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You're listening to Bloomberg Business Week with Carol Masser and Tim Steneveek on Bloomberg Radio.
Let's get to our first guest, because with us is Michael Harris and hy I see, vice chairman and global head of Capital Markets, who has been very patient as we set up this final hour. It has been such an interesting day. You were looking at the market close, Michael, a fair amount of volatility. What does that do for your environment your world?
Yeah, well, first of all, thanks a lot for having me. It's great to be here. And you know, I think Lynn said it best in terms of don't panic. Obviously, I think we're in the middle of a volatile market environment.
But again, you know, I think this is something that we anticipated when you have the backdrop of a lot of political, geopolitical uncertainty, and so that impacts not only the secondary markets, but it also can impact the primary markets too, as we think about companies that are in the process of raising capital or seeking to raise capital
in the future. You know, when we look at our environment and we look at some of the companies that we speak to in the capital markets, I think there's a couple of big picture themes that we kind of look at, and I characterize the market right now as being favorable but with some challenging conditions in the backdrop.
From a favorable standpoint, the thing to think about is that we're still at a run rate which is actually above where we were last year, and also above where we were in the kind of pre COVID years, so kind of normalized environment in many respects. That backdrop is also fairly normalized in terms of the types of companies that are coming to the marketplace, so pretty diversified set of issuers.
So after some crazy years of was it twenty twenty one where we saw a record number of IPOs like those and I know Lin was talking about this, that's an outlier, absolutely, So pre pandemic is really what you need to think about is asmal.
Absolutely, especially in an environment which has a much higher cost of capital than we saw during those years, So you are seeing kind of a much more normalized environment. You're seeing also the pipeline of companies that are coming forward that are fairly diverse, a lot of them coming with fairly older assets from the sponsored community. Those assets
are like going to be much larger in size. That's good for a lot of buyers that want to look at getting larger allocations in the marketplace as well.
So those are some.
Of the positive things that we're seeing in the market. Obviously, some of the challenges that we're seeing are much more macro focused and some of that's playing out today. I think the uncertainty that you see in the marketplace is in kind of two different areas. So on one hand, I think the teriff uncertainty, obviously is the concern that you're seeing a lot of the market participants to react to.
When you talk to corporate issuers, I think what they're really focusing on is really just trying to run their business, and they're really focused on trying to make sure that the predictability of their business models is intact and that they can try to forecast for companies and analysts and for the buy side community as best as possible. And when you have an uncertain geopolitical environment, that does got some challenges and that's what they're working through.
Let's talk a little bit about that because we did speak a little earlier to Ryan Tolkien over at the multistrat Hedge Fund Shownfeld Strategic advisors. He talked about that uncertainty, and I'm wondering, if you're a company that wants to go public in an environment and you see the uncertainty emanate from Washington, DC about tariffs, Okay, there's questions about, like, who wants to spend on capex in an environment where we don't really know what things look like from regulatory
perspective in the future. Does that delay IPOs.
I think it becomes a company by company story, and for some companies where they may not be as impacted in terms of the tariffs, that may not be as much of an issue. I think if you're a manufacturing company or industrial based company, that probably will be more of an impact.
I think the.
Broader picture, in the broader consideration is really how you explain that to investors and to the extent that you can provide a story that's reasonable in sound and again goes back to being able to talk about dependable and reliable and predictable earnings and revenue. From a business model perspective,
that's really what investors are going to focus on. Ultimately, from their perspective in a more conservative environment, they're much more focused on management teams that can actually come up with a story that they can deliver on and also repeat. And so to the extent that there is the ability for management teams to do that, that gives them greater comfort.
I mean, how great is it? And this is one of the things I talked about with Lynn. But to have you know, Core Weave filing for its IPO, I mean, that's a big deal. We're talking about a company that had revenue that was a good, positive thing, and that's probably why they're feeling more comfortable. But you're talking about maybe evaluation greater than thirty five billion dollars in it's an IPO. I mean, is that the kind of IPOs you're anticipat seeing a lot.
Of this year.
There's a lot of companies, so a pretty broad range of companies, you know. I think when you have an asset of that size, that's obviously going to be impactful just for the overall pipeline and obviously, you know, without going into details on any one particular company or one particular issue WERK, I think it's safe to say that as you have larger sized companies that come to the marketplace where we have a broad participation of buyside firms
that are participating those offerings. The success of those deals is going to be important for the overall health of the IPO pipeline.
It does a lot, right, it does a lot in terms of juicing.
Maybe SUTURE offers.
Absolutely Caeryl mentioned Core Weave. It's going public on the NASDAQ, not the New York Stock Exchange, the big rivalry between the two firms. There certainly is no question how do you win more of the business coming from AI. Yeah?
Sure, Look, I think we offer a wide range of things that we compete on in many different respects. So on one hand, there is a unique business model that we offer for our companies. From a liquidity perspective, the way that stocks trade on the New York Stock Exchange is different than on any other exchange venue globally. We think that offers for both investors but also for issuers lower volatility, better liquidity, and also the best environment for
both their stakeholders and also for investors. But it's competitive, right, But it's highly competitive. But we also can also cooperate in a number of different areas. You know. I think if you speak to folks at NASDAK, you speak to
folks the New York Stock Exchange. You'd probably find that we agree in many respects in terms of the US markets as a whole being the best place for capital formation, and that's one reason why you're seeing, for instance, companies from other parts of the world that are gravitating to the US markets to list their security.
We've done a little bit of reporting over the last few months at Bloomberg News on the Texas Stock Exchange and the idea of this. It hasn't launched yet, but the idea of creating capital markets center in Texas. How do you look at competitions such as that.
Yeah, well, look, we actually are starting an exchange in Texas. Well.
We reported on that too. Well there's two. There's the Texas Stock Exchange and then there's one that you guys are doing as well. But is that a direct response to what the Texas Stock Exchange? Is it something that we have been actually working on for a bit. Some of the largest number of companies that are listed on
our exchange are actually based in Texas. If you look at the movement from the state's perspective in terms of attracting new companies to list it within the state, we think that's a great thing in terms of being able to get just more companies that are interested in growing their businesses. We want to be a part of that. We're hearing and really responding to what our clients are saying, and so we are obviously trying to respond to that.
We're fortunate in terms also of having a lot of our own employees that are actually based in Texas and most importantly based in the Dallas area. We're going to have the headquarters, So we have over one hundred employees that are going to be based there and we're going to be building headquarters there very shortly.
All right, just real quickly. Does that mean that there's going to be more like could you see other exchanges in other states like.
A Silicon Valley exchange or something I.
Don't know, or Florida. There's so much happening in Florida, wait and see see.
All right, great stuff.
Thank you so much, really appreciate Michael Harris, NYSC Vice Chairman and global head of Capital Markets, Thanks so much. Thanks for having me Carol Master along with Tim Stanoviek live at Bloomberg invest in downtown Manhattan. We want to get to our next guest. We do want to mention though some headline just crossing the Bloomberg turm on. This is coming from the Commerce Secretary, Howard Lutnik.
Yeah, he's saying in an interview that Trump to move with Canada and Mexico. But I'm just getting pulling these up, but not all the way. Tariff's compromise announcement likely tomorrow. Lutnik says Trump is considering relief for USMCA compliant goods. And Howard Lutnik, the Commerce Secretary, saying Trump may roll back Canada and Mexico tariffs tomorrow.
I was looking at a s A P five hundred e mini features to see any kind of movement. They're still down about four tens of a percent in the after market, so we'll continue to watch. Let's get to our guests, because this individual is watching the investment landscape very closely.
And I do just want to say, this is an interview on Fox Business.
Okay, good good Good Aria's management. We want to talk about them because they're publicly held. They're a global alternative investment manager. They've got more than a fifty one billion dollar market cap and about four hundred and eighty four
billion dollars in assets under management. They raised a record almost ninety three billion dollars in new capital last year, which was a twenty five percent increase from twenty twenty three, driven by direct lending, opportunistic credit, and also diversifying its distribution through wealth channels, which brings us nicely to our next guest with us here at Blomberg Investor is rajdnd a, Global head of wealth management at Areas Management. How are you.
I'm great, Carol.
Good to be here.
It's great to have you here on a day where there's just an interesting market story. Again, if you will, I am curious about the market volatility and what your read is on that, and I am also curious your client base is a day like this disturb them?
A day like this is actually the poster child for the value proposition of the private markets. The advisors we talk to and their clients are really frustrated by this type of volatility. You know, we're essentially where we were, you know, early November, right in the public markets, and that backdrop makes it really hard to work diligently on a portfolio that has above at or above target returns.
And at the end of the day, individuals have almost as much wealth as institutional clients, they've just never had the access to the private markets, and that's starting to change.
A lot of our discussion is not just should they invest in the private markets, but it's how all that said, A day like today is distracting at a minimum, because most of our clients still have eighty or ninety percent in the markets, and the headlines and the volatility are going to certainly be a distraction at a minimum.
So would you say that yesterday's a poster child certainly of why people invest in privates, But would you say it's also a reason why people should consider allocating more of their portfolios to privates. I would, and I think the.
Investment thesis is what really comes out at a time like this. We're quite clear that the private markets are illiquid. That's why you got to higher risk adjusted return.
You can't just call up and sell when you want to.
And.
The top advisors that we work with will tell you that keeping their clients invested can be challenging, particularly again at times like this. Imagine if you sold earlier today and then the headlines tonight potentially reverse some of the momentum behind the down trade, right, that would just be a really tough day. But the private markets in twenty years have changed completely in terms of the breath of solutions. You can invest in sports and media assets, you can
invest in real estate and infrastructure. You can have some durbal income solutions from private credit. So the way we think about it is you should have equity exposure. You can do that in both the public and the fixed income markets. You should have some kind of credit or income. You can do that in public and private markets. And then you should have some real assets. You should own some real estate, you should own some form of infrastructure.
Is a really tax efficient solution. So and you can do all of that in both the public and private markets. You couldn't do that twenty years ago, even ten years ago.
I am curious. You know, we're so Washington focused right now, and you can understand why, right because there's so much that's coming down, and some of it does impact the markets. You know, we mentioned the headlines from the Commerce Secretary Howard Lutnik that the present may now lower Canada exee terras tomorrow and so this is our world where it can turn oneint eighty in less than twenty four hours. We're going to actually be talking to the Commerce Secretary
tomorrow on Bloomberg. What I'm curious about is when it comes to private markets, are there constructive conversations you guys are yet having with the administration or that you think have to be had when it comes to private markets.
There are certainly conversations to have with any administration around the evolution of the private markets and how to make it easier to invest in the private markets. Areas has been in business for over twenty five years, and so we've worked with many administrations. This one is just getting their feet on the ground.
It's early.
They're certainly pro growth and pro business, and so some of that narrative we support and are happy about, but I would say they haven't yet really dug in on the type of change that would have a day to day impact on what we're doing.
And maybe a smarter question, as you're right, it's early on, but I mean, what would you like to see in terms of what happens for oversight in terms of private markets. You and I talked ahead of this conversation, and one of the issues is the transparency issues, and I know you talked about what you guys do in terms of I guess spreading around risk, Right, It's not like you're one investment in one particular investment. When it's the private markets,
it's multiple investments. But what do you think needs to be government oversight or what you provide transparency to your investors? But does there need to be something more?
Well, I'd step.
Back because you're going to get something that's sort of paramount to any type of investment approach, which is manager selection and the diligence that goes into an investment firms track record. And so as the private markets grow and as there's a significant amount of new entrants, there are going to be firms that may not have a twenty five year track record or may not be able to speak to prior periods, whether it was the GFC or
the emerging markets or other challenging times. So we definitely think in any of the whether it's private credit, or real estate or secondaries, all these areas, a twenty twenty five year track record is really helpful, right, and not everyone has it today in the private markets, you know, we think the expectations related to transparency are no less
than the private markets than the public markets. Institutional and high net worth clients expect us to provide them a significant amount of transfer today already today, So we don't think of what we do as changing that commitment to our investors.
What do you think about private opening up to more retail investors and then does that change in terms of the transparency issues?
Well, so, of course the growth that you reference that we talked about on our earnings call it areas. This sort of marriage of alternatives in the wealth channel, right, is a secular trend, democratization of alternatives. That growth is being driven primarily by in vigils with over a million to invest in the US, that addressable market is an excess of eighty trillion and grew beyond that last year, so that's plenty to do. They all are still struggling
to grow an allocation. Some of the limits in their allocations are where you're going, which is there are state limits on how much they can allocate there or in some cases federal oversight that limits the allocation. Individual banks have their own suitability requirements, but fundamentally, this high net worth individual that has over a million dollars to invest gives us a massive runway to provide education and new solutions.
So you're referring to accredited investors. Correct, that's right. There are some folks in your industry who say we need to essentially say, we need to get rid of those rules about accredited investors because it will give more opportunities to folks to get in on deals early and have more upside. It doesn't sound like you're actually saying that. You're saying that a credit investors, there's enough dry powder there essentially for you.
No.
I mean, I do think that over time, as we work to investors that even less to deploy lower sophistication, there's an opportunity to provide them solutions they don't get today. But you know, a big part of what we do
is not just raise money but deploy it. And the fundraising and the growth in the private markets is you know, driving a lot of the headlines, but one of the things we want to make sure is it's deployed reasonably, thoughtfully, and ARES has got a a real commitment to local origination, whether in real estate or credit or any of our areas. And we were talking before the all about how important it is to build portfolios with small single investments so
you're very diversified. ARCC, which is one of the largest public BDC's you know, the single name exposure there is two two and a half points.
It's not a concentrated set of bets really spread out. To build that type of.
A portfolio, you need to be able to have a significant feet on the ground and origination. But yes, do we think that not accredited investors are a growth area for the firm. Absolutely, But we think we're in the early innings of the high net worth investor allocating more to the wealth channel, and there will be a time when you know, not accredited investors will also get access to what we do.
Rus how much bigger do you think the private credit market gets? I mean, it's just an incredible kind of the explosive growth that we've seen just in the last couple of years. And you and I talked on the call any great context reminding us that still the public markets are so much larger. But does it get to a point where the private market's rival, certainly on the equity side of things or is that just crazy?
Well, I think it provides a really attractive solution. It's floating rate. In ninety ninety six percent of the loans are floating rate. That's an important aspect because it minimizes the volatility that we've now seen with fixed income. Private credit is also higher yielding, and we're asked often, you know how much you know, what do we think of the growth? It's it's actually the growth is not really outsized versus private equity. It just has gotten a lot
of attention in the last few years. Think about any sort of typical LBO, you need two quantums of debt for every amount of equity. So to have a proper functioning economy, the private credits have really Private credit has really stepped in and addressed some of the concerns where banks don't provide as much capital, where you don't find other solutions.
So I was just going to say, there are there are some critics out there who say that, you know, there's not the same oversight with private credit that there is with traditional lending through banks. Banks. Would like to say that I'm wondering if on your radar there's concern that there could be more regulation coming for private credit.
I worked at a large bank for a while, and I understand that there is not the same leverage with the investment managers as there is or there used to be with banks. There's also an appropriate matching of capital and.
Deploying it.
So we have investors that provide us long term capital and it can't be called on a short on the short term. So actually, the large players in the private credit markets are very very different than banks when they were lending, either at the peak or even after the GFC. They don't have the same leverage. You might have one times leverage. They don't have the same volatility in the capital they're deploying. So it's a very different value proposition.
It's not the same threat to the economy. We're not taking deposits from individuals.
And so on.
In terms of the macro conversations that are out there, whether it's over fed policy or rates or regulatory oversight, whether it's about war, what is the most important macro conversation to your world right now?
Most important thing around the macro conversations is that we're aware of all of it, but we think of ourselves as micro and you know, in a position to really focus on two three thousand middle market companies across the US that we invest in and not get too caught up in the macro which we've been through, as I said earlier, for over twenty five years.
Just one follow up on that love the middle market I think is such a great slice of the economy. Those middle market companies doing okay, Are they seeing stressed? Are they seeing strained? Yeah, and I know it's hard to lump everything, but I'm just curious.
Yeah, so we tend to avoid some of the more cyclical sectors. We focus on services as opposed to goods in a lot of cases. But yes, we are buy and large, seeing better cash flow, better performing balance sheets than some of the markets might suggest.
Okay, so that's optimistic. Yeah, hey, listen, thank you so much. Of course, really appreciate it. Rush down to he's global head of wealth Management. Over it areas Management