Bloomberg Audio Studios, Podcasts, radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple Corplay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Alex feel here alongside Paul sw We need this a Bloomberg Intelligence Radio. We are broadcasting to live from a Bloomberg Invest twenty twenty five conference in downtown Manhattan. A lot of the action, though, is still in the economic data, in particular ADP. We also got ism services and also what's going to happen with trade policy. Earlier today, US Commerce Secretary Howard Lutnick spoke with Bloomberg, saying maybe a potential a potential shift in TEARFF policy.
The President is listening uh to the offers from Mexico and Canada. He's thinking about trying to do something in the middle. He's thinking about it. We're talking about it. We're going to what I leave here, I'm going to go to talk about it with him, and I think early this afternoon or this afternoon, we expect to make an announcement. And my thinking is it's going to be somewhere in.
The middle, all right. That was Howard Ludnik.
We also are hearing from Peter Navarro on CNN talking about trade as well, saying Trump is right, there's going to be some kind of tear uf disturbance, and all of this just means a little bit more uncertainty within the market. Michael mcckeb Bloomberg Economic and Policy correspondent joins us. Now, Mike, is that uncertainty showing up in some.
Of the data not yet?
Interestingly enough, we've had divergent data today. The ADP report comes in a little light in terms of private sector jobs, and the composition of jobs is a little strange in that report. But the ISM services PMI comes in much better than anticipated, and new orders were up, which is the converse of what we saw in the ISM manufacturing number.
So a little reassurance for the markets, which sort of have been bouncing around today, but in general have taken a little encouragement from the idea that perhaps the economy is not falling off a cliff.
Hey, Mike, I see the ISM services prices paid came in higher than expected and higher than the last period. Does that suggest maybe some inflation seeping in to the economy there.
Well, maybe more inflation still in the economy as opposed to seeping in now.
It's a little hard to separate out because we don't know.
This is a sentiment survey, and we don't know how much that sentiment might have been influenced by all the tariff talk. But tariffs generally don't hit services in the same way they hit goods, and so this may be just more reflection of the cost of raw materials, maybe commodities that are out there now. We don't know, but we have seen the ism services prices paid index up for four months in a row, so it does seem that we still have some inflation out there.
The Fen's going to have to address.
Yes, yes, inflation address.
And that brings us to your news making interview yesterday of a New York Fed President John Williams talking about how to address the inflationary impact from tariffs.
Can walk us through some of the highlights.
Here, because that was definitely one of the standouts yesterday at Boom.
We're going to best.
The Fed's been waiting for quite some time to have any kind of comment on what Trump's policies would be because he didn't know what they were. But now that we know, he's got these twenty five percent tariffs on maybe some carve outs coming this afternoon and more coming. As Secretary Lutnik emphasized over and over again this morning, the FED feels a little more unconstrained. John Williams talking
about the fact that tariffs are inflationary. Now they don't know how inflationary because they don't know how many tariffs are going to end up being imposed, at what level and over what period of time. But he did suggest that that's reason for caution and that the Fed basically needs to stay on hold for right now.
We're going to get some labor data MIC over the next couple of days, with initial jobles claims tomorrow and then nonfarm payrolls on Friday. Still too early to see any effects of dose impacting the numbers.
Well, we might actually get some numbers this week because the federal government employees have their own category within jobless claims.
It's funded separately, and so.
It's two weeks delayed in terms of its release and should suggest that we are now at least getting some jobless claims from federal workers who've been laid off, so we would anticipate that. I wouldn't anticipate much of anything showing up in the payrolls report on Friday, because that encompasses the pay period that includes the twelfth of the month, And it really was Valentine's Day, February fourteenth when the
layoffs really started. If you remember the late night time from Elon Musk to so many federal.
Workers, Mike, before we let you go, my favorite question, as most of you know, he always gets to send me charts in the afternoon, like the one nerdy thing that Mike's paying attention to. What's that one nerdy thing you're going to be paying attention to.
Well, I'm looking at the ADP numbers, and it's unusual that we see service industry jobs much lower than the goods producing jobs. In this case, it's the goods producing. That's very odd because we've been talking about how manufacturing is suffering, and yet they had a big increase in jobs during the month according to ADP, of eighteen thousand jobs, and construction was up.
By twenty six thousand.
But what have we been hearing for weeks now about how bad the weather was and how do you have a lot of construction going on when the weather is that bad, so some unusual numbers. Also, of educational health services is usually the biggest job creator, and ADP found a twenty eight thousand job loss there. So I'm not sure about the makeup of the ADP numbers, but we'll get a better clue on Friday.
All right, My thanks a lot, really appreciate it.
Michael mcke Boomberg Economic and Policy Corresponding, joining us now.
Looking for his nerde chart later on as well.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Joining us now at the conference on site is Katie Fogerty, chief financial officer of Shakeshack. Katie, thanks so much for joining us here. Love to get a sense everybody's talking about Harris and what it might do to economic growth, what it might do to the consumer. Who is the consumer shake check and what is that consumer telling you these days?
Great? So you know who we think of as our consumer?
We have you know, went out there and we have this amazing real estate strategy, real estates strategy, and what we've done is we've put these great community gathering places in a lot of these you know, great communities, and where we have attracted is just really kind of more of a I would say, you know, a more a middle income to higher income guests, and we've seen that guest be able to weather a lot more of the economic headwinds than other, you know, than the low income
consumer has been facing. And you know, what we continue to see is by leaning into our strength, which is delivering a fine casual experience. So we think about kind of bringing all those great guts of fine dining, elevated food, premium ingredients, doing the things that you know, other you know, fast casual and QSR just are not willing to do. Putting that an amazing hospital or hospitable environment and getting
great guest service. That together has been a winning formula to help us outpunch what has been you know, some consumer headwinds that has been facing the industry.
And we are going to continue to lean into that.
It's it's helping us to different and kind of pull apart from the pack, and it's it's been our strength.
Where are our samples? I know, I mean what is this about?
Uh, you know, who doesn't want to burger at ten am on a Wednesday so close to open?
So so who.
Are your competitors then? So if you're a middle and high end consumer, who would.
You say as a competitor, Yeah, I mean we sell burgers, shakes, fries, I think the best chicken sandwich out there in the business. We view our competitors as being, you know, anybody who you know you might consider having lunch at or dinner at. So that is a pretty wide array and it also can be you know, food at home. I mean that can also be in you know, in an area where
you would have some share of stomach. So, you know, for the vast amount of you know, of our restaurants out there, we are competing with a lot of people. Now we are differentiated and we are kind of in that category of one in the fine casual sector. But at the same time we know that, you know, people have lots of different options where they can go out to eat.
Okay, there's concern out there about inflation. If inflation were to come into your business, where would you see it and how do you plan for that?
So we actually have been navigating through inflationary pressures for a number of years here and doing so quite successfully. I'll say, you know, we've had wage inflationary pressures in COVID.
It was actually very hard to get.
Restaurant talent in our restaurants to staff and to deliver our food. It was not a desirable job at the time, and we had we raised wages and had a very competitive and compelling opportunity for our team members. We also introduced tips as a way to compensate our team members as well and give them added benefit. And then last year with you know, with California Fast Food Wage Act,
you know, we paced through that as well. We've also had on the food side, you know, inflationary pressures that have been we've been navigating for a number of years as well. But through all of this through leaning in on our strength, which is you know, again delivering that elevated you know experience to guests, giving them that you know, twenty five dollars you know, black truffle Burger that we were actually selling for ten dollars and giving them that
great value. On that side, we've been able to both grow sales and grow margins at a faster pace. Just even last year, we expanded our margins in the fourth quarter by three hundred basis points.
So I've never had Shakeshack but it looks I know, I know, but it looks like I may be able to now in Delta.
Yeah.
So, and this really also goes to your expansion plans. Delta is going to offer Shakeshack Burgers on additional domestic roots this year, and that could expand international flights next year.
Talk about these expansion kind of plans.
Yeah, I mean, if you look at Delta at its core and what this does, you know, this is an opportunity where we're able to surprise and delight our guests, give them that thing that they weren't really expecting. You know, you have your expectation for what airline food is like, and you know this this opportunity to get a Shakeshack burger and our great we have a special brownie that we've made for Delta as well.
Through this program.
People are just absolutely elated at the opportunity to have that on their flights, and so much so that it's exceeded our internal expectations.
We're rolling it out to more airports.
You're going to be able to get it, you know, New York, Atlanta, a number of airports, and that will
just you know, probably continue to grow. And you know, if you look at that opportunity, and I can make so many different parallels to how we've gone into an area where the consumer had a certain expectation and we just really raised the bar on it and out punched above our weight and transformed what people were expecting from you know, it's airline food, if it's roadside food, and across the board.
Katie, in terms of growth, how many locations do you have today and what's your outlook for the next year or two.
Yeah, we have, you know, across both our company operated and our licensed business. We're you know, about five hundred and fifty five hundred and seventy locations, but we are growing very fast. We're going to add another forty five domestic company operator shacks this year, and we're going to open about thirty five to forty licensed shacks as well. Those licensed shacks are ones that we operate, that our
partners operate. We have locations in the US, but most of that is kind of outside of the US and Asia, and and we have UK, the Middle East, Mexico and most recently we opened up in Canada.
Well, great stuff. We really appreciate it. We know you got to run, Katie.
Thank you very much, next time, snaxt Katie Muggerty, Chief financial officer at shake Shack.
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 Up. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Alex Steel, Paul Swiney live here in our Bloomberg invest conference at Brookfield Place in Lower Manhattan. Lots of great guests we're just grabbing. As soon as they get off the stage, we grab and put them in the hot seat. One of them is Chris Heisie, chief investment officer at Bank of America Private Bank, and I love that branding right there. Somebody thought of that, got you paid that for that? Chris, talk to us about the market here.
There's a lot of cross winds coming in aside from some of the economic data like we received today, aside from some of the corporate earnings that we have to deal with. A lot of cross winds coming out of Washington, d C. How do you guys at the portfolio level deal with.
That novel statement here I'm about to say, which is, you know, market hates uncertainty. We've seen it. There's a lot of uncertainty. It's across the board. It's geopolitical risk, it's policy in general. It's now starting to seep into the level of growth. You saw a little bit of soft patch data. We believe it's a little exaggerated, frankly, because a lot of it was weather induced. I know it sounds like an excuse, but it's particularly true in
the Northeast. But when you're putting all this together, one thing that hasn't changed is the fact that corporate earnings are still going to be very attractive and above average. Frankly, you could see double digits. Some of Wall Street has been bringing them down, but that's pretty natural.
So overall, we're.
In a volatility pothole which is forcing some repricing, and that's very healthy. And it's easy for me to say because it's only a five percent pullback and it could get to a ten percent correction, but that would be a buying opportunity in our opinion.
So the narrative of maybe you want to be putting money into areas that will be stimulative Europe, for example, Germany most likely, China versus US.
Hold for you, it does. It does.
It's at the top of our watch list for one very important reason. They are now serious about a level of stimulus.
It wasn't the case.
Before both of them.
You can make the argument right both, Yeah.
That's right.
And when the US was providing the fiscal stimulus, you saw what happened. Now, granted it created a deficit for sure, but now you're starting to see easing financial conditions across Europe. At the same time, you're seeing this willingness now to add fiscal spend.
To get the growth. So it's a little bit of a normalization.
I want to get two over enthusiastic about non dollar assets, but certainly it's the.
Top of the watch list to upgrade.
Just breaking across the Bloomberg terminal right now, red headline Canada won't end tariffs unless all US tariffs lifted. That is according to an official. So again the news keeps flowing here. So as we think about the US equity markets, one of the risks that gets called out quite frequently Chris is just this concentration risk. It's just too over concentrated some of these big cap names. As you talk to your portfolio managers, how did they deal with that?
Most portfolio managers cannot own up to the level of what the index is in any one name. So when people say portfolio managers are underperforming or active managers are underperformed, well, they can't participate at the level that the index can't. Now we're now switching into a marketplace that's rotating rebalancing. I'd like to use the word rebalancing because the rotation would make you think that it's going to happen with with.
A snap of a chalk line. It's from here to there.
It actually applies that you'd be like selling tech and buying Europe.
It's the one for one exactly.
And I think it's just really portfolio construction. To your point about what do you do with it? I think you have to look for three things that have been driving markets and it's now switching to other parts. It's earnings momentum, price momentum, and news momentum.
Those three things hit together. Where are they hitting?
Some defensives and frankly, some cyclicals and away from the big leaders.
I wouldn't be short the big leaders.
Though, so it's not short the big leaders. How do you protect yourself from all the noise?
Very hard to do. You have to take emotion out. You have to be disciplined. How do you be disciplined? You have to have a process, you have to have cash ready to reinvest and stick to your goals. I know that sounds very simple and elementary, but it's the only way to create a framework that takes the emotion out. Granted, we just wrote a report recently. It talks about focus on the trend lines, not the headlines.
Hard to do so to a.
Certain degree, trust your instincts about your goals and objectives and be diversified. And it just doesn't always mean sixty forty. It's whatever that appropriate mix is for you.
What are we doing in the fixed income world here? Yield's coming down?
Actually, yeah, for a few people that have been around the block a little bit, we're back to the nineteen nineties again, and you're talking about four to five percent yields, which are attractive for savers and fixed income investors. So there's a reason why fixed income is called fixed income and that's how we should think about it versus the total return that occurred for better part of three decades. So we're looking across the curve. We're right on duration
right now. We think at some point up to five percent of the ten year yield, it's important to.
Extend duration a little bit.
A lot of people don't like to do that because they're getting four percent at the short end. That's fine at the end of the day. I would say in terms of segments within fixed income, real quickly, we want to be neutral across the board. There's not a unit of risk out there that's going to give you extra return that is more attractive than any of the space.
What about corporate credit, for example, because we finally to see a little bit of a widening in the investment grade market.
In addition to international equities being at the top of the watch list, it's also corporate credit. They're at spreads now, they're a little bit more attractive both high yield and investment grade, and I would consider.
That an upgrade potential.
So one of the topics we hear a lot about at this conference and a lot of conferences over the last couple of years is alternative investments, not just private credit, I mean private equity and hedge funds, but also private credit. How do you and your private clients at Bava Meryl, how do you guys think about that?
Well, we think of it as an alternative piece of credit right and at the same time, right now where it is in the cycle, stay high quality. Don't reach for the lower quality end of private credit right now. Even though you're going to get a little bit of pickup in yield, you can do that in the normal high yield market.
We don't see any big default cycle coming.
We're kind of through the hornet's nest of that recycle of going from zero percent inturates restraights sharply up to five percent. So we look at private credit as an alternative source of credit as a part of a build out of a portfolio on the private side.
Okay, So if we were looking at the sixty forty or like, just don't think of it like that is it? What percent is equity is what is fixed income? And in fixed income what would be your traditional stuff versus a private credit.
So you start with the role it's going to play if you're looking for it to be in a yield or a yield enhancing strategy for you that comes from fixed income. If you're going to pick up a little bit of the equity, which some parts of private credit can do, then it's a little bit of a combination of both. We don't have any one particular allocation to private credit. It kind of depends on the individual. But at the end of the day, I think you're going
to consistently see this. It's gone from an assa class so basically had nothing in it to two trillion. Ultimately, they're probably increasing that over the course of the next decade for sure, so we're going to constantly be adding to it.
We talked a little bit about Europe earlier. There's actually been some pretty good performance out of Europe in this first quarter visa VI the US, and that has not been the case for a long time. Does that change your allocation? I mean, do you risk kind of chasing this performance?
The US reached seventy percent of the world market cap extraordinary. I remember in the nineteen nineties it barely broke the fifty two percent level and everybody got excited. Now you're talking seventy percent, and it makes sense for everything that's going on in the last, you know, twenty plus years.
We think it's a little excessive.
We don't believe that America dominance from an equity market standpoint, is over, but we think people should reassess their allocation overseas and not overseas investing. Typically the window opens and it closes, and usually it closes because they can't compete on growth, they can't compete on yields, and ultimately the dollar doesn't stay weak, it ultimately strengthens again.
You're starting to see winds of change there.
So this is a great time to reassess and put that at the top of your watchlift for potential upgrade.
And I'm assuming you're talking about the fiscal break kind of coming off the boil in Germany, so like this time it maybe actually is different.
It seems it seems like that, And there's a lot of investors who think the international markets didn't participate in that narrow leadership.
They did.
A lot of the companies that lead the market even now in this year, particularly in Europe, thin get most of their revenues outside of Europe. They're just happened to be domiciled there. But you're going to pick up value and it doesn't mean you go from growth to value.
You have a broad mix of both.
How am I back here in the US valuation? What's the valuation call? Here? Earnings have been good, but are they good enough?
This is where it gets interesting, right The whole second derivative argument is slowing down and the first mover when the second derivative is going up higher velocity, get higher earnings growth.
You start early, you benefit from that.
Now you start to see a little cresting of that second derivative. You're slowing down, but earning's growth should still be okay. A Our view is pretty simple valuation. If billions of investors feel comfortable paying twenty times forward earnings.
Who are we to argue with that? Until something changes? What's that something?
We have to see earnings growth fade and ultimately go down to almost zero three to two percent keeping with inflatial, We don't see that, So we are comfortable with valuation right now. We understand it's at premium. But our last point on this is pretty simple. If the leaders have been and the leaders of tomorrow are going to consistently be asset light, they have high cash rich, they have good balance sheets, they have low fixed labor. Why shouldn't
they have premium valuations? And that's how we see the market moving in the next ten years. It's going to become increasingly asset light, which keeps valuations a little higher than what we've come to know in the last thirty forty years.
Before we let you go, thoughts and comments on a potential recession in the US, what are you guys modeling right now?
Very low level.
Obviously, if tariffs stay and they stick, and they're across the board and ultimately becomes a tax on growth, we would have to reset.
And stay in stick means like forever tariffs.
Forever tariffs at least, or if they just stay and stick through the year and into next year, it could harm.
Growth pretty aggressively. So we'll be watching that closely.
But we have a very low probability on any recession risk in the in the foreseeable future.
Villanova basketball tough loss at Georgetown last night, eighteen and thirteen on the year. What's going on down Philly?
I don't even want to talk about last night's Let's talk about humble and hungry, which is who we are.
And we're going to move on and we're going to do really well.
Are they having a hard time adjusting to the nil and every trans for a portfolio kind of thing.
Everybody is Yeah, it's a whole new state out there. But at the end of the day, it is what it is. We like friendly competition. We're going to look forward to the Big East. It's gonna be very very fun and Big East is back.
Big East is backward. Bettina's back. See smug in a little bit. Did Villanova people. They're very passionate about their who.
Hey, man, I support sports, so I support you supporting sports.
My father was all set to go to Villanova and then the Japanese bomb Pearl Harbor change in plans for him and like a lot of people, so soft spot in the heart for you. Ye, fair enough, fair enough, Chris Heisei, thanks so much for joining us. Chris Hesei, Chief Investment Officer, Bank of America Private Bank, and Merril here at our Bloomberg inst conference. A lot of smart people running around here.
Yeah, it's really great.
Actually, I mean all these people that you see through the screens and now they're real and you're talking and you get lots of time to chat.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple Coarclay, and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Alex Steel alongside Pops we Need. This is Bloomberg Intelligence Radio. We are broadcasting to live from Bloomberg invest conference in downtown at Manhattan. We talked to all the top names in business, really asset managers, private credit, private equity, even pension funds. And for that we are joined now by Yupkim, a chief investment officer at Texas Municipal Retirement System managing
forty plus billion dollars in pension fund today. Do a long history in funds, right, you previously ran private equity over at CalPERS. You also were senior portfolio manager at the Alaska Permanent Fund Corporation, so you've been through this for a long time. What is the best allocation that you can think of right now in this very strange, difficult environment.
Yeah, it's you know, I think on a very holistic basis, we are long term investors, and so our long term strategy remains unchanged. You know, it's really predicated upon three pillars number one, attract higher and retain the best talent possible, and also attract and partner with the world class investment managers around the globe. Secondly, it's really about taking a low cost, public markets benchmark aligned approach to investing.
I do think we all recognize.
Going forward there are more alph opportunities and beta might be you know, there might some headwinds to to beta going forward. So I do think increasing the share of active management and public markets will be a critical a critical approach. And lastly, really endeavoring to generate a lot of the upperformance going forward in private markets will be
absolutely critical. And you know, and so I do think kind of with the you know, with the confluence of a lot of market volatility, it's it's easy to be swayed left and right. But I do think kind of sticking to your core long term strategy is you know, very important in this environment.
How does an asset allocation work for you guys down in Austin stocks, bonds, alternatives, Let's you hold it with alternatives playing.
Absolutely Look, I think when you think about alternatives, the delta between a media and manager and a top five percentile manager in alternatives and privates can be upwards of fifteen hundred to eighteen hundred basis points. That equivalent number in public markets is two hundred fifty to three hundred basis points. And so you are really compensated for good
manager selection but also a good deal selection. And so I do think there's still you know, when you think about the next ten years, there's a lot of equity value creation that will occur in the private markets, and so it really you know, kind of provides that long term you know, kind of alp engine to the overall portfolio.
I mean, so surprise that you did private equity in your last job, and then now we're taking over at the Texas Pension fund. Correct, How how well funded are pensions right now?
Yes, and so pension funds are definitely better funded kind of really on the backs of two incredible years in you know, the equity public markets. And and I do think public pensions typically have higher allocations to public equities,
since that's that's certainly helped. At Texas, we're you know, above ninety percent funded and so and just given that we serve cities that are growing, you know, you know, our net cash out flow for the past two years has been less than a percent, and so that really empowers us to harvest, you know, the ilquided premium of our private market book, but also really helps us risk manage on the liquidity side.
How do you feel about just the opportunities today? Where do you guys see the best opportunities?
Sure?
Sure, you know, like I think, maybe three things I'll share there is, you know, number one, the core building blocks on why people were excited about this US exceptionalism. The core building blocks have not changed. Right when I talk to my peers in Asia and Europe and the Middle East, the US continues to be the top destination,
you know, for their investment capital. You have the top academic institutions in the United States, presumably with the greatest founders, the most tenured management teams.
You have access to cheap energy.
You have really a risk taking culture that's celebrated that's really not found in many parts of the world. And so I do think when we think, the question we ask is not how do we performs in twenty twenty five, but how do we generate outperforms in the next decade. And we do view the US to continue to take an asymantic share of that equity, you know, value creation in our total portfolio.
How do you deal with liquidity when it comes to different parts of the market. Being in the public market, obviously it is easier, but then the more you go to alternatives as harder it as.
A get Yeah, absolutely, liquidity is absolutely critical. I do think, you know, as I shared before, given that our net cash off flow annually is less than a percent, we're very well covered by our public equities book and our public credit book to meet those annual you know, liability streams. The situation you really want to avoid is having to sell your private market assets at a grave discount right
to satisfy that that liability stream. And so we feel very very fortunate, you know, from a liquidity standpoint.
Texans would say that they are unique. Their Texans first, really strong strong belief in that not often comes into the investment themes as well, kind of leading the way with maybe an alternative view of ESG investing several years ago, allocating towards energy versus people who don't have heat towards energy. How does that impact running the state pension fund? Yeah?
Look, I think I think Austin is a wonderful place to be an allocator. Right, there are a number of very large LPs you know, in town, and all the CIOs we convene together and you know, we share share, you know, kind of our views of the world, and so I think that's that's super helpful, you know, Like I think thematically, we're really excited about you know, five big mega trends, right. Number one obviously around you know,
digital transformation. So we're talking about just industry transforming AI applications, vertical software, cybersecurity, and data centers.
In healthcare innovation, we're really focused on.
Next generation pre clinical biotech platforms and also just opportunities across the biotech and pharma value chain. On industrial resilience,
really around robotics AI, and also aerospace and defense. And then kind of the last two areas, it's really around energy, monetization and financial empowerment, so opportunities in fintech and also asset light insurance, brokerage and so look, I do think the next fifteen years will look very different from the last fifteen and so really digging deep on these mega trends and understanding how the world is moving, how these
industries are transforming, will be critical to long term OWT performance.
Here's an entirely unfair question you have to answer now in thirty seconds. Okay, do you think the US should have a sovereign well fund?
I do think that.
I do think we have the best investment talent in the world residing here in the United States. I do think, you know, a lot of our federal sources of capital has not been compounding at endowment or pension like returns, and so I think there is great opportunity to bring the best of America's investment management and apply it to you know, different forms of federal funds.
Great stuff. I really appreciate it. They're getting some thoughts on these markets. Yep Kim, Chief Investment Officer, Texas Municipal Retirement System based in Austin, Texas.
Credit you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Applecarclay, and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube Alex.
You here alongside Paul Sweeney the Bloomberg invest Conference twenty twenty five downtown in Lower Manhattan.
Now, obviously, when you.
Get together wealth managers private equity bankers, private credit guys. They're all talking about alternative assets, but what have you already been in that space for decades?
What do you do there?
While joining us now is a Pernima PII. She's governing partner and portfolio manager for public credit at HPS Investment Partners, which was founded back in twenty to two thousand and seven to focus on credit and guess what longer dated, less liquid investment opportunities, which it feels like that's the world.
That everyone is chasing right now.
You guys ended twenty twenty four with one hundred and forty nine billion dollars in assets under management.
Where are your biggest opportunities?
Yeah, So when we started the business, the regulatory environment changed pretty quickly thereafter, and it really gave us the opportunity to get involved in the private credit business. And at the time, private credit was more levered companies in the high market or a substitute for broadly syndicated loans.
Like I can't get funding for my regular banks, I got to go to.
You and pay up.
And there were moments of dislocation in the marketplace, and so the banks might not have been there at that moment in time regulatory environment changed and that opened up the sort of I would say, that opened up the marketplace for people to be an alternative provider of capital to companies that needed at different moments in time. And so what we used to be, you know, oh, was when the capital markets were shifting. It actually transitioned a lot.
Like our business for example, we invest not just in sponsor deals. We invest in we provide capital to owners as well on a regular base. So over time the market's evolved a lot. I would say, the market is really bifurcated. There's a whole host of folks in private credit. You say to yourself, there's been a ton of funds that have been raised. We tend to traffic in I would say, Number one, bigger businesses. Number Two, we tend
to we tend to provide larger sources of capital. Three, we have flexible capital in terms of the top and bottom of the structure, so we do we are able to sort of think about where our solution might make sense for a company. So that competitive landscape I think is a little bit smaller in terms of the folks that
are trafficking there. The other thing I would say is private credits expanding dramatically now because you're seeing it with I think Joe Bay was just speaking, you know, private ig that's a whole other sector that there's a whole need of financing for all these mega trends that are happening in the US. So that could be infrastructure, that can be AI, that can be energy transition and that, and that opportunity set is sort of ripe for folks like ourselves and others to take advantage of.
What's a typical deal size for you guys? And how has that changed over the year.
Well, it's changed a lot because the market's changed a lot. So several years ago you did not have a lot of private credit tranches that were you know, call it much greater than three hundred.
Million dollars of size.
There are many now, I'll give you an example in the marketplace today. There are three deals I can think of that are refinancing in the broadly syndicated loan private credit. One of them is a four to five billion dollar deal size.
That's one trunch.
Another is, you know, three billion on the first lane, nine hundred million second lane. That's a trunch, And another's two and a half billion so like now you're starting to see billion dollar deals. Wow, you don't have tons of people that can traffic in two and a half billion dollar deal sizes there, But there's guys out there that can. You know, we think there's five or six people who do that on a regular basis every single day.
But that's a smaller, smaller pool of competition.
I think, are you seeing the distress market grow pick up? Is that the catastrophe we all thought it was going to be five years ago or no?
I mean I would say, no, Oh, I don't think there. I mean this was like the default cycle that never was. So it was a variant on the distress cycle, which is that you guys have talked about this, I'm sure, but all the liability management stuff and sort of structured transactions to kick the can a little bit and figure out if you had time, especially in the in the world of rising interest rates where balance sheets got stressed.
But we haven't really seen a distress cycle. And in fact, if you talk to my partners who run our private credit business, they would say they were surprised by how well a lot of companies did over this period of time.
I started my career at the Chasement, Heaton Bank, and the Leverage Lending Group lending five six times that the EBITTA. We took a big fee up front, We syndicate, syndicated all the risk off our balance sheet. It was a great business. I would never allow you to come in and take one of my clients. What are the banks doing here? Why are they letting this business go to people like you and others?
Wow?
So so one is that there's a regulatory environment shift right, that changed a lot from when you started and frankly when I started, and all that kind of stuff.
So that's number one.
Number two, there's different reasons companies go to private credit lenders, right because banks, by and large, I think, just take the body syndicated loan market, right, That bodily syndicated loan market is sixty plus percent colos.
Colo is like a box. There's a box.
You want a reading, you want a certain amount of leverage, you need a certain amount of diversity. It's great business, by the way, but the things that are straight down the fairway nicely fit into a colo.
So all of a sudden, if your reading's.
Constrained and maybe something's the minus, that market may or may not be available to at a given moment in time. So why do people go why do issuers go to private credit folks? Well, they'll go because maybe they need flexibility in picking for a period of time.
Okay, that could be one.
Maybe it's because the americket feels pretty saturated in particular industries.
That could be two.
Maybe it's because people need a delay draw facility because businesses aren't static and they grow over time, and you want to have that funding sort of lined up and ready to roll if it's a roll up or something like that, or you have a capback plan or something like that. So that could be the third reason. And then four, I think that you know, what we've seen, certainly in some of our buckets of capital is that as businesses grow, sometimes they'd like to have one or two relationship providers.
Interesting, it's great business.
What what do you not want to touch right now at the tem football.
Well, I think you mean, I'm sure you've heard this from everybody.
You know, we don't know what's going on with tariffs, and tariffs have both short term implications and longer term applicatdications.
The longer term implications.
Are trickier to underwrite because trade wars are very difficult to underwrite, and that can really that coupled with the other sort of things as part of the puzzle.
Immigration, slower growth.
Et cetera, affect a whole, but will affect everyone's portfolio. Everybody's portfolio, every company. Shorter term. Maybe there's a band you can underwrite on tariffs. So there's sort of the obvious, which are you know, industrial manufacturing, retail or certain things in the consumer space which get trickier to trickier to underwrite.
But just real quickly, thirty seconds. Your market is open, today's miss. There's three deals in the market.
The broadly syndicated liquid loan market is open. Yes, you know, there's been one hundred and sixty billion dollars of COLO growth demand and the markets in twenty twenty one, the lever lone market has changed by fifty billion.
There's a lot of people who want paper.
Yep, there you go, all right, Really great to get your perspective up from Prairie joining us from HPS Investment Partners.
Also Feller in Northwestern grad and now you're going up on me. They are good to know, they are good Western. It was really cold.
It was very cool, Chicago.
Yeah, but you know it's because you're not like you don't.
Have big towers, because you're kind of allot to win.
All you have got that win.
Yes, and it's cold.
Yeah, I went to Virginia in North Carolina.
I'm not so many layers. All right, I thank very much.
We really appreciate it's great to talk to you.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your or watch us live on YouTube.
Let's get to our next guest, Stephen Meyer, New York City Retirement Systems Asset Management CIO and he's deputy controller for the city. Steve, thanks so much for joining us here. Now you just jumped off a panel. We appreciate it. How are you guys navigating the last six, seven, eight weeks with all the cross current of news coming out. How does that impact the way you manage your pension?
Well, it's certainly been interesting, and we try to do those adhere to a long term strategic plan. So a lot for us, a lot of this is noise in terms of what's going on in the change of policy in Washington. So we're really trying to stick to our north star, which is our strategic ass allocation. Again, we have multi generational liabilities that we're trying to satisfy. So again,
a long term investment horizon and a long term discipline. Now, having said that, our trustees and our beneficiaries and our participants do call. We have the privilege of servicing eight hundred thousand public workers here in the City of New York their concerns. So we need to stay on top of it in terms of increasing the information flow of how our assets are diversified and they continue to perform as expected.
So how are they like forty sixty or sixty forty maybe a thing of the past. There's different mix in there, especially when it comes to alternative assets.
What's the best mix.
We're about thirty five percent and alternative assets at this point. That's a lot, yeah, yeah, yeah, And that includes private equity, infrastructure, private credit, some small exposure to hedge funds in real estate. Of this other sixty five percent were about almost forty percent of that is in equity, dominated by US equity, about eighty five percent US large cap in particular, and then an allocation to develop market xually US and emerging market.
So we're balanced. We're balanced from a private perspective, we're balanced from a public perspective, and again I think that's going to benefit us over time.
With the increase in volatility, have you changed your views on the economy out of the US economy or global economy given some of these trade tensions that are coming into the marketplace.
Well, we're concerned about inflation, and we do think we have some natural hedges against inflation and our portfolio in terms of a real asset allocation, real estate, infrastructure. I think our public equities will actually perform well over time in a higher inflationary environment. So we're not necessarily overly concerned.
We did expect to see some uplift in inflation expectations given concerns about the imposition of tariffs, the mass deportations that were talked about anyway in terms of potentially impact in the price of labor.
So again, haven't really changed.
What we're doing or how we're doing it, but we're certainly mindful and we continue to monitor the situations.
We do have a headline carousing right now the US is now weighing a one month delay of Canada and Mexico tariffs on autos, so looking for those exemptions, those little carve outs. But potentially we could hear more about that from the White House later on this afternoon. Before we let you go, you mentioned thirty five percent in alternatives.
Seems like a lot. Is there a liquidity issue there?
Not really compared to some of our peers, And I know, you know other institutional investors were just under three hundred billion dollars in assets, So I understand that there are other managers out there that have forty forty five fifty percent allocation to alternatives. We have ample liquidity through the sixty five percent in public markets. Again, we're disciplined in terms of putting them work money to work over time,
we're benefiting from vintage your diversification. We've actually been putting more money to work in private assets over the last two years with a change of our strategic as allocation, which has been beneficial as others have pulled away from the markets. We've been actually putting money to work, getting better economics, better access to the top manager's co investment as well to average down the fees and expense.
All right, Steve, thank you so much for joining us. Really appreciate you. Stee my New York City Retirement System Asset Management CIO and Deputy Comptroller for the great City of New York that does it for us here at Umberg Invest twenty twenty five here at the Convene Conference Center down here in the world financial centers. In a great couple of days, some great guests.
Yeah, amazing guests, yep.
And it's great to get all different perspectives, right, Like that's how you make a market at the end of the day.
This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday ten am to noon Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.