody talks about 0:10:11.600 --> 0:10:14.880 real estate. But actually what they mean is office. Yeah, 0:10:14.880 --> 0:10:17.720 but remember real estate has got a lot of food 0:10:17.720 --> 0:10:19.600 groups in it. Yeah, and some of them are doing 0:10:19.760 --> 0:10:23.240 just great. So broadly, are we comfortable with our real 0:10:23.320 --> 0:10:26.079 estate portfolio. It's position for a recession and we're very 0:10:26.080 --> 0:10:27.680 comfortable with cover a. 0:10:27.679 --> 0:10:29.640 Lot of ground. David Hunt, thank you so much. David Haunt, 0:10:29.640 --> 0:10:32.760 President CEO of p Jim joining us here at Bloomberg. 0:10:33.240 --> 0:10:36.800 You're listening to the Bloomberg Business Week podcast. Catch us 0:10:36.840 --> 0:10:39.520 live weekdays from two to five pm Eastern. 0:10:39.400 --> 0:10:42.760 On Bloomberg Radio, the Bloomberg Business App, and you too. 0:10:43.000 --> 0:10:46.040 You can also listen live to our flagship New York station, 0:10:46.600 --> 0:10:49.520 Just say Alexa, play Bloomberg, You Love and thirty. 0:10:51.360 --> 0:10:53.600 A lot going on. It was so funny. We woke 0:10:53.640 --> 0:10:55.520 up this morning. We're like a good thing. It's a 0:10:55.600 --> 0:10:58.920 quiet Monday. So much to talk about with our guests, 0:10:58.920 --> 0:11:01.679 So thank you for the market setup. I do want 0:11:01.679 --> 0:11:04.520 to get to our guest because eighteen months ago our 0:11:04.559 --> 0:11:06.240 next guest told our Bloomberg team that it was the 0:11:06.280 --> 0:11:10.200 golden age of private credit. Dun Dun Dun with us 0:11:10.240 --> 0:11:12.160 as Mark at Nasio. He's a maaging partner at the 0:11:12.200 --> 0:11:16.480 Global alternative credit investment from Crescent Capital Managing Partners. They 0:11:16.559 --> 0:11:18.800 had some forty billion in assets under management as the 0:11:18.880 --> 0:11:21.079 end of twenty twenty two. Mark also chairman and owner 0:11:21.440 --> 0:11:23.800 of the Milwaukee Brewers baseball club. 0:11:24.320 --> 0:11:26.280 Hello, very nice to see you again. 0:11:26.320 --> 0:11:28.040 It's great to see you again. You know, I had 0:11:28.040 --> 0:11:30.320 a question and we were talking over here. What's easier 0:11:30.360 --> 0:11:34.079 owning an MLB team, investing in today's environment or growing 0:11:34.160 --> 0:11:35.839 up in New Jersey and telling people that you're from 0:11:35.840 --> 0:11:39.840 New Jersey. I can say that because I'm from New Jersey. No, 0:11:40.040 --> 0:11:41.040 I'm just playing with you. 0:11:41.120 --> 0:11:44.199 It's always nice to connect with the fellow jersey its. 0:11:44.280 --> 0:11:47.800 I love New Jersey. Tell us about today's environment versus 0:11:47.840 --> 0:11:48.400 a year ago. 0:11:49.440 --> 0:11:52.800 So I actually bothered to go back and listen to 0:11:52.840 --> 0:11:55.720 my broadcast and both on television and radio. 0:11:55.800 --> 0:11:58.120 You have to see how badly I screwed up. 0:11:58.240 --> 0:11:59.680 You did not not even. 0:12:00.080 --> 0:12:03.079 I think the golden age of credit was almost eighteen 0:12:03.120 --> 0:12:05.880 months ago I talked about and last year I was 0:12:05.920 --> 0:12:08.720 worried about stagflation, and fortunately we didn't get that. 0:12:09.559 --> 0:12:10.440 And so the. 0:12:10.400 --> 0:12:13.400 Environment for which we will discuss, the environment for private 0:12:13.440 --> 0:12:15.720 credit is still is still quite good. 0:12:16.160 --> 0:12:19.120 Actually for all levels for all types, because it's interesting. 