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Speaker 2: So we have an economic data out as well, So
Speaker 2: the Conference Board consumer confidence of falling a little bit
Speaker 2: and coming in a one hundred point four present situation
Speaker 2: coming in a little light, Expectations a little light, but
Speaker 2: we want to get perspective on this, particularly as we
Speaker 2: head into the debate later on this week. Dani Peterson
Speaker 2: as chief economist at the Conference Board, and she joins us, now,
Speaker 2: can you tell me more about this data and what
Speaker 2: you kind of noticed from this survey.
Speaker 3: Sure, consumers are still having mixed feelings. For the most part,
Speaker 3: they're optimistic about their current employment situation, and certainly that's
Speaker 3: why the present situation index continues.
Speaker 4: To be buoyant.
Speaker 3: But they're still very concerned about the future, especially with
Speaker 3: respect to business conditions and their incomes. And so when
Speaker 3: you net all that out, we're just seeing kind of
Speaker 3: treading water here with consumer confidence. It's not terribly different
Speaker 3: in terms of breaking out of the range we've seen
Speaker 3: over the last.
Speaker 5: Year and a half.
Speaker 6: But still in all, we're.
Speaker 3: Noticing that expectations are weakening and that could start really
Speaker 3: weighing on the overall index.
Speaker 7: Talk to us about that expectations again, it came in
Speaker 7: its seventy three and that's down from a revived seventy
Speaker 7: four point nine last period.
Speaker 4: Where do you want to see that number?
Speaker 7: Where does that number need to be to suggest a
Speaker 7: healthy economy?
Speaker 3: Sure, so, anything below eighty usually signals that the consumer's thinking, well,
Speaker 3: maybe a recession is on the way. While it's not
Speaker 3: our expectation, we do think that consumer spending is going
Speaker 3: to slow over the course of the summer. Probably it
Speaker 3: already started in the earlier months of this year. It's
Speaker 3: going to continue. And also we ask consumers do you
Speaker 3: think a recession's going to happen? That kicked down in
Speaker 3: terms of the percentage saying yes, But still they're very
Speaker 3: worried about what's ahead. Again, it's focused on business conditions
Speaker 3: ahead and their incomes, but they're not complaining much about employment.
Speaker 3: But even still that employment gauge is below where we'd
Speaker 3: think it should be.
Speaker 2: It's interesting you say that because I feel like Michelle
Speaker 2: Bowman versus Mary Daily over the last twenty four hours
Speaker 2: told me something. And some are worried about infletion like
Speaker 2: Michelle Bowman, and some are worried more about growth and
Speaker 2: employment aka Mary Daily. In your survey, though, it seems
Speaker 2: like it's still just prices rather than jobs.
Speaker 3: Exactly. So when it comes to prices, consumers are continuing
Speaker 3: to complain about the level. They're saying the level of
Speaker 3: food and gasoline prices are still too expensive, and prices
Speaker 3: overall are still higher than what they'd like. They're complaining
Speaker 3: less about the rate of increase in prices, which is inflation,
Speaker 3: and indeed the inflation expectations gauge continues to take downward.
Speaker 3: But it's that concern about the fact that well, eggs
Speaker 3: are eight dollars, bread is ten dollars, and that's really
Speaker 3: disconcerting consumers.
Speaker 7: All right, Dan, thank you so much for stepping in
Speaker 7: and chatting with the Stany Peterson is the chief economist
Speaker 7: at the Conference Board. On the latest consumer confidence data
Speaker 7: cap in a little bit weaker than the prior period.
Speaker 4: Will keep an eye on that.
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Speaker 2: Carnival up over six percent. Here's what I don't understand.
Speaker 2: Carnival's doing really well. They're looking at good bookings, but
Speaker 2: then we got consumer confidence or at the top of
Speaker 2: the ten saying that people are worried and they're worried
Speaker 2: about rising prices.
Speaker 6: I don't know how to square these two things.
Speaker 4: I don't know.
Speaker 7: People are still spending on experiences. It appears like coming
Speaker 7: out of pandemic. I guess we kind of thought that
Speaker 7: would be a year or two. But yeah, they're took
Speaker 7: great bookings into next year.
Speaker 2: I know it's like forget eggs, but we're going to
Speaker 2: go buy a cruise. Brian Egger is Bloomberg Intelligence Senior
Speaker 2: Gaming and Launching analysts, and he joins us. Now, Brian,
Speaker 2: can you help me make sense of the strength and
Speaker 2: the likes of Carnival Carnival versus the overall feeling that
Speaker 2: consumers continue to say that they are stressed about sure.
Speaker 5: I think what Carnival is seeing is going beyond pent
Speaker 5: up demand from the pandemic to genuine, ongoing, sustainable, disposable
Speaker 5: spending on leisure travel. So if they're seeing it across
Speaker 5: the board, I mean it really is broad base. They're
Speaker 5: singing in Europe and North America. They're seeing it for
Speaker 5: both on board spending and ticket fare gains, and they're
Speaker 5: seeing it both on new hardware and you know, kind
Speaker 5: of legacy ships as well, So it is pretty broad based.
Speaker 7: So is it the typical cruising customer? Is it new
Speaker 7: people coming into the industry?
Speaker 4: What are they seeing here?
Speaker 5: H I think it's both. There's always a focus on
Speaker 5: new cruise customers and marketing the value relative value of
Speaker 5: cruises compared to other forms of vacation. I think it's
Speaker 5: really both, And you know, different brands attract different demographics
Speaker 5: and age groups, but you know to the extent that
Speaker 5: it's broad based, and it seems to be happening not
Speaker 5: only in the first quarter but continuing to the second quarter,
Speaker 5: and as Alex mentioned next as well, you know, I
Speaker 5: think it's we're seeing it across the board.
