Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's keep the conversation going right now. George gatch He
Speaker 2: is the CEO of JP Morgan Asset Management. He joins
Speaker 2: us on set. Great to see you in person, George.
Speaker 3: Oh, great to be here, Katie, Thank you for the invite.
Speaker 2: Let's talk about that a little bit more, because it
Speaker 2: seems like, I mean, you think about some of the
Speaker 2: issuers in the bond markets switching between private and public markets.
Speaker 2: Then you think about some of the companies in the
Speaker 2: equity markets too, that those take privates that are happening.
Speaker 2: As the CEO of an asset manager with about four
Speaker 2: trillion dollars in assets under management, how are you approaching
Speaker 2: that blurring distinction.
Speaker 3: Yeah, Well, the way I think about it is that
Speaker 3: it's happening. The opportunity to be able to provide investors
Speaker 3: with the advantage of public markets, deep liquidity, transparency fees,
Speaker 3: and combine that with the diversification potential that you have
Speaker 3: in private markets, I think is great for investors. I
Speaker 3: do think though you need to approach it relatively cautiously.
Speaker 3: Many investors face liquidity issues in their portfolios, and I
Speaker 3: think it's important to weigh those challenges as well as
Speaker 3: the advantages that you see. But you're absolutely right. In
Speaker 3: fixed income markets, borrowers and issuers are approaching they syndicated
Speaker 3: lending market, they're issuing public bonds, and sometimes they're negotiating
Speaker 3: private transactions with private private credit providers. The ability for
Speaker 3: a portfolio manager to look at relative values across all
Speaker 3: of those markets and the answer isn't always private credit,
Speaker 3: it's not always high answer isn't always high yield. But
Speaker 3: the ability for a portfolio manager to move across those
Speaker 3: markets I think is going to be a big advantage
Speaker 3: over time, assuming investors can handle the liquidity of private markets,
Speaker 3: which is a very important consideration.
Speaker 2: Yeah, well there's a lot to dig into there, but
Speaker 2: let's dig into that last point, specifically the liquidity. When
Speaker 2: you think about how much private credit should be and
Speaker 2: the average portfolio, and I know that doesn't exist, I
Speaker 2: wonder where you fall on that question. I know that
Speaker 2: JP Morgan Asset Management filed for a total credit ETF
Speaker 2: yesterday that has an up to fifteen percent allocation to
Speaker 2: private credit. I know you can't speak specifically to an
Speaker 2: active filing, but I mean ten to fifteen percent does
Speaker 2: that sound right, Well, I think it.
Speaker 3: Really depends on the individual circumstances and the investment horizon
Speaker 3: and risk tolerance of the individual investments. I don't think
Speaker 3: you can answer that as a general As a general statement,
Speaker 3: I do think importantly for ETFs and mutual funds which
Speaker 3: are daily valued and daily redemptions and purchases occur, it's
Speaker 3: very important that the liquidity considerations be of paramount important
Speaker 3: and that's particularly important as we move towards defined country
Speaker 3: fusion plans and other conversations that are happening in the
Speaker 3: industry around the use of private securities in daily valued portfolios.
Speaker 1: There's been also a lot of talk in addition to
Speaker 1: the liquidity issues about return of possibilities, if you will,
Speaker 1: and how that stacks up against more traditional assets. I mean,
Speaker 1: obviously the sixty forty I know that's long gone, but
Speaker 1: that was sort of, at least from a retirement plan perspective,
Speaker 1: that was sort of the model maybe on a sort
Speaker 1: of a targeted sort of ramp up into one or
Speaker 1: the other. How much does that change?
Speaker 3: Well, the way I think about it and our teams
Speaker 3: our teams think about it is the advantage of public
Speaker 3: markets in terms of liquidity profile and public markets aren't debt.
