Aviation Security Innovations Since 9/11

at Bloomberg dot com slash podcast. Steve Crowley is Executive VP of K two Security Screening Group, also a former Assistant administrator at the Transportation Security Agency at the t s A. And UM, we want to talk about the changes that we've seen in aviation security since nine eleven, the UH, the improvements really and in in safety and security, and then the vulnerabilities that may still exist. So Steve,

thanks very much for joining us. I guess the changes are pretty clear um to anyone over the age of like thirty, right, because we we've all lived through it. Um, and remember the days before you had to take off your shoe is now it's a lot more invasive, but it's not really that bad. Um. How how how much have we seen in terms of improvements in in UH, in safety and security. Well, first, Paul, Matt, thank you for having me on your show. Um, the Aviation Security

Enterprise has come a long way since non eleven. Um. Not only do we have better technology to look for and identify the explosives and weapons, but we also have better security tactics, techniques and procedures. I mean, both of these things enhance our security posture. Let me give you some specific examples. UM. You know, as you mentioned back then, we walked through simple melo detector. UM. Now we have UM checkpoint X rays. UH, we have checkpoint on person

body scanners. We have increased well, we went from actually a contracted security team twenty years ago to a professional t S A officer cadre of fifty thou strong people. UM. And now we have more law enforcement presence in UH. In the airports were hard in flight that doors, we have air marshals. Kind of what I'm getting at bottom line is the Avia Security Enterprise has implemented a multi tiered, multi layered approach to security. We didn't have this twenty

years ago. Steve, with twenty years of hindsight, you guys in a security screening business, was it almost I mean, how did it happen? I guess? I mean, is it just that it was a different time and place, and we didn't think about strengthening the doors and all that kind of stuff. Well back then, if you remember, you know, anything that happened pretty much, anything that happened with an airline UM had to do with taking over the airline to get to you know, hijacking one like to get

to another place. It was never really used never not really, it was never used as a weapon. So it's twenty years ago it's used that it was used as a weapon. And so if you think about it, just hardening the cockpit door, you know, they were able to get into the cockpit because they thought it was just a typical hijacking. Hey, I have a knife, I'm not gonna hurt anybody. Just let me, you know, talk to the pilot and and and that. You know, that changed obviously now we don't

view it as hijacking anymore. It's terrorism, and it's uh, you know, we will always think of it as airplane as a weapon and never allow this to happen. You know again, well, we haven't seen anything even remotely like that since um September eleven, have we? I mean, I I don't recall any reports of plane being hijacked and then used as a weapon in the last twenty years. That is correct, and that is it is because of

the aviation security enhancements that we have made. I said that the multi layered and multi tiered approach UM because there were there there's not even attempts. There's there's there were several attempts, uh probably any less than five UM to bring on an explosive UM, but that was all failed and since then we have not had not even an attempt And again that's because of whipped in place today.

How can technology steve make you know, this even safer? Again, it seems a little low tech to have to send you know, get in line, take shoes off if you're not t s a pre approved It seems like there should just be some technology solution that would maybe speed up the process, make it less invasive. Yes, so there are some changes that are happening again behind the scenes.

You don't you don't necessarily some of them. But UM, for one, even you know about what ten years ago when they came out with pre check UM being able to look at at folks and put put folks that you're comfortable with a side so that you can actually focus on those folks that you don't know about the unknowns. That actually helps the process and go a little the process to go a little faster efficient. But there are technologies that are that they're putting in place today, actually

computed tomography system called CT at the checkpoint. It's kind of similar to the medical technology UM. It's a red image technology that will allow you to kind of manipulate the bag as your bag, your carry on bagg is going through victory or CT system that you don't actually have to have someone to take out things and move

things around. You can actually digitally do that, so that becomes a more efficient process as well as these uh what they're deploying is automated automated screening lanes which are uh uh state of the art UM conveyance systems will call it, and that allows basically the bags to automatically be put into the X ray system or the CT system, the bins automatically come back. You can more than one person can divest their stuff at at the same time, so thus you don't have to wait for that person

