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Ale Steeler alongside Paul Sweeney. This is Bloomberg in Best twenty twenty five. We are down here at the New York Financial District. This is where all the big names in finance, banking, asset managers, private credit, private equity all come together and talk about the way forward. And part of that way forward is the policy that's going to come out of Washington, d C and any more insight. We'll get on that on tonight's State of the Union with President Trump. So we want to go to DC
with Nathan Dean. He's Bloomberg Intelligence senior policy analyst. Nathan. There's so much to unpack here, but markets are down, trade wars on does President Trump we'll get a stock market today?
No, I don't think so.
I mean I think President Trump this is a long term message from the White House in terms of these tariffs. You know, look, you know President Trump has been saying for months the tariffs are his favorite word or maybe his fourth favorite word, depending on when he talks about it. But you know, and I think this was anticipated. I mean everybody was thinking, you know, is he going to do this? Is he not going to do this? But tariff's were going to come. It was just a matter
of the size and the scope. Now, look, President Trump negotiates, That's what he does. There's always going to be a negotiation. But the response that we have seen from Ottawa and Mexico City today suggests that those negotiations are going to be taking place right away.
This is going to need some time to cook.
So I think what you're going to see tonight in this joint address to Congress is you're going to see President Trump double down on this idea of tariffs, an idea of bringing back manufacturing jobs to the United States. His true social posts about farmers growing stuff in the United States to sell in the United States. That's the
message to which you're going to hear tonight. Wall Street probably isn't going to like that, but I don't think you're going to see any reaction from the White House in terms of Wall Street.
A couple of weeks at the earliest.
So, Nathan, what is the feeling in a d C amongst you know, Congress, just the system, theocracy about where this is all going here.
Yeah, so there's gonna be a lot of uneasy, especially amongst the Republicans in terms of these tariffs.
You know, Senator Rampaul even just tweeted two.
Hours ago that look, tariffs are going to increase prices, and he cited automobiles that you know, auto prices are going to go up as a result of these tariffs. Senator Grassley from Iowa, he's gonna have any problem this this tonight as well, because, as President Trump says in the speech, look what I did in terms of the tariffs, will China put retialitary tariffs on soybeans? And there's a lot of soybeans that go to China from the United States.
So I think what's going to happen is over the next few days. In terms of this.
Republican response is they're going to wait and wait to see what happens.
Now.
Target is best and Best Buy have already said the price increases are probably going to be coming in the next few days. Is this enough to get President Trump to change his mind.
Probably not.
But as these farmers talk to folks like Senator Grassley, they're going to be saying, look, soybeans are down, we don't.
Have a place to sell. So if you're not going to give us a tariff relief.
Then you have to give us subsidies via a farm bill package. So there's a lot of unease negotiations here to be taking place between Congress and the White House over this tariff policy.
Which is what we heard from Justin Trudeau of Canada saying we're going to support businesses that are going to be hit by these tariffs when he was speaking earlier today. So this all comes ahead of the State of the Union. Nathan, what's going to be say the top one or two things that you need to hear to help I don't know, make a policy decision, have conviction on where we're headed.
Yeah, So when it comes to tariffs in particular, I'm not exactly sure what President like, Look, we're going to be seeing if there's any nuggets that President Trump says in this speech that Canada and Mexico can come back with. Now President Trump has always said this is about fentanyl. You know, I'm not exactly sure if I believe that the reason being is is that, you know, the Canada and Mexico agreement from one month ago, ten thousand troops
on the border and so forth. Prime Minister Trudeau even just said this morning that.
They've done that.
What I need to see from President Trump is this idea of is there any way that we could scale down the Canada and Mexico tariffs, Because if you remember over the weekend, Howard luck Nick was saying that potentially there's some flexibility here, and so I'm looking to see if there's any additional statements that he says that Mexico and Canada can do. But I also remind folks that
on April second, we have reciprocal tariffs. So if President Trump double downs and says, look, reciprocal tariffs are coming, I don't think you're going to see much of the way of this trade war ending anytime soon. The other thing that I think investors should pay attention to tonight is this tax reform debate, because President Trump has said certain things like, look, I don't want I want to make these four point five trillion dollars in tax cuts permanent.
But at the same time, I don't want to touch medicaid spending.
So I want to see direction from President Trump towards Congress and specifically those House Republicans, to see if he's going to put any leverage on them to support his goals there.
