Private Credit, Investing, And Cybersecurity

us here. You know, I want to get you know, your view of the private credit business. Give us a sense that like how big private credit is? Is it growing? How is it used within the compital markets? Thank you well. First of all, thank you very much for for having me on and write A credit is already sitting at one point to trillion dollars, so it is. It has really matured and grown since kind of Dart Frank intermediated the banks. So it's been sprinting and growing since two

thousand and ten. Now what's really interesting here is that sprinting, that growth is not it is not slowing down by any in any way. So what we anticipate is by so only a few years, two years out it will be at two point seven trillion dollar asset class. So growth is there, it's here to stay. How do I get a piece of that? Because I hear I'm looking at the ten year trading at two point four That doesn't do it for me. I need more yield. I'm thinking about private credit. How do I get exposure? How

does the average investor get exposure to the private credit market? Well, depending on whether we talk about the average average consumer or the average institutions, right, But that is exactly you're starting on the on the perfect point here, right is your fixed income is really becoming a no income, and so what you want to do is you want to rotate some of that into your private creditor and in

many cases, what's the diary lending asset class? So what that is exactly why we're seeing private credit becoming increasingly popular, right it is? It is for those reasons. Is there a difference between what you're doing and direct lending? Private credit um is a very broad kind of asset class as sub part of that or sub strategy that is direct lending, But there's so much more to private credits than just doric lending, and that is exactly what we

do here at Briercliffe. We look at more n stack to specific uncorelated strategies, that sits outside of direct lending, offering other types of access and exposure to these institutions and to you. But you gotta call me after this program. So what kind of sectors are interesting to you guys

at Briarcliffe these days in terms of the credit outlook. Yes, what we have seen over the last five six years which has been really interesting within the private credit space, we have seen direct lending really taken front and center. Bearing in mind leading up to the g f C it was really mess and distressed for control. That was really what private credit was PRETFC, both CFC and dot frank. It was all about drek lending because the banks simply

couldn't offer it. Darren that direk lending is a great asset class, but as more capital comes into it, there has been some compression returns US pension funds and a lot of institutionals here in the US have an internal performance hurdle of seven percent. And if your direct lending is no longer meeting that, you really want to look outside of direct lending. It could be sector specific, it

could be different kind of specialty lending. It could be structured products, it could be all sorts of encore lated strategies that kind of gives you more diversification and even higher performance. And that's what we're looking for. Where I guess there's probably no shortage of But where are you getting the borrowers? Well, the borrowers said, well, you know, the majority of our society, of the Georga or economy

are really private, privately owned companies. So there is really no shortes of border borrows out there as long as the banks are unable to really service these private companies. So there are no shortage whether we find them in the healthcare industry, the food sector, or even the sports clubs or simply even the banks need help with their revolver strategies. There are really no short as of boars out there. But can you do it? I mean, is it cheaper than a bank? I mean, sorry, an institution

going to a bank and selling a bond. Well, for many companies like your restaurant chains, um, the banking finances seem siming not available anymore. Right, And if you want flexible capital and flexible financing. The banking route is simply not possible anymore. So you really need to find different ways of accessing the capital market. And that is why the private credit is not so much about price, it's more about the ability to really get access. Hey, Jess,

thanks so much for joining us. Really appreciate that. Jess Larson, CEO and founder of Briarcliff Credit Partners. This is the Big Take, the best of Bloomberg's in depth original reporting from around the globe. We're running on a financial system that's running on old technology. We're seeing places reach fresh recordize what unfolds in mid terms, we will no doubt see again in the next presidential election. The Big Take on Bloomberg Radio. All right, the Big Take story today

takes us to the main line of Philadelphia. We're talking Malvern, Pennsylvania, and you can talk Malvern, you talk, uh, you know about Vanguard. They have eight trillion dollars in assets under management. Only black Rock manages more money. But there's change going on at Vanguard. Let's get the latest on that story. Any massive investing reporter for Bloomberg News joins us here with the Big Take story. What's going on in malve In, Pennsylvania. Any So, Vanguard, as you mentioned, is one of the

world's largest asset managers. It's the second largest in the entire world with eight trillion in assets. And it built it was it was founded by Jack Bogel on this principle of low cost study as it goes investing. And they've they've pivoted in some ways as the industry has changed to keep up and to continue competing. So it's really a very unique model in the industry. And it's and they're starting to move into directions that are a

little bit different for a place like Vanguard. Uh, places like private equity, for example, which uh steam counter at least to some people to what Bogol's ethos was all about. Gotta be counter to everyone about what Bogel. I mean. Imagine, if you will, someone who changed Wall Street more than anyone else and didn't end up a billionaire. Isn't that the case with Jack Bogel exactly? Uh, Vogel did not

wind up a billionaire. He had I think about a net worth of less than a hundred million dollars when he died, and you compare that against you know, the billionaires the billionaire Johnson family, for example, of Fidelity Fame a direct competitor to Vanguard, So it's pretty extraordinary. He found in the firm all on the idea of lowering costs year after year for investors and really offering these cheap funds, mostly index funds um and undercutting competitors on price.

What's changed in the industry is all the other competitors like black Rock, Fidelity, Charles Schwab had basically no choice but to follow Vanguard and cut their own fees on a lot of funds to the bone as well. And so what Vanguard is seeing now is that it kind of has to move in a different direction if it wants to keep accumulating assets because it's already so large. So that helped precipitate some of the changes, but does

it annie. I mean, the point the reason Bogel died with only a hundred million dollars roughly is that it wasn't his endgame. He he wasn't trying to get mega rich um. He didn't need to to win in Wall Street terms. He was on a mission to help the average investor. If that's what Vanguard wants to do, um, do they think private equity products are going to help the average investor perseasely. Well, they say that they can undercut competitors on price, even for private equity. That we're

that kind of rarefied higher fee world. But you know, it is different, it's a it's a it's a bit of a shift for them. They're also focused a lot on financial advice. And something that UM has has that people have kind of observed is, oh, there are a couple of funds now that are only for their advice customers. So, you know, is could that be considered counter to Bogel's kind of eat those say as well. So the point

Vanguard's whole rais on detra is still lowering costs. It has this unusual mutualized ownership structure UM, where it's funds owned the firm and therefore the investors in the fund zone the firm. So it's different from any other kind of East on Wall Street. But UM, you know, it has this community of die hard fans called the Bogolheads, and they've observed some of this change happening in some cases raised in eyebrow, and he talked to us about

the culture at Vanguard. One of the things that jumps out of me, was they won't pay their people that well, do they? What's the culture there? Right? So, because the firm is so focused on cost cutting and is located away from Wall Street in this suburb of Pennsylvania, Malvern, it has a different kind of culture. It has a very insular culture. UM. It has a culture of Bogol founded the firm UH with this kind of focus on ship terminology that comes from Vanguards, named after an eighteenth

century naval ship. UM. So the staff is called a crew. Um. They use a lot of nautical terminology. Uh. They're removed from Wall Street and by most people's accounts, a little bit less hard charging and sharp elbowed as it can be to work at some kinds of competitors. UM. And and because the firm is focused on cost cutting, you're not going to get the kind of dazzling salaries you might be able to elsewhere, because you know, the point, so much of the point of working at Vanguard is

this mission of lowering costs for investors. So to work there you kind of have to buy into that mentality. And UM. One thing we note in the story is that UH typically they pay about a third less than other major Wall Street competitors as a result, Well, you don't have to pay too much if you're if all you're gonna do is I the SMP in a basket and hold it until you die, right, which is kind of what Jack Bogel used to a spouse. Um. So

it's interesting. I mean, I don't need much advice for that, Annie, I just you know, I just gave it, that's right. So that's another interesting thing Vogel. Vogel's real adherents are

very do it yourself kinds of investors. When you talk to people who are in the Bogol Heads community, many of them independently came to Bogel's philosophies, read his books, and became almost religiously devoted to his principles about making sure that you're paying very low fees and just you know, buying the market um through index funds, letting it compound

over times. They're they're very, very focused on that. So that's another way that the shift to advice could be seen as a little bit different from what Bogel had had previously preached. All right, Annie, thank you so much. We appreciate that. At a note, Annie and your piece, you quote Eric Balcunis and analyso Bloomberg Intelligence. He's got a new book out. It's author it's called The Bogel Effect. Uh So talks about Bogel's life and influence. So any

quoted Mr Balcunis in there. Maybe we'll get Eric on at some point to talk about his book and his thoughts and what he discovered about these huge fund down in suburban Philadelphia. Any massive industry reporter for Bloomberg News with a big take story today, you can find that on Bloomberg dot com, Slash Big Take or ni Space Big Take go on the Bloomberg terminal. Interest rates they're rising, inflation, it's rising, the economy it's slowing. What is an equity

investor to do? Hugh Robert's head of analytics at quant Insights, joins us. Hugh, I guess i'd love to get your thoughts about these markets here, given some of the notable headwinds we have out there, What is your take? Well, interestingly, on our models, Although you have a lot of scary headlines out there, and I totally get the narrative that that people are looking at, I've actually just seen a

bounce which made complete sense on our modeling work. The way the pattern of association between smp MASDAK, Russell and macro factors is as long as the said are relatively measured with their rate hiking campaign, and as long as that measurement involves you know, none distruction to credit spreads, no big risk of music regards to VIX, and actually, on current patterning, there's no reason why this has to

be bad for US equity markets. The key that we're really watching is the relationship with credit spreads and also the level of real yields. So I think the game changing will be if the fends campaign starts to continue to see real yields moving higher and even start threatening to move into positive territory, then you can have original change. But for now, equities are actually doing what they should

be doing given current map for patterns. YA really ills right now are negative fifty three basis points on the tenure. Um uh. But the question is um, I guess we could still go into a recession and equities could be fine, right. I mean, it doesn't always have to mean that we have losses on indexes. Because the economy contracts for two quarters in a row. I think that's a really fair comment,

I al really do. And also I think just to take a step back on that, I think the Keith in now is is that the information narrative is everywhere. Everyone knows the dynamic around inflation, even the last residaws of tin transitory. I think they're who were still hanging in there at the beginning of this year. Comfort in Ukraine's gonna killed those guys off, and and people aren't

looking at transitory at all. But I think the big question now to your point, is if it's stagnation that could on extaglation and inflation, that's actually not necessarily a bad regime for equity market. Um, if it's proper staculation while we're talking about a real kind of hard landing

and inflation, then yes that's different. But at the moment, yes, there's lots of reasons if you look at kind of credit impulse and what the yield curve is doing to to to fear a hard landing, but we're not actually

seeing there in the data as yet. So again I think at the moment there's lots of headline reasons to scare equities, but on the analysis that we're seeing at the moment, they're largely behaving if they should be all right you So, if if I'm as Tom Keenelix say, have the courage to be in the market, in the equity markets, what are some of the sectors that you guys are focusing on these days. Well, the most interesting one is that we have the ability to fill of

look at the standard investment plot. You know, whether an asset to booming bust goldilocks, and what's the kind of macro regime that it's in and at the moment the looking at the index the global index level, the one that stands out is that the NASDACK has the strongest probity sentsitute to inflation and has a modest but negative sentstitute to growth. I it's okay with the weaker growth,

so that the area really us big tex. I think you have to be careful obviously spectech and nonprofitless names, but big tech actually has some nice defensive properties here. If you believe that we're going to go into extaflationary environment, what would you stay away from in general? I'm not asking for a specific company that you hate. Yeah, I mean, I guess at the end of the logic would obviously be cyclicals and we know that a lot of people

rotated into value trades earlier this year. UM, if you're going to get a hard landing, then clude that to the obvious play for you. Other people will pointed the flattening and the curve in the normal relationships pursued with with TEX. There will be a lot of debate I think on the whole kind of ros versus final rination. For us right here, right now, tech it the best place to play. UM. Energy obviously is a classic cyclical blade.

But you know, I just think one commodity markets are doing what they're doing, even if it's a six coal play, you wouldn't want to be under exposed to energy just because of the underlying commodity shifts and the supply demand and alex that are out there at the momentum. So I guess that would leave the more classic cyquical things that be like consumer discretionary. UM financials is a value play, but obviously if rates are going higher, that should be

doing well. And a lot of financial models on our framework are in the regime that they are behaving in a kind of in a strong macro trading environment that they are lagging slightly. So it probably put consumer discretion we have of both XLF and actively here. What do you make of the destruction we've seen in the bond market. I mean it's been the worst quarter for global bonds in my lifetime. Um, what does that mean. It's brutal, isn't it. It's really brutal, and I think it's only

now be challenged by the end um. They've seen the last couple of trading days and the two are fighting between them. UM. I think the thing is with the bond bear market is I think on this occasion now, a lot of people are making good money on it. Um. I think if you look at the commitment of traders stuff, you look at a lot of the kind of cell side positioning surveys. You know, it's been easy to make

a bare res duration argument for some months now. So I think performance stats for your typical multi asset fund will actually be pretty decent. And yes, the price action is horrible, UM, but I don't think everyone will be chronic. All right here, thanks so much for joining us. Love getting your thoughts there. Hugh Robert's head of analytics at quant Insights. All right, let's go to Christie Why because

I want to talk cyber security. We're seeing that continue to be a big issue for individuals, for corporations, for states slash countries. Christie Wyatt, CEO and president of Absolute Software, Christie, you know, we we kind of look at all the news coming out of Ukraine and Russia and you know, one of the areas where we're seeing some disputes in cybersecurity, cyber warfare. Just give us a sense kind of where the average American company or average American is in terms

of dealing with cybersecurity. It seems like we're still many steps behind where the bad guys are. Well, sorry, excuse me, I think it's it's a great question, um, but I think we're always going to feel that way. I think that cyber is one of those risk landscapes where things are going to continuously evolve and we're always going to

feel like we're just a little bit behind. I do think that the average enterprise in in the US that we see today is pretty well protected, meaning that they've been thoughtful about what kind of controls they need in place. I think the missing pieces do they have perfect visibility of whether those things, the technologies are actually installed in working and protecting them, especially now when we know that we're all sort of shields up right, we are all

on standby waiting to see what happens. Yeah, exactly, Um, what what should I be doing? What should we all be doing? As you know private citizens? M Is there anything beyond two step verification? Oh? Gosh, the average the average enterprise UM business, so large business will start with them. You know, they have between ten and twenty security applications running on every computer that there are ways are using.

So there's a lot more than multi factor authentication, and clearly the smaller the organization, the less of those you have. I would say there's really three things that you that we should be thinking about. First is have we been thoughtful about, um, what applications are appropriate for your side of business? Multi factor authentication? Encryption? The second thing is you know do do I know what I'm going to do?

Is something that happens successful cyber attack? They're happening with phishing emails, things that a user clicks on, and so they're bound to happen no matter how much training you're doing. Do you know what you're going to do next? Um? And that leaves me to my third thing, which is just training. Have you talked to your employees. Have you talked to the people around to the people you care about and said, do you know what phishing looks was? Do you know what what bad things look like when

they're happening? Will you recognize it? And will you know kind of what to do? So, I mean, one of the things that we've noticed as pandemic is people were spending a lot more time working from home, learning from home. It seems like there's more and more data information going into the clouds. The cloud inherently safe. Do you believe I think that. I mean, clearly, we would not see the migration of data into the cloud if we didn't feel comfortable with the level of security there. I don't

think that's really where you're risks. Never say never, But the overwhelming number of attacks that we see are actually happening on the end points. They're happening on the computer that the user is using as a way to facilitate getting access to the data. And that data could be on the cloud, or in the data center, or on the computer itself. And so the endpoint is the place to focus. It is what people touch, and especially as you pointed out, because everybody's at home and so you

have fewer layers of security available to you. You can't there's not network monitoring. These devices are not surrounded. They could be sitting on a home network, and so that user and those applications you're installing on that device on your last line of defense. It does seem like it's just gonna be too easy. I mean, I've I, you know, watch for this stuff and nonetheless have been either scammed or almost scammed like two or three times this quarter. Um,

they're just so good, they're so good at it. You know, I had a for example, I had a call from purportedly Verizon. They knew my name, my address, they asked for my sociald A uh, you know, the last four digits of course, and they knew exactly how much my bill was to the penny at that moment. So they clearly they have access to data and then they use it to get that That's not the kind of attack. I guess we're concerned about what do you think the Russians will be able to do if they hit us

as hard as they can. So if someone was going to try to disrupt an economy or a community, they're going to attack critical infrastructure they're going to go after financial services, communications, power, and energy, and so it is. You know, it is perhaps um innocuous. It could be a we said the breach We thought octo a couple of weeks ago, with a support rep or somebody who had access to do support controls accidentally clicking or getting access to their credentials and then being able to use

that to do other things. And so it could look as simple as what you just described, right. It could look like your Verizon bill where they're just trying to collect information from you. It could look like, um, somebody is asking you to verify a payment that is missing or insurance. Internally, within organizations, we see a lot of attacks where people are getting approached that looks like an

executive is asking them to do something. You know, please go you know, please go log in and do this thing, or please go get this money and sent it over here. Um. The thing to remember, whether you're a user at home or whether you're an employee trying to do your job at work, is they're not really going to call you. Guys. It's never going to call you and say hi, I'd like to talk to you. Please give me all of

your data. The easiest thing to do is to say, you know, to not respond to the email, to not to that call, and then just call them and then say did you try to reach me? And and so don't click all right, Christie, thank you so much for joining us there. Christie Wyatt, the CEO and president of Absolute Software, Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm

on Twitter at Matt Miller three. Put on False Whinnie. I'm on Twitter p T Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio m