WEBVTT - Morgan Stanley CEO Ted Pick Talks Inflation, Private Credit

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. Let's get now speaking

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<v Speaker 1>of to Bloomberg's Lisa Abromwitch. She is standing by with

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<v Speaker 1>the CEO of Morgan Stanley, Ted Pick.

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<v Speaker 2>Let's get you straight over to that interview. Lisa, Thank

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<v Speaker 2>you so much.

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<v Speaker 3>I am sitting here at Morgan Stanley's headquarters in New

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<v Speaker 3>York with Ted Pick, the one and only, the chair

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<v Speaker 3>and the CEO of Morgan Stanley, after an earnings result

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<v Speaker 3>that you led off with by just saying Morgan Stanley

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<v Speaker 3>had a record quarter mic drop.

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<v Speaker 2>What led that kind of strength?

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<v Speaker 1>We have a team that I'm so proud of, and

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<v Speaker 1>we've been building our firm for all these years, and

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<v Speaker 1>we got the strategy set now over the last couple

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<v Speaker 1>of years, raised, managed and allocate capital for clients who've

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<v Speaker 1>got a wealth and investment manager alongside investment bank and

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<v Speaker 1>the integrated firm. Are those divisions working together. So it

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<v Speaker 1>begins and ends with the team. It's one quarter next quarter,

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<v Speaker 1>but I'm really proud of Morgan Stanley Blue today.

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<v Speaker 3>There's a question about the trading and sales volumes and

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<v Speaker 3>how they absolutely blew expectations out of the water, particularly

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<v Speaker 3>at Morgan Stanley for both FIC and equities. How much

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<v Speaker 3>does this stem for good volatility versus bad volatility, because

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<v Speaker 3>sometimes when things are kind of moving around, it hasn't

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<v Speaker 3>led to those kinds of results. But this quarter seemed

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<v Speaker 3>to have been a real boon for Wall Street.

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<v Speaker 4>I think you're right about that.

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<v Speaker 1>The crisis in the Middle East began to bubble up,

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<v Speaker 1>and folks were thinking going into twenty twenty six, this

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<v Speaker 1>would be a year of investment, banking tailwinds, large cap

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<v Speaker 1>corporate health momentum, upside trade. And then this exogenous event

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<v Speaker 1>was creeping up, but it wasn't sort of like a

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<v Speaker 1>bang COVID that became pretty quickly uninvestable.

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<v Speaker 4>Correlation of assets and the only thing you can do

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<v Speaker 4>is put your pencil down.

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<v Speaker 1>This was one where folks thought, well, we'll see how

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<v Speaker 1>the conflict evolves, but I'd like to express a view.

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<v Speaker 1>Perhaps I want to hedge some of my portfolio, perhaps

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<v Speaker 1>I want to diversify. So you start seeing dispurgeon activity.

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<v Speaker 1>And our job with MORTGANE. Stanley is to bring content

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<v Speaker 1>like you and then to get folks to act, and

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<v Speaker 1>if they're in a mood to act, we're effectively moving

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<v Speaker 1>inventory market making our best ideas and then their buyers

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<v Speaker 1>and sellers for hedging, insurance and the like, and so

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<v Speaker 1>in that sense, some volatility is a good thing because

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<v Speaker 1>you can.

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<v Speaker 4>Sort of measure.

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<v Speaker 1>Where it becomes bad is if it's risk off and

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<v Speaker 1>people say, wow, I can't do anything to put their

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<v Speaker 1>pencils down. So, yes, this was a good vall environment

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<v Speaker 1>because we were close to clients and those clients were

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<v Speaker 1>listening to our content and evolving and trying to measure

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<v Speaker 1>through scenarios, and that work both inequities and fixed income.

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<v Speaker 3>What's fascinating is it also worked in the banking side.

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<v Speaker 3>Usually when you have that kind of volatility, it isn't

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<v Speaker 3>good for capital markets on the primary side because people

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<v Speaker 3>are concerned, they sit on their hands, they don't do

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<v Speaker 3>some of the deals that we're expected.

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<v Speaker 2>That was not the case in the first quarter.

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<v Speaker 4>Much.

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<v Speaker 2>Do you see that pipeline which you talked.

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<v Speaker 3>About on the earnings call being resilient and solid coming

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<v Speaker 3>to truition given the fact that there has been an

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<v Speaker 3>easing and some of the tensions in the Middle East.

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<v Speaker 1>Well, that's an interesting point you're making that typically when

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<v Speaker 1>you effectively have market making to sort of protect you're

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<v Speaker 1>not going to have the risk spirits of the new

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<v Speaker 1>issue market or the M and A market functioning at

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<v Speaker 1>the same time. And I think the M and A

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<v Speaker 1>market and the new issue market worked in part because

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<v Speaker 1>there was so much tailwind from the beginning of the year,

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<v Speaker 1>and in certain sectors the AI ecosystem, even with geopolitics,

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<v Speaker 1>they were able to keep going.

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<v Speaker 4>So the question that hopefully.

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<v Speaker 1>Will become a hypothetical would have been if the conflict

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<v Speaker 1>had gone for a number of quarters and we started

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<v Speaker 1>to see energy costs get effectively imported from Asia through.

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<v Speaker 4>Europe to the US, what would that do.

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<v Speaker 1>To the calendar, both the M and A calendary, the

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<v Speaker 1>IPO calendar. And I hope that question will be for

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<v Speaker 1>another day or maybe no day. Today's question is if

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<v Speaker 1>the conflict can be boxed at some level, would we

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<v Speaker 1>expect the coming to the market of these great companies

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<v Speaker 1>but also smaller, very high quality sponsor companies to either

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<v Speaker 1>come via IPO or to engage in the M and

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<v Speaker 1>A trade That has been sort of the log jam

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<v Speaker 1>of the last couple of years.

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<v Speaker 4>And I think we're seeing in pipelines that.

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<v Speaker 1>Both corporates and sponsors want to come so I think

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<v Speaker 1>what you could have as a period now we'll still

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<v Speaker 1>have some volatility, maybe not the very high levels of

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<v Speaker 1>charge activity at the beginning of the year that was

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<v Speaker 1>generally speaking good for trading desks. Maybe you'll see more

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<v Speaker 1>of a normalization of those types of activities. Remember, now

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<v Speaker 1>the volatility measures already elevated, so the price of buying

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<v Speaker 1>incremental insurance is high. But then importantly, the core corporate

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<v Speaker 1>finance life cycle that we've been looking at over the

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<v Speaker 1>last couple of years. Hopefully we can resume against SMP

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<v Speaker 1>seven and fifteen percent earnings growth, and we can we

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<v Speaker 1>can keep going.

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<v Speaker 4>But the only caveat i'd make here lease is there are.

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<v Speaker 1>Going to be some companies they're just not They're still

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<v Speaker 1>not ready. They're in, they're locked in sponsor portfolios, and

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<v Speaker 1>they can need even more time. Five years not enough,

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<v Speaker 1>they need six seven years because of the higher rate

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<v Speaker 1>of interest and to sort of carry the debt. But

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<v Speaker 1>they are going to be other companies clearly that want

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<v Speaker 1>to come, and we're beginning to see the lead sponsors

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<v Speaker 1>and lead companies. Not necessarily these megacaps, those are coming

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<v Speaker 1>in any case, but the next year of companies we

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<v Speaker 1>see in bakeofs sort of like M and A versus

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<v Speaker 1>IPO type of bakeoff. We're seeing those, We're seeing those happening,

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<v Speaker 1>and I think.

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<v Speaker 3>That augurs, well, what needs to happen for those deals

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<v Speaker 3>to all come to market? Does it depend on rates

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<v Speaker 3>coming in or volatility staying relatively needed or where it is?

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<v Speaker 3>I mean, what are some of the sponsors and some

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<v Speaker 3>of the CEO is talking about here?

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<v Speaker 1>I think the biggest risk continues to be that inflation

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<v Speaker 1>gets imported around the world again through the energy complex,

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<v Speaker 1>and eventually it works this way through the food and

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<v Speaker 1>general living ecosystem and becomes that becomes challenging, that that

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<v Speaker 1>queers the cost of capital and effectively then you start

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<v Speaker 1>talking about the R word.

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<v Speaker 4>The good news we're not talking about the R word, and.

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<v Speaker 1>So that you know that that translates into I think,

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<v Speaker 1>you know, sort of continue momentum and high quality companies

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<v Speaker 1>and the wealth piece of the spectrum is continuing to deploy,

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<v Speaker 1>continuing to want to engage. So I think if there

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<v Speaker 1>is some sort of and again I don't want to

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<v Speaker 1>use the phrase it's a serious and complex issue, but

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<v Speaker 1>sort of a better understanding, maybe a narrative the cone

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<v Speaker 1>of uncertainty around what is happening in the Middle East

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<v Speaker 1>that I think is going to be enough for folks

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<v Speaker 1>to say, Okay, you know what, I can sort of

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<v Speaker 1>manage through the imputed energy costs in the back end

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<v Speaker 1>of twenty twenty six, and we're going to continue with

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<v Speaker 1>sort of the game plan. The game plan is to

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<v Speaker 1>get bigger to defease the cost of a I remember

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<v Speaker 1>the regulatory backdrop very favorable, and then the need to

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<v Speaker 1>defease the.

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<v Speaker 4>Cost of AI real you put those two together.

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<v Speaker 1>I'm not saying bigger is better for everyone, but bigger

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<v Speaker 1>is better might be hip again.

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<v Speaker 3>Well, and we heard about that from United speculating or

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<v Speaker 3>some speculation that you might United might buy American Airlines.

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<v Speaker 3>If that gets through, what's next, Augus Stanley buying Golden Sacks.

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<v Speaker 2>I mean, how big could it get?

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<v Speaker 3>Should there be some sort of regulatory green light potentially

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<v Speaker 3>to even some of the big players.

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<v Speaker 1>Right well on mergers inside of our space, I'll make

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<v Speaker 1>you gave me an opening to make a comment on that.

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<v Speaker 1>I think one of the interesting phenomena of the last

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<v Speaker 1>couple of years and one of the things I've learned

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<v Speaker 1>in this job is that the quality of the management

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<v Speaker 1>teams and the quality of the business models of our

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<v Speaker 1>closest competitors is very high quality. This is so important

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<v Speaker 1>for us to have vibrant competitors now in a period

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<v Speaker 1>when the economy is hopefully going to really have another

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<v Speaker 1>leg where we are able to conduct some of the

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<v Speaker 1>businesses that we've been wishing to conduct and have been

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<v Speaker 1>curtailed from conducting during this tough regulatory patch that we

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<v Speaker 1>went through for the better part of twenty years. Now

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<v Speaker 1>that we're able to compete in our traditional businesses, a

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<v Speaker 1>lot of these firms have internal growth prospects, different models

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<v Speaker 1>from each of the firms.

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<v Speaker 4>You know very well where we'll.

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<v Speaker 1>Be competing, but we don't actually need to go in organic.

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<v Speaker 1>I mean, there may be ways where you want to

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<v Speaker 1>bolt on, for example and incremental business, but in our case,

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<v Speaker 1>we have the wealth and Investment Manager, we have the

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<v Speaker 1>investment bank on a global basis, and the organic growth

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<v Speaker 1>potential for those businesses. The tailwinds are enormous, and I

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<v Speaker 1>think with some of our competitors that I want to

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<v Speaker 1>make the pitch for our competitors, I think they have

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<v Speaker 1>similar types of dynamics and The reason that's so important

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<v Speaker 1>is for investors, they want to know that there's embedded,

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<v Speaker 1>durable growth inside of this group that still trades at

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<v Speaker 1>a low teen's multiple.

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<v Speaker 3>One big question, frankly, the most story on the Limbert

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<v Speaker 3>terminal today is about Fedshair independence, President Trump threatening to

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<v Speaker 3>fire Fedhair. J.

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<v Speaker 2>Powell.

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<v Speaker 3>How much does that register in any of what you

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<v Speaker 3>talk about with people or do a lot of people

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<v Speaker 3>view this kind of a noise and the backdrop being

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<v Speaker 3>really stable with respect to inflation expectations, even the institutional landscape.

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<v Speaker 1>Yeah, I think I think sort of the politics of

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<v Speaker 1>the moment tend not to get too much into the

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<v Speaker 1>focus of how you want to express a position, because

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<v Speaker 1>the question becomes sort of the bigger landscape items. Do

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<v Speaker 1>we have interest rate policy that feels like it's on

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<v Speaker 1>a path? Well, I think the answer to that question

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<v Speaker 1>is more so than it was eighteen months ago, but

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<v Speaker 1>for the war. So with the resolution of the war,

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<v Speaker 1>do we feel again like we're on a path where

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<v Speaker 1>there's sort of equilibrium between price stability and employment And

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<v Speaker 1>if it's friendly enough or predictable enough that the CFO

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<v Speaker 1>that she can model what the next five years look like, Well,

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<v Speaker 1>then she's going more comfortable taking to her board the

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<v Speaker 1>idea of buying company XYZ. And likewise, if there's a

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<v Speaker 1>reasonable view of what the economy looks like, because there

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<v Speaker 1>isn't going to be an inflation shock, the acid manager

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<v Speaker 1>can then go about investing in a particular sector and

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<v Speaker 1>trying to generate alpha.

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<v Speaker 3>On the call, you called private credit in its adolescence,

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<v Speaker 3>and you talked about how your exposure is relatively small.

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<v Speaker 3>Where is the fact and where's the fiction when it

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<v Speaker 3>comes to private credit?

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<v Speaker 1>Some of the concerns, Well, I think when I say adolescents,

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<v Speaker 1>I mean a learning it's a learning period.

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<v Speaker 4>You know, it's grown like a weed.

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<v Speaker 1>And that, as you know, is a function of an

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<v Speaker 1>ascia class that didn't exist ten fifteen years ago. Effectively

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<v Speaker 1>the street was replaced on that. It's around a trillion

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<v Speaker 1>seven high yields it about a trillion seven. Levered lending

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<v Speaker 1>is it about a trillion five trillion seven?

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<v Speaker 4>So it's relevant.

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<v Speaker 1>But the ig stack is, you know, is the investment

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<v Speaker 1>grade stack is ten to fifteen trillion.

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<v Speaker 4>It's all credit. It's all credit.

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<v Speaker 1>So all things be equal, if the economy is growing,

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<v Speaker 1>credit does fine. It does fine when there's a recession,

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<v Speaker 1>credit struggles, and then the question is then which of

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<v Speaker 1>the borers we're really doing the work around what's in

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<v Speaker 1>underlying portfolios?

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<v Speaker 4>How quickly was the capital put to work?

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<v Speaker 1>And I think what we're going to see is we're

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<v Speaker 1>going to see dispersion of returns among great asset managers

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<v Speaker 1>who really stuck to their knitting, thought about sector's diversification,

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<v Speaker 1>thought about how long it takes to put those investments

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<v Speaker 1>to work, and manage to do less well, and over time,

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<v Speaker 1>I think the aults will find their place as a

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<v Speaker 1>growing asset class for all kinds of institution investors.

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<v Speaker 3>Ted Pick, We're out of time, which is such a shame.

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<v Speaker 3>I could talk to you for an hour. Ted Pitch,

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<v Speaker 3>the CEO and chair of Morgan Stanley. I'm going to

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<v Speaker 3>send it back to you as we look to an

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<v Speaker 3>incredible earning season for Wall Street Morgan Stanley with a

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<v Speaker 3>record trading at sales, looking to optimism ahead if there

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<v Speaker 3>is some resolution in the Middle East. From New York,

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<v Speaker 3>this is Bloomberg