in front of you to finish. So it's things like that that do help the process along and they aren't looking at other things to even become more and more efficient. You know the old Total Recall of someone going through a Total Recall movie where you sup fall sports that you're going through. Well, we're not gonna get down to the point of looking at you know, bones and stuff

like that. The ideas that have the passenger continuously walk down this this UH pathway where sensors are they are looking at the individual, so we are moving in that direction and that will happen in the in the future. So at first, I want to say, there's a remake of Total Recall with Colin Ferrell that got really bad reviews, but I thought it was amazing, So I highly recommend checking out the remake. And then I want to ask, are these technologies going to lead to um an easier

airport security? I mean, are we gonna eventually leave our shoes on and maybe even carry liquids through? Yes, So the carrying liquid through, let me get that one first. So the compute demography system that's being deployed today and that UH started we'll say a year and a half ago for deployments, you can actually leave the liquids in because those those systems can see that. So yes, that will help with that leading laptops in the bag. The

CT system will help with that leaving shoes on. They are integrating uh, some sensors within those walk walk through metal detectors as well as the omboy scanners to actually be able to leave shoes on. UM. Will they always be that way? Where? Yeah? Yeah, like for the entire um you know, traveling public. No, my guess is you will still have to do some of those for those unknown high UM, the folks that need to be looked at more more carefully than others. UM, you always have

that kind of capability of those technologies. UM, we'll be able to support that. UM one way that they can will be able to do it with shoes on wor shoes off as an example. Uh, but it won't have to be two separate technologies. Steve, where do you think they're still risk in the system vulnerabilities in the system? Well, UM, Airports continuously conduct res assessments and security vulnerability assessments to

identify prioritizes and actually mitigate what they find. We know that the US aviation system is a high value, high priority target for bad actors. UM, and I like to say the bad actor only has to get it right once, while t s A and the Aviation Security Enterprise that you know has to be able to get it right

every time. So everybody still needs to remain vigilant. But today, not only do we have uh we have to be bilion against that that conventional bad actor you know who carries the explosive or a weapon on board, but we have to also look at those asymmetric bad actors that are going after um the threat factors such as cyber threats or even the use of drones as weapons. So those things exist, and so the bottom line is we need to be five steps ahead of those bad actors

if we want to security that aviation enterprise. All right, Steve, thanks very much for joining us. Steve Curly there is executive VP the k TO Security Screening Group. Of course, as we mentioned, he's a former assistant administrator at the t s A as well, and m really has done so much in security and in leadership, so really appreciate the time with you. Steve, Thanks very much for your insights on this UM. Well tomorrow, I guess the twenty

year anniversary of nine eleven. Travel as we knew it changed almost overnight and has become safer and more secure, so we appreciate it. This is Bloomberg. Let's talk a little bit about the crypto space, Michael Cameron, CEO of Skilling, and let's let's start with El Salvador and and what happened the other day. You know, we saw UM the country adopt bitcoin as I guess legal tender. And on the same day we had a big drop in the price. So the two things related. Michael, Hi, Matt, thanks for

having me. I do think they are related. I think it's a good old fashioned by the rumor, sell the news. I think some of the people looking for UM, there's a lot of people that like the link. You know, this drop must equate to something that happened. I think if you're looking for that, it's by the room, sell the news. But also it was a bit of a stumbled rollout, and so I think some people thought it made cloud the it make cloud the future for other

countries to follow suit. What does it mean, Michael, for a company to adopt it and for a country, I'm sorry, to adopt bitcoin as legal tenor, what does that really mean to you? I think it means that, I mean the obvious cases that it means that they have to that vendors and providers have to accept bitcoin as a

as a an asset that they'll accept. And so that's that comes with a lot of operational hurdles that they have to get over, and uh that that you know, it's citizens have to adopt this and understand how to how to use it now to convert from dollars over to BTC and and so on and so forth. So at a very basic level, it just means that every vendor from a little kiosk selling phone top ups to uh, you know, a large purchase of a furniture or a

car has to accept bitcoin. What about um skilling, You're a trading form um that tries to make trading I guess transparent and secure and you deal in over eight d f x um Uh well pair currency pairs? Does that include crypto? Yeah? So Skilling is a is a ex and CFD broker. We deal, We do deal in crypto. In fact, we're a leading provider of crypto. We have twenties seven crypto assets right now, which includes the big boys like Bitcoin and ether, but also the more nascent

cryptos like dog coin, shiba Inu and more. Well, how's it going? How's that going right now? I mean, is it still um an incredibly hot sector? Bitcoin is trading for over forty dollars right now. It's still incredibly hot. It is. It is the product that that that customers want to trade, you know, where we we find that UM more and more customers are just exclusively trading cryptocurrencies now Skilling it does attract. Skilling is a really relatively

new fintech on the scene. Were only a few years old, and uh, we primarily attract a younger audience, but they and they almost exclusively dip their toe into crypto. Some of the older brokers still rely on a lot of customers that trade the kind of the traditional assets, you know, the TAO and the SMP and gold and the Fiat currencies. UM. But we are trying to push the envelope and just offer all the cryptocurrencies that that are making the news,

making the headlines, and and it's still on fire. It's still all that people want to trade right now, you know, Uh, Michael, there's still a lot of skepticism out there about bitcoin and crypto in general. In fact, the Sweetish central banker warned that bitcoin could eventually collapse. How do you kind of frame that type of thinking as this market continues to develop. I think that that skepticism is is a

little unfair. I think a better I think that these the way comments like that I think are are are going to be judged to be on the wrong side of history. So this cryptocurrencies have with every passing year, there's more and more use cases for both blockchain but also cryptocurrencies, and so I feel like when there's comments like that denigratee cryptocurrencies and the use of blockchain, it's very shortsighted. Fiat currencies like the Prono, like the Swiss

frank are not um. They're not without volatility. I mean, just a few, just a few januaries back, m a currency here in Europe, dropped well appreciated. UM. So for all the naysayers that say crypto is a scam or it's too volatile, UM, fiat currencies are not above that. European fiot currencies are not above that. And so I think I think it's here to stay. I think UM, and I think comments like that aren't aren't gonna help and are going to be judged to be on the

wrong side of history. But We're gonna clearly need more regulation, aren't we. I mean, you look at all the rip offs going on and defy and um, the fact that it's almost expected by investors. Not that you trade those defy tokens also, but you see them. Yeah. Yeah, there's more regulation coming, and I think that's that's a good thing for companies like Skilling. It's a very good thing.

We don't we're highly regulated as it is. You know, we have a significant amount of you know, a m L and k y C checks we put customers through. We don't accept cryptocurrencies right now as uh for deposits, But um, it's something we're we're obviously we're eyeing, and we know that all of our competitors and most brokerages are looking into this. And there are leading companies out there that do what they call KYT tracking, so that

you can track the genesis of a cryptocurrency transaction. You can track it very far back and you can see you know where where it's been used. So, um, I think the regulation is building and I and companies like ours welcoming. Hey, Michael, thanks so much for joining us. Really appreciate it. Fascinating store here developing so just we will obviously keep you on the loopas as we need more discussion going forward. Michael Camerman, CEO of Skilling. I'm

a credit investor. Where do I go for yield? A lot of folks are looking at the private credit market and we've got an expert in that market. John Klient, President and Chief operating Officer of New Mountain Finance Corporation. John, thanks so much for joining us here. Just give us, you know, for those folks that that aren't that you know, um, you know, knowledgeable about the private credit market, just framed for us. What is the private credit market that you

guys playing well? Thanks for having me on the show. I really appreciate it. The private credit market, at least the way we think about it, is a market that finances leverage buyouts for um uh for for financial sponsors across a big continuum of size. So we're providing capital to effectuate leverage buyouts, and historically we've done so in the middle market, but more and more private credit is moving up market and and executing billion dollar tranches to

effectuate these larger buyouts. So what kind of return are we talking about? So private credit the pitch across the industry to investors is essentially in private credit you can get consistent seven to ten percent returns essentially with floating rate tranches so you can protect against inflation and changes in the general macro environment. And across the industry, we've we've done a good job achieving returns that are better than the high yield market and the syndicated market, and

that continues today. So it's interesting, John, I mean, you know, Matt and I we we talked a lot of folks who in the private equity space and we're just amazed by how much capital and is in the private equity space looking for deals. Give us a sense of kind of the deal flow that you guys are seeing right now. Right now, We've never seen deal flow as high as we see it see it today. Uh. Here at New Mountain, we have a private equity business and we also have

the credit business which I'm in charge of. We manage about over twenty billion in private equity, seven billion in credit.

