WEBVTT - JPMorgan Asset Management CEO George Gatch Talks Public Versus Private Markets

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's keep the conversation going right now. George gatch He

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<v Speaker 2>is the CEO of JP Morgan Asset Management. He joins

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<v Speaker 2>us on set. Great to see you in person, George.

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<v Speaker 3>Oh, great to be here, Katie, Thank you for the invite.

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<v Speaker 2>Let's talk about that a little bit more, because it

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<v Speaker 2>seems like, I mean, you think about some of the

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<v Speaker 2>issuers in the bond markets switching between private and public markets.

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<v Speaker 2>Then you think about some of the companies in the

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<v Speaker 2>equity markets too, that those take privates that are happening.

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<v Speaker 2>As the CEO of an asset manager with about four

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<v Speaker 2>trillion dollars in assets under management, how are you approaching

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<v Speaker 2>that blurring distinction.

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<v Speaker 3>Yeah, Well, the way I think about it is that

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<v Speaker 3>it's happening. The opportunity to be able to provide investors

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<v Speaker 3>with the advantage of public markets, deep liquidity, transparency fees,

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<v Speaker 3>and combine that with the diversification potential that you have

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<v Speaker 3>in private markets, I think is great for investors. I

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<v Speaker 3>do think though you need to approach it relatively cautiously.

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<v Speaker 3>Many investors face liquidity issues in their portfolios, and I

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<v Speaker 3>think it's important to weigh those challenges as well as

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<v Speaker 3>the advantages that you see. But you're absolutely right. In

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<v Speaker 3>fixed income markets, borrowers and issuers are approaching they syndicated

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<v Speaker 3>lending market, they're issuing public bonds, and sometimes they're negotiating

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<v Speaker 3>private transactions with private private credit providers. The ability for

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<v Speaker 3>a portfolio manager to look at relative values across all

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<v Speaker 3>of those markets and the answer isn't always private credit,

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<v Speaker 3>it's not always high answer isn't always high yield. But

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<v Speaker 3>the ability for a portfolio manager to move across those

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<v Speaker 3>markets I think is going to be a big advantage

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<v Speaker 3>over time, assuming investors can handle the liquidity of private markets,

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<v Speaker 3>which is a very important consideration.

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<v Speaker 2>Yeah, well there's a lot to dig into there, but

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<v Speaker 2>let's dig into that last point, specifically the liquidity. When

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<v Speaker 2>you think about how much private credit should be and

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<v Speaker 2>the average portfolio, and I know that doesn't exist, I

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<v Speaker 2>wonder where you fall on that question. I know that

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<v Speaker 2>JP Morgan Asset Management filed for a total credit ETF

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<v Speaker 2>yesterday that has an up to fifteen percent allocation to

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<v Speaker 2>private credit. I know you can't speak specifically to an

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<v Speaker 2>active filing, but I mean ten to fifteen percent does

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<v Speaker 2>that sound right, Well, I think it.

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<v Speaker 3>Really depends on the individual circumstances and the investment horizon

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<v Speaker 3>and risk tolerance of the individual investments. I don't think

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<v Speaker 3>you can answer that as a general As a general statement,

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<v Speaker 3>I do think importantly for ETFs and mutual funds which

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<v Speaker 3>are daily valued and daily redemptions and purchases occur, it's

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<v Speaker 3>very important that the liquidity considerations be of paramount important

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<v Speaker 3>and that's particularly important as we move towards defined country

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<v Speaker 3>fusion plans and other conversations that are happening in the

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<v Speaker 3>industry around the use of private securities in daily valued portfolios.

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<v Speaker 1>There's been also a lot of talk in addition to

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<v Speaker 1>the liquidity issues about return of possibilities, if you will,

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<v Speaker 1>and how that stacks up against more traditional assets. I mean,

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<v Speaker 1>obviously the sixty forty I know that's long gone, but

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<v Speaker 1>that was sort of, at least from a retirement plan perspective,

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<v Speaker 1>that was sort of the model maybe on a sort

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<v Speaker 1>of a targeted sort of ramp up into one or

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<v Speaker 1>the other. How much does that change?

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<v Speaker 3>Well, the way I think about it and our teams

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<v Speaker 3>our teams think about it is the advantage of public

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<v Speaker 3>markets in terms of liquidity profile and public markets aren't debt.

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<v Speaker 3>There's a tremendous amount of innovation that is happening. We

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<v Speaker 3>pioneered the use of derivative income strategies and that's become

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<v Speaker 3>a major opportunity in the market to produce uncorrelated returns

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<v Speaker 3>to diversify portfolios further. Private market's going to offer the

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<v Speaker 3>same opportunity to do that. And importantly, though disclosures, transparency,

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<v Speaker 3>the level of fees are something that individual investors and

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<v Speaker 3>institutions need to consider quite quite closely and evaluating the

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<v Speaker 3>use of private markets and divers and diversified portfolios.

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<v Speaker 1>Are you getting that diversification too? If we start to

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<v Speaker 1>see more of this conversion between public and private markets,

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<v Speaker 1>I mean, is that separation that is traditionally sort of

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<v Speaker 1>made private markets more attractive. Does that get blurred or

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<v Speaker 1>muted a little bit as it sort of moves I

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<v Speaker 1>guess more into the public sphere.

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<v Speaker 3>Yes, I think so. I mean, if you think about

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<v Speaker 3>what's going to happen in five to ten years fromorrew

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<v Speaker 3>is the private market's going to look more like public

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<v Speaker 3>markets probably, and that's going to relate to transparency. It's

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<v Speaker 3>going to relate to fees, secondary market liquidity. Those are

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<v Speaker 3>all going to change the dynamics of the markets. But

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<v Speaker 3>the innovation that's going to continue to occur in the

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<v Speaker 3>development of these tools for investors. I think that's one

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<v Speaker 3>of the most exciting things about markets today and what's

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<v Speaker 3>happening in the asset management space.

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<v Speaker 2>I also want to talk about relative valuations a little

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<v Speaker 2>bit here because you and I last spoke, I think

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<v Speaker 2>at the end of June, and you made the interesting

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<v Speaker 2>point that you take a look at the private credit

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<v Speaker 2>landscape and it looks a little bit frothy, especially when

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<v Speaker 2>you take a look at public high yield for example,

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<v Speaker 2>it feels like since then spreads have only gotten tighter.

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<v Speaker 2>So I mean, right now, where do you stand well?

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<v Speaker 3>I think markets are pricing in a very favorable outlook

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<v Speaker 3>on both credit and equity markets, and for good reason.

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<v Speaker 3>The economy is quite healthy, consumer balance sheets are healthy,

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<v Speaker 3>the corporate sector, and that's priced into equity and spreads

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<v Speaker 3>in high yield markets. I continue to believe that public

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<v Speaker 3>markets offer tremendous opportunity for investors, and I think if

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<v Speaker 3>you look at particularly taking into soliquidity considerations, I tend

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<v Speaker 3>to steer today towards public markets as being relatively better valued, and.

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<v Speaker 2>George, before we let you go, I have to ask

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<v Speaker 2>you about something fairly in the weeds, and that is

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<v Speaker 2>what we saw on Monday, the SEC putting on a

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<v Speaker 2>statement that it intends to grant dimensional fund advisors exemptive

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<v Speaker 2>relief to offer ETF share classes at share classes of

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<v Speaker 2>their mutual funds. I know that JP Morgan has filed

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<v Speaker 2>for similar exemptive relief, and I think for a lot

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<v Speaker 2>of people it's hard to grasp why this is important.

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<v Speaker 2>So I would love if you could put this into context,

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<v Speaker 2>the ability to offer ETF share classes of existing mutual funds.

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<v Speaker 2>I mean, what would that mean for JP Morgan and

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<v Speaker 2>the asset management industry at large.

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<v Speaker 3>I think one of the most exciting things happened in

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<v Speaker 3>the asset management industry is now world class active investment

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<v Speaker 3>capabilities available with the benefits of ETFs, transparency, liquidity and fees.

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<v Speaker 3>Now we have today one hundred and forty five ETFs

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<v Speaker 3>around the world over three hundred billion dollars in assets.

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<v Speaker 3>We're one of the leaders in active ETF capabilities. The

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<v Speaker 3>additional tool of being able to offer a share class

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<v Speaker 3>and the ability for an individual investor to tax free

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<v Speaker 3>exchange from a mutual fund and then to get the

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<v Speaker 3>benefits of an ETF traded on an exchange. Is going

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<v Speaker 3>to be just another potential transformation of the asset management

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<v Speaker 3>industry and one that we are excited to see.

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<v Speaker 1>George, great to have you.

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<v Speaker 3>Thank you very much.

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<v Speaker 1>George Gatchs, the CEO of JP Morgan Asset Management,