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Today's Bloomberg Intelligence Show, we dig inside the big business stories impacting Wall Street and the global markets.
Each and every week we provide dep research and data on some of the two thousand companies and one hundred and thirty industries our analysts cover worldwide.
Today, we'll look at the growing dominance of private credit as traditional banks face stricter regulations.
Plus we'll discuss the ball role of quantitative finance and artificial intelligence and asset management.
And we begin with some of the best interviews from our live broadcast this week at Bloomberg invest There, we talked with leaders in asset management, banking, wealth and private markets in the heart of New York's Financial district.
For our first conversation, we are joined by Mark Mahaney, Senior Managing director at Evercore ISI. We discussed the state of the tech sector and how artificial intelligence is reshaping the industry. We first asked Mark about how AI compares to the launch of the Internet.
I don't know if it will be that transformative, but the amount of money that's going into them, paid by companies, put in by companies that have plenty of cash is something of a tell. And then we've seen a lot of examples of what I call OURAI, you know ROI return on investment ROAI. So you know, we're staring at it right now. Look at what's happened to Meta in the last two and a half years. How they've turned around their business both and they've dramatically improved their services
for customers that's you and me as consumers. Our news feed has gotten to become more relevant because they've used AI to do better targeting, better recommendations. But also for advertisers, their return on ads ben ROAs has risen because the
campaigns have become better targeted, better management, better managed. So I've seen a couple of really great ROAI examples and so I'm not sure it's transformative, but it's definitely improving the performance of these companies, and it shows up in the P and L.
Two.
I think you can also look at Google, twenty five percent of their code is now written by AI. Imagine the productivity improvement associated with that. And then Amazon is talking about twenty five percent lower cost to serve in its most advanced distribution centers. I mean, that's why their margins are going to continue to go up. So you're seeing it in a P and L. So I think it's actually a major productivity improvement, and I think this is going to play out for years.
When do you think we're going to really understand how inferencing is going to impact us and companies? And like, when are you going to get me to buy in to an AI story?
Well, I tried to lay out couple of examples already of where these companies are deploying AI and machine learning, and they have been for quite some time. We've just had a step up, like a hockey stick improvement. You just mentioned Kenda hockey stick inflection up in productivity gains because with these companies. So I'm sorry, I think we're already starting to see it, and I think we're seeing it in it.
Why I see it, I mean maybe my news feed, but well I pay for it.
Well, you want some really specific product examples, I got a really fun one for you.
Okay, into it.
You want to learn languages, There's this wonderful app called dual Lingo. You want to really learn a language, pay up for dual Lingo Max, where you can use an AI generated bot to actually practice your French, your Spanish, your German, your Russian, whatever we need to learn these days. Anyway, and I think you're going to see more of these kind of little one off examples. But you know, from a company's perspective, anything that produces internal productivity, improves relations
with suppliers or customers. I mean, all of that's I don't think there's one. I don't think there's one AI revenue build. But you'll see a couple of products that wouldn't exist, And they do a Lingle example as one that wouldn't simply wouldn't exist if you didn't have AI.
How about for Google and a traditional search business is AI a threat to Google or not.
Google just put out a blog that said that because of AI overviews that they're actually seeing more commercial search queries. Really, that's that should raise all of our eyes. So, and I guess I'm not at the end of the day, not surprise. Google is a company that just consistently improved the product, made the search results faster and faster and
more relevant. This just took that up a notch. And so, yeah, if they can get you the result you want more quickly, especially if it's leading to more commercial searches, Google is the one company in the world that knows how to monetize commercial searches.
What do you think is the biggest misconception about AI, Whether it's like what investors thing, what's priced into the stock, or justconceptually.
I think the biggest mistake misconception probably occurred when Deep came out and there was concern that this would be highly disruptive for the hyperscalers. I actually took the exact opposite view, especially if you're at the application layer, and because the infrastructure potentially just got a lot cheaper, So you're going to all that money that you've spent on Capex, You're going to get a better return. That money wasn't wasted, You're going to get a better return than you would
have had in the past. So I think that's probably the biggest recent misconception I've seen.
For Meta It's had a great turnaround. As you talked about what percentage of that turnaround is simply cost cutting versus maybe just stepping away from the metaverse discussion somewhat.
I think it's two or three things. Stepping away from metaverse, focusing on the year of efficiency that Zuckerberg talked about the beginning of twenty three and now it's become the years of efficiency. There has been a mind shift at Silicon Valley. It's not growth at all costs is much more of a focus on So there's a cultural shift I think is probably good. These companies are going through their middle life stage is not crisis, but stages, and as they do that, they shouldn't be They should be
spending much less aggressively on growth. They should be focused more and profitability than they are. But then the tie into AI is their developers can produce more code with fewer developers. It's not like they need to cut people from this point on, but they can grow, They can sustain growth with less need to add headcount than they did in the past.
Our thanks to Mark Mahaney, Senior managing director at Evercore, I.
S I saying with Bloomberg and Bez Paul and I also spoke with Katie Fogerty, chief financial officer at the Burger chain Shake Shack, and we discussed the company's growth strategy, pricing dynamics, and expansion plans.
We're first to ask Katie about the company's strategy and who the consumer is at shay Check these days.
We have this amazing real estate strategy, and what we've done is we've put these great community gathering places in a lot of these you know, great communities, and where we have attracted is just really kind of more of a I would say, you know, more a middle income to higher income guests. And we've seen that guest be able to weather a lot more of the economic headwinds than other, you know, than the low income consumer has
been facing. And you know, what we continue to see is by leaning into our strength, which is delivering a fine casual experience. So we think about kind of bringing all those great guts of fine dining elevated food, premium ingredients, doing the things that you know, other you know, fast casual and QSR just are not willing to do. Putting that an amazing hospital or hospitable environment and getting great
guest service. That together has been a winning formula to help us outpunch what has been you know, some consumer headwinds that has been facing the industry, and we are going to continue to lean into that. It's it's helping us to differentiate and kind of pull apart from the pack. And it's it's been our strength. Where are our samples?
I know, I mean what is this about?
So who are.
Your competitors then? So if you're a middle and high end consumer, who would you say as a competitor, Yeah, I mean we sell burgers, shakes, fries, I think the best chicken sandwich out there in the business. We view our competitors as being you know, anybody who you know you might consider having lunch at or dinner at. So that is a pretty wide array and it also can be you know, food at home. I mean that can also be in you know, in an area where you
would have some share of stomach. So you know, for the vast amount of you know, of our restaurants out there. We are competing with a lot of people. Now we are differentiated and we are kind of in that category of one in the fine casual sector. But at the same time, we know that, you know, people have lots of different options where they can go out to eat, Katy.
There's a lot of concern out there about inflation. If inflation were to come into your business, where would you see it and how do you plan for that?
So we actually have been navigating through inflationary pressures for a number of years here and doing so quite successfully. I'll say, you know, we've had wage inflationary pressures in COVID. It was actually very hard to get restaurant talent in our restaurants to staff and to deliver our food. It was not a desirable job at the time. And we had we raised wages and had a very competitive and
compelling opportunity for our team members. We also introduced tips as a way to compensate our team members as well and give them added benefit. And then last year with you know, with California Fast Food Wage Act, you know, we faced through that as well. We've also had on the food side, you know, inflationary pressures that have been. We've been navigating for a number of years as well.
But through all of this, through leaning in on our strength, which is, you know, again delivering that elevated you know, experience to guests, giving them that you know, twenty five dollars uh, you know black truffle Burger that we were actually selling for ten dollars and giving them that great value. On that side, we've been able to both grow sales and grow margins at a faster pace. Just even last year, we expanded our margins in the fourth quarter by three
hundred basis points. So I've never had Shakeshack, but it looked I know, I know, but it looks like I may be ab to now in Delta. Yes.
So, and this really also goes to your expansion plans. So Delta is going to offer Shakeshack Burgers on additional domestic routs this year, and that could expand international flights next year. Talk about these expansion kind of plans.