0:12:19.160 --> 0:12:21.240 I just give up a real estate panel and they're saying, 0:12:21.240 --> 0:12:26.280 you know, for valued properties, trophy properties, Class A properties, 0:12:26.480 --> 0:12:28.640 you know, you're still seeing interest when you go down 0:12:28.640 --> 0:12:32.199 the scale. It's not so much private credit, no distinctions 0:12:32.280 --> 0:12:32.840 or yeah. 0:12:32.840 --> 0:12:36.680 So real estate credit, in including real estate private credit 0:12:36.800 --> 0:12:39.520 is a whole different animal than corporate credit, which is 0:12:39.520 --> 0:12:41.720 what we focus on, right, And there's a number of 0:12:41.720 --> 0:12:45.320 structural challenges in real estate. There's a maturity wall in 0:12:45.400 --> 0:12:49.760 CMBs that's coming up very fast, right with funds that'll 0:12:49.800 --> 0:12:51.840 be you know, needing to have liquidating and need to 0:12:51.840 --> 0:12:55.800 have buyers, which we don't have. Clos for the most part, 0:12:55.960 --> 0:12:57.800 have extended maturities now. 0:12:58.520 --> 0:13:00.880 And you know, I think all so and it's easy 0:13:00.920 --> 0:13:02.640 for me to say, and they'll say the same about us. 0:13:02.640 --> 0:13:04.120 But not sure. 0:13:04.240 --> 0:13:06.920 And I participated in a lot of conferences like this, yeah, 0:13:06.960 --> 0:13:09.560 and managed to oversee a couple of endowments. 0:13:09.559 --> 0:13:10.520 On charitable side. 0:13:10.640 --> 0:13:12.320 I'm not sure the real estate marks are in the 0:13:12.360 --> 0:13:14.840 right place just yet, not yet, so that needs to 0:13:14.880 --> 0:13:18.040 sort of work its way through and and so it's 0:13:18.200 --> 0:13:21.719 challenging to find, you know, the right part in the 0:13:21.800 --> 0:13:25.079 capstack to invest in real estate now, whereas you could 0:13:25.200 --> 0:13:27.840 argue the same thing with corporate credit, and it's easier 0:13:27.840 --> 0:13:31.280 to go senior because right now senior loans you yield 0:13:31.320 --> 0:13:34.640 over ten percent, which isn't you know, it isn't bad 0:13:34.880 --> 0:13:38.120 right right with with the new you know for you know, 0:13:38.200 --> 0:13:41.000 sofa you know, close to five percent now. 0:13:41.640 --> 0:13:45.720 Well, so it's interesting, So does that does this environment continue? 0:13:45.760 --> 0:13:47.400 I'm like, I'm just curious. I think we're at this 0:13:47.600 --> 0:13:50.360 juncture mark where we're trying to figure out, you know, recession, 0:13:50.400 --> 0:13:53.160 no recession. We'll see what that we get from the 0:13:53.160 --> 0:13:54.560 Fed this week. I mean, like, first of all, with 0:13:54.600 --> 0:13:57.800 the Fed, how closely do you watch in terms of 0:13:57.800 --> 0:14:00.600 what they're doing interest rates? We always does it matter 0:14:00.640 --> 0:14:01.000 to you? 0:14:01.360 --> 0:14:03.720 So moment to moment it doesn't. 0:14:03.920 --> 0:14:06.240 Now, once you've had you know, four and a half, 0:14:06.320 --> 0:14:08.079 you know, four hundred and fifty bases point, you know, 0:14:08.600 --> 0:14:09.160 increase in. 0:14:09.600 --> 0:14:12.880 The right in the last year, you have to start watching. 0:14:12.920 --> 0:14:14.880 And so but now everybody's on the edge of their 0:14:14.880 --> 0:14:18.080 seat about whether the Fed's gonna hike and pause or not. 0:14:18.920 --> 0:14:20.800 And you know, one of the things we talked about 0:14:20.840 --> 0:14:24.120 there was a private panel here yesterday for they called 0:14:24.120 --> 0:14:25.080 them Finance leaders. 0:14:25.120 --> 0:14:28.600 But so I crashed that. 0:14:28.640 --> 0:14:32.040 Party, no part of it. 0:14:32.200 --> 0:14:36.760 But you know, Mike Milken came in and the tone 0:14:36.800 --> 0:14:41.000 for the conferences and the theme is somewhat optimism, but 0:14:41.080 --> 0:14:42.240 he came in and talked. 