And uh, I'll tell you, the zoom environment that we have today has has really created tremendous deal velocity, tremendous efficiencies and uh, there are tremendous amount of players with a lot of capital to put to work, and essentially there's a major competition to to buy all the best assets, and so we've never seen anything like it, and I think that is driven by the large amount of fundraising

that we've seen in private equity. And from my seat, we're just trying to keep up with our clients to raise money fast enough to to suit their needs and to be a little finance the bigger and bigger buyouts that that our clients are pursuing. So if I'm high networth individual or family office, how long do I have to commit funds and and what kind of risk am I taking? Well? Across UH, I have a credit There are a lot of different structures here at New Mountain.

We do manage a public BDC, so you can buy our stock, buy and sell our stock on a daily basis very easily. So you've got that daily liquidity and you kind of access to a diversified group of of of of private loans that we make to our sponsored clients. There are some structures um that are out there where as a high net worth individual or an institutional investor, you have to commit to the fund of the asset

class over many years. So UH big picture, I'd say there are different structures for different time horizons, and it's possible to get access to private credit in a lot of different ways with a lot of different time horizons. John, earlier in my career, I was at the Chase Manhattan Bank and the corporate finance team, and we were lending money to the media sector, which is a great cash flowing industry and supportive of, you know, a good level of debt. What are some of the sectors that you

guys like from a private credit perspective. Here at New Mountain, we're really focused on what we refer to as defensive growth industries, So we're trying to lend to businesses that we think are going going to do well no matter what the economic environment looks like. Uh and I think our sponsor clients are are geared the same way. So we're looking at software, technology, enabled business services, subscription data companies,

life sciences, especially materials, healthcare. I could go on and on, but it's a lot of niches that have really predictable, recurring revenue models that that we can take comfort in as a lender. What are some of the biggest deals you've been involved in. Can you tell us any of the deal details. Well, I can give you a bunch of deals. It's pretty amazing. Before before COVID, I'd say the biggest deals would barely touch a billion dollars in

the private credit market. And today we're we're we're financing deals as small as a hundred million and as big as three billion, where where we'd be a member of a of a club of lenders that financed those bigger deals.

But really post COVID, there's been an explosion of larger deals. Uh. You can think about stamps dot com, which is a software business, Affordable Care which is a dentistry business, Galway and insurance broker Um, a novel on Holdings which has been announced that to take private lead by Norrik and Insight. And these are all multibillion dollar deals, uh that that

that are that are really popping up every day. So I need all my hands and toes to talk about the billion dollar deals and the private credit markets that have occurred over the last over the last two months, even John just about thirty seconds talked to us about credit quality out there. So I think credit quality is really good as long as you stick to to the sectors that have done well through COVID, so um, and essentially I think it's a lot of the sectors that

we focus on. Our book has been very strong through COVID, and we were we worry about credit quality is really uh, companies that are that are exposed to secular change, supply Chaine disruption, which I'm sure you're talking a lot about in your show, labor shore is. So we really we really stay away from, uh, you know, industries that that that could be exposed to those those negative trends. I think about automotive, retail, travel and leisure, heavy heavy industrials, uh,

consumer discretionary of course, you know energy. So I really think those are the industries that good, good lenders avoid. John Klein, President, chief operating Officer at New Mountain Finance Corporation. Appreciate your time today. This is Bloomberg. Now let's get over to Don Steinbroger been Uh. We've been anxiously awaiting the CEO of Agecroft Partners and he joins us now at a Richmond, Virginia. Don great to have you on

the program. Thanks so much for joining us. You say, um, this is the greatest asset raising environment in the history of hedge funds. At least you have a paper out UM with that title. What do you mean by that? In the history of hedge fund industry? This is the best well I've been in the institutional investment and business

for thirty six years. And uh. There are three things that drive flows to hedge funds and all of those are are pointing to me to be UM very strong indicators that two thousand, uh twenty two will be the best environment to raise money in the hedge fund industry. The first is you're just starting with a large asset bates. You know, the hedge fund industry at the end of the second quarter was at four point three trillion, up from six hundred billion at the end of the turn

of the century. It's grown every year but three this century. Before this year, flows the hedge fund industry had been static. Most of the growthy industry had come from performance, but a lot of that has changed. You seem very strong flows into the hedge fund industry this year, and three things are resulting in this strong flows. One is just the performance of the hedge fund industry has been very

good over the past two years. Most investors are investing in head funds to protect on the down side and add diversification, and they were very happy with performance first quarter of last year when the markets sold off, they were happy with the full year up ten percent. In the first six months of this year, hedge funds are up ten percent, which was the best start of a

year since. In addition to that, when you look at flows from hedge fund industries, it tend to be dominated by large institutional investors, and a lot of large institutional investors have allocations to fixed income that are you know, expected to return in the mid two percent range, and a number of these large institutional investors are beginning to shift money away from fixed income into uncorrelated hedge fund strategies, and some of them are also including hedge fund strategies

and their fixed income portfolio like direct lending to stress debt, specialty financing. And the third thing that's helping that flows to the industry is the fact that the fees have come down a lot. A lot of institutions used to point at the industry and say, hey, we don't want to pay two and twenty it's too much. But in a recent survey by um UH of the industry, the average management fee is now one point three eight percent and performance fee is UH fifteen point nine percent, and

that's standard hedge fund fee. There is a two tiered fee structure which is giving large institutional investors a significant feed discount on the standard fee. So a lot of these big institutional investors are able to get in it like one in ten, which makes a lot more attractive. So you're to day you've had a hundred and fifty billion dollars pour into the hedge fund industry. The main driver of assets next year is going to be manager turnover.

You know, I just mentioned hundred and fifty net flows in the industry, but there is a natural turnover of managers and at if you assume the average investor Holton manage for seven years, that means of the industry turns over every year on four point three trillion dollars is six hundred and forty five billion. And that's that's in an average year. And we're predicting that the turnover will

be record high next year and done. I guess my thought process over the last four or five, six, seven years has been most of the hedge fund money is going to the big players, the citadels of the World's the point seventy two is I don't see as many folks coming off of Wall Street the trading desk and Morgan Stanley and raising or billion on a long short fund.

Are those days over? Where's the money going? Well? So I think of assets are going to five of funds, and I do think disproportionate amount is going to the largest managers, and I think that's bad. I mean, when you look at the performance of larger managers versus smaller

managers over long periods of time, larger managers underperform. You know, there's a hedge fund index called the h f R I index, and that index shows performance for hedge funds that are equally weighted, so every hedge fund is weighted the same size, and they also have an asset weighted composit. And if you look at performance over the past or you to date, uh, the equally weighted one is up ten and the asset weighted which is dominated by the largest,

is up only six. So large hedge funds has significantly underperformed. Over twelve months, large hedge funds have underperformed by eight percent. They've underperformed by four percent over three years. So what happens is a lot of people like to invest in the glamorous hedge funds to the largest and they get way too much as that's a ner great security ideas, get to looking over larger asset base, so the best diamonds in the rough are not the largest hedge funds. Typically. Hey, Don,

thanks so much for joining us. We always appreciate getting a kind of the latest on the world of hedge funds, capital raising, where the money's going strategies, and we always get that with Don Steinberg, CEO and President of Agecroft Partners based in the former capital the Confederacy, Richmond, Virginia, home of the University of Richmond Spiders, my alma mater there. So, uh,

Don giving us the latest of hedge funds. You know, I kind of looked at the hedge fund business when I left Wall Street and I said, boy, that's a young man's game, and it is a difficult game, and the folks that make their living there, I think generally earn it. It is a tough game, but a lot of successful folks there. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller.

I'm on Twitter at Matt Miller three. An onfall Sweeney, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio