Bloomberg Audio Studios, Podcasts, radio News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Applecarplay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on youtubell.
One of the undercurrents out there in the marketplace is credit quality, particularly in the private credit business. We've been reading stories over the last several weeks and months, including blue Out for example, and there's another about some credit titaness there and some concerns there.
Then Blackrock.
Today Blackrock curbed withdrawals from its HPS corporate Lending fund after client requests for redemption. Spike, I wasn't expecting Blackrock, that this is such a high quality name. I was not expecting to see the Blackrock come into this conversation. But let's get the latest reporting there. Brian schapotap It joins his managing enter of Leverage, Finance and the rest.
Bet for Bloomberg News.
Brian talked to us about what's happening in the private credit market here today. Are these cockroaches, as Jamie Diamonds suggests, or is this something now maybe a little bit more systematic or systemic.
Well, you know, I think you talked about at the jump you weren't expecting necessarily Blackrock, And you know, one of the big things that Blackrock has been pushing into is private markets and is private credits. So this HPS fund is one of the major funds that it acquired as part of its acquisition last year of HPS Investment Partners. So what you were seeing here in this fund is
nine point three percent withdraw all requests. And they have stated in their language, as many of these private credit funds do, if we reserve the right to halt redemptions at five percent if they become too overwhelming for us, because we can't really sell our assets. So they threw up the gates, as they like to say, and as a result, investors aren't getting the full money back that
they expected. We'll see if that continues, and if it does, that will be something that will play out over the quarters to come.
Well, Brian, you know Blackrock saying that this step is in line with its existing management of liquidity. As they put it, are investors buying that, is the street buying that.
Yeah.
Well, one of the things that we've kind of observed on the private credit team here at Bloomberg is that even just as recently as this week, Blackstone opted to meet all investor redemption requests even though it was seven point nine percent in excess of that five percent threshold, they were allowed to go all the way up to seven. And then they also actually put some of the firm's money and some of the employees' own money into kind
of offsetting the withdrawals. So for a long time, we have not seen any asset manager actually say we are limiting withdrawals because it's not a good look necessarily if you can't get your full money back. But it is, as they said, kind of part of what why you got into private credit in the first place is illiquid and you get paid for that.
So, Brian, what is the is there?
Or put it this way, is there a consensus building as to whether there really is a systemic problem credit problem in private credit?
Yeah, well, right now, it's kind of a liquidity problem. Right There's a mismatch I think between maybe some of the retail investors that got into these products that kind of expect that if they want their money back, they can get their money back, and do something else with it.
So I think this has to all play out, and I think the question that everyone's asking is will there eventually be kind of a liquidity problem become you know, kind of there's a feedback loop, right like if there's for selling, then prices go down, that hurts returns, and then that necessitates kind of you know, people wanting to pull their money more, and it becomes this kind of very negative feedback loop. We kind of saw this with with commercial real estate a few years ago when when the.
FED was hiking rates.
So we have to see how this cycle plays out and whether it continues in the coming months and quarters.
And every seeing any read across through the broader credit space. I know that, for instance, in publicly traded credit markets, spreads have been quite favorable at the beginning of this year. We've seen a lot of issuers benefit from that. But now seeing more jitters in private credit space, is it something that you expect to ripple across the res in the market as well.
It's it's a really good point. I mean, some of these private credit vehicles.
Have leverage loans which are which are kind of more publicly traded, broadly syndicated in their in their portfolios so that they have some sort of liquidity. So we are actually seeing some evidence of this trickling out into the other more like risky lending markets, where a lot of managers are selling what they're able to and selling what's easy, and that's actually hitting loan prices a little bit more than we might expect, even though those loans are relatively
higher quality and are generally doing fine. Investors are kind of trying to get liquidity where they can, and so they're kind of selling the stuff that they're able.
Our private our fund managers are they out there in the market trying to raise capital for private credit funds.
I would think this would be a tough time. They are still.
I think it was Dan Loebe who came out recently and said he was who's actually raising a BBC. There are pockets of fundraising that are still working. But I do think that's obviously a fair question. There's been this big, obviously push into retail for one k's private markets, and it comes at perhaps not the most optimal time, as there's kind of a reassessment of.
Risk and kind of liquidity.
Nobody really cares about liquidity until they do, and when they do, it can be kind of what we're seeing today.
Yeah, Well, are we seeing also any signs of stress given what's happening in a broader space with a run conflict at this moment? How does that get going to play into private credit and credit markets broadly?
Yeah, it's still I would say early days as far as the spillover effects. But obviously there are a lot of borrowers out there that are exposed to commodity prices, for example, and so I think those are some of the markets where you're seeing the most dramatic moves as a result of the conflict in Irans. So something that I think the credit markets have to be watching pretty closely.
But for now, it was mostly just the market's kind of just really quieted down quite a bit as everybody kind of assessed what was happening on how long the conflict might be going on. So I think we'll seeing that maybe next week or the week after as some of these big deals come down the pike.
