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All right, some big.
News out of City Group. Are good friends over there at Citygroup, former employer of mine. Big restructuring, so give me some headcount reductions. Let's break it down with two people who really know this stuff, and that is Shananibossk, she covers all Wall Street for Bloomberg News, and of course Alison Williams. She is our senior bank's analyst at Bloomberg Intelligence. Alison, thanks you joined us zoom chanaledge here
in studio. Ali to start with you. How big of a deal is this for City You've covered this stock forever, so I think.
You know, I recharacterize it as a reorganization perhaps versus a restructuring, where I think they're just really trying to, you know, clean up the reporting lines and maybe help management to be a bit more focused and also you know showcase. You know, as an analyst, I'm excited to get cleaner reporting where we can you know, finally see what's happening with their private bank, with their wealth unit.
You know, there was some hints at this over the summer just and you know even prior, I guess with some of the hires that they made, and I just think it's you know, another step in James's journey, if you will, in terms of just making this a cleaner, more focused banks and bank and hopefully getting to the efficiency that investors have long wanted them to get to.
So yeah, Shanali, I mean, is this going to help Jane Fraser boost the stock price? Because that's bottom line, right, And I'm looking at you know, over the last five years, they're down thirty percent, whereas Goldman's up sixty three percent, Morgan Stanley's more than doubled.
It's certainly a time story for Citygroup. We have had her first set of restructurings here, if you will, where she let go of certain consumer businesses around the world. And now what is difficult for Jane Fraser and their investors of Citygroup is that there are still a lot of unquestioned a lot of unanswered questions about this reorganization,
one being how many jobs will be lost. Underneath the surface, our sources say that there could be significant had count reductions here because what City Group is doing is removing layers of management, and this only this announcement only addresses the top two layers. The reality is is they're going to be looking across management around the world, across divisions. One of the things they did in this reorg is they got rid of many of their regional divisions here.
So the way you think about Citygroup now is that their Citygroup North America and their City Group International, and you now have five main business lines. It's no longer just the main two, which is institutional client group as well as the consumer offerings. Most of that can zoomer business now is the United States North America. Okay, So there was a real reason that they needed to do this.
City Group today does not look the same as City Group two decades ago, when the initial set of current structure is.
What you see.
In a way, you can see this as the most significant reorganization in two decades because this is really getting rid of the groups that we have known for so long as.
A day, Well, it strikes me, Allison, as it came out of my mouth, I realized, probably Golden Sachs and Morgan Stanley aren't the best comparison to City in terms of stock price performance. You know, WELLS Fargo over the last five years is also down only ten percent, not thirty percent, but also down. Bank America over the last five years is only up eight percent, So not down thirty percent, but up eight percent.
Are those better comparisons for City?
I think they are.
I think at the end of the day, when we look at all of these banks, you know, the way that investors think about it is, you know, the valuation is going to be tied to returns as it should be, right, and so someone like someone like Morgan Stanley that you refer to, the comparison could you make, could that you could make is they've improved their structural returns through moving
towards the wealth business. You know, looking at someone like JP Morgan, who's a very different bank, they're actually executing, you know, above all of their peers. You know, part of that is the scale that helps the profitability across their businesses, and they have leading returns. And so the struggle with City and I think, you know, part of the reason why it's been tough for the stock is they just have not been able to improve the returns.
And if you look across the group, their returns are the worst. You know, wells Fargo, you know, during certain periods of times with all their big charges, had had some weaker returns. But they're sort of on the on the path to better profitability and so that's really what needs to deliver on at the end of the day,
it is those returns. And I think why this is important is, you know, as you clear the structure, and you know that's been one of the biggest issues of City is all the bureaucracy and really sort of a massive organization. But if you can get that cleaner and you can improve the efficiency of those core businesses, they do have some good businesses to work with, some higher returning what should be high returning businesses, Chanalie, what.
Do you think Jane Fraser wants the message to be about City group? And I think, like Morgan Stanley, I think if James Gorman pivot towards wealth management so successful, what do you think Jane Fraser would like that view of City to be?
You know, On one hand, it's simpler for James Gorman to sit there and say we're an investment bank and we're a wealth and asset manager. For Jane Fraser, it's a different story. Her goal here is to have all of her managers essentially get one message, which is get leaner. They have one of the largest investment banks in the world. But just take the M and A business for example. The reason I bring up the M and A business is you are sitting there. They are sitting at it
at number six and the lead tales. Actually I just looked at it and got kind of stunned because they're behind cent of you, which is a lot, you know, and that is in terms of deal volumes, and that you know, a year, two years, three years ago is just the stunning thing to see this late in the year. And so the share that they need to gain to keep those fees up as well as squeeze every dollar out of the costs that they have. You know, it's
a twofold story. It's one, get competitive and win two, be more efficient with every dollar we have to improve profitability. And so you know, the investment bank is a really good example because in this reorg one open question among those five business leaders is who will run the investment bank over at City the banking business. Currently they have tapped an interim head, Peter Bubbey, who is the CEO
at the Asia business. You have to consider this. This is one of the top five M and A businesses in the world. It is one of the hottest jobs on Wall Street.
