UBS's Harford: We're In 4th Inning of Consolidation

at Bloomberg dot com. Well, the asset management business is certainly facing meaningful headwinds to its business, including the move the passive management and pressure on fees as it looks for additional areas of growth. To help us get up to speed on what is going on with the asset management business, we're pleased to welcome Sunny Hartford. She has a head of Investments for UBS Asset Management. She joins us here live in New York. Sonny, thanks so much

for joining us. Thanks for having me so we know about fee pressures, we know about to move the pass it. What are the big challenges that are you're facing right now at UBS, Well, I think they're not unique to

u BS. I think the entire industry, as you say, Paul, is going through a massive shift and change and how we deliver value to our clients, the transparent see that is apparent and delivering that value UM and the opportunities so fortunately, demographics and some of the world UM tail winds, if you will, in terms of the number of retirees, the fact that sixty of UM retirees say that they will have to invest and live on their investment proceeds

as opposed to their portfolios themselves. Going forward, there's a tremendous amount of money that will need to be managed UM and opportunities for us that managers to add value to their clients. Headwinds against us, of course, are the transparency and the passive products that are there delivering what

in the last decade has been really terrific returns. But I would suggest that the volatility that we're seeing now UM, the change in the demand for alternative products, for example, the interest in markets like China where passive doesn't do nearly as well, where you need some real expertise, provide opportunities for those Asset managers are going to be prepared to take advantage and bring those skills to bear. How far along in this consolidation are we that's a great question, UM.

I probably in the fourth inning. If I use a baseball analogy, right, I think we've got a ways to go. But I think who is going to survive and who the winners are is not as simple as the assets under management. Okay, so that's my question. What will the asset management industry look like, say ten years from now,

for in the fourth inning of investment firms consolidating. I think those that change to go with the market uh and can affect real change in their technology in their use of data overstated statement, but it's still a true one um I think will survive. But those that really don't think they need to change and they can stick with the status quote might not be here. I don't think it's as simple as saying a trillion dollars assets under management. Is that scalability and that level that you

need to be at. I think you can have a boutique firm that focuses saying on alternatives or focuses on the liquid products that so many are demanding right now. I think if you can deliver solutions multi asset where you can pull out beta, do that very cost effectively for a client so they don't go elsewhere for that, and then add an active overlayer, drivetive overlays something too specific to their outcome demands or where their solution for

their problem happens to be. Those are going to survive. But that's very, very different than what the traditional lasset manager is doing today. So what is in your mind what the traditional asset manager is doing today, presuming that their money can come in and stay, that they don't have to be competitive on fees, that they don't have to do anything different than what a passive can do for them. UM, I think it's problematic because at some point when the fees are as high as they have

been historically. UM, if you can get close to that, you don't have to worry just about out performance. You're not just trying to beat the passive index. You've got to do more than that too, you know, make sure that you're getting your fee and you're earning your fee if you will. And I think the the onselte of technology where so many individual investors, even institutional investors, can do a lot of this stuff on their computer, and they can play with e t f s and they

can play with passive products to build portfolios themselves. There's a lot of uh intelligence if you will available to these folks. Now you have to do something different, and it has to be the unique brain power maybe of your investment teams to deliver something they can't do on

their own. Just to stick with some of the things that have been in the news recently, talked about some of the big tech companies that have come under a scrutiny both by regulators and individuals worried about privacy concerns. As head of investments overseeing six hundred and thirty four billion dollars, have you personally pressured anyone or would you change allocations as the results of some of these regulatory issues.

I have not. I have a really good team and I'm going to let them allocate as they see fit. But I will suggest there's a short term view on tech, which would be around things like the regulation and whatnot, and then there's a long term view. Technology is where the world is going. Everything that isn't tech driven is going to be. I have three children heading into college. I hope they all study computer science and math and programming.

