Bloomberg Global Business Forum 2019

Week on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show weekdays at two pm Eastern only on Bloomberg Radio. Great day at the Plaza in New York at the Global Business for annual gathering of global political leaders, business leaders, um activists. And it's all about really high level conversations. But I do want to say, and Mike set the tone at the top. Mike Bloomberg, of course, owner of Bloomberg LP, Bloomberg Radio,

Bloomberg TV. You know, looking at climate change and the role public private partnerships and how you solve these problems that came up a lot in the panel discussion that we were fortunate enough to host earlier in this afternoon, but one of the underlying questions of course, is what is the state of the global economy, and what do we think about businesses, what do we think about consumers? How does US China trade play into all of it. I put all of those questions to Jonathan Gray. John Gray,

he is the president and the CEO of Blackstone. He joined me earlier here at the Global Business Forum. Let's listen in to that conversation. And John just jumping into what feels like the big question right now, which is cautious businesses optimistic consumers. Help me understand is there a disconnect, is there a lag what's going on? Well, I think what you're seeing is you've got some uncertainty in the world.

You certainly have some friction from the China trade, You've got the Brexit situation, and you just have some geopolitical concerns that are making everybody nervous. Businesses are responding by pulling back a bit. You see that in manufacturing, industrial data, capital investment, and you're beginning to see that in earnings

from companies. So that's one side of the equation. On the other side of the equation the consumers actually doing pretty well around the world, particularly here in the US. So I was talking to a friend this morning about what I think of is the three threes, which are we have three point seven percent unemployment, wages are growing north of three percent, and home prices are growing north of three percent. So if you think about the consumer, they have a job, wages are going up, and the

biggest assets appreciating in value. And that's why you see this bifurcation. So I'd say when you add it together, I think what it leads to is not a recession, but a slowdown in growth globally, which is what we're experiencing. And so how much does it slow down? And when are we in that now? I think we're in that now. It's hard to say. The good news is central banks have decided, you know that they're going to lower rates and continue to stimulate, which has helps soften the blow

a bit. And it's possible that some of these issues like China trade or Brexit get resolved, which would take a little bit of this uncertainty away. I think as investors, though, you don't want to get too caught up in sort of the heat of the moment. You want to try to take a longer term view. So where are you spending money? I know your investors are asking you that every time they get on the phone with you. Where you to playing capital you've got five plus billion dollars

in assets. Well, that is the big question. I think in this point in the economy where you have slow growth, you also have pretty high multiples. Right the low rate of interest rates, it's created expanded multiple So you have to be cautious on where you invest. What we're looking at our places where technology is creating a lot of change and where they're really in the path of growth. Industries in the path of growth, so globally and logistics

we've talked about it before. We've been the big buyer of warehouses around the world. Probably bought seventy billion dollars on the simple premise that goods are moving from physical retail to online retail. We're doing things around content creation as a result of the cost of distribution of media coming down. You want to service that industry software as

a solution. Things migrating to the cloud. We bought a big business a does things in the human resource area online UM India another area that's benefiting from I T services. So I think as the global economy transformed, even though the overall growth rate isn't that high. Trying to find those industries and sectors that have the wind at their back is really important. So you a net buyer? Are you a net seller at this point across all of your empire? You know? I would say it's a bit

of both. I wouldn't say, you know, there's one clear path. I think when we find businesses that have stabilized and sort of our buy it, fixed it sell it approach, we actit. On the other hand, there are plenty of things that we still have conviction in and we hold, so you're seeing us sell, but at the same time deploy a lot of capital. We put out fifty six billion dollars of capital in the last twelve months, so we're still finding interesting things. I would say it's more

selective and it tends to be in larger situations. Uh thirty seconds to go real estate? How are you feeling, especially the United States, residential and commercial? I would say, Okay. The headwind is that prices are high, multiples are high for real estate. The economy slowed. The good news is that supply is pretty limited and rates remain low. I think again, you've got to focus on where do you see better growth, so West coast of the United States,

more technology, more job creation. Warehouses again another area as opposed to retail, and then rental housing. The shortage of new home construction has led to strength and rental housing and single family homes. And that was my conversation with John Gray, he is the president and the chief operating officer of Blackstone. Then we got a chance to catch up, obviously with his boss, Steve Schwartzman on our panel a little bit later on. We did, uh, and a great conversation,

and we talked earlier about the optimism. What's great about Blackstone? I mean, what is it? More than half billion dollars in assets and management? Half a chillion? Forgive me right, right, right? Um, So get your head around that. So many different This is big exposure to real estate and a lot of different types of assets. So again, uh, you know, a company and individuals who really have a good snapshot of what's going on in the world. Well, and it's funny

and you know, not to talk out of school. But as I was wrapping up with John off air, he basically said that what we talked about on the air was essentially every conversation he has with a big investor in the sense that they call him up and they essentially say, hey, look, I I see these companies who are saying, I'm a little bit cautious, I'm worried about trade, I'm worried about this, worried about this, worried about that.

And then meanwhile, all these consumers are saying, I'm gonna buy a car, I'm gonna buy a house, I've got a job, let's buy some Christmas presents. You know. It's it's a it's a bifurcation of sorts and a dichotomy that people want to figure out. And then they say to him, so, how are you gonna spend all that money? Right? Because they have so much right to still put to work. And I do wonder about that because I feel like the private equity guy, especially the bigger players, continue to

raise money, right, continue to bring out new funds. UM. I feel like we've done the stories on the infrastructure funds, and I still feel like that money is waiting to be put to work. Fascinating to hear the Prime Minister of India, you know, and talking about infrastructure needs right, and certainly they are open for business and ready. UM to work with companies to put it to work well. And on that topic of infrastructure that came up on

our panel as well with Ann Mahindra. They have a huge renewable renewables business and he was being a little bit funny about it, but essentially saying, listen, everybody, just don't worry about this. It's not a thing. And by the way, I'm going to make a ton of money while you're looking the other way or either arguing about the causes and effects or saying, oh, I don't know what we're gonna do. Meanwhile, he said, you know, they're renewables business is one of their best performing, one of

the best. They're making money off of it, right, They're finding, you know, a lot of business opportunities. So yeah, it's well, I was just gonna say, you know, we'll hear a little bit later in the show, I believe from Bruce Flat, who's the CEO of Brookfield. You know, he was also along this morning. He's actually on a panel right now with President Clinton and the president, the current president of Columbia.

He was talking about Brexit the impact on their investments there because the only firm that's actually nipping at Blackstones heels from a assets under management is Brookfield because they're combining with oak Tree. As you remember, that deal is going to close on Monday, believe about exactly. They're going to have half a trillion dollars of their own under management. So these two big investors. So we'll get that perspective

a little bit later on. Alright, looking forward to that and a lot more to come from the Bloomberg Global Business form. What is McDonald's and it is, of course the world's largest fast food chain, trying to make it in an age of code and Kale. Behind it all Steve Easterbrook, who has been president and CEO McDonald's for I think about four years. A little bit more than that. This feature story in the magazine this week online in at Bloomberg dot com. It is the cover's story, and

let's talk about it with Leslie Patton. She is our Blueberg News consumer reporter. She's in our Chicago Sorry about that, she's in the Chicago bureau scie. I'm like trying to remember where everybody is. And of course Jill Weber is with us, the editor of the magazine, joining us back in our New York studio. So um, Julia made this the cover. I have to say, I love this story. I had no idea. Jason and I were talking about it all of what was going on at McDonald's in

terms of becoming more digital. Yeah, so this was a story that we piqued our interest a while ago when McDonald's started to make a series of tech acquisitions and investments and we were like, that's kind of interesting. And then we kind of looked at the performance of the share price and McDonald's is amazing. It's really been on a tear over the last five years. And as we started talking to to Leslie, who covers the company, and our colleague Thomas Buckley in the UK, we said, there's

a there's actually you know, Jason, you love this. There's a great strategy story here. So we got to spend some time with Steve Easterbrook, the CEO. Leslie what what's the vision? What's he what's he doing with McDonald's. I think the plan is really to move McDonald's forward and not only do that, but do it at the pace that some of the smaller places they're doing, which McDonald's

the biggest restaurant chain in the whole world. Can they can they keep up with some of the smaller, more nimble players, and that's what he's really trying to do. I think, well, and Leslie one of the reasons I really liked this story. First of all, it's a deep dive and his droll says it is a great strategy story. But it's also a little bit counterintuitive, I think, especially given how breathless and I put this on all of us.

We have been around faux meets and you know, artisan artisanal burgers and all of these things that are coming up. This is a behemoth that Easterbrook seems to have really turned in a direction, not without a sort of internal controversy. But this is this is a market shift. Yeah, that's right.

And let's keep in mind the food itself hasn't really changed that much, right, So there might be some new sandwiches, there might be some new topics or something like that, but you know what, it's the core McDonald's is still burgers, fries, milkshakes. That's what he's promoting, and that's what he wants to really get in the hands of more people faster. That more people faster, I mean to give you a sense of what their scale is, right, This is a global company.

They basically feed one percent of the global population on any given days. Amazing scale. Right, so when they make a tweak, and like one of the ones that opening anectory that Leslie and Thomas have some amazing reporting about is the moment that McDonald's decided to do delivery and it wasn't like we'll get to that next year. It's like, no, I want this now, and I want it done globally.

And when you think about the operations that it takes to actually do something like that, I mean, and you know they partnered with uber Eats to accomplish that, but it speaks of like, Okay, we have a Spanish Armada style ship here that we need to move and we need to move it faster than ever before, while competitors are doing kale salads or fried chicken sandwiches now, and we're McDonald's, Like, so we have an advantage, but we

we can't take that for granted. Well, and what go ahead, Leslie? No, I was wanna say, that's that's exactly right, Joel. I think, and keeping in mind that that because this ship is so large, they have such a large influence. But Easterbrook, he's really just brought this sense of urgency that wasn't there before. And he's not satisfied was taking years and years to do things and an eighteen months plan for

a new sandwich is not okay anymore. Well, and I love the story at the top that talks about I think it was something like three years ago and Easter Book made a stop in Madrid before heading home for the Christmas holidays, and you know was it's the soccer matches were going on and you get a whopper delivered but you couldn't get a big Mac. Yeah, exactly, Like he was just really ticked off and did you like call these guys? Yeah, that's through the whole delivery thing

into into motion. But you know the heart of this to me, though, is this this tech thing, which is why the cover it looks like a big macbox, only instead of saying a saying big Mac on the box, that says big data. And then did you see what I did? What we did there? That really I think speaks to the spirit of this, because that is the secret sauce, right, how can we use technology to sell burgers better? That? And nobody else has really thought that way.

But to give you a sense of where it can go is like you you drive through the drive through and suddenly you get offered something that you had last time because it remembered your license plate number. We're basically there, like we can we can do that. Um, you might find it creepy or it's like maybe it's a way to sell you a couple of extra boxes of French fries. Well, and it does feel like, you know, you know a person my age is creepy, is a millennial's cool? I'm

so glad. Yeah, I don't have to open my mouth, like get the online eating apps right. They're like, oh, hey, you had this last time. I'm like, yeah, you know what I wanted again And I don't know. I find him helpful and get another acquisition that man exactly. Great discussion, guys, Thank you so much. Check out the converstry this week in Bloomberg Business Week. Leslie Pattons she wrote it with

Thomas Buckley. There's a conversation that Carol had with Thomas Buckley on our weekend show in Bloomberg Business Week this weekend. Our thanks also, of course, Joel Weber, who was over here earlier moderating a killer panel at the Global Business Forum. Back in our New York studio. You're listening to Bloomberg Business Week, Jason Kelly and Carol Master live here in New York City at the Global Business Forum Business Bloomberg Journal. Yeah,

but you let me drive. Oh no, no, no no, no, Ann please, I want to try questions to the Globe Bloomberg Radio. All right, well, we have a special edition of today's Drive to the Close. Checking in with one of the world's biggest global investors. I caught up with him earlier. That's Bruce Flatt. He's the CEO of Brookfield. Let's listen to what he had to say about the

state of the global markets. As you're moving around not just this event, but around New York City this week, you're talking to a lot of heads of state, a lot of investors. It's a world of instability. It feels like fair to say, but how does it feel to a big investor. Look, I'd say politically, many countries are up in the air and uh and and pretty extreme politics in those places. But on the ground, in business, actually it's pretty constructive. Most countries of the world are

doing okay. And as value investors, we look for places where you can put money for a long term, you can make decent returns in the fullness of time, and uh instability sometimes brings opportunity, so you just need to think long term in these situations. Well, let's talk about those opportunities, because, as you say, maybe some of this uncertainty drives valuations down, because valuations have been pretty high. It feels like for the past couple of years. Are

you seeing that yet? Well not in in the in the developed markets, valuations are still high. So so our focus is special situations in those places. Um. But you know Europe is being driven by interest rates that are really low today. UM. India has uh um a situation where the financial system needs capital, so there's a lot of opportunity there. In China, we're seeing more opportunities because of just the de leveraging going on in the country,

and that's a positive and it creates opportunity. All right, So you mentioned China US China trade. Obviously, top of mind continues to be how does that play through it at all into your investments or into your thesis about the world. So our our business is about um buying real things, real assets. We buy pipelines, toll roads, real estate, renewable power plants and and their local investments in every country.

So we're in thirty five countries in the world, but we're a local investor in every single country, So it's not trade doesn't really affect on the margins. It does if it affects the country's economy. It obviously affects investments of affect hits currencies, It affects your investment as a global investor. But we're on the ground investors, so trade

isn't as important to us. Do you worry as someone who has to think about the whole world of the implications of a decoupling between the US and China or does that just mildly change what the landscape looks like? Look, I'd say again, as a long term value group, Um, we try to find great places in the world which have rule of law, functioning systems, respect for capital, operate with standards that we can operate with. We like to go there, and we invest for long periods of time. Yes.

Does all do all these things affect us? Yes, in the short term. In the long term, not really. So let's talk about one specific local national situation that's Brexit. You know, we had Boris Johnson, the UK Prime Minister, leave here or l leave New York or leave you in General Assembly to get back. We're gonna be hearing from him later on today. You're a big landowner and in a big landlord I should say they're in London. Canary Wharf obviously has been a big project. You got

a lot invested there. How does that play through? We do, Um, business has been good since Brexit happened. Every day that this gets extended and nothing happens, fewer decisions get made and that's not helpful for business in the fullness of time. I think just getting something resolved will be a good thing for everyone in London is going to be a center of commerce for a long time. And uh, we just need we just need a solution to it, that's all.

Do you feel like, uh, folks are making or putting off decisions, you know people who would be leasing from you or putting off decisions. Look, we had one building. Brexit happened. It was least it opens this month. It's a percent least at the rents we thought. So people make decisions, it takes longer and right now, why would you make a decision in this month? So you'll wait. But people do make decisions. They have to. Business goes on,

life goes on. And when you think about the infrastructure of possibilities that are out there right now, that's clearly on the minds of a lot of people here in the guise of sustainability and where those sorts of investments are happening. You mentioned renewables. How has your strategy evolved even over the past few years in terms of the types of infrastructure deals you might be doing. Yes, so in renewables, where the I think the largest private owner

of renew wables in the world. We've always believed in it. We were a large hydro owner for many decades. Uh in the last ten years we've pushed into wind and solar and will continue to do that because we think it's it's for the future and and and why it's different today is that it's actually economically feasible to do it without without subsidies. Therefore, we're putting a much much more emphasis on that infrastructure in the world, though, is

going to go and go into private hands. Governments are indebted, they need to provide services to their people and more and more, and every country will be different, but more and more infrastructure will be funded by private by private entities, and we're one of them that can put capital together for that. You've got a lot of big investment partners around the world who commit hundreds of billions of hundreds of millions, I should say ultimately and in hundreds of

billions that you've collected. What's their mood right now? If you can generalize across the big institutional investors, you know, I just say that everyone in the world is thinking about and especially people with large sums of money UM. Japan went negative ten years ago. Europe has just gone negative. What that means is that there's only one place to get returns in sovereign credit, and that's in the United States.

And that's obviously been pushing the yield curve UM down on the back end, but increasingly people are needing to put money into alternatives to that, and it's just pushing money into credit. It's pushing money into alternatives, and that is going to keep happening UM going forward. If interest rates with at this level you mentioned credit, you're about to combine officially close the deal with oak Tree. That combination. What should we expect in the near term in terms

of the opportunities that that presents. Well, we've announced closing, it's on Monday. UM. We're excited and thrilled to partner with Howard Marks and Bruce carshon their team. They're going to run the business. We're gonna help them in any way we possibly can. We think it's an added benef fits were institutional clients to offer their products UM and UH.

And in the world we're in where UM low rates are pushing money into alternatives I think are general private equity, real estate, infstructure, franchise will benefit and and now we have a credit offering to add to that. Bruce flat, the CEO of Brookfield, speaking with me earlier here at the Bloomberg Global Business Forum. He in fact just wrapped

up a really interesting panel discussion. We're told we weren't able to go see it because we've been on the air, but with former President Clinton and the current president of Columbia. So between him and John Gray, we got a trillion dollars worth of insights into the market there, right. And these guys, I mean, I love when we're talking with these kinds of people because of what they're seeing in

a perspective. Thanks for listening to Bloomberg Business Week. You can subscribe to the podcast on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show every weekday at two pm Eastern, only on Bloomberg Radio