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Terminal and the Bloomberg Business app. So here's the latest this morning, the US and Iran trading, fresh strikes, and the Persian golf putting the fragile ceasfile very much in down. Let's extend the conversation with John Leber of your Rager group right in the following. Risk of ceasefire collapsing remains elevated as a deal is unlikely until June. Negotiations appear deadlocked, with both sides believing they hold the advantage. John joined
us now for more, John, welcome to the program. Just out of interest, Why is it unlikely until.
You know both sides I think aren't at their pain threshold? Yet certainly the US is starting to feel some of the economic pain from this war, but mostly it's being felt abroad. And for the Iranians, they're dug in. They're not willing yet to give the concessions that Donald Trump wants to see on the nuclear program, and they think they have the superior leverage and the deal. That's what these attacks over the last twenty four hours we're about
reasserting Iranian dominance over the strait. So while we think there will be a deal, the deal will probably come sometime in June. It could come in May. We think it probably comes sometime in June, which means a very delayed reopening of the Strait of Hormuz. But for right now, both sides are kind of still circling around each other.
They're having these preliminary talks that aren't really going anywhere, and until they unlock this nuclear issue, I don't think there's space yet for a deal to come together until the pain is higher.
John.
For anyone watching the events play out yesterday, it was clear violation of the ceasefire. Is this administration prepared to say that no.
Because they don't want the cease fired end, So structurally I think we think both sides really don't want to go back to fighting. The US doesn't have the domestic political space to do so, and the Iranians just want to stop being bombed. So I don't think either side wants to see the seasfire breakdown. And I think that's what yes yesterday demonstrated. The Iranians were able to send
a message, we still control the straight United States. You cannot escort ships out of here easily without US retaliating. And the US had the opportunity to declare the ceasefire over and strike back, and they didn't. And I think that really shows kind of the structural incentive set that both sides here have to keep the peace.
Clearly, the blockade is hitting the Iranian economy, though at what point will the pain be enough on this regime though to bring them to their table or does that point not even exist when you're dealing with regime like this.
Yeah, so you look at the blockade and Iran's now shipping about thirty percent of its pre war oil out of Iran, but prices are much higher, so the hit to their budget is only about thirty to forty percent of their pre war pre war or budget. It's not great for them, and they've got a lot of reconstruction to pay for now, but they can keep going and the regime is solid in that scenario, so they again,
they don't want to keep this fighting up. I don't think the economic pain is necessarily the thing that's going to drive them to the negotiating table. But at some point, you know, they're now putting out plans to open the strait with a phase discussion about the nuclear targets, and the US is saying, no, we have to do the
nuclear first. You can kind of see the contours of a deal, and I don't think the Iranians would be engaging in these talks and putting out these proposals if they didn't want to get there.
John, A lot of people thought that the deadline was May fourteenth, when President Trump and Jijinpang of China were supposedly going to meet. President Trump says that meeting is still on. Do you think that it's feasible that it could take place without some sort of better agreement in place between Iran and the United States.
Yeah.
Absolutely.
I don't think the Chinese need to see a deal come together, and they're not really that involved. They might end up being involved in some aspects of how the piece deal comes together, but right now they're not important interlockers in this debate. And Trump himself is basically domestically resilient to the fight so far. You had a clip on him earlier talking about how much worse he thought
this was going to be. So I don't think that the Iran conflict is in any way an impediment to what both sides in the US China deal a relationship want, which is just calm right now. They don't want anything to disrupt their critical mineral supplies in the case of the US, and China's access to global markets in the case of China. So I think that that is going to be the overall state of play for US China for the near term, and Iran is not going to disrupt that.
Are there any checks then on exactly how long this goes for? Some people used to think that it was oil prices. Oil price is now well above one hundred dollars a barrel, and when you take a look at Brent in December were over ninety dollars a barrow.
Some people were saying.
This meeting with jimping that doesn't seem to be an issue. Other people were saying popularity, that doesn't seem to be an issue based on the p that are currently coming out. So what are the checks on how long this could go on?
Yeah, great question.
I mean I think that this has been gone longer than we anticipated, for sure. But if you look at this accumulating economic damage, I mean, it's hard to see
oil staying contained where it is right now. If this conflict does go on another several weeks, you also have the enormous pain that's being felt globally from shortages of helium, from shortages of fertilizer, from shortages of aluminum, and all these disruptive effects across global supply chains are going to start to have an impact on the US economy in particular. And I think that that mounting pressure. I would be very surprised if you don't see oil going up from
where it is today. And I think that mounting pressure is ultimately what makes the US say, okay, fine, we'll do a deal here, but we don't expect that for another several weeks, which is a pretty bad economic story.
That's not a good one, that's for sure. John, Thank you. Sir John Labade, if you I shouldgree with his own predictions on why this is going stay with us. Multilinpag Savanas coming up after this, the New York Fed President John Williams staying positive on text a labor market impact Torson Slock of Apollo writing AI will drive productivity gains and create opportunities that will more than replace jobs lost. Today Torston joins us now for more Torston.
Good morning, Monday morning.
So the headline we got from coinbase earlier on was job cuts and job cuts attributed to becoming more of a startup like culture AI all those things. Can we start with call centers in the Philippines and tell everyone where they're wrong about all of this?
Well, what's so interesting about this is that running a call center has become cheaper and cheaper and cheaper, and in particular cheaper when you have of course voice recognition, when you have AI helping you. So that's why employment in call centers in the Philippines for the last ten years has.
Actually been going up.
Telling you that running a call center is cheaper, that means more companies are using call centers and they're expanding because it's becoming cheaper to produce the service of being a call center.
Now, is that just co centers or do you see this applying to a bigger proportion of the labor market.
It is exactly something you can apply to the whole economy, because the issue is essentially that inputs are becoming cheaper, and when inputs become cheaper, maybe there's more demand for those inputs. So think of this for radiologists. Radiologists readers scan and the scan of course can be readen now
by AI. But as that has become cheaper and cheaper, the salary for radiologists at the moment around five hundred thousand has continued to go up, and employment for radiologists has also continued to go up, and across the board, across industries, inputs of production have basically gone down, very similar to what we saw during the China Shock, when China ended WGO and goods coming from China became cheaper, the unemployer rate.
Didn't go up.
It was the case that cheaper goods from China made it cheaper to produce things in the US, and as a result of that you saw therefore higher economic activities. So broadly speaking, if you take your economic textbook out and you ask the question what happens when it becomes cheaper to produce something, the answer is there's much more demand for that thing.
The answer will be different if you go to the Ross Belt. The answer will be different if you go to centers of production in the United States that experienced complete washouts during the globalization. How do you ensure that the Jevins paradox of AI doesn't leave a lot of people unmoored, without work and not feeling the benefit of all of these advances.
And that is absolutely correct that the China shog are the entering of China into the trading system. It did create some very regional specific shocks in the manufacturing sectors in the US. They certainly could not compete with US and with Chinese production and US production at the same time.
So instead we're now also seeing similarly that those job categories that are most impacted, they may see some negative impact, in particular, of course, in programming and some parts of software, or more broadly speaking, this is input to the bigger part of the US business universe, and that means that when that input becomes cheaper, we should of course see growth in employment. The best example is look at the weekly data for how many businesses are created in the US.
It is literally at the highest level in US history. We've never seen so many businesses created in the US. So some of these businesses, of course, will also result in more employment. So in the last few years, the very significant infection point of seeing more business creation is indeed also going to result in more employment and at the same time also more productivity.
This is what a lot of people are saying, which is the reason why you have even Kevin Moosh saying they could end up with stronger growth and even a disinflationary force because of all this productivity that's being introduced to the system. The transition period though, is faster than anything we've ever seen before.
This isn't like globalization.
This is even a faster transmission and a lot of people are being rendered, even me and my own home useless by Claude. So at what point does it become a problem by virtue of its speed and how quickly it is displacing people.
And what's really interesting about that because that connects with the discussion we have zdain markets about inflation is going up because of all prices. Inflation is going up because of terrors, Inflation is going up because of restrictions of immigration. So so far inflation is not being negatively impacted mean disinflationary because of AI. So it's that transition period that
becomes so important. But even though we all agree that we will get activity gains and therefore downward pressure on inflation, clearly markets are not looking at it that way. The next expectation is, of course, as we know that the FED will be cutting only December twenty twenty seven, and that's now a higher problem is that they will be hiking in the beginning of next year. So in that sense, yes,
that transition is critical. But if this is going to take several years, which it likely will, then we still need to talk about, well, maybe there's a risk of razors stay higher for longer before we get that this inflationary.
Asat is she tossed, And how much of a sequencing problem is there.
Well, there is also an identification problem, because maybe the risk is that this is just going to take a lot longer than what people expect. At the macro level, it's very clear we're seeing it. At the micro level, there's a lot of corporate finance examples of where this is coming very very quickly. But at the macro level
that's much much more slower moving animal. Because at the macro level, before we begin to see inflation come down, before we begin to see this have impacts on the broader economy, it can take several years, and it may even take longer than several years, up to five years. And if that's the case, then the FED will not have the luxury of saying, oh ai, is this inflationary, because the FED is that has to look at inflation that's going up because of the conflict in the middle.
This massive capex in certain places driving up prices too. This is part of the problem.
This has been a huge issue so far.
Capex has been incredibly, incredibly inflationary. At what point does that alone end up leading the FED to have to hike rates given the fact that the sequencing is so off, do you think that we're underpricing that risk yees.
So that's exactly why the big, big capecks we're seeing is inflationary. Of course by semi conductor prices very clearly, it's also very inflationary for wages for those who construct data centers, it's also inflationary, of course for the price of energy, not only because of the Middle East, because
of what's required to build the energy build out. All that combined is exactly saying that the sequence is which should be expecting inflation to go up initially as a result of the data center build out, and then once we begin to see the gains and the question is maybe a few years away, we should expect to see.
Inflation begin to come down.
And that's particularly challenging for the FED when we, at the same time have energy prices continuously going up at the moment.
Tolstan Stock cu Apollo Telston appreciate it. Loves to think about in the labor market right now. Stay with us. More Bloomberg surveillance coming up after this, and let's turn to private credit and private equity KKR reporting first quarter earnings that beat Wall Street estimates. The KKR CFO Robert Lewin joins us now for more. Rob welcome to the program. I want to start with the stock price and then talk about the underlying business. The stock into today down
nineteen percent so far this year. Then I look at the underlying business and it just feels like there's a massive disconnect right now, Rob, what explains it?
Well?
First, thank you so much for having me on this morning. I really appreciate it. You know, Q one was a really great quarter for us and a lot of respects, a lot of momentum across our different business lines geographies. You know, I spend a lot of time here talking about the health of our business, and I tell people that the number one metric to look at is management fees, and our management fees in the.
Quarter we're up thirty percent year on year.
That translated to do our second highest fee related earnings quarter in our history, our third largest adjusted at income quarter that the firm has ever have.
And so when I take.
A step back, there's definitely a lot of market noise. We can't control our near term share price, but what we can do is we can lean into share buybacks, which you saw us do in Q one. You also saw our co CEOs and several of our directors by stock.
Personally in the quarter.
You know, all we can do here is control how we're performing and operating, and if we do that over a long period of time, we feel really confident that our share price will follow.
How would you describe the macro backdrop underpinning some of the noise, as you call it, or some of the fears, particularly.
Around private credit.
We did see negative returns for the first time in.
A while in that asset class.
How do you view things as changing in terms of investor appetite around this area.
Yeah, thanks for question, Lisa.
You know, it's interesting if you look in Q one of this year, this was one of our best credit fundraising quarters in our history, and a lot of that is because we're in the very earliest of innings of
investors allocating more to asset based finance. And while there's a lot of noise around the direct lending space, which for us is around a forty billion dollar business today relative to our close to seven hundred and sixty billion of AUM, so about five percent of our business, we have a number of institutional investors calling us up right now wandering because of the pullback we're seeing across the private wall space for private credit, for direct lending, is
now a good time to be entering as an entry point into direct lending, and we think it is.
What you've seen is.
Because capitals come out of the direct lending space, spreads have gone out a little bit, and I think that is positioning some institutional investors for an interesting compelling point to enter, and that's in part why you've seen such strong fundraising numbers and credit for KKR this quarter.
Do you think the pain is behind us then some of the shakeout tied to software, tied to some of the lending standards that have gotten loosened up. Yeah.
No, Listen, I think you had a lot of capital come in too the private credit space very quickly. You were also through a period of time time where the markets were really benign and default rates were really low. So we could see a scenario here as things play out where some of that capital that came in very quickly continues to come out in redemption levels and private wealth around the private credit space remain a little bit elevated.
I think that would be our base case.
You could definitely see defaults increasing a little bit. You know, we've talked about that often. We were in a period of time that has been unusual the last few years, and so both things we think could be true.
At the same time, we still view this.
As a compelling asset class to deploy capital against, and I think our investors agree.
Roll. Could you tell us a little bit more about that the money coming in very quickly. Is that another way of saying we sold to retail too much? And not just you, I'm talking about as an industry at wide.
Yeah.
I think what you saw is for a period of time, the individual investor allocating very quickly to the private credit space and some of the other asset is like private equity and infrastructure. We're more measured in terms of how investors is allocated income. That might be while you're seeing a little bit more strength in those asset classes with the individual investor, you take a big step back. You know, we see the individual investor today one to two percent
allocated to alternatives. The most sophisticated institutional investors in the world can have thirty to fifty percent allocated to alternatives. Now, we obviously don't see the individual investor getting to that level. But what we do see is the individual investor over time going to four to five percent plus allocated to alternatives, really as a means to saving against their retirement.
Well, what do you think the lessons will be with regards to marketing through retail channels? What are the lessons from the last year or so?
Yeah?
So, Well, listen, I could speak for what's happened at KKR and the private well side, and if you look at our business in Q one, we have seven scaled products. All seven of them had net inflows.
In the quarter. We raise roughly four billion dollars.
Of capital and we had two hundred and fifty million of redemption. We feel like we're pacing it pretty well, and we're focused on the long term and how we build products and vehicles that can really scale over time, and that we're really proud of the performance that we're delivering to clients, and we're really proud of the experience that they're having in one of our KKUR private wealth products.
It's a long term focus.
We really aren't focused on the quarter to quarter capital raising.
As much as I think the market is.
On a broader level, there's a question about all of the money that's been going into private credit and private asset management just in general, that's been going toward financing this push out for hyperscalers. Given the needs to build out data centers and other infrastructure.
How do you both participate.
In an industry that is going through an absolute revolution while not having over concentration In particular areas.
Yeah, it's a really good question, and we spend a lot of time talking about that. Anytime you see a lot of capital going into a space very quickly, we think there's going to be some winners. There was going to be some losers coming out of that. And so as we think about, you know where we've got capabilities inside of KKR where we've got deep industry expertise, we've got geographic breadth across the firm that can help us,
We've got outside capabilities that we're bringing to Bayar. You take that together with our really industry leading infrastructure platform that's leading the charge across all things digital infrastructure, and we feel really good that we're going to emerge from this as a winner. Now you mentioned concentration, it's a huge point. You know, we feel very strongly that as you look at our fund platforms, we need to be linear deploying over a long.
Period of time.
So I think that both negate some asset level concentration, but more importantly, you know that fights against vintage concentration, which is I think the number one thing that has driven poor performance if you look back in history in
certain fund complexes, getting too concentrated in anyone vintage. You know, if you look at the private equity space, you know, a lot of the underperformance over the last few years I think is rooted in some of our industry over deploying in twenty twenty one in early twenty twenty two.
I'd love to just finish up with the idea that you've had incredible fundraising success in the first quarter. How much do you expect that to be pressured going forward because of Middle East investors that are pulling back as a result of needs at home that they need to deploy cash to.
Yeah, Lisa, we really haven't seen that to date, and so it's been very much business as usual. In Middle East investors represent roughly six percent of our limited partners globally, and we continue to do business with them today like we did at the end of twenty twenty five before the war broke out.
Rob appreciate your time this morning, Thanks for joining the program. Thank you, sir. The KKRCFO Robert Lewin. This is the Bloomberg Sevendments podcast, bringing you the best in market economics angiopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am 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.