This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
I'm Carol Master at the Lookin Institute Global Conference in Beverly Hills, and we do have an all star lineup this hour, and our next guest has a front row seat on today's financial markets and so much more. Jim Crowley is CEO of B and Y Mellon Pershing, and he joins me here on site.
How are you well, It's great to see you.
It's great to see you having me well, thank you for being here. I feel like you guys see so much the environment. How does it feel right now?
I would say cautiously optimistic. Obviously there's quite a bit of news going on, particularly today.
What did you make of the banking news because it does feel like things come down and then we still got to deal with some SI.
I think the news today was really important for the marketplace. I think it was, as most people have said, stabilizing, and what investors don't like is uncertainty. Markets don't like uncertainty. So the story today with JP, I think really was stabilizing for the marketplace, and I think that's what you know, we're sort of seeing in the market today.
So it does feel like it's like put that behind. Do you think that's it, though, Jim or it's hard.
To say, well, hard to say, right, of course, whenever you sort of think that it's it, there's always another shoot a drop. So I think that I think it's wise of us all to take a breath, be grateful for the stabilization that we have today and stay tuned. I think that, you know, whether it's interest rates or commercial real estate or whatever, the next thing might be right, there could be another surprise, but I think that we should just all stay well prepared.
You know, it's interesting because I did a panel this morning about commercial real estate, and yeah, there's a concerns, whether it's the middle market or you know, they're going to be some more problems. But I didn't feel like it was Okay, this is going to be, you know, a gigantic shoot a drop. Again, I am curious, do you feel like it's too early to really figure out what will be the longer term repercussions of exchange in rates and the impact of it.
Well, I'm a bit of a Jeremy Seguel kind of guy. Right stocks for the long ride, and if we stay calm, stay invested, it usually works out. Well, We've seen it over and over history does repeat itself that if we just stay invested in, stay calm, will be Okay.
What are you hearing from your investment community?
Oh, great question. So clients, clients really interested in how they can scale their businesses, how they can grow their businesses, how we can help them simplify what is a really complex operating environment.
So so kind of business as usual moving ahead are No.
I'd say it is be a you from most of our clients. But I think that there's more focus, more intentionally on growth than there ever has been in the past. And we're seeing it every week where there's another transaction that is announced where people are either doing a transaction just to acquire more scale, to acquire geography, to acquire talent, to acquire a technology, right something.
It's a positive, it's a positive thing.
More and more investment seems to be coming into the marketplace, particularly the wealth marketplace, and so we see it as a very positive thing. We're very bullish on the wealth marketplace. And in fact, you know you've were at Insight last year when we did the big sort of announcement with Pershing X and launching this new advisory technology platform, and hopefully we'll see you there again wanting to be there in a few weeks and you're going to hear more about what we're doing there.
Well, what's the impact of all of that?
It is It gets back to what I said just a moment ago, is how can we help our clients maneuver through this very challenging environment so they can scale
and grow their business. So if it's technology as an example, for an advisor to put together all the different pieces of technology that they need to run their business and put it all together and have the data move across those different technology pieces without being stuck in the sort of swivel chair environment, that's something that a business like being on maleimpursion. With the scale and the investments that we're making, we can solve for I.
Am curious how AI artificial intelligence has started to creep into your world and the advisors that work with you guys, because it's it's certainly everywhere I feel like in our world right.
Now, Yeah, certainly to be determined.
Right.
We work in an environment that is very, very highly regulated, and so I think that there's going to be a good, healthy skepticism about AI, but clearly it will play a part in you seem cautious, of course, Okay, I'm cautious about it, but certainly I'm optimistic. At the same time, I think that there will be application for AI in our business to help, you know, teams be more effective,
to help investors become more knowledgeable about the business. And so I just think it's going to be the proper application of AI that will have to sort of sort that all out in the months and years ahead.
Well, I do wonder too, And you talk about, you know, certainly the wealth management side of the business, but I do wonder, you know, coming off the pandemic, and we talk about a lot those that are financially underserved, and I do wonder how like technology or AI continues to kind of help in that area.
Yeah. I almost fall back though, Carol too, that this is a relationship business, and people's money is very very or even still even still, and it doesn't matter if you have five thousand dollars that you're saving for your retirement and you're just out of school or you're trying to save for a retirement. It doesn't matter what end of the spectrum that you're on. I think that whether it's AI or technology, it will take you so far
in the process. But there's a point in time when you really do need the human interaction to really understand what the investors are thinking and how best to.
Achieve their goal that hasn't gone away.
Hasn't gone away.
And you hear that from your advisors.
Hear it all the time, Yeah, hear it all the time.
So when it comes to you know where the growth opportunities you talk about, you know, technology and helping your certainly those who are you're working with your clients that they're looking for growth. What else do you look at that you think, I don't know, six months from now, twelve months from now, will be something that continues to be a big part of your world that you look to grow into. Well, I guess I'm thinking, like you know, evolution, disruption, innovation.
Yeah, so I already mentioned pershing X right, A bit innovative on the technology side. I would also say and This is going to sound like I'm speaking at both sides of my mouth here, because I love.
When you say technology and yet people are important.
Yes, that's exactly where I'm headed. I still think that there's still great opportunities for digital interfaces with investors, and maybe it's advisor assisted, but we're seeing a lot of activity with many of the fintech wealth tech companies who still want to be disruptive and still believe that there's a market to be served and there is a market to be served by technology and the advice that these
organizations can provide. As an example, we just did an establish a relationship with a firm called art of Financial, which is a family office wealth tech organization and it's a bunch of ex Googlers who came out of the marketplace engineers who really put together what they believe is a very very credible, valuable offer to family offices and so very different than the marketplace that we would traditionally think of. Right that would be attracted to a technology.
Platform, but it's another way of getting into it, right.
It's another way getting into it.
It's fascinating, it's.
A very fascinating. So that that's one area that we're really excited about going forward.
I am curious to the last year. It's so funny, like I always feel like there's a catchphrase or something. You know, a year ago, we might have talked a lot about crypto.
Yeah, this year.
We're talking a lot about AI.
Yeah.
You know you said about your clients, you know, or the folks that you're working with, you know, a lot of it's how to grow their business. Is there anything else that kind of comes up that they're like, these are things we're hearing from investors that we want to make sure that we're involved in.
Well, I think that there are different asset classes that people are interested in.
It.
I I'm always blown away by the private market here.
Exactly all the time, exactly wherever's going. So whether it's the private markets or digital assets and the digitization of those assets still still different than crypto.
But that's something that if you're sort of looking out on the horizon, I think has got a lot of room to run and something that we being one all are very interested in supporting the marketplace, and you know, as the world's largest Cristodian, we're going to need to sort of play in the.
Space in terms of the mood here. What are you hearing some of the conversations that you're having with folks.
I've been meeting with clients all morning, very positive. As you and I were talking before I came on, great buzz, great energy here, excitement for the marketplace, and you know, I think, right, you know, the future is pretty bright for us.
It's kind of funny in a week where you know, it's just been an interesting you know, you've got a FED meeting, how much of that comes up in terms of the concerns. You know that raids are going to still go higher, They're going to stay higher for longer.
Yeah, So this is the way that we think about it. We've been in business for two hundred and thirty nine years, through all.
Cycles, right, We've seen a lot of cycles.
We've seen a lot of cycles. I've seen a lot of cycles, and so I think what the mood is going to be is, as I said earlier, if we can just sort of see through all of this, rates are going to be higher for longer.
Yeah, But it's manageable.
It's manageable, and if people just take the long view, they'll be Okay.
I'm going to leave it on that note, because I really think, you know, what it's been somewhat comforting is to hear people because of the headlines. Can be a little bit nerve racking, but it does feel like kind of steady and kind of maintaining the course at this point.
Yeah. So disruption well obviously bring opportunity for some and we've saw today, But if we stay calm and we looked at the longer term, I think.
Would be great. No chat, g ept stuff happening.
No no chat gee.
I'm going to leave it there, looking forward to Pershing Inside. It's always fun. I have to say. I always feel like I get so much out of talking to individual financial advisors in terms of what they're doing, what's top of mine, And sometimes we get so caught up in the big headlines, but they are It's about investors trying to figure out how to retire, how to pay for things. It's really down to earth type of advice. So I'm looking forward to it.
Well, look forward to having you.
Jim. Thank you so much. Jim Crowley, CEO of B and Y Melon, Pershing, thank you so much.
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Some are well known to the Bloomberg audience. We're talking about David President, CEO of the Massive Global Asset Manager PGM. They've got one point two trillion of assets under management. One hundred and sixty two of the largest three hundred global pens and funds are clients. You see a lot.
Hello, we do kind of is so nice to be with you. Thank you for having me, David.
It's nice to have you here. So when you talk with your clients, you hear their concerns. What is top of mind for that?
I would say that, you know, although the media likes to cover are we going to have a recession of soft landing or hard landing? In general, our institutional clients believe that the market is pretty good at pricing in those risks, and as more information comes, the kind of giant avacus will actually reprice the markets a bit. What they worry about is the things that the market doesn't price very well, and those are things which have lower probability.
But if they happen, actually are quite damaging, and they also in general are things where kind of you know, the market relies on the rational man school of thought that people will at the end of the day be reasonable. But what it happen And the two biggest ones that our clients are worried about right now is one, what will happen if Putin increasingly feels like he's backed into a corner? And what if he does decide that he
is really going to escalate things? And are we going to have the backing in that case of a lot of the non aligned countries who have been waffling more recently on a lot of these topics.
That's that's one to put that out there, but anyway, go ahead.
And the second one comes more from our delightful hometown of Washington, d C. Where the market at the moment would say, you know, any rational person will assume that these nice people will actually reach an agreement on this, and it may take till eleven fifty nine, right before the deadline, but ultimately they'll come to another group. And that is in fact what's happened.
In the past.
But what if that doesn't happen? What if the political calculations now in Washington have changed, and don't we need to be thinking about what is the implication of that, what's the volatility that will lead in that on behalf of our clients. And so I would say those are the kinds of kind of scenario based work that we're doing with clients, almost beyond the classic market cycles which the market prices in pretty well.
So David, take us there factor those in. Let's start with who factor that in? What would be the implications potentially for global financial markets?
Well, I think that you have to start with the obvious things there, which is that you know, we'd have energy prices that would probably really begin to rise up. You know, you would absolutely have a much bigger shift than we've had now on you know, who is actually going to align with NATO and who won't. So you know, for the most part, NATO has been I think, done a good job of staying very aligned. But they haven't brought in a lot of the global South. They haven't
parted along India. There's a whole variety of people that you know, China has played this very you know, clever in some ways, and you know, to what extent if putin really escalates, things will that no longer become acceptable, and we will actually have more of a bipolar world than we do today, and that would fragment trade, it would fragment technology. So all of those implications are the kinds of things that we're beginning to kind of game theory our way through today.
Interesting, So go all right, So game theory is through the debt in the worst case scenario.
So that's particularly fascinating one because as long as the as the market basically thinks that the politicians will solve this, the politicians don't actually have any real incentive to solve it, so there's no pressure on that. The only way pressure begins to build on them is to the extent that we start to see some volatility and we start to see the market saying, wow, now maybe this doesn't get solved.
And so I do think you will see and you saw Yellen's comments today about a June you know, kind.
Of getting out of cash.
So we are going to see in May the beginnings of that discussion involved. So let you'll see it covered a lot more fundamentally, and you're going to have to see some of the game theory elements of well if we don't reach an agreement, what are the range of things that the government will have to start scaling back line and what will their priorities.
In orders be. So, if you're doing game or game theory right now, when do you know just to pull the trigger and putting those theories into.
You don't And I think that's one of the really you start to do it now, Well, you don't know which of them is going to happen, which is why you need to build in some real flexibility into your strategies and in and into and into your portfolios, because I don't think anybody here can predict how this is going to come out.
I didn't really hear you talk about the FED. So where how does that factor in or do you feel like that's all factored into the markets already?
Well, our internal view is that the market is not pricing the Fed incorrectly. Our view is that marks are too optimistic at the moment that the US economy is stronger than the markets realize. That's going to cause the FED to need to keep rates higher for longer than the markets realized. I mean, remember the markets think, you know, we're going to have actually carey thoughts this year. You think that's quite unlinkely. So our view would be that
markets are too optimistic for that. But as I said before, those are things that the market will read price as it gets better and more information, as opposed to some of these other risks which actually the market really struggles with pricing well at all.
David, you've seen a lot of market cycles. I'm not aging you. You've just seen I've seen a lot of market cycles too, But I do wonder, you know, the last year, who would have predicted, right, the war in Ukraine, the crypto collapse, what we're you know, bank runs? Who would have thunk? If you will? And you just laid out two significant things that could certainly change things dramatically.
Is there something I don't know? You know, it does make you're doing game theory, but it's challenging for investors. So how do they protect themselves or what do you Yeah.
No, it's very challenging and obviously the great protection in a world where.
We where do you find that protection? When we even started to question treasuries?
So the place that you find it is in diversification. And so you know, we've really been great believers that the most diversified institutional portfolios are the ones that are best positioned for resiliency in these kinds of things. So's diverse.
What does diversification mean?
So, if you went back twenty five years, most institutional investors would be in public stocks and bonds, and then along came this rather strange thing called private equity, which people were a little worried about in the beginning, and then ultimately sort of became an asset class. And now we're actually seeing private alternatives more broadly really coming into
their own. So private alternatives, which are in addition to private equity but includes the state and private credit, I think importantly have been for US and for many others, you know, really our fastest growing businesses. So we manage about three hundred billion in private alternatives. And our view is as the banking system continues to be very capital constrained, and I think they're going to get some new regulations on top of what they've already got that's even going
to constrain their credit to supply more. That is going to mean more and more companies are going to look to non bank lenders such as US to meet their needs. And so that is going to be a business which will also help diversify institutional portfolios away from the treasury problems and other things that we started our conversational.
Well, it's interesting, you know, in terms of your institutional and global pension funds that you guys are that are investing with you, what kind of managing are you having to do of performance or not because you're not feeling any kind of performance hits in this environment by firms you mean defaults or not even defaults, but just expectations in terms of returns.
So return expectations you know, I would say for private
equity have come down a little bit. Yeah, in private credit actually because much of that, particularly direct lending, is floating rate, the returns are actually going up and have been actually quite robust, and I think that's one of the reasons that many institutional investors have been looking to add that to their portfolio because that's actually returning better than it did and they're in some ways using that as opposed to real estate that which they liked the
income from but now where is a little bit riskier and they're liking the direct lending piece better.
Have you seen an uptick in terms of your private credit demand because of what's happened in the bank and we we have.
And that's obviously a long term trend. I mean, ever since the GFC, the banks have been lending at a much less rate because of all the new regulation that came on. But in the last four five months, as people have had questions about banks and people began to think that rates we're going to go up, we've seem very robust demand from middle market companies for borrowing, for.
Sure, And that's where it's middle market companies in particular. They don't really see you expect that to continue?
I do, I do, and I think that'll be true, particularly as these regional lenders find that they aren't really able to continue to expand their lending.
Yeah, it's interesting. When we were talking about global real estate, the real concerns are about the middle market because they're just not able. The banks aren't there for them, right, So interesting you feel comfortable mid market real estate lending?
To our our view is first of all, everybody talks about real estate, but actually what they mean is office. Yeah, but remember real estate has got a lot of food groups in it, and some of them are doing just great. So broadly, are we comfortable with our real estate portfolio. It's positioned for a recession and we're very comfortable with it.
Covered a lot of ground, David hen thank you so much. David Haunt, President and CEO of p JIM joining us here at Bloomberg.
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We are live and getting ready to wrap up our first day at the Milk and Institute Global Conference here in Beverly Hills. Something that seems so relevant today and the uncertainty about I feel like many things, including our outlook. So let's get to it. We'll explain it in a moment. Lisa Donahue is co head of the Americas and Asian
Alex Partners. They're a financial advisory and global consulting from known for their work on turnarounds, some legendary ones including Rieorg's of General Motors kmart and then taking us way back to and Ron. Nice to have you here. Welcome, Thank you, It's great to be here. So is this a good environment for turnarounds? If you only think it is?
I think that to we be smile or is that well, it depends on your perspective, right, Okay, Whenever there is risk and uncertainty, there's also opportunity, Right, So I think you can be smiling because I think that, Yes, I think we're in for turbulent times.
Yes, I think that there's a lot of disruption out there. But the good news is the smart CEOs that we're working with are thinking proactively. They're not waiting to be disrupted. They're trying to be the disruptors or to read the tea leaves and figure out how they can make their organizations fit for purpose.
Lisa, what are the tea leaves that are like kind of front and center for some of your clients and your executives you're working with thinking about it on the disruption theme as we kind of started to.
If you think about it, things are moving so fast and from a financial environment, we've got high interest rates, we've got a.
Tighter liquidity pool.
From a disruption perspective, we have very fast paced technology change.
We've got geopolitical uncertainty.
We've got still in some areas dealing with some of the after effects of the global shutdown for COVID right, and having to deal with supply chain disruptions, And what does that mean for on shoring, offshoring, redundant supply chains. I think, if anything, what that showed us is that surety of product is at least as important as cost.
So does that mean a lot more on shoring. Is that what we're seeing? I mean, I've certainly had talked to CEOs and they definitely are thinking about it and doing it. It's not just conversations, they're changing how they do it. I think supply to it. I think that's right.
I don't let me make sure I'm clear though, I don't believe that means the end of globalization. However, I do think what it means is moving things closer to clients, closer to customers, so.
That you have more of a shorty and.
You're comfortable with your ability to continue to deliver your product. But I do think that smart CEOs that we're working with are really rethinking their business models, and that includes the supply chain, that includes on where they're buying their parts that includes you know, should they be thinking about moving away from China maybe to Japan, maybe to Mexico, maybe to the Caribbean. And I think it depends on where the end product is going.
Is it all industries that are kind of coming to you? Yes? Yes, not an you know a certain sector that is kind of dominating it. I'm just curious.
Well, you know, it depends on what they're trying to solve. You know, folks come to us when they want results.
They come to us. Is it when growth is stagnating?
Or yeah, it could be growth, it could be strategy, it could be We're doing a lot of kind of business model, operational model, re engineering and reimagining. Now where folks are saying, look, I need to.
Make sure I'm fit for purpose.
I need to make sure that I have the nimbleness within each of my different business units. And you know, maybe we've gotten too big, Maybe we need to get back to basics.
What is it that Mark Zuckerberg says the year of efficiencies? But I do wonder if I think there are companies that got a little fat in terms of management and right, is that what you're saying, like streamliney or is it or processes.
I think it's both actually, and I think it's all of the above, and I don't know if it's if it's fat.
But we were really.
Lucky in unprecedented, you know times, and when there were some bumps, we had quantitative easing, we had government intervention, there were lots of different things that could happen. And I think now we're at the point where smart CEOs are thinking, you know what, I don't know if there's going to be a recession or not, but I do
know my consumer and my customers behaving differently. So I do know that I have to be clear on my value add clear on my cost to deliver, make sure that the value equation is still there.
How did the bank collapses change things? Did it at all impact your world? Well?
It did initially because you know, we have a very we've got a big TMT technology practice. And if you think about that first time period when before things got stabilized and before the xsality jumped in, I'm thinking the best v B exactly, and before the FDIC jumped in and said, oh it's not limited to just two hundred and fifty K, there was a period of aside from over that weekend, probably another two to three days before there was certainty, and that had customer panicked because you
think about the whole venture community, right, and they were a huge lender to the venture community, so our tech customers were a little unsettled. But I would say that was again a blip because if you think about what actually happened is the government came in again and those assets, I mean, the estate is running through a bankruptcy, but the actual asset it's moved right, They're solid. So a little bit of a blip, not too much.
I always think about the Bloomberg audience when we're talking to somebody like you, like, how should what should investors be? Kind of taking away from what you are saying and what it means, I don't know in terms of opportunities or the environment.
Well, I think you know, as we said at the beginning, and you said, you know, should we be smiling? Should we not be smiling?
I believe you said Catholic school I think we caught on, but we'll explain that later. Folks we were talking about it was all good.
I feel like all my interviews, starting in with Catholic schools, there's usually nuns thrown in there somewhere too.
But what should they take away if they're listening to what you're saying, So what does it mean?
I think I think they can take away that there's lots of opportunities because as you said, there's there's going to be folks that are reimagining what they do best and are their non core assets that they should be shedding and does it fit better for somebody else? And
I think that they should be looking. You know, if you're a private equity investor, you should be looking at your portfolios and making sure that you're CEOs are like the smart ones we're working with and are thinking proactively and thinking nimbly and thinking about how to be financially fit and operationally fit right as we kind of continue to navigate these times because you know, the interest rate environment alone makes it makes it a bit challenging.
Yeah, it's being, like you said, preemptive about things and not kind of waiting for maybe another shoot to drop, if you will, really fascinating. Thank you so much, all right, fifteen seconds to people ask you about AI A lot.
People do and we were talking, Yeah, and we have a huge digital practice where we're super on top of it and the things that are coming forward, and the amazing technological advances and how much more efficient and how fast we can be. Yeah, it's exciting stuff.
This was so much fun. I hope we can catch up again in the future at Leasta. Dona Hue over at alex Partners, joining us here at Milgan. This is Bloomberg Radio.
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