And guess what.
They have a huge IPO business, a huge det unready business, and that person, you can't imagine wouldn't one day be the successor for Jane Fraser herself.
You know.
Again, they have a consumer business that's quite large as well, but they have a massive investment bank and it is a seriously competitive spot.
And my buddy Tyler Dixon still running the investment bank over.
There, and he is under the new banking I.
Know that's interesting, but Tyler is just one of the smartest guys in the room, every room he's in. Shanali Bassett, thank you so much. We got Allison Williams, thank you so much as well.
You're listening to the Team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app or listen on demand wherever you get your podcasts.
Lots going on here today. We want to pivot hard here and we want to talk pharmaceuticals and we want to talk drugs and all that kind of stuff. And we can do that well.
And one of the biggest winners the day, biggest.
Winners of the day, Stefan Bonsel, CEO of Moderna that is a Nasdaq traded stock. Mr NA is the ticker to put into your Bloomberg terminal. You know nobody. I guess when you sit around your Thanksgiving table, everybody likes to just complain about drug prices, right, everybody does it. It's crossed the aisle. But I turned it around a couple of years ago and said, okay, we can do that because we always like to complain about drug prices.
But these guys in the farmer, in the biotech industry, mandad, they come through with COVID.
Yeah.
I think actually, as a society, we were all a little bit relieved.
I'm like, in twelve months, these guys came up with a vaccine. I mean, who does that, But you guys did. Thank you very much. Thank you to the five for folks and all the other farmer and biotech folks out there, that mandad they come through with that vaccine. Appreciate it. Now, what are you doing modern now? Tell us that you guys have your R and D day today, you bring out all your new stuff for your investors, for your stakeholders. What's the big message for your R and D day today?
That's well, not the COVID company, yes for the kind of word yes, thank you though, and the money platform company and the platform is firing on every cylinders today went on seeing positive fluid data in phase three. So if you think about it in terms of vaccines, we are free out of free COVID working URSV file to VFDA and to the positive flugh data. In cancer, we are now products showing forty four percent improvement versus the best drug available to patients today, which is immunotherapy in
melanomas kin cancer. And we're going to start before the end of the year a phase free study in learn cancer cancer.
We really going to transform as well.
First that is that, by the way, because of MR and A technology. And I'll just remind listeners we are talking with Stephan Bansel right now. He's the chief executive officer of Moderna. And as you said, you're not just a COVID company. You did have have an mRNA vaccine for COVID that maybe save the world a lot more
pain than it would have seen. But you also have a flu vaccine that is driving the stock up today six and a half percent, and cancer treatments that we hope, we all hope, I think are going to be successful and could drive revenue another fifteen billion starting in twenty twenty eight. So tell us about the mRNA technology that we all kind of learned about a couple of years ago.
Sure.
So, Emmania, as you learned about, is an information molecule. We basically code in that molecule what protein we want your body to make. That would be your drug, your medicine. And in cancer, now what we have shown is a huge impact on survival and being able to not have recurrence of disease compared to the best drugs available to the two patients. And the third chapter for us after
infictio zas, vaccine and cancer is real genetic disease. We are now free out of free real genetic disease, showing positive data in kids with those diseases.
That have no hope today, zero hope.
All right, So back to the flu, because it's we're getting into flu season. What is your flu vaccine? What is new, what is different? It just tell us about what you start today. Why are people so excited about the flu vaccine?
Because first we're going to be able to participate and provide a very high efficacy flu vaccine. What we've showed in actually over studies is that actually it's as good as.
The best vaccine on the market for flu.
But what people I think I excited about is the idea of combination, Meaning we're going to show before the end of the year flu and covid combine in the single shots, so in the following years you won't have to go and get a flu shot in one arm and the covid shot in ther arm.
They'll be combined.
And then over time we're going to keep adding more and more respiratory virus like RSV to the combination as well, so that you can have only one shot early in the four at the pharmacy, and then you have a happy follower in winter you're not sick.
So but this is for next year, This is not for this cournflusing Okay, got it. I just want to get clear on the timing.
You can still get your flu vaccine for this. I'm gonna go.
Down to LL two and get my flu vaccine. I mean, who doesn't do that? So with mr mRNA tech technology, what's it three to five years down the road, what do you expect that technology to tackle next?
Maybe?
So we're announcing today at Adiday that we should launch fifteen new drug in the next five years.
Fifteen new drugs in the next five that's.
How incredible across cancer, infect disease, and genetic disease. We're also working on an autoimmune disease I think althatries, chron disease and so on. We believe we're going to bring fifteen more drugs on top of forty we have in development fifty five zero okay from the lab into the clinic in the next five years, or around ten new drugs per year moving from the labs into developments. So what you see here is a true platform. There has never been platform in the biotech far my industry. As
you know, most drugs go to the clinic. Yep, they're fair ninety percent of drug starting a phase one will never get launched Okay, I look at Moderna because of our platform, because am money is an information molecule. We are three out of three in vaccines, we have three out of three in real genetic disease cancer. Incredible improvements and it's just the beginning.
All right, this is all because of the mRNA technology. And I have a funding question. Then what happens if you know the COVID vaccine revenues don't meet your expectations? Can you still fund that kind of growth?
Sure?
I mean, if you look at it, we say that this year we should be six to eight billion dollars of cells, which is still a very significant number.
For turnover.
We are fourteen billion dollar on a balanch sheet that we got through the COVID sales over the last two years, and so we can fund around we think twenty five billion dollar of RD growth by cash directing, by the business and the balance sheet. And we will also not be shy to partner if we have to. We're obsessed about getting those drugs to patients to be finish line. But if you look at for example, with Vertex, we
partnered for cistic fibrosi, it's for inhale. The money getting to the long of a kid that have cistic fibrosis by inhalation, we develop that technology yet another fourth cylinder for moderna to develop a new family of drugs. And so that's what we're trying to do is push a boundary of science, get more and more drugs and if we have to partner, and we'll partner.
But it's expensive to do.
And you know, because of recent legislation the United States, the bidance strategs past, the United States is going to not only negotiate prices with drug makers, but set prices with drug makers.
Is that a concern to you very much?
So as the rest of the industry as voiced, you cannot set prices because ird is risky. As we just talked about ninety percent of drugs entering the clinic failure, very high failure rate of the industry as a whole.
If you start to set.
Price and not look at value that is bringing by the drugs, you're going to reduce the ability of pharmasty, core and biotech companies to invest in innovation.
And that's a big worry.
But they're going to set prices, So how are you going to deal with it?
So we just need to keep innovating and figure out ways to go after smaller disease type selling around the world, because again the US of course is the number one market in the world, but other markets are also very important, like Europe, you know, Japan, and so we're going to have to grow internationally as well.
But it's a big issue. I'm worried about it, all right.
How about I always joke that in my next life I want to come back as a healthcare m and a banker because every Monday we come in and there's another healthcare deal that you are one of your competitors. Do is there something that you need to buy in the next couple of years to get to where you want to go that maybe is not in your pipeline right now.
No.
What is cool about Amani is we are the world leader in AMANI. Even BioNTech, which is a great company, they are doing small molecule, a lot of molecule, a lot of different technologies. We are only doing AMMONI. What we're doing through obed activity is ever buying. We bought a company in Japan over the Christmas breaks a cool technology to make our EMMANI operating system stronger and bigger.
So we can do more drugs.
We are nowso mon there dealing cancer with a company in Germany that has very cool science and biology that we can code into the EMANI molecule to do new drugs. So this will do to expand the potential of impacting patients.
All right, excellent to have you in here.
I really appreciate it, and I know you're going to go on television in just a moment, so our listeners will be able to watch you with Alex Steel and Guy Johnson on the European clothes. Just a fascinating discussion and also a fascinating move in the stock up six point seven percent.
Yeah about that, Stefan Bansel, thank you so much for joining Usteffan as the CEO of Momoderna again the taker symbol free stock Jockey's out there, mr Na. We appreciate that. Thank you so much. All right, looking ahead here at this market here we are pretty much unchanged, so you know, we're gonna be very interesting to see how this market. But you know Moderna that again, that's stock, as you mentioned, Matt up six percent today, down thirty seven percent year to date.
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Uncle Crawford joins us. She's a portfolio manager and executive VP at Aldre. Encour thank you so much for joining us here in our Bloomberg Interactive Broker studio. I just love looking at people's you know, kind of how they kind of came up through the business. So, but you've been at Alger since September two thousand and four, so you've seen some market movements. What are you telling? What
are you guys at Aldre doing now? Stock market's up double digits this year, We've had a little bit of a bounce back off of an ugly twenty twenty two. Now what do we do?
Yeah, I think it's not going to be quite as easy as it has been over the last nine months. Okay, and we're going into chop your waters, and in part because we're just waiting for the economy to respond and we just don't know the magnitude of how it's going to respond. Is it going to be a soft landing, hard landing, no landing? And I think no landing is coming off the table. I think the expectation is now
for soft landing, and there's arguments for hard landing. So I think because of that uncertainty in the market right now, the consumer resilience is starting to taper. The job market is starting to come off a boil. We're going to see you chop your market.
Does landing imply cuts?
I mean in hard landing, clearly think the fed's going to cut because that means we're in a bad recession. I don't totally know what soft landing means in terms of a FED reaction, and do they cut or you know, I know what the soft landing is like in terms of an airplane.
I'm just saying, like.
When you come down right and just set it down gently. I guess growth doesn't contract, but it's also not expanding at a massive pace. And does the FED then cut or do they leave rate higher for longer?
You know what? And that's the risk they could actually leave rates higher for longer in that scenario. So it's funny because the people that believe that the FED is going to cut, and they're excited about the FED cuts. I look at them and say, well, you know what, first, the economy has to get really bad if they're going to cut at this pace.
I will warn you that Paul thinks that we're going to have a nice soft landing and the Fed's gonna cut.
The former equity analys I'm always on Freggre optimistic.
Yes, a former equity analyst with a floating rate mortgage.
So he would like to rEFInd you.
Know, maybe that's wishful thinking.
I know, I know, I couldn't accuse that before. All Right, you know we're just talking to Kaylee Lines from Bloomberg Television. She's done a DC kind of reporting on this AI thing in Congress. How do you guys alter review AI because you could argue that's been a big driver of the performance this year.
Yeah, we are very very bullish on AI. We've been bullish on AI, and we think that jen AI and what we're seeing with these LLM models, large language models, the large language models that are democratizing.
Sing your PhD in engineering, I like it, see I.
Like it that it's basically democratizing technology and it's going to create a step function up in adoption rates for all kinds of businesses through healthcare, industrials, tech. So highly bullish on AI. The adoption is going to be we think thirty to forty percent by the end of this decade, which is in any kind of industrial revolution that we've seen. It's the fastest adoption rate we're going to see.
But will it hit the labor market?
I mean, right now, we saw unemployment come up to like three point eight percent, right but that was all because more people were coming back in.
So it's still a very tight, very strong labor market. That's what we hear.
Is AI going to displace a lot of jobs in the by the end of the decade.
I think it's hard to say. But just on the before we move on to AI, on the unemployment and employment, Walmart and best Buy both the conferences this week indicated that Walmart, we know, is taking down starting wages for jobs.
They're taking down they're.
Taking down wages really. Best Buy indicated that you know, maybe they would do low single digits or worse than low single digits, which would be you know, we we think that means zero. So wage growth is now starting to come off a boil, which is the first indication in the economy that employments starting.
To turn interesting to see the labor market kind of flagging a little bit.
Yeah, So if you look at ours worked, ours worked is coming off its peaks. It's been declining for a year, year and a half hourly wages. Right now it's still rising. I think we start to see a moderation. But that's just on the employment side. So as for GENAI and what the impact will be, what we're hearing right now is companies that are deploying GENAI inside of their own businesses today, they're not firing people, but they don't have
to hire as many people because productivity is increasing. So does it change the composition of the labor market and the demand for labor. It might. But what it means that we're going to have to retool. We're going to have to retool our economy and our workforce.
Oh boy, that's just what a lot of folks want to hear.
Right.
First they got and mean by people going across jobs going across seas and now they have to do this whole worry about AI. All right, When I think of Fred alger Asset management or algie. I think growth investors. Where are you guys looking what sectors are kind of interesting to you? We mentioned maybe tech and AI and that type of thing, or else are you guys looking for opportunities?
You know, I think when people think of AI and investors think of AI, they automatically say Nvidia or Microsoft, and yes, we are investing. We are big holders of both Microsoft and Video and the common AI platforms. But what they forget is that in order to deploy all of this AI, we also need to be you know, we need to build data centers. Okay, there are no data centers. Data centers are full. We need electricity.
So data centers are full. Where are the data centers and why are they full?
Well, in part, they're full because there's no electricity going to the data centers, and so there's going to have to be this CAPEX cycle that supports the utilities to
provide electricity to the data center. And so, you know, there's a lot of interesting names the like Quanta, Quanta, PWR or you know, we have an investment in a company called Vertice, which is a cooling company and so they basically they provide widgets into a data center and one of those widgets is the new cooling mechanism that you're going to need for these GENAI servers.
So there's digital bridge.
There's different ways. Yeah, there's different ways to play this trend in industrials and other parts of the economy that we're also focused on.
That's interesting.
You know, we did a big story about Mexico and how difficult it is to be reshoring there because they just don't have the infrastructure. Okay, right, and I guess the same problem faces Generative AI because you need to have a lot more giant server farms set up to run all the Nvidia chips that are getting ordered.
Well don't we have a lot of you fly over territory that put a big server farm out there.
Yeah, but you got to put it up. I mean it takes money, right. You need the bulldozers, you need all the cat equipment, you know, that's what we're talking about, and you got to put in the computers.
So are you concerned about valuation in this marketplace because a lot of folks say, hey, if you strip out the magnificent seven, this market's not so expensive. How do you guys think about valuation?
So we kind of do it as a sum of the parts, and we look at the components. So you look at Microsoft. Microsoft currently trades at you know, on a grunt you have to look out to twenty twenty five when they have a full blossoming of their AI or least they're on way to that. It trades at a high teens multiple. You look at Meta, Meta trades at a mid teams multiple. Google at a mid to
high teens multiple on twenty twenty four numbers. So you know, there are portions of the market, big portions of the market that actually don't screen as having necessarily an incregious valuation. Look now there's other portions of the market that you know, one can say, you know, the growthier stuff that has worked this year, could it pulled back?
It could, Okay? On Core Crawfit, thank you so much for joining us, Really appreciate it. On Core Crawford, she's a portfolio management and executive vice president at Alger the asset management folks. Some good folks there.
I've known a doctor and an engineer.
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All right, let's talk to IPOs because we got the IPO market. Actually have a little interest out there. We're gonna we got the belly Lipscholtzho covers all the markets for us. And then Kunjohn Sabani, he leads semiiconductor analysts for Bloomberg Intelligencies, based out there in the beautiful San Francisco awes on peer three. Uh down there in the Embarcadero. Great stuff out there, he joins us via zoom Belly.
I want to start with you, uh, Birkenstock. When I think Birkenstock, I think Matt Miller, you know, and they're going public. Talk to us about this company and what this deal is.
Yeah.
The company filed for.
Their IPO yesterday evening, kind of an anticipated Bloomberg had been all over that expecting that they will target an initial evaluation about eight billion dollars.
Looking at some of the results.
That they laid out, though profitable, growing, the two things that investors are really looking for their el Caterton backed. So uh, interesting deal l out for this company when you look at kind of where we are talking to some of the analysts and investors. Latest in a string
of consumer facing companies that have filed. So consumer, if you're profitable, if you're growing, and you have durability, some insight into where you're going going forward, seems to be one of the areas alongside tech that there is interest both from the company and from investors.
All right, So that's that's nothing that Kunjon cares about. No, he's a lead semiconductor analyst. Maybe you're wearing birkenstocks, Kunjohn, but you're focused I guess primarily on ARM.
Right, Yeah, all right, right.
Talk to us about this this ipo ARM is a tell us what ARM is and tell us kind of what the pitch is from your perspective.
Yeah, So ARM is a semiconductor design IP company. They don't make chips. They make an IP which other chip makers can use and create for creating chips. Historically, the because they have been they have the largest i mean entire market when it comes to a smartphone, ninety nine percent market share, so that what they wear historically. Then when Software bought them, the play was that IoT is supposed to be this big thing, so they got into IoT.
They have their Internet of Things, yes, and they're still a dominant player in that market. The pitch right now for the IPO is really on AI, as is for every sevilconnector company these days. Right now they have single digit market share in data center and AI, but the pitches that that market share will grow and they are expected to be the fastest growing in that.
But but Kunjin, you've been around. We hired you away from Deutsche Bank, so major upgrade there, Kunjin, You've seen this stuff come and go.
You know what the real deal is.
They're asking me at the IPO to buy a phone chip design company, but pay an AI multiple? Is that?
Is that the gig that is almost yes, okay, are you buying it? So when they came out with the initial target of sixteen seventy, we wrote that this seems very ambitious even exactly one of the reasons what you pointed out. But the pricing with they came out, which is midpoint of fifty, we like that as a starting point. We thought that would invite some attractive positive discussions from the investors, and it seems from the data we have heard that get their numerous times over subscribed, so that
seem to have worked. But yes, to answer your question, I mean, look, this happens. I was also in banking before, so I've done IPOs for semi companies and this is how usually the conversion goes. During IPOs, people are pitching way far out, like what this can be in five years.
And the theory is, if you believe that thesis, you're buying it today for lower because once it gets there, once they have a lot of data center revenues, they're going to get a lot more premium for their evaluation and that's where investors can generate their return.
Very good.
Hey, Billy Birkenstock, I mean it's is what's the pitch here is is this going to be a lifestyle kind of are.
Going to be five years out?
Yeah?
I mean the same thing as there were fifty years before. I mean what's changed?
No, I mean they were in the Barbie movie, so that reinventiated interest with the youths. When you look at their sales, they're one of the things that stood out in the filing is kind of this push towards direct to consumer sales, so trying to cut out the cost of going through a traditional.
Brick and mortar or other kind of website.
When you look at it though, eight billion dollar price about eighteen times forecasted adjusted EBITDAH, so in line with the Nikes of the world, though margins are typically higher for Birkenstock. It is going to be interesting though what they pitch comps at. Though you look at Decker's brands, one that comes to mind talking to a couple, ay us, maybe a Lulu could be really seen as the high end.
But it's going to be an interesting, more kind of typical IPO in terms of consumer facing company that doesn't have these ambitious kind of pitch in terms of AI or massive hockey stick growth.
But do they have to pull back their pricing ambition the same as we've seen with ARM and others. I mean, are the is this a down round for everybody?
No, because this was bought by el Caddatan Private Equity House back by Luxury Group LVMH for essentially four point three billion US dollars. So this is actually kind of on the growthier side, which at least in terms of the ARM deal where SoftBank bought the MAT which right now would be implied about it's seventy percent return, they're actually seeing marks up to the positive as opposed to Instacart Claviow the two IPOs that are set to price sometime next week.
Who are taking White the haircut?
Kunjohn?
It is a down round for ARM in a way, right because SoftBank just bought a twenty five percent stake from itself for much more.
Yes, exactly, yes, So so if you take that as a benchmarket is a down row.
Yeah, but why what?
What?
What happened there? What's the deal?
I mean they didn't publicly say a lot, but it seemed to what being for from it is two things that ARM doesn't think, that Softman thinks that ARM is just getting started. So there will be a lot of more opportunities for them to come on with follow on offerings at much higher valuation, especially when that data center part becomes a larger portion of the revenues.
All right, thirty seconds, Kunjohn, what's what's your feeling about AI? Are you drinking kool aid like everybody else?
Fundamentally, it definitely seems to be here to stay. I don't know, it's too soon to talk about valuation, right, So it's barely been seven months we started talking about it, But fundamentally we definitely see real activity and sustainable demand going here.
All right, Kunjohn, next time you're in New York, you have to stop by here and see Matt and I in the studio. We haven't met yet, so.
You got But since you're out there in San Francisco, are you on Peer three?
Is that where you are?
Yes?
There, Yes, you got to go over.
There's a market down the street that has a Slocum and Humphrey or Humphrey and Slocum ice cream place.
Yep, right, Daniel.
They have a flavor called Secret Breakfast, and I'm gonna go ahead and recommend that Secret Breakfast all right, so.
We got that go and tattage grill as well for the eats. Kun John Sabanik tech analysts for BIA in San Francisco, Belly Lipshots covering the markets for Bloomberg News.
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Well, a lot of folks I think probably came up in the business kind of thinking about that sixty forty portfolios being kind of ideal stocks and bonds. But a lot of folks, you know, over the last decade plus I have been saying, hey, you can juice returns if you go with alternatives. Put that into your mix somewhere, you know, maybe ten percent or something like that. But one of the risks of alternatives is the less lower liquidity and sometimes you know illiquidity. Our next guest tries
to address that issue. Ryan King. He's the see of Lotus Markets. He joined us here in our Bloomberg Interactive Broker studio. Brian, welcome, talk to us about Lotus markets. What do you guys do there, What are you trying? What market demand are you trying to meet?
Yeah, thank you so much for having me. We are essentially a stock exchange for alternative investments. We're actually registered as an ATS, which functions a lot like a stock exchange.
But to the point that you just made, most alternative investments are largely ill liquid and we're seeing this massive shift of where most alternative investments have historically been invested in by major institutions, and the pendulum is is moving more to individual investors, and you know, the closer you get to a true retail investor, the more important liquidity becomes.
And so that's really what we're doing, is we're allowing the opportunity to match buyers and sellers of these I liquid assets.
All right, so how is it done before? Like, how did you could I just not get quity in the past, or how does how does this work? Give me an example, maybe a trade or the types of trades you guys facilitate.
Yeah, so we started our market in the registered fund business. So they're registered filing ks and ques, but they aren't listed on an exchange. In many cases, these funds were completely illiquid, so you couldn't have a liquidity event until the fund decided that there was one. In some cases, maybe you could pledge your shares into a redemption queue
and then they would buy back your shares. But for the most part, though, if you needed you had like an urgent need for liquidity, you would call up a broker. The broker would try to find the other side of the trade. They'd give you a dramatically deep discount of you know, fifty sixty percent and you would pay a ten percent commission to do that.
So you get ripped off.
Yes, your face is literally ripped off.
And you I mean, and that's part of what drove you to create this, right because what happened? Did you get ripped off before or you didn't want to get ripped off when you needed liquidity or what happened?
Yeah, so i'd do. You have some very specific experiences in my past, not me directly, but family members and others that that were kind of locked up into alternative investments and so for them situations specifically during the financial crisis, they were looking to get out, they wanted to be able to get in front of it, and ultimately some
of these funds went completely belly up. And so you know, you you you live with those moments and you see that type of a situation occur and you want to be able to say there there's got to be a solution for it.
Okay, So if you, if you, you know, facilitate a trade on your exchange, how do you get paid? What's kind of your business model?
So we right now, it doesn't the sponsor doesn't get charged anything, the buyer doesn't get charged anything. But we do charge the seller of three percent commission, so it's not nothing, but these are a liquid so that's that's the charge that we typically takes two point nine.
And how do you find the buyer? How do you find the other side? You just you have relationships with people that buy and sell these types of investments.
Yeah, there's a lot of natural buyers of alternative investments. You can think of a lot of institutions like insurance companies, hedge funds, size for you, so it can range, so it can be all the way. We're an ATS. It's actually sorry. ATS is an alternative trading system, so if you think so. My background, I was part of BATS as a startup company. BATS was an ATS before it became in exchange. It functions a lot like a stock exchange,
but isn't regulated in the same way. It's a little bit different.
And this is how you have a lot of experience at BATS at n y C. And this is how you not only know how to find buyers and sellers, but how to put the infrastructure together, because that, I have to guess is also an important part of it.
That's exactly right. So we're a technology company at our core, so you build the technology, you build the framework. You know, we're highly regulated both by FENRA and the SEC, and so there is a lot that goes into it. But yeah, we're you know, my background comes in helping to match
buyers and sellers and finding those in institutions. And then we also have a lot of rias and family offices that say, hey, we've already invested some of our clients money in this and so we would be in many cases wanting to buy more of it, and if you could buy it at a discount, that's even better.
So I mean, I've read you're the third biggest ats in the country and you've got some big players on your platform.
Let's just look into list Blackstone.
Starward, Deutsche Bank Funds. How big is the platform if you put all those assets together.
Yeah, so I think if you added up all the assets that are on the platform, and'd be around two hundred billion that we're trading today. But we made an announcement a week ago, so you know, I talked about registered funds is where we started. But we just launched our first private real estate fun group, Walton Global is now listed on our marketplace. We had four different you know, large transactions in that but that was our first foray
into private real estate. Private real estate is a fourteen trillion dollar marketplace, so it's a it's a it's a wide addressable market.
But what do you mean by private real estate. It's not like the Sweeney the Sweeney ranch on the Jersey Shore. I mean, what are you talking about.
Yeah, So a lot of times you have sponsors that put together private real estate deals. They raise capital from, you know, large investors. Typically you have to be accredited to invest in those types of investments, and so they put those deals together, and typically you have to wait for the sponsor to have a liquidity event before you yourself can find one. So we're now starting to work with sponsors to help them find liquidity for their shareholders that wanted early.
Right, if i were a shareholder in one of those things and I'm looking around Manhattan, I need to get out of this thing because I think when XYZ Building on Third Avenue trades, it's going to trade a fifty cents on the dollar. So you're getting into a marketplace that is going to have incredible volatility, I would say over the next five to ten years.
So I mean, yeah, I do agree that there are some segments of commercial real estate that are going to be very volatile, and there's they're definitely if you're looking at New York, you're looking at It's San Francisco, those places. When you're looking at commercial real estate, office buildings, they're they're really in a tough spot. I think the biggest thing that they have right now is the financing right the sponsors themselves trying to find the ability to refinance
those deals. It's going to be really challenging.
But not a lot of volatility.
If you're looking in like the Columbus, Ohio metropolitan area of course, looking at student housing, looking at medical offices, looking at movie theaters, multi families Okay.
Yeah, multi family is having like some real success though too as well.
Yeah, exactly who do you compete against?
There aren't any There aren't many direct competitors. You know, Nasdaq has a private funds division that they are they're successful, but we don't compete head to head right now. The things that they do we don't, and most of the things that we do they don't. So there's so there's it's just now people starting to move into this space. So it's a great opportunity right to be kind of the first to do it.
Now, do you put up capital to facilitate facilitate these trades or you just simply a broker.
We're agentcy, we're agency. Yeah, so we're not buyers, we're sellers of the asset.
We're matching and get an average transaction sise for you on average.
Let's say one hundred to five hundred thousand dollars. It's probably the average. And the more private it gets, the larger the size of the transaction.
And how many trades do you do a day or something like that.
It varies because it's an ill liquid market. It varies. You could have a couple a day or you could have, you know, twenty a day.
But it's how long does it take you to kind of execute a trade? I mean, it's not like me back at Paineweber pushing my button for Alliance and I'm dumping my four and one thousand shares of you know, XYZ stock to Alliance.
Yeah.
So it's actually we do We've set our marketplace up in a very traditional way.
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We're talking a lot about AI and for a good reason. We've got as we have just heard from Elon Musk. Elon Musk and a lot of other tech leaders CEO types down in Washington, d C. Meeting with a select group of senators talking about AI. Kind of an education process, if you will. So you know, AI in the overnight has become the front and center for global Wall Street and global regulators as well, and we want to continue that conversation today with Ashley Still, Senior vice president and
general manager for Creative Cloud and document Cloud at Adobe. Ashley, thanks so much for joining us here. Again, a lot of attention on AI now today down to Washington, d C. Some of the regulators trying and some of the politicians and are trying to get a little bit educated by some of the tech leaders. How do you folks at Adobe approach AI in your business.
Well, first, Paul, thank you so much for having me. It's great to be with you today.
And as you.
Said, AI just has huge power to enable many things. At Adobe, what we're really focused on is how AI can accelerate creativity. We believe every human is creative, everybody has a story to tell, and we're using AI to enable anyone to create content and to share their story. The way that we do that is through Adobe Firefly, which is our family of creative, generative AI models, and we are announced today that Firefly is now generally available
after very successful beta. It's available both as a standalone web application, so anyone that has access to a browser and can type into simple text prompt can create content. But it's also now built into the fabric of our incredibly powerful creative tools like Photoshop and Illustrator, so that professional creators and designers can use AI to add expressiveness and bring their ideas to life in even richer ways.
And actually, one of the concerns, early concerns of AI and its applications, we're seeing a play out in Hollywood a little bit. A lot of the writers are concerned about AI. They're concerned about a number of things, but one of them is AI. How do you think about just how the protections around the content that can be created through AI, how do you expect that to evolve? Does Adobe have a point of view on that?
Absolutely?
So, first, we've been really thoughtful about how we even train our models, and they're different approaches out there with different AI services. The approach that we take is we only train our models on content that we have licensed to as well as content that has an open license on the Internet. And this is different than going out and kind of scraping the Internet, which has a lot of implications for artists rights and their protections.
Right.
So, obviously Adobe, we are very passionate about our role in advancing creativity and being a part of the creative community, and it really starts with how we're going about training our models. It doesn't stop there. We build those protections into our services, right So, for example, artist's style is something that is very concerning right now to the creative community,
and you reference Hollywood. People spend you know, a decade or more developing their style, whether they're in, whether they're an advertising, whatever it might be, and there's real concern about AI's ability to transfer that style instantaneously.
We build that.
Protection into our products and we also are supporting regulation to protect artist style as well.
So what at Adobe and Firefly give us us some examples of kind of how your technology is used, maybe who uses and what and what do they use it for?
So we are building Firefly across our family of applications and our mission, Adobe's Creativity for all. We have applications that anyone can use. Again I referenced Firefly dot Adobe dot com. That's a new web application that is a playground for anyone that wants to explore creative expression using AI. All you need is a browser and the ability to write simple text prompts and you can create images, you can create text effects and really anyone can use that.
But we also have Adobe Express, which is an all in one creativity application where you can create text image as well as text effects, create posters, flyers, social media posts. Again, so people that want to generate content easily can use Adobe Express. And as I mentioned before, we are really deeply building AI into our professional workflows across Photoshop, Illustrator
and more applications will be coming soon. What this does for our creative professional community is increase the value of our applications that enables them to idate faster and be more productive.
And who's a typical user of your products? Is it? I mean, like, how much of your customers are they individuals versus corporate that kind of thing. Who's a typical user and who do you think I think that'll evolve?
It ranges right, we have we're in We're very fortunate that we have an incredibly broad customer base, whether it's students, our products are used in K twelve schools, of course, creative professionals and creative professionals they often work for themselves or they can work for the largest companies in the world. And what we're really seeing across the board is whether you're a consumer or whether you're a professional, the demand to create content to tell your story is continuing to
explode businesses. Every business is a digital business, and they need content to power how they're engaging with customers across channels, whether it's TikTok or YouTube or their own website. And certainly from a consumer standpoint, I mean, I just look at my own kids. They create content all the time, and it's to make people laugh, it's to express an idea, whether it's with friends or at school. And so we
serve all of those needs. And what's incredibly exciting about Firefly and AI, it's enabling us to serve all of those needs in unique and new ways, and so it really expands the tent of who can create.
So what's the next step do you think, what's the next new thing? You guys are working on an Adobe as it relates to AI.
Absolutely, so we continue to advance our core models and you know, it's still early days right in the era of generative AI, and so the quality, the breadth, and the depth of those models continues to evolve, and that just gives us the ability to bring rich capabilities across all of our applications. We also are working on new media right, so we're we're doing great search in video and three D and how again, we bring the power of AI to all of the types of media that
people create through our applications. So stay tuned for more on those all.
Right, Ashley, thank you so much for joining us. Really appreciate it. Fascinating stuff ever changing, that's for sure, Ashley Still she's a senior vice president and general manager at the creative cloud and document cloud business over there at
our good friends at Adobe. So interesting stuff there and again AI kind of hitting pretty much every part of the economy, it seems like when you listen to some of the use cases, but certainly when it comes to content creation, that's where the opportunities are and that's where for a lot of people the potential risk are. And we're seeing that again play out with the Hollywood writers.
One of the things we're looking at is maybe some protections from AI impacting their business and getting credit for what they actually create. So keep an eye on that.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm Faul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.