Yeah, I mean, if you look at Delta at its core and what this does, you know, this is an opportunity where we're able to surprise and delight our guests, give them that thing that they weren't really expecting. You know, you have your expectation for what airline food is like, and you know, this this opportunity to get a shake Shack Burger and are great. We have a special brownie that we've made for for Delta as well. Through this program.
People are just absolutely elated at the opportunity to have that on their flights, and so much so that it's exceeded our internal expectations. We're rolling it out to more airports. You're gonna be able to get it, you know, New York, Atlanta, a number of airports, and that will just you know,
probably continue to grow. And you know, if you look at that opportunity and I can make so many different parallels to how we've gone into an area where the consumer had a certain expectation and we just really raised the bar on it and out punched above our weight and transformed what people were expecting from you know, it's airline food, if it's roadside food, and across the board.
Katie, in terms of growth, how many locations do you have today and what's your outlook for the next year or two.
Yeah, we have, you know, across both our company operated and our license business. We're you know, about five hundred and fifty five hundred and seventy locations, but we are growing very fast. We're going to add another forty five domestic company operated shacks this year, and we're going to open about thirty five to forty licensed shacks as well. Those license shacks are ones that we operate, that our
partners operate. We have locations in the US, but most of that is kind of outside of the US and Asia, and we have UK, the Middle East, Mexico, and most recently we opened up in Canada.
Our thanks to Katie Fogerty, chief financial officer at Shakeshack.
Coming up, we'll break down how private credit is being impacted as banks face stricter regulations.
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We continue with some of our best interviews from our live broadcast at Bloomberg invest We talk with leaders and asset management, banking, wealth and private markets in the heart of New York's financial district.
In this conversation, we spoke with Mark Lipschultz, co CEO at Blue Out Capital. We discussed the growing dominance of private credit as traditional banks face stricter regulations and reduced lending capacity.
We first asked Mark to talk to us about Blue Owl and how they fit into the private credit business.
Well, we've been very fortunate to be part of an asset class and you know, I play our role in helping evolve it. Look, private credit, to set the stage right is about taking long term capital from investors, and we've tried to broaden the range of people that have access to it and to be able to provide that capital to corporate users to support their growth with a
view to the long term. And to be here on a day when you know the public market is so volatile, you know, in some ways very much a reminder of why private credit works for investors, but also why it's important because look, we're doing business today. We're making loans today, just like we were yesterday, just like we will tomorrow. You know, screen rater screen blue screen green, prefer green.
I should disclose that to my money manager. I do own shares in blue Owl private credit. Finally, I do have some of that feel like I need to say that, but not through me. It's through my money guy. So help me understand the competitive landscape though, because it feels like banks now want to get a slice of the private credit market that they had to give up, and now we're seeing some partnerships with private credit shops. How do you look at it?
Yeah, the evolving landscape with the banks is pretty interesting. Let's make a couple observations. The word like referencing the bank market. I think it's worth unpacking a little bit because, as obviously you will know, when we go back to thirty years ago, I started in the private markets. The alternative market wasn't called that at the time, and we actually borrowed money from the banks when we were doing an LBO as it was called then, literally from their
balance sheets. That over the last thirty years has been on a long trajectory changing from being a lender to now, the banks don't lend to these companies at all, and that's been true for a while. They intermediate, right, They'll go in and they'll underwrite a loan and then sell it into the market, cut it into pieces, sell it and so in that regard, of course, that's an alternative way to finance a business. And we could talk about the pluses and minuses of both. It's great to have
both markets. You want to have a good, vibrant bank intermediated market. But remember what the bank cares about is can I underwrite the loan and sell it in the next sixty days. So the red screen is dramatic for a decision for a bank to underwrite a loan. On the other hand, word at the exact opposite, it doesn't really matter to us what's happening in the market today. What matters to us is do we get paid back five, six, seven years from out. That's our decision, that's what we're
focused on. So in that sense, we really live in kind of with different incentives and serve a different function. However, to the good point, the banks are saying, okay, but turns out private credit really does work, right. They spent a lot of time criticizing the market and trying different ways to maybe scare up the boogeyman. But now they in fact are actually launching funds to do private credit.
So I'd start with, look, if you can't beat them, join them, and we that's right, We'll take the endorsement of the market. It's a big world credit. It's a multi trillion dollar asset class, multi trillion dollar marketplace. We need vibrant available capital. And having bank launch a fund,
you know great. There's a lot of funds in the world, and some of those will be done in partnerships as you noted, and someone just be standalone efforts, and some will just continue to stay the course and do their traditional underwriting.
What's a typical deal for blue out these days?
So a typical deal for us. And this has been true for us from the beginning. Now, obviously the attributes and the size have changed, but over the last roughly ten years that we've built Blue Owl, our reason to be was to come in and say, look, we want private credit to become the lender of first choice as opposed to the lender of last resort, and private credit, if you go back before that time was really a lender of last resort. It's where you went if you
couldn't get money from a mainstream source. As I said, I was at KKR for twenty one years, and during that time I don't recall ever working with a private lender that this wasn't what you did if you were a mainstream borrower. But the idea for Blualla and today, so to answer this question has been to create actually a real value proposition in having a partner to really work with a long dated capital pool for someone who has long dated needs and long dated ambitions with their business.
So our typical company today often backed by a private equity firm, a sponsor. Sometimes it's just private family owned businesses or other corporate enterprises, but typically a private equity backed business and they're buying a very large company and they're looking for a long term partner to buy it. So typically when we do a transaction, we're lending maybe forty percent of the purchase price and the buyer is
putting up sixty percent of the capital. So that's a very very low leverage structure compared to what people are used to. If you go back again ten years and twenty years and the company today Our average company in our portfolio has over two hundred million dollars of even I mean, these are big companies today, and that's been a dramatic shift from ten years ago when it was really a market for smaller businesses.
So let's get to that five to seven year time horizon, because ten years ago that's the exact same conversation I'd be having with private equity, right, and then we see where things get tough and things get stickier, when vintages don't work out or there come under different times of market stress. How does that apply to the credit space?
So I think it applies for sure in the sense that every market evolves, and every market we'll have it's maybe slightly higher and lower moments, But there's an important distinction. Okay, at the end of the day, Private equity, if I kind of use this metaphor, private equity, which is a business I personally participated in for decades, is about mining
for gold. Right, It's about going out and maybe in our simplified parlance, might call and to get rich strategies, how do you out there and shoot the moon on great returns? So they're mining for gold. Our business in private credit is to be the picks and shovels provider to those miners. So we're not trying to find a big gold vein. We're not betting on the price of gold.
What we're saying is if the miners are active, and miners in this case would be any corporate user of capital, so they are always active, we want to supply them and we take a less risky position and we expect a corollary attractive return. So on the one hand, of course, every market evolves, and I want to suggest anybody that
lives in a vacuum. But the purpose of our strategies and the purpose of Crivate credit from an investor's point of view, is to have something that's much more about downside protection, stability, and income generation through times of uncertainty, which is a bit why I say this sort of red environment today is actually a good time to have the conversation because what we're trying to build our portfolios and successfully have down over one hundred billion dollars of loans,
and our running loss rates have been eleven basis points, and I think it speaks to the idea that this is about durability and predictability when times are uncertain, and I think probably safe to say everyone's looking around saying, gosh, it feels uncertain out there.
Mark, we've got about a minute left. What do you say to those folks who say, as the business evolves, the dollars get bigger, regulation is needed.
What do you say to those folks.
Well, we're a highly regulated business as is, so you know today. Look, we're regulated by the SEC, where public company as a manager, we have public vehicles, We have a lot of regulators we work with, constructively, happy to do it. I don't think if what we mean by more regulation is more direction from sort of a central source as to what you should or shouldn't lend money to Remember, when we look back where the sources of problems have been, they actually tend to be in the
regulated institutions, not outside. Even recently. Of course, everyone remembers the financial crisis, but don't forget over the last few years as private credit is thrived. One of the moments we worked through was the run on the bank at Silicon Valley Bank. Ye, so you know, what's old is new. If you have one day capital and you do long term things with it, that's challenging. We have long term capital to do long term things. So I think at the end of the day, look, we don't touch depositors.
We're not systemic. So it's a nice compliment to a traditional banking market and a public marketplace.
All right, thanks to market Lipscheltz, co CEO at Blue Oul Capital.
Staying with Bloomberg invest Paul and I also spoke with Yupkim, chief investment officer at the Texas Municipal Retirement System. Now he discussed how the firm is managing a more than forty billion plus pension fund in today's complex economic landscape.
You first asked, Yep, what he thinks the best allocation is right now in what can be considered very strange, difficult economic environment.
I think, on a very holistic basis, we are long term investors, and so our long term strategy remains unchanged. You know, it's really predicated upon three pillars. Number one, attract higher and retain the best talent possible and also attracted and partner with the world class investment managers around the globe. Secondly, it's really about taking a low cost,
public markets benchmark aligned approach to to investing. I do think we all recognize going forward there are more alph opportunities, and beta might be you know, there might be some headwinds to beta going forward. So I do think increasing the share of active management and public markets will be a critical a critical approach. And lastly, really endeavoring to generate a lot of the outperformance going forward in private
markets will be absolutely critical. And you know, and so I do think kind of with the you know, with the confluence of a lot of market volatility, it's it's easy to be swayed left and right. But I do think kind of sticking to your core long term strategy is you know, very important in this environment.
How does an asset allocation work for you guys down in Austin stocks, bonds, alternatives, Let's hold it with alternatives playing.
Absolutely Look, I think when you think about alternatives, the delta between a media and manager and a top five percentile manager in alternatives and privates can be upwards of fifteen hundred to eighteen hundred basis points. That equivalent number in public markets is two hundred and fifty to three hundred basis points. And so you are really compensated for good
manager selection but also a good deal selection. And so I do think there's still you know, when you think about the next ten years, there's a lot of equity value creation that will occur in the private markets, and so it really you know, kind of provides that long term you know, kind of alp engine to the overall portfolio.
I mean, so surprised that you did private equity in your last job and then now we're taking over at the Texas Pension Fund. How well funded or pensions right now?
Yes, and so pension funds are definitely better funded kind of really on the backs of two incredible years in you know, the equity public markets, and I do think public pensions typically have higher allocations to public equities since
that's that's certainly helped. At Texas, we're you know, above ninety percent funded and so and just given that we serve cities that are growing, you know, you know, our net cash outflow for the past two years has been less than a percent, and so that really empowers us to harvest, you know, thelquided premium of our private market book, but also really helps us risk manage on the liquidity side.
How do you feel about just the opportunities today? Where do you guys see the best opportunities?
Sure, sure, you know, like I think, maybe three things I'll share there is, you know, number one, the core building blocks on why people were excited about this US exceptionalism. The core building blocks have not changed. Right when I talk to my peers in Asia and Europe and the Middle East, the US continues to be the top destination, you know, for their investment capital. You have the top academic institutions in the United States, presumably with the greatest founders,
the most tenured management teams. You have access to cheap energy. You have a risk taking culture that's celebrated that's really not found in many parts of the world. And the question we ask is not how do we generate our performs in twenty twenty five, but how do we generate outperforms in the next decade. And we do view the US to continue to take an asymantic share of that equity. You value creation in our total portfolio.
Our thanks to Yup Kim, chief investment officer at the Texas Municipal Retirement System.
Coming up on the program, we're going to break down the evolving role of quantitative finance and artificial intelligence in asset management.
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I'm Alex Steele, and this is Bloomberg.
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We continue with some of our best interviews from our live broadcast at Bloomberg and Best. We talk with leaders in asset management, banking, wealth and private markets in the heart of New York's Financial district.
In this conversation, we spoke with Ben Wren, CEO of the London based fintech company tech. Ben discusses the evolving role of quantitative finance and artificial intelligence in asset management.
We first asked Ben to give us his quick pitch on what sigtech actually does.
Sigtag we build specialist agents these days to help people make better decisions in cup to markets, but also to ultimate a lot of the very high value intellectual but not very creative workflows. You know, we can reduce a lot of the things people do today, which a bit boring, you know, down from many hours to thirty seconds. I think that makes a big difference in terms of productivities.
All Right, here's here's an example that I can think of for my Okay, tell me being at the printer not far from here, a couple of blocks from here, don Linny at the two three o'clock in the morning, going over a bond perspectives, that's probably something that AI can help with. So been, how much our asset managers generally speaking, how much are they using technology today help computerize this?
Is it?
How quantitative is it?
I think in the last fifteen years there's a big trend in asset management to to adopt more and more technology. And we can see this shift in terms of, you know, people using more data driven investment processes and people hire data analysts and but Jenney and I jenei in the last few years is a big step change. It's I would say, it's it's an unprecedented, unprecedented change in you know, in this trend just in terms of it's no longer incremental.
There's a before and after. And you know, when we when we think about previous technologies, you know, we mainly focus on what we call explicit knowledge, knowledge that we can codify, describe, and there for use programming language to automate. But only until now we're able to distill and automate so called tested knowledge, the knowledge that resides in our head, but we can't really so easily write it down and
describe and codify. But now we can actually automate those and there are plenty of those workflows and processes, especially in financial services.
So how would you help, Like a regular quant manager, like I go to you and I'm like, hey, I need your product to help me get better faster, find better trends in the market.
Yeah, for quants, I think quants started with more number driven. You know, trend following is if you do it like in a very simple way, it's entirely number driven. But these days we are moving to a world where we have to deal with numbers and text as too, modalities. At the same time, it's no longer just about technical analysis, but it's also about all been new information and turn
you know, non numerical information into numerical information. And that's something that Jen and I does really well because fundamentally, if you think about how it's trained, it has been trained on trillions of tokens of textual data and a lot of things we used to do either bespoke or preparatory fashion. This day we get autobox such as sentiment analysis or extracting relative and information from very long pieces
of text. These sort of things actually change how qualms, even how qualms approach their daily jobs.
Are the big Wall Street firms making these investments or is it more of the hedge fund community that is more receptive. Who are your customers?
Typically these days we mainly focus on byside, okay, but we also have very big clients in terms of in terms of like commercial banks, you know, using our technology to completely change how they underwrite commercial loans. I think so I wouldn't say it's a cell side or buyside or big firm or small firm. I don't think that's the main reason in terms of adoption. I would say
the main reason is is the leadership. You know, when when when you approach something so unprecedented, it takes some time to build a consensus inside the organization about you know, what's the strategy, what do we do? But you know that may take two months, three months, and given how fast things change after three months is a different world. Yeah, right, So it really takes some kind of conviction from a visionary leadership team to adopt this technology very confidently.
Yeah, af for twenty four hours, it can be a different investing landscape. So what's the best partnership between AI and humans? Fifty to fifty? Is it AI seventy five percent of the decision making process twenty five percent for human How do you think about that?
Yeah, I think if I think about the knowledge work we do every day, I would describe them as most of them may be not creative but intellectual. Right, analyze a lot of documents picking out the right information is intellectual, but it's not creative. So in the future, humans should devote almost all the time to creative stuff what makes us different, whereas the boring intellectual stuff can be automated
by AI agents. On the other hand, we are certainly seeing a big change in the user experience, the user interface because you know, up to on to this point, people approach GENI mainly through a chetbot. You know, there's a chet box. You're typing into it to gets some response. It's very nice and it's really started the error. But going forward, we are looking at a user user interface that allow human to essentially collaborate with a large number
of AI agents who specialize in different things. So how does that user interface look like? And how does that AI human fusion, intelligence and CLI like. It's it's a very active, a feld of research, trial and errors.
So this sounds like from what I understand of AI, a lot of computing power requirements. Talk about the investments that you think these financial firms need to make are making or you know, maybe need to step up.
Yeah, in terms of intelligence and the way I think about it is and so it's very similar to electricity. You know that we are currently in the in the first stage of investing in the infrastructure, right and if you're going back in history in the last two hundred years and then the way we started building electric electricity grid,
there's one magical number, which is one percent. You know, the countries throughout the history spent about one percent of nominal GDP on building power grid from two hundred years ago in Britain all the way to today. So the Big Tech this year announced three hundred billion dollars of investment into Genini data centers. That's almost exactly one percent
of the US GDP today it's about thirty trillions. So in terms of infrastructure investment, we are there and people are building incredibly big mega AI clusters across the country now. But we are shifting toward the application later right because once you have electricity, it's not about the electricity per se, it's about what kind of appliances you can build powered
by electricity. So we are moving into that stage too, where there are a lot of investment both in terms of talent and capital into building the right applications that they actually make a big difference to the knowledge workers in terms of productivity. So we are starting that phase.