Speaker 2: If we go into a real slump or if inflation
Speaker 2: stays sticky. Does that affect this sustainable leisure demand the
Speaker 2: Carnival and you were talking about, you.
Speaker 5: Know, it does. Certainly. Travel prices have increased, and we're
Speaker 5: seeing that dis manifested of the fact that Carnival raised
Speaker 5: its net revenue old growth outlook for twenty twenty four
Speaker 5: from nine point five percent to ten and a quarter percent,
Speaker 5: So they're partly benefiting from that price. But obviously, you know,
Speaker 5: inflation cost inflation does affect the disposition of consumers. But
Speaker 5: from now, at least, you know, the demand on the
Speaker 5: consumer discretionary side certainly seems to be there.
Speaker 7: How About on the cost side, I'm thinking fuel, I'm
Speaker 7: thinking labor. What's going on on the cost side for
Speaker 7: a lot of these crews companies.
Speaker 5: Yeah, it's a factor certainly in terms of cost positioning.
Speaker 5: They've maintained I guess i'd say kind of a stable
Speaker 5: full year unit cost growth outlook of about four and
Speaker 5: a half percent or so, excluding the increases in the fuel.
Speaker 5: There are some increases going on there, but they're also
Speaker 5: to some degree being offset where they can by operating
Speaker 5: efficiencies and you know, where they can refinancing of debt
Speaker 5: and interesting and They've also identified just operational cost savings
Speaker 5: throughout wherever possible. So it's a challenging cost environment generally
Speaker 5: for the economy, but they are I think, I think
Speaker 5: seeing pockets of opportunity to uh to manage and mitigate
Speaker 5: that cost growth.
Speaker 2: Is there a distinction between Disney Cruises and Norwegian Cruise,
Speaker 2: like the ones that take it to Iceland and the
Speaker 2: Paul would go on versus the ones that, like I
Speaker 2: would have to go on with my kid, Like, are
Speaker 2: there a distinction or is this like a broad stroke
Speaker 2: for the cruise like guys?
Speaker 5: I mean, there are so many distinction across brands to
Speaker 5: give you some sense of it, you know, like domestically
Speaker 5: or in terms of US brands, they saw yields up
Speaker 5: in the quarter seven percent, European brands up twelve percent,
Speaker 5: So it's pretty broad based with some differences in comparisons.
Speaker 5: I will say that the level of yield growth expectation,
Speaker 5: it's ten percent ish as I mentioned for Carnival, you know,
Speaker 5: it's nine and a half percent for a while, and
Speaker 5: it's a touch above seven percent for Norwegian. And while
Speaker 5: there are differences across companies in terms of comparisons, I
Speaker 5: think you can say those are roughly the same ballpark
Speaker 5: in terms of the inertia momentum for bookings.
Speaker 4: Is this an industry? Are they building new ships?
Speaker 5: There are new ships in order, you know, the level
Speaker 5: of supply growth slows down a little bit going into
Speaker 5: next year. It's kind of like a kind of a
Speaker 5: mid single digit long term supply growth rate, which historically
Speaker 5: is actually a little bit more modern than what we've
Speaker 5: seen over some past decades. So they are building new hardware,
Speaker 5: but they're also I mean, this is kind of key
Speaker 5: for Carnival. They have been repositioning some ships and rebranding
Speaker 5: a lot of the former Costa and Piano Australia ships
Speaker 5: as Carnival brands. So in addition to some new shipbuilding,
Speaker 5: there's also some rebranding and brand positioning going on.
Speaker 6: All right, Brian, we appreciate you. Thank you very much.
Speaker 2: Brian Egger Bloomberg Intelligence in your gaming and launching analysts.
Speaker 6: Paul, have you have you booked your cruise?
Speaker 4: He's been talking about it.
Speaker 7: There's potential there for the fall of twenty five. Okay,
Speaker 7: So I'm so we're just we're still in the thinking stage.
Speaker 2: Okay, So this will be like a good indication. If
Speaker 2: this is kind of like spread outward.
Speaker 4: Then Charlie's all over the I mean, he's.
Speaker 2: The guy who does the weird things and then also cruises.
Speaker 2: So there is that.
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Speaker 7: Alex Dee and Paul Sweeney were live here from the
Speaker 7: Bloomberg invest Conference in Lower Manhattan, the World Financial Center,
Speaker 7: bringing together leaders from asset management, banking, and the private markets. Say,
Speaker 7: the World Financial Center during the warm weather months is
Speaker 7: a magical part of Manhattan that I don't think a
Speaker 7: lot of people know about, right on the Hudson River.
Speaker 7: Lots of cool yachts, lots of great restaurants, open spaces
Speaker 7: for the kids to run around.
Speaker 4: Yeah, it's good stuff down here.
Speaker 7: So if you haven't been down here at this World
Speaker 7: Financial Center Battery Park area in warm weather, it's really
Speaker 7: really a cool part of the city.
Speaker 6: You Know.
Speaker 7: What I've noticed over the years is the University of Illinois
Speaker 7: cranks out a lot of math geeks. I mean, like
Speaker 7: really smart, mathy people. I didn't know that until I
Speaker 7: started seeing them all over the place. Daniel Marilla was
Speaker 7: one of them, co founder and head of quantitative Strategies
Speaker 7: at Freestone Group. Daniel, thanks so much for joining us
Speaker 7: live here at the Bloomberg invest Conference. Talk to us
Speaker 7: about your firm. This is a new firm for you,
Speaker 7: guys recently set it up. Tell us about your approach
Speaker 7: to investing.
Speaker 8: Yeah, I guess well, first of all, actually thank you
Speaker 8: for having met I do own the math geek thing.
Speaker 6: Yes, are you a math geek or did just put
Speaker 6: that on you?
Speaker 8: I am happy to own HD and I don't know
Speaker 8: what I'm happy to own it.
Speaker 9: Yeah.
Speaker 8: For Freestom Grove co founder Todd Parker and myself, we
Speaker 8: spent quite a long time et cetera. All And I
Speaker 8: guess the way you would want to think about our
Speaker 8: new firm, which we started about a year and a
Speaker 8: half ago, is we're looking to sort of evolve the
Speaker 8: integration of fundamental investing with quantitative process.
Speaker 9: Does the math geek thing right?
Speaker 8: We believe that the way in which you managed to
Speaker 8: sustain alpha delivery from the fundamental process is to pair
Speaker 8: it with the disciplined understanding of what's happening in the
Speaker 8: market is via all those quantitative tools, right, and so
Speaker 8: we've made a very signifant investment on our platform, all
Speaker 8: the math EBITs that go with it, and Rod class
Speaker 8: fundamental team to sort of look to evolve that process.
Speaker 2: Right, So what is a quant strategy and then how
Speaker 2: does that mesh with fundamentals? So that the whole point
Speaker 2: of quants was because you didn't have to worry about
Speaker 2: the fundamentals.
Speaker 8: Yeah, So I think you want to think in alpha
Speaker 8: space if you're looking to deliver alpha as opposed to
Speaker 8: just take risk, right. I think the objective of the
Speaker 8: quantity side and the fundamental side is essentially the same, right,
Speaker 8: which is you're looking for a differentiated view about the
Speaker 8: prospects of a firm. And I think the difference tends
Speaker 8: to be that in quantitative land, you're looking to get
Speaker 8: that differentiative view via taking advantage of a very high breath, right,
Speaker 8: So you look for some subtle bit of data that
Speaker 8: tells you a very little bit about many firms, right,
Speaker 8: And so you essentially create what people would use a
Speaker 8: factor where a little bit of information helps you make
Speaker 8: a small bed across I don't know, a thousand stocks, right,
Speaker 8: Russell one thousand in the US or something right, Whereas
Speaker 8: on the fundamental side you're looking for the same thing
Speaker 8: at differentiative view, But there you're much more focused on
Speaker 8: the idea that a human has the ability to come
Speaker 8: to understand a level of subtle detail about an individual
Speaker 8: firm at real debt that you couldn't get if you
Speaker 8: tried to do it as sort of automatically across all
Speaker 8: the firms, right, So you focus on maybe twenty, maybe
Speaker 8: thirty firms, and you'd spend your life literally thinking about
Speaker 8: these firms, right, And so it's a breath versus depth thing, right.
Speaker 8: We think that in a sense, you could put the
Speaker 8: both of our worlds together.
Speaker 10: Right.
Speaker 8: There many firms out there who do each of these well.
Speaker 8: We think that putting them together actually is sort of
Speaker 8: the right way of actually thinking about it. There's no
Speaker 8: reason why they can't be together other than it's hard.
Speaker 9: You need two types of expertise.
Speaker 8: You need the management, you need the systems and all
Speaker 8: these things.
Speaker 9: So it is hard to put them together.
Speaker 8: But we believe you can, and that that leads to
Speaker 8: sustainable alpha essentially.
Speaker 9: Quote from both sides.
Speaker 7: So I'm a former equity research analyst, so covering the
Speaker 7: media space. So let's say I come in one day
Speaker 7: and say, got to buy the walk this company here today,
Speaker 7: but the black box says sell it.
Speaker 4: Do what happens?
Speaker 8: Then? I think in you would like to think that
Speaker 8: in most cases, that situation doesn't arise, right, And the
Speaker 8: reason why it shouldn't arise is because.
Speaker 9: That last step that you talk about, right, which is
Speaker 9: I want.
Speaker 8: To buy the stock, should occur on the back of
Speaker 8: a traceable discipline investment process.
Speaker 10: Right.
Speaker 8: So by the time you come to me and say
Speaker 8: I want to buy the stock, presumably we would have
Speaker 8: had a conversation or in the tooling, you would have
Speaker 8: spent that whole bunch of time going to conferences, talking
Speaker 8: to firm management, you know, building a financial model and
Speaker 8: putting estimates out there such that your conclusion I want
Speaker 8: to buy the stock sort of naturally flows from all
Speaker 8: the notes that you've done, all the work that you've done.
Speaker 8: Let's say you're producing estimates for earnings, and earnings is
Speaker 8: next week. Let's say your estimates are higher than the street, right,
Speaker 8: I think the street is missing something, right, And here's
Speaker 8: all the work that backs that up.
Speaker 9: Therefore I want to buy it.
Speaker 10: Right.
Speaker 8: So in that context, the quote black box is essentially
Speaker 8: all the tooling that helps you do that, right, So
Speaker 8: all the signals, the data that informs all the modeling
Speaker 8: that you do. It could be everything from satellite data
Speaker 8: that tells you how many cars were parked in front
Speaker 8: of whatever the shops are. Essentially they work together, so
Speaker 8: by the time that decision happens, there's no sort of
Speaker 8: separation essentially, or there shouldn't be at least, right, So
Speaker 8: it's not something that we actually worry very much about
Speaker 8: because if you put them together properly in a sense,
Speaker 8: that conclusion falls out from sort of having that traceable work,
Speaker 8: if you will.
Speaker 2: So you were here, you just did a panel and
Speaker 2: the panel name was the right mix of humans and machines.
Speaker 2: So it's going to be about using AI in this model. Correct,
Speaker 2: How have you found a good balance? How are you
Speaker 2: thinking about that balance?
Speaker 8: Yeah, I guess that sounds kind of a trite thing
Speaker 8: to say, but the answer is basically depends. It depends
Speaker 8: on the thing.
Speaker 9: Right.