Stay with us more from Bloomberg Intelligence coming up after this.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Just up a little technology stocks. Here's here's a note from a recent analyst who says investors are now navigating an uncertain Iran military conflict in the Middle East, adding to the nervousness already in the tech trade with the ghosts, with the AI ghost trade and anthropic worries abound. The author of that note is Dan Ives, Global head of Technology research at web Bush Securities. Here Dan, love to get your thoughts, Danzey.
He's somewhere in the Swan Jersey. I don't know where he is right now.
But what is the AI ghost trade, Dan, And how's it impacted tech stocks?
Yeah? Well, Paul, I mean the AI ghost trade.
It goes back to like the anthropic worries that's crushed software this year. You know, in terms of cybersecurity software that these lms are going to replace.
The software layer.
And I'd take to somebody it's also been a huge overhang of names like Microsoft.
But we continue to view it. It's a good trade.
I think last week's anthropic event earlier in the week will be the star of a bottoming event. I think we've already seen it in software, and I think it's a fictional tale, okay, fairy tale. The anthropic is going to replace software.
Yeah, well, I'm sure Dan that you've read a training report from a couple of weeks ago that really sparks some of these worries or continue to stoke these software worries. What'd you take on that scenario? Are you an account that it's too much doomsday, especially because they were calling for this to or rather it was a hypothetical scenario that they were potentially seeing play out as soon as twenty twenty eight, But what are your thoughts about that?
I mean, that's like me saying in two years, I'm going to be in pole vault in the Olympics in La You could be. I mean, look, I get to teach your own.
But I believe we're in the early d's of an AI revolution and what's going to be a secure, a tech ball market. Look, I get the jitters, the white knuckles that we're going through in terms of the ghost trade, worries about cap backs.
Obviously Iran conflict war which was adding to that.
But it just speaks to my view like this will also pass Like these are going to be opportunities to own the core tech winners in a revolution where the US for the first time in thirty years is the head of China when it comes attack DAN.
As it relates to risk or potential risk to software, is there a way to differentiate ones that are maybe more at risk versus less at risk.
Yeah, well, I think it's a great point. Look, I think, first off, the most disconnected of all software cybersecurity, like when I look like nothing is replacing the and AI just increases the surface area and the miles are going to have to be protected CrowdStrike pow out a checkpoint Z scale like, I think that's probably one of the areas that I think is a huge misnumber. And then you look at like the salesforces the service now is the Microsoft Like nothing is replaced in that layer and
that data. I palent you would be a good example even when you look like everything that's happened with Anthropic and the Pentagon, it's just going to increase the ability for palenteer less reliant.
It's a plug and play in terms of the models are there.
Coming to the UI path Some others that have maybe more one trick pony business models. It could be disintermediate. Yeah, but you can't paint them all at the same rush. And that's why this is the most disconnected selloff that I've seen my history on washing go back to the late nineties.
Yeah.
Well, Dan, I know that you've also written recently about how the tech trade and the developments in that space connects to the broader macro environment that we're seeing. Obviously, the rund conflict driving a lot of price action this week. What are your thoughts around that?
Then?
How does this new catalyst kind of further up in what we're seeing in the tech space at the moment.
Look, I think right now investors are trying to put pieces of the puzzle together, and the puzzle keeps getting thrown apart. Right in terms of like other risks and other fears, I think at the end of the day, you take a step back the anthropic fears, the goos trade that is way disconnected in terms of what I see is happening software and sproader tech. The cat backst hours are going to continue to increase, and even though you're going through these jitters, that's not going to stop that.
That's going to continue to accelerate. I think when you look what's happening, you know, with with Iran conflict and war and what this is doing to some extent, military is going to just have to.
Rely more and more on technology players.
And I think that's playing in We've talked about like our top ten names, Like there's names like Planet Labs.
There's names like Voyager, you know.
Of course, like you know, safety Technius, cybersecurity, names like Polunteer. I think tech messures need to navigate this uncertainty but own the winners and you cannot get caught on with still the long term thesis that were less than a third of the way through.
Dan last question thirty seconds left the both how do you put into context the anthropics and the open ayes and some of the discussions they've been having with the government, particularly the Pentagon about how technology is used.
Look anthropic, like they touched the third rile essentially right now they're trying I didn't starting to backtrack and some of the apologies, but you cannot tell the government and I think they're needs to be guardrails and I think open A and Almonds talked about the others that work with the government but I think.
For them, like it got them into very precarious.
Situations supply chain risk and others, And it's a cautionary tale right in terms of what's happening. Others will gain from that opportunity. But look, this is we're going into unprecedented territory. But I think anthropic, Like last Friday Night, that was a I think that was.
A black Eyes situation that they're trying to navigate.
Are we gonna get anthropic and open eye IPO in twenty twenty six?
Look, I think it's one where I'd be surprised if that happened twenty six.
I mean, you're about SpaceX and others. Yeah, but when.
You get supply chain designation doubt from the Pentagon, which essentially is the same as Huawei, Yeah, that's uh, you're not digesting that over in a cabernet over the weekend.
Stay with us. More from Bloomberg Intelligence coming up after this.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Skip talk to the real estate business, and we always like to talk about the commercial real estate business because we're in New York City, just with amazing real estate here in town, and we have Morgan Stanley.
We've talked about this before.
Lauren Hawkfelder, head of Global real Estate Assets at Morgan Stanley. And as long as I've been in this business, since the mid eighties, it's been Morgan Stanley really the leaders in the investment banking side of real estate and the ownership of real estate.
Lauren, thanks so much for joining us here. Is the worst behind us?
Here?
Do you think?
Thank you for having me first of all? And yes, I absolutely think the worst is behind us. I think we talked the last time we were together that it felt like a bottom was forming, and I think today there's pretty clear evidence it has formed. Clear evidence on the ground when we look at public markets, when we look at private capital formation, we're feeling pretty good.
Yeah, well, Laurien, I think one of the things that you cited as part of this improving process is the fact that the cost of capital is falling right and debt market's also more favorable to real estate borrowers. How durable do you think that development will be.
Yeah, so debt markets are wide open. Real estate lending last year was up thirty percent and across categories, So even the banks are back, and I think perhaps most interestingly, you know, in the beginning it was sort of a pretty narrow subset of what lenders would lend to. Today they're even lending to office and so you know what they say, when the corpse has a pulse, you can that you can infer what's going on in the market.
All right, So, as I understand it, we have a housing shortage in this country. Let's say I'm entrepreneurial, I want to build a multi family community out.
There or some type of property. Where am I going to get the capital to do that?
Yeah, So look, real estate lending is absolutely back, or multifamily in particular, certainly a bit less on the construction lending side, and I think for good reason. So in the US in particular, what ends every cycle. It's new supply, right, Rents run, values run, and builders build. It is a very efficient supply side response, and we saw a lot of excess supply this time around. So fortunately we've seen a real pullback in that.
What could happend this development here? The fact that it is on the rise. I mean, we have seen a few macro stories unfolding this week that are quite major, and so is any of that kind of potential halt or that could potentially stop the recovery that we've seen so far invested.
Look, the perspective matters, and I look across Morgan Stanley's real assets business. We own real estate assets, infrastructure assets, equity, credit, etc. And so we have a really global perspective, and I would say, of course all of this geopolitical risk has
massive implications. The difference perhaps is that whereas the broader investible universe is at all time highs and facing a lot of volatility in the public markets, real estate values are still down roughly twenty percent as you look across the world, and so you have a really attractive entry point. You have as your reference cost to capital going down, and you have new construction down. So when you put aside all of the noise, I think the relative value
proposition for real estate is really strong. And when you think about the flow through risks created by some of this geopolitical these dynamics, it's inflation, it's a risk off appetite, and what do we know about real estate. Real estate is a pretty effective inflation head and it tends to be a lower risk asset class with durable cash flow, among other things.
Well, and you say one of your higher conviction real estate strategies is industrial. Does that include this the data center thing or is that something different?
So data centers tend to be adjacent to industrial. We do invest in data centers as well, in particular in our infrastructure business. But i'd say when you look, actually, AI is really impacting both data centers and industrial.
Yeah.
Well, one of the things that you're looking at as well in terms of high conviction areas of senior housing. What's been the trend there?
Yeah.
Well, look, in investing, you have knowns and unknowns, And one thing we know for sure is that our population is getting older and with that, our housing needs change.
So the eighty.
Plus population in this country is growing at nearly five percent against a backdrop of the overall population dead flat, and so we have a lot of growth in that segment.
And by the.
Way, they control a lot of the wealth in this country. They control more than fifty percent of the wealth, so you have a lot of them with a lot of money. That is a lot of demand for senior housing, and we're seeing across our portfolio a lot of growth.
All right, before we let you go just office.
If I want to go buy an office building on Third Avenue on forty eighth Street, what should my bid b relative to like the last transactions? Right?
Am I coming in at a fifty percent discount? Thirty percent? Or is that thing already cleared?
Maybe? Well, here's what's so interesting is we debated for years, including here with you, the sort of return to office trend, right, would work from home just decimate office? Unfortunately, I think that debate is over. People are back in the office. But now what you're seeing is this new debate of the AI office scare right, and we are all the jobs going from Third Avenue and forty seventh Street to
data centers in god knows where. We still think that the highest quality office will really prevail.
So that AA plus story that's still to play. What are we doing now for the B and C? Does that stuff just clear at a price? Does it get torn down?
Like?
Yeah, I don't know.
I think that there is going to be a reasonable amount of casion. Okay, so there's demand destruction and their higher and better uses of these pieces of clay. That's just the reality. Now we need the private and public sector to come together to make those economically viable.
So why is Morgan Stanley so good have been forever in real estate? Is it just you've had a commitment through cycles that maybe others didn't.
We have an extraordinary team, and we have the combination of a global perspective, right and being part of Morgan Stanley, the best economists in the world, the best global perspective, but amazing local teams and real estate is fundamentally local law.
Business.
Yep, this is the Bloomberg Intelligence podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday ten am to noon Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
Yeah