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Did I the up with me? Emily Schlosser?
She's chief operating officer for B and Y mailing persian here on site. Before we get into some different stuff, I want to ask you what we were.
Just talking about.
Yeah, because I am blown away by the number of women in senior positions here at B and my milling.
Yes, how is that? Because it's not you know that it's not always the case.
No, it's certainly not edge the case.
No.
Look, I've been in the industry a long time, and it's certainly not the case. Everywhere across the street. Bank of New York Mellon has incredible female representation at the top and within Pershing. I can tell you more than half of the members of our executive committee are female.
And I did do that?
How did we do it?
Look, we have a really strong focus on diversity and recruiting, but I can tell you that it's largely happened organically. It's not like we have an opening and we go out and say we have to hire a woman for this role. That's never the case. But we are seeing more and more just awesome talent rising to the top that's organically female.
Right, So you're staying within the organization.
Within the organization, and we have more and more women kind of coming up through our ranks and being promoted within the Bank of New York Mellon and within Pershing, And we're doing a lot of kind of experienced tires that are female too.
All right.
So I know one thing that Matt and I really want to get into and I love coming to I've been several years to this event. So year every year you get to feel like kind of a change in tone or what's on top of mine? And I was kidding with you. Last year it was like, oh my god.
Masks off and it was like together again.
It was like, oh my god, I can actually talk to somebody. There was this kind of euphoria. How do you compare some of the conversations about the market environment? Last year was a tough, tough year. It feels like everywhere, So how do you compare what's being talked about this year versus kind of what we talked about last year.
Yeah, number of things.
So it is less like, oh my god, we're back in person together and more about I think some of the dynamics that we're seeing in the market.
Jim just mentioned.
Jim Crowleyard Pershing CEO just mentioned in his main stage opener, you know, the recent events in March with the regional bank crisis and the uncertainty around the debt ceiling, and what we are seeing a little bit in tempered markets with many people and more of sort of a risk
off posture. I think what's really important right now is strength and stability, and so we are leaning quite heavily in with our clients on just kind of the power that Bny Mellon brings to the market, and particularly to this space in the custodial market, where having that strength and stability in your partner there so critical.
All Right, I've got to bring madd in because I know he's got some great views on the markets and probably has a bunch of questions for you.
Matt take it away.
Well, I was wondering Emily more about your experience and your role there. What do you spend most of your time doing as chief operating officer.
As chief operating.
Officer, yeah, chief operating officer means something different everywhere, right, So for me, I partner very closely with Jim Crowley in leading all things pershing. Technically speaking, I oversee our operations team, our product team, our transformation office. Practically speaking, I have my hands sort of in everything, and a large part of what I'm focused on is transformational change.
I've really spent my whole career driving transformational change for companies across the sector, and I suspect that that's a large part of what attracted Jim to my background when I joined here three years ago. Is you know, he had been in the CEO seat for about a year at the time, and I think he saw a lot of opportunity to continue to evolve this business, which is on awesome footing with great growth prospects, and there's a lot that we can do to change and continue to be better.
So that's what do you mean by transformational change? Because that sounds like an amazing buzz phrase, but I don't really get it. Where were you and where do you want to be? What are you transforming? What are you transforming.
Yeah, there is substance behind it. Let me give you a couple of examples. So one thing that we're really focused on is our service and we've been embarking on a major transformation of our service model. It's multifaceted. One of the aspects is to re engineer the processes that are hardest for our clients, so things like asset movements
and account openings. We're totally reworking those processes. And then we're also reworking our service operating model, so the way that our service individuals actually cover our clients, or the way that we're structured when our clients call in ask questions.
We've set up a new model where you have a team that knows you very well and can answer most of your questions on the spot, but then you also have direct access to a really well curated set of our experts that can answer your more nuanced needs on the spot.
Soon to be replaced by AI. I'm just kidding, no wonder.
It's constantly being enhanced by AI.
So we are actually employing AI in the tools that our service representatives have at their fingertips, so that they're better equipped to search quickly for answers that you may need when you call in, and we're putting those tools in front of our clients so that they can self serve well.
Emily, I mean Matt and I spent a lot of time talking about generative AI ever since Microsoft made that announcement and that investment, But I mean AI has been part of the financial short landscape for a long time. How is it, though, that you guys are thinking about kind of the next leg and the generative AI piece of this and what it means.
Were you playing with it already?
We've been playing with it for a while.
We have had artificial intelligence embedded in a lot of our processes and in our search, et cetera like many companies have. But with the large language models and the generative AI capabilities, you know, we're now looking at much broader functionality, like being able to have our clients search databases of their own data and be able to kind of pull out anything they want just using natural language
and not having to have a coding background. We will quickly get to a place where we can be coding with natural language and imagine what that will do to the speed at which we can deliver new features and functionalities. The possibilities are just awesome, and the things that our tech teams are doing and our product teams are doing to play with the with the capabilities is really cool to see.
Emily, how do you deal with an increasingly global trading world? You know, today we have been busy talking about the SEC going after Binance and coinbase based on a law that was written in nineteen forty six, back before virtual private networks even existed. So what do you do now that people can trade anywhere from anywhere from anywhere.
Yeah, Look, we're constantly thinking about how we expand our reach and how we make sure that the investors who are on our platform have access through their advisors to the global markets. We have global trading capabilities, We leverage capabilities from other parts of the Bank of York Mellon. We have a really strong partnership with our Markets division
to make sure that the trading access is there. So we're constantly thinking globally because our advisors that we serve, in our investors that we serve, or thinking globally.
What's difficult about this environment, either as a chief operating officer or just even with the market environment. I mean, it's if you think about the stuff that investors have had to deal with just in the last year alone, it's a lot.
Yeah.
I think from the investor perspective, what's difficult is uncertainty.
It's access to data.
It's feeling like you have the right information to make the informed decisions. And I would say it's just time, the productivity in your time and not feeling like you know, you have the time to really focus. So it's having that easy access to the solutions that you're looking for.
What's hard for us, and what we're constantly grappling with is the rapid pace of change and growth, right, which is an awesome problem to have, but we're just constantly thinking about how do we stay ahead of the growth in the industry in One of our major kind of pillars is that we're here to scale so that our clients can grow. Were committed that our clients will never outgrow our platform.
Madam deceived a last question for you get thirty seconds.
Oh that's so kind of you. All right, So do you think we're going to hit a new record right now?
One minute? Yeah?
Do you think about the market a new record, Well.
I should say a bowl market rather than a new record twenty percent. We're almost there from our October lows or is this a fake out? A fake out? Yeah?
Look, I don't have a crystal ball. I'm not the right person to obigh in on that, but what I can tell you is that.
Okay, demand and enthusiasm.
From what you're seeing from demand and enthusiasm.
Look, the wealth market is growing significantly, Our investor base is growing significantly. Interest in advisory services is growing significantly, and we're prepared for that growth, and we're prepared for whatever the market has to throw at us.
It definitely speaks to the wealth creation, certainly with a certain sector of our economy.
Emily, thank you so much, Thanks Carol, thank you, Matt.
Yeah, I really appreciate it. Emily Schlosser.
She's chief operating officer for b and y Mail and Pershing right here on site at Insite twenty twenty three in Orlando, Florida.
If you're listening to the Bloomberg Business Week podcast, catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, or watch us live on YouTube.
We're live on YouTube above Bloomberg Originals and I'm here in Orlando at B and Y Mellenen purshing insight.
Matt, of course back at Blomberg headquarters in New York City. I want to get right to our guest.
Interesting background, Joe de Grossa chairman and CEO at Access Capital, chairman of the private equity firm to Grossa Capital Partners. We're going to talk about pe a lot. He also co founded Quinn Residences, which is a real estate investment trust focused on the acquisition development of single family home rentals throughout the United States, which now you've passed on to another generation of your family.
He's here though in Orlando. Great to have you here. Let's start big picture. Matt and I are.
We've had a lot of great conversations, but kind of want to get into the weeds a little bit about kind of what's going on in sentiment in the markets.
How do you see it? Because you sound like you a couple of different vantage points.
Well, first of all, we have a long term view as private equity investors, so we tend not to get caught up in the day to day machinations of the market. Having said that, certainly the you know pretty significant rise in interest rates over the past year have affected all industries in our industries no different. So we're bullish certainly medium to long term. We think the next six months will be a good time to sort of wait and
see what happens. But six to twelve months from now, I think it's going to be a great entry point back into private equity and private credit for that matter.
What are you waiting to see happen?
In other words, the good the bad, because it sounds like we have the discussions where it feels like you could go a couple of different places, right.
You know, It's funny on any given day, I wake up either on the buy side or the cell side, so I have, you know, sort of mixed emotions about what's happening. But I try to stay somewhat to detach. But the reality is, when you're a borrower, the first bad thing that happens in a rising interest rate environment is your cash flows are diminished. You know, indust rates go up, cash flow get dibminished. First thing that happens is you trip on bank covenants, and banks generally like
to be forgiving if they can. The next thing that happens is you actually have payment to faults. When those payment de faults occur, banks have to take action. And we're not yet at that sort of Malcolm Gladwell tipping
point where we're seeing payment to faults. But when that happens, there's going to be some we believe, some for sales, particularly in the commercial real estate market, which we're paying a very close keeping a very close close eye on, and I really believe that's where the opportunity is going to be in the second half of the year. So those payment to faults start to happen.
But manageable and not stressful in terms of the overall market environment.
I figure you're absolutely right, it's going to be Certainly commercial real estate is a big sector in our economy, but we still have a vibrant, robust economy where you know, employment is close to an all time low. We have a very strong economy that can weather this, and we've weathered. You know, I've been in this business got since nineteen seventy nine. I started as a messenger, so I've seen multiple sites. Yeah, absolutely, and you know, time and time
again it's it's time to buy. When there's the proverbial blood in the streets.
Matt come on in.
Yeah, I mean, Joe, if you could just explain why you're a buyer and a seller. Usually I would look at your company and imagine that you guys are lenders. What are you borrowing?
Well, we're not necessarily borrowers.
Now, having said that, we we look at it things sometimes to a different prism, a buy versus build prism, and we think this is an interesting time to build businesses for us. Capital is still relatively cheap when that shakeout occurs, and it will occur in the you know,
on the dead side. We want to be buyers about debt and the companies that are being restructured, and personally, I've had experience, you know, buying three distressed companies and turning them around, and you know you can create an awful lot of value. So you know, we're we're up in the batter's box. We're we're watching some pitches going by. That's okay, there's no no strikeouts unless we swing, and we're waiting for the pitch to come across the transfer.
So how are we gonna know? You know, private credit has been so huge over the last year. Retail investors are falling over themselves to get in and you can understand why to some extent. But after the FED has raised you know, five hundred and twenty five basis points and so many other things. You know, external factors are tightening up financial conditions. You got to start to be worried about defaults. So when are we going to start
seeing that happen? What are you watching for sort of the sign posts?
Well, first of all, if you're putting new money to work, this is an excellent time. Interest rates are up, covenants are far tougher than they were two or three years ago. I mean I was involved in a financing three years ago when we closed the deal in three weeks, and it was the most covenant light deal I'd ever seen. Basically we had money thrown at us and it is exactly the opposite today. So there's so much more discipline in the market. So this is time to be you know,
putting cap to work in debt with new commitments. To the extent you're buying into an existing portfolio, you have to make sure they've been marked market properly. That'd be my biggest concern in someone going into a pre existing fund that there's a fair marked market. I personally believe there's there's generally a lag among sponsors between when they're willing to recognize a change in value of their investments, either up or down.
So, but that reckoning's coming, That reckoning's coming.
I'm curious about valuations when you are looking for you've got money to put to work, okay, more you have more money to put to work versus things you want to exit.
Yes, okay.
Well we're not under pressure to sell anything, so we can weather a storm.
Okay, So tell me about valuations. What you're seeing in terms of the opportunities that are out there.
Well, it's interesting because there's so much private equity capital out there. It's something like fourteen trillions. It's insane. There's a lot of dry power we talk about, yes, but you know a lot of it is focused that there can I ask you something please, and I.
Talk about cash on the side drive. It feels like it's always out there.
It is always out there.
Yeah, there's always capital ready to be put to work for the right opportunity. But you know a lot of shrewd investors are saying, wait, let let's wait for this dislocation to play out. When that happens, you typically get this disconnect between what sellers expect and what buyers are willing to pay. So markets tend to freeze up in those times. And it's no different than the private equity markets. The markets freeze up, but ultimately there is capital to
put to work. That capital has to be put to work in a defined period of time. You know, certainly over the next two to three years, two plus trillion has to be put to work. So it is going to go back to work. But what we're seeing at the very top among the largest private equity firms is there's no strong impetus to go public anymore. So what
you see is the big guys trading private companies. The investment side, yeah, yeah, there's you know, that used to be the holy grail, you know, take a company public, because one you got liquidity, number two you got an evaluation jump. There was that arbitrage. But we don't see that today. That arbitrage isn't there. That private company value is starting to reach public company comps, and there is liquidity, not as much as you have in the public markets.
But the flip side is for sponsors, the guys who can folks who control companies. You know, at the end of the day they you know, they don't want the regulatory pressure and scrutiny that comes with being public. So the trade off is stay private and sell to another private equity.
But does that mean because there is so much money out there that you have money propping up maybe private entities that shouldn't be propped up, Like, what's the transparency for like it or not? Public markets? Ultimately, if things come undone right, investors certainly vote, you know.
And it's very clear how they feel.
But so what's the transparency and way of kind of keeping a check on those private investments?
Well, well, it's very interesting.
You know, good sponsors recognize that they can't be throwing good money at bad money, and sometimes you just have to let companies go and that happens, and that's life. In other cases, you could have a good company that had an overtax balan sheet and you have to step in and provide more equity. But it's an otherwise good and growing business. And as a sponsor, you have to understand the difference between the two.
Matt, you want to come back.
Well, I just wanted to get Joe your take on rates. I mean, when you look at the economy, when you look at the FED, what do you see right now? I think the markets are pricing in a hike in July and maybe one or two cuts before a year end.
Yeah, it's interesting.
You look at you know this, the Sofur curve going two years out, and you see a maturely lower rate environment. I'm not so sure that's going to happen. I'm not sure I buy that. It's funny. I was just on a call earlier today and one of our analysts was looking was building a model and pricing it off of two years out, which is like two seventy five to eighty. I said, look that that's insane. There's no way we can predicate a deal based on that. So I'm I don't think that's going to happen.
Personally, what do you predicate a deal on. What do you say then to that car or employee and say you got to think more about this rate.
Well, I'll tell you this that when I got into the business, it was all about financial engineering.
And what do I mean by that?
We were very balance sheet focused and not income statement focused, and we leveraged and we relied on that leverage to drive returns. And it's a completely different business today from when I started today. It's all about the income statement,
and by that I mean driving revenues, driving EBITDA. So if you find a good business that can grow EBITDA consistently, historically and prospectively, understanding that you know, the markets change, technology is is uh, you know, is changing things pretty rapidly. But if you can find those fundamentally good businesses, you
back them in. That's what we look for. And so the bottom line is if we see a business that we don't feel good about with a two hundred basis point increase in naterre strates, we're going to run from it. You're going to because it's not a fundamentally good business.
All right, got it. Really enjoyed this come back.
Thank you. We really enjoyed it. Thank you, Carol, Thank you, Matt.
I love to have you back. Joda grossad chairman and CEO at ACX Capital.
And of course chairman of private equity firm to Grosser Capital Partner. Certainly something we love talking about here at Bloomberg.
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Carol Master along with Matt Miller live on Bloomberg Business Week on YouTube on Bloomberg Originals. And of course we are at the World Center Marriott in Orlando at b and Ymeil and Pershing Insight Conference, and I'm delighted to have with us. Back with us is Alicia Levine, head of Investment Strategy and Equity Advisory Solutions at Bnymeil and Wealth Management.
Unli like you have anything to talk about.
Right, It's been really quiet this year?
Oh my god?
What is it when people are they say, Okay, here's what I'm most worried about.
What do they talk about?
So they talk about recession.
Many of our clients are worried about recession and what that means for markets, given the fact that markets have been so buoyant this year and a lot of the stocks that our clients own have been terrific this year. Worried about recession, worried about inflation not coming down, yeah, and worried about the FED making a mistake so kind of all the things that we think about, right, but
that's really what people are worried about. And then they want to know what they should do with their allocation. So I get this at a dinner table, I get this at a parade, I get this everywhere, like what should I be doing with my allocations? And you know, the general investor out there is concerned. They've lost money last year in the sixty forty and this year they want to know what they should do to protect themselves and to grow capital.
And it's a it's a great conversation.
All right, we want to know what we should do.
But Matt, I want to bring you into this conversation because we've been we've been kind of counting the moment to talk to you.
Yeah, for sure. So we are almost twenty percent out from the October lows, and we've passed the debt ceiling debate, right, so we're not worried about dropping another you know, twenty thirty forty percent when we default. Is there nowhere to go but up from here? Or are you worried that the FED and the drop in earnings is going to crush this market?
So look, it's it's a great question.
I'll say, technically, the market looks really good and the long awaited recession, you know, America's date with the recession got canceled, like the recession just.
Didn't show up.
Doesn't mean it won't show up.
It means it doesn't mean it won't, but it does mean that until we actually see evidence of the slow down, the market can levitate higher from here.
Is it a trap?
Possibly? Right, Very hard to say whether it is or not.
Today.
I think the key thing for us is we're looking at lending, We're looking at credit in the economy. How much does credit get contracted as a result of the banking stress that we saw in March.
How does that roll through?
Obviously commercial real estate is sort of in focus for investors, but in the end, that's one point five trillion dollars. That is not a twenty trillion dollar economy. So there are pockets that may be weak. So far, earnings have stabilized, Matt. You know, their earnings no longer are dropping. Earnings are stabilizing and actually ticking up, which is leading to the
market going higher. You know, for the last six months, earnings dropped, and they dropped, really they dropped a lot from June all the way into let's call it February March.
Right, we talked Matt Write a lot about that we've already had the earnings recession.
Yeah, and we still have such a strong labor market. And uh, in fact, consumers still have a lot of money left over in their bank accounts. Right, We do see them putting more and more on credit cards and that kind of worries me. Savings rates have dropped to zero. But when you look at the US consumer, Alestia, what do you see?
So it is true what you say, there's somewhere between half a trillion and a trillion dollars left in fiscal stimulus. And you know the line that monitor terry policy works with long and variable lags. Turns out that fiscal policy also works with long and variable lags. So there are still extra stimulus in the system, you know.
More or less.
The thought is that by the end of the year, the consumer will have got, you know, kind of spent that down. Savings rates are lower because their consumers are spending from savings. I'd say the spending in the consumer side is bifurcated. Goods are not being purchased, services are being purchased. And so you look at the earnings of companies goods and retail and big box stores that sell things for your home, for instance, versus travel and leisure and hotels.
You know, travel leisure and hotels are doing terrific.
Right, Goods that aren't great, so they're still spending. It's just it's kind of skewed to make up for this skew three years ago during COVID, when the only thing people bought was goods.
Matt, I know you've got a question I think from a listener, right, that's right.
I know he's a fixed income guy too, So he writes in and asks, what's the tipping point for your clients to rotate out of stocks into fixed incomes and stocks?
Right?
Year to date highs and we're staring down the barrel of, you know, an eventual recession.
So look, great question.
I mean, as you know, as a fixed income investor, the bomb market is screaming recession, particularly the three month ten year which is the New York Fed recession indicator.
Screaming recession.
We actually went neutral on bonds beginning of this year. We had been underweight bonds last year, so we already told our investors. Bonds are back. We reallocated into bonds this year. We are neutral on equities because we do think that eventually the slow down will be here, whether it's a soft ish landing or kind of slower growth. We just feel that time to really go all in on equities is not here.
But we're very positive on bonds.
And as of course, Jennet Yellen is re filling the TGA, which I know you've talked about here. You know you'll get yields going higher on T bills and other bonds across the complex. So that's just as a great entry point.
Do we dip though below on the S and P?
I mean, Matt, I've been talking, excuse me a lot about the twenty percent move off the bottom for the S and P from last October.
So does it hold here or so?
I don't think we get back to that thirty five hundred place. Could you get back to that range? You know, we were in that thirty eight hundred to forty two hundred. We broke out of forty two hundred, which is why could go higher from here on a technical basis, if there is more of an earnings recession, if there's more of a you know, an event in the real economy. I think you could see the thirty eight thirty nine hundred again, but I don't think you go as low
as you did there. The labor market's really quite extraordinary, and the consumer's holding up the economy right now, Yeah, Matt, you want to come back.
Okay? What do you think when you look at sectors, Alicia? I mean, is there you know tech? I noticed today there was a selloff in all of the defensives and tech. So it's like become a safe haven? Right? What do you think when you when you look at sectors?
What do you like?
And what do you think of the incredible lack of breadth?
So it look this is the real question, right, So how do you get to forty five hundred or forty six hundred from here? I don't think the seven horsemen can get you there? Right, So the seventh great stocks that have led us to this point. What you saw on Friday as a result of that better than expected labor report is that the cyclicals finally got going, the small cap, the banks got going, and it drove the market through that resistance at forty two hundred, and you
saw it again today. So you saw the KRI the Small bank index at one point was up six percent. Today, you need to see participation in the rest of the market to have the really have the S and P move higher. Here. We like the industrials here, we like energy here, we like healthcare, we like the areas that have just lagged the entire year.
Of course we love tech. How could you not like them?
Because if fundamental are you liking them because of evaluation?
Both fundamentals and valuations, right, So, I just think they have been laggers all year. And one thing we know about markets is when you get a skew in performance or you get something really bifurcated, there's always reversion to the mean. You can't ever time the market. But a lot of these sectors have been left for dead, all right. And just because seven stocks work doesn't mean four hundred and ninety three cans.
You're not going into AI. What's going on now?
We love it?
No, We're always participating because we never get out of the market. But if the question is can the rest work? I think the evidence on Friday and today is you're starting to see the.
Charts change right right. The market is telling you that these areas can rally.
No, I agree with you.
The broadening app we saw we all kind of like maybe the successful more at least of the being head of investment strategy and equity Advisoricent said, be my billing top Management.
Thank you so great to see you, Carol.
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