Speaker 8: We like to make a distinction between automation questions, right,
Speaker 8: the technology AI now, but in the passive would have
Speaker 8: been machine learning, neural networks, you know, data signs of
Speaker 8: all kinds. It's evolved into being able to take on
Speaker 8: more of this kind of unstructured data stuff on the
Speaker 8: language side, but it's an evolution of the same, right,
Speaker 8: And we find that for automation tasks, the more you
Speaker 8: can push on things that are sort of not insight generation, right,
Speaker 8: not where the idea comes from, but just automating the tasks,
Speaker 8: it's quite effective. And we generally have been sort of
Speaker 8: big believers that you want to invest in your ability
Speaker 8: to do that.
Speaker 9: On the judgment side, which.
Speaker 8: Is, will AI helped me produce better insight like actually
Speaker 8: a differentiated idea, we've been significantly more cautious on that end.
Speaker 8: And the reason for it is if you think about
Speaker 8: how AI is built out. You feeded all this augmentation
Speaker 8: and it produces essentially a probabilistic forecast or what is
Speaker 8: the next word in a sentence or people use the
Speaker 8: word token right, next sentence, next individual.
Speaker 9: Word, et cetera.
Speaker 8: It is essentially built if in our parlance you would
Speaker 8: call it it's built to produce the consensus. Right, you
Speaker 8: ask it a question and the answer to that question
Speaker 8: comes from here's all the documents about this topic, and
Speaker 8: the average answer quote, the most likely answer is this.
Speaker 6: So that's differentiated.
Speaker 9: Correct.
Speaker 8: That's a problem, and so into asset management when you're
Speaker 8: interested in a differentiative view, AI is inherently not built.
Speaker 9: For that, or at least not quote out of the box.
Speaker 8: Right, So you need to think much more carefully about
Speaker 8: how do I use it as a starting point for
Speaker 8: thinking about summarization questions, directing and attention, detecting themes, measuring sentiment,
Speaker 8: all very useful things that might lead you to have
Speaker 8: a better insight. But it's not inside generation itself, right,
Speaker 8: And so then the topic really sort of matters, right
Speaker 8: is it writing code for the engineers? Maybe not so much,
Speaker 8: but is it The ability to summary is a huge
Speaker 8: amount of data. You know you were an equity analyst, right,
Speaker 8: part of the job is you show up in the morning.
Speaker 9: There's like a million things to read.
Speaker 8: Right, There's all the cell side analyze, all the transcripts
Speaker 8: from conferences, all the news about the company.
Speaker 9: Right.
Speaker 8: Just the act of reading is a big deal. Right,
Speaker 8: So you can imagine how I might be helpful in
Speaker 8: directing attention and highlighting new emerging themes.
Speaker 9: Et cetera.
Speaker 8: You probably still want to be reading at least some
Speaker 8: of the key pieces of it, because you'd worry about
Speaker 8: where the insight comes from as opposed to where the
Speaker 8: summarization comes from.
Speaker 9: Does that sort of make sense?
Speaker 7: Yeah, real quickly, thirty seconds. How some of the early
Speaker 7: returns been for your firm?
Speaker 8: Give us we've been doing sort of about what we plan.
Speaker 8: We did you call me a math nerd. We did
Speaker 8: quite a We did quite a lot of simulation about
Speaker 8: how the thing should work when we started going, right,
Speaker 8: what sort of returns with what assumptions, and we're basically
Speaker 8: tracking to what we would.
Speaker 9: Have expected at this point.
Speaker 4: What's what's your benchmark?
Speaker 8: No benchmark? Right, we bark in neutral. We are perfectly
Speaker 8: hedged to in the S and P. Five hundred. We
Speaker 8: also take no factor risk, and so essentially the benchmark
Speaker 8: is our ability to deliver uncorrelated returns to the other
Speaker 8: benchmarks is essentially how you think?
Speaker 6: Does AI real quick for go? Does AI stress you out?
Speaker 6: In what way? Might AI stress you out?
Speaker 9: It doesn't test me out?
Speaker 8: You know, it's kind of exciting, right, The new things
Speaker 8: are always exciting.
Speaker 6: Huh.
Speaker 4: That's because he's a PhD in math, right, why they
Speaker 4: like this?
Speaker 6: The math gee's like new nerdy thing.
Speaker 4: Yes, got it.
Speaker 9: We definitely liked the cool stuffy.
Speaker 2: Thank you all right, Daniel Marillo, thank you so much.
Speaker 2: It was a pleasure to have you stopping by. Thank
Speaker 2: you very much. Co founder and head of Quantitative Strategies
Speaker 2: at Freestone Grove Partners. He coined himself a math geek,
Speaker 2: so we'll.
Speaker 6: Just go with that.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: Just say Alexa Play Bloomberg eleven thirty.
Speaker 2: From Alexi alongside Paul Sweeney, we are live from the
Speaker 2: Bloomberg and Best Conference in Lower Manhattan, bringing together leaders
Speaker 2: from asset management, banking, and private markets to ask questions
Speaker 2: about what's going on. How do you think about AI,
Speaker 2: how do you think about cash? And luckily we have
Speaker 2: one with us right now. Ed Cass's chief investment Officer
Speaker 2: at CPP Investments, that's Canada Pension Plan Investment Board. Now, Ed,
Speaker 2: thanks for joining us. I'm asking for a friend. Say
Speaker 2: you have some money in a higheld savings account or
Speaker 2: in a money market fund, and you're sitting pretty right now.
Speaker 2: You're getting paid between four and five and a half percent,
Speaker 2: and you know that's fine, and you're young and all
Speaker 2: so nice, and I may be somewhere in the middle
Speaker 2: of young.
Speaker 9: What do we do?
Speaker 6: What does one do?
Speaker 10: What does one do? If you're young, then you're The
Speaker 10: way we think about it is you have a longer
Speaker 10: investment horizon, You have a certain capacity to take risk.
