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Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market movin news.
I'm the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com Slash Podcast.
An exclusive with James Gorman, the executive chairman of More and Stanley, recently stepped down from his post as CEO, and this is the first interview in your new role as executive chairman what's your most urgent priority.
Well, it was obviously to come and do this interview with you. As my first priority. You know, it's just support Teed and he's a terrific guy, will be a great CEO, and my job really is to help him as best as I can, but stay out of the road.
So that's really my priority.
It's interesting I've heard you used to write a handwrite a checklist of priorities at the start of every year. If you think about how you change gears into executive chairman, what does that checklist this year look like.
I didn't write it this year.
I did that when I was CEO for fourteen years, and it gave me a framework for focusing on a few big things that matter, because in these jobs, there are thousands, literally thousands of issues that come at you and you can easily lose sight of the stuff that
actually matters, which is a few big things. So every year I would tea up on the first day I came into the office, which was yesterday, I came in and write down the list of ten things, and you know, one of them was always no new mistakes, which I defined as things that cost us more than half a billion of capital. Sometimes they were personal like stay fit or get fit, or sometimes they are at development and leadership with our top team. But no different jobs, so
different you've got you've got to switch. So that's what I've done.
You know, I'm glad you brought up mistakes because to the extent that we learned from life's challenges. I'm curious about your single moment. What is the biggest mistake you ever thought you've made at Morgan Stanley. You know, this is an exit interview. It's the chance to look back at the last decade or so.
You know it might sound im modest. I don't think we made a lot of big mistakes. I mean the if you look at the major things that we did, whether they were the deals Smith Barney, each trade eat advance succession, which is critical navigating through COVID. You know, we got frankly most of the big I wish we hadn't sold Van Camp and when we sold it to Marty Flanagan and Invesco, So that was something I think. It took a little too long to get the full team that I wanted in place in the right jobs.
But you know, you can't do these jobs and not make missas When I see a mistake, I embrace it. You know, it's like Kipling, those travelers of success and fail. You got to embrace them both because if you're not making mistakes, the chances are you're not doing enough. So I never see a mistake as a negative. I just see it as something you learned from move forward.
You know, it's interesting, you're standing on top of a mountain now. You've had a tremendous amount of success at Morgan Stanley, but those first couple of years were rocky.
Were you ever worried.
In those first few years you'd be ousted before you can act to turnaround.
No, you know, I just thought, listen what I felt back then. We had to act, and we had to act aggressively. And I knew that whatever we chose to do there would be critics. That didn't bother me one little bit because we're in trouble as it was, so my job was to do something about it, not listen to the critics of what we can't do, but figure out what we can do. So I was highly confident that we'd make choices and I thought they'd pay off.
I thought the rebalancing the business model was the right choice, So I didn't. I just didn't listen to the critics.
It's funny you kind of got Morgan Stanley at rock bottom, if you will. But a lot of investors think Ted Pick's job is even harder because he is.
On a high note.
What do you think Ted's biggest challenge is going to be?
Oh, I don't think. I don't think it's hard or easier. They're just different. You go through different cycles. I mean, the Morgan Center I've had for the last five years is very different from the first five or the middle four. You know, for Ted, he's got one of the biggest and most successful companies in the world, phenomenal brand, He's a great culture carrier, so I'm sure the cultur will
stay in track. The real choices will be strategic. So when opportunities come to move left or move right, how do you do that?
How aggressively do you do it? And when do you do it? So that's they're really the choices.
And in the first year while I'm here, I'll obviously share with him whatever views I have on stuff if he wants that, But in the lady years, he'll have his team working with him on that.
So I'm confident about that.
We'll talk more about strategy in a second. But another thing, as you transition to executive chairman, you have roles now outside of the bank, and succession is arguably one of the most important things you could do as a manager, and a big new responsibility for you is serving on the board of Disney, ironically, where succession has been one of the biggest issues. How does Disney live past Bob Iger?
Well, firstly, I mean Bob Iger is a phenomenal executive. I mean he is iconic for a reason. He's led that company through so many cycles and really is a gifted leader. So it's a great pleasure to work with him. But it's not for me to judge Disney's future. I've joined the board yet. I'm starting I think February fourth or February second, I'm sure early February. I'm looking forward
to it. I like dealing with complexity situations. The changes going on in that industry are profound and there are choices to be made, so that to me is very interesting and obviously given the experience I've had leading succession with our board here with Dennisonlly, the head of our comp committee, and Tom Glossa, they had lead director. You know, hopefully I can add something to the succession committee that I'll be joining.
What about pressing challenges outside of succession at Disney? Do you think that there's anything that could be immediately addressed as they contend with activists?
Well, you know, and they're always we had We've had How many activists do we have here? We had at least two, and I think they each had two bites at the Apple. So no, that is not what the focus should be on. The focus should be on strategic choices companies make. But again, I haven't joined the board, so I can't talk about a company on, not even an insider on. That wouldn't be fair to the team.
More strategic decisions at Morgan Stanley, one massive question. You've built this massive wealth management business mostly in the United States. You have talked previously about the idea of Morgan Stanley internationally expanding more. Do you think Morgan Stanley though, can be a giant international wealth manager?
Oh?
Sure, there are a lot of wealthy people in this world. I think population just tipped eight b and and you know, I've just come back from a long trip through Asia, through Thailand, Singapore, Hong Kong, and I was in Europe last week. I've been all over there. There are plenty of pockets of opportunities, so it's a question of where where you pick your shots. I mean the whay you pick your spots. There are endless opportunities, and I think our Asia business, we have a wealth business in Asia.
It's small ish but growing very fast. Obviously that's a focus Japan. I think with that partner Amuog is a tremendous focus that I suspect Ted and the team will do even more with which he's already started doing on the trading side.
So there are endless opportunities. I'm not worried about.
What are the biggest challenges with China in particular are given the rising geopolitical tensions and the state of the economy there.
Well, China has you know, China has some fundamental challenges. First and foremost is demographics. The one child policy guaranteed the population is going to shrink, and right when you need more productive working people coming through to support the older generation, they've got few of them, and they don't have good immigration. So I think China has some profound challenges on demographics. It has profound challenges in terms of building a consumption economy. You know that there's still an
export savings driven economy. So but on the other hand, China's one point four bm people, second largest economy in the world, and gross domestic product.
It's it's a key factor in global economic health.
So beyond Asia expansion, if you think about the wealth management space, even in the US, there's another thing that's happening that a lot of financial advisors are thinking about in particular, and that is the approval actually or the lack thereof, of a Bitcoin spot ETF in the United States. When you think about what wealthy clients invest in, when you think about the future of wealth management, do you think bitcoin is a suitable investment.
I've never been.
You know, I've never really understood the value of bitcoin as a form of stored value. Others have, and others have made a lot of money on it. I joked once, I wish I bought it at sixty dollars, and I'm glad I didn't buy it at sixty thousand. It's clearly speculative. I think it should play for wealthy people a very small role in their financial fabric because it's so speculative, it's so volatile, and again it's going through enormous regulatory
change and industry disruption. We're seen with some classic failures of late, So some bitcoin's not going away. It's not a fad. I just don't think it's a core investment.
I think it's a.
Speculative asset of which there are plenty of choices.
Speaking of regulation, you've been very vocal about the new regulations being made in the United States about bank capital, about operational risk. Do you believe the rules are likely to change before implementation based on your recent discussions with regulators and what do you think they will look.
Like at the end? Oh, that definitely change.
I mean they put out an extended comment period which got extended further. There have been thousands of comments put into the various regulatory bodies, led by the FED. It was a proposal that I would say was extremely aggressive and set a marker. It will not go through in that form. If it did, I think it would have very, very negative consequences for corporate lending across this country, which is not what you want.
It's not going to help the economy growth. Well.
You've also spoken about the treasury market potential impacts from these regulations. We've already seen stresses of late in the treasury market. Do you have fears that those stresses will be exacerbated?
I can't tell until I see the actual rules. But all I know is what was put out is highly highly, highly unlikely to be what's ultimately regulated.
Now.
Investors don't necessarily see that or agree with it. But in my experience, I've been in this a long time. I was on the FED board for six years in New York. I chared the fac in Washington. I think this is a highly aggressive proposal that will be materially wound back when it finally becomes law.
Regulation now, there has been tighter capital rules proposed under the Biden administration. There's also been a lot of regulatory actions taken against banks. If the Republicans take the White House in twenty twenty four, whether it's Donald Trump or another contender, do you expect that this tighter regulatory environment will just fully unwind too.
It's too hard to predict.
You know, I think we're in you know, you see pendulum swing, and we swung to lighter regulation to I think an excessive proposal. I think it'll swing back. So it's heading back to more balance regulation, and that's where it should be. I'm all about balance. The banking system should not be deregulated. That would be a nightmare. On the other hand, if you overregulate and you require capital standards that are so high that the banks run investable,
they can't grow. That doesn't serve communities.
Well.
You need prosperous, thriving banks to provide lending products for small businesses and consumers.
You know, to the extent we're less than a year away from a spate of bank failures, to the extent that there are still fragilities in the financial system, what are they.
I don't think they are a speed of failures. Honestly, I think there were three banks that got it wrong. I've said that publicly. They made choices that were the wrong choices. Wasn't complicated. They got washed up and cleaned up and folded into other banks, and you move on. This wasn't People kept telling me, we're having a banking crisis.
No, we're not. We had a crisis among three banks. It was a crisis for their shareholders and their employees. It's not a crisis for the market.
The core banking system is in rude good health to use a British expression.
Well, you know, it's not just the banking system. If you think about the hedge fund industry, regulators are also very concerned about some fragil there. It wasn't too long ago that Morgan Stanley lost almost a billion dollars in the week of the collapse of Archagoes. Do you think that there needs to be more safeguards on the non bank system.
I mean, it's honestly, there's too many participants in the non bank system to say yes.
So no, you'd have to go subset by subset.
We talked about payments, we talk about private creditor go through each of the pieces of it. But there are always risks when you're dealing with leverage in a financial system. But if you don't have leverage, you don't have lending, So it's a balance again. I'm always back to there is a balanced solution to most of these debates, and you can find it with full discussion with regulators.
Speaking of leverage, the cost of leverage is higher today than it was a couple of years ago. Where do you think interest rates go headed into the end of the year, and what do you think the market starts to look like through twenty twenty four? They go down, as simple as that, Yeah, how far down?
I've got no idea.
I mean I thought that unlikely the FAD would cut rates this year, but inflation has moved down pretty materially quickly that it's now become more likely. So first half of the year, I suspect nothing.
Back half of the year.
They could easily move a couple They could move a couple of times. But the key point is we started this journey with inflation at ten percent, rates at zero, unemployment at three and a half percent, and my objective was to get us to four four and four four percent inflation, four percent rates, four percent unemployment. We're about three percent inflation, we're five percent five and a half in rates, and we're about three and a half in unemployment.
So rates will come down.
Do you think the economy is in at all clear when it looks like a soft landing versus a hard landing, do you think that the economy will survive this year in good shape?
Economy is fine. I mean, there's this obsession with the our word recession. I mean, you have recessions. They come and go when you get imbalances between unemployment rates and economic growth. So no, the economy is doing fine. I personally think it is unlikely we'll have a recession, very unlikely we'll have a hard landing.
But we'll see.
But the odds are clearly in favor of soft landing. I think the Fed's done a great job.
Now for you, You've told me before that you would look to teach in your post life at Morgan Stanley, in your life after Morgan Stanley, I want to ask you about that for a moment, because there is a lot of turmoil on college campuses these days. Do you think you'd ever take a bigger role at a university given all the political pressures and donor activism that you're seeing.
Well, I'm joining.
I have been the chair of Columbia Business School for many years, several with Henry Cravis's my co chair and now chair of the school. I'm looking to get more involved at Columbia University in the coming months, and I think that'd be great to do. I think, you know the importance of high quality education for a well functioning society is profound, It's obvious. So yeah, I want to be part of that, and obviously universities this is not the first time universities have been hotbeds of dissent and
turmoil my whole life. They've been that from when I went to university in Australia in the nineteen seventies.
So that doesn't that doesn't bother me.
But it's important that people are able to have dialogue and discussion on campus without intimidation and expressing their rights for free speech.
What is the next big ambition for James Gorman you.
Mean today or I.
Internally Morgan soon is to help ted and to help with our clients around the world. I have a very large client network that I built up over a long career, and I think I can help our bankers and others in that regard. For me personally, it's to live in a little bit of a world of unknown for my whole life. I've kind of known what the next steps are as you mentioned, I've I've joined one public company.
We'll be joining one public company board Disney. I'll be getting more involved at Columba University months ahead, and then I'll take.
It from there.
So I don't you know, I want I want balance in my life I've loved being CEO. It's a phenomenal company. I'm so proud of my colleagues here the job that they've done. This isn't a one person show. It's thousands of people who are really talented doing the right thing, and ultimately it's the values of the organization which is what drives it. So that's what I'm most proud of and for me personally, we'll find out.
James, thank you for your time, your first interview in your new role. That's James Gorman, executive chairman now of Morgan Stanley for Bloomberg Television and Radio.
You're listening to the team. Can's a 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.
One job I would not want is to be the head of a college or university these days, or any leadership position in an academic institution. It is I've seen it firsthand serving on the board of Duke's Business School. It is a tough job. And that's even before what's happened over the last several weeks at Harvard and Penn and some other places of higher education. So let's get the latest there. Janet Lauren joined US higher education finance reporter for Bloomberg New She's been on top of this
with some of the top reporting out there. So, Janet, you know, we had the president of Penn step down. Now Claudine Gay of Harvard has stepped down. The pressure is just brutal here. The issues are visceral for a lot of people. How is this going to play out?
Do you think, well, don't forget a couple of months ago we had the president of Stanford Stone.
Oh that's right, yep.
So I guess the next focus is on the board the Harvard Corporation.
It had been twelve members.
Now with Claudie Gay's resignation, it's eleven members.
There have been calls.
For them to step down, that they ran a very flawed search, and why didn't they figure out what was going on with her scholarship supposedly had been out there for a while. And the question is will they continue to serve Penny Pritzker, the former Commerce secretary, is the chair of that board, and who's.
Going to want the job as president?
I mean, of course, it's the most prestigious in the world academically, but as we were just talking about, it comes with so many challenges, so many constituencies. And in my story today, one of Vario esteemed professor Auvi Lobe, talked about two extremely important things are raising money, which we saw constrained, and dealing with Washington. You can't forget that the federal government is one of Harvard and many university's largest donors. Eleven percent of Harvard's revenue last year
came from the federal government. Yes, and that doesn't even include federal student loans. Harvard is extremely generous with its undergraduates for financial aid, but its graduate students, they borrowed one hundred million dollars from the government last year. You know, look at the price tag of Harvard Law School, Harvard Business School, and you know, Harvard has to keep its pristine reputation. If those students want jobs that are going to pay to service that debt. It had never been
a consideration. No one would ever think of that before.
So is the underlying issue. I don't know how to approach is the underlying issue for some observers of higher education just the I guess the liberal bent of higher education and administrations and leadership in higher education, which has always been I guess an issue.
But is it just coming to the.
Ford now because of what we've seen at Penn and Harvard and other places.
Well, I think in the last couple of years the objective of DEI has been to be more inclusive, of course, and critics of saying it's just gone way too far looking at ideology, is.
That how decisions are made?
Are you?
Are you truly picking the best candidates?
And this really came to the forefront, especially after the Hamas War on Israel, and you know Bill Lackman had an extremely thoughtful post today. I'm looking at that. But the question is where do you go from here? Especially with these searches. As we were just talking about, there
the universities who are looking for new presidents. Harvard, Stanford, Penn, Yale, They're longtime president has resigned, but don't forget Berkeley also and u c l A. U CLA's president has been the chancellor has been there for quite a long time, so it's a it's a refresh and a lot of these presidents are new in their job or had been. Harvard and Penn because a whole host of presidents.
Retired after COVID.
You know, they just had this extremely difficult time and and you know they had new leaders in and unfortunately at not such a great time.
Bill Lackman today report Bloomberg's reporting. Bill Lackman says Harvard board should go for protecting Claudeine Gay. I mean that seems I don't know if it seems extreme, but it's certainly a bold call for mister Ackman, which he was very voice, very outspoken about that Claudeine Gay should step down.
Well, we saw right after Penn's president Liz McGill stepped down the board chair, Scott Bach within within a few hours, had stepped down himself.
All right, So I guess we could see something there. So, I mean, and one of the things, you know, that was surprising to me is Harvard announced that their I guess applications were down, Yes, seventeen. That says something.
Yes, And you know it's not the anti semitism all these videos that you'd seen. You know, we don't know the full reason they didn't really tell us any anything. It could have been for a lot of reasons. Remember, this was the first application cycle since the Supreme Court decision that eliminated race as a factor in applications. They had, you know, more essays, but you know it's hard to tell, but that for Harvard, which is always encouraging people to apply,
you know, we wrote about this many years ago. They're always mailing letters to encourage kids to apply. You know, it was quite shocking for them because everybody else seemed to be up.
I tell you this what a time to be a higher education reporter because it really feels like this is a seminal moment in higher education in this country. It is that the feeling from your sources, or is this something that's just news cycle that will kind of blow over.
No, I don't think anybody would have ever expected this. You know, you talk about Harvard's president, you know, the shortest tenure in its four hundred plus year history, and you know, you've got to think that there's been a lot of tumultuous situations at that place for so many years.
But yeah, it is.
You know, we're not even talking about student loans too. You know, we have an issue there. You know we've talked about before. Graduate school loans are about to overtake you know, the annual distributions more than more than undergraduate loans, and people are having trouble paying those off. So there's just a tremendous amount of distrust of higher education these days.
And it's expensive, yeah, and it really is. And you think about the stories that come out from higher education, it's either a story about the high cost and you know, just it's too expensive, the affordability or lack of affordability of higher education, or it's a story about how well, how big their endowments are, are huge gifts being made to these schools. It's really an odd economic model that just doesn't if you just want to look at it, it doesn't make sense.
It doesn't.
And you know, we saw the movie Boys in the Boat the other day, and you look at the University of Washington and during the depression and what higher education did for people, and it didn't cost a huge amount, and it hadn't cost a huge amount until much recently. You know, your state schools should be affordable for people to go to to better themselves, and you know, there's some really tough questions that need to be asked, and
the price keeps continuing to rise. And of course, if you're at Harvard Yale Princeton, and your family is below a certain income, it's going to be free for you. But there's the middle that you know, we'll have to pay for it or take out loans.
I mean, what is the thinking. Is there a consensus thinking as to what the problem is about the affordability or lack thereof of higher education because it's just the price. It is a well exceeded inflation for so long that it just to a financial person looking at it says this economic model is wrong or it's it's not efficient.
My goodness, they've been saying this for twenty five years and it just keeps going up.
And you have people who will pay it, they'll borrow for it.
But I don't know at some point, you know, we've seen a few small colleges that are closing.
Yep.
The pandemic money has gone. You know, there's a lot of constraints, and you know we'll see the government. You know, student loans are in entitlement yep.
So I mean, so as it relates going back to you know, Harvard and pen and all these other jobs, is there a thought as to who might go for these jobs. It seems to me I can't imagine if you're not somebody, if you're someone outside of academia, you would not aspire to this and go through that kind of rigor it. I would guess it would be the dean of your you know, arts and sciences school would just kind of slide up into the next level because presumably they've been vetted to some degree.
Well that's what we would have thought at Harvard. Well, if you look at Rick Levin was the president of Yale for twenty years, and he so many of his provosts went on to lead great universities.
M I t.
Just a whole bunch, and he was sort of like the great trainer.
For university presidents. I don't know how much that is existing today. The provost at Harvard is stepping in, but I don't think we've seen a provost take that job in quite a long time. But you know, there's still quite prestigious jobs. But Harvard has almost a six billion dollar budget. That's like a company, sure, and it's very complicated, very varied sources of revenue. So you know, we'll see, Yeah, people are going to be clamoring for all of these jobs.
Yeah, but it's I guess it's just to be a question as when we'll follow you your report and going forward about you know what this means for higher education in general. Well, this caused itself to kind of really look at itself again and think about its ideologies, its economic model, all those things.
Well, but keep in mind that very few people go to schools like Harvard, Yale, Princeton. You know, the vast majority of people in this country go to large state public schools.
Yep, yep. Two of my offspring did that as well, so and that's a good value, good opportunity too, but they have their challenges as well. Janet Lauren, thank you so much for joining us. Janet Lauren and her daughter joining us today.
You're listening to the tape Can's our live program, Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
You know, over the last twenty five thirty years of my career on Wall Street, one of the explosive areas, it's just been a growth of hedge funds, alternative investments, and the way to play that on the sell side is through the prime brokerage business. It's a good business. It's a profitable business, but just a risky business. And we've seen some firms kind of pull back a little bit, you know, based upon their risk profile. But if you're in it and you're good, it's a good profit business.
Our next guest is certainly in that camp, Mark Alderadi. He's a global head of prime services at Jeffrey's, one of those firms that's really committed to that business. Mark, thanks for joining us here in studio. Talk to us about the prime brokerage business. How's it been over the last two to three years on the street?
Sure, thanks, Paul, thanks for having me. So. The prime brokerage business has really been one that's been expanding. There's a lot of growth. It's kind of a necessary part of the hedge fund or alternative business in terms of offering up leverage, helping folks cover shorts, and then all these sort of operational infrastructure that goes with it. You could argue that the operational infrastructures kind of table stakes have been normalized, but as you've seen how firms have
come out of this business. Others have been scaling back a little bit, but some are going into it a little bit more forcefully. It is a capital intensive business. As you mentioned, there is a risk to it's effectively a lending risk. So it's it's been good and it's been.
Growing now and you know, back in my day, as it were, I mean, if I had two or three good years trading bonds or stocks or currencies, I could literally walk out the door, knock on your door or some other prime broker and say, hey, raise me five hundred million or a billion or two billion dollars and I'd go hang my shingle out and take all the trading profits. Does that even happen anymore?
So?
I think that would be an exception to the rule. If you come from a very well pedigreed manager and you spin out and you get backing from that manager, it's a much more plausible outcome. But I think one of the differences today is that we see these multi manager platforms that really have come into their own in the last you know, a few years. So if you were going to spin out rather than go out on your own, and may want to join one of these platforms instead.
So that kind of goes to the consolidation of this industry. It seems like, you know, the mom and pop the standalone hedge fun person with two or three billion, those were kind of a dinosaur's SEMs, like it's all Citadel Millennium. You got to go into these big platforms and that's not as fun though, is it.
Well.
I can't speak to the how much fun it is or not, but I will say that it's an easier entry if you want to not manage your own business, but get closer to managing your own business. In other words, it takes care of all the infrastructure needs, it takes care of the capital raise, and you can focus on probably what you do best, which is manage people's money.
You know, when I left the cell side late two thousand and four, I had looked long and hard, because that's what sellside analysts. You leave, you go to a hedge fund long short equity. I based upon my analysis, and I said, this game's played out long short equity, there's no alpha left. It's plus it's a young person's game. I don't know, but it's money still flocking into hedge funds. Isn't it talk to us about kind of funds flows over the last several years.
Yeah, I mean they've had ups and downs. Twenty three wasn't the best year ever, but it was a good year. What we've seen from our seat in our client base. Half of that money went to funds that are a little bit more established, meeting have been around five years plus. About twenty five percent of the money went to folks between three and five years, and then the other twenty five percent went to the what you called merging manager space.
But I think there's a lot more specialists today. So you're like a healthcare specialist, you're a TMT specialist, And when the allocators are looking where to put their money, they're making those decisions as to what market or what segment of the market would make most sense for them.
So what are some of the where are some of the money going these days?
Well, without getting into specific names, but strategies, Well, so a lot's going in most of it, as you mentioned, is going into these multi manager platforms. Okay, away from that, again, our perspective may be a little bit different because we do have you know, jeffres obviously has a large healthcare, banking business, trading business. So we do have a fair amount of healthcare funds on the platform and they've done pretty well in terms of the capital raised this past year.
So I mean, what are the big funds now, Like, what's Stevie Cohen doing? What are the you know, I don't know the acribus are they raising money these days?
I think, well, everybody's trying to raise money everybodysry, and they're successful out of it varying degrees. And I think for some of the larger folks that you've mentioned, it's more about product expansion. And I'm not talking about the fun structure per se, but it's what markets are they trading in, whether in the US, Europe, Asia, emerging markets.
You see a very sort of wide spectrum or diversification across a lot of those, and they sort of push and pull on the levers as market opportunities arise.
So what are the I know, some of the challenges having spoken some folks in an industry, the whole regulation reporting aspect for this business, it just seems to get more and more complex every time. How do you guys at a prime brokers, how do you try to deal with that.
Yeah, to be honest, we try to alleviate or move some of that burden from our clients and put it on ourselves in terms of what we report how we report. That's not going to be possible with everything going forward. So I'll just give two examples. One is the look to have potentially more transparency within the swap or synthetic or delta one businesses, and some folks obviously don't love that idea because they may be you know, doing it
for trading anonymity. And then two sort of this bazzle endgame which terms may require folks to just post more capital, mean the broken dealers to post more capital. So the rules and the regulations are going to change the playing field sort of going forward.
Where's hedge fund money come from generally into the space?
Yeah, I mean it's coming from family offices, it's coming from fund to funds, it's coming from pensions and endowments. And you know, I think we've seen recently where we've been focus a little bit more has been on the family office space. Sometimes they are willing to take a little bit more risk in terms of going with an unknown individual or somebody they feel that maybe more affligating with somebody as they start up, as opposed to going
with one of the more household names. But it's sometimes safer to go with the household name because everybody's in there.
So when you submitted your budget to your bosses this year for twenty twenty four, what are some of the growth drivers that you kind of laid out for them?
I mean, for us, we are looking to do more in the synthetic and swap space. We are looking to offer a little bit more across We're pretty solid in the straight sort of equity space, but looking at a little bit more within convertible bonds, a little bit more within the fixed income space. So I think for us, we're looking to broaden our product offering and so and we've had good traction so forth.
So I mean, who are they? What's the competitive landscape here of this prime business these days?
Yeah, listen, there are you know, there are five very large prime brokers.
That's gold Morgan, Stanley. Ay, maybe I don't know.
No, you're right, I just don't want to say competitive name.
But sure, so the big, the big, the bulls are all in there for the most part.
Yes, But what could potentially change is if the capital requirements changed, they may be more impacted than somebody like ourselves, And so I could see the landscape changing slightly over the next couple of years, and maybe the product mix and use of balance sheet and use of capital kind of changing along with it.
Yeah, because that's yeah. I mean, you guys have to deal with those regulatory risks as many as much as any other industry. Mark Alderati, thanks so much for joining us. Mark is a global head of prime services. For Jeffrey's talking about the hedge fund business, they still get two and twenty. Not everybody, not everybody, Okay, very good, because I'm just like two and twenty for what am I getting? I mean, you know, I saw some of the hedge
fund results for twenty twenty three. Get results reported today. Kind of a low double digit, big deal.
You're listening to the tape. Can's our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
The discussion of the day for me Media, Entertainment, fun stuff. KEITHA ranganathen Joints As. She's a senior analyst covering media for Bloomberg Intelligence. Joining us via Zoom from our Princeton, New Jersey campus. Keith, Let's start with Disney here, the activist investors and are kind of swirling around this company. The pressure seems to be building on CEO Bob Iger to write the ship to get the stock moving again. What's going on at Disney?
Yeah, you're absolutely right, Paul.
I mean, the if you look at kind of Disney shares, they're down about fifty five percent from their March twenty twenty one highs. So obviously there's a lot that needs to be done here. Having said that, though, I think Bob Iger obviously recognizes what needs to be done. He has kind of taken a lot of steps, whether it's restoring the dividend, whether it's you know, kind of right sizing content expenses, you know, coming up with, you know,
plans to reinvigorate streaming. They've had almost thirty percent streaming pricing increases. They're looking to kind of get gained full ownership of Hulu. So he's really juggling a lot of different balls here, But you're absolutely right in terms of, you know, the activist investors. They're obviously swirling around Disney.
But Eiger this morning at least, seems to be kind of shoring up his defenses with news about you know, this kind of strategic partnership with Value Act as well as Blackwells, so they seem to be kind of getting some, you know, support in their fight against Nelson Peals.
Is there anything? I mean, you look at the Walt Disney Company and the cable networks led by ESPN, the theme parks, the the film studios, all the studios they own, all the brands they own. There's so many valuable assets there that I guess if you do with some of the parts, maybe you could say that the stock is undervalued.
And I'm sure the Disney's done that internally realistically. Do you think there's any big deals that Bob can do here to unlock value, whether it's sell ESPN or anything like that.
So I think the one deal, and obviously this is already ongoing, is they're looking to gain full ownership of Hulu, and that's underway right now. So we were not really sure what they're going to pay there. They obviously have to pay a minimum of about nine billion dollars for that thirty three percent stake of Comcast, but then whether it'll go higher to about thirteen fourteen fifteen billion, nobody really knows. In terms of other deals, I'm not really
sure they want to do anything very big. We do know that they're looking to actually divest their India operations. They're in the process of merging it with one of the biggest Indian wireless operators, which is Reliance, to create a huge media conglomerate there. So they're really looking to kind of more trim and kind of streamline their operations. So I'm not necessarily sure they're going to go out
and be more acquisitive in terms of ESPN. They have clearly said that they're not looking to get rid of the asset. They're looking more for some kind of a strategic partnership. Not really sure whether that's going to be a tech giant or whether that's going to be one of the leagues. So that's a little bit of a weight and watch. But I think the one thing that the street is really looking for clarity on is what
they're going to do with their linear TV assets. We know that last year Barb Biger had kind of floated this whole idea that you know, he's not married to the linear TV ecosystem. He doesn't mind getting rid of assets. But the kind of walk that back a little bit. So again there's a little bit of you know, uncertainty, I guess with what happens with the linear TV assets, all.
Right, So that kind of goes to the next question, which is kind of the streaming business, the pivot from you know, broadcasting cable television channels over your cable system to a streaming model. Netflix makes a lot of money doing it, but nobody else really does. What are we going to see in twenty twenty four with the streaming business from the big media companies?
Yeah, absolutely right.
Nobody else other than Netflix right now is making money in streaming. But the new mantra in streaming is is less bad as good. So as long as all of these companies have lower streaming losses, even that is being viewed as a positive sign by investors. So in the case of Disney, for instance, in twenty twenty two, they had over four billion dollars that they lost in their streaming business, they really kind of pared that down pretty significantly in twenty twenty three to about two and a
half billion dollars. We think it could go down even further, maybe just about seven to fifty million or eight hundred mill and in twenty twenty four. So they are looking to you know, all of these companies, Disney included, are
looking to break even on their streaming businesses. Of course, it's going to be a very very long road for them to kind of get to the profitability levels that Netflix has achieved, because if you look at Netflix operating margins right now in their streaming business, it's about twenty two twenty three percent, and they're looking they're really on a path to get to that thirty percent margin level.
Yeah, that's boy, that's kind of where the media companies used to be back in the day. So another theme for twenty twenty four, as I read your research and see some others stuff out there on the street, is maybe some M and A in this industry is his industry maybe needs to consolidate because you know, the profitability isn't what it used to be, and it's tough to be a standalone company if you're not really big, like a Disney like a Netflix. How do you think that might play out.
Yeah, we've already seen a lot of rumblings, you know, Paul to that effect. So we've had you know, just like at the end of last year, we had this whole news about maybe Warner Brothers, Discovery and Paramount kind of coming together, and then that's sparking a huge discussion about whether, you know, maybe comcasts should also be in
the fray for some of these assets. I think the real problem, and I think that what the street is having a real hard time kind of grappling with, is, you know, the debt levels of some of these companies. So if you kind of look at Warner Brothers and Paramount, the reason that they probably will not like that deal is one is, of course, you have very very heavy linear TV exposure. And remember linear TV, of course isn't secular decline because you're having about ten percent cord cutting
people canceling their PATV subscriptions. But again, if you look at that Warner Brothers Discovery in Paramount combination, that's sixty billion dollars in debt and nobody kind of really likes that. So, you know, I don't really know how it's all kind of going to shake out. Of course, I think M and A is going to be the top hot topic or the hottest topic for twenty twenty four, but not really sure if any deal necessarily makes sense, just because of that very very heavy linear TV exposure.
And for years, you know, media investors and analysts have been wondering when and if a tech company, whether it's an Amazon and Apple, somebody, a Google, somebody really big with those limitless pockets, will come in and make a big investment in the media and entertainment business. We really haven't seen that too much here any reason I think this year will be different.
I don't think so, Paul. I think, if at all, it'll be even harder this year. I mean, this is a presidential year. We're obviously going to see a lot more of you know, the anti trust and a lot more of you know, the regulatory concerns kind of resurfaced, and I think any of these big tech giants are going to be very very careful not to kind of rub the regulators the wrong way, so it's very hard for us to see them kind of make at least any huge splashy acquisition.
The movie business. Are people going to the theaters Anymoregan you said, how's that business kind of behaving now post pandemic.
Yeah, that's a great question. Actually we've seen you know, obviously there was both this demand problem and the supply problem that was kind of created by the pandemic. We've actually seen the demand kind of come back pretty nicely, I would say through twenty twenty three, just to kind of put some numbers around it, we saw nine billion dollars at the domestic box office.
That is still two.
Billion dollars shy of pre pandemic levels, but it's still almost three hundred percent above you know, like twenty twenty when kind of the movie business was completely shut down.
So we've kind of seen some resilience that said, you know, we had another shock to the whole I think entertainment world in twenty twenty three after the pandemic, which was really the writer's strike as well as the actors strike, and that is going to have some ramifications for the box office in twenty twenty four because we've seen multiple movies, multiple tent poles actually getting pushed out to twenty twenty five, whether you know it's mission impossible, whether it's the new
Snow White movie, Captain America, the New you know, a Spider Verse movie from Sony. All of these, you know, will almost shave off about one to two billion dollars of box office. So right now we're looking at a much weaker kind of box office out for twenty twenty four.
All right, very good Keitha Ronganath, and thank you for joining us as always with a breakdown what's happening in the global media and entertainment space. Lots of big themes here for that. So Githa rock anathen and senior Media Anos Bloomberg Intelligence reporting from Princeton there with her research and you can find that at Big for Bloomberg Intelligence b I go in the terminal. We'll get you all
the Bloomberg Intelligence research. Some of the best equity credit policy research for equities bond.
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