So, what is the status of the tax package and the various economic packages, because a lot of folks Nathan and to telling me this is when the rubber's going to hit the road in terms of Democratics responses.
Yeah, so you know, in terms of this tax passage, where we are is the House passed their budget resolution last week. Now, this wasn't a bill, this wasn't legislation. This was essentially a blueprint. And so what they said is here, go forth, and this gave instructions to eight House committees to go forth and look for two trillion dollars worth of tax or two trillion dollars worth of deficit reductions to offset the four point five trillion and
the tax cuts are going to cost. Now, there's economic growth, there's tariff money, and all of it should come approximately close. The challenge is is that even though the House says that they want to get something done in April, if not May, the challenge is how are you going to pay for this and how are you going to get the entire caucus on CREED Because if you cut Medicaid, you've already lost several constituencies. If you increase the deficit,
you lost others. So, you know, Speaker Johnson has this really tricky situation of trying to get everybody on the same page. What we're telling our clients is, look, there's no deadline here that's going to force the House Republicans to come up with a solution until the end of the year, So they have all this year to figure it out. So we don't think this is going to happen until the fourth quarter. We do think a package
will eventually come together. We do think will you know, extend these Trump Are tax cuts, But we don't think it's going to change the Inflation Reduction Act all that much. We probably don't think it's going to change medicate all that much, you know. But again, it's hard to come up with specifics because they have the rest of the year to figure it out. It's just not going to happen in the timeframe that they're currently saying it's going to.
Right and that therein lies the issue for the market. So the stuff that's negatively impacting the markets, like tariffs, Trump can do on his own and have an immediate effect. But the stuff you're talking about, like tax cuts that can have a stimulati effect on the markets can't be just done by President Trump, has to be done by Congress. So the longer that gap is, you have to wonder if it's going to be harder for the markets to digest.
Yeah, absolutely so.
If you think about twenty twenty five and think about catalysts, key things that are happening, you know, right now we're going through the tree. The trade war is probably the most important thing that's to the markets at this point because look, we're seeing it in real time. You know, we're seeing companies saying prices are going to go up. We're seeing the peso and the Canadian dollar go down.
But then if you get longer term, we have you know, we have a government shutdown coming up March fourteenth, very little impact in markets. In fact, every single time this happens, we put out notes essentially saying there's no market impact from a government shutdown. Next after that you have the debt ceiling. This is probably June July you know, obviously, if you're on the fixed income side, you care very
much about the debt ceiling. We think there's an eighty percent chance that debt ceiling is resolved with so weekend. Don't think it a lot of headline risk. We don't think there's really all that much to be concerned about. But then the next one is this tax reform debate that takes place towards the end of this year.
So this terrify argument in terms of market angst.
This is going to continue throughout the year because ultimately it's President Trump's decision on when in this trade war ends, and so there's a lot of uncertain certainties that are coming out from Washington right now.
All Rightandean, thank you so much. We appreciate that.
Nathan Dean, a Bloomberg Intelligence Senior policy analyst.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Applecarplay and Android Otto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
We're at the Bloomberg invest Conference twenty twenty five. Are down there Lower Manhattan World Financial Center now known as Brookfield Place. Lots of smart people at this conference giving us the latest thoughts on what's going on in the world of global finance, including our next guest, Robert Rubin, senior counselor at Center View Partners send me to the US Secretary of the Treasury and also former a senior partner at Goldman Sachs.
Bob, thanks so much for joining us here.
There's a million topics we could go with you, but for better or worse, Bob, I think today is going to be known as tariff Tuesday when the tariffs hit. Financial markets are really waking up over the last several days and weeks about what this could mean for our economy in terms of growth.
In terms of inflation.
How do you think about tariffs in general and maybe how they're being used by this administration.
Yeah, I think I think terriffs are exactly what you just said. I think they create a very serious risk of inflation, not only because prices of imported good will be higher, but domestic producers will be able to raise prices because their competitive prices will be higher. But also I think it's a substantial threat to growth because it can adversely affect productivity since you can no longer have access to whatever is the most efficient producer of good
and services. And as you can see from today's papers, there's a very serious risk of retaliation, you know. More broadly though, and that's a serious set of risks right. More broadly, I think there's the risk of a trade war, and trade war could be tremendously against ours. This whole thing is against our self interest. And there's one more aspect to it though that unfortunately has not gotten much front focus. But should we have treaty agreements with Maganada
and Mexico. We are now violating our commitments, our treaties, and what is that going to do to our credibility around the world, not only expect economic issues, but geopolitical interest. This is massively against our self interests.
At the heart of what the trub administration is trying to do economically is pivot from fiscally funded economy to a privately funded economy, right at the heart. No, you don't think that's true.
I have no idea what they're trying to do.
There is an argument to be made, sure they know what they're trying to but there's an argument to be made that that's what they prefer, right, less fiscal stimulus and more private investment.
And that's why Wait now, but wait a second, you say less fiscal stimulus. Yes, assuming that they get what they want in the reconciliation bill, that is to say, they get these large additional tax or the continuation of the tax cuts which would otherwise expire this year, that will substantially increase our deficits. The projections are that, independently of them, deficits going to continue to go up substantially, and with them even more so. So I would say
they're on a fiscally irresponsible and I think very dangerous paths. Well, that's a continuation of conditions have been they're making the worse.
So you mentioned the debt annual deficits. I've been on a wall street since nineteen eighty six. That's been a story since nineteen eighty six. It's probably well before. That is our scenario where we really have to pay attention to.
Yeah, I think I think we're really I think we've been at that point for quite some time. But but but the we are about we're in new territory now. Roughly speaking, we're at historic highs in terms of the debt GDP ratio. The CBO projects that they're going to go from the current hundred percent to about one hundred and twenty percent ten years from now. But add independent analysts by looking at increase or likely increases in defense
and interest rates, and it's costuil, et cetera. I think one hundred and thirty to one hundred and thirty five percent is more likely. I think it is enormously dangerous. And the policies of this administration, at least as currently projected, are going to make that worse.
So how do we fix it? I mean, Ray Dalio said yesterday the debt crisis in three years could look like a heart attack.
Yeah, I saw, I saw raise coment, So I'm not sure exactly where he gets that from, but anyway, but I think but I think it's sort of conception. At least he's right with the heart attack. I'm not sure I would use that analogy. I think Taylor and I think is more likely than raise will raise are very perceptive and stute observation observer.
No.
I think more likely is you'll have a higher interest rates, You'll have a reduced business confidence, you'll have fewer resources for public investment and national security, and that will happen over time. The risk is that at some point it becomes what Ragios said, which is a fiscal crisis. The problem is to deal with this. We can cut some expenses, but there's not that much to be cut. As a
practical matter, it is very limited. Which you predominantly need are more revenues, and the politics of that are terrible. This administration says the tariffs because the more revenues. Two problems there. One is the rift will provide revenues, but same time they're going to adversely affect growth most likely, and if you look at models, and I have looked at models of this, the net effect is very small and secondly is highly adverse with respect to growth and inflation.
And as I said a moment ago, it means a violation or that's what we're doing, a violation of treaty obligations, which then can affect our credibility around the world, which can affect us both that geo politically and economically.
Another pillar of this administration is immigration, getting a maybe a stronger handle on immigration, legal and illegal, maybe even deporting some workers back. A lot of economists will say that's not good for the economy either. Because these folks are working, they're paying their Social Security taxes, they're doing jobs that Americans don't do. It's actually additive to the economy and keeping inflation down from wage inflation.
How does that play into it?
How do you? I think you that exactly right.
If you look at the numbers over the last few years and you look at the growth we've had, which has been very good growth, some fair portion of that is because of immigration and the increase in the labor force. Furthermore, we've been having on the legal immigration side, people of all skill levels and a lot of very very highly skilled people have come into particular tech, but also across
our economy. The illegal immigrants are more complicated question. But I think what you need to do is you need to approach that not from an ideological perspective, which I think is what's happening, but rather from an economic perspective and decide what, from a cost benefit perspective is in
our self interest. And the answer to that is going to be I think at least a substantial you'll increase maybe the wrong word, but a robust policy respect legal immigration, and then an approach to those who are illegals who hear that it's based on the economic effects of.
What we do.
I am judging myself for asking you this question, but I feel like I have to because this is what people are actually talking about in terms of trun policy, and that's the mar A Lago accord idea that potentially you'll see, you know, a big deal among major economies to address the exchange rate and trade imbalances. You can have a trade war and not have a stronger dollar, et cetera. Is anything like that something that you are listening to talking about, like a Plaza accord a lla decades ago.
Well, a Plasa acord wasn't. It was a very different set of circumstances. I'm not sure what they're driving at, but whatever it is, I don't think they're going to get there this.
Way, you know.
Aside from which I think there's a lot of ideology about all of this. If you have trade deficits, and what's happening is you have an influx of capital and then it goes into investment that actually improves growth in the United States and is good for US. Now, if it goes into consumption, then eventually you build up and if course into investment, then you have additional growth and you can pay back the debt. If it goes into consumption, then you don't have the growth. Then you don't be
able to pay back in over time. That creates a problem. But whatever you want to do, you do not want to approach it through tariffs, and you don't want to approach it through browbeating other countries or taking taking advantage of what is a strong position of our economy.
You want.
What you want to do is just want to increase productivity in this country and increase savings.
AI.
You told us offline that you've been really spending a lot of time trying to get educated on AI.
What is your We've got a full minute here. What do you think about it?
I know i'll give you my views. About a year and a half ago I thought to myself, Hey, it looks to me like it's going to be really important. So about a year and a half ago I started taking to tutorial. I go twice a week, an hour each time, and I don't profess any expertise in it, but I think I've become reasonably conversant with it, and I think it's going to change life as we know
it economically, geopolitically and societally. And I think the I don't think we're already for all of the effects it can have.
Oh, what's an AI to tour? What do you is it? Some guy at your desk like going.
Over to no, no, tayb what it is?
It's extremely bright guy and we do it on zoom and he's taken me through the underpinnings.
How does it work?
And then what are the use cases?
What effects does it have?
And the more you get it, I would strongly recommend reading a book that's been recently published by Eric Schmitt and Eric Kissinger. And what they do is they go they go through what AI and when it is, but basically it goes to the ramifications the potential effects of AI. It's really enormously worth reing. This is going to shape, in my opinion, at least have profound effects on pretty much everything we do over time.
Yep, that's what we're hearing from a lot of smart people as well. Robert Ribband, thank you so much for joining us. Really appreciate it. Robert Ribin, he's a senior counselor Centerview partner seventieth US Secretary of Treasury and of course, former senior partner at Goldman Sachs. We appreciate getting some of his time talking about some of these markets.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple Coarcklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcast, or watch us live on YouTube.
Alex youl Parls we need. This is Bloomberg Intelligence Radio. We are broadcasting to you live from the New York Financial District with the Bloomberg and Best Conference twenty twenty five, bringing together financial leaders, asset managers, private wealth, private equity, as well as banking together to talk about the main issues of our time, and we have one of them here right with us. Mark Mahaney is senior managing director
at Evercore ISSI. Perfect day to talk to you. Nastek one hundred now below it's two hundred day moving average. The pressure not abating. What is put in particular leading the tech part of the selloff?
Maybe two things.
One is that it's a sector with that's had phenomenal outperformance for the last two and a half years, So in reversion to the mean trade, you revert down the stocks that aboutperformed the most. That's true, they've had phenomenal performance since the middle of twenty two since Interra straight stopped spiking. And then the second thing is, you know when the tariff issues these that's wrong. Especially the tech leaders are dramatically global companies. Half of their revenue or
more comes from overseas. Amazon has doing a lot of retail obviously from China, but you know through Mexico and Canada. Anything sort of ter if issues would upend their business somewhat, depending on how well hedged they are, just as it would for any major retailer. So I think those two issues coming together or what's derailling those stocks right now?
Mark, You've been covering the tech sector for a long time. You were there at the beginning of the Internet. A lot of people are comparing AI to the Internet in terms of the ability to transform many aspects of life. How do you package that AI story for your clients these days?
I don't know if it will be that transformative, but the amount of money that's going into them paid by companies, put in by companies that have plenty of cash is something of a tell. And then we've seen a lot of examples of what I call ROAI, you know, ROI return on investment ROAI. So you know we're staring at it right now. Look at what's happened at Meta in the last two and a half years, how they've turned around their business and both and they've dramatically improved their
services for customers, that's you and me as consumers. Our news feed has gotten to become more relevant because they've used AI to do better targeting, better recommendations. But also for advertisers, their return on ads ben row as has risen because the campaigns have become better targeted, better management, better managed. So I've seen a couple of really great ROAI examples, and so I'm not sure it's transformative, but it's definitely improving the performance of these companies and it
shows up in the P and L two. I think you can also look at Google. Twenty five percent of their code is now written by AI. Imagine the productivity improvement associated with that. And then Amazon is talking about twenty five percent lower cost to serve in its most
advanced distribution centers. I mean, that's why their margins are going to continue to go up, so you're seeing it in the P and L. So I think it it's actually a major productivity improvement, and I think this is going to play out for years we do.
As in breaking news for you this according to the Wall Street Journal that Ontario is going to issue twenty five percent export tax on electricity to the US. Canada in particular, not only does it have oil, it has a lot of hydropower, so they're going to be taxing electricity to the US. Here we go. Okay, So back to AI and the transformative part of it and how it's going to trickle out through the economy. When do you think we're going to really understand how inferencing is
going to impact us and companies? And like, when are you going to get me to buy into an AI story?
Well, I tried to lay out a couple of examples already of where these companies are deploying AI and machine learning, and they have been for quite some time. We've just had a step up like a hockey stick improvement you just mentioned Canada, hockey stick inflection up in productivity gains because with these companies. So I'm sorry, I think we're already starting to see it, and I think we're seeing.
It in I see it. I mean maybe my news feed, but well I pay for it.
Well, you want some really specific product examples, I got a really fun one for you.
Okay, into it.
You want to learn languages, there's this wonderful app called dual Lingo. You want to really learn a language, pay up for Duelingo Max, where you can use an AI generated bot to actually practice your French, your Spanish, your German, your Russian, whatever we need to learn these days. Anyway, and I think you're going to see more of these kind of little one off examples. But you know, from a company's perspective, anything that produces internal productivity, improves relations
with suppliers or customers, I mean all of that. I don't think there's one. I don't think there's one AI revenue build. But you'll see a couple of products that wouldn't exist, and I do A lingo example is one that wouldn't simply wouldn't exist if you didn't have AI.
How about for Google and a traditional search business, is AI a threat to Google or not?
Google just put out a blog that said that because of AI overviews that they're actually seeing more commercial search queries.
Really that.
Should raise all of our eyes. So and I guess I'm not. At the end of the day, not surprise. Google is a company that just consistently improved the product, made the search results faster and faster and more relevant. This just took it up a notch. And so yeah, if they can get you the result you want more quickly, especially if it's leading to more commercial searches, Google is the one company in the world that knows how to monetize commercial searches.
What do you think is the biggest misconception about AI, Whether it's like what investors thing, what's priced into the stock, or just conceptually.
I think the biggest mistakes misconception probably occurred about three weeks ago when Deep Sea came out and there was concern that this would be highly disruptive for the hyperscalers. I actually took the exact opposite view, especially if you're at the application layer, and because the infrastructure potentially.
Just got a lot cheaper.
So you're going to all that money that you've spent on capex, You're going to get a better return that money was and wasted. You're going to get a better return than you would have had in the past. So I think that's probably the biggest recent misconception I've seen.
For Meta It's had a great turnaround, as you talked about, what percentage of that turnaround is simply cost cutting versus maybe just stepping away from the metaverse discussion somewhat.
I think it's two or three things.
Stepping away from metaverse, focusing on the year of efficiency that Zuckerberg talked about the beginning of twenty three and now it's become the years of efficiency, and I think this does tie back into the AI. I mean, there has been a mind shift at Silicon Valley. It's not growth at all costs as much more of a focus on So there's a cultural shift I think is probably good. These companies are going through their middle life stages, not crisis but stages, and as they do that, they should
they should be spending much less aggressively on growth. They should be focused more on profitability than they are. But then the tie into AI is their developers can produce more code with your developers, it's just not like they need to cut people from this point on, but they can grow. They can sustain growth with less need to add headcount than they did in the past.
All right, Mark, such a pleasure, really really great to see you in person. Thank you. Mark Mahoney, Senior Managing Director over at evercore is Side.
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A Happy Tuesday Tough tape if you're looking at the equity market. We're live from the Bloomberg and Best Conference twenty twenty five. We have all the top minds and finance talking about the pressing issues, not only how to invest money, but the future of some of the significant things and the transition that we're going through, like for example AI. And here joining us on set is Ben Wren. He's founder and CEO of Sigtech.
Now.
Sigtech is a London based fintech company spun out of Revin Howard in twenty nineteen, and it basically tries to help quants and users manage the capital markets. I'm not really sure I know what that means. So luckily beIN is here for us, all right, so give us the quick pitch on what your company actually does, sigtug.
We build specialist agents these days to help people make better decisions in cup to markets, but also to automate a lot of the very high value intellectual but not very creative workflows. You know, we can reduce a lot of the things people do today, which a bit boring, you know, down from many hours to thirty seconds. I think that makes a big difference in terms of productivities.
All right, here's here's an example that I can think of for my okay to being at the printer not far from here, a couple of blocks from here, don Winny at the two three o'clock in the morning going over a bond perspectus.
That's probably something that AI can help with. So how much our asset.
Managers, generally speaking, how much are they using tech technology today help computerize it?
Is it help quantitative?
Is it?
I think in the last fifteen years there's a big trend in asset management to to adopt more and more technology. And we can see this shift in terms of, you know, people using more data driven investment processes and people hire data analysts and but Jenny and I Jenei in the last few years is a big step change. It's I would say it's it's an unprecedented, unprecedented change in in this trend, just in terms of it's no longer incremental.
There's a before and after. And you know, when we when we think about previous technologies, you know, we mainly focus on what we call explicit knowledge, knowledge that we can codify, describe, and therefore use programming language to automate. But only until now we're able to distill and automate so called tested knowledge, the knowledge that resides in our head, but we can't really so easily write it down and
describe and code. But now we can actually automate those and there are plenty of those workflows and processes, especially in financial services.
So how would you help, like a regular quant manager, like I go to you and I'm like, hey, I need your product to help me get better, faster, find better trends in the market.
Yeah, for quants, I think quants started with more number driven. You know, trend following is if you do it like in a very simple way, it's entirely number driven. But these days we are moving to a world where we have to deal with numbers and text as too modalities at the same time, which no longer just about technical analysis, but it's also about absorbing new information and turn you know,
non numerical information into numerical information. And that's something that Jen and I does really well because fundamentally, if you think about how it's trained, it has been trained on trillions of tokens of textual days and a lot of things we used to do either bespoke or preparatory fashion. This day we get out of box, such as sentiment analysis or extracting relative and information from very long pieces
of text. These sort of things actually change how qualms, even how quants approach their daily jobs.
Are the big Wall Street firms making these investments or is it more of the hedge fund community that is more receptive?
Who are your customers?
Typically?
So these days we mainly focus on buyside, okay, but we also have very big clients in terms of in terms of like commercial banks, you know, using our technology to completely change how they underwrite commercial loans. I think so I wouldn't say it's a cell side or buyside or big firm or small firm.
I don't think that's the main reason.
In terms of adoption. I would say the main reason is is the leadership. You know, when when you approach something so unprecedented, it takes some time to build a consensus inside the organization about you know, what's the strategy, what do we do? But you know that may take two months, three months, and given how fast things change
after three months is a different world. Yeah, right, So it really takes some kind of conviction from a visionary leadership team to adopt this technology very confidently.
Yeah, for twenty four hours, it can be a different investing landscape. So what's the best partnership between AI and humans? Fifty to fifty? Is it AI seventy five percent of the decision making process twenty five percent for human How do you think about that?
Yeah?
I think if I think about the knowledge work we do every day, I would describe them as most of them may be not creative, but intellectual. Right, analyze a lot of documents picking out the right information is intellectual, but it's not creative. So in the future, humans should devote almost all the time to creative stuff what makes us different, whereas the boring intellectual stuff can be automated
by AI agents. On the other hand, we are certainly seeing a big change in the user experience, the user interface because you know, up to on to this point, people approach GENI and mainly through a chetbot. You know, there's a chat box. You're typing into it to get some response. It's very nice and it's really started the error. But going forward, we are looking at a user user interface that allow human to essentially collaborate with a large
number of AI agents who specialize in different things. So how does that user interface look like, and how does that AI human fusion intelligence look like. It's a very active field of research, trial and errors.
So this sounds like from what I understand of AI, a lot of computing power requirements. Talk about the investments that you think these financial firms need to make are making or you know, maybe need to step up.
Yeah, in terms of intelligence, and the way I think about it is so it's very similar to electricity. You know that we are currently in the in the first stage of investing in the infrastructure, right and if you're going back in history in the last two hundred years and then the way we started building electric electricity grid
there's one magical number which is one percent. You know, the countries throughout the history spent about one percent of nominal GDP on building power grid from two hundred years ago in Britain all the way to today.
So the Big Tech this.
Year announced three hundred billion dollars of investment into Genini data centers. That's almost exactly one percent of the US GDP today it's about thirty trillions. So in terms of infrastructure investment, we are there, and people are building incredibly big mega AI clusters across the country now. But we are shifting toward the application lay right because once you have electricity, it's not about electricity per se, it's about what kind of appliances you can build powered by electricity.
So we are moving into that stage too, where there are a lot of investments both in terms of talent and capital into building the right applications that they actually make a big difference to the knowledge workers in term the productivity. So we are we are starting that phase.
Last question here for US, I asked Sir Mark Mahiney too, is what's the biggest misconsumption right now when it comes to AI and using it.
I think the biggest conception is I think people tend to either underappreciate its capabilities or sometimes getting over optimistic, and it's it's quite hard to get it right.
So it's too much or too little.
So I mean, I think most people are either under you know, under hyping it.
Or over hyping it.
It's very hard to get it right. But one thing is very obvious to us is that the pace of the change is unprecedented and it's getting better. Like the Deep Seek just introduced open sourced all their efficiency engineering tricks to the whole world and then everybody is going to adopt it. So all of this is pushing the efficiency frontier. So we're getting better and faster every day, so people should be prepared for the big change.
All right, Ben, thanks a lot. We really appreciate it being run. He's founder and CEO of sig Tech. It's like a Goldilock thing. It's like no one actually knows. So it's either going to change the universe or it's going to.
Ruin it center between a billion of capex.
Yeah, that is definitely not chump change.
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Out Steve Paul Sweeney.
We are live here at the Bloomberg Invested twenty twenty five conference down here at Brookville Place, formerly known as World Financial Center. I used to hang a shingle down here at MARYLN back in the day, so some good memories here. I tell you, if I were to come back on the street, Alex, again, I'm telling you, private credit might be the place I go.
I mean I went.
I went to the Chase Manhattan Bank credit training program, the best on the street.
I could go run circles around these guys. I should have done that.
Mark Clipschiltz Joints is his CEO blue Al Capital, speaking here at our conference here today.
We appreciate getting a few minutes of your time.
Mark, talk to us about blue Out how you guys fit into the private credit business, because Alex, I are just amazed at the funds that are flowing into that market.
Well, first I have to find out how to recruit you to join bacause for.
The best of the best credit training.
And I also want to say it's great to be back down here. My first apartment in New York when I moved here in nineteen ninety one to work at Golden Sacks, when it was an eighty five broad street right down that.
Street, I mean too, that's where Solomon Blows put us up back in the day, so I could say I live down here at a water view and.
All that kind of stuff.
Lovely private credit, You guys are just part of just an amazing asset class.
Well, we've been very fortunate to be part of an asset class, and you know, I play our role in helping evolve it. Look, private credit, to set the stage right is about taking long term capital from investors, and we've tried to broaden the range of people that have access to it and.
To be able to provide that capital.
To corporate users to support their growth with a view to the long term. And to be here on a day when you know the public market is so volatile, you know, in some ways is very much a reminder of why private credit works for investors, but also why it's important because look, we're doing business today. We're making loans today, just like we were yesterday, just like we will tomorrow. You know, screen rater screen blue, screen green prefer green.
I should disclose that to my money manager. I do own shares in blue out private credit. I do have some of that feel like I need to say that thank you, but not through me, It's through my money guy. So help me understand the competitive landscape though, because it feels like banks now want to get a slice of the private credit market that they had to give up, and now we're seeing some partnerships with private credit shops. How do you look at it?
Yeah, the evolving landscape with the banks is pretty interesting. Let's make a couple observations. The word like referencing the bank market I think is worth unpacking a little bit because, as obviously you will know, when we go back to thirty years ago, I started in the private markets. The alternative market wasn't called that at the time, and we actually borrowed money from the banks when we were doing an LBO as it was called then, literally from their
balance sheets. That over the last thirty years has been on a long trajectory changing from being a lender to now the banks don't lend to these companies at all. And that's been true for a while. They intermediate, right, they'll go in and they'll underwrite a loan and then sell it into the market, cut it into pieces and sell it. And so in that regard, of course, that's an alternative way to finance a business, and we could talk about the pluses and minuses of both.
It's great to have both markets.
You want to have a good, vibrant bank intermediated market. But remember what the bank cares about is can I underwrite the loan and sell it in the next sixty days. So the red screen today is dramatic for a decision for a bank to underwrite a loan.
On the other hand, word at the.
Exact opposite, it doesn't really matter to us what's happening in the market today. What matters to us is do we get paid back five, six, seven years from out. That's our decision, that's what we're focused on. So in that sense, we really live in kind of with different incentives and serve a different function. However, to the good point, the banks are saying, okay, but turns out private credit really does work.
Right.
They spent a lot of time criticizing the market and trying different ways to maybe scare up the boogeyman, but now they in fact are actually launching funds to do private credit so I'd start with, look, if can't beat them, join them, and we that's great, We'll take the endorsement of the market.
It's a big world credit, it's a.
Multi trillion dollar asset class, multi trillion dollar marketplace. We need vibrant available capital and having bank.
Launch a fund, you know great.
There's a lot of funds in the world, and some of those will be done in partnerships as you noted, and some will just be standalone efforts, and some will just continue to stay the course and do their traditional underwriting.
What's a typical deal for blue out these days?
So a typical deal for us. And this has been true for us from the beginning. Obviously the attributes and the size have changed. But over the last roughly ten years that we've built Blue Owl, our reason to be was to come in and say, look, we want private credit to become the lender of first choice as opposed to the lender of last resort, and private credit, if you go back before that time, was really a lender of last resort. It's where you went if you couldn't
get money from a mainstream source. As I said, I was at KKR for twenty one years and during that time. I don't recall ever working with a lender that just was the once you did if you were a mainstream borrower.
But the idea for Blualla.
And today so to answer this question has been to create actually a real value proposition in having a partner to really work with a long dated capital pool for someone who has long dated needs and long dated ambitions with their business. So our typical company today often backed
by a private equity firm, a sponsor. Sometimes it's just private family owned businesses or other corporate enterprises, but typically a private equity backed business and they're buying a very large company and they're looking for a long term partner to buy it. So typically when we do a transaction, we're lending maybe forty percent of the purchase price and the buyer is putting up sixty percent of the capital. So that's a very very low leverage structure compared to what people are used to.
If you go back again ten years and twenty.
Years, and the company today, our average company in our portfolio has over two hundred million dollars of ibadag. I mean, these are big companies today, and that's been a dramatic shift from ten years ago when it was really a market for smaller businesses.
So let's get to that five to seven year time horizon, because ten years ago that's the exact same conversation I'd be having with private equity, right, and then we see where things get tough and things get stickier, when vintages don't work out or there come under different times of market stress. How does that apply to the credit space?
So I think it applies for sure in the sense that every market evolves. In every market we'll have it's maybe slightly higher and lower moments, but there's an important distinction. Okay, at the end of the day, private equity, if I kind of use this metaphor, private equity, which is a business I personally participated in for decades, is about mining for gold. Right, It's about going out and maybe in our simplified parlance, might call and to get rich strategies.
How do you out there and shoot the moon on great returns? So they're mining for gold. Our business in price credit is to be the picks and shovels provider to those miners. So we're not trying to find a big gold vein. We're not betting on the price of gold what we're saying is if the miners are active, and miners in this case would be any corporate user of capital, so they are always active, we want to supply them, and we take a less risky position, and
we expect a corollary attractive return. So on the one hand, of course, every market evolves, and I want to suggest anybody that lives in a vacuum. But the purpose of our strategies and the purpose of private credit from private credit from an investor's point of view, is to have something that's much more about downside protection, stability and income generation through times of uncertainty, which is a bit why
I say this sort of red environment. Today is actually a good time to have the conversation because what we're trying to build our portfolios and successfully have down over one hundred billion dollars of loans, and our running loss rates have been eleven basis points, and I think it speaks to the idea that this is about durability and predictability when times are uncertain. And I think it's probably safe to say today everyone's looking around saying, gosh, it feels uncertain out there.
Mark, we got about a minute left.
What do you say to those folks who say, as the business evolves.
The dollars get bigger, regulation is needed. What do you say to those folks.
Well, we're a highly regulated business as is, so you know today, Look, we're regulated by the SEC. We're a public company as a manager, we have public vehicles, we have a lot of regulators we work.
With constructively, happy to do it.
I don't think if what we mean by more regulation is more direction from sort of a central source as to what you should or shouldn't lend money to Remember, when we look back where the sources of problems have been, they actually tend to be in the regulated institutions, not outside.
Even recently.
Of course, everyone remembers the financial crisis, but don't forget over the last few years as private credit has thrived. One of the moments we worked through was the run on the bank at Silicon Valley Bank. So you know, what's old is new. If you have one day capital and you do long term things with it, that's challenging. We have long term capital to do long term things, So I think at the end of the day, look,
we don't touch depositors. We're not systemic. So it's a nice compliment to a traditional banking market and a public marketplace.
Great stuff, Mark, thank you so much for your time.
Market lipshoalw It's Blue Out Capital co CEO talking about the private credit business and what a growth business it has been for sure.
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