Speaker 10: When I think about investing, the first thing I think
Speaker 10: about is what kind of risk should you be targeting
Speaker 10: in your in your account and your overall portfolio, and
Speaker 10: then trying to design a portfolio at that targeted level
Speaker 10: of risk that kind of maximizes returns. So if you're young,
Speaker 10: you probably have a pretty high risk tolerance.
Speaker 6: So we're defining younge. I've defined it because I have
Speaker 6: no risk tolerance.
Speaker 2: But does cash play a valid part in how you
Speaker 2: guys think about stuff right now?
Speaker 6: In allocation?
Speaker 10: Not for us, because we think we think we're really
Speaker 10: really young. So if you think about an institutional investor,
Speaker 10: you try and transpose that in the years where we
Speaker 10: think like we're a teenager with a whole bunch of savings,
Speaker 10: which kind of an oxymoron, but that's where we start.
Speaker 10: And the way we think about risk, way we communicate
Speaker 10: risk is we put it in what we call equity
Speaker 10: debt risk equivalents, because that's kind of an easy way
Speaker 10: to explain or communicate risk tolerance to someone. So we
Speaker 10: target a portfolio that has the risk equivalence of eighty
Speaker 10: five percent equities fifteen percent debt. So if I'm explaining
Speaker 10: the that to my mother, she knows, hey, typical person's
Speaker 10: probably fifty to fifty. You're a little bit aggressive, you're
Speaker 10: sixty five thirty five. We're all the way up at
Speaker 10: eighty five fifteen. And then we try and maximize our
Speaker 10: return at that level. And that's where you start thinking about, hey,
Speaker 10: what are the relative returns of stocks and bonds and
Speaker 10: cash right now? And how do you construct a portfolio that,
Speaker 10: as I said, at that targeted level of risk, maximizes returns.
Speaker 7: How about alternatives, how do they fit into your portfolios?
Speaker 7: When I think about some of these endowments, how aggressive
Speaker 7: they've become in alternatives, I aus the Yale model for
Speaker 7: lack of a better term, How do you guys think
Speaker 7: about alternatives.
Speaker 10: Well, there's a pretty big difference I think between the
Speaker 10: objective function that some people have and the one that
Speaker 10: we have. So I said, we're risk targeters, so we
Speaker 10: kind of set that level of risk, and then we
Speaker 10: try and maximize returns. A lot of people are return
Speaker 10: targeters and they're trying to maximize returns, so they don't
Speaker 10: mind increasing the risk profile of their portfolio to achieve
Speaker 10: those higher returns. For us, if we're targeting risk, then
Speaker 10: we have to say, do alternatives to private assets provide
Speaker 10: some measure of diversification and a portfolio context that is
Speaker 10: different than what we get in the public markets, And
Speaker 10: we don't think so. So we think at a very
Speaker 10: high level, if you invest in private equity that's like
Speaker 10: levered public equity, it's not really different in terms of
Speaker 10: the drivers of returns, So you don't get any diversification
Speaker 10: benefit per se. A bit of a generalization, but it's true.
Speaker 10: So then you're really into returns. And from a return
Speaker 10: perspective is can you pick up alpha by investing in
Speaker 10: private assets? And I think there's a lot of reasons
Speaker 10: why you can't, especially if you have some comparative advantages,
Speaker 10: whether you can do some direct investing yourself to lower
Speaker 10: the feedburden, or whether you can negotiate particularly good terms
Speaker 10: for going in a fund you can generate additional alpha,
Speaker 10: and that kind of that, more than anything, really drives
Speaker 10: a demand for private assets for us.
Speaker 6: That's interesting.
Speaker 2: What do you make of things like crypto and like
Speaker 2: bitcoin where you can get.
Speaker 6: That don't understand in the public market, I.
Speaker 2: Mean, like, but you can invest in, say a micro
Speaker 2: strategy that's basically going to just invest in crypto, I
Speaker 2: mean in the public market, Like, is that anything interesting there?
Speaker 10: I think there's Let me start with your think. So
Speaker 10: crypto has an asset class, I don't understand what the
Speaker 10: drivers are in particular, so I don't understand what, in
Speaker 10: our parlance would say, what is it loaded on? Is
Speaker 10: it loaded on growth, is it loaded on inflation? Is
Speaker 10: it loaded on something else? Or is it just an
Speaker 10: instrument that kind of goes up and down with market sentiment?
Speaker 10: And I think the jury's still out there. I certainly
Speaker 10: don't have enough conviction as to the drivers of bit
Speaker 10: coin or some kind of crypto asset to build them
Speaker 10: into a portfolio design. I do think there's spaces within
Speaker 10: crypto where people can kind of get in the nooks
Speaker 10: and crannies and generate additional alpha. So can you give
Speaker 10: money or capital as someone that can take advantage of
Speaker 10: those and generate alpha and can use that in some
Speaker 10: kind of portfolio construct. Maybe, But so far we haven't
Speaker 10: gone into any of those assets or any of those
Speaker 10: funds that kind of try to take advantage of that feature.
Speaker 4: So where do you guys see opportunities now?
Speaker 10: Lots of different opportunities in a lot of different spaces.
Speaker 10: I'd say the one that a lot of people are
Speaker 10: most excited about right now is private credit markets. Certainly,
Speaker 10: private credit is something that we've been involved with for
Speaker 10: a very long period of time. I think you're we're
Speaker 10: close to fifteen or twenty years in terms of it.
Speaker 7: Really, we just started hearing about it in the news,
Speaker 7: I guess in the last three or four years.
Speaker 4: It seems like.
Speaker 10: It's become a huge thing in the last three or
Speaker 10: four years because a lot of the traditional GPS general
Speaker 10: partners that were involved in private equity have kind of
Speaker 10: branched out and private data as an alternative asset class
Speaker 10: or an alternative way to gather aum. So that's really
Speaker 10: the big impetus, And of course you've got some big
Speaker 10: macro drivers behind it in terms of regulation and bank
Speaker 10: balance sheets and trying to to feeze risk through putting
Speaker 10: money into private hands as opposed to bank hands that
Speaker 10: have been supportive of the asset class. But we identified
Speaker 10: it as something that could be interesting, as I said
Speaker 10: a long time ago, and started kind of building out
Speaker 10: the internal capabilities to invest in it. So we're kind
Speaker 10: of lucky. I think we're we're in at the start,
Speaker 10: so we've got developed capabilities, and the rest of the
Speaker 10: market seems to be catching.
Speaker 4: On right now.
Speaker 2: So if we just took a step back and look
Speaker 2: at maybe some of the risks, how much of what
Speaker 2: how much of the risk that you want to take
Speaker 2: is dependent or not on like geopolitics, on fiscal policy,
Speaker 2: on things you have a zero control over that definitely
Speaker 2: can affect how asset prices move.
Speaker 10: A super interesting question obviously these days. Again, if we're
Speaker 10: an eighteen year old investing money over a seventy five
Speaker 10: year time horizon, and we have a reasonable amount of money,
Speaker 10: which is I think the situation we're in right now,
Speaker 10: if we project out the size of our fund. Another
Speaker 10: ten years, we're up to a trillion dollars. I don't
Speaker 10: think at that level you can be as flexible or
Speaker 10: as reactive to say, what's going into the market, I'm
Speaker 10: going to change my asset mix, and I'm going to
Speaker 10: respond to it dynamically and take advantage of all these shifts.
Speaker 10: That's not the way we think about it. We think more,
Speaker 10: how can we build something that, irrespective of what happens
Speaker 10: in the market, irrespective of what geopolitical risks emerge, that
Speaker 10: we can survive that outcome and continue to invest over
Speaker 10: a seventy five year time horizon. So for us, you know,
Speaker 10: a lot of people use the analogy to like a supertanker,
Speaker 10: and how tough it is to turn a supertanker. I
Speaker 10: think the analogy that we're kind of landing on more
Speaker 10: internally these days is where, like an icebreaker, you got
Speaker 10: to be able to drive through a whole bunch of
Speaker 10: geopolitical risks. You have to be able to drive through
Speaker 10: a whole bunch of regulatory risks and be able to
Speaker 10: merge out the outside of the other side and still
Speaker 10: be in a position to invest money and take advantage
Speaker 10: of those longer term opportunities.
Speaker 6: Hey, and we really appreciate it.
Speaker 2: Those really interesting a cast Chief Investment Officer CPP investments.
Speaker 2: It's just always those black swans, right, Like what happens
Speaker 2: if there's another war somewhere, like no one expected, what
Speaker 2: would happen with Ukraine and Russia?
Speaker 6: Like no one expected what's happening in Gaza.
Speaker 2: So it's like, how do you deal with those situations,
Speaker 2: particularly as we head towards a presidential election. I definitely
Speaker 2: do not end being a Chief Investment officer.
Speaker 7: No, No, it's not all of that or to set
Speaker 7: allocator one of those folks. Yeah, so they get you,
Speaker 7: but you know, you have to deal with these things
Speaker 7: and you've got to try to price into some level
Speaker 7: of risk, and that's what those smart people do.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: Say Alexa playing Bloomberg eleven.
Speaker 6: Paul Sweeney, Alex Deal.
Speaker 2: We are here at Bloomberg invest broadcasting to you live
Speaker 2: in Lorier, Manhattan, we're bringing together leaders from asset management,
Speaker 2: banking and private markets for over the next two days.
Speaker 2: Joining us on set is Kristin Roth de Clark. She
Speaker 2: is Global head of Technology Investment Banking over at Barclays.
Speaker 2: Kristin what is Global head of Technology Investment Banking.
Speaker 11: Yeah, So within Barclays, I run the team that helps
Speaker 11: advise companies board members in terms of on the technology
Speaker 11: side with things like fundraising in the capital markets IPOs,
Speaker 11: debt capital markets, leverage finance or on M and a advisory.
Speaker 4: How does private credit?
Speaker 7: We talk a lot about private credit, private capital, I
Speaker 7: know in your business and technology Sandhill road is we're
Speaker 7: all the equity money talks about private equity and private
Speaker 7: credit and technology these days.
Speaker 6: Yeah.
Speaker 11: So on the then equity side, and if you look
Speaker 11: at the growth stage investing that's happening, you know, kind
Speaker 11: of late stage growth is where a lot of funds
Speaker 11: are focused kind of the pre IPO rounds. The earlier
Speaker 11: stage stuff is more some of the AI companies that
Speaker 11: are coming out. There's like the venture investing that's happening there,
Speaker 11: but it's a little bit more of a portfolio approach
Speaker 11: because it's too early to kind of tell who the
Speaker 11: winners are going to be. As you get to the
Speaker 11: growth stage investing, there's more focus on where the likely
Speaker 11: exits could happen. I think there's been a meaningful shift
Speaker 11: in focus on unit economics companies that have a path
Speaker 11: of profitability or are profitable, because those are the companies
Speaker 11: that have the most likely exit into the IPO market
Speaker 11: or joining a strategic For example, how.
Speaker 2: Is technological innovation going in a world where rates are higher?
Speaker 6: Right?
Speaker 2: Policy in the US is questionable of where it's going
Speaker 2: to be in November. Where I'm thinking of energy right,
Speaker 2: Like a lot of the cool new stuff are coming
Speaker 2: out of these startups that you need in order to
Speaker 2: sort of the energy transition, but that's not as popular
Speaker 2: with certain folks in DC.
Speaker 6: Where is the cool stuff happening?
Speaker 11: I would say a lot of it still is in software.
Speaker 11: The biggest area probably that's had the most investment dollars
Speaker 11: recently and more that's on the public side is on
Speaker 11: the chips in the because it's sort of an easy
Speaker 11: way for investors to get behind the boom in AI
Speaker 11: without picking which software winners are going you know which
Speaker 11: software companies are going to be the winners. The other
Speaker 11: area within tech that we're seeing a lot of investment
Speaker 11: is on payments fintech type businesses that that continues to
Speaker 11: be very popular.
Speaker 7: Where is the IPO market these days for technology companies.
Speaker 4: Yeah, so I'd like to see more.
Speaker 7: Quite frankly, I would tear back on my compital markets days.
Speaker 7: I can get a lot more deals done. I don't
Speaker 7: know what you guys are doing.
Speaker 4: So what's happening out there?
Speaker 11: Well, A couple of things happened over the last couple
Speaker 11: of years. There have been there been two things. One
Speaker 11: a meaningful valuation reset where we had you know, companies
Speaker 11: coming public at two x, three x the you know,
Speaker 11: historical norms for on a multiple basis.
Speaker 6: There's that resets happened.
Speaker 11: The other thing is there's been a much more meaningful
Speaker 11: focus on profitability, and so a lot of the private
Speaker 11: companies that were poised to hit the public market, say
Speaker 11: in twenty twenty three, twenty twenty four, have now had
Speaker 11: to come back and figure out, you know, how to
Speaker 11: accelerate their path. The profitability also get to bigger scale.
Speaker 11: I mean, one of the issues that we've seen from
Speaker 11: the class of twenty twenty and twenty twenty one IPOs.
Speaker 11: The ones that have massively underperformed have been the smaller scale,
Speaker 11: less liquid names, and so there's a focus on scale,
Speaker 11: profitability and growth and finding that balance. And then we're
Speaker 11: also at this very moment in a bit of a
Speaker 11: pocket of uncertainty leading into the election, leading into a
Speaker 11: seeing where where and when rates start coming down. So
Speaker 11: for that reason, we just haven't We've seen a handful
Speaker 11: of tech IPOs, but not a significant number.
Speaker 2: We clearly see a ton of public money going into
Speaker 2: like Nvidia and Peers and derivative plays. Right, is it
Speaker 2: the same kind in private capital like you were mentioning,
Speaker 2: it's still in software and the chips, right, Like that's
Speaker 2: where the money is flowing. Is it the same kind
Speaker 2: of ferocity when it comes to money blowing.
Speaker 11: In les less in companies that haven't reached a significant scale.
Speaker 11: And part of that is because the obvious exit is
Speaker 11: an IPO or a sale, And we haven't seen a
Speaker 11: lot of strategic buying yet of late earlier stage AI
Speaker 11: type businesses, some aqua hiers like just buying you know, entrepreneurs, engineers,
Speaker 11: but not necessarily the kind of larger M and A.
Speaker 11: And so once you start feeling confident. Once investors can
Speaker 11: feel confident in the private world that they have a
Speaker 11: path to exit, whether it be IPO or sale, then
Speaker 11: you get more courage to invest in the growth stage companies.
Speaker 7: How frustrated are your private equity and your venture capital
Speaker 7: clients in the in the fact that the IPI market
Speaker 7: is not robust and maybe exits are not as fundamental,
Speaker 7: So they're holding onto these things much longer than they
Speaker 7: would typically like.
Speaker 4: What are those conversations.
Speaker 6: Yeah, look, there's a huge pent up.
Speaker 11: You know, number of companies that have stayed within venture
Speaker 11: or private equity for much longer than they'd anticipated. I
Speaker 11: think there's a difference though that the venture backed businesses,
Speaker 11: some of them haven't been able to figure out the
Speaker 11: path to profitability and actually get to a place where
Speaker 11: they could easily go public. So it's more about finding
Speaker 11: a strategic home on the private equity side. A lot
Speaker 11: of these companies that were LBOs or have gone typically
Speaker 11: sponsor to sponsor sales have now gotten so big inside
Speaker 11: private equity that.
Speaker 6: Really there are two options.
Speaker 11: It's either sell to a very large strategic or or
Speaker 11: take the company's public And most of them have financial
Speaker 11: profiles that it would actually look good in the public
Speaker 11: market because they're profitable and have you know, maybe modest growth.
Speaker 6: So if we get.
Speaker 2: Clear, once we get clearity on the US election and
Speaker 2: we get clarity on FED rate cuts, what does that
Speaker 2: IPO market look like?
Speaker 6: Is it like a flood like? How how do you
Speaker 6: think about that?
Speaker 11: I think that there are I think we'll have a
Speaker 11: lot more companies that are willing to move forward with
Speaker 11: an IPO once we have that behind us, because there's
Speaker 11: not there aren't a lot of other alternatives at that point.
Speaker 11: It's like either you sell to a strategic or you
Speaker 11: take the company public and they've gotten to scale where
Speaker 11: actually the visibility of being public companies helpful sometimes with
Speaker 11: their customers, it's help helpful with employees. It helps provide
Speaker 11: you know, liquidity for companies that have been private for eight.
Speaker 6: Ten millars floodpo, I hope.
Speaker 7: So, you know, are we going to have an AI
Speaker 7: IPO aha moment? Like Google was for search, Facebook was
Speaker 7: for social? Are there AI specific companies that are going
Speaker 7: to come out and boom that's going to be the
Speaker 7: IPO event of the year.
Speaker 11: Well, the ones that have so far have been related
Speaker 11: chips related. Right in the last two years. I would
Speaker 11: say that there will be at some point, but it's
Speaker 11: just too early to tell who those winners are going
Speaker 11: to be.
Speaker 2: You talk about people in your world talk about digital infrastructure,
Speaker 2: like what is that? What is a digital infrastructure and
Speaker 2: how does that change and progress?
Speaker 11: Yeah, so there's a massive transformation happening within a number
Speaker 11: of industries not that's being enabled by tech, and that's
Speaker 11: the transition from things like on premise to cloud based
Speaker 11: technologies and just changing the way that we've done things
Speaker 11: that you know is from historically to moving things from
Speaker 11: more to tech enabled. That's true in like healthcare sector, insurance,
Speaker 11: financial sectors, you know, banks for example.
Speaker 7: So for you guys at Barclays in your franchise these days,
Speaker 7: where's the most activity here?
Speaker 4: Where do they where? What do you guys really focus
Speaker 4: on here?
Speaker 11: I think back to the question around private equity pressure.
Speaker 11: I think there's a lot of sponsor backed assets that
Speaker 11: are either you know, the private equity firms are under
Speaker 11: pressure to return capital to LP and so there will
Speaker 11: be more sales. I think there will be minority stake
Speaker 11: sales as well to get you know, some liquidity back,
Speaker 11: but also to provide a mark and then I think
Speaker 11: after that comes the kind of more large scale, large cat,
Speaker 11: larger cap larger scaled businesses that have profitability and so growth.
Speaker 2: Paul's really into the msment banking part, and I'm into
Speaker 2: the tech part. Like he wants to be like, Okay,
Speaker 2: when did things open? What are your what are sponsors
Speaker 2: talking about? And I'm like, what's the disruptive cool technology?
Speaker 2: How does digital infrastructure wind up changing? Like what what's
Speaker 2: the cool thing that we totally don't know about? Oh god,
Speaker 2: we mean Paul, yeah a lot?
Speaker 11: So yeah, well, right now, I think the focus for
Speaker 11: most companies is how do we use AI to generate efficiency?
Speaker 11: That's the first part, right, and that's an easy sale.
Speaker 2: That's like how do I like go through my email
Speaker 2: more efficiently that yeah thing?
Speaker 11: Yeah well, or how do yeah, and how do you
Speaker 11: cut costs with call centers or fraud protection or things
Speaker 11: like this that you're maybe doing in a way that
Speaker 11: has it requires more people or you know, including together
Speaker 11: different technologies. Here's a way we can There are solutions
Speaker 11: now that can make that easier, and that's going to
Speaker 11: create profitability, you know, more profitability, and so that's the
Speaker 11: first step. I think the next question is which AI
Speaker 11: solutions are going to enhance innovation, And that's really where
Speaker 11: it starts to get interesting, and that's that's probably where
Speaker 11: you see the biggest threat to the large cap tech
Speaker 11: companies is the new incumbents or the new entrants that
Speaker 11: have some sort of they can scale much quicker because
Speaker 11: of the technology that they have around innovation fintech.
Speaker 4: Where are we in that evolution?
Speaker 7: I think during a pandemic, everybody I do a lot
Speaker 7: more of my financial services just on the phone, which.
Speaker 2: Which which was a big moment for Post. So let's
Speaker 2: be very clear on that point. He's gray cash.
Speaker 4: But still exactly where are we on that kind of
Speaker 4: that pendulum? Where do you see that? Look?
Speaker 11: I think there was a period where I mean I
Speaker 11: I remember spending time in Asia and they you know,
Speaker 11: I was in Hangzhou where you could not use a
Speaker 11: credit card. It went straight to mobile, right, it went
Speaker 11: from cash to mobile. Here we've gone, you know, we
Speaker 11: had credit cards. We're now very much in the mobile world.
Speaker 11: The next thing, I think is going to be biometrics,
Speaker 11: and that's a trend that's already happening in Asia that
Speaker 11: I think will make its way the rest of the
Speaker 11: world over time.
Speaker 6: Great dumb question. What does that mean?
Speaker 11: Like so being able to pay with your eyeballs for example,
Speaker 11: or some sort of you know, bigger prints.
Speaker 7: So when Europeans come over here, they're like so amazed
Speaker 7: that when you restaur on your hand your card to
Speaker 7: the way to walk the West End. Yeah, come back
Speaker 7: here because you know the rest of the world. They
Speaker 7: just the carries around a little thing that you.
Speaker 6: Or even like the tapping thing, like I mean.
Speaker 4: We were two three years behind the tapping.
Speaker 2: I mean even that, I don't think my credit card
Speaker 2: does the tapping thing, Like I have to do my
Speaker 2: phone do the tapping thing, but the credit card doesn't
Speaker 2: do the tap.
Speaker 4: Credit card taps it does.
Speaker 6: Are you sure? Okay?
Speaker 4: We got there?
Speaker 2: My credit card tap. The questions he is, the pressing
Speaker 2: questions we have. She's like, I don't know, all right, Christen,
Speaker 2: thanks a lot. We appreciate thanks for stopping by Anton Clark.
Speaker 2: She is a Global head of Technology Investment Banking over
Speaker 2: at Barclay. Is talking about all the innovations that are
Speaker 2: upcoming and then what do you do if you're a
Speaker 2: company and you have cash flow and you can IPO
Speaker 2: and sort of the like treading water until you can
Speaker 2: in the market's really open up, and.
Speaker 7: The companies are so much better now than like people
Speaker 7: make that. Are we close to the nineteen ninety nine
Speaker 7: and haven't been in that marketplace? Answers definitely know because
Speaker 7: these companies are bigger, profitable, they have free cash flow.
Speaker 7: The companies I were taking public, it was a thought
Speaker 7: out there in the world. It was like pets and
Speaker 7: we put a thirty yeah, and we put a thirty
Speaker 7: multiple on it, and we're done. That's all we needed.
Speaker 7: It's much harder for these people. They actually have to
Speaker 7: have real businesses and real companies.
Speaker 6: It's a good thing.
Speaker 4: It's a good thing.
Speaker 6: Ye, it's a good thing.
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