Speaker 3: There's a tremendous amount of innovation that is happening. We
Speaker 3: pioneered the use of derivative income strategies and that's become
Speaker 3: a major opportunity in the market to produce uncorrelated returns
Speaker 3: to diversify portfolios further. Private market's going to offer the
Speaker 3: same opportunity to do that. And importantly, though disclosures, transparency,
Speaker 3: the level of fees are something that individual investors and
Speaker 3: institutions need to consider quite quite closely and evaluating the
Speaker 3: use of private markets and divers and diversified portfolios.
Speaker 1: Are you getting that diversification too? If we start to
Speaker 1: see more of this conversion between public and private markets,
Speaker 1: I mean, is that separation that is traditionally sort of
Speaker 1: made private markets more attractive. Does that get blurred or
Speaker 1: muted a little bit as it sort of moves I
Speaker 1: guess more into the public sphere.
Speaker 3: Yes, I think so. I mean, if you think about
Speaker 3: what's going to happen in five to ten years fromorrew
Speaker 3: is the private market's going to look more like public
Speaker 3: markets probably, and that's going to relate to transparency. It's
Speaker 3: going to relate to fees, secondary market liquidity. Those are
Speaker 3: all going to change the dynamics of the markets. But
Speaker 3: the innovation that's going to continue to occur in the
Speaker 3: development of these tools for investors. I think that's one
Speaker 3: of the most exciting things about markets today and what's
Speaker 3: happening in the asset management space.
Speaker 2: I also want to talk about relative valuations a little
Speaker 2: bit here because you and I last spoke, I think
Speaker 2: at the end of June, and you made the interesting
Speaker 2: point that you take a look at the private credit
Speaker 2: landscape and it looks a little bit frothy, especially when
Speaker 2: you take a look at public high yield for example,
Speaker 2: it feels like since then spreads have only gotten tighter.
Speaker 2: So I mean, right now, where do you stand well?
Speaker 3: I think markets are pricing in a very favorable outlook
Speaker 3: on both credit and equity markets, and for good reason.
Speaker 3: The economy is quite healthy, consumer balance sheets are healthy,
Speaker 3: the corporate sector, and that's priced into equity and spreads
Speaker 3: in high yield markets. I continue to believe that public
Speaker 3: markets offer tremendous opportunity for investors, and I think if
Speaker 3: you look at particularly taking into soliquidity considerations, I tend
Speaker 3: to steer today towards public markets as being relatively better valued, and.
Speaker 2: George, before we let you go, I have to ask
Speaker 2: you about something fairly in the weeds, and that is
Speaker 2: what we saw on Monday, the SEC putting on a
Speaker 2: statement that it intends to grant dimensional fund advisors exemptive
Speaker 2: relief to offer ETF share classes at share classes of
Speaker 2: their mutual funds. I know that JP Morgan has filed
Speaker 2: for similar exemptive relief, and I think for a lot
Speaker 2: of people it's hard to grasp why this is important.
Speaker 2: So I would love if you could put this into context,
Speaker 2: the ability to offer ETF share classes of existing mutual funds.
Speaker 2: I mean, what would that mean for JP Morgan and
Speaker 2: the asset management industry at large.
Speaker 3: I think one of the most exciting things happened in
Speaker 3: the asset management industry is now world class active investment
Speaker 3: capabilities available with the benefits of ETFs, transparency, liquidity and fees.
Speaker 3: Now we have today one hundred and forty five ETFs
Speaker 3: around the world over three hundred billion dollars in assets.
Speaker 3: We're one of the leaders in active ETF capabilities. The
Speaker 3: additional tool of being able to offer a share class
Speaker 3: and the ability for an individual investor to tax free
Speaker 3: exchange from a mutual fund and then to get the
Speaker 3: benefits of an ETF traded on an exchange. Is going
Speaker 3: to be just another potential transformation of the asset management
Speaker 3: industry and one that we are excited to see.
Speaker 1: George, great to have you.
Speaker 3: Thank you very much.
Speaker 1: George Gatchs, the CEO of JP Morgan Asset Management,