0:14:42.000 --> 0:14:44.680 To us about how we need to have realism and 0:14:44.720 --> 0:14:46.480 so it really we all know. 0:14:46.480 --> 0:14:49.920 The first priority for the FED is to fight inflation, 0:14:50.560 --> 0:14:53.240 and they're going to have to beat inflation almost at 0:14:53.280 --> 0:14:56.640 any cost. So that if that's a when we're rate 0:14:56.720 --> 0:14:59.120 hike or even two in a pause, that's great. 0:14:59.200 --> 0:15:02.440 If it has to keep going, you know, that starts 0:15:02.440 --> 0:15:03.040 to get. 0:15:02.880 --> 0:15:06.280 Into creating real credit issues, not only in you know, 0:15:06.440 --> 0:15:08.520 corporate credit obviously, but also in. 0:15:09.080 --> 0:15:10.040 Obviously in real estate. 0:15:10.120 --> 0:15:11.360 Well how problematic could it be? 0:15:12.640 --> 0:15:16.920 Well, it's it's very problematic, depending on So I was 0:15:17.000 --> 0:15:20.360 at a gathering JP Morgan had that Jamie Diamond spoke 0:15:20.400 --> 0:15:24.040 at and he was optimistic too and very bullish on America, 0:15:24.080 --> 0:15:25.920 which we all you know, I think everyone here. 0:15:25.840 --> 0:15:28.280 Is, which is great, and we have a global audience here. 0:15:28.480 --> 0:15:29.520 Yeah, you can feel it. 0:15:30.320 --> 0:15:31.320 You can feel it right. 0:15:31.760 --> 0:15:34.640 And obviously the fact I think you know that the 0:15:34.720 --> 0:15:40.400 takeover today by JP Morgan on ufr C definitely its 0:15:40.480 --> 0:15:41.680 okay now we're over that hump. 0:15:42.160 --> 0:15:42.320 You know. 0:15:42.560 --> 0:15:43.840 However, he left us. 0:15:43.760 --> 0:15:45.760 With the thought everybody should go back to their offices 0:15:46.280 --> 0:15:48.600 and budget for you know what happens if short rates 0:15:48.640 --> 0:15:49.480 go to seven percent? 0:15:49.560 --> 0:15:51.360 Well that is that. 0:15:51.320 --> 0:15:53.920 Would put you know, right now, in our credit portfolios, 0:15:53.960 --> 0:15:56.520 for example, we have a handful of credits that are 0:15:56.840 --> 0:16:00.440 not you know, within are not covering the cash flow. Yeah, 0:16:00.480 --> 0:16:02.600 you'll hear a lot of managers like us say, like 0:16:03.080 --> 0:16:07.280 our portfolio is, for example, the average credit quality free 0:16:07.280 --> 0:16:10.080 cash flow is one point six times plenty of cushion. 0:16:10.800 --> 0:16:14.120 But the question is how many credits are when times 0:16:14.200 --> 0:16:14.640 or below? 0:16:15.280 --> 0:16:15.680 Right now? 0:16:15.680 --> 0:16:17.240 We have just a handful and those are the ones 0:16:17.240 --> 0:16:20.200 we focus on. If you get another two hundred basis 0:16:20.200 --> 0:16:22.840 points built into the system, it's gonna be a lot 0:16:22.880 --> 0:16:24.840 more than a handful of credits that have How much 0:16:24.920 --> 0:16:29.080 more I think it depends on, Uh, you know, we've 0:16:29.080 --> 0:16:31.960 always lent to six times cash flow, so I think, 0:16:32.080 --> 0:16:34.400 you know or under so I think we'll be okay. 0:16:34.440 --> 0:16:37.200 But the broader market is already stretched out to seven 0:16:37.440 --> 0:16:41.840 recent transactions. You've seen seven times and maybe a pick 0:16:41.920 --> 0:16:44.560 component which pick toggle, which you'll. 0:16:44.400 --> 0:16:47.920 Pick toggle, go back to It all comes around. 0:16:47.640 --> 0:16:50.480 It's like the USC you know, student body left, student 0:16:50.520 --> 0:16:51.880 body right off tackle play. 0:16:52.040 --> 0:16:54.200 How likely is it we get another two hundred basis points? 0:16:54.200 --> 0:16:56.960 Does that even make sense? I mean, the FED certainly 0:16:56.960 --> 0:16:59.560 seems like they're on this mission, but you you have 0:16:59.600 --> 0:17:00.560 to ask what cost. 0:17:00.920 --> 0:17:02.240 Here's where you get worried. 