China, Asset Management and Investing Strategies

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We are broadcasting live from the New York Bloomberg invest Summit, and I'm very pleased to say joining us next is a renowned short seller, well known for his correct calls. Carson Block, chief investment officer of Muddy Waters Capital here

in our eleven three oh studios and in New York City. So, Carson, Um, you've been uh, sort of looking at possible store opportunities in China for a while, but your thesis is sort of sifting as time goes on, and as m s c I includes Chinese shares in one of its major emerging markets indexes tell us that can you explain how it's changing? Sure? Well, I mean we pay attention to stocks from China because we like to short frauds where

active as short sellers. So I'm fond of saying that China is to stock fraud as Silicon Valley is to technology. So we will always be looking at especially you know, especially US companies are Chinese China companies listed in the US. But um, I think there's a bigger point, and part of it has to do with the fraud, and part of it has to do with other geopolitical or strategic reasons.

But I'm arguing that US investors should start to look at China companies like sin stocks, you know, where there's a moral dimension. Um, you know, you're making a moral choice that you know it's not necessarily in accordance with the best interests of us and your kids and grandkids if you're going along the stocks and you know, on

one hand, you've got the fraud problem. So you know, there's a movie that came out, a documentary came out a few months ago called The China Hustle, and that profiled how they were literally last decade, about four hundred companies from China listed on the US exchanges that were frauds, and so investors lost you know, who knows how many

billions when those things blew up. But no, hardly anybody has been punished for that basically, you know, I think only one Chinese company chairman ever did prison time in the US. The auditors, the Big Four affiliates from China, we're going to have their practice licenses suspended for six months. But the administration capitulated and find each auditor, each Big Four affiliate only five hundred thousand dollars, which is basically you know, when you're audit fee of a medium sized client.

And so you know, it's like Charlie Munger says, show me the incentive and I'll show you the outcome. Well, defrauding US investors from China is a you know, heads, I win, tails, you lose proposition um. And you know, it's like we saw the financial crisis. I mean, in that situation where somebody else bears all of the risk, you know you're going to get bad outcomes. So we have that situation, but we also have this issue that at the end of the day, in China, there's no

such thing as a private company. They can all be made to do the bidding of the Chinese government. So you know, since the technological edge devolved from the government to the private sector, you know, probably ten fifteen years ago, we're struggling in the West to to adjust to that because we have these private companies that control our strategic technologies.

They're running around taking investment from you know, companies from China um that I think in you know, some cases, if not many cases, are making those investments not because they think it's just commercially a great move, but because they're being directed to do so by you know, say the Ministry of State Security or the PRC government. And you know, if you think like that's kind of crazy,

well how could they do that? You know, private companies don't forget the banking system in China is state run. It's state owned, you know, in financing. I mean, look there. I used to live in China and do business there. And so they took in foreign you know, strategic investors, and that's actually kind of an old thing that happened in the early two thousands, and the idea, you know a lot of these foreign banks bought in. It's like, oh, you know, we're gonna help them, you know, with their

risk management. And I talked to a few people who were the you know, foreign representatives brought in to try to make sure these banks were operating properly, and it sounded like it was one of the most frustrating jobs

on the planet, Like they don't know what's going on. Um. So look, I you know, at the end of the day, I think when you look at a Bai Do and Ali Baba, you know, I think a lot of their interest in making investments in the US, it's not driven by you know, ge this is gonna you know, make our platform, make our search engine. You know that much better. Um,

it's just real, you know, case and point um. Every year there's a Joint Congressional Committee report on the US China Economic relationship, and the last report that was published this past November. I mean it was I mean, I think it was very realistic about you know, number of the challenges and you know, the cheat, the IP, theft that's rampant, and the dumping. But they also talked about AI and this was a surprise to me, but they said that China's AI is on par with out of

the US. And interestingly then they said that the entity in China that has the single most advanced AI. So in other words, our main strategic competitor is by Do, and we give that company liquid markets for for security. So are we financing our own demise here. Well, come on, secondly, you just have like a minute left, But I want to get your sense of do you think that they're going to be imminent collapses of Chinese companies coming up or do you think that this is going to be

played out over over a number of years. I think there's still a lot of frauds listed from China and the US. Now these are not companies where the red news fake. They're real businesses. But I think a lot of the profits are fake. You know, whether those collapse or not, I don't know, But I am trying to start a conversation and I think there's some other people who would like to do that as well, where allocators really should be thinking twice about whether they should be

putting this money into into China stocks. So to the extent that we get some traction that has implications for valuations, you know, we'll see. All right, Well, we got to

leave it there. Unfortunately, we'd love to have you back and spend more time, because you know, the world of misinformation is not just confined to the to China, right, I mean there are companies all over the world that you think are straight players, And I mean I'm thinking of, for example, one company particular in France that you've had something to do with, uh, And that's a story that I think could probably be made into a Netflix series.

How Arada. But so thanks very much for being with us, and we look forward to having you more in the future. Carson Block is the chief investment officer for money Waters Capital, speaking about investments in the Chinese companies. They might not

be exactly what they've seen. We are broadcasting live from the Bloomberg invest Summit from our world headquarters in New York, and it's my pleasure to bring in our next guest, you Send Hung, the chief executive of New York Life Investment Management, joining us here in our beautiful world headquarters. Thank you very much for being I'm so delighted to

be here. Thank you. What are the things We'll get to a couple of things, like you know, alternative assets and and so on, But I want to first understand a little bit, UH, the specific challenges that you face because you work for people who don't even know that you work for them, because they're gonna be people who in the future, the big future, like ten twenty thirty years down the line, they are depending on decisions that you make now in order for them to be able

to plan for their retirement and a variety of their financial goals. I'm wondering if you could explain a little bit about how you take on that responsibility. So the right way and the way that I think about New York Life Investments is that we are the best of both worlds. So we have independent investment boutiques together with a heritage and long term perspective of New York Life, and we come at this business really from an investment perspective.

You know, New York Life is a hundred and seventy three years old. We've been through the Civil War, two World Wars, the Great Recession, and today it's as strong as we've ever been as only one of a handful of tripoy rated financial institutions around the world. And so we really think about this business and our clients the same way as we work in terms of what we're

trying to accomplish. You take the time to understand the problems are trying to solve the challenges they face, and that's really helped me as CEO of this business to really think about expansion. So we've moved significantly outside the US into Europe and Asia through editions of boutiques. We really lean very heavily into alternatives, an area that I

know quite well. Well, let's talk about alternatives, actually, I want to go there because when you talk about the needs of your clients, what need is for yield, especially in this financial oppression era, what alternatives are you going into? And how concerned are you about the glut of cash sitting on the sidelines and pouring into things that people aren't as familiar with. You know, as a general rule,

I believe alternatives have a role in every portfolio. What we've been seeing is equity markets are fairly elevated, interest razor climbing, greater volatility, and so in this market environment, our advice to clients is really to think about what exposures they can introduce to dampen volatility, maybe introduced a little bit of inflation since activity, but in general diversify

and so what we like. We have a platform called index i Q that has really developed some interesting e t s. There are the Pioneer and Alternative et s and so things like ROOF which is for real estate or m and A for merger arbitrage strategies, or even QAI, which is a diversified multi strat And so our view is there are many ways for investors to add these elements to their portfolios. Structure at e T F that has alternative assets that aren't as liquid, you know, those

are actually liquid. They're just like the e T s that we all know right daily, liquid, transparent, low cost. And that's why they offer such an interesting value proposition because today, if you're an individual investor, you can buy one of hundreds of e T s, one of thousands of mutual funds. But if you want alternative exposure, you don't have a lot of choice like institutions do today.

They want to go into real estate or private equity. Now, just to give people little detail, some of the subsidiaries that come under your umbrella, I believe mackay Shields, the mutual fund company, also Cornerstone, right os Bille, the investment management firm. How do you decide who fits with the New York Life investment management sort of zeitgeist. You know, we really are carefully slagged the boutiques that we bring

under our umbrella. Clearly, what's important to us is really investment excellence and UH strategies that we think really makes sense for UH investors portfolios. But just as important to us is cultural fit. We're an institution at New York Life that really believes and putting our clients first, solving

their problems. And so what's important to us is that we have a set of capabilities specialists by boutique and then out forwards us the opportunity to have the building blocks so that if we're having that conversation with clients, you know, how to put together good portfolios. So we just have about a minute left, and I'm wondering. You know, a lot of people are worried that perhaps we are

a seeing two elevated evaluations we could crash. Other people worrying that they're gonna pull out too soon, which is the biggest worry for you. You know, all of these are legitimate worries. It's very interesting that last year we had a lot of worries, but the market seemed pretty confident. This year we have a lot of worries and there's a lot of anxiety. My view is one of a

long term view. Look, clients really have not only return expectations, but they have obligations and needs to meet, and that's really our focus because we have all the pieces to help them achieve their goals. Thank you so much for being with us, and thank you for participating in it this day where a lot of really interesting ideas are being thrown out there and discussed. Uh Eahan Hung is

chief executive officer of New York Life Investment Management. She has helped to expand the company and UH and and plow further into alternatives, which has been one of the hottest areas over the past few years as people try to diversify and frankly, as they see a lot of the equity markets as being somewhat overvalued, as well as bond markets, which have been UH certainly affected dramatically by central banks around the world. We are broadcasting live from

the Bloomberg Invests Summit in New York. Our next guest, manages more than a trillion dollars, is chief executive of p G. I am David Hunt, President, chief executive joining us now. Thank you so much for being with us. Um. You said on the panel that you're just on that you are worried about the US equity market, that it is not in good shape because fewer companies are opting to go public and stay public, and this reduces opportunity das for retail investors. Can you talk about what the

consequences are of this in your view? Sure, here's the parlor trick question for you. How many stocks are in the will share five thousand? Well, answer three thousand, six hundred. In fact, we used to have over seven thousand, five hundred stocks in the US. If you go back fifteen years, um, we've had a huge drop in the number of publicly traded companies. At the same time, the level of I p o s are literally at half of the level

that they were a decade ago. So what's happening. What's happening is that a lot of the higher growth companies, some of them are technology, but health sciences and others are choosing to stay private. And so whereas ten years ago everyone's dream was to ring the bell and and really come out in the public way, now they're very happy to take another slug or a second round of private financing from the private equity realm um and stay private.

And uh that it really does us have important implications. So we've got fewer stocks, we've got fewer growth stocks coming in, and we've got a private equity industry that has a trillion dollars of dry powder. Now leverage that a few times and you're talking about real money. So you've got a lot. Even more of these companies are likely to choose to stay private. And here's a prediction. I think that some public companies UM will choose to

go private. We saw that, we saw that in in in spades last year for the first time dramatically, and I think we'll see it some more. So what does that mean then for for the markets? It obviously means there's less choice, uh for for investors, but it more fundamentally means that these growth stocks that were available to retail investors through the public markets now are actually having their returns come up through private equity and into the

institutional market. And UM. I think that that goes against a little bit of the democratization of the capital markets that we've enjoyed in the United States for a long time, and I don't think people have really taken on the

overall kind of implications and consequences of that. Uh And and the weakness in our public equity markets is that because the amount of money that is available in private equity investments is so great and growing that in a sense, it doesn't matter whether you take money from the public or the private sector in terms of the actual amount of money. And yet the public sector comes with a

lot of rules, regulations and quarterly reports. Yeah. I think that there's a multitude of reasons, um and you've you've hit on many of them. I think there's been the burdens of being a public company. Uh. And I think that the Sarbanes Oxley was a bit of a flashpoint for that. I think also to to to give private equity is due. They have become a lot better owners

over the course of the last fifteen years. In the early days, this was a bit of a financial engineering move, and now they actually have turned out to be good long term investors investing in businesses. I have to I have to inter interject there, because there's been a lot of publicity around the retail apocalypse and a lot of fingers pointing at private equity companies that added quite a bit of leverage to some of these retailers that seems

unsustainable in retrospect. I'm thinking toys, r us Vonton, you know, pick your company. I'm just wondering, do you think that that is an inadequate sort of representation or sort of an unjust representation of what private equity has done broadly, I would say it is. I think that the the overall returns of the private equity business have been quite attractive, and if you're certainly in one of the better funds,

you've done extremely well. And you've done it in a way that is, to some extent non corelate because they can time when they want to get out of their investments to the underlying investment equity businesses. So I actually think that they've done broadly quite a good job. Would the public markets have made those decisions sooner or better?

I'm not really sure. Does this then beg the question about passive investing versus active investing, particularly with the explosion in exchange traded funds, where you don't actually buy a specific company, and therefore you have no allegiance to their long term plan or strategy or even to their management.

That's partly true, um. On the other hand, the irony is that if you're a passive manager, you actually are a long term investor, because as long as that company is in the index, UH, the e t F is going to also remain an investor in that, but what you do lose is having analysts who are following that particular stock, and so we have many fewer people who are actually understanding the fundamentals of a business um and I do think that that is a back to another

reason why you have many fewer companies going public, because you have many fewer analysts who are covering midsize companies.

From the cell side, there's been a dramatic fall in, uh, the amount of money and people on the cell side who were doing the kind of high quality research that's required for these One thing that strikes me though, is that as people worry about overvaluation and the equity markets and a lack of diversification, they're going increasingly to alternatives and investing more money in private equity companies which do have that a trillion dollars of dry powder sitting on

their books. How worried are you that valuations in private markets have gotten way far ahead of themselves and are poised for some sort of correction, you know. It's it's interesting how different the allocations are by investor group. And I think you really have to make these comments about individual client types. For most of my professional life. If you were to just guess the asset allocation of a pension fund whether the public were private, and said sixty,

you would be within five percentage points of being right. Um. And they really went down a very balanced investment approach that is absolutely not true today. If you go into a corporate plan today, for the most part, they have a de risking plan in place. They have moved significantly to take risk off the table. They are much more into fixed income, and their holdings actually of alternatives and even equities overall is at some of its lowest levels.

And yet almost in complete contrast, if you walk down the street and you visit the public plan, UH, you find that they've gone in the other direction. Uh. They have actually decided to re risk. They've moved significant money into real estate, into privates UH, private equity UH, and into hedge funds. And they are trying very hard to work their way out of their underfunded situation through investment returns.

And so you have these two groups that have diametricly different approaches to what's essentially the same problem, which is how do you meet the very important promises that they've made to their workers. Thank you very much for being with us. David Hunt is the president and the chief executive of p gimp G I m a R, the investment management business of Prudential Financial, helping to manage more

than one point to trillion dollars of assets. Much appreciated and thank you, thank you for having me here at our Bloomberg constating the idea of public and private pensions having the exact opposite aims. You have to wonder who's got it right well, Pam. The one trillion dollar Apple valuations stories have started to be plastered all over media across the board. Everyone's getting ready as Apple's market capitalization reaches nifty billion dollars. So has it gone too far

too fast? Are the FAMOD stocks uh is a little bit over valued at this point or is this just the beginning of a massive bull run? Here to sort of lay out the arguments on either side. A Shara Ovida. She's technology columnist for Bloomberg Opinion and contribute to contributor to Bloomberg Markets. Am Um, Sara, thank you so much

for being with us. So um, let's just start with the people who say that this is something that can keep going, that even though the biggest six US tech companies account for more than four trillion dollars of market capitalization. This is just the beginning. I mean, if you look at the story of those tech giants, and you could include Ali Baba Intencent in that mix too, from China eats, a story of revenue growth, earnings, power pricing, power global businesses,

and the ability to kind of invest money. All of those companies are investing near record amounts in research and development and capital spending. So they're looking to the future and it's hard to imagine at this point that anything is going to slow them down, right, So that's the kind of bull market for the tech giants of the future and the and the current well that it does. Let's look at some of the kind of valuations, because

that's why I always like to kind of understand this. Um. Let's say you had a business that did I don't know, two hundred and forty six uh dollars in sales a year, but out of that two hundred forty six, you got to put more than fifty of that in your pocket after you paid for everything, lollipops, water, whatever it is. And someone said, you know, I want to buy that whole business, and I'll give you a thousand bucks for it. That's Apple. That's basically what Apple is, at least that's

what the numbers tell you. Yeah, and and depending on how you look at it, some of these tech companies are not really richly valued. So Apple, as you mentioned, is trading at something like fifteen times forward earnings. That's on the high side for Apple historically. But Apple has always been this company that is that is relatively inexpensive if you look at the growth rates. Now, Apple's growth

rates coming down, um. And You've got companies on the other side of the spectrum like Amazon, who is expensive by conventional price to earnings metrics. But if you believe that these companies can continue to grow earnings and continue to have pricing power and have an ability to kind of control the future of technology spending, then those big

tech company shares don't necessarily look overvalued. UM. I will say though, that it's hard to kind of make an argument for technology stocks as value plays because of the extreme binary outcomes and technology that when technology shifts, when you have this kind of wholesale shift and technology as we did, um, you know ten years ago when smartphones started to become popular and prevalent. It can create winners and losers nearly overnight to the you know, no, Kia

doesn't exist anymore, Um, Microsoft does. Microsoft and Microsoft Microsoft is an exception I think where it was prevalent in previous eras of technology and has managed to find it's footing again. But they're the exception that proves the rule, I think. So then let's talk about the bear case here. Is there something that people are concerned about as they

watch valuations climb? Look, I think the concern for me is this fam era to use the terrible acronym, has been a phenomenon of the last decade when we've basically had um steadily strong growth in both global GDP and stock markets. And I don't know whether the story of earnings growth and and revenue growth can continue for those tech companies in a slow and a much slower global economic growth scenario. I don't think we've proven, we've seen

the ability to prove that kese out. I guess that one question would be with these stocks, with these companies suffer disproportionately in a downturn or would they go down along with everything else? And at this point, are they like the proxy for everything anyway because they're just such a dominant It's true, and I don't know that I haven't answered that. My broader point is that it's just

not tested, right that you know, Facebook didn't exist. There was not a public company at least in two thousand eight, right, um Ali Baba was not a public company in two thousand eight. So we haven't really seen these companies get tested when global economic growth goes down the tube, so that'll be interesting. And then regulation, to me is a big wild card that it's hard to quantify it. But as these companies get bigger, you know, success in a way becomes a problem for them. It puts a target

on their back with global regulators and politicians. So we'll just have to wait and see. I guess that's the point. But I mean, you can make the argument that they're going to fall. Listen, if the stock market falls, they'll fall well, and it's not going to be excepted. And as as Leasa said, it's a little bit of a circular logic since there's such a large part of the stock market, right that if they fall, the stock market

falls almost by definition. But I will say, and we just we have less than a minute left pit raised a good point before this segment. He was talking about how Apple is trying to create technology to reduce people's usage of smartphones. You do have to wonder how how much people are gonna vilify smartphone addictions and how that will play into this entire cycle going forward. I agree, and that's I think again, it's an issue for tech that's hard to quantify, but also important to pay attention

to this kind of backlash against technology in general. All right, well done, Thank you very much, Shira oi Day. As always, we enjoy having to be with us and giving us your perspective, our technology columnist for Bloomberg Opinion. Be sure to follow Shira online on Twitter at Shira ov Day. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm

on Twitter at pim Fox. I'm on Twitter at Lisa abramoids one. Before the podcast, you can always catch us worldwide on Bloomberg Radio