Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in
Speaker 1: Business with Barry Ritholts on Bloomberg Radio this.
Speaker 2: Week on the podcast What a Fascinating Guest, Mike Freno
Speaker 2: is chairman and CEO of Barings. They run over four
Speaker 2: hundred and thirty one billion dollars in global assets. Fascinating combination.
Speaker 2: Not really related to the Barings Bank of old. You know,
Speaker 2: if I think of Barings Bank, you think of the
Speaker 2: bank that blew up when you had an unauthorized trader
Speaker 2: acting out as well as the first bank in China
Speaker 2: and Japan and financed the Louisiana purchase. That is not
Speaker 2: this entity. Irong purchased them out of bankruptcy. I think
Speaker 2: it was for like a dollar or a euro, and
Speaker 2: some years later sold them to Mass Mutual and then
Speaker 2: Mass Mutual combined Bearings Investing with a number of other
Speaker 2: shops including BABS in a very well regarded investing firm.
Speaker 2: The shop manages about well over four hundred and thirty
Speaker 2: billion dollars. About half of that comes from Mass Mutual,
Speaker 2: the other half comes from institutional investors. What they do
Speaker 2: is really fascinating. They have been working in various credit
Speaker 2: and other private areas for decades. I know there's been
Speaker 2: a big rush into private credit and private debt over
Speaker 2: the past few years. Bearings has been doing this and
Speaker 2: Mass Mutual has been doing this for decades and decades.
Speaker 2: They run a ton of money in order to manage
Speaker 2: their future liabilities as an insurer, and it's pretty much
Speaker 2: non equities. I think they have about ten billion dollars
Speaker 2: out of the four hundred and change billion that's in
Speaker 2: public equities. Most of what they do are real assets,
Speaker 2: credit debt, middle market banking. They're looking for a fairly
Speaker 2: reasonable stream of future income, less volatility in the potential
Speaker 2: to meet those as an insurer, those future liabilities down
Speaker 2: the road. Really not just a fascinating area. But Mike
Speaker 2: Frino is so knowledgeable. He worked as a trader, he
Speaker 2: worked as essentially a high yield portfolio manager before going
Speaker 2: to the president and then CEO of the company, so
Speaker 2: he's has seen the world of private investing from both sides,
Speaker 2: both as an investor and as part of the management team.
Speaker 2: Super knowledgeable, super informative. I found this conversation to be
Speaker 2: absolutely fascinating, and I think you will also, with no
Speaker 2: further ado, My discussion with my like Freno, chairman and
Speaker 2: CEO of Barings.
Speaker 3: Now, thank you, thanks for having me.
Speaker 2: Great to see you, great, great to have you here.
Speaker 2: Let's talk a little bit about your background and what
Speaker 2: led you to this career. A BA from Freman University
Speaker 2: an MBA from wake Forest Business School. Was finance always
Speaker 2: the career plan.
Speaker 4: Well originally started out in accounting. So I was an
Speaker 4: accounting major coming out of out of Furman and worked
Speaker 4: with the legacy firm for the date myself a little
Speaker 4: bit Coopers and Libray, oh briefly before it was merged
Speaker 4: into Price Waterhouse Coopers, and so I spent a couple
Speaker 4: of years on the audit side and then actually transferred
Speaker 4: over to the tax side. So my first four working
Speaker 4: years were spent in public accounting, and so that was
Speaker 4: that was really the intention at the time was I
Speaker 4: was interested in accounting. I loved many people won't won't
Speaker 4: appreciate this, but love the way financial statements work.
Speaker 3: I like to see how.
Speaker 4: How businesses make money and and so I always envisioned
Speaker 4: myself doing that.
Speaker 3: But it did have a good.
Speaker 4: Fortunate opportunity to go really work at a startup hedge fund.
Speaker 3: It was Eminem Partners.
Speaker 4: At the time, it was relatively small. We were just
Speaker 4: over one hundred million. When I went to work there,
Speaker 4: went as a controller so to kind of help out
Speaker 4: on the accounting side of things, the fun side of things.
Speaker 4: And then as companies grow and you're only five people,
Speaker 4: you tend to start to wear a lot of hats.
Speaker 4: And as a result of that, had the opportunity to
Speaker 4: start trading, had to start the opportunity to start doing
Speaker 4: some analysis. We had multi strategies that we ran. We
Speaker 4: ran a merger ARB strategy, also distressed debt, which is
Speaker 4: really where I probably gravitated to the most, just because
Speaker 4: of the fundamental analysis that's associated with debt investing.
Speaker 2: All Right, so you start out as an accountant at
Speaker 2: Price Waterhouse Coopers, you're a controller at Eminem Partner's hedge funds.
Speaker 2: How do you go from there to BABS in a
Speaker 2: fairly large investment shop.
Speaker 4: Yeah, So it was again often these things, you have
Speaker 4: to be in the right spot at the right time,
Speaker 4: and fortune was there for me, and so again I
Speaker 4: was gravitating more towards I did some trading, so I
Speaker 4: was working on the trading desk, but really gravitated toward
Speaker 4: our distressed and event driven strategy, which was largely around
Speaker 4: at that point in time. It was the early two thousands.
Speaker 4: You had a number of bankruptcies going on. We were
Speaker 4: analyzing all sorts of things, and I really enjoyed the
Speaker 4: analysis around that, and then had the opportunity to speak
Speaker 4: to the folks at Babson, which was one of the
Speaker 4: predecessor firms to Bearings, and they were really down there
Speaker 4: running a leverage loan in a high yield business again,
Speaker 4: which was fit really nicely with what I was doing.
Speaker 4: They were moving into more event driven strategies as well,
Speaker 4: and had the opportunity to go over there and start
Speaker 4: working with them. At the time, Babson had about twenty
Speaker 4: some odd people in Charlotte. We can talk more about
Speaker 4: this later, but we're up to over seven hundred now,
Speaker 4: so there's been a tremendous amount of growth there. But
Speaker 4: really in two thousand and five I made that shift
Speaker 4: to Babson and really still doing what I was doing,
Speaker 4: focused on fundamental fixed income analysis.
Speaker 2: It's kind of fascinating because you almost defensively said how
Speaker 2: much you enjoy accounting, but if you're a good accountant,
Speaker 2: you look at a balance sheet. You can imagine what's
Speaker 2: going on in the company, where their growth areas are,
Speaker 2: where their problem areas are, where they're spending too much money.
Speaker 2: I would imagine that would lend itself very well to
Speaker 2: distressed asset investing and leveraged asset investing.
Speaker 3: Tell us a little bit, Yeah, I think it has.
Speaker 4: And I do I say this to folks and folks
Speaker 4: and other industries when you talk about the excitement of
Speaker 4: analyzing the financial statements and going through but it.
Speaker 3: Does tell a story.
Speaker 4: I mean, if you know how how income statements and
Speaker 4: cash flow statements and translate into balance sheets, it will
Speaker 4: tell a story of how companies are doing.
Speaker 3: And if you have.
Speaker 4: The intellectual curiosity to dig deeper into it, you can
Speaker 4: really get a full picture of who's got a sustainable business,
Speaker 4: who who possibly doesn't. And so you couple the fundamental
Speaker 4: analysis that with some general understanding of a business, and
Speaker 4: I think it's an exciting combination and one that I
Speaker 4: really had passionate rout.
Speaker 3: And enjoyed doing so.
Speaker 4: Again, was very fortunate to find myself in many roles
Speaker 4: which allowed me to do that.
Speaker 2: And you mentioned Charlotte, my friend has an office in Charlotte.
Speaker 2: I seem to visit Charlotte like every few years, and
Speaker 2: every time I show up, it's like, oh my god,
Speaker 2: this place is double the size it was eighteen months ago.
Speaker 2: The growth in Charlotte is really quite amazing, and it's
Speaker 2: become this giant finance hub. Tell us a little bit
Speaker 2: about it, and you've been there your whole career, right,
Speaker 2: I've been there largely.
Speaker 3: I started out in South Carolina.
Speaker 4: I went to school Firman was in Greenville, South Carolina,
Speaker 4: so really started my work there. But then ultimately the
Speaker 4: majority of my time since nineteen ninety nine has been
Speaker 4: spent in Charlotte. And to your point, it continues to
Speaker 4: grow at a rapid pace. It is a financial services hub.
Speaker 4: It's certainly not New York City, but it's definitely the
Speaker 4: top two or three in terms of large financial services.