0:17:02.320 --> 0:17:05.359 Right, everybody is lined up on the side of the 0:17:05.400 --> 0:17:09.000 trade that that's not going down. Everybody you talk to, everybody. 0:17:09.440 --> 0:17:11.040 The only in fact, the only person I've said you 0:17:11.080 --> 0:17:13.359 heard raise that was in this private session that Jamie 0:17:13.400 --> 0:17:19.479 Diamond had, And so you know, I okay, it creates 0:17:19.560 --> 0:17:22.119 all kinds of prompts for the deficity. There's the whole 0:17:22.240 --> 0:17:25.199 domino effect, well beyond what you know I do in 0:17:25.240 --> 0:17:28.680 my day job, right and sou But they've got to 0:17:28.720 --> 0:17:29.200 be they can't. 0:17:29.200 --> 0:17:29.800 They've got to be. 0:17:29.800 --> 0:17:33.320 Inflation, all right, they have to be inflation. It's interesting, 0:17:33.359 --> 0:17:38.000 all right. So so if they continue on the course 0:17:38.000 --> 0:17:40.560 which they seem to do, I mean, are you anticipating 0:17:40.560 --> 0:17:42.840 a recession? I mean, it's interesting this panel I just 0:17:42.840 --> 0:17:45.160 came off of, and you know, I said a year ago, 0:17:45.280 --> 0:17:47.160 what's surprised you about what happened over the past year? 0:17:47.200 --> 0:17:52.560 And one of the individuals David who is over at Hine. 0:17:52.680 --> 0:17:55.119 So global corporate real estate are global real estate of 0:17:55.160 --> 0:17:57.280 all kinds, and just said, I really thought we'd be 0:17:57.280 --> 0:18:00.719 through the recession at this point. So I'm just curious 0:18:00.720 --> 0:18:01.560 how you see it. 0:18:03.000 --> 0:18:08.679 That's real estate rest colored classes. So it keeps getting 0:18:09.119 --> 0:18:13.600 pushed out right, And look, we can manage through a recession. 0:18:13.760 --> 0:18:14.760 That's not an issue. 0:18:14.800 --> 0:18:16.680 And I think there are a lot of other things 0:18:16.800 --> 0:18:20.000 now that are much greater fears that seem to be surmounted. 0:18:20.040 --> 0:18:23.280 Every banking executive here we had a dinner last night 0:18:23.320 --> 0:18:24.360 that Jane. 0:18:24.200 --> 0:18:25.080 Fraser spoke at. 0:18:25.240 --> 0:18:28.280 Yeah, you know, the US banking system globally is considered 0:18:28.320 --> 0:18:30.920 the strongest in the world. She pointed out this forty 0:18:30.920 --> 0:18:33.800 seven hundred banks in our country and there's three that 0:18:33.840 --> 0:18:37.600 have had issues, and so we don't have you know, 0:18:37.640 --> 0:18:42.560 the financial system is strong. And so the question is 0:18:42.600 --> 0:18:46.159 whether either rates get so high that they and we 0:18:46.200 --> 0:18:50.080 still have growth, right and pretty much everywhere labor costs 0:18:50.119 --> 0:18:52.800 are high in certain sectors by chain is actually sort 0:18:52.840 --> 0:18:54.320 of figured out. So if it just ends up being 0:18:54.359 --> 0:18:57.240 a slow down, that that would be okay. And that's 0:18:57.520 --> 0:19:00.080 surmountable for I think for everything, for not only for 0:19:00.240 --> 0:19:02.640 corporate credit, but for real estate as well. 0:19:02.840 --> 0:19:05.720 So when you look at investments, most attractive is it 0:19:05.800 --> 0:19:07.840 high yield? Is it bank loans, direct lending? 0:19:09.240 --> 0:19:12.439 So we you know, we're the high yel market is 0:19:12.480 --> 0:19:16.640 finally high yield. Interestingly, you know, the generic high yeal 0:19:16.720 --> 0:19:20.359 bond market is yielding only quote only eight percent. 0:19:20.400 --> 0:19:23.680 We're delighted with that. Yeah, anything we have floating rates. 0:19:23.480 --> 0:19:28.040