Last question here for us is what's the biggest misconsumption right now when it comes to AI and using it.
I think the biggest conception is I think people tend to either underappreciate its capabilities or sometimes getting over optimistic, and it's quite hard to get it right.
So it's like too much or too much or too little.
So I mean I think most people are either under you know, under hyping it or over hyping. It's very hard to get it right. But one thing is very obvious to us is that the pace of the change is unprecedented and it's getting better. Like the Deep Seak just introduced open sourced all their efficiency engineering tricks to the whole world and then everybody is going to adopt it.
So all of this is pushing the efficiency frontier. So we're getting better and faster every day, so people should be prepared for the big change.
Our thanks to Bin ren CEO of sick Pech staying with Bloomberg and Best. Paul and I also spoke with Stephen Meyer, chief investment Officer and Deputy Comptroller for asset management at New York City Retirement Systems.
Stephen discussed how his group is approaching market volatility, rising interest rates, and long term pension obligations.
We first asked Steven how he's been navigating recent months during economic uncertainty.
It's certainly been interesting, and we try to do those adhere to a long term strategic plan. So a lot for us, a lot of this is noise in terms of what's going on in the change of policy in Washington, so we're really trying to stick to our north star, which is our strategic ass allocation. Again, we have multi generational liabilities that we're trying to satisfy. So again a long term investment horizon and a long term discipline. Now, having said that, our trustees and our beneficiaries and our
participants do call. We have the privilege of servicing eight hundred thousand public workers here in the City of New York, so they are concerned. So we need to stay on top of it in terms of just increasing the information flow of how our assets are diversified and they continue to perform as.
Expected, So how are they like forty sixty or sixty forty maybe a thing of the past. There's different mix in there, especially when it comes to alternative assets. What's the best mix.
We're about thirty five percent in alternative assets at this point. That's a lot, yeah, yeah, yeah, And that includes you know, private equity, infrastructure, private credit, some small all exposure to hedge funds in real estate. Of this other sixty five percent, we're about almost forty percent of that is in equity, dominated by US equity, about eighty five percent US large cap in particular. And then an allocation to develop market
actually US and emerging market. So we're balanced. We're balanced from a private perspective, we're balanced from a public perspective, and again, I think that's going to benefit us over time. With the increase in volatility, have.
You changed your views on the economy out of the US economy or global economy given some of these trade tensions that are coming into the marketplace.
Well, we're concerned about inflation, and we do think we have some natural hedges against inflation and a portfolio terms of a real asset allocation, real estate, infrastructure. I think our public equities will actually perform well over time in a higher inflationary environment. So we're not necessarily overly concerned.
We did expect to see some uplift in inflation expectations given concerns about you know, the imposition riffs, the mass deportations that we're talked about anyway in terms of potentially impacting the price of labor. So again, haven't really changed what we're doing or how we're doing it, but we're certainly mindful and we continue to monitor the situations.
Before we let you go, you mentioned thirty five percent in alternatives.
Seems like a lot.
Is there a liquidity issue there?
Not really compared to some of our peers, and I know, you know, other institutional investors were just under three hundred billion dollars in assets, So I understand that there are other managers out there that have forty forty five fifty percent allocation to alternatives. We have ample liquidity through the sixty five percent in public markets. Again, we're disciplined in terms of putting money to work. Over time, we're benefiting
from vintage your diversification. We've actually been putting more money to work in private assets over the last two years with a change of our strategic as allocation, which has been beneficial as others have pulled away from the markets. We've been actually putting money to work, getting better economics, better access to the top managers co investment, as well to average down the feed expense.
All right.
Thanks to Stephen Meyer, chief Investment Officer and Deputy Comptroller for Asset Management at New York City Retirement Systems.
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