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When you think of what's needed in phones, a lot of stuff, including semiconductors, which gets us to our next story. Elliott Investment Management investing more than two and a half billion dollars in Texas Instruments, pushing the chip maker to improve free cash flow, setting the stage for another campaign by the influential activist investor. I should point out that shares of Texas Instruments, we're up about three and a
half percent earlier in the session. They're now down just a little bit, just to hair down two tenths of a percent. So Linn is sticking with us. But we want to add to the conversation our own Ian King, US semi conductor networ working reporter here at Bloomberg News. He's out there in San Francisco, TI, Texas instrument activist investor pushing for some change. Talk to us about the significance of this move and what might happen to TI as a result.
So this is a little bit of a head scratcher, if I'm honest. They normally, you know, they normally go after management teams that are seen as being sleepy or a little bit unaware. TI has been explicit about what it's going to do, it's spending plans, and how it's going to deploy cash. What Elliott is doing, which is a little bit unusual, is actually challenging a semiconductor company's
view of the semiconductor market. So this is a bit of an unusual move for them, And I have to say, this is not a management team that really a lot of investors or analysts for that matter, dislike. They're widely viewed as being pretty competent.
And take a step back here and remind everybody Texas Instruments, a storied company with a huge that makes semiconductors that go into pretty much everything. I was looking at their customers on the SPLC function, the supply chain function, on the Bloomberg terminal, everybody's their customer. Remind us what TI's specialty is.
Yeah, it's an analog, an embedded chip. So basically we're not talking about the most advanced in terms of process technology, but we are talking about things like a chip that goes behind the button when you press it to switch the power on and off, something that moderates power insider device.
So they are pretty much everywhere, and their pitch is that, like, look, over time, everything becomes more and more technology enabled, everything gets electronic functions, So our chips have a bigger and bigger role into that. And that's been the case. But we're going through one of the cycles that the chip industry goes through that we've talked about, and that's where
they are right now. So it's not like they don't have cash, but they are prioritizing spending on manufacturing and bringing the manufacturing back into this country.
Way go figure, Ian, They're actually running their business and you know, thinking about the future and what they need to do. Link come on in on this conversation in terms of TI and what they are doing, and you know kind of what happens next to you.
Yeah, I'll just build on what Ian was saying. He was referencing this broader, very ambitious plan that Texas Instruments has to basically overhaul its business. It's going to bring all manufacturing back in house and have virtually no like contractors to help make its ship support. That is a bet on short term pain for long term gain, and
that's what they've been saying for in recent months. Ian and I were exchanging messages this morning about it, thinking they have been telegraphing this squeeze on free cash flow for quite some time now, so it is a little puzzling that Elliott is coming into it and starting to raise concerns after the executive management team has been spending a lot of time proactively laying out these concerns themselves
and saying, but don't worry. At the end of the day, free free cash flow per share is still our main focus.
It's just longer term and not short term.
The last, you know, the last point that Ian made about how we're in this AI cycle to be sure, it's not in video, right, It's not Micron, it's not one of the big AI super semiconductor stocks, and you know that they don't have that going for it.
So but it's chips that go in like everything that go into everything. I'm thinking Monday and like everything has an on and off switch here, I don't know So that's what I find interesting. I like, it's not like surprise, we're doing this right, They've laid it out, so I don't know what's next. Are there other investors that are going to be like, knock it off? Like how? I don't know, how do you see this playing out?
I mean that there is a theme here which obviously Eliot is tapping into, which is this is a company which, over the last few years, aside from its strategy for which markets is in, has been really heavily focused on investor returns. It has I think the second highest dividend yield of any chip company out there, and it's spent a lot on buybacks. So what's happening here is that that pool of cash for buybacks is going away in the short term, very very clear. So that's an investor
class that's perhaps going to be slightly alienated. But you know, this is literally the first that we've heard about any long term real kind of unhappiness with it. And the stock of course, it's lagged a rally that Lynda just alluded to, but it's still up.
And you cover chips, you don't cover activism, And I'm wondering if this is something that happens in your world quite a bit, or if it's pretty rare to see an activist take a stake in a company like this.
No, it has happened. I mean, you remember what happened with Qualcomm and when they were trying to fend off the Broadcom takeover and what they were going to do. And in general, TI has actually led one trend in the chip industry, which is to give dividend to pay you know, to use that cash more and more, less for R and D and more and more for investor payouts. And that's become a thing over the last decade that chip companies never did, but they really do now and
they have to do it. TI has been a leader in that, if anything, All right, So.
What do we watch out for Lynn, you know, kind of what's next year?
Yeah?
I think the big question is whether Elliott will go after board seats. Okay, I think you know there are two paths that this could take. One they could sit there and negotiate some kind of change in capital plan with TI specifically and hammer out agreement there. Or they can make a more aggressive play for some board representation and force change.
Well, Ian, would that be a mistake? If they kind of push back and TI has to kind of rethink its plans or do something different because of this this activist investor, Is that a bad thing in your view?
Well, do you believe Elliott Management's view of the semi conductor industry or Texas Instruments management view of this semiconduction industry. What's underpinning what TI is doing is what's happening in China where there's a lot of production coming online of this type of chip. What TI is saying, Hey, we can do this ourselves. We can shift to a new level of technology for this, so that even when all of these Chinese factories come online, will be in a
very strong position. That's the future bet that they're making. Whether Elliott understands out or whether they've decided to ignore that is another matter, And I guess we'll see how that plays out when they have to argue their cases in front of the shareholders to see if they can gain momentum.
Yeah, these aren't the chips land that are protected by the US government. We put on controls and stuff. These aren't protected, right.
And that's the other shit to drop here. You know, it's been widely expected that Texas Instruments will be among the companies in America that benefits from the chip sack and get some funding. Whether Elliott has baked that kind of subsidy into their strategy that they're pushing with the company is unclear.
I feel like it's a scratch your head kind of Tuesday. Can I just put that out there? I think you said it really well. It's like, I don't know, people just like woke up, had a long weekend, and we're like, we got to do something.
I've got to go after tea I today it's a little lucky.
Buy some of your cellular a couple of billion dollars plus some into TI.
What's wrong with people?
Long weekend?
Just go and make some more burgers and hot dogs and just like extend that weekend. Listen to both of you. We really appreciate it. We covered a lot of ground and so appreciate it. Ian King, US semiconductor and networking reporter at Bloomberg News right there in our San Francisco bureau, and Linda Wan thank you as well, imagining editor of Technology and Global Cybersecurity at Bloomberg News. Here in studio, you're.
Listening to the Bloomberg Business Week podcast. Can't Us Live weekday afternoons from two to five pm Eastern Listen on Apple car Play and then Brout Auto with a Bloomberg Business app, or watch us live on YouTube.
Bloomberg's will Wait He follows climate change for us and more, really kind of just what's going on in the energy space, all the energy space in particular, recently wrote the battle in climate change has become more urgent, and people are realizing that carbon free nuclear power will play an important part. A twenty twenty three p Research Center survey found that fifty seven percent of Americans so they support the use of more nuclear power. That's up from forty three percent
in twenty twenty. Young activists, including last year's Miss America, are flooding TikTok and Instagram with quirky videos extolling the virtues of fission. It's a sharp shift, needless to say, from the anti nuke protesters marching in the streets in decades past. It's definitely a different tone.
It feels like, yeah, it certainly does well. Here with an update on the industry and back with us is Maria Korsnik, President and CEO of the Nuclear Energy Institute. She joins us from Washington at DC. Maria, good to see you again. How do you explain the shift in what we've seen in recent years that Carol just mentioned In past decades people marching to stop nuclear power plants from being built, to now people extolling the value of fission.
Yes, well, hi, and it's great to be with you again. The landscape is really changing for nuclear. It's a confluence of events. There's energy security concerns, there's climate security concerns, there's the need for clean energy jobs. We have bipartisans support and sort of all these events are coming together to really put nuclear in a great new light.
Well, speaking of that, Southern Company added two more reactors to its Vogel power plant, Unit three and Unit four. It's now the biggest NW plant in the United States. The project, though, finished seven years behind schedule in about fifteen billion dollars over budget. So how do you quantify that or qualify that a success story or a failure.
So I'd call it a success story, but not hiding from some of the items that you brought up. But they built two units, Unit three and Unit four because they already had two units on that property. So I think the success story is that you look at unit three and unit four and how long did it take some things to happen on three because that was the first of a kind, And then how much better did it get on unit four? For example, that testing was completed and half the time on unit four than unit three.
Another one was a thirty five percent faster from let's call it the initial start to when it was actually generating and connected to the grid. So, just like any sort of new startup company, you know, you start to work down and get more efficient and costs less. So these are two examples. What do we think that next out of point will be? And what do we think that next out of.
Point would be.
It was excellent learning from units three to four, and it puts us in great position to build more.
I think some person my listening right now say, wait a second, this is not a startup because nuclear power plants have been in operation in the United States and being been built in the United States for decades. Shouldn't we know by now how to bring them in within a timeline and within a budget.
Yeah, you're absolutely right. We have a wonderful operating fleet that we have today. Ninety four reactors now. But when I say startup, it's because this particular type of reactor had not yet been built.
This is an advanced reactor. There's a lot more passive.
Features than what had been in the previous designs. And so, like anything, you can say, well, we all drive cars, well we do, but that doesn't mean all the cars are the same.
And so it's the same way with nuclear.
Absolutely we know how these operate, but this particular model hadn't been constructed.
And yet we'll be more built in the future.
There's already more that the people are interested in building, and so we look forward to see how.
Much even more efficient that we can get. You know, if we had continued to.
Build nuclear, we would be better and more efficient at it.
Like anything else you do, you don't do it for a while, you're not as efficient.
You know, if nuclear was the answer to so much, Mario, wouldn't we see it much more around? If you will, wouldn't it be kind of more ubiquitous than it really is?
Well, it's twenty percent of our energy grid today, and so I would say, in a lot of cases, it sort of is everywhere.
And I think as you.
Look ahead to the future, My gosh, demand, demand, demand. I think we're all hearing it about how much clean energy is needed, whether it's for AI or machine learning or just reshoring the manufacturing sector, which we're all very interested to do.
The demand on the grid is really.
Increasing, and for that you're going to need reliable, resilient.
Twenty four to seven power. That's what nuclear is good at.
It's clean, it's there when you need it, and it's very reliable.
And we've proven that urine.
And eure out.
You know where I'm going to go here. I mean to worry about concerns. I think while more Americans seem to be behind it. If you said, Okay, we're going to put the nuclear facility or a nuclear plant plant in your backyard, they'd say, maybe not so much. So why should we believe it will be safe? And the waste is still an issue in terms of you know, what you do with at the disposal of it.
So let's talk about that.
Because out in Wyoming they're talking about building a new plant and there were four different communities that fought to have the nuclear plant in their backyard.
And so I think the narrative is very much changing.
I think people are taking a hard look at what it's really going to take to power our grid with clean energy, and they realize that nuclear is in fact a very good option.
And so I think the conversation.
Is really, you know, very much changing around nuclear in a very positive way. If you look at the States, for example, there's been over two hundred bills in support of bringing nuclear to the States. That was nothing that we saw a decade ago, even five or six years. We're getting bipartisan support here at the federal level.
And it's not just in the United States. Canada one's nuclear. Countries across Europe are interested in nuclear. I was just in Ghana a few months ago, Ghana on's nuclear. So it's really not just a US thing, it's really a worldwide thing.
I was at the yeah top twenty eight.
Yeah, we spoke to you. We spoke to you just after that. I remember that just a few months ago.
Maria.
Actually right, everybody wants nuclear, nobody wants nuclear waste. You literally cannot sell this stuff to anyone where do we put it? What's the answer.
So the answer to that is, what don't we call it future nuclear fuel?
In fact, you know, it's not just something that can't be used again, and so you have a lot of those conversations happening today about potentially recycling.
And at the end of the day, the fuel is.
Very safely stored where it's at Finland, in fact, which I head to next week. Just open there deep geologic repository and like that. We will find one of those here in the United States. In the meantime, we'll collect it in fewer places. Right now, it's stored at whatever plant that it was used at, and we can consolidate that fuel as we're looking for the long term fuel storage answer save one. At the end of the day, it's not nearly the high volume that many people.
Safe to say, though there are concerns. I mean Germany, what they just switched off the last three nuclear power stations last year. It's never there are concerns that you see movement forward, movement backward, because there are legitimate concerns. It just got about thirty seconds left here.
Yeah, and Germany is one of the few places and honestly, I think that we'll see Germany lift to regret that Japan is restarting their plans. Most of every country in Europe that has nuclear today is extending those plants and looking to build new You know again, it's really a worldwide consensus that more nuclear is needed in our future.
All right, going to leave it there, Hey, listen, Thanks, We always appreciate some time with you. Over your course, Net President, CEO of the Nuclear Energy Institute, joining us.
You're listening to the Bloomberg Business Week Podcast. Listen live each weekday starting at two pm Easter on applecar Play and Androyd Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Well, it plays a critical role in New York's food system, and yet it's got some pretty serious problems. We're talking about the Hunts Point Produce Market, which is a combination rail yard, truck depot trading floor that quietly supplies about sixty percent of the city's fresh groceries two billion dollars
worth of fruit and vegetables each year. Organized as a cooperative, the market offers an entry point for both suppliers and buyers, who would otherwise struggle to compete with national chains and distributors such as Cisco Walmart and Whole Foods. It also keeps the many neighborhood the big chains ignore from becoming food deserts. So it sounds pretty terrific, right There is
a hitch. Turns out, it's also a major polluter. This Bloomberg BusinessWeek story will be featured in the forthcoming issue of Bloomberg BusinessWeek magazine. You can read it now on the Bloomberg and at Bloomberg dot com. Slash BusinessWeek with more Bloomberg News City Lab reporter Fulla a Kinemby excuse me, just joining us here in studio Fulla a chinnyby Fula. First of all, for those not from New York City, lay out what HUDs Point Produce Market is all about.
Thanks Hails. It's a huge part of the city's food system. What's unique about the city, the city's food system, I guess when you compare it to other American cities, is that we have this huge ecosystem of small grocers and you know, ethnic grocery stores and just fruit stands and and so all these all these stories that you could just pop into when you're sort of walking around the city.
They're also applied by the hunts Point Market and so it, like you said, supplies sixty percent of the city's fresh produce.
I went to school uptown in New York City and everywhere like one hundred and sixteen Street, one tenth Street, like that was such a part of it, and that's such a big part of the city's fabric. I feel like, take us to you went and you visit it and talk about some of the like main hours where you're seeing so much activity at the market.
So the interesting part about the market is the way we shop grocery stores, you know, during the day or after work. Yeah, normal hos right, grocery stores and these chains they shop the market after hours, so they between ten ten pm and you know, around three, four or five am, they're there shopping for their product for the next day. Because in a lot of ways, the Hunts Point Market serves as sort of the warehouse space for
these tiny groceries. You know, like in New York we all have we're all looking for more space, more real estate, and these grocery searches don't have it, and so the market sort of serves as their warehouses. So anyway, when you go at night, it's it's sort of this bustling kind of trading floor. Right, you see people with cash in hand, sort of buying, buying palaces and fruit, buying palaces and vegetables. You see like the create the hand cards.
Old fashion, yeah, pretty old fashion.
Yeah.
Yeah.
So they're negotiating back and.
Forth, negotiating back and forth, filling up trucks with boxes, and they're sort of a a it's a buzzing place, and it's crazy because during the day it's it's a little it's a little quiet. It just looks like a truck yard.
One hundred and if you've ever driven past it, that's exactly what it looks like. One hundred and thirteen acres. As you said, busiest ten pm to three am. The problem is it's been around for a long time, right, and it's getting old and outdated. Not getting it's been old and outdated. Tell us a little bit about what's old about it, what's outdated about it.
So the market moved up to Hunt Point in nineteen sixty seven and they haven't updated the facilities since. And so like much of American infrastructure, it's sort of crumbling, right, And and so the physical the physical plan is old. They have old old refrigerator, old refrigerators, the electrical grid is tapped out, and so as a result, there's not
enough space to store all the fruits safely. And so what they do is there are hundreds of diesel trucks just running twenty four to seven to store the rest of the fruit, to keep it cold, to keep it fresh for folks like us to consume the next morning, and.
So great for us. Not great for the people who live in around there.
Not great at all. Hunt Point has some of the highest rates of childhood asthma in the city in the US as a result.
How long have they known about this? That this has been a problem for a while, It's.
Been a problem for the better part of twenty thirty years.
Why hasn't it been dealt with?
It's expensive, right, they're looking to the market is looking to raise six hundred and fifty million to do renovations to you know, upgrade the refrigerator space, to upgrade the grid, to you know, get those trucks offline, right, the trucks that are running constantly, and to sort of modernize the market. And so so far the city, the state government, and the federal government have chipped in a couple hundred million, but in order to start work. They need the rest
of the money. They need about another three hundred million dollars to get started.
Easy peasy. So where is that money supposed to come from.
They're hoping it comes from the city. The rest comes from the city government. I mean, that's the hope. But I mean they've been trying for the past two years and it hasn't happened yet. But as we said, you know, it's a vital part of the food system.
Well it's so as you say, vital part of the food system. So those folks who are using it, what are they doing because they've got to they've got to make sure that the produce that they're buying or that they're you know, transporting, that it's kept safe. Are they having to pay for some of the upgrades or doing whatever they need to do to make sure it works for them.
Yeah.
So they're twenty seven vendors at the market, and most of them are family businesses. Right, this is not an easy business to get into. Right, you passed down the knowledge, you passed down that you're dealing with perishable, perishable items
and it's sort of it's a specialized trade. And so for some of the larger, larger venues at the market, they're able to afford upgrades, right, Like I went to one of I went to Casmans Catsman Produce, and in their warehouses, you know, their their warehouses are fully refrigerated and fully they have you know, the latest technology. If it gets too cold in their room with apples, then an alarm starts beating, right, and and so so they're
they're fine for the most part. But for some of the smaller vendors and some of the vendors that don't have those resources, they can't they can't afford to take on that expense or to to front that expense on their own, and so they're sort of stuck waiting for waiting for help and waiting for the city to chip in.
Tell me if I've got this right, because I thought I got from your story that it needs to be fully funded for them to start making any major changes to break ground.
Essentially, Yeah, for these city construction projects, you need all the money in hand before you could start. And so if they started now, then the vendors would have to kick in the remaining three hundred million dollars. And that's just not that's just not feasible.
How is it that you know something that is so vital to the city that it's not As you said, it's been around for several decades, some of these issues, some of these problems. What did you get from city government as you talk to people to find out kind of accountability, if you will, and why this hasn't been fixed already? What did you come up with?
I think it's sort of a again, like a lot of infrastructure and a lot of things like that. It's just sort of back of mind. People aren't really thinking about it. It's hard to sell right, Like it's hard to explain what it is. People go to Gercy store, they pick up their food, They pick up their food, they don't really think about where it came from or how I got there.
Well, then, you know, you know, I started with you kind of taking us there because I feel like it's one of these things that, as you say, we just pick up our produce and we just assume it's going to be there. Everything's going to be fine, The supply chain is going to be fine. We learned during the pandemic supply chains aren't so fine, and they actually kept running correct during the pandemic.
Yeah, so the market didn't close for one day during the pandemic. And in fact, the CEO there was in constant contact with the city government giving updates about what's coming in, what isn't coming in, And so there's this window and there's this connection to city government this area. It's important for the government to know where the food is and that the food supply is safe.
Who who owns it all? And tell us about the CEO a little bit. This is mister Grant, correct.
Yes, Philip Grant is the CEO. And so the market is structured as a co op, and so the vendors, the vendors own the market in the past. So when it first got to Hunts One in nineteen sixty seven, the city, the city was running it. But you know, after the financial crisis in the seventies, the city didn't really have the wherewithal to handle the operations of the market, and so the vendors took it over. And so the vendors own and operate the market and it runs as a co op.
Well, it's interesting too, and you think about the vendors ownership, one would assume right that they've got to be kind of have a financial stake in this and certainly financial stake to improve it as well. You know, this is one of those things again like if you're in New York City, you just assume it's going to be there.
It's been around for such a long time. It's kind of an institution, if you will, always think about the seafood market that used to be, you know, down at the seaport again, and just so vital in terms of the food supply and UH supply chain. As you covered this and reported this out, what were some of the things that just struck you and telling the story.
I mean, I think I think that this is sort of one of the last UH markets like this in
the US. It's definitely the biggest one, but you know, inn other in other cities, you're sort of relying on Walmart or or Costco or a large grocery chain and right, and so the difference between those chains and Hunts Point is that what they do is they contract with huge farms and they run they run their trucks from the huge farms to to you know, the distribution center for the Walmart distribution center to the.
Store right right, they're just direct from the farm, direct.
From the farmer. And so This difference is that hunts Point is sourcing from all all over the world, and there's they're sourcing at a level where you know, they can they can keep things affordable for for these small grocers and they can keep these small grocery competitive with with like these larger chains.
Full of what's next? Because the problem has been there for a while and it sounds like there needs to be some major investment. What's next in terms of in what are you're going to be watching to find out kind of what's the next step for here.
So if we're watching to see if they can get the rest of this money secured, they're they're looking to start construction as soon as possible because they're their lease is up in twenty thirty one. And also, yeah, their lease is up in twenty thirty thirty one, so they need to start work immediately. And also some of these grands twenty thirty one, Yeah, and some of these.
Grants, but they don't get the money then what who knows?
Yeah, who knows They're gonna have some serious issues.
It's hard to imagine to imagine it wouldn't it wouldn't be there. Yeah, one thing I did want to ask you though, and you know I realized is that in terms of other cities do they also have major form markets.
So so there are a few cities that that that have markets, and they're historically pretty much every major American city had had one of these, right, And over the years they started to become obsolete. And as as yeah, as as these grocery chains got larger and larger, in these groceres, suppliers got larger and larger, there is less of a need. But I mean, just to come back to New York having this robust like ecosystem of small grocery stores, and that's just not the case in a
lot of these other cities. I spoke to folks in Phoenix who who are looking at sort of reviving their market.
You know, they're interesting.
Their market folded in the eighties and now they only have two produce suppliers in the whole in what is a large city, right, a grow and a growing city, right, And so they're looking to revitalize it because there are food deserts in the southern part of the city, and they're looking at ways to supply smaller grocery stores and supply.
Smaller It's such an important story and I feel like we've talked about food deserts a lot, and that unless you kind of broaden it out, you're kind of you have to suc come to just a few big suppliers, if not one big supplier in a certain area. So it's an important part, very important too. I feel like the fabric and the health of our city, no doubt about it. Full of thank you, I really appreciate it. Full of a Kenneby. He is Bloomberg News City Lab
reporter joining us here in studio. As we mentioned this story Upburg Business Week story will be featured in the forthcoming issue of Bloomberg BusinessWeek magazine, but you can read it now on the Bloomberg and also at bloomberg dot com slash business Weeks, so be sure to check it out.
MC journal.
Now about you, let me drive? No no, no, no, honey, please, I'll do the gravels.
I want to drive.
It's good question.
This is the drive to the globe.
Doing well by around.
Each other down on Bloomberg Radio.
All right, everybody, eighteen minutes left in today's trading session on this Tuesday trade. As I try to remember that we did have that long holiday week, I felt like, I don't know about you, but I felt like I was gone for a week.
It was it was really nice.
It was nice to have three days off.
You know, suggestion box, Maybe we do these three days you know what?
Some people say, what Bernie Sanders for example, Yes, that is if we continue it well like this, we'll see a four day work week.
At some point.
Yeah, I'll call the exchanges, Hey, how are you with that? For day trade.
I've spoken to some very powerful people, yes, who said that they think, who will remain named less you said, they think we'll see a four day work week in our lifetimes.
But not if you're tied to the financial.
People who work in this building, who come in five days a.
Week, to the financial markets.
That's the thing. If we tie it to the financial markets, then I don't know that's going to be a thing.
See what Honor has to say. Let's get to it. We actually want to talk a little bit about private credit because we see a bunch of headlines Pigeon Private Capital their division of Prudential Financials asset management business. They established a European long term investment fund private Credits Historic Rise. We've talked about this a lot here at Bloomberg creating a problem that most asset managers would love to have, and that's too much cash in their coffee. You've got
to put it to work. But you know, yeah, you got to figure it through. So let's get to it with Anna Arsa. She is global head of private credit and Financial Institutions that Moody's Investor Service. And great to have you back here with Tim and myself. So private credit, private credit, everybody wants a piece of it increasingly. What's top of mind for you guys and what you are tracking specifically at Moody's in a space where we sometimes say it's a little fuzzy.
Thank you for having me again. Always pleasure to have this discussion with you. Listen, it's a very.
It still remains hot topic.
I think we start thirty interview private credit and every time we have this discussionpoiler and water and that's actually being a credit analyst and coming from the credit rank.
That's what words is.
And let me just kind of say that, as you said, everybody wants a piece of this action, meaning either to invest in the business or build a business. And we when when the business is relatively mature, and particularly now with the opening of the leverage finance market, and I'm
talking about direct lending specifically. We are worried that credit terms will suffer and eventually there will be deals who are done maybe less prudentially when there was less competition, particularly between the public and the private markets and leverage lending. So we are concerned and we're seeing actually creates terms iteriation.
We are seeing.
Competition for talent as well, and at the same time a lot of dry powder being raised that has to be deployed and maybe deploy the terms that are going.
To be less favorable for credators in the near term and media terms.
All right, so bummer for the creditors, right, the folks who need to borrow the money. But having said that, as we kicked it off with Anna, the idea that so many people want to be a part of it, doesn't that I'm playing devil's advocate a little bit, But doesn't that kind of spread around the risk in the private credit market so that there's not just you know, one entity, one lending entity, if you will, that's kind
of stuck holding the bag if things go wrong. An investor in disposure, same thing.
That is, diversification is always good of risks.
The issue is that our statistics have shown that the biggest fundraising actually is going now.
Increasingly to the law players.
So therefore this is becoming a more concentrated market.
Sorry for that.
This has been a more concentrated market both on the private equity side, but particularly private credit fundraising is indeed going to the.
Largest and more established players.
So with that being said, we are diversification is very interesting because it is the same pension funds, an insurance company who are investing on the private equity side, and also or sovereign funds are also investing in the private credits, so they're all increasing their exposure.
The good thing is here is from.
A systemic risk perspective, these are different funds with different investment than underlying so there is not that big concentration of one type of a risk, let's call it, you know, subprem mortgage, US supparate mortgage or US office commercial real estate in one type of fund is diversified to many real money investors that have a long term perspective and long term investment horizon and also without necessarily immediate liquidity call or risk.
So that's the good about this market.
You're absolutely right, the specification of the investment community and also not imminent liquidity draw that these kind of investors are coming in with.
When I'm wondering, are you going to come on our show and say that private credit is not hot? When does that happen?
You know what?
That's so, if you think about where we are in what eating a lot of us have been talking about private credit as equivalent to direct lending, and direct lending is just another middle market now expanding to larger middle market leverage trends business, but private credit is beyond that. There's a lot of talk about potentially the abs private credit market, which you know, if you listen to various pondents in anywhere between ten and forty trivia, any kind of asset from any bank.
That potentially can be sold.
Is that auto, is that aircraft, receivables, is that potentially data centers or explain as even you know, commercial real estate, that the potentially can be packaged in a private securitizations that will have basically been deployed into the kind of the investner community, same insurance companies, pension funds, summern funds. So therefore, if you take a broader picture of private credit of any credit provision that's not done by the banks,
but financing our economy. That means that this is going to be here to stay.
For quite a long time.
So all right, Moody's, we know who you are, and you guys look at these things and try to assess risk. So where's the risk and the private credit market today?
So the risks are really again they are mostly housed again within institutional investors that are sophisticated investors, and the sub funds and again pension funds have the largest part
of this, then insurance companies, then sovereign funds. The growth into retail funds and is what we are being raising as a particular concern if you look at where the new BDC formation and business development companies were a fit of of your viewers here is that there is like the largest funds that have been grown is with retail or high it worth money.
And the question there is these type of funds have a different kind.
Of liquidity calls if you were, an ability for retail investors to basically.
Call their money in a quarterly basis right, and that's where the biggest growth has been.
So one can say you can be double's advocate, well, shouldn't retail and highnted word individual also benefit from the growth of private markets And the answer to that is of course.
But the second one.
Is this done in the prudential way sufficiently with the right disclosure, so afterwards they really know what they're getting, and then they will not get their money, you know, overnight.
It's so funny that you say this. I was just having a discussion with someone in preparation for a panel and this whole idea of even a credit investors, do they understand liquid versus ill liquid?
Right?
Because private credit not as liquid is certainly kind of your bread and butter investments, and so do they understand going into one of them, or going into a private credit fund that if they need the money or want the money, it's not so easy to pull out correct.
Exactly, So typically how these fonds are orchestrated.
And just got about thirty seconds.
Yeah, yes, you can have a quarterly you know.
Small portion of liquidity is funds that have established or beacon this space have a provision of bank clients to provide for that and more liquid access. But not The point being is that investors need to really be aware that this is an new liquid access and they're locked for some period of time and they cannot take their money back, and growth in that area can create disclosure risks.
Risks, that's what the fonds to watch for.
Yeah, it's just you know, certainly a topic that fascinates us in a big way. Put a private credit story on the most on the Bloomberg and it tends to be among the most.
Right a million bucks a year salary.
Some of those.
Folks, Anna are so global head of private credit financial institutions at mood These investors service, I always fund to check in with. You really appreciate it.
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