Glad my son played well at Minecraft. Right, we need to be focused on tech so um that the long term play is to be to be into that sector and into it big. But you have to pick and choose, and I think there's timing and that is one of the dynamic natures of what you do. An active management is figuring out how to play mean Google. No one would have seen that coming necessarily long term. Would you be a a Google buyer? Of course you would, But should you be coming in and out based on the

things that are hitting it as an industry in the meantime? Absolutely, Sunny Harford, I wish we had an hour with you. Thank you so much for being Thanks for having me. It's great to talk to you guys. Sunny Harvard has head of Investments at UBS Asset Management, over seeing six and thirty four billion dollars, talking about some of the

massive changes underway in the investment management industry. We are broadcasting live from the Bloomberg Investor New York conference at the company's headquarters here at seven thirty one, lexing to in a big question hanging over all of the attendees here is what is going on with trade? Why are we seeing such tensions rising at this point in escalating at this moment in time. I am so pleased to welcome somebody who worked with the World Bank for many years.

Somebody who worked at JP Morgan UH and founded her own firm. We're talking about Asfana best Loss and she is founder and chief executive officer of Rock Creek Group. Joining us here, Assana, it's really interesting to me that these trade tensions are ramping up now why. I think it's very interesting what you said. Just historically, I was teaching international trade a long time ago at Talksford many many years ago, and I was still a student, and

it's the theory of trade was about comparative advantage. That we all sell goods to each other based on comparative advantage in the world will be a better place. Where we are in a very different place today. And I think what has been really interesting is how in the last twenty years China has um basically been incredibly smart in taking advantage of trade laws to grow its economy and it's trade with the rest of the world. Now where we are today is a world where UM China

has a lot of unilateral advantages one way UH. And therefore, I think we look at the US right now and a lot of the presses about the US China trade war, but if you look at it that same sort of quiet wars going on in Europe, it's going on in emerging markets where really the same issues are in existence, and so U it's the one topic that seems to

be unifying the world against China. What do you think China is really looking for as they sit down with the United States or not sit down right right right now in terms of trade, um, what do you think is realistic from Chinese perspective that they want to get

from the US. I think China would, in an ideal world, do things the way they have been doing for a long time, which is make the right sounds, make the right noises, imply that they're going to agree, but continue with the way they have always done things, which is their way. And it doesn't appear that that's that is that can be the status quot aly longer, it's exactly. I think they tried that in the last meeting and

that did not work. I think also trade seems to be covering also intellectual property rights, which is sort of a huge topic obviously for the US UH, but it's kind of subsumed when we talk about trade. I think that a lot of the discussions that are going on between the leaders in China and the US is about that topic as well. So your background is fascinating because if you advised central bankers and for administers, you've invested

assets on behalf of the World Bank. And I'm wondering if there's an irony baked in to these trade tensions that the more they heat up, the more likely it is the central banks will cut rates, and that will be great for emerging markets, It'll be great for riskier assets on a longer period of time. What do you say to that argument, um, I think we are now at the point in the um in the U s economy where it might be too early to to start

cutting rates. Um. Given where we are with employment and given where we are with the rest of our economic growth, recession is a possibility. We're starting to slow down. But as we heard also this morning from Governor Powell, he's being very careful. He's watching the same thing everybody else is watching. And he did not, at least I didn't hear him commit one way or another. He was very

careful in what he said. I think a lot of what the market is thinking is that to rate cuts in the US are baked in, and uh, it seems to a lot of people. Uh, you know, there is

sort of a theory being floated out there. Why are we having these discussions about trade UM and having the tweets on Mexico having having the trade war with Europe going on at the same time as with UM with China, And would that be something that the president might be trying to get interest rates down a little faster because since the Fed is an independent decision maker, but would lower rates? If the Fed does cut rate, will that be supportive of equities at this point in the credit cycle.

It could in the very very short run, But it's I think if you're looking at UM, why UM? Why UM? If you are a presidential candidate, you would want the rates to be lower? Is that Obviously it will impact equity markets, but also it's a very big positive marks for other things in industry and people who are hiring UM. So it helps UM hiring policies, It helps the broader investment income by companies, and of course UM equity markets which are all interconnected, one on the one with the other.