Speaker 4: We had the benefit of having Bank of America be
Speaker 4: located there. Wacovia in First Union, the predecessors to now
Speaker 4: Wells Fargo, had a headquarters thereep they do continue to
Speaker 4: keep a large presence there. But what's interesting about is
Speaker 4: when we first started, you know, going around and marketing
Speaker 4: to the world and our institutional clients we would often
Speaker 4: get questions, how do.
Speaker 3: You retain talent?
Speaker 4: How do you attract talent in Charlotte, And the response
Speaker 4: was just come see.
Speaker 2: Oh my god, it's first of all, it's beautiful. Second
Speaker 2: of all, everything is very reasonably priced, and you have
Speaker 2: great barbecue and the NASCAR Museum and headquarters. Really, there
Speaker 2: are worse places in the world. And the weather is
Speaker 2: like temperate and reasonable.
Speaker 3: And you sound like you're working for the Chamber of Commerce.
Speaker 2: Well, we have in office there, and every time I
Speaker 2: go down there, it's very funky and hip. It feels
Speaker 2: like a southern version of Brooklyn. And so I don't
Speaker 2: see attracting and retaining talent as very difficult.
Speaker 4: And it's it's become an asset for us to be
Speaker 4: located there for sure, and we've the talents there. And
Speaker 4: so you've seen a number of smaller financial services firms
Speaker 4: start up around there because and financial services firms like
Speaker 4: yourself moved down there because that's where talent is and
Speaker 4: that's where people want to live. So it's been it's
Speaker 4: been great. It's been nice to see the growth and
Speaker 4: there's a real commitment to the city there. So I
Speaker 4: think we've got a few more years of growth for sure.
Speaker 2: Yeah, no, to say the very least, there's a bright
Speaker 2: future there. So I want to talk a little bit
Speaker 2: about leadership, especially leadership at a large investment firm. First,
Speaker 2: what was the transition like going from being on a
Speaker 2: training desk and managing portfolios to running the complete organization
Speaker 2: of CEO.
Speaker 4: Yeah, it's it was. I stepped in in November of
Speaker 4: twenty twenty. So it's because a lot of things were
Speaker 4: going on during that period of time, and so there
Speaker 4: was a there was it was. It's a change, but
Speaker 4: I was fortunate, as I said before, I came from
Speaker 4: a counting background. I was also at the Hedge Fund.
Speaker 4: I was involved in the operations early day of getting
Speaker 4: things up, understanding how settlements work, things.
Speaker 3: Of that nature. That is in the they called the.
Speaker 4: Back office today but is increasingly important and complex candidly
Speaker 4: when you move into different types of asset classes. So
Speaker 4: I had some familiarity with that. I did have a
Speaker 4: stepping stone from when I was managing portfolios to before
Speaker 4: I took over the CEO. I briefly for about eight
Speaker 4: months set in the president's role, which gave me also
Speaker 4: oversight over investments. I had the investments of sales, technology
Speaker 4: and operations, and while a brief period, it gave me
Speaker 4: an appreciation for things I didn't know well, and I
Speaker 4: think actually provided me a pretty good roadmap for starting
Speaker 4: to rely on other people because you're not going to
Speaker 4: know everything about everything. I was investments, that's in my background,
Speaker 4: but running a company requires a lot of other people
Speaker 4: to do a lot of other things, and making sure
Speaker 4: that you are comfortable and will say, in this way,
Speaker 4: letting the plumbers fix the sink. So I wasn't an
Speaker 4: expert in technology, I wasn't an expert in operations, so
Speaker 4: I had to rely on and make sure I had
Speaker 4: people there I trusted to make the decisions. And I
Speaker 4: think that was one of the things I learned early
Speaker 4: on was I should probably make few decisions as the
Speaker 4: leader of the company and then trust my people to
Speaker 4: make a lot of them. But make sure you've got
Speaker 4: the right people there to do it. And then the
Speaker 4: transition is it's different managing money and managing people is
Speaker 4: dramatically different. And this is the people business. Our asset
Speaker 4: is our people. It's an incredibly valuable asset. And then
Speaker 4: running something that's global creates a whole.
Speaker 3: Other set of challenges.
Speaker 4: We're in over twenty countries, and when people talk about culture,
Speaker 4: we have different cultures camudly in different regions because there's
Speaker 4: different behaviors and things that are done there.
Speaker 3: But I will say.
Speaker 4: What we do when we describe it as we have
Speaker 4: a set of philosophies, a set of principles, and a
Speaker 4: sort of values that are consistent. In understanding that and
Speaker 4: recognizing what works in Charlotte, North Carolina may not work
Speaker 4: necessarily in Soul Korea was actually a pretty big learning
Speaker 4: curve for me.
Speaker 2: Yeah, I could imagine. So you're it's interesting your your
Speaker 2: background is at M and M started out with five
Speaker 2: people at Price Waterhouse Coopers, or even back in the
Speaker 2: day when.
Speaker 3: It was just Library and Coopers and Lybranary.
Speaker 2: Coopers and Library. They're giant, there are thousands and thousands
Speaker 2: of people. What did the experience at both a small
Speaker 2: firm and a giant firm? How did that shape your
Speaker 2: leadership at Barons?
Speaker 3: Yeah?
Speaker 4: I think working at a small firm you begin to
Speaker 4: appreciate how how effective quick decision making can be. But
Speaker 4: understanding working at a large corporation that you need to
Speaker 4: have controls, you need to have some element of controls
Speaker 4: and process that goes along, and so balancing those two
Speaker 4: out and creating an environment where you're empowering people to
Speaker 4: make relatively quick decisions in failing fast as well, make
Speaker 4: decisions to invest, makes decisions to go grow businesses, to
Speaker 4: acquire businesses, and if things don't work, let's be let's
Speaker 4: be intellecttion a honest about it and move quickly. So
Speaker 4: I think the balance of those two in marrying those
Speaker 4: two together. And while we're a large company, we're around
Speaker 4: two hundred two thousand people again in over twenty twenty countries,
Speaker 4: it's big enough where it requires certain process. You can't
Speaker 4: have the decision makers all sitting in a room every
Speaker 4: single day just making them. It does require some ability
Speaker 4: to decentralize the decision making process. And as I said earlier,
Speaker 4: you know, as you move further and further up an organization,
Speaker 4: you probably should be making less less decisions and you're
Speaker 4: empowering you make the big decisions, the ones that are
Speaker 4: critical to the survival and effectiveness of the company, but
Speaker 4: outside of that really relying on your.
Speaker 3: Team to to do a lot of that. So I think.
Speaker 4: Working at both and having the experience that both gave
Speaker 4: me the appreciation for both.
Speaker 2: So, you've spent about twenty years, maybe a little over
Speaker 2: twenty years at the same company, now increasingly becoming a rarity.
Speaker 2: Everybody seems to move jobs and companies pretty regularly these days.
Speaker 2: Tell us what keeps you at the same firm for
Speaker 2: so long?
Speaker 4: Yeah, it's so, it's coming up on twenty I've been
Speaker 4: over nineteen years now, so we're coming in on twenty.
Speaker 4: And I was very fortunate to find myself working at
Speaker 4: Babson at the time, in a place that fit my
Speaker 4: personality and my skill sets well. It was a very
Speaker 4: much a team based approach. It was very much a
Speaker 4: collaborative approach. It was built on fundamental analysis which fit
Speaker 4: my skill sets get well.
Speaker 3: And so I think when.
Speaker 4: You're fortunate enough to find an environment where your skill
Speaker 4: set can be amplified by those around you and by
Speaker 4: the business process or the culture that's there, it works.
Speaker 4: And I was again very and had an opportunity to
Speaker 4: take on a lot of responsibilities. I was entrusted with
Speaker 4: things early on in my tenure there and was able
Speaker 4: to start new products, to go out and market those products,
Speaker 4: to see how things worked. And so I've I hopefully
Speaker 4: have have created what I enjoyed, or at least foster
Speaker 4: what I enjoyed so much when I joined the legacy
Speaker 4: company Babson, and it's allowed me to stay there. And again,
Speaker 4: I can't thank my predecessors enough for giving me the
Speaker 4: opportunity and chance to really grow as a person, but
Speaker 4: also grow the business.
Speaker 2: Last question in this section, you alluded to something that
Speaker 2: I'm kind of fascinated by, and I've observed it in
Speaker 2: a number of different companies. I'd love to get your
Speaker 2: thoughts on this. As a company grows, as you wear
Speaker 2: more assets, more people, more divisions, exactly what you said
Speaker 2: about you making the critical decisions, but being willing and
Speaker 2: able to delegate decision making authority to people underneath you.
Speaker 2: I have heard a number of people talk about how
Speaker 2: challenging that is to let go. Tell us a little
Speaker 2: bit about your experience with it.
Speaker 4: Yeah, I think one thing I'm fortunate and blessed to
Speaker 4: have is self awareness. I know what I don't know,
Speaker 4: and I've been proven. That's been proved to me a
Speaker 4: number of times through some mistakes, but I've have the
Speaker 4: scars to show it. But but knowing what you're what
Speaker 4: you're good at and we all have very good gifts,
Speaker 4: and we all have weaknesses, and I think it's okay
Speaker 4: to accept that and say I have a gap here.
Speaker 4: I need to build people around me who fill in
Speaker 4: that gap. But it's it's hard because I think you know,
Speaker 4: inherently most of us believe that we make the best decisions,
Speaker 4: and so you do have to start moving that and
Speaker 4: I try what I'll what I'll tell when new people
Speaker 4: join the team or when I take over a new
Speaker 4: What in the past, when I've taken over a new
Speaker 4: team is because often what happens is people are making
Speaker 4: a decision. They're looking to their boss, well, what would
Speaker 4: what what kind of lean would would you go? I'm
Speaker 4: not looking for an answer, but just kind of give
Speaker 4: me a direction of where you go, and maybe that's
Speaker 4: where I'll go. But I've often said, you'll have ten
Speaker 4: decisions to make this year. They're your ten decisions. Eight
Speaker 4: of them I'll support one hundred percent and I'll love them.
Speaker 4: Two of them I may hate, But that's okay because
Speaker 4: they're your decisions, and they're probably better than I would
Speaker 4: do because you're closer to it. And I have to
Speaker 4: remind myself of that too, because there's some times times
Speaker 4: when I get uncomfortable, I want to go back to
Speaker 4: the areas where I'm comfortable, and everyone hates to see
Speaker 4: me sitting on the trading desk because then, ah, here we.
Speaker 2: Goes micromanaging for the win. So let's talk a little
Speaker 2: bit about the modern version of Barings and a little
Speaker 2: bit of history. What people think of is Barings Bank
Speaker 2: from the nineties and two thousands. I in g bought
Speaker 2: them after their little mishap, and then some years later
Speaker 2: Mass Mutual purchased them the big insurance company and eventually
Speaker 2: mass Mutual put together Babson Capital, Barings Asset Management, Cornerstone
Speaker 2: and woods Creek. Do I have that more or less right?
Speaker 3: Yep, that's right, that's right.
Speaker 2: So tell us what did this combination of four firms do?
Speaker 2: Tell us about the reach and capabilities and why mash
Speaker 2: up for fairly substantial investment firms.
Speaker 4: Yes, at the time Mass Mutual was really you saw
Speaker 4: the value and asset management not only for its general
Speaker 4: account but also to be a third party business, and
Speaker 4: at times was it was opportunistic in purchasing up smaller
Speaker 4: asset management. At the time, Bearings was one that was
Speaker 4: purchased from Ing as you mentioned, to really be it
Speaker 4: was the multi asset international equity business. There was also
Speaker 4: wood Creek, which you mentioned, which was a real assets business.
Speaker 4: Think of it in music rights, royalty, streams, infrastructure type
Speaker 4: things that have tractor trailers that have longer term cash
Speaker 4: flow profiles. And then there was Babson Capital, of which
Speaker 4: I was a part of, which was the largest, and
Speaker 4: Babson was actually the predecessor to that was D. L. Babson,
Speaker 4: the equity manager. Mass Mutual had purchased that and then
Speaker 4: ultimately had spun out what was the Mass Mutual Investment
Speaker 4: Management into Babson Capital, and so we had four affiliates
Speaker 4: at the time, there was actually five affiliates because Mass
Speaker 4: Mutual at the time also owned Oppenheimer Funds, which has
Speaker 4: subsequently been sold to Investco.
Speaker 3: But we took we.
Speaker 4: Made a decision to combine the four brands, the four
Speaker 4: aforementioned brands together under the new Bearings and Babson was
Speaker 4: actually the largest. It was the fixed income manager, but
Speaker 4: it was the largest in terms of au M.
Speaker 3: But what we.
Speaker 4: Recognized was the Bearings brand actually carried more value than
Speaker 4: the Babson brand. Certainly internationally where our presence was very
Speaker 4: well known, and so we made the decision to combine
Speaker 4: all four of those businesses together under what was now
Speaker 4: titled Bearings.
Speaker 2: So how do you create and maintain a corporate culture
Speaker 2: when you're starting with four very distinct entities.
Speaker 4: Yeah, it's a challenge at times. And what was interesting
Speaker 4: is is Babson itself had been a series of acquisitions
Speaker 4: as well.
Speaker 3: I mentioned d L. Babson was the first. There was
Speaker 3: a group called.
Speaker 4: IDM, which was institutional debt management that was purchased out
Speaker 4: of First Union Bank. It was really a clo and
Speaker 4: loan manager. That was actually the group that I joined
Speaker 4: at the time. We also bought a business in the
Speaker 4: UK that was a parallel It was a leverage loan
Speaker 4: and mezzanine investor called Duke Street Capital Partners. So we
Speaker 4: had we had brought companies in together, all with the
Speaker 4: philosophy that we want to fully integrate these and I'll
Speaker 4: talk a little bit about the philosophy on that and
Speaker 4: some of the challenges that come along, but really when
Speaker 4: the decision was to bring them together, we felt to
Speaker 4: get the most scale and the most long term value
Speaker 4: to our ultimate owner. Owners, which are the policy owners
Speaker 4: of Mass Mutual, was to combine these businesses under one brand,
Speaker 4: under one operating model, and under one culture. Now, not
Speaker 4: everyone made the transition. I'd love to say that it
Speaker 4: was It was really easy to do, but but you know,
Speaker 4: at what we decided to do was really have an
Speaker 4: investment committee driven, team based approach, and some of the
Speaker 4: portfolio managers of some of the firms were more driven
Speaker 4: towards the the I have sole discretion on everything I do.
Speaker 4: There's not a process. It's it's my decision to make
Speaker 4: these with and I have at the support of a
Speaker 4: research team.
Speaker 3: And that didn't always mesh up. But we made the decision.
Speaker 4: To move to move to the one standard of investing
Speaker 4: and created what is now Bearings and have subsequently been
Speaker 4: able to bring in additional acquisitions, again all under the
Speaker 4: idea of we want to fully integrate these.
Speaker 2: So we're talking about corporate culture. November twenty twenty, you're
Speaker 2: elevated from president to CEO. I recall lots and lots
Speaker 2: of CEOs talking about in twenty twenty and twenty twenty one,
Speaker 2: right in the midst of the COVID pandemic, Hey, how
Speaker 2: are we going to maintain a form of corporate culture.
Speaker 2: How do we keep everybody on the same page.
Speaker 4: What were your experiences like, Yeah, I would say communications
Speaker 4: was key, and it was it was much more regular
Speaker 4: speaking to the entire company as opposed to you know,
Speaker 4: episodic and we would do town halls on a I
Speaker 4: would say an infrequent basis, but you very much every week.
Speaker 4: You needed to be out there speaking to the company.
Speaker 2: You know.
Speaker 4: One of the things that was fortunate we were global
Speaker 4: to begin with, so we had an operating model that
Speaker 4: didn't have us fully face to face all.
Speaker 2: The time, so semi virtual, semi virtual.
Speaker 4: At that point, we had invested in some technology. The
Speaker 4: amazing it was amazing how quickly the technology took over
Speaker 4: at that at that point in time. But we did
Speaker 4: have regional heads that were able to continue to stay
Speaker 4: engaged with our teammates, and I think the communications was
Speaker 4: the big part. It was really making sure that you're
Speaker 4: constantly and consistently out there telling everyone what's going on
Speaker 4: in full transparency, and one of the things we've really
Speaker 4: tried to do throughout the company and it's something that
Speaker 4: I've appreciated as I've worked my way up to my
Speaker 4: career is as much transparency as we can.
Speaker 3: I've always had.
Speaker 4: This belief and the folks at Bearings have heard me
Speaker 4: say this many, many, many times. I would rather know
Speaker 4: what's going on and know I don't like it than
Speaker 4: not know what's going on and think I don't like it.
Speaker 4: And I think it just creates a level of anxiety
Speaker 4: when people suspect something, and so when you're going through
Speaker 4: tough periods like that, having transparency as much as you can.
Speaker 4: There's certain things you can't share, obviously, but to provide
Speaker 4: that level of clarity to people I think provides some
Speaker 4: level of ease and it makes them feel more that
Speaker 4: they're a part of what we're doing, and candidly they are.
Speaker 4: They're a part of the solution, they're part of the growth,
Speaker 4: and they're part of the success.
Speaker 2: So you guys are not that far away from five
Speaker 2: hundred billion in assets. Let's talk a little bit about
Speaker 2: who your clients are. Obviously, Mass Mutual Insurer as the
Speaker 2: parent company, is a big client. I'm assuming that's where
Speaker 2: the genesis of all these different asset management strategies came from.
Speaker 2: Who are your other clients?
Speaker 4: Yeah, so Mass Mutual makes up roughly half of our
Speaker 4: of our assets and that's for the general account and
Speaker 4: then outside of that, we are predominantly an institutional manager
Speaker 4: at this time. We do have some penetration into the
Speaker 4: we'll say wealth and retail channel.
Speaker 2: Global family office more like as opposed to mom and
Speaker 2: pop investment.
Speaker 4: It's it's through some some ri a relationships we have
Speaker 4: and then over internationally we we we go through wealth
Speaker 4: as well, through through some of the larger banks. But
Speaker 4: we're we're definitely more skewed towards what we would consider
Speaker 4: an institutional or an intermediary type relationship. But but it's
Speaker 4: going to make up the full full spectrum of that. Obviously,
Speaker 4: insurance is a big component of what we do, just
Speaker 4: given our heritage in our DNA, that's a large component
Speaker 4: of our third party business, but also sovereign wealth funds,
Speaker 4: family offices, pensions really across the spectrum in terms of
Speaker 4: where any any institutional client really globally, and that's one
Speaker 4: of the benefit we have. We do have client base
Speaker 4: that's split relatively easy amongst the three regions i'll say,
Speaker 4: with the America's EMA and then in an Asia pack
Speaker 4: in Australia.
Speaker 2: So I want to wrap my head around a large
Speaker 2: insurer like Mass Mutual as a client, I would imagine
Speaker 2: very long term and perspective, But I don't really grasp
Speaker 2: what sort of risk tolerance an insurance company has. I
Speaker 2: assume they don't want you swinging for the fences. But
Speaker 2: on the other hand, hey, they could buy treasuries without you.
Speaker 2: What is that sort of risk embracing, Like, how does
Speaker 2: that settle out? What are they looking for in terms
Speaker 2: of returns?
Speaker 4: Yeah, and so I would say, you know, not many
Speaker 4: of our clients want to swing in for the fences,
Speaker 4: and usually that we're not the ones to.
Speaker 3: Hire to do that.
Speaker 4: We are more very much focused on fundamental, long term
Speaker 4: type and type investing. We do it all up and down,
Speaker 4: and we do it within fixed income, we do it
Speaker 4: within real assets, and we do it within what we
Speaker 4: call capital solutions. But you know, insurance companies. And I
Speaker 4: will say this the Masses Mass Mutual obviously is a
Speaker 4: mutual company. And you mentioned the long term horizon. I
Speaker 4: think is one of the best ownership structures we could
Speaker 4: have because they are owned by their policy holders who
Speaker 4: have a very very.
Speaker 3: Long time horizon.
Speaker 4: At the current time, I think our oldest policy holders
Speaker 4: owned a policy.
Speaker 3: For eighty years. Wow, And that's that's a long term horizon.
Speaker 4: That policyholder loves to see us pay dividends and then
Speaker 4: would wants us to be there to pay the benefits
Speaker 4: to their descendants. So it's really taking a long term
Speaker 4: horizon which allows us not only do we make investments
Speaker 4: on behalf of our clients, but we make investments in
Speaker 4: the business, which is equally important for the longevity and
Speaker 4: sustainability of our company. We have a longer term horizon.
Speaker 4: We're not necessarily worried about quarterly earnings or even annual earnings.
Speaker 4: We're fiduciaries of what we've been given, but we can
Speaker 4: take a long term look. And in fact, our middle
Speaker 4: market direct lending business, we started building that in twenty thirteen,
Speaker 4: well ahead of a lot of the conversations that had
Speaker 4: knowing we may be a little bit early in terms
Speaker 4: of the acceptance from LPs to move into middle market
Speaker 4: direct lending of the size and scale it is, but
Speaker 4: we took a view that long term, we think this
Speaker 4: is going to be a valuable place to be. We
Speaker 4: also knew that Mass Mutual had an interest in the
Speaker 4: asset class, which helps us start new strategies. I mean,
Speaker 4: so I think it's it's a good it's a good
Speaker 4: blend of that. And as we move further and further,
Speaker 4: you know, insurance companies have been buying private or ill
Speaker 4: liquid assets really for forever, forever. I mean it's you know,
Speaker 4: back in mass MWS one hundred and one hundred and
Speaker 4: seventy five years old, one hundred and seventy five years ago,
Speaker 4: there wasn't a lot of public bonds that were trading
Speaker 4: outside of of of of government bonds. So they've been
Speaker 4: in this space for a long period of time and
Speaker 4: now we're just you know, somewhat showing it to other
Speaker 4: other parties. So they're they're obviously skewed more towards higher
Speaker 4: rated assets, just given the rating of the company as
Speaker 4: a double A entity. But that being said, our business
Speaker 4: has other things further down the risk spectrum that that
Speaker 4: allows us to grow and service other clients.
Speaker 2: I want to better define what capital solutions and real
Speaker 2: assets are. Let's start with real assets. So you mentioned
Speaker 2: music royalties and copyrights and things like long haul trucks.
Speaker 2: What other real assets do you guys own? And is
Speaker 2: the goal We're just looking for a steady low volatility
Speaker 2: income stream.
Speaker 4: In most of our strategies, it's that And so I
Speaker 4: would say real assets for US is broadly defined as
Speaker 4: real estate and infrastructure, and even infrastructure and real estate
Speaker 4: can blur at some point in time when you start
Speaker 4: to look at logistics and things of that nature.
Speaker 3: There.
Speaker 2: So when you say infrastructure, are we talking highways and bridges?
Speaker 2: Are we talking trucks and rails?
Speaker 4: Do you think trucks and truck it's all of the above.
Speaker 4: For us, it's more along the trucks and rails and towers,
Speaker 4: wireless towers, things of that nature that fits within their
Speaker 4: data centers can fall into to either one of those
Speaker 4: type things.
Speaker 3: So that's that's the real assets. But we do have
Speaker 3: the capabilities.
Speaker 4: Again we own we own trailers, we own an aircraft
Speaker 4: leasing business, and so those things that are are are
Speaker 4: longer term, more stable.
Speaker 3: Type cash flows.
Speaker 4: Capital solutions is really encompasses all of it. To be honest,
Speaker 4: it's it's more of a unique solution, a more bespoke
Speaker 4: solution for a client when it comes to it's not
Speaker 4: something that would and certainly when we originate things in
Speaker 4: all of our private assets, there's some level of some
Speaker 4: level of customization for those clients. But when you get
Speaker 4: into capital solutions, it's really a unique solution to a
Speaker 4: client who has a financing need of some side. It
Speaker 4: can be a preferred equity piece, it can be an
Speaker 4: equity or a debt piece with equity kickers, all sorts
Speaker 4: of things that fit within that that's slightly unique and
Speaker 4: that will come more than likely with higher returns. It's
Speaker 4: a little heavier lift to be able to do a
Speaker 4: little bit different analysis that goes along with it, but
Speaker 4: it's a higher returning profile.
Speaker 2: So I get the sense that there are some advantages
Speaker 2: to working with a large insurance firm, not just the longevity,
Speaker 2: but it seems like there is the freedom to do
Speaker 2: the sort of things that a lot of investors just
Speaker 2: don't have the patience to wait for.
Speaker 4: Yeah, and there's also an alignment. I mean, Mass Mutual
Speaker 4: is alongside our investors on almost everything we do. They're
Speaker 4: in this same strategies and varying sizes and scales, So
Speaker 4: there is a complete alignment from where we're investing our
Speaker 4: parent companies capital as well as where we're investing our
Speaker 4: third party event. But it does help to have a
Speaker 4: parent company like this who allows us to seed seed
Speaker 4: investments allows us to grow things. And you've seen more
Speaker 4: and more frequently now the tie ups of what we'll
Speaker 4: call alternative managers with insurance companies because there is a
Speaker 4: need on the asset side as well as the liability
Speaker 4: sides of the liabilities coming from the insurance company. Those
Speaker 4: assets are those liabilities. The cash that comes with those
Speaker 4: needs to be invested in assets that provide a return
Speaker 4: that meet that liability, and so there's naturally this move.
Speaker 3: Now.
Speaker 4: We did this twenty years ago, and so we're seeing
Speaker 4: a lot of this happen now.
Speaker 3: But this is something that.
Speaker 4: We had done a long, long time ago and seeing
Speaker 4: that a captive which is what we started as an
Speaker 4: ask captive asset manager for an insurance company, can also
Speaker 4: be a great service provider to other clients as well.
Speaker 4: And that's really in two thousand when we started this
Speaker 4: focus of making what was Babson and the other brands
Speaker 4: more focused on third party as well as the parent company.
Speaker 2: And when you discuss liabilities for an insurance company, those
Speaker 2: future obligations are fairly predictable. I mean there's some variability. Hey,
Speaker 2: you're working with annuity tables and things like that. But
Speaker 2: it's a pretty predictable set of obligations. How does that
Speaker 2: impact how you think about the risk tolerances and where
Speaker 2: you want to go with the investment of.
Speaker 4: Yeah, I mean it's as with most fixed all fixed
Speaker 4: income investment. Candidly, you want to get your return, you
Speaker 4: get your coupon, and then you get paid back at
Speaker 4: the end of the day.
Speaker 3: So it really is.
Speaker 4: And then how things are measured in terms of duration,
Speaker 4: in terms of tenor and all those things. Really that's
Speaker 4: something that we don't do as much. The parent company
Speaker 4: handles all the asset liability.
Speaker 3: Management side of things.
Speaker 4: They give us asset allocations, we go ahead and invest
Speaker 4: those dollars. So with the security selectors, if you will. Yeah,
Speaker 4: when you look at the liabilities of a number of
Speaker 4: insurance companies out there and you think of whether there's
Speaker 4: there's there's the life business. It could be termed or
Speaker 4: it could be whole life. You also then look at
Speaker 4: the annuities, the pension risk transfer. All of those have
Speaker 4: a set you know, pensioner's transfer, a longer, much longer dated.
Speaker 3: Set of liabilities. But it's it is.
Speaker 4: It creates an interesting opportunity in different asset classes to
Speaker 4: profine excess returns, and I think what what folks are
Speaker 4: starting to see, and this is certainly the case with us.
Speaker 4: We have always recognized that we would be happy to
Speaker 4: pick up additional returns for ill liquidity and illiquidity premium
Speaker 4: without taking additional risk. And that's that's really what I
Speaker 4: think insurance companies have the flexibility to do, is to
Speaker 4: take that illiquidity premium because they they have a much
Speaker 4: better idea of what their liabilities look like in matching
Speaker 4: those up.
Speaker 2: And you're a member of the executive leadership team at
Speaker 2: Mass Mutual, discuss a little bit, if you will, what
Speaker 2: those conversations are like. It must be fascinating to sit
Speaker 2: on that board that's essentially overseeing your day job.
Speaker 4: Yeah, it was very insightful for me. I had some
Speaker 4: knowledge of the insurance industry and really just how it
Speaker 4: touched the asset management industry. But it does give me
Speaker 4: a bigger perspective on the industry as a whole. And
Speaker 4: I think more and more as you see, and certainly
Speaker 4: there are really deep cases of this where alternative asset managers,
Speaker 4: whether it's with reinsurers or insurance companies, have become one.
Speaker 3: We have a front row.
Speaker 4: Seat to how the too are managed, and so I
Speaker 4: think it's just given us a much better perspective. And
Speaker 4: I also think it's made Bearings and hopefully myself, as
Speaker 4: a better partner to some of our other clients is
Speaker 4: recognizing and have a better understanding.
Speaker 2: Of that really interesting. Before we get into the details
Speaker 2: of investment management, I have to ask you a question.
Speaker 2: There was a quote of yours that kind of grabbed me.
Speaker 2: You've self described your own leadership style as confident humility.
Speaker 2: Explain what that means that that's a fascinating phrase.
Speaker 3: Yeah, thank you for asking that. I use it. I
Speaker 3: use it a lot.
Speaker 4: I'm not sure where I where I picked it up,
Speaker 4: but I but I love it, and I think it
Speaker 4: describes how we operate it at Bearings. It goes back
Speaker 4: to the element of having some self awareness and I
Speaker 4: think understanding. We need to be confident in what we do.
Speaker 4: We make big decisions, whether we're on the investment team
Speaker 4: making decisions for clients portfolios, or whether we're in management
Speaker 4: or any other part of the business. We have to
Speaker 4: be confident in the decisions that we make, and we
Speaker 4: have to you know, rebound from from mistakes at times
Speaker 4: but at the same time recognizing with an element of humility,
Speaker 4: which I think is a gift for people to have.
Speaker 4: That that we don't have all the answers all the time,
Speaker 4: and seeking counsel and seeking partnerships and seeking people to
Speaker 4: do that isn't necessarily a sign of of of not
Speaker 4: knowing things. It's a sign of just saying, hey, I
Speaker 4: need I need a little bit of help here. So
Speaker 4: I use the phrase very frequently. I love it again.
Speaker 4: I'm whoever whoever came up with it. I I'll attribute
Speaker 4: it to him if I find out, but it it
Speaker 4: is something I think and I hope I live by,
Speaker 4: and I think most of the teammates at Bearings do
Speaker 4: as well.
Speaker 2: So let's talk a little bit about how the asset
Speaker 2: management industry is going to evolve over the next decade.
Speaker 2: You guys aren't very equity heavy, but you're much more
Speaker 2: focused on private markets, on anything that is a fairly
Speaker 2: regular income stream. How do you see not just insurance,
Speaker 2: but the entire asset management industry evolving in the future.
Speaker 4: Well, there's clearly a growth into to what folks are
Speaker 4: calling private assets. I think that's that's definitely going to
Speaker 4: continue to be the trend. I also think in some
Speaker 4: of the more established private assets there's a blurring of
Speaker 4: lines between public and private. And you know what was
Speaker 4: in leverage loan, The lever's loan market is a pretty
Speaker 4: good market for that. You've got deals that are several
Speaker 4: billion which are going to private credit firms. You've got
Speaker 4: deals that were started in the middle market space which
Speaker 4: would have been five hundred million, Like I said, now
Speaker 4: they're several billion. And so is that syndicated market or
Speaker 4: is that a private market? So you're seeing the ebbs
Speaker 4: and flows of that, and I think that makes sense.
Speaker 4: There's relative values that change between public and private markets
Speaker 4: over the time, but also more and more what you're
Speaker 4: seeing is, isn't it kind of an emergence of more
Speaker 4: private asset classes being purchased by individuals and probably more
Speaker 4: by institutionals, less by individuals at this time, but over
Speaker 4: time you'll see that. It's in the asset based finance space,
Speaker 4: the securitization space, and things that were always somewhat in
Speaker 4: the private space but didn't come out into the public
Speaker 4: markets through ACUSIP actually coming off of bank's balance sheet.
Speaker 4: So I think that's going to continue, and you've seen
Speaker 4: any numbers of three trillion to five trillion of how
Speaker 4: big the market can be. Really, anything that's in a
Speaker 4: public market from a debt standpoint can really operate in
Speaker 4: the private market. And so it just depends on what
Speaker 4: borrowers are candidly looking for. Are they looking for some
Speaker 4: sort of certainty of execution? Can I get that better
Speaker 4: in the public market? Can I get it better in
Speaker 4: the private market? What terms can I get in each
Speaker 4: do I want? Do I want my information in the
Speaker 4: public market? Perhaps I prefer to keep I'm a closely
Speaker 4: held company, prefer maybe I'd prefer to keep my information
Speaker 4: amongst a private and small group of lenders.
Speaker 3: So that's moving, you know.
Speaker 4: You see new things like portfolio finance, which which is
Speaker 4: something we do on a large scale, which is it's
Speaker 4: slightly different from from NAV lending, but it's it is
Speaker 4: lending to GPS and lending to portfolios. It's a growing business,
Speaker 4: highly customized, highly bespoke structures that take a lot of heavy.
Speaker 3: Lifting to do. But I think more and more we're going.
Speaker 4: To see that as as people try to find and
Speaker 4: I described it earlier, possibly take getting more higher yields,
Speaker 4: higher returns, but not taking more risk, but picking that
Speaker 4: up through either complexity premium or an illiquidity premium.
Speaker 2: So you mentioned a couple of things earlier than I
Speaker 2: want to hit back on, which is how v various
Speaker 2: markets have kind of moved up. And I see this
Speaker 2: across lots of different things, whether it's public financing or
Speaker 2: even public companies, whether they stay private or go public.
Speaker 2: It seems that everything has gotten bigger, higher, assets, higher,
Speaker 2: aum and it almost feels as if Wall Street has
Speaker 2: kind of abandoned that middle market. You mentioned things that
Speaker 2: used to be private at at three four five hundred
Speaker 2: million are now still private at two three four billion.
Speaker 2: This seems to be going across every sector I look at.
Speaker 2: Is this just a natural evolution of capital markets? Or
Speaker 2: have valuations and size just gotten so large that Wall
Speaker 2: Street can only service these giant shops and it creates
Speaker 2: this void in the middle underneath.
Speaker 4: Well, I think the ability for companies to stay private
Speaker 4: longer is a good thing, right, And I think it's
Speaker 4: actually and there's definitely a need for the public markets.
Speaker 4: We don't want to lose those all together, and we
Speaker 4: don't want it to only be for the trillion dollar
Speaker 4: market cap companies.
Speaker 3: I think it's healthy to have a.
Speaker 4: Moving market because people at times will want some sort
Speaker 4: of monetization. Event they will want some sort of liquidity,
Speaker 4: and you can get some of that into private markets,
Speaker 4: but it's it's not nearly the way you can get.
Speaker 3: It in the public markets.
Speaker 4: But I go back to using the leverage loan, and
Speaker 4: your example is exactly right.
Speaker 3: When I started out.
Speaker 4: In the business, a broadly syndicated leverage loan deal could
Speaker 4: have been five hundred million dollars. A bank would have
Speaker 4: brought that deal and ten people would have owned it
Speaker 4: and traded it.
Speaker 3: Now that's that's not the case. You've got to be
Speaker 3: moving up.
Speaker 4: And so I think it is an evolution of things,
Speaker 4: and I think your banking regulations have changed some of
Speaker 4: the bank's ability to do some of this this type
Speaker 4: of lending. We'll see if that changes in the future.
Speaker 4: But the good thing about the capital markets in general
Speaker 4: is it's efficient and if there's a if there's a
Speaker 4: way for people to get excess returns, capital will flow
Speaker 4: into that and over time, if spreads become compressed there,
Speaker 4: they'll move to other areas, which I think is overall healthy,
Speaker 4: healthy for a market.
Speaker 2: And you talked about the relative value as assets shift
Speaker 2: between public and private and back. How do you capture
Speaker 2: that gap that difference. Is it just a function of
Speaker 2: all this capital flowing into private markets. There's no doubt
Speaker 2: public markets are historically pricey today, but it feels like
Speaker 2: so much cash chasing all these private assets, you're going
Speaker 2: to end up with a very similar situation.
Speaker 4: Yeah, I mean, I think one of the distinct differences
Speaker 4: is obviously the quickness of the rapidness at which a
Speaker 4: public market changes price, whether it's valuation second by second,
Speaker 4: whether it's valuation, or whether it's it's it's spreads on
Speaker 4: yields going wider or going tighter. That's that's effectively real time.
Speaker 4: It takes longer in the private markets because these deals
Speaker 4: take a long time to longer to originate, to close,
Speaker 4: and to move on, and so the reaction time is
Speaker 4: slightly there. And if it's a brief correction in the market,
Speaker 4: maybe the private markets get it right and the public
Speaker 4: markets just had a period of inefficiency. But over time
Speaker 4: those two should converge and you should be getting a
Speaker 4: premium if you're moving into private assets. There's nothing to
Speaker 4: suggest that you should be getting tighter spreads in a
Speaker 4: private market giving up your liquidity, and there's some liquidity,
Speaker 4: but nearly the case of the public markets, if you're
Speaker 4: giving that up, you should be getting a premium. So
Speaker 4: over time there needs to be a premium given into
Speaker 4: the private markets over the public markets. Which would also
Speaker 4: suggest that over time companies who are looking to as
Speaker 4: much as possible reduce their cost of capital will gravitate
Speaker 4: to where the financing is most appropriate to them, and
Speaker 4: that may be in the publics, that may be in
Speaker 4: the private.
Speaker 2: So Barings has been in the space for decades now,
Speaker 2: it seems, certainly since the financial crisis and more intensely
Speaker 2: since the pandemic. Just you, huge flows of capital are
Speaker 2: going to private At what point does that become a
Speaker 2: crowded trade? What's the capacity like on the private side?
Speaker 4: Yeah, it's big because in theory you can start taking
Speaker 4: market share from the public side. And that's where I
Speaker 4: think some you know are Our direct lending business is
Speaker 4: really purely in the middle market space, and so think
Speaker 4: of us looking at companies with seventy five million of
Speaker 4: vadah in below rather than.
Speaker 3: The multi billion.
Speaker 4: We don't currently traffic in that, and we traffic in
Speaker 4: the middle market and then we traffic in the syndicated space,
Speaker 4: but the direct lending space in between is somewhat of
Speaker 4: a white space for us. But I think that's what
Speaker 4: you've seen is as large capital allocators and aggregators have
Speaker 4: billions and tens of billions and twenties of billions to
Speaker 4: put to work, it becomes hard to do that in
Speaker 4: chunks of two hundred and fifty million, much easier to
Speaker 4: do in two point five billion. And so there's a
Speaker 4: tug of war between the public and private markets as
Speaker 4: who's taking market share from from that All good companies,
Speaker 4: it's just what is your strategy necessarily looking to do?
Speaker 4: But without the private market seeing new deal volume. And
Speaker 4: so whether we start to see M and A transactions
Speaker 4: come back, whether we start to see club deals being
Speaker 4: formed for public companies and club deals being club deals
Speaker 4: will have to club deals being You get four or
Speaker 4: five lenders together and they take down a four billion
Speaker 4: dollar deal and say it's it's a club of us
Speaker 4: rather than one person doing it on a buyer.
Speaker 2: Not quite a syndicate, not quite.
Speaker 4: It's that great, It's that it's that white space in between.
Speaker 4: It evolves in there that you've got and so they'll
Speaker 4: have to be either new deal volume, as I said,
Speaker 4: or or the private markets will have to take market
Speaker 4: share continue to take market share from the public markets.
Speaker 2: So we're talking about institutional investors. Do they want fewer
Speaker 2: but larger and more strategic relationships? What are they looking
Speaker 2: for in terms of capabilities and portfolio solutions from an
Speaker 2: investment shop like yours?
Speaker 4: Well, absolutely, and I think probably everyone is looking for
Speaker 4: fewer relationships. They have to deal with a lot of
Speaker 4: relationships and a lot of partners. So the more you
Speaker 4: can have a robust or a broad sense of capabilities,
Speaker 4: the more value you are to be. When I think
Speaker 4: what's interesting for what we've tried to build and how
Speaker 4: we've kind of gone through acquisitions and how we've gone
Speaker 4: through organic growth is to really make sure we cover
Speaker 4: all of that. And so we've if you look at
Speaker 4: our acquisitions over time, if you look at what we've grown,
Speaker 4: we've tried to be global, and so we make acquisitions
Speaker 4: of things that are adjacent or tangential to our currently
Speaker 4: current strategies. Is that strategic or tactical, that's strategic, and
Speaker 4: that's just a view that we take. We want to
Speaker 4: have global capabilities for what we do, and so if
Speaker 4: we do direct lending in the US, we do direct
Speaker 4: lending in Europe, and we do direct lending in Asia.
Speaker 4: Pack and it's it's basically saying to companies, if you
Speaker 4: have the desire.
Speaker 3: For a global portfolio, if you.
Speaker 4: Have the desire for us to determine where the best
Speaker 4: relative value is, we.
Speaker 3: Can do that capability.
Speaker 4: You don't need to select three different managers to cover
Speaker 4: three different parts of the globe. We've done that with
Speaker 4: the liquid and I liquid side. And so if folks
Speaker 4: come and say, I want I want to leverage finance product,
Speaker 4: I want something that's below investment grade. But I know
Speaker 4: at times high yields more attractive, at times leverage loans
Speaker 4: are attracted more attractive, and at times direct lendings more attractive.
Speaker 4: You determine where that best relative value is. And I
Speaker 4: think that's been a hallmark of how we viewed it.
Speaker 4: Let's do what we do well, and let's make sure
Speaker 4: we do it globally and we have deep enough capabilities
Speaker 4: to service all those needs.
Speaker 2: You've been on the investing side of global high yield.
Speaker 2: How has your perspective been affected as CEO from your
Speaker 2: background as a trade er investor in that space.
Speaker 3: Yeah.
Speaker 4: So one of the things that came out of is
Speaker 4: I was a part of a US loan group originally,
Speaker 4: so a syndicated loan group was where I first started
Speaker 4: at Babson. We then made the decision of you know,
Speaker 4: these are similar two sides to the same coin. High
Speaker 4: yield bonds and leverage loans are often in the same
Speaker 4: capital structure. One just comes with a fixed coupon, one
Speaker 4: just got accuse it. One's more private, but it's the
Speaker 4: same company. So we decided to combine those two businesses together.
Speaker 4: Then we went and said, you know what's unique about
Speaker 4: US is we've got great capabilities in Europe and we've
Speaker 4: got great capabilities in US. And so in two thousand
Speaker 4: and nine we said, let's create a global high yield platform,
Speaker 4: which was really one of the first of its of
Speaker 4: its kind. And so that experience and perspective said to me,
Speaker 4: this is really something that's here. Clients will value our
Speaker 4: global perspective. They still may want to only allocate to
Speaker 4: one region or another, one asset or another, but who
Speaker 4: those are interested, Let's take a look at that. And
Speaker 4: that as much as the investing side of it was,
Speaker 4: there it was really the business side of it, I think,
Speaker 4: which has helped me in my current role.
Speaker 2: So I keep reading and hearing about new credit asset classes.
Speaker 2: What's the appetite like for that.
Speaker 4: Yeah, it's becoming more and more popular. I think it's
Speaker 4: really on the asset base side of things. So there's
Speaker 4: a lot of different things that can fall into that category.
Speaker 4: And you're talking about origination platforms, it's a mortgage origination
Speaker 4: platform where someone will take all the mortgages originated by
Speaker 4: that and package it into something. So as more and
Speaker 4: more it becomes more and more accepted to have a
Speaker 4: portion of your portfolio in ill liquid assets. And I
Speaker 4: don't think it's just for insurance companies. I think insurance
Speaker 4: companies are well equipped to do that because their liabilities
Speaker 4: are fairly well known. But pensions also have a bucket
Speaker 4: for things that are ill liquid, and I think historically
Speaker 4: they've used them for higher yielding things. But I suspect
Speaker 4: going forward, and where a number of our conversations are
Speaker 4: taking place is around the IG portion of their portfolio,
Speaker 4: the investment grade portion of their portfolio that if I
Speaker 4: can pick up an additional one hundred to one hundred
Speaker 4: and fifty basis points of spread or yield in a
Speaker 4: private market, I don't need all of my assets in
Speaker 4: my portfolio to be on the liquid side. That's usually
Speaker 4: the bucket I use for liquidity is in my investment
Speaker 4: grade and government bond side of things. But maybe I
Speaker 4: move a little bit into liquid assets and pick up
Speaker 4: additional yield for that portion because I don't need five percent,
Speaker 4: I can sacrifice for ill liquidity purposes.
Speaker 2: So it sounds like there are a ton of tailwinds
Speaker 2: for the private credit and debt sides. What do you
Speaker 2: think is the next phase of growth the what's the
Speaker 2: next area that's ripe that perhaps hasn't really been well explored.
Speaker 3: Yeah, but we've canvassed a lot of it. I mean,
Speaker 3: I think there's there's a lot.
Speaker 4: But I do think the private investment grade side of
Speaker 4: the market is really.
Speaker 3: Going to be the area where it's going to grow.
Speaker 3: And when people talk.
Speaker 2: Of investment grade, that's private private, public.
Speaker 3: Yes.
Speaker 4: And so I think when people originally, even as early
Speaker 4: as last year, when you have said direct lending or
Speaker 4: private credit, everyone would have moved to middle market corporate
Speaker 4: direct lending, and that's what was in everyone's mind, and
Speaker 4: that was a component of it. It's a component of it,
Speaker 4: but it's actually one of the smaller components of it. Candidly,
Speaker 4: when you expand to all the other types of lending
Speaker 4: that can be done and has traditionally been done by
Speaker 4: banks and has now been done by is being done
Speaker 4: by asset managers and insurance companies, the opportunities are vast,
Speaker 4: and so I think that's going to be an area
Speaker 4: that continues to grow and continues to offer investors on
Speaker 4: the institutional side, and I suspect it will start to
Speaker 4: gravitate more and more towards the individual and wealth side
Speaker 4: of it business as well.
Speaker 2: Really interesting, So you mentioned in passing some previous acquisitions,
Speaker 2: I know Altis and Griffon most recently, what are your plans?
Speaker 2: Are you thinking about more acquisitions? Is this deliberative or
Speaker 2: is it merely opportunistic or a little bit.
Speaker 4: About It's really strategic, you know. I think we have
Speaker 4: looked at and where we love the portfolio capabilities that
Speaker 4: we have when we're willing to expand on those, both
Speaker 4: organically and inorganically. We've had a history of building out teams.
Speaker 4: I've referenced earlier. We started building our mental market team
Speaker 4: in twenty thirteen. At that same time, we built our
Speaker 4: emerging market debt team at that time. But also as
Speaker 4: your reference, we've just made two acquisitions. Both happened to
Speaker 4: be in Australia, but they were extensions of capabilities we had.
Speaker 4: One was a real estate business, which gave us more
Speaker 4: of a global real estate presence, and the other was
Speaker 4: a securitization's business, which gave us global capabilities and securitizations.
Speaker 3: So hopefully you're seeing a.
Speaker 4: Theme here that we really want to continue to have
Speaker 4: the global and so we are very much open and
Speaker 4: looking for acquisitions. As I mentioned before, we want to
Speaker 4: fully integrate those. And so this is a people business,
Speaker 4: and so when you're looking at specifically principally owned businesses,
Speaker 4: businesses that are owned by a founder, you've got to
Speaker 4: make sure your interests are aligned there and that there's
Speaker 4: an expectation that this is going to be an over time,
Speaker 4: an integrated company. Now, what we don't do is we
Speaker 4: don't mess with the investment process. That's what's got them there.
Speaker 4: What we do look to do is integrate operations, integrate
Speaker 4: sales to get a globe. We have a global sales force.
Speaker 4: We think it's best to leverage that way. But we're
Speaker 4: absolutely always looking for good opportunities and good things, and
Speaker 4: hopefully we'll all fit within the strategic lens. So we're
Speaker 4: not going to be looking to buy something that doesn't
Speaker 4: fit with where we're going as a company. But certainly
Speaker 4: there are a lot of good companies out there, and
Speaker 4: we're looking at a few now and hopefully be able
Speaker 4: to have a few more to announce over the coming years.
Speaker 2: Really really interesting. Let me throw you a curveball. All right,
Speaker 2: so you oversaw sales operations technology, you are on the
Speaker 2: investment side. Now you're CEO and chairman. How do you
Speaker 2: think about artificial intelligence affecting your business? What is the
Speaker 2: future of the sort of very personal relationships, very specific
Speaker 2: types of credit you guys swim in. How is AI
Speaker 2: going to impact that?
Speaker 4: It is going to impact for sure, And so what
Speaker 4: we've created a we have an innovation team that really
Speaker 4: focuses on this because I think the use cases for
Speaker 4: AI and for all of these technologies is going to
Speaker 4: come throughout everyone of our teammates. It's not necessarily going
Speaker 4: to be me sitting at the top of the organization
Speaker 4: saying this is how we should use it. I the
Speaker 4: applications are yet to be determined exactly how the art
Speaker 4: of the possible is here. I think one of the
Speaker 4: things we're finding is the data, especially in the private markets,
Speaker 4: has become so so important, and right now a lot
Speaker 4: of it is unstructured data from historical and then everyone's
Speaker 4: doing a better job of cataloging that data today. But
Speaker 4: the ability to use these machines to make decisions really
Speaker 4: depends on the access to data, and our data on
Speaker 4: private companies and others. Data on private companies is very,
Speaker 4: very valuable to help inform investment decisions and inform business decisions.
Speaker 4: But if it's not in a structure that works, it's
Speaker 4: not in a structure that can be accessible.
Speaker 2: It's of no value and not machine read.
Speaker 4: It's not Look, the technology is getting better to go
Speaker 4: out and find unstructured data and bring it in, but it's.
Speaker 3: It's still a ways a way.
Speaker 4: The public markets have done an incredible job of bringing
Speaker 4: things together and having it to be able to mine
Speaker 4: that information, but really the private data that exists out
Speaker 4: there is so large, and it's in many cases, certainly
Speaker 4: the historical data is very unstructured.
Speaker 2: Really interesting. So let's jump to our favorite questions that
Speaker 2: we ask all of our guests, starting with what's keeping
Speaker 2: you entertained these days? What are you watching or listening to?
Speaker 4: Yeah, in terms of streaming, I'm I'm you know, I've
Speaker 4: just finished or almost finished with season two of Silo,
Speaker 4: So that's really Yeah, it's an interesting one.
Speaker 2: Sci fi that's on Applifying sci.
Speaker 4: Fi, it's on Apple, It's it's, it's it's entertainment for
Speaker 4: for sure. I watched three Body Problem a while ago.
Speaker 2: Is so good.
Speaker 3: Yeah, so good.
Speaker 4: I'm waiting and anxious for the second and third season
Speaker 4: of of that to come up. So I get my
Speaker 4: fiction when I watch, and I mostly read nonfiction.
Speaker 3: I've you know, I'm in just a.
Speaker 2: Deep Well, we'll talk a little bit about books in
Speaker 2: a moment. Before we get there, I want to ask,
Speaker 2: who are your mentors who helped shape your career?
Speaker 4: Yeah, so I've used these two, and these these two
Speaker 4: are really Pivotabal one was my second boss at Price
Speaker 4: Waterhouse Scoopers. What he taught me was really the caring
Speaker 4: nature of business and how it should, how people should
Speaker 4: view others and treadeaus, and it was an interest. I
Speaker 4: worked for him for only two years and ever since
Speaker 4: I've left, I still get a call on my birthday
Speaker 4: without fail. I talked to him other times, but without fail,
Speaker 4: I get a call on my birthday, and that's always resonated.
Speaker 4: I mean, working for someone for two years, but then
Speaker 4: for decades afterwards, they continue to remember something that is
Speaker 4: you know, it's birthdays come and go every year, but
Speaker 4: it was important enough or I was important enough to
Speaker 4: him as a person to make that to make that call.
Speaker 4: So that's something I've tried to take away and be
Speaker 4: conscious of that people care about.
Speaker 2: Those things, talk about people, skills and people business.
Speaker 4: It was an admirable trait, certainly. And then another one
Speaker 4: was a coach of youth sports, was really one who
Speaker 4: taught me that the individual will never be above the team.
Speaker 4: And no matter how valuable someone is, no matter how
Speaker 4: important or capabilities or skill set are, if they don't
Speaker 4: fit within the strategy of a team or the approach
Speaker 4: and philosophy of a team.
Speaker 3: It won't matter. It will be destructive.
Speaker 4: And so learning those on really again, and I think
Speaker 4: my skill set, my personality fits well within a team
Speaker 4: based structure, which is to your earlier question about how
Speaker 4: why did I stay it or how have I stayed
Speaker 4: at Bearings for so long? It was a fit and
Speaker 4: so recognizing that always made me understand And again I
Speaker 4: think it pointed out to having some self awareness that
Speaker 4: these companies and part of my job is the steward
Speaker 4: of the company right now. But Mass Mutual, as I mentioned,
Speaker 4: has been around for one hundred and seventy five years.
Speaker 4: As long as it owns Bearings, It's going to be
Speaker 4: around many many years after I'm gone, and I'm a
Speaker 4: steward of it currently at this but my job is
Speaker 4: to bring other people along and so therefore it has to.
Speaker 3: Be a team.
Speaker 2: Let's talk about books. What are some of your favorites?
Speaker 2: What are you reading right now?
Speaker 4: Yeah, I'm just finishing up the Steve Jobs book by
Speaker 4: Walter He's fantastic. Before that, I read the Musk Book
Speaker 4: and then actually read a book by him called Code Breakers,
Speaker 4: which was out the about.
Speaker 3: The m R and a technology.
Speaker 4: So I get most I read mostly nonfiction when it
Speaker 4: comes to that, So I'm going through those kind of
Speaker 4: juggle books at the same time. I just also finished
Speaker 4: seventeen seventy six by David mccaugh. Uh huh, So that's
Speaker 4: that's really what I'm reading, but most of the stuff
Speaker 4: is nonfiction.
Speaker 2: I every time someone brings up mccaullaughy, I have to
Speaker 2: bring up the Right Brothers book by him. Amazing.
Speaker 4: Yeah, never, Okay, well that'll we'll put that on the list.
Speaker 4: I haven't read it yet, but I'll put that on
Speaker 4: the list. And a good writer is so gifted. I mean,
Speaker 4: it's it's amazing what they can do with stories. So
Speaker 4: I've enjoyed reading reading those.
Speaker 2: Our final two questions, what sort of advice would you
Speaker 2: give to a recent college grad interested in a career
Speaker 2: in either private investing, insurance investing, or in general if
Speaker 2: if that was what they were interested in as a career.
Speaker 3: Yeah, I mean, first, it's a great it's a great industry.
Speaker 3: I love it.
Speaker 4: And there's a lot of aspects of financial services. And
Speaker 4: this is somewhat timely. I've got a I've got a
Speaker 4: sophomore in college now who I'm somewhat counseling on, although
Speaker 4: he listens less.
Speaker 3: To me and more to other people.
Speaker 4: But I've always advised when we bring in two year
Speaker 4: analysts out of college, we have a two year analyst program.
Speaker 4: When I'm fortunate enough to speak with them, it's take
Speaker 4: it all in. You don't know exactly what you want
Speaker 4: to do today, but look around, ask a lot of questions.
Speaker 4: Intellectual curiosity is key. If you've got intellectual curiosity about something,
Speaker 4: you'll be.
Speaker 3: Better at it.
Speaker 4: But most importantly, find a place where you want to
Speaker 4: be working with who you want to work with, doing
Speaker 4: what you want to do, and that that, to me,
Speaker 4: is the key. If if you find yourself in any
Speaker 4: of those three don't match up, I really think it's
Speaker 4: it's irrespective of how great you think the industry is,
Speaker 4: the prestige of it, you just won't be happy long term.
Speaker 4: And I think I was again fortunate. I loved public accounting,
Speaker 4: but I couldn't see myself doing that forever. I enjoyed it,
Speaker 4: and I was fortunate and to find myself in the
Speaker 4: situation like this. So if you're not where you are,
Speaker 4: with who you want to be with doing what you want,
Speaker 4: it'd be time to move on.
Speaker 2: And our final question, what do you know about the
Speaker 2: world of finance, credit, lending and investing today you wish
Speaker 2: you knew twenty five years or so ago when you
Speaker 2: were really first getting started.
Speaker 4: Yeah, I think what I would say is what I
Speaker 4: knew back then, or thought I knew back then, that fundamentals.
Speaker 3: Ultimately will are key.
Speaker 4: You lose track of that sometimes when you see euphoria
Speaker 4: and you see bubbles and you start to get away
Speaker 4: from really long term cash flows of things or what
Speaker 4: really matters over time. So I think it's not what
Speaker 4: I wish I knew then, it was what I wish
Speaker 4: I hadn't forgotten over time, because mistakes are made really
Speaker 4: when you lose sight of the fundamentals of things. And
Speaker 4: so I'd encourage folks that long term valuation should be
Speaker 4: based off an expectation of growth and expectation that that
Speaker 4: sooner or later will turn into earnings, which will ultimately
Speaker 4: turn into cash flows. In keeping that in mind that
Speaker 4: that's the fundamental for all investments. In what investments that
Speaker 4: or people are made in Ultimately, valuations.
Speaker 2: Really really very fascinating. Mike Freno, thank you for being
Speaker 2: so generous with your time. We have been speaking with
Speaker 2: Mike Freno, chairman and CEO of Bearings, which manages over
Speaker 2: four hundred and thirty billion dollars in global financial assets.
Speaker 2: If you enjoy this conversation, check out any of the
Speaker 2: five hundred previous interviews we've done over the past ten years.
Speaker 2: You can find those at Bloomberg, iTunes, Spotify, YouTube, wherever
Speaker 2: you find your favorite podcasts. And be sure and check
Speaker 2: out my new book, How Not to Invest The Ideas, numbers,
Speaker 2: and behaviors that destroy wealth and How to avoid them,
Speaker 2: coming March eighteenth, twenty twenty five. I would be remiss
Speaker 2: if I did not thank the Cracked team that helps
Speaker 2: put these conversations together. Adam Luke is my producer. John
Speaker 2: Wasserman is my audio engineer. Sean Russo is my researcher.
Speaker 2: Sage Bauman is the head of podcasts here at Bloomberg.
Speaker 2: I'm Barry Richdolts. You've been listening to Masters in Business
Speaker 2: on Bloomberg Radio.