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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amerie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app.
Turning two deals TikTok, saying it reached binding agreements for a new US joint venture majority owned by American investors, the company's CEO telling employees agreements with Oracle, Silver Lake Management and MGX have been signed. Joining us now as we purse through everything that has happened in twenty twenty five around the trade story is the twentieth US Trade Representative missing Greer.
Representative Greer.
I want to start on how busy twenty twenty five really was Looking ahead to twenty twenty six, do you expect the same kind of pace with respect to trade deals? With respect to trade announcements.
Well, during twenty twenty five, President Trump the administration has essentially reset the global trading order to move from you know, total liberal trade in the United States without any cost, to a new fair and balanced approach we had. We've announced lots of trade deals, We've annowned lots of tariffs, as you know, in the coming year, we expect to finalize a bunch of those trade deals as well. You know, I think that the tariff plan is in good shape. I think we have a lot of the tariffs we
want in place. You know, if there are countries here and there that don't comply with their deals or don't want to finish a deal, then maybe we have to have another conversation. But I think the economy's booming, inflations down, wages are up, weren't a really great track.
How much are you potentially at risk should the Supreme Court overturn some of the tariffs that have been enacted under the AEPA provision. Do you have something in place to get those tariffs through other measures or will there be a rethink about what will be put.
On and what won't.
Well, it would be terrible if the Supreme Court overturned the case, because we have built a new global trading order on the back of these tariffs and the tariff system, and our trading partners have accepted it, and they've made deals, and they've accepted there's going to be some tariff level to help protect US industry.
So it would be disaster if this was pulled out.
All that being said, we will do whatever we need to do to make sure that we can maintain the tariffs we need and keep the deals in place.
Obviously, we want the flexibility.
Of the emergency powers that Congress has given to the President. It's the most effective way to deal with it. So what's made them so effective this year in negotiating. But absent that, we'll work and we'll find a way to make sure we can keep all these games we've made over the past.
Year representative career.
There's also a feeling right now that cost of living concerns are coming to foreign President Trump has talked about removing some of tariffs on specific goods, particularly having to do with food, as a way of alleviating some of the price concerns. How does that factor into discussions going forward? Do you think that that will be an increasing part of your thought process as you go through some of these trade negotiations.
Well, any good president wants to address affordability, and our president is and over the past month we saw you know, dairy, you know, fruit and vegetables, all kinds of prices go down for basic stables, staples. So that's a great development going forward. The President removed some tariffs in connection with some deals related to food coming from a broad bananas, coffee, coco, the kinds of things we just don't make in the
United States. United States is a food powerhouse. When we saw inflation earlier, it's really about housing, healthcare.
Driven by Obamacare disaster.
So I don't think that, you know, food imports are really going to be an issue for us. You know, the tariff program is really about creating jobs, and the President's regulatory approach is really about bringing prices down and bringing affordability.
Ambassador, have you had any specific directives from the President though as you carry out your negotiations to make sure any tariffs you put on from here are anyones that you negotiate specifically are not having an impact on affordability.
So I know, the kind of the way you put it, there are a specific direction I would say no, whenever we're imposing tariffs are doing deals. The purpose of the trade program is to reshore American manufacturing and protect American food security. It's really about jobs and increasing wages, which we've seen over the past few months. When it comes to prices, the President is undertaking a lot of other actions, you know, energy policy, tax policy, regulatory gas prices are down,
et cetera. So we don't see the trade policy really as driving prices. We see it as driving jobs.
Ambassador, I'd love to go back where Lisa started, and that is it looks more likely that we indeed have something of a TikTok deal where US buyers will take the American portion. You after some of the negotiations in Madrid, we're talking about how this deal, how this company was part and parcel of a variety of matters when it comes to negotiation, negotiating with your Chinese counterparts. So have
you had more discussions about this deal with TikTok? Does it seem likely that China will let it happen?
So there are two layers to the TikTok deal.
One is the private sector layer, where the private parties are concluding a deal and then there's a layer of government approvals between the United States and China, and so my conversations with the Chinese government over the past few months, as you mentioned, have covered a variety of issues.
One of them has been TikTok.
Back at our discussions in Madrid, we came to an essential agreement that if the private parties came to agreement, that the Chinese would approve it.
So we expect approval by.
The government of China in alignment with that agreement we reached earlier this year.
We're hearing about not only this deal with respect to TikTok and some investors in the US, but also a review product is to sell two hundred.
Chips into China.
And I'm just wondering, stepping back, if all of these are pieces of a bigger deal that will come to fruition in twenty twenty six between the US and China.
I would say with the h two hundred export control issues, those really are standalone. That was not a negotiated outcome in the United States. With respect to export controls, those are not something that are really subject to negotiation. Those are national security and commercial decisions made by the federal government. So that's kind of standing on its own with respect to the rest of the China deal. Right now, we're trying to make sure that rare earths continue flowing from China.
You know, they've bought over five million metric tons of soybeans at this point, and we're trying to keep trade flowing between the two countries in way that makes sense.
Do you expect a bigger deal other than just sort of steady reset kind of idea that you've talked about with respect to the US and China. Do you expect something more comprehensive to be outlined next year.
It's a little hard to say at this point. Goal one is stability.
For me, and everyone's heard me say this before, we need trade with China to be much more balanced. Our trade deficit with China has decreased by twenty five percent this year alone under President Trump's policy, so that's going the right direction. I can first see a situation in the first half of next year where we come to some kind of agreement with China on exactly what we should be trading with each other and even in what volumes. It's a little bit of managed trade, but it's the
kind of thing that can be healthy and stable. Given the way that Chinese government runs its economy, it just doesn't mesh very well with the way we want to run our economy. That just means we have to manage it a little bit more. And I think there's a possibility of that. I'm not sure i'd call it comprehensive, but i'd call it confidence building.
I'm masser.
I think a lot of the confusion from many people comes around national security. One of the points that you mentioned just a moment ago, especially things with H two hundred chips.
Giving chips to.
China has seen an issue of national security. Even giving S thirty fives to Saudi Your what does that mean for national security? Because critics would say that it means that national security is up for sale. What would you say to those critics?
So, with respect to the F thirty five, that's not my I used to be in the Air Force, but it's not it's not my wheelhouse. I'm H two hundreds and export controls generally, export controls have always been fluid, They've never been static. The very nature of export controls is that the US government is constantly reviewing the state of technology and assessing what technologies can be sold and which ones can and balancing national security and assessing whether
or not there's foreign availability. Everyone knows that the Chinese are quickly also trying to develop their own AI chips, semiconductor tools to make those chips, et cetera.
It's a race. All of those h two hundred.
Approvals still have to go through the Commerce Department to make sure that any licenses that are granted really respect US national security and make sure that it's not violated, and there can be conditions on licenses, etc. To they go to end users and end uses that don't jeopardize US national security?
Is it fair to say, that, Ambassador that even if this does go through the kind of cases where this is allowed, where it's approved, will still be quite limited in scope.
So it's hard to say at this point that these types of license applications are typically a case by case and reviewed. So we'll see the way it's set up right now is if the chips are going to go to China, they come back to the US for a security inspection to make sure that they are indeed the types of chips that are being allowed to be sent to the Chinese. We know there are a lot of
Chinese companies that want them. We know the Chinese government's pretty interested in having their own domestic champions build them. So the Chinese themselves right now are having a conversation about the types of chips that they want from the United States. We think that they want the Age two Hunters. They've shown an interest in that. So we'll see between their process and ours, we'll see where it goes.
It seems like the tech wars have been behind a lot of the negotiations over the past twelve months, in particular not only with China, but of the European Union. I'm just wondering where some of those discussions are with respect to some of the restrictions and regulatory investigations Europe has been making toward US tech companies.
Where are some of those discussions.
So I just had a conversation yesterday with my counterpart in the European Trade in the European Commission yesterday to reinforce some of the strong concerns we're hearing from US stakeholders. US tech companies are the most competitive in the world, and Europe frankly doesn't have those types of competitors.
If you talk to the Europeans.
They'll say, that's why we have to regulate and have these protectionist measures against US tech companies. Unfortunately, we see in the way that they've developed those measures they're discriminatory. They only capture companies above a certain threshold of revenue globally or certain business models, and magically it only happens to capture US companies. They'll say that they're Chinese companies too, but we only see actions against American companies. So it's
a problem. It's discriminatory in fact. You'll hear the European say, well, it's fair, but it's discriminatory in fact and an intent. So I want to talk to these folks. I want to negotiate over it. They've been somewhat resistant to that, but again I had a great conversation yesterday with the European Trade Commissioner, and I think we just have to be able to talk about why they're doing this, so why they're purporting to regulate American companies and their global business models.
Ambassador, coming into twenty twenty five, a lot of people were wondering who are allies and who our adversaries would be on trade, and we were talking about who traditionally have been US allies and who haven't. Have you been surprised and who has been most difficult to deal with in twenty twenty five, it has surprised a lot of people in the markets to see the likes of Europe be a more contentious discussion than other regions, even sometimes China.
That's because they haven't been trade negotiators. I have not been surprised at where it's been more challenging. Take India, for example, who's an important partner and a strategic partner in a lot of ways. We started negotiating with them early in the year and we're still negotiating with them
to trying to find a good landing zone. During that time, we have other trade partners who have come in, started, proceeded with and concluded trade negotiations with US, etc. The reality is somebody like Europe and frankly you know some jurisdictions that want to emulate them. They know they might have relatively low tariffs compared to the rest of the world, but they have non tariff barriers regulations that exclude American agriculture.
There's a major exports and regulations that exclude are industrial exports and so you get into US, and this is why we have giant imbalances. It's not because Europe is really competitive, we know they're not. It's because they have a lot of these rules that prevent US goods and services from going into the continent.
Ambassador career just to finish up on Mexico, which.
Has been negotiating.
From what we understand, they just recently gave final approval to put tariffs on certain Chinese imports and a lot of people are affecting there to be some sort of reprieve with respect to aluminum and steel tariffs on Mexico. Is there any discussion about that going on right now?
So, first of all, any country in the world who exports steel and aluminum to the United States wants to have a modification to that regime because the United States for many years has been the consumer of last resort, and this is why the President puts steel loomed tariff's on in the first administration, the Biden administration kept them, and the President has tightened them further in his second administration.
Of course, the Mexicans are asking for this. We have found the Mexicans to be quite constructive in some of our recent discussions and looking to change some of their laws and regulations related to long standing US concerns. So have the Mexicans asked about this, Yes, I won't give any further detail beyond that, but it's certainly something that they would like to see.
Stay with US. Multbleenberg Savannah's coming up off.
To this, Osang Quan of Wells Fargo joins US.
Now. Osan has a.
Bullish forecast for next year in the equity space, and it comes to this question of how much does the data even matter if you have a federal reserve that is biased to cut rates at a federal government that is biased to run this economy.
Hut, Yeah, I mean I think the set of four equities into twenty twenty six is pretty favorable. I mean, the prophecycle is still in a lop cycle. We're forecasting fourteen percent growth EPs growth forty SMP next year, followed by another thirteen percent in twenty twenty seven. I think liquidity, which we talk quite a lot about, that's going to improve quite a lot in Q one with the fact
starting to expand this balance sheet. It was a lot sooner and a lot bigger than what we had previously forecasted, and with that, we're going to see a huge uptake in the liquid environment overall, and I think that's really going to be the bullcase for equities as you move into twenty twenty six.
But I hear people at the television screen, this isn't actually quantitative easing. This is just trying to ease the technical backdrop for banks that are using the FED as some sort of backstop. So how does this really increase liquidity? Is this more of a boost to liquidity than some people are accounting for.
I mean, it depends on how you define Q. If Q is really about shortening duration, then it's not a Q. But if QE is about boosting liquidity into the system, Because the funding market was really seeing a lot of stress. If you look at the SOFA spread between the sulfur rate versus the fat funds rate, it blew up back in October to as much as thirty five basis points. So there was a real stress that we saw back
in October and November in the funding market. I think I think that was really the main crporate for the selloff that we saw over the past, you know, or the volatility that we saw over the past six weeks or so and looking at things like bitcoin quantum stocks nonprofitable tag those guys sold off the most. And that's
essentially what happens when liquidity dries up. Everyone's risk curves just to the left, and the assets that are farthest out the riskurves, the most speculative assets, they gets all the most.
I think we liquid are coming back.
And potentially condition liquid conditions overall being actually good in Q one, I think speculation is going to pick back up.
I think I.
Think AI is going to AI trade is going to work more in the second half the year that we're thinking, well, I think the overall equity market it's going to be pretty bolish.
Is that why you have the assumption that into next year you write your research that inflation reacceleration is going to be worse for equities than a recession would be, because a lot of people would look at the dichotomy between the two and say, inflation coming off the back of COVID, equity still did well. But it's growth that's really an earnings that's underpretning this equity market, and if we get a recession then that would be worse.
Yeah, I mean, if I have to, you know, think about the probability of recession and inflation. I would assign a higher probably of inflation. I'm not too concerned about inflation either, because I think there's that AI productivity, this inflationary pressure that's going to keep inflation pretty low. But there's the physical as well as monetary policy that's coming back in to potentially drive inflation higher. So if I have to choose, I'll say inflation has a higher potential
than recession. Well, I'm not overall, I'm not too concerned about it either.
But inflation would be worse for equities than a recession would be at this point.
I mean, both would be bad, but I think the probability of inflation is probably higher than probability over session at this point because of physical we estimate about eighty basis points of GDP contribution for the full year twenty twenty six. Most of that is happening in the first half of the year, really through the tax return, so I think consumption is going to pick back off. Consumption is seventy percent of the economy, so I'm not too concerned about the economic downturn.
What's the sort of break the glass moment in the yield space for equities, And I asked this, as you do see longer yields globally creep up on the backs of a hawkish move from the Bank of Japan, albeit whatever people are thinking in the currency space, but also this idea that the ECB is getting to the end of their using cycle. How much do you see this sort of line in the sand, let's say, at four and a half percent for the tenure at five percent, where suddenly the book case just isn't there.
Yeah, I think I think it's going to matter more for what works within the equity market. So we're more bullished on the reflation cycle into the first half of the year because of the physical stimulus that we're going to get. But if rates climbable four and a half percent or so, I think that's potentially what kills the reflation cycle and potentially back into AI. I think closer to five percent is going to be actually pretty bearish for equities.
So in this pollish environment for twenty twenty six, the speculative stuff starts doing well again.
Is that a healthy bull market?
Is that a healthy turn in the continuation of the games we've seen in equities?
I mean, I think, you know, the bullmarket food boollmarkets typically have a little bit of speculation at least especially in this AI cycle. There's there is going to be speculation. It's new technology, and I don't think it's a bubble yet, but I think there's a potential it becomes a bubble in the second half of the year, especially you know, with the FED continuing with this easing cycle, liquidly being more ample. And I don't think the AI trade is over.
I mean, there's quite a lot of concerns around AI cap backs and because Hyperscalers, the market started pushing back band on hyperscalars capbecs. There's CONSISTUS view is that Hyperscalers are going to moderate its capbecs and that's been basically what what drove the SEMI and the AI infrastru infrastructure
sell off over the past week or so. And if you look at Semis over Hyperscalar Semis versus Hyperscalers, over the past week, we have seen a three and a half standard deviation move, meaning hyperscalars are perform semis by three and a half center deviation, and that trade has been diverging. If if we start to see hyperscalers sort of reiterating their capex outlook, the funding issues that Oracle and open AI are having, those concerns, Get those concerns
ease going forward and liquidity comes bay. I think the A rate is going to.
Be back on.
Stay with us, multiple impact Survanance coming up after this.
Joining us now is Heidi Krebo Retica of the Council on Foreign Relations. Heidi, thank you so much for being with us. You recently wrote a piece about how the structure of financing the European Union agrees on for Ukraine matters. So what have we learned overnight when it comes to the structure they have laid out.
So, I mean there was first of all, there was not a question in my mind as to whether or not Ukraine was going to get the financial support from the EU. Is just basically how they did it through collective borrowing, which I think, you know, it's it's a it's a step towards mutualized debt, but it's not.
But it is absent.
You know, three of three of the EU countries, namely Hungary, Slovakia and Czech and so I think, on the one hand, that's that's good. They came through with the ninety billion. This is just from a timing perspective. I think it had to happen because the IMF is finalizing an eight point one billion dollar loan to support Ukraine and there's a huge gap in their financing and so the EU really needed to step up to provide support. And the ninety billion is going to go a long way there.
It's not all the way there, because I think the gap that is projected over the next three years is one hundred and thirty six point five billion, which is huge, and but this is a big step in the right direction. It's it also I think all over pointed. I mean, it's an elegant solution in a way because it takes it takes the burden off of individual countries to actually provide the budget finance from their own individual budgets, So
there is a bit of a collective shift. But at the same time, it would have been a lot more powerful to use the Russian sovereign assets. The This was something they've been negotiating it for a very very long time and it was I believe politically a big failure for Chancellor Mergen. So this didn't get done.
And that's something that Ukraine and Zelensky had been arguing that it becomes a powerful negotiating force if they were to use the frozen Russian assets. Hiding on the other side of things, the Belgians had been arguing that it would face legal retribution and just retribution in general if they had used these Russian funds. Straight up, is there any merit to the arguments coming from the European capital.
So, you know, Belgium I think at the end of the day, I just really didn't want to do this. They had a lot of popular support in not moving forward to use these immobilized Russian assets. And you're clear obviously, you know, has the Russians just just sued for you know, in case Euroclear was planning to use any of these assets, even though the structures that were being discussed would have taken the legal I think the legal burden away from
both Euroclaire and Belgium. But you know, at the end of the day, this is something where Mertz was standing by himself, France and Italy went Lukewarman did not support him, and Belgium just you know, pushed through and decided that this was something that they that they cared a lot about I'm of two minds. I think that the EU needs to move towards collective borrowing for its own national security in order to be able to fund, for example,
its own defense. But the but for this, it just needed to get done, and it got done by Hooker.
What does it change, if anything? Heidi though to the political situation of the very highly indebted nations of France, of Italy of others.
Well, I mean, this is going to be a burden, a burden on them, and it's uh, this is ideally this would have been, uh, you know, an exercise where you didn't have to have any additional any additional funding coming from in particular, you know, countries like France and Italy and others that are you know, that are struggling for you know, from a you know that don't have the headroom to really borrow or put too much up
for to support this loan. It's it just it's it's unfortunate because they had an opportunity to actually use a sizable amount of Russian of Russian funds and they weren't able to get there.
Stay with us multiple impax Savannah's coming.
Up after this.
Socks slightly higher as Wall Street looks to end the week with a win, and Nastasia and Moroso of Partners Group writing, we don't believe investors should give up on AI into twenty twenty six. The current pullback may present opportunity, and Astasia joins us more and a Stasia, great to see you to say, very much to the holiday spirit.
I see, yes, run the holiday spirit. I think it's great. So coming up.
It does feel like people over the past couple of days at least have come back to this idea.
Maybe the sell off's a good thing.
It highlights skepticism, it highlights a better entry value.
How where are you on that?
What have we seen over the past couple of weeks that gives you more confidence?
Right?
Well, first of all, as you were saying, maybe the volatility is normal as we get higher and higher at market altitudes, so to speak. So maybe that is what we should be accustomed to seeing in twenty twenty six, and investors scrutinize things more and investors question things more, so maybe that is to your point in healthy development. I do think it's nice to see the AI trade pullback by five or seven percentage points over the last
couple of weeks. Having said that, as I look at you know, what's really driving the AI trade, it is demand, the adoption, It is productivity, and it is monetization. And when I look at all three of those categories, I see positive developments there.
First of all, let's talk about adoption.
You know, around the table, I'm sure are you using more AI now versus what you did at the beginning of the year. And if you look at kind of the adult population in the United States, fifty five percent is the percentage that use artificial intelligence today. That was about forty five percent to start the year. We went from a ten percent adoption rate economy wide to about seventeen percent, So we are moving up that.
Adoption curve, which is great.
The second thing, Lisa, that I looked at the other day was the productivity increases. Coming into the year, we were sort of hoping expecting to see the productivity gains due to artificial intelligence. And when I look back at the last call it three years, you have actually seen measurable productivity gains. Productivity has been average about two percent over year growth versus ten versus one percent we saw in kind of the decade. You know, after the financial crisis.
So these are not just wishes, These are tangible productivity gains. We hear that from companies. We see that in our portfolio companies as well. And then the last point, it's all about the modernization and there too, whether you look at cloud revenues, whether you look at some of the AI lms, the likes of open Ai, their revenues are surging and I think that trend can continue into twenty twenty six. So with all of that, the AI trade
is priced better today. So I would step in here for twenty twenty six.
The HAI trade in pockets, right, I mean, are there areas that are the winners and areas that are big losers as you do see a consolidation of profitability and a select number of cohorts. Right, I mean, at what point is the gain of some players the pain of everybody else? That I point to Micron yesterday doing really well because guess what, they can charge a whole lot more for their chips.
Right now, that is a really good point. It's not going to be just everybody is a winner, you know. It's now the tie that lifts all the boats. And that's what we think about in our investmentmties. We think about whether a company is going to be disrupted by artificial intelligence or is actually going to be helped by artificial intelligence because they're quick enough to embed it.
So that's one way to think about it.
The other way, I would say, Lisa, we should actually draw the distinction between No, I don't think AI is a bubble, but are there signs of bubble like valuations in certain parts of the ecosystem.
Absolutely.
I mean, if you look at, for example, the lay stage venture valuations for AI companies versus not AI companies, there are trading at a premium something.
Like two hundred and fifty percent.
You know, it's not the case for earlier stage, but it is the case for lata stage. So I think you have to have a question mark around those valuations. But you know, we are finding I think winners in artificial intelligence.
I would say in several different categories.
The first one is infrastructure, and the shift is now really sort of yes, we've done data centers for the last five years, but it's really more of a focus on energy because you know that's the bottleneck. You know, we also think about investing in AI companies that have proprietary data, they have vertical expertise and they can leverage that.
That's where we.
Think gives them the competitive mode and the best chance to embed artificial intelligence and kind of you know, invent AI power services. And then the last thing is across our portfolio companies, we also have a concerted effort to boost productivity, drive revenue growth and also enterprise value creation by infusing AI.
So that's where we identify the winners. But you're right, you know there's.
Going to be lots of disruption and lots of companies to avoid as well.
How much of the avoidance doesn't just have to do with are you producing revenue? Are you being disrupted by it? And maybe there is promise there, but debt loads are getting unmanageable. I mean, Oracle has been the poster choud for this, for their spending increases elevenfold and their cash
growth has turned into an outright cash burn. Even you can pick into any company, but even if the promise is big to you do, debt piles like that in cash burn make it enough to make that kind of company no longer attractive.
I mean, look, once again, I think investors should look at Oracle and the Lakes and scrutinize anybody who is quickly taken on debt and maybe not scaling revenues.
Clear enough. So I do think that's a healthy development.
But when I think about, let's say, the rest of the hyperscalers, they don't have the issue that the market is sort of punishing Oracle for.
They have plenty of free cash flow. They have plenty of cash.
On the sidelines to finance the data center spend. So and the other thing I would point out on Danny, you know, going into twenty twenty six, I certainly would not give up on all the hyperscalers because what you actually see is their earning stra dijectory keeps on accelerating
towards the tail end of twenty twenty six. And we talk about this gap narrowing between the MAC seven versus the four ninety three, but that gap is actually going to wind out once again for most of the MAC seven, perhaps not the specific.
But even for the hyperscalers, and specifically the lms the Google's Open AI. Why isn't just a Google being the ultimate winner because they have the ability with their balance sheet to not charge for their AI models.
Why not just run open AI?
Into the grounds with the inability of them being able to produce revenue of Google just offering it for free, and then once they're gone, then maybe they can turn around becoming monopoly. Why why isn't that the future road that this might go down?
Well, you bring up a couple of good points.
You know, Google, first of all, has been investing in artificial intelligence and working on development and developing artificial intelligence for years, you know, prior to open AI. So Google, by all means should be one of the winners of this AI trend. But the other point I would say is, you know, whether it's Google, whether it's open AI, whether it's another platform, it is about that.
It is about the platforms. You know.
I remember, you know, talking about artificial intelligence back in twenty nineteen, and the biggest winners were always going to be the providers of the picks and shovels.
Of AI and a lot of these LM models. And who's that going to be?
Those who have the massive treasure troves of data, and so it's the likes of Google and Meta and others. So I'm not surprised to see, you know, perhaps Google kind of be in the lead once again.
As I think they kind of wore back in twenty nineteen Andastasia.
There is a big discussion around if there is risk building, and yes, sure is risk building, but the question is where most people have pointed to private markets as a place of potential risk. I know you're focused on financing companies and financing infrastructure projects through the private markets. How much risk do you really see building heading into twenty twenty six.
Right, Well, if you take a step back, as to back Lisa, if you think about the sheer growth of private credit, for example, it went from being a six hundred billion dollar asset class to a one point seven trillion dollar asset class. So by the sheer kind of virtue of growth that we've seen, there's going to be more and more risks. And I think that's what we've seen is some of these idiosyncratic headlines are representative of
the growth of the asset class. But when I think about it from interest coverage ratio perspective, for example.
Yes it is you know, dipped from.
Where it was pre twenty twenty two, but it's actually trought and is starting to improve. So the FED, the fact that the FED is cut interest rates actually alleviates I would say some of the pressure on private credit. You know, I think what you have to look out for is, you know, there's been lots of money raised in credit. That money had to be deployed quickly, and you know, in some cases it was deployed in large chunks of capital. So was it always appropriately deployed? Was
it always properly covenant covenanted? For everybody?
I don't know, But for us, if we look.
Across our prior credit platform and the US side and the European side, on average, I would say ninety percent of the loans that we've done have a covenant attached to them.
So I can't speak for.
The industry as a whole, but I think, you know, if you had the prudent underwriting standards, despite the growth in the industry, we're in a good place today.
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