Bloomberg Audio Studios, Podcasts, radio news. This is Masters in Business with Barry Ritholts on Bloomberg Radio this.
Week on the podcast What a Fascinating Guest, Mike Freno is chairman and CEO of Barings. They run over four hundred and thirty one billion dollars in global assets. Fascinating combination. Not really related to the Barings Bank of old. You know, if I think of Barings Bank, you think of the bank that blew up when you had an unauthorized trader acting out as well as the first bank in China and Japan and financed the Louisiana purchase. That is not
this entity. Irong purchased them out of bankruptcy. I think it was for like a dollar or a euro, and some years later sold them to Mass Mutual and then Mass Mutual combined Bearings Investing with a number of other shops including BABS in a very well regarded investing firm. The shop manages about well over four hundred and thirty billion dollars. About half of that comes from Mass Mutual, the other half comes from institutional investors. What they do
is really fascinating. They have been working in various credit and other private areas for decades. I know there's been a big rush into private credit and private debt over the past few years. Bearings has been doing this and Mass Mutual has been doing this for decades and decades. They run a ton of money in order to manage their future liabilities as an insurer, and it's pretty much non equities. I think they have about ten billion dollars out of the four hundred and change billion that's in
public equities. Most of what they do are real assets, credit debt, middle market banking. They're looking for a fairly reasonable stream of future income, less volatility in the potential to meet those as an insurer, those future liabilities down the road. Really not just a fascinating area. But Mike
Frino is so knowledgeable. He worked as a trader, he worked as essentially a high yield portfolio manager before going to the president and then CEO of the company, so he's has seen the world of private investing from both sides, both as an investor and as part of the management team. Super knowledgeable, super informative. I found this conversation to be absolutely fascinating, and I think you will also, with no further ado, My discussion with my like Freno, chairman and CEO of Barings.
Now, thank you, thanks for having me.
Great to see you, great, great to have you here. Let's talk a little bit about your background and what led you to this career. A BA from Freman University an MBA from wake Forest Business School. Was finance always the career plan.
Well originally started out in accounting. So I was an accounting major coming out of out of Furman and worked with the legacy firm for the date myself a little bit Coopers and Libray, oh briefly before it was merged into Price Waterhouse Coopers, and so I spent a couple of years on the audit side and then actually transferred over to the tax side. So my first four working years were spent in public accounting, and so that was that was really the intention at the time was I
was interested in accounting. I loved many people won't won't appreciate this, but love the way financial statements work.
I like to see how.
How businesses make money and and so I always envisioned myself doing that.
But it did have a good.
Fortunate opportunity to go really work at a startup hedge fund.
It was Eminem Partners.
At the time, it was relatively small. We were just over one hundred million. When I went to work there, went as a controller so to kind of help out on the accounting side of things, the fun side of things. And then as companies grow and you're only five people, you tend to start to wear a lot of hats. And as a result of that, had the opportunity to start trading, had to start the opportunity to start doing
some analysis. We had multi strategies that we ran. We ran a merger ARB strategy, also distressed debt, which is really where I probably gravitated to the most, just because of the fundamental analysis that's associated with debt investing.
All Right, so you start out as an accountant at Price Waterhouse Coopers, you're a controller at Eminem Partner's hedge funds. How do you go from there to BABS in a fairly large investment shop.
Yeah, So it was again often these things, you have to be in the right spot at the right time, and fortune was there for me, and so again I was gravitating more towards I did some trading, so I was working on the trading desk, but really gravitated toward our distressed and event driven strategy, which was largely around at that point in time. It was the early two thousands.
You had a number of bankruptcies going on. We were analyzing all sorts of things, and I really enjoyed the analysis around that, and then had the opportunity to speak to the folks at Babson, which was one of the predecessor firms to Bearings, and they were really down there running a leverage loan in a high yield business again, which was fit really nicely with what I was doing. They were moving into more event driven strategies as well, and had the opportunity to go over there and start
working with them. At the time, Babson had about twenty some odd people in Charlotte. We can talk more about this later, but we're up to over seven hundred now, so there's been a tremendous amount of growth there. But really in two thousand and five I made that shift to Babson and really still doing what I was doing, focused on fundamental fixed income analysis.
It's kind of fascinating because you almost defensively said how much you enjoy accounting, but if you're a good accountant, you look at a balance sheet. You can imagine what's going on in the company, where their growth areas are, where their problem areas are, where they're spending too much money. I would imagine that would lend itself very well to distressed asset investing and leveraged asset investing.
Tell us a little bit, Yeah, I think it has.
And I do I say this to folks and folks and other industries when you talk about the excitement of analyzing the financial statements and going through but it.
Does tell a story.
I mean, if you know how how income statements and cash flow statements and translate into balance sheets, it will tell a story of how companies are doing.
And if you have.
The intellectual curiosity to dig deeper into it, you can really get a full picture of who's got a sustainable business, who who possibly doesn't. And so you couple the fundamental analysis that with some general understanding of a business, and I think it's an exciting combination and one that I really had passionate rout.
And enjoyed doing so.
Again, was very fortunate to find myself in many roles which allowed me to do that.
And you mentioned Charlotte, my friend has an office in Charlotte. I seem to visit Charlotte like every few years, and every time I show up, it's like, oh my god, this place is double the size it was eighteen months ago. The growth in Charlotte is really quite amazing, and it's become this giant finance hub. Tell us a little bit about it, and you've been there your whole career, right, I've been there largely.
I started out in South Carolina.
I went to school Firman was in Greenville, South Carolina, so really started my work there. But then ultimately the majority of my time since nineteen ninety nine has been spent in Charlotte. And to your point, it continues to grow at a rapid pace. It is a financial services hub. It's certainly not New York City, but it's definitely the top two or three in terms of large financial services. We had the benefit of having Bank of America be
located there. Wacovia in First Union, the predecessors to now Wells Fargo, had a headquarters thereep they do continue to keep a large presence there. But what's interesting about is when we first started, you know, going around and marketing to the world and our institutional clients we would often get questions, how do.
You retain talent?
How do you attract talent in Charlotte, And the response was just come see.
Oh my god, it's first of all, it's beautiful. Second of all, everything is very reasonably priced, and you have great barbecue and the NASCAR Museum and headquarters. Really, there are worse places in the world. And the weather is like temperate and reasonable.
And you sound like you're working for the Chamber of Commerce.
Well, we have in office there, and every time I go down there, it's very funky and hip. It feels like a southern version of Brooklyn. And so I don't see attracting and retaining talent as very difficult.
And it's it's become an asset for us to be located there for sure, and we've the talents there. And so you've seen a number of smaller financial services firms start up around there because and financial services firms like yourself moved down there because that's where talent is and that's where people want to live. So it's been it's been great. It's been nice to see the growth and there's a real commitment to the city there. So I think we've got a few more years of growth for sure.
Yeah, no, to say the very least, there's a bright future there. So I want to talk a little bit about leadership, especially leadership at a large investment firm. First, what was the transition like going from being on a training desk and managing portfolios to running the complete organization of CEO.
Yeah, it's it was. I stepped in in November of twenty twenty. So it's because a lot of things were going on during that period of time, and so there was a there was it was. It's a change, but I was fortunate, as I said before, I came from a counting background. I was also at the Hedge Fund. I was involved in the operations early day of getting things up, understanding how settlements work, things.
Of that nature. That is in the they called the.
Back office today but is increasingly important and complex candidly when you move into different types of asset classes. So I had some familiarity with that. I did have a stepping stone from when I was managing portfolios to before I took over the CEO. I briefly for about eight months set in the president's role, which gave me also
oversight over investments. I had the investments of sales, technology and operations, and while a brief period, it gave me an appreciation for things I didn't know well, and I think actually provided me a pretty good roadmap for starting to rely on other people because you're not going to
know everything about everything. I was investments, that's in my background, but running a company requires a lot of other people to do a lot of other things, and making sure that you are comfortable and will say, in this way, letting the plumbers fix the sink. So I wasn't an expert in technology, I wasn't an expert in operations, so I had to rely on and make sure I had
people there I trusted to make the decisions. And I think that was one of the things I learned early on was I should probably make few decisions as the leader of the company and then trust my people to make a lot of them. But make sure you've got the right people there to do it. And then the transition is it's different managing money and managing people is dramatically different. And this is the people business. Our asset
is our people. It's an incredibly valuable asset. And then running something that's global creates a whole.
Other set of challenges.
We're in over twenty countries, and when people talk about culture, we have different cultures camudly in different regions because there's different behaviors and things that are done there.
But I will say.
What we do when we describe it as we have a set of philosophies, a set of principles, and a sort of values that are consistent. In understanding that and recognizing what works in Charlotte, North Carolina may not work necessarily in Soul Korea was actually a pretty big learning curve for me.
Yeah, I could imagine. So you're it's interesting your your background is at M and M started out with five people at Price Waterhouse Coopers, or even back in the day when.
It was just Library and Coopers and Lybranary.
Coopers and Library. They're giant, there are thousands and thousands of people. What did the experience at both a small firm and a giant firm? How did that shape your leadership at Barons?
Yeah?
I think working at a small firm you begin to
appreciate how how effective quick decision making can be. But understanding working at a large corporation that you need to have controls, you need to have some element of controls and process that goes along, and so balancing those two out and creating an environment where you're empowering people to make relatively quick decisions in failing fast as well, make decisions to invest, makes decisions to go grow businesses, to acquire businesses, and if things don't work, let's be let's
be intellecttion a honest about it and move quickly. So I think the balance of those two in marrying those two together. And while we're a large company, we're around two hundred two thousand people again in over twenty twenty countries, it's big enough where it requires certain process. You can't have the decision makers all sitting in a room every single day just making them. It does require some ability
to decentralize the decision making process. And as I said earlier, you know, as you move further and further up an organization, you probably should be making less less decisions and you're empowering you make the big decisions, the ones that are critical to the survival and effectiveness of the company, but outside of that really relying on your.
Team to to do a lot of that. So I think.
Working at both and having the experience that both gave me the appreciation for both.
So, you've spent about twenty years, maybe a little over twenty years at the same company, now increasingly becoming a rarity. Everybody seems to move jobs and companies pretty regularly these days. Tell us what keeps you at the same firm for so long?
Yeah, it's so, it's coming up on twenty I've been over nineteen years now, so we're coming in on twenty. And I was very fortunate to find myself working at Babson at the time, in a place that fit my personality and my skill sets well. It was a very much a team based approach. It was very much a collaborative approach. It was built on fundamental analysis which fit my skill sets get well.
And so I think when.
You're fortunate enough to find an environment where your skill set can be amplified by those around you and by the business process or the culture that's there, it works. And I was again very and had an opportunity to take on a lot of responsibilities. I was entrusted with things early on in my tenure there and was able to start new products, to go out and market those products,
to see how things worked. And so I've I hopefully have have created what I enjoyed, or at least foster what I enjoyed so much when I joined the legacy company Babson, and it's allowed me to stay there. And again, I can't thank my predecessors enough for giving me the opportunity and chance to really grow as a person, but also grow the business.
Last question in this section, you alluded to something that I'm kind of fascinated by, and I've observed it in a number of different companies. I'd love to get your thoughts on this. As a company grows, as you wear more assets, more people, more divisions, exactly what you said about you making the critical decisions, but being willing and able to delegate decision making authority to people underneath you. I have heard a number of people talk about how
challenging that is to let go. Tell us a little bit about your experience with it.
Yeah, I think one thing I'm fortunate and blessed to have is self awareness. I know what I don't know, and I've been proven. That's been proved to me a number of times through some mistakes, but I've have the scars to show it. But but knowing what you're what you're good at and we all have very good gifts, and we all have weaknesses, and I think it's okay to accept that and say I have a gap here. I need to build people around me who fill in
that gap. But it's it's hard because I think you know, inherently most of us believe that we make the best decisions, and so you do have to start moving that and I try what I'll what I'll tell when new people join the team or when I take over a new What in the past, when I've taken over a new team is because often what happens is people are making a decision. They're looking to their boss, well, what would
what what kind of lean would would you go? I'm not looking for an answer, but just kind of give me a direction of where you go, and maybe that's where I'll go. But I've often said, you'll have ten decisions to make this year. They're your ten decisions. Eight of them I'll support one hundred percent and I'll love them. Two of them I may hate, But that's okay because they're your decisions, and they're probably better than I would
do because you're closer to it. And I have to remind myself of that too, because there's some times times when I get uncomfortable, I want to go back to the areas where I'm comfortable, and everyone hates to see me sitting on the trading desk because then, ah, here we.
Goes micromanaging for the win. So let's talk a little bit about the modern version of Barings and a little bit of history. What people think of is Barings Bank from the nineties and two thousands. I in g bought them after their little mishap, and then some years later Mass Mutual purchased them the big insurance company and eventually mass Mutual put together Babson Capital, Barings Asset Management, Cornerstone and woods Creek. Do I have that more or less right?
Yep, that's right, that's right.
So tell us what did this combination of four firms do? Tell us about the reach and capabilities and why mash up for fairly substantial investment firms.
Yes, at the time Mass Mutual was really you saw the value and asset management not only for its general account but also to be a third party business, and at times was it was opportunistic in purchasing up smaller asset management. At the time, Bearings was one that was purchased from Ing as you mentioned, to really be it was the multi asset international equity business. There was also wood Creek, which you mentioned, which was a real assets business.
Think of it in music rights, royalty, streams, infrastructure type things that have tractor trailers that have longer term cash flow profiles. And then there was Babson Capital, of which I was a part of, which was the largest, and Babson was actually the predecessor to that was D. L. Babson,
the equity manager. Mass Mutual had purchased that and then ultimately had spun out what was the Mass Mutual Investment Management into Babson Capital, and so we had four affiliates at the time, there was actually five affiliates because Mass Mutual at the time also owned Oppenheimer Funds, which has subsequently been sold to Investco.
But we took we.
Made a decision to combine the four brands, the four aforementioned brands together under the new Bearings and Babson was actually the largest. It was the fixed income manager, but it was the largest in terms of au M.
But what we.
Recognized was the Bearings brand actually carried more value than the Babson brand. Certainly internationally where our presence was very well known, and so we made the decision to combine all four of those businesses together under what was now titled Bearings.
So how do you create and maintain a corporate culture when you're starting with four very distinct entities.
Yeah, it's a challenge at times. And what was interesting is is Babson itself had been a series of acquisitions as well.
I mentioned d L. Babson was the first. There was a group called.
IDM, which was institutional debt management that was purchased out of First Union Bank. It was really a clo and loan manager. That was actually the group that I joined at the time. We also bought a business in the UK that was a parallel It was a leverage loan
and mezzanine investor called Duke Street Capital Partners. So we had we had brought companies in together, all with the philosophy that we want to fully integrate these and I'll talk a little bit about the philosophy on that and some of the challenges that come along, but really when the decision was to bring them together, we felt to get the most scale and the most long term value
to our ultimate owner. Owners, which are the policy owners of Mass Mutual, was to combine these businesses under one brand, under one operating model, and under one culture. Now, not
everyone made the transition. I'd love to say that it was It was really easy to do, but but you know, at what we decided to do was really have an investment committee driven, team based approach, and some of the portfolio managers of some of the firms were more driven towards the the I have sole discretion on everything I do. There's not a process. It's it's my decision to make these with and I have at the support of a research team.
And that didn't always mesh up. But we made the decision.
To move to move to the one standard of investing and created what is now Bearings and have subsequently been able to bring in additional acquisitions, again all under the idea of we want to fully integrate these.
So we're talking about corporate culture. November twenty twenty, you're elevated from president to CEO. I recall lots and lots of CEOs talking about in twenty twenty and twenty twenty one, right in the midst of the COVID pandemic, Hey, how are we going to maintain a form of corporate culture. How do we keep everybody on the same page.
What were your experiences like, Yeah, I would say communications was key, and it was it was much more regular speaking to the entire company as opposed to you know, episodic and we would do town halls on a I would say an infrequent basis, but you very much every week. You needed to be out there speaking to the company.
You know.
One of the things that was fortunate we were global to begin with, so we had an operating model that didn't have us fully face to face all.
The time, so semi virtual, semi virtual.
At that point, we had invested in some technology. The amazing it was amazing how quickly the technology took over at that at that point in time. But we did have regional heads that were able to continue to stay engaged with our teammates, and I think the communications was
the big part. It was really making sure that you're constantly and consistently out there telling everyone what's going on in full transparency, and one of the things we've really tried to do throughout the company and it's something that I've appreciated as I've worked my way up to my career is as much transparency as we can.
I've always had.
This belief and the folks at Bearings have heard me say this many, many, many times. I would rather know what's going on and know I don't like it than not know what's going on and think I don't like it. And I think it just creates a level of anxiety when people suspect something, and so when you're going through tough periods like that, having transparency as much as you can.
There's certain things you can't share, obviously, but to provide that level of clarity to people I think provides some level of ease and it makes them feel more that they're a part of what we're doing, and candidly they are. They're a part of the solution, they're part of the growth, and they're part of the success.
So you guys are not that far away from five hundred billion in assets. Let's talk a little bit about who your clients are. Obviously, Mass Mutual Insurer as the parent company, is a big client. I'm assuming that's where the genesis of all these different asset management strategies came from. Who are your other clients?
Yeah, so Mass Mutual makes up roughly half of our of our assets and that's for the general account and then outside of that, we are predominantly an institutional manager at this time. We do have some penetration into the we'll say wealth and retail channel.
Global family office more like as opposed to mom and pop investment.
It's it's through some some ri a relationships we have and then over internationally we we we go through wealth as well, through through some of the larger banks. But we're we're definitely more skewed towards what we would consider an institutional or an intermediary type relationship. But but it's
going to make up the full full spectrum of that. Obviously, insurance is a big component of what we do, just given our heritage in our DNA, that's a large component of our third party business, but also sovereign wealth funds, family offices, pensions really across the spectrum in terms of where any any institutional client really globally, and that's one
of the benefit we have. We do have client base that's split relatively easy amongst the three regions i'll say, with the America's EMA and then in an Asia pack in Australia.
So I want to wrap my head around a large insurer like Mass Mutual as a client, I would imagine very long term and perspective, But I don't really grasp what sort of risk tolerance an insurance company has. I assume they don't want you swinging for the fences. But on the other hand, hey, they could buy treasuries without you. What is that sort of risk embracing, Like, how does that settle out? What are they looking for in terms of returns?
Yeah, and so I would say, you know, not many of our clients want to swing in for the fences, and usually that we're not the ones to.
Hire to do that.
We are more very much focused on fundamental, long term type and type investing. We do it all up and down, and we do it within fixed income, we do it within real assets, and we do it within what we call capital solutions. But you know, insurance companies. And I will say this the Masses Mass Mutual obviously is a
mutual company. And you mentioned the long term horizon. I think is one of the best ownership structures we could have because they are owned by their policy holders who have a very very.
Long time horizon.
At the current time, I think our oldest policy holders owned a policy.
For eighty years. Wow, And that's that's a long term horizon.
That policyholder loves to see us pay dividends and then would wants us to be there to pay the benefits to their descendants. So it's really taking a long term horizon which allows us not only do we make investments on behalf of our clients, but we make investments in the business, which is equally important for the longevity and sustainability of our company. We have a longer term horizon. We're not necessarily worried about quarterly earnings or even annual earnings.
We're fiduciaries of what we've been given, but we can take a long term look. And in fact, our middle market direct lending business, we started building that in twenty thirteen, well ahead of a lot of the conversations that had knowing we may be a little bit early in terms of the acceptance from LPs to move into middle market direct lending of the size and scale it is, but we took a view that long term, we think this
is going to be a valuable place to be. We also knew that Mass Mutual had an interest in the asset class, which helps us start new strategies. I mean, so I think it's it's a good it's a good blend of that. And as we move further and further, you know, insurance companies have been buying private or ill
liquid assets really for forever, forever. I mean it's you know, back in mass MWS one hundred and one hundred and seventy five years old, one hundred and seventy five years ago, there wasn't a lot of public bonds that were trading outside of of of of government bonds. So they've been in this space for a long period of time and now we're just you know, somewhat showing it to other
other parties. So they're they're obviously skewed more towards higher rated assets, just given the rating of the company as a double A entity. But that being said, our business has other things further down the risk spectrum that that allows us to grow and service other clients.
I want to better define what capital solutions and real assets are. Let's start with real assets. So you mentioned music royalties and copyrights and things like long haul trucks. What other real assets do you guys own? And is the goal We're just looking for a steady low volatility income stream.
In most of our strategies, it's that And so I would say real assets for US is broadly defined as real estate and infrastructure, and even infrastructure and real estate can blur at some point in time when you start to look at logistics and things of that nature.
There.
So when you say infrastructure, are we talking highways and bridges? Are we talking trucks and rails?
Do you think trucks and truck it's all of the above. For us, it's more along the trucks and rails and towers, wireless towers, things of that nature that fits within their data centers can fall into to either one of those type things.
So that's that's the real assets. But we do have the capabilities.
Again we own we own trailers, we own an aircraft leasing business, and so those things that are are are longer term, more stable.
Type cash flows.
Capital solutions is really encompasses all of it. To be honest, it's it's more of a unique solution, a more bespoke solution for a client when it comes to it's not something that would and certainly when we originate things in all of our private assets, there's some level of some level of customization for those clients. But when you get into capital solutions, it's really a unique solution to a
client who has a financing need of some side. It can be a preferred equity piece, it can be an equity or a debt piece with equity kickers, all sorts of things that fit within that that's slightly unique and that will come more than likely with higher returns. It's a little heavier lift to be able to do a little bit different analysis that goes along with it, but it's a higher returning profile.
So I get the sense that there are some advantages to working with a large insurance firm, not just the longevity, but it seems like there is the freedom to do the sort of things that a lot of investors just don't have the patience to wait for.
Yeah, and there's also an alignment. I mean, Mass Mutual is alongside our investors on almost everything we do. They're in this same strategies and varying sizes and scales, So there is a complete alignment from where we're investing our parent companies capital as well as where we're investing our third party event. But it does help to have a parent company like this who allows us to seed seed
investments allows us to grow things. And you've seen more and more frequently now the tie ups of what we'll call alternative managers with insurance companies because there is a need on the asset side as well as the liability sides of the liabilities coming from the insurance company. Those assets are those liabilities. The cash that comes with those needs to be invested in assets that provide a return that meet that liability, and so there's naturally this move.
Now.
We did this twenty years ago, and so we're seeing a lot of this happen now.
But this is something that.
We had done a long, long time ago and seeing that a captive which is what we started as an ask captive asset manager for an insurance company, can also be a great service provider to other clients as well. And that's really in two thousand when we started this focus of making what was Babson and the other brands more focused on third party as well as the parent company.
And when you discuss liabilities for an insurance company, those future obligations are fairly predictable. I mean there's some variability. Hey, you're working with annuity tables and things like that. But it's a pretty predictable set of obligations. How does that impact how you think about the risk tolerances and where you want to go with the investment of.
Yeah, I mean it's as with most fixed all fixed income investment. Candidly, you want to get your return, you get your coupon, and then you get paid back at the end of the day.
So it really is.
And then how things are measured in terms of duration, in terms of tenor and all those things. Really that's something that we don't do as much. The parent company handles all the asset liability.
Management side of things.
They give us asset allocations, we go ahead and invest those dollars. So with the security selectors, if you will. Yeah, when you look at the liabilities of a number of insurance companies out there and you think of whether there's there's there's the life business. It could be termed or it could be whole life. You also then look at the annuities, the pension risk transfer. All of those have a set you know, pensioner's transfer, a longer, much longer dated.
Set of liabilities. But it's it is.
It creates an interesting opportunity in different asset classes to profine excess returns, and I think what what folks are starting to see, and this is certainly the case with us. We have always recognized that we would be happy to pick up additional returns for ill liquidity and illiquidity premium
without taking additional risk. And that's that's really what I think insurance companies have the flexibility to do, is to take that illiquidity premium because they they have a much better idea of what their liabilities look like in matching those up.
And you're a member of the executive leadership team at Mass Mutual, discuss a little bit, if you will, what those conversations are like. It must be fascinating to sit on that board that's essentially overseeing your day job.
Yeah, it was very insightful for me. I had some knowledge of the insurance industry and really just how it touched the asset management industry. But it does give me a bigger perspective on the industry as a whole. And I think more and more as you see, and certainly there are really deep cases of this where alternative asset managers, whether it's with reinsurers or insurance companies, have become one.
We have a front row.
Seat to how the too are managed, and so I think it's just given us a much better perspective. And I also think it's made Bearings and hopefully myself, as a better partner to some of our other clients is recognizing and have a better understanding.
Of that really interesting. Before we get into the details of investment management, I have to ask you a question. There was a quote of yours that kind of grabbed me. You've self described your own leadership style as confident humility. Explain what that means that that's a fascinating phrase.
Yeah, thank you for asking that. I use it. I use it a lot.
I'm not sure where I where I picked it up, but I but I love it, and I think it describes how we operate it at Bearings. It goes back to the element of having some self awareness and I think understanding. We need to be confident in what we do. We make big decisions, whether we're on the investment team making decisions for clients portfolios, or whether we're in management
or any other part of the business. We have to be confident in the decisions that we make, and we have to you know, rebound from from mistakes at times but at the same time recognizing with an element of humility, which I think is a gift for people to have. That that we don't have all the answers all the time, and seeking counsel and seeking partnerships and seeking people to do that isn't necessarily a sign of of of not knowing things. It's a sign of just saying, hey, I
need I need a little bit of help here. So I use the phrase very frequently. I love it again. I'm whoever whoever came up with it. I I'll attribute it to him if I find out, but it it is something I think and I hope I live by, and I think most of the teammates at Bearings do as well.
So let's talk a little bit about how the asset management industry is going to evolve over the next decade. You guys aren't very equity heavy, but you're much more focused on private markets, on anything that is a fairly regular income stream. How do you see not just insurance, but the entire asset management industry evolving in the future.
Well, there's clearly a growth into to what folks are calling private assets. I think that's that's definitely going to continue to be the trend. I also think in some of the more established private assets there's a blurring of lines between public and private. And you know what was in leverage loan, The lever's loan market is a pretty good market for that. You've got deals that are several
billion which are going to private credit firms. You've got deals that were started in the middle market space which would have been five hundred million, Like I said, now they're several billion. And so is that syndicated market or is that a private market? So you're seeing the ebbs and flows of that, and I think that makes sense.
There's relative values that change between public and private markets over the time, but also more and more what you're seeing is, isn't it kind of an emergence of more private asset classes being purchased by individuals and probably more by institutionals, less by individuals at this time, but over
time you'll see that. It's in the asset based finance space, the securitization space, and things that were always somewhat in the private space but didn't come out into the public markets through ACUSIP actually coming off of bank's balance sheet. So I think that's going to continue, and you've seen any numbers of three trillion to five trillion of how big the market can be. Really, anything that's in a public market from a debt standpoint can really operate in
the private market. And so it just depends on what borrowers are candidly looking for. Are they looking for some sort of certainty of execution? Can I get that better in the public market? Can I get it better in the private market? What terms can I get in each do I want? Do I want my information in the public market? Perhaps I prefer to keep I'm a closely held company, prefer maybe I'd prefer to keep my information amongst a private and small group of lenders.
So that's moving, you know.
You see new things like portfolio finance, which which is something we do on a large scale, which is it's slightly different from from NAV lending, but it's it is lending to GPS and lending to portfolios. It's a growing business, highly customized, highly bespoke structures that take a lot of heavy.
Lifting to do. But I think more and more we're going.
To see that as as people try to find and I described it earlier, possibly take getting more higher yields, higher returns, but not taking more risk, but picking that up through either complexity premium or an illiquidity premium.
So you mentioned a couple of things earlier than I want to hit back on, which is how v various markets have kind of moved up. And I see this across lots of different things, whether it's public financing or even public companies, whether they stay private or go public. It seems that everything has gotten bigger, higher, assets, higher, aum and it almost feels as if Wall Street has
kind of abandoned that middle market. You mentioned things that used to be private at at three four five hundred million are now still private at two three four billion. This seems to be going across every sector I look at. Is this just a natural evolution of capital markets? Or have valuations and size just gotten so large that Wall Street can only service these giant shops and it creates this void in the middle underneath.
Well, I think the ability for companies to stay private longer is a good thing, right, And I think it's actually and there's definitely a need for the public markets. We don't want to lose those all together, and we don't want it to only be for the trillion dollar market cap companies.
I think it's healthy to have a.
Moving market because people at times will want some sort of monetization. Event they will want some sort of liquidity, and you can get some of that into private markets, but it's it's not nearly the way you can get.
It in the public markets.
But I go back to using the leverage loan, and your example is exactly right.
When I started out.
In the business, a broadly syndicated leverage loan deal could have been five hundred million dollars. A bank would have brought that deal and ten people would have owned it and traded it.
Now that's that's not the case. You've got to be moving up.
And so I think it is an evolution of things, and I think your banking regulations have changed some of the bank's ability to do some of this this type of lending. We'll see if that changes in the future.
But the good thing about the capital markets in general is it's efficient and if there's a if there's a way for people to get excess returns, capital will flow into that and over time, if spreads become compressed there, they'll move to other areas, which I think is overall healthy, healthy for a market.
And you talked about the relative value as assets shift between public and private and back. How do you capture that gap that difference. Is it just a function of all this capital flowing into private markets. There's no doubt public markets are historically pricey today, but it feels like so much cash chasing all these private assets, you're going to end up with a very similar situation.
Yeah, I mean, I think one of the distinct differences is obviously the quickness of the rapidness at which a public market changes price, whether it's valuation second by second, whether it's valuation, or whether it's it's it's spreads on yields going wider or going tighter. That's that's effectively real time. It takes longer in the private markets because these deals take a long time to longer to originate, to close, and to move on, and so the reaction time is
slightly there. And if it's a brief correction in the market, maybe the private markets get it right and the public markets just had a period of inefficiency. But over time those two should converge and you should be getting a premium if you're moving into private assets. There's nothing to suggest that you should be getting tighter spreads in a private market giving up your liquidity, and there's some liquidity, but nearly the case of the public markets, if you're
giving that up, you should be getting a premium. So over time there needs to be a premium given into the private markets over the public markets. Which would also suggest that over time companies who are looking to as much as possible reduce their cost of capital will gravitate to where the financing is most appropriate to them, and that may be in the publics, that may be in the private.
So Barings has been in the space for decades now, it seems, certainly since the financial crisis and more intensely since the pandemic. Just you, huge flows of capital are going to private At what point does that become a crowded trade? What's the capacity like on the private side?
Yeah, it's big because in theory you can start taking market share from the public side. And that's where I think some you know are Our direct lending business is really purely in the middle market space, and so think of us looking at companies with seventy five million of vadah in below rather than.
The multi billion.
We don't currently traffic in that, and we traffic in the middle market and then we traffic in the syndicated space, but the direct lending space in between is somewhat of a white space for us. But I think that's what you've seen is as large capital allocators and aggregators have billions and tens of billions and twenties of billions to put to work, it becomes hard to do that in chunks of two hundred and fifty million, much easier to
do in two point five billion. And so there's a tug of war between the public and private markets as who's taking market share from from that All good companies, it's just what is your strategy necessarily looking to do?
But without the private market seeing new deal volume. And so whether we start to see M and A transactions come back, whether we start to see club deals being formed for public companies and club deals being club deals will have to club deals being You get four or five lenders together and they take down a four billion dollar deal and say it's it's a club of us rather than one person doing it on a buyer.
Not quite a syndicate, not quite.
It's that great, It's that it's that white space in between. It evolves in there that you've got and so they'll have to be either new deal volume, as I said, or or the private markets will have to take market share continue to take market share from the public markets.
So we're talking about institutional investors. Do they want fewer but larger and more strategic relationships? What are they looking for in terms of capabilities and portfolio solutions from an investment shop like yours?
Well, absolutely, and I think probably everyone is looking for fewer relationships. They have to deal with a lot of relationships and a lot of partners. So the more you can have a robust or a broad sense of capabilities, the more value you are to be. When I think what's interesting for what we've tried to build and how we've kind of gone through acquisitions and how we've gone through organic growth is to really make sure we cover
all of that. And so we've if you look at our acquisitions over time, if you look at what we've grown, we've tried to be global, and so we make acquisitions of things that are adjacent or tangential to our currently current strategies. Is that strategic or tactical, that's strategic, and that's just a view that we take. We want to have global capabilities for what we do, and so if we do direct lending in the US, we do direct lending in Europe, and we do direct lending in Asia.
Pack and it's it's basically saying to companies, if you have the desire.
For a global portfolio, if you.
Have the desire for us to determine where the best relative value is, we.
Can do that capability.
You don't need to select three different managers to cover three different parts of the globe. We've done that with the liquid and I liquid side. And so if folks come and say, I want I want to leverage finance product, I want something that's below investment grade. But I know at times high yields more attractive, at times leverage loans are attracted more attractive, and at times direct lendings more attractive.
You determine where that best relative value is. And I think that's been a hallmark of how we viewed it. Let's do what we do well, and let's make sure we do it globally and we have deep enough capabilities to service all those needs.
You've been on the investing side of global high yield. How has your perspective been affected as CEO from your background as a trade er investor in that space.
Yeah.
So one of the things that came out of is I was a part of a US loan group originally, so a syndicated loan group was where I first started at Babson. We then made the decision of you know, these are similar two sides to the same coin. High yield bonds and leverage loans are often in the same capital structure. One just comes with a fixed coupon, one just got accuse it. One's more private, but it's the same company. So we decided to combine those two businesses together.
Then we went and said, you know what's unique about US is we've got great capabilities in Europe and we've got great capabilities in US. And so in two thousand and nine we said, let's create a global high yield platform, which was really one of the first of its of its kind. And so that experience and perspective said to me, this is really something that's here. Clients will value our global perspective. They still may want to only allocate to one region or another, one asset or another, but who
those are interested, Let's take a look at that. And that as much as the investing side of it was, there it was really the business side of it, I think, which has helped me in my current role.
So I keep reading and hearing about new credit asset classes. What's the appetite like for that.
Yeah, it's becoming more and more popular. I think it's really on the asset base side of things. So there's a lot of different things that can fall into that category. And you're talking about origination platforms, it's a mortgage origination platform where someone will take all the mortgages originated by that and package it into something. So as more and more it becomes more and more accepted to have a portion of your portfolio in ill liquid assets. And I
don't think it's just for insurance companies. I think insurance companies are well equipped to do that because their liabilities are fairly well known. But pensions also have a bucket for things that are ill liquid, and I think historically
they've used them for higher yielding things. But I suspect going forward, and where a number of our conversations are taking place is around the IG portion of their portfolio, the investment grade portion of their portfolio that if I can pick up an additional one hundred to one hundred and fifty basis points of spread or yield in a private market, I don't need all of my assets in my portfolio to be on the liquid side. That's usually the bucket I use for liquidity is in my investment
grade and government bond side of things. But maybe I move a little bit into liquid assets and pick up additional yield for that portion because I don't need five percent, I can sacrifice for ill liquidity purposes.
So it sounds like there are a ton of tailwinds for the private credit and debt sides. What do you think is the next phase of growth the what's the next area that's ripe that perhaps hasn't really been well explored.
Yeah, but we've canvassed a lot of it. I mean, I think there's there's a lot.
But I do think the private investment grade side of the market is really.
Going to be the area where it's going to grow. And when people talk.
Of investment grade, that's private private, public.
Yes.
And so I think when people originally, even as early as last year, when you have said direct lending or private credit, everyone would have moved to middle market corporate direct lending, and that's what was in everyone's mind, and that was a component of it. It's a component of it,
but it's actually one of the smaller components of it. Candidly, when you expand to all the other types of lending that can be done and has traditionally been done by banks and has now been done by is being done by asset managers and insurance companies, the opportunities are vast, and so I think that's going to be an area that continues to grow and continues to offer investors on the institutional side, and I suspect it will start to
gravitate more and more towards the individual and wealth side of it business as well.
Really interesting, So you mentioned in passing some previous acquisitions, I know Altis and Griffon most recently, what are your plans? Are you thinking about more acquisitions? Is this deliberative or is it merely opportunistic or a little bit.
About It's really strategic, you know. I think we have looked at and where we love the portfolio capabilities that we have when we're willing to expand on those, both organically and inorganically. We've had a history of building out teams. I've referenced earlier. We started building our mental market team in twenty thirteen. At that same time, we built our emerging market debt team at that time. But also as
your reference, we've just made two acquisitions. Both happened to be in Australia, but they were extensions of capabilities we had. One was a real estate business, which gave us more of a global real estate presence, and the other was a securitization's business, which gave us global capabilities and securitizations.
So hopefully you're seeing a.
Theme here that we really want to continue to have the global and so we are very much open and looking for acquisitions. As I mentioned before, we want to fully integrate those. And so this is a people business, and so when you're looking at specifically principally owned businesses, businesses that are owned by a founder, you've got to make sure your interests are aligned there and that there's an expectation that this is going to be an over time,
an integrated company. Now, what we don't do is we don't mess with the investment process. That's what's got them there. What we do look to do is integrate operations, integrate sales to get a globe. We have a global sales force. We think it's best to leverage that way. But we're absolutely always looking for good opportunities and good things, and hopefully we'll all fit within the strategic lens. So we're not going to be looking to buy something that doesn't
fit with where we're going as a company. But certainly there are a lot of good companies out there, and we're looking at a few now and hopefully be able to have a few more to announce over the coming years.
Really really interesting. Let me throw you a curveball. All right, so you oversaw sales operations technology, you are on the investment side. Now you're CEO and chairman. How do you think about artificial intelligence affecting your business? What is the future of the sort of very personal relationships, very specific types of credit you guys swim in. How is AI going to impact that?
It is going to impact for sure, And so what we've created a we have an innovation team that really focuses on this because I think the use cases for AI and for all of these technologies is going to come throughout everyone of our teammates. It's not necessarily going to be me sitting at the top of the organization saying this is how we should use it. I the applications are yet to be determined exactly how the art
of the possible is here. I think one of the things we're finding is the data, especially in the private markets, has become so so important, and right now a lot of it is unstructured data from historical and then everyone's doing a better job of cataloging that data today. But the ability to use these machines to make decisions really depends on the access to data, and our data on
private companies and others. Data on private companies is very, very valuable to help inform investment decisions and inform business decisions. But if it's not in a structure that works, it's not in a structure that can be accessible.
It's of no value and not machine read.
It's not Look, the technology is getting better to go out and find unstructured data and bring it in, but it's.
It's still a ways a way.
The public markets have done an incredible job of bringing things together and having it to be able to mine that information, but really the private data that exists out there is so large, and it's in many cases, certainly the historical data is very unstructured.
Really interesting. So let's jump to our favorite questions that we ask all of our guests, starting with what's keeping you entertained these days? What are you watching or listening to?
Yeah, in terms of streaming, I'm I'm you know, I've just finished or almost finished with season two of Silo, So that's really Yeah, it's an interesting one.
Sci fi that's on Applifying sci.
Fi, it's on Apple, It's it's, it's it's entertainment for for sure. I watched three Body Problem a while ago.
Is so good.
Yeah, so good.
I'm waiting and anxious for the second and third season of of that to come up. So I get my fiction when I watch, and I mostly read nonfiction.
I've you know, I'm in just a.
Deep Well, we'll talk a little bit about books in a moment. Before we get there, I want to ask, who are your mentors who helped shape your career?
Yeah, so I've used these two, and these these two are really Pivotabal one was my second boss at Price Waterhouse Scoopers. What he taught me was really the caring nature of business and how it should, how people should view others and treadeaus, and it was an interest. I worked for him for only two years and ever since I've left, I still get a call on my birthday without fail. I talked to him other times, but without fail, I get a call on my birthday, and that's always resonated.
I mean, working for someone for two years, but then for decades afterwards, they continue to remember something that is you know, it's birthdays come and go every year, but it was important enough or I was important enough to him as a person to make that to make that call. So that's something I've tried to take away and be conscious of that people care about.
Those things, talk about people, skills and people business.
It was an admirable trait, certainly. And then another one was a coach of youth sports, was really one who taught me that the individual will never be above the team. And no matter how valuable someone is, no matter how important or capabilities or skill set are, if they don't fit within the strategy of a team or the approach and philosophy of a team.
It won't matter. It will be destructive.
And so learning those on really again, and I think my skill set, my personality fits well within a team based structure, which is to your earlier question about how why did I stay it or how have I stayed at Bearings for so long? It was a fit and so recognizing that always made me understand And again I think it pointed out to having some self awareness that these companies and part of my job is the steward
of the company right now. But Mass Mutual, as I mentioned, has been around for one hundred and seventy five years. As long as it owns Bearings, It's going to be around many many years after I'm gone, and I'm a steward of it currently at this but my job is to bring other people along and so therefore it has to.
Be a team.
Let's talk about books. What are some of your favorites? What are you reading right now?
Yeah, I'm just finishing up the Steve Jobs book by Walter He's fantastic. Before that, I read the Musk Book and then actually read a book by him called Code Breakers, which was out the about.
The m R and a technology.
So I get most I read mostly nonfiction when it comes to that, So I'm going through those kind of juggle books at the same time. I just also finished seventeen seventy six by David mccaugh. Uh huh, So that's that's really what I'm reading, but most of the stuff is nonfiction.
I every time someone brings up mccaullaughy, I have to bring up the Right Brothers book by him. Amazing.
Yeah, never, Okay, well that'll we'll put that on the list. I haven't read it yet, but I'll put that on the list. And a good writer is so gifted. I mean, it's it's amazing what they can do with stories. So I've enjoyed reading reading those.
Our final two questions, what sort of advice would you give to a recent college grad interested in a career in either private investing, insurance investing, or in general if if that was what they were interested in as a career.
Yeah, I mean, first, it's a great it's a great industry. I love it.
And there's a lot of aspects of financial services. And this is somewhat timely. I've got a I've got a sophomore in college now who I'm somewhat counseling on, although he listens less.
To me and more to other people.
But I've always advised when we bring in two year analysts out of college, we have a two year analyst program. When I'm fortunate enough to speak with them, it's take it all in. You don't know exactly what you want to do today, but look around, ask a lot of questions. Intellectual curiosity is key. If you've got intellectual curiosity about something, you'll be.
Better at it.
But most importantly, find a place where you want to be working with who you want to work with, doing what you want to do, and that that, to me, is the key. If if you find yourself in any of those three don't match up, I really think it's it's irrespective of how great you think the industry is, the prestige of it, you just won't be happy long term. And I think I was again fortunate. I loved public accounting,
but I couldn't see myself doing that forever. I enjoyed it, and I was fortunate and to find myself in the situation like this. So if you're not where you are, with who you want to be with doing what you want, it'd be time to move on.
And our final question, what do you know about the world of finance, credit, lending and investing today you wish you knew twenty five years or so ago when you were really first getting started.
Yeah, I think what I would say is what I knew back then, or thought I knew back then, that fundamentals.
Ultimately will are key.
You lose track of that sometimes when you see euphoria and you see bubbles and you start to get away from really long term cash flows of things or what really matters over time. So I think it's not what I wish I knew then, it was what I wish I hadn't forgotten over time, because mistakes are made really
when you lose sight of the fundamentals of things. And so I'd encourage folks that long term valuation should be based off an expectation of growth and expectation that that sooner or later will turn into earnings, which will ultimately turn into cash flows. In keeping that in mind that that's the fundamental for all investments. In what investments that or people are made in Ultimately, valuations.
Really really very fascinating. Mike Freno, thank you for being so generous with your time. We have been speaking with Mike Freno, chairman and CEO of Bearings, which manages over four hundred and thirty billion dollars in global financial assets. If you enjoy this conversation, check out any of the five hundred previous interviews we've done over the past ten years. You can find those at Bloomberg, iTunes, Spotify, YouTube, wherever
you find your favorite podcasts. And be sure and check out my new book, How Not to Invest The Ideas, numbers, and behaviors that destroy wealth and How to avoid them, coming March eighteenth, twenty twenty five. I would be remiss if I did not thank the Cracked team that helps put these conversations together. Adam Luke is my producer. John Wasserman is my audio engineer. Sean Russo is my researcher. Sage Bauman is the head of podcasts here at Bloomberg.
I'm Barry Richdolts. You've been listening to Masters in Business on Bloomberg Radio.