So I've sound is there any call here? I know you're from new firm. Rock Crey Group has an interest in emerging markets, but given all the trade uncertainty, is it too risky to kind of go to emerging markets these days? I think emerging markets still are among the best places for value you and for investing. The reason for that is that two things. One is growth is fastest in emerging markets right now, whether we're looking at

financial sector, energy sector, technology, etcetera. And a lot of the things that are holding us back here, you know, whether it's our infrastructure, whether it's our banking system, whether it's our payment systems that are very rigid and very old, um and very underdeveloped. When you go to emerging markets, they're setting all these things up there, not just building roads, they're also setting up payment systems. So if their banks can be um leap frogging and jump ahead, UH, they

will be very interesting. And there are actually very interesting places to invest, whether it is an education company in India, UH, serving the rural poor by the way and making returns um. So, I think what you will see in emerging market is a move away from just sort of a flow of assets into ETFs and much more looking for really good local companies UH that have potential growth outstanding Asana bush Laws, thank you so much for joining us. We really appreciate

you taking the time here. Asana is a founder in chief executive officer of Rock Creek Group. Joining us here live in Bloomberg. Well. Earlier today, FED Chair Jerome Powell spoke, and traders heard what they wanted to hear. He said, uh, that he remained open to anything that was necessary to support the economy. People took that as either a rate cut or holding steady. Basically, Marcus had a little blip and then went back to where they were before. Here.

Did it pass through all of the Fed speak we've been hearing and what that means for federate cuts? Chris Low, chief economist for FTN Financial, joining us from New York. Chris, you have almost three decades of experience watching them markets and listening to FED officials. What do you take from Fed chaired room palace comments today That they remain open, that they're they're watching, that they're paying attention, that they're listening to markets. But ultimately the economic data is what's

going to drive their decisions. Yeah. I think that nails it. Really. Uh. Most important thing is that the door at least is open to a discussion. I think the FED has gotten into a funny place in the last couple of years where they feel constrained in what they can do in these meetings based on their own commentary, which you know, establish as expectations for the meeting in advance. Uh, we're not expecting a rate cut in June, because no one

other than Jim Bullard is talking about the possibility. But you know, if you look at the yield curve, they're way behind the curve like I've never seen in the thirty years been doing this behind the curve, which means if they don't cut at this meeting, they'll have to cut it one of the next couple of meetings. And in the meantime, we heard from Jim from Charles Evans this morning, he's the Chicago FED president, told CNBC, I just don't see what the market sees, and you know,

I think that pretty well sums it up. Although in fairness, Chris, I'm sorry, but it's really interesting going because this is another instance where you can hear what you want to hear, because Charles Evans, Charlie Evans, he came out and he said, we're not seeing what the market seeing, but the market may be signaling something important to us. We're paying attention. I mean again, you can take what you want to take from all of these comments. No one that that's

exactly right. But at the same time, how can they not see it? You know, one and a half percent inflation here, inflation falling in China, falling through Asia, falling in Europe. UH. Of Australia cutting rates this morning because of fallout from the China slowdown. The global p m I, according to Bloomberg this morning, fell below fifty for the first time in years. Uh. You know that there is a hard slowdown, partly because of you know, the trade

fight that's been ongoing for a couple of years. It's very unlikely we're going to get a resolution at the G twenty UH. And the Fed has sort of raised the bar right low inflation is no longer enough reason to cut rates. Mary Daily, San Francisco FED President, suggesting yesterday the bar is preventing recession and she doesn't see a recession yet, so no need to cut. So you

wonder this happened to the two percent inflation target, right? So, I mean so one of the criticisms on this FED is that it has been beholden to the markets are being led by the markets. Do you think that's a fair criticism. Uh? No, I think what what's going on is there behind the markets. So, for example, when Evans said, hey, you know, consumers are still in great shape. We had real income growth X transfers in the first quarter of

point one percent at an annual rate. We had the weakest consumption since April, retail sales for negative what's great about that? I think unfortunately they're just not really paying attention. Uh. And as a result, they're not being led by the markets so much as that the markets beating them over the head until they pay attention to the data. So, Chris, you know you've been an incredibly accurate forecaster of where

industrates are going to go. And right now we're looking at the market pricing in an eighty eight percent chance at the Federal Reserve will cut by their September eight meeting. I'm looking right now at a two year yield at one Where do you see that two year olds going by your end? Well, you know what's what's really interesting is the move today when uh Powell opened the door, as you said, to a discussion of the possibility of maybe thinking about right uh And and we see the

two year yield is eight basis points higher today. Um. Now, that's that's partly reflecting, you know, a four hundred and twenty five point rise in the Dow. But both of those together, along with the move that you see in oil in gold, is the market saying okay, at least they're thinking about it. That means recession risk is a little bit lower. Uh. I think if they do actually cut, than what we'll see is that market interest rates will start to rise. They probably have to cut fifty to

effectively move move the market in a significant way. Um, But I think fifty basis points this year now is is a pretty reasonable expectation. Paul. It's so incredible the cut rates, which will lead to higher rates. That's right. Well, and think about it. The refusal to cut is why rates are false. Right? Rates so so so, Chris. I mean, you know they've been talking about that, the low inflation that you mentioned earlier, the fet is insisting that it's

not real, that it's transitory. What do you think forms the basis of that argument? Well, I think it's actually, on the face of it, it's kind of reasonable. What they do is they divide up all the thousands of components that go into the price measure into cyclical and a cyclical things. Uh, the price declines this year are mostly a cyclical. The problem with the logic is it falls apart if you look back. We've got seven years now with only one month at two per sent Everything

else is below. And last year the cyclical components fell while the acyclical components rose. The average is running at about one seventy five. The target is supposed to be symmetrical at two. So I understand where Powell is coming from, but I think it's it's kind of a short, uh decided argument, right, Chris Low, thank you so much for joining us. Chris is the chief economist for FT and Financial based in York, joining us on on the phone. Yesterday.

The NASDAC in particular was tumbling, and it wasn't because of trade concerns. It was because US regulators were said to be setting their sights on a big tech for possible antitrust lawsuits. Join us now to discuss what those could potentially look like. Is US or Chris Sakers? He is the professor at Cleveland State University focusing on the law. Professor Sakers, thank you so much for joining us. You know, given your experience, what would a potential antitrust suit against

Google or Facebook look like? Yeah, Hi, thank you. Um So, Uh, let me just say, first of all, I think everything is so hard to predict uh in this news that's come out over the weekend. Um. You know, I've been watching this law for a long time, and it used to feel like the agencies were at least a little bit predictable. After the last couple of years with the Trump administration, I have found the agencies uh pretty inscrutable, pretty hard to say exactly what they're gonna do or

where they're heading. Um, on these cases, let's just say they do bring an antitrust case. I mean, I presume we're looking at what in in u s antitrust law we call monopolization case, meaning, uh, the government would sue Facebook or Google or another platform claim that through unilateral conduct, just through its own, uh deliberate conduct to exclude other competitors,

it's gotten a monopoly position. Um. You know. The uh so far as I'm where, nobody knows exactly what the government's theory against say, Google would be, but everybody's presuming it's the same theory that the FTC wants looked at with respect to Google, that the European Commission UH looked at and actually found found a violation on UM, and that is that Google tweaks its search results to disadvantage its own competitors. So I think that's what it's going

to look like. UM. I don't think anybody could really say right now whether a lawsuit like that could win, but probably most people agree that it's UH somewhat unorthodox. Would be a pretty pretty tough road to home. So, Professor, one of the issues that I know investors are are asking is just one of timing. It seems historically the U s regulars have taken a very light touch to US technology, whereas maybe some of the European counterparts have

been more aggressive. Why do you think we're getting so many calls from so many different areas within the the US to take a look at some of these big tech companies. Yeah it, UM, I mean again, it's it's kind of a mystery to me. I don't know what's going on. UM. I humbly believe that there may be a bit of an overreaction to news over the weekend. UM. You know, the government itself has not said that it's investigating anybody, that it's even begun an investigation. Um, And

I'm just not sure what's going to happen. But there's no obvious reason that it should be these suits, uh now, particularly given that this administration really hasn't brought much anti trust enforcement against anybody else. So, Professor Sagers, you've testified extensively about anti trust cases in front of Congress and different regulatory authorities. What would you recommend? I mean, do you think there is a legitimate anti trust case that

could be made, in particular against Facebook or Google. I'm looking at Facebook shares today down an additional one after a seven and a half percent plunge yesterday. Yeah, excellent questions. Um, I mean I personally first, I mean, the real answer to your question, I think depends so much on what the evidence actually shows. Um. You know, it's it's easy for all of us to look at news reports and to uh, you know, uh judge these companies on what

we think we know from reading the papers. But a case against these companies is going to depend so much on what's found in the details. Um. So, I I just don't know if if these lawsuits should win or not. UM. I personally applaud the government if if it really is serious about doing this, which I think is still an open question. UM. But assuming the government is is UM serious, I applaud them for trying to bring life back to our monopolization law, our law against unilateral conduct, which is

almost completely unused in American law. UM. I think that UM. If I had a criticism of the agencies, it would just be that, UM, if they're serious about enforce in the antitrust laws. There are a lot of targets out there that would have been easier cases and the government government didn't take them. UM. Again, I think the Google search theory is going to be a tough road to hoe. Any kind of claim against Facebook on US antitrust law is probably going to be fairly challenging. UM. So I

applaud them, and I hope they go for it. I hope they find good stuff. At the very least, they ought to be investigating these companies and if they find something, they should sue. UM. I'm not exactly sure why they picked these companies now, so Professor Sakers, one of the Internet things that I noticed was that it seems to be the Department of Justice and the Federal Trade Commissioner kind of divvying up big tech. You take this company, I'll take that company to look at. How common is that?

Uh So it's uh, it's I mean, you know, deciding who's going to do what, um is very common and it's it's kind of necessary, but it comes up most often in the so called merger review process, uh for for technical reasons. It's a little unusual to see this negotiation where uh they're slicing up a whole bunch of different companies that they're not even investigating yet or apparently aren't,

so nobody knows exactly what's going on there. Um. My personal guess is that the news that's been leaking um and again I think it may be a little bit overblown. Um actually really just has to do with with this initial turf turf division negotiation over over who's going to wear the badge um, and that really maybe all that's happening here. It may have been necessary for the agencies to do this because they happen to have been getting

a lot of complaints. UM. Uh so. Um. Well, but Professor, it's interesting to me because, on one hand, it's going to take a long time for these regulators to actually push out any antitrust cases. On the other we did see out of Apple, they already are making some changes to their iTunes platform and saying that they're going to do other privacy measures, take other privacy measures in order to sort of get ahead of these So how much will this shift business just in general because of the

threat of regulatory action. Yeah, it could be serious. I mean, you know Apple's move it's I mean, it sounds like Apple may have changed Instagram, I apologize it iTunes, um, mainly just because that business is kind of petering out. I mean, music is going to streaming video. There have been a lot of complaints about um iTunes over the years. Um. But but who knows. I mean, I think that your suggestion is a good and correct one that these companies

are probably being pretty careful. Um. They and they will be more careful perhaps now that there apparently is serious government interest. Um. And what that will mean, I think is that they're going to talk to Anni trust lawyer. Is kind of a lot like whenever they're doing uh, significant new business policy changes, introducing new products or changing the ways their products interact with other people's products, that sort of thing, anything that could be the basis of

a claim of exclusion. Probably they're gonna get an anti trust lawyer to look at it, so you know, more caution is is likely, and I personally think that seems great. Chris Sakers, thank you so much. Chris is A. James A. Thomas, Professor of Law at Cleveland State University, Lovely, Cleveland, Ohio. Thank you so much for being with Thanks for listening to the Bloomberg PANL podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer.

Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa bram Woyds. I'm on Twitter at Lisa bramw wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio