♪ >> PLEASE, WELCOME TO THE
STAGE TCW CEO KATIE KOCH WITH BLOOMBERG'S ROMAINE BOSTICK. ♪ ROMAINE: I'M GLAD THAT
EVERYONE MADE IT BACK IN. TOM KEENE IS STILL OUT THERE TAKING SELFIES, $5 A POP IF YOU
WANT ONE. IT IS A WHIRLWIND WORKING IN
THIS BUSINESS AND GIVING ECONOMIC CONDITIONS NOW.
THERE IS A LOT OF DISCUSSION ABOUT VOLATILITY AND WHAT IT
MEANS FOR A MANAGER LIKE YOURSELF. KATIE: THERE IS A LOT, PARTICULARLY IN
BOND MARKETS, THAT IS PARTICULARLY PRONOUNCED.
THE REASON IS WE ARE AT THE PRECIPICE OF THE ECONOMIC
LANDSCAPE CHANGING AND PEOPLE WONDERING WHETHER WE ARE GOING
TO HAVE A RECESSION AND WHAT TYPE OF LANDING WE ARE GOING TO
HAVE. I THINK UNTIL WE GET MORE CERTAINTY WE SHOULD EXPECT THAT
TO BE THE CONTINUED BACKDROP FOR INVESTING. ROMAINE:
WHY DON'T YOU THINK WE HAVE MORE CERTAINTY?
IT HAS BEEN MORE THAN A YEAR AND A HALF.
THE DATA IS THERE, WHAT DO YOU THINK? KATIE: I THINK THERE IS A 100%
CERTAINTY WE WILL HAVE A RECESSION.
THAT IS THE WAY THE WORLD WORKS. THE TIMING IS HARDER TO CALL.
OUR VIEW IS WE WILL HAVE A MEDIUM TO HARD LANDING, AND I
WILL UNPACK THAT AS TO WHY WE THINK THAT IS THE CASE.
FIRST, WE HAVE HAD 15 YEARS OF UNINTERRUPTED EXPANSION.
JUST A LITTLE BLIP DURING COVID. THE LONGER THE RECOVERY THE
MORE ACCESS WE HAVE TO WORK OUT OF THE SYSTEM.
WHAT WE LOOK AT IS M2. DURING COVID IT WENT ALL THE
WAY UP. WE ALL TOLD OURSELVES THE NICE
STORY THAT THAT WAS GOING TO BE TRANSITORY, TRANSITORY
INFLATION, AND THAT OBVIOUSLY TURNED OUT TO NOT BE THE CASE
AND IT HAS COME DOWN DRAMATICALLY TO THE BOTTOM OF
THE CHART. THE NICE STORY TO TELL
OURSELVES AS WE WILL GET A SOFT LANDING, BUT WE THINK IT WILL
BE TOUGHER THAN THAT. PARTLY BECAUSE OF THE EXCESS TO
WORK OUT, AS I MENTIONED. THE SECOND THING IS WE HAVE A
GLOBAL CALL ON LIQUIDITY NOW. THE FACT THAT RATES WILL GO UP,
BUT IF YOU LOOK AT WHAT IS HAPPENING WITH THE REGIONAL
BANKS, WHICH ARE AN IMPORTANT PART OF FINANCING, THEY ARE
MORE CONSTRAINED BECAUSE OF DEPOSIT FLIGHT. YOU LOOK AT OUR PORTFOLIO
COMPANIES, THEY ARE STRUGGLING TO RENEW REVOLVERS AND EXTEND
LOANS AND THAT WILL HAVE A REAL ECONOMIC IMPACT. ROMAINE:
WE ARE ALREADY HEARING THAT. PEOPLE HAVE CUT BACK IN CERTAIN
AREAS OF LENDING AND ALSO LOWER QUALITY HERE.
YOU EXPECT THAT TO INCREASE? KATIE:
WE NEED TO HAVE THE RECESSION, AND WE ARE SEEING SIGNS OF
THAT, BUT WE NEED THAT TO GET WORSE. RATES GO UP, FINANCIAL CONDITIONS TIGHTENING, AND WHAT
HAPPENS IS CONSUMPTION AND INVESTMENT DROPS AND WE GET JOB
DISRUPTION. THAT IS THE GENERAL ARC OF
RECESSION. ROMAINE: ARE WE FOLLOWING THAT? KATIE: WE ARE, AND IT WILL BE
CHALLENGING AND THE MEDIUM TO HARD LANDING.
WHAT ARE RATES DOING? THE GLOBAL CALL ON LIQUIDITY
WILL CONTINUE TO BE SEVERE. THE FINAL COMMENT THAT I WOULD
MAKE IS WHEN CAPITAL PRICES THIS AGGRESSIVELY, THINGS BREAK.
WE HAVE SEEN SIGNS OF THAT. THERE ARE MORE THINGS TO
DISLOCATE AHEAD. I WANT TO END BY SAYING AT TCW
WE ARE VALUE-ORIENTED INVESTORS, SO THIS CAN CREATE
TREMENDOUS OPPORTUNITY TO LEAN IN ON BEHALF OF OUR CLIENTS.
ROMAINE: TITAN THAT COMES WITH A CERTAIN
DEGREE OF RISK. -- TO IDENTIFY THAT COMES WITH
A CERTAIN DEGREE OF RISK. WHAT CONSTITUTES VALUE? KATIE:
I WANT TO TALK ABOUT PRIVATE CREDIT.
I HAVE FRIENDS IN PRIVATE CREDIT. WE HAVE A GREAT PRIVATE CREDIT
TEAM AND GIVES ME CHANCES TO GIVE A NEW HEADLINE.
YOUR COLLEAGUE INTERVIEWED ME ABOUT PRIVATE CREDIT AND THE
HEADLINE THAT BLOOMBERG PICKED UP WAS "BIG ACCIDENTS AHEAD."
IT WAS AMUSING BECAUSE MY HEAD OF DISTRIBUTION WAS THERE AND
WE HAD DONE 40 LP MEETINGS. HE SAID, YOU KNOW WE ARE HERE
TRYING TO RAISE CAPITAL, RIGHT? SO THIS IS MY SECOND CHANCE FOR
MY BLOOMBERG HEADLINE. I WILL SAY, GET YOUR PENS OUT,
PRIVATE CREDIT, EPIC OPPORTUNITY, MANAGER SELECTION
HAPPENS. ROMAINE: I WILL MAKE THAT HAPPEN.
SONALI CAN BE A LITTLE TOUGH. KATIE:
SHE IS FANTASTIC, BUT I DO WANT TO UNPACK THAT.
IT WILL BE AN EPIC OPPORTUNITY. WHENEVER CAPITAL WITHDRAWS
THERE IS AN OPPORTUNITY FOR OUTSIZED RETURNS AND WE THINK
THAT THAT IS WHAT THE NEXT DECADE WILL LOOK LIKE. TWO QUICK THINGS TO SAY, 96% OF
PRIVATE CREDIT MANAGERS STARTED POST-FINANCIAL CRISIS IN A LOW
TO ZERO RATE ENVIRONMENT. AND WE ALL GET TO BE GENIUSES
WHEN CAPITAL IS FREE. WHEN YOU LOOK AT THE COVENANT
LIGHT LOANS THAT EXIST NOW, THEY ARE AT THREE TIMES HIGHER
VOLUME THAN THEY WERE PRE-GFCI. WE ARE SEEING CRACKS IN THE
CREDIT MARKET AND WE ARE HAVING A SECOND QUARTER WHERE DEFAULTS
HAVE GONE UP. THAT IS THE BACKDROP FROM WHICH
PRIVATE CREDIT MATTERS. TO END WITH REPROACH, AND I
THINK THAT WILL BE INTERESTING TO PEOPLE WATCHING BECAUSE IT
GIVES YOU A SENSE OF WHAT TO ASK YOUR MANAGERS, OUR TEAM IS
LED BY RICK MILLER, AN INCREDIBLE INVESTOR AND LEADER.
ONE OF THE FEW PEOPLE ON THE TEAM THAT HAS BEEN DOING THIS
FOR 20 YEARS. WE HAVE INVESTED THROUGH THREE
RECESSIONS AND MADE ABOUT 300 INVESTMENTS AND ONLY LOST MONEY
IN A HANDFUL. I THINK THERE IS WISDOM TO
SHARE FROM THAT TEAM. THEY WOULD SAY THAT COVENANTS
MATTERS, DILIGENCE MATTERS, ORIGINATION AND THE ASSET CLASS
MATTERS VERY DEEPLY, AND THE ABILITY TO HAVE RESTRUCTURING
EXPERIENCE. I WOULD SPEND A LOT OF TIME IF
A LOT OF PEOPLE ARE LOOKING TO PUT CAPITAL TO WORK IN PRIVATE
CREDIT PUSHING INTO THE ISSUES OF WHAT ARE THE COVENANT THAT
YOU PUT INTO PLACE? WHEN THINGS GO SIDEWAYS
COVENANT PUTS YOU IN A SEAT AT THE TABLE.
REALLY PUSH YOUR MANAGER ON THAT . ORIGINATION.
IF YOU HAVE BEEN RELYING ON BIG PRIVATE EQUITY SPONSORS FOR
ORIGINATION, THAT WILL BE HARDER DEAL FLOW BECAUSE WE
KNOW THAT FUNDRAISING IS DOWN IN PRIVATE EQUITY ORIGINATION.
STRUCTURING EXPERIENCE, PUSH THEM, HAVE YOU BEEN AT A CREDIT
COMMITTEE AT 2:00 A.M. EATING COLD PIZZA AND FIGHTING
OVER THE ASSET? HAVE YOU FOUND A WAY TO FIX IT?
IMPORTANT THINGS TO ASK. ROMAINE:
YOU MENTIONED MORE THAN A DECADE OF UNINTERRUPTED GROWTH
AND LOWER RATES. THAT MEANS COMING OUT OF THAT,
WHATEVER THE NEW NORMAL WILL BE, CAN YOU BANK ON THAT
RESTRUCTURING CYCLE TO LOOK SIMILAR TO WHAT WE SAW PRIOR TO
THE GLOBAL PANDEMIC? KATIE: I THINK THAT THINGS WORK THE
SAME WAY. WE TALKED ABOUT PRIVATE CREDIT
AND I THINK THERE WILL BE PARTS OF THE REAL ESTATE MARKET WHERE
THERE COULD BE OPPORTUNITIES AS WELL. IT WILL LOOK SIMILAR. ONLY THE RIGHT ASSETS,
REPOSITIONING THOSE ASSETS TO PERFORM WHEN THE ECONOMY
RECOVERS. IT'S VERY CLEAR. THE ONE THING THAT I CERTAINLY
LEARNED INVESTING THROUGH THREE RECESSIONS, THE BEST
OPPORTUNITIES ARE COMING ON THE OTHERS OF THEM.
THAT IS A GREAT OPPORTUNITY FOR ASSET OWNERS AROUND THE WORLD
IF THEY ARE POSITIONED CORRECTLY. ROMAINE:
YOU MENTIONED REAL ESTATE, BECAUSE THERE ARE MIXED VIEWS
ABOUT WHETHER THERE IS OPPORTUNITY IN THE SPACE.
THERE IS SOMETHING TO BE FOUND, BUT A LOT OF PEOPLE THINK THERE
ARE STRUCTURAL CHANGES ON THE COMMERCIAL REAL ESTATE SIDE
THAT WILL BE DIFFERENT THAN WHAT ANY OF US HAVE SEEN IN OUR
LIFETIME? KATIE: I THINK TO STATE THE OBVIOUS, A
GOOD PLACE TO START, THERE ARE ALWAYS OPPORTUNITIES IN REAL
ESTATE, IT IS THE WORLD'S LARGEST ASSET CLASS.
I THINK THAT SECTOR SELECTION HAS MATTERED AND CONTINUES TO
MATTER AN ENORMOUS AMOUNT FOR THAT ASSET CLASS.
I WILL START WITH THE SECURE PART OF IT AT TCW.
WE RUN 95 MILLION DOLLARS ON BEHALF OF CLIENTS WITH
SECURITIZED ASSETS. OUR CO-CIO HAS BEEN INVESTING
IN THAT SPACE FOR DECADES. THE WAY THAT WE ARE POSITIONED
FOR CLIENTS IS THAT WE ARE POSITIVE ON RESIDENTIAL FOR THE
OBVIOUS REASONS THAT IT CONTINUES TO BE AN
UNDERSUPPLIED MARKET. FOR THOSE OF YOU FORTUNATE
ENOUGH TO BE HOMEOWNERS IN THIS ROOM WITH A 30-YEAR FIXED
MORTGAGE, YOU PROBABLY ARE NOT THINKING ABOUT MOVING SOON
BECAUSE YOU ARE IN A GOOD POSITION RELATIVE TO WHERE
RATES ARE. WE EXPECT PEOPLE TO STAY IN
THEIR HOMES. ON THE COMMERCIAL SIDE, THERE
WILL BE A CHALLENGES. IF YOU LOOK AT THE MARKET
BROADLY, $3 TRILLION OF THAT, 50%, IS UP TO BE EXTENDED,
BASICALLY, AT FOUR POINTS HIGHER.
THAT WILL CAUSE REAL ISSUES. TO DIG INTO THAT, THE AREA THAT
WE ARE THE MOST CONCERNED ABOUT, AND I DON'T THINK IT
MAKES US UNIQUE, HIS OFFICE. IT'S IMPORTANT TO THINK ABOUT
THESE THINGS IN HISTORICAL PARALLELS.
I THINK WHAT HAPPENED WITH THE RETAIL PROVIDES AN INTERESTING
LENS. WE ARE THINKING ABOUT WHAT HAPPENS IN OFFICE ACROSS THE
CAP STRUCTURE. IN RETAIL, YOU HAD THE
INTERNET, AMAZON DISRUPT THE MARKET, BRICK AND MORTAR SHRUNK
DRAMATICALLY IN TERMS OF SQUARE FOOTAGE.
THERE ARE STILL WINNERS IN THE SPACE.
CLASS A MALLS LIKE THE ONE THAT I LIVE ACROSS FROM IN TRIBECA.
THESE ARE STILL TROPHY PROPERTIES.
YOU CAN FIND GOOD ASSETS. ON THE OTHERS WE HAVE
DEADMALLS.COM. THOSE MALLS ARE NOW TRAMPLING
PARKS OR DATA CENTERS. ROMAINE: I WAKE UP EVERY MORNING AND
LOOK AT THAT WEBSITE. YOU MENTIONED BROOKFIELD AND
THE MALL, BUT WE TALKED ABOUT THE SUPPORT FROM THE MALL
COMING FROM THE OFFICES UP TOP. WE KNOW THE VACANCY RATES THAT
HAVE BEEN REPORTED HERE. THERE IS STILL THIS BROAD
DISCUSSION HERE ABOUT HYBRID WORK AND WORK FROM HOME.
WE WERE TALKING -- WHICH I THOUGHT WAS RICH
SINCE SHE SPENT MOST OF HER LIFE FILMING AT HOME. KATIE:
JUST TO EXTEND THAT IN OFFICE, SQUARE FOOTAGE IS GOING TO HAVE
TO GET TAKEN OUT BECAUSE WE HAVE COLLECTIVELY AS A COUNTRY
TO MOVE TOWARD A HYBRID WORKING MODEL.
IT WILL NOT GO TO ZERO BUT IT WILL HAVE TO RE-ADJUST. THERE
WILL BE GREAT OPPORTUNITIES BECAUSE IN THE OFFICES, SO THAT
EQUIVALENT OF THE BEST MALLS AND OFFICES, WE NEED TO GIVE
PEOPLE A REASON TO COME INTO WORK.
LIKE YOU HAVE A SIXTH FLOOR HERE, AND THAT IS WHY I COME TO
A NUMBER OF EARLY TO GET THE FREE COFFEE. ROMAINE:
I SAW YOU SCROUNGING AROUND. KATIE: JUST LOOK IN MY PURSE.
[LAUGHTER] ROMAINE: CHECK HER ON THE WAY OUT. KATIE:
YOU HAVE A REASON FOR PEOPLE TO COME IN HERE, THE DAYLIGHT,
ACTIVITY, FREE FOOD, AND WE NEED TO PROVIDE THOSE AMENITIES
AND OFFICES. THERE ARE GOING TO BE
OPPORTUNITIES FOR GREAT PROPERTIES AND A LOT OF GREAT
SQUARE FOOTAGE THAT GOES AWAY. THAT CAN BE CONVERTED IN SOME
INSTANCES. AND IN SOME MARKETS IT CAN BE
CONVERTED TO MULTIFAMILY. MAYBE IF IT IS A MERE OR CHEAP
SOURCE OF ENERGY, IT CAN BE CONVERTED TO DATA AND SOME
PROPERTIES WILL BE REINVENTED. ROMAINE: YOU ARE SMART ENOUGH TO
UNDERSTAND THOSE POTENTIAL OPPORTUNITIES.
YOU ARE APPROACHING OTHER MANAGERS OF COMPANIES.
ARE THEY ALSO LOOKING INTO THAT SPACE WITH THAT SAME SENSE OF
UNDERSTANDING? KATIE: YEAH, IN REAL ESTATE, THERE
WILL BE OPPORTUNITIES. SELECTIVITY MATTERS, IT MATTERS
IN THE PUBLIC AND PRIVATE EQUITY MARKETS, AND THE SAME
THING ON THE CREDIT SIDE. I THINK WE ARE ALL TRYING TO
ATTACK THAT THOUGHTFULLY FOR OUR CLIENTS. ROMAINE:
THERE ARE BROADER ISSUES ABOUT WHEN WE GET TO WHATEVER THE END
OF THE RATE TIGHTENING CYCLE IS AND IF WE GO INTO A RECESSION,
WHAT IS ON THE BACK END OF THE RECESSION?
IS IT GOING TO BE GROWTH AT A LEVEL WE ARE USED TO PRIOR?
THERE HAS BEEN TALK ABOUT STAT-INFLATION -- STAGFLATION
WE HAVE HEARD THIS FROM A LOT OF FOLKS BEFORE. KATIE:
I AM A BELIEVER GROWTH WILL RECOVER. I BELIEVE WE WILL FIND NEW
PATHS FOR GROWTH. THAT HAS BEEN A LONG MARCH OF
HISTORY SO I THINK WE WILL RECOVER IT TO NORMALIZED GROWTH
LEVELS IN THIS COUNTRY. WE DO NOT HAVE TO TALK ABOUT AI
BECAUSE PEOPLE ARE PROBABLY BORED ABOUT IT BUT GENERATIVE
AI IS ANOTHER EXAMPLE OF HOW WE CONTINUE TO INNOVATE AND CREATE
OPPORTUNITIES FOR MARGIN EXPANSION AND ADDITIONAL GLOBAL
GROWTH OPPORTUNITIES. I AM OPTIMISTIC THAT WE WILL
RECOVER TO NEW LEVELS. YOU ROMAINE: ROMAINE:
YOU HAVE SEEN A LOT OF INVESTORS AND THERE SEEMS TO BE
A WANT OF SOMETHING BIGGER BUT IS THERE SOMETHING ELSE DOWN
THE ROAD THAT YOU HAVE YOUR EYE ON? KATIE: FOR SURE. I WANT TO TALK ABOUT PUBLIC AND
PRIVATE MARKETS, BUT JUST THE STICK ON TECHNOLOGY, AS SOMEONE
WHO HAS INVESTED IN PUBLIC EQUITY MARKETS, PUBLIC EQUITY
MARKETS LOVE A NARRATIVE. ONE OF THE REASONS WE ARE UP
10, 12% THIS YEAR IS BECAUSE YOU HAVE A GOOD NARRATIVE WITH
AI. AS YOU KNOW, ALMOST ALL OF THAT
RETURN COMES FROM SUDDEN COMPANIES THAT ARE SOMEHOW
LINKED TO THE NARRATIVE. I DO THINK IT IS REAL.
I THINK THERE ARE COMPANIES WHO ARE PROVIDERS TO THAT WHO HAVE
DONE WELL, AND IT WILL PROVIDE FOR THE BUSINESS I RUN, MASSIVE
OPPORTUNITIES FOR MARGIN EXPANSION. I THINK THAT IS GOOD.
WE WILL BE OVEROPTIMISTIC ABOUT IT AND THAT IT WILL COME BACK
TO A MORE REASONABLE PLACE. I BELIEVE IT IS IT
TRANSFORMATIVE TECHNOLOGY WITH GREAT INVESTMENT OPPORTUNITIES
IN PRIVATE AND PUBLIC MARKETS AND HAVE POTENTIAL FOR SOME
COMPANIES, AND IT WILL CREATE GREAT DISRUPTION.
ON EQUITY MARKETS, THAT CHALLENGES, I THINK WE HAD A
RESILIENT FIRST QUARTER OF EARNINGS.
THE SECOND IS GOING TO BE MORE CHALLENGED WITH RATES GOING UP
AND AT THIS VERY MOMENT IN TIME, A PRESSURE ON MARGINS AND
THAT WILL BE A HEADWIND TO EQUITY MARKETS.
FINALLY, THE MARKET IS EXPENSIVE RELATIVE TO HISTORY
DESPITE IS FACING CHALLENGES. ROMAINE:
AND YOU TALK ABOUT THE OVERALL MARKET WHEN YOU SAY THE
MULTIPLE. KATIE: YEAH, AND IT IS STILL ELEVATED
OVER HISTORY AND THAT DOES NOT FIT WITH THE CURRENT ECONOMIC
ENVIRONMENT. ROMAINE: YOUR PREVIOUS JOB, YOU ELSE
WITH EQUITIES. ARE THOSE TWO WORLDS SPEAKING
THE SAME LANGUAGE RIGHT NOW? KATIE:
I THINK EQUITY MARKETS ARE SHOWING MORE OPTIMISM AT THE
MOMENT. ROMAINE: AND ARE THE BOND MARKETS
SHOWING PESSIMISM? KATIE: I AM WORKING ON THAT BECAUSE I
GENERALLY OPTIMISTIC, SO I AM LOOKING TO BE MORE BALANCED,
BUT WE HAVE A STRONG PUBLIC EQUITY BUSINESS, AS WELL AND
THAT IS WHERE THE IDEAS COME FROM. I DO THINK YOU ARE SEEING
DIFFERENCES IN THE WAY THINGS ARE BEING PRICED BETWEEN THE
PUBLIC AND PRIVATE MARKETS. I THINK THAT IS SOMETHING THAT
IS REALLY IMPORTANT FOR ASSET OWNERS TO THINK ABOUT HOW THEY
WILL BE ALLOCATED ACROSS PUBLIC AND PRIVATE MARKETS, AND
EQUITY, DEBT AND THEIR PORTFOLIO. ROMAINE:
IT DOES COME TO THE QUESTION IF THOSE TWO WORLDS CAN LIVE
TOGETHER. EVEN IF THEY HAVE VALUATION
STRETCHED ON AN AGGREGATE ASUS ON THE MARKET, SOME WOULD SAY
ON AN INDIVIDUAL BASIS, THERE IS A LOT OF STOCK IN THE
THEORY, VALUE AND LEVELS. YOU HAVE SOME OF THE SAME
BIFURCATION IN THAT MARKET, AS WELL. KATIE: RIGHT. AND TAKING PUBLIC AND PRIVATE
MARKETS, BIG PICTURE STATEMENT TO RESPOND TO YOUR QUESTION,
PEOPLE NEED TO HAVE EXPOSURE TO BOTH BECAUSE WHAT YOU ARE
TRYING TO DO IN YOUR PORTFOLIO IS REFLECT THE PRODUCTIVE
CAPACITY OF THE WORLD, AND NOW IT REALLY EXISTS IN SIZE AND
GROWTH MARKETS. I WOULD START WITH THAT.
THE OTHER REASON TO BE THINKING ABOUT BOTH IS THERE IS
ARBITRAGE OPPORTUNITIES, AND THE REALITY IS WHEN THE NEWS
COMES IN, IT GETS COMPUTED MORE QUICKLY INTO PUBLIC MARKETS AND
OUR OFFICE IS AN EXAMPLE OF HOW WEEKLY THAT WAS PRICED INTO
PUBLIC READS VERSUS OTHER MARKETS AND THERE IS A WAY TO
ARBITRAGE THAT. THE FINAL POINT I WOULD MAKE
RELATIVE TO FIXED INCOME, I LIVED THROUGH THIS AS A PUBLIC
EQUITY INVESTOR. THE PRIVATE MARKETS TOOK SO
MUCH MORE SHARE OF EQUITY MARKETS, AND WE NOW HAVE 50%
LESS PUBLIC LISTED COMPANIES IN THE UNITED STATES THAN WE HAD
20 YEARS AGO. AND THROUGH THAT PATTERN
RECOGNITION, I THINK THAT STORY IS COMING TO FIXED INCOME
MARKETS. I BELIEVE WE WILL CONTINUE TO
HAVE A DISRUPTION OF LIQUID FIXED INCOME MARKETS. ROMAINE:
WHAT IS THE CATALYST FOR THAT? THE WHOLE GROWTH OF PRIVATE
BUSINESS TO A CERTAIN EXTENT WAS ONE OUT OF THE GLOBAL
FINANCIAL CRISIS AND ZERO BOUNDARIES AND ITSELF
ACCELERATED. I DON'T KNOW WHAT EVERYONE IS
DOING IN CALIFORNIA BUT THOSE FIRMS ARE AT THE FOREFRONT OF
IT. WHAT IS THE NEXT CATALYST THAT
TAKES THEM FROM WHERE THEY ARE NOW IN DOUBLES THE MARKET LEVEL?
KATIE: PRIVATE EQUITY, LOW RATES HELPS, BUT, ALSO, THERE IS
VALUE ADDS AND INCREDIBLE PRIVATE EQUITY COMPANIES THAT
CAN VALUE ADD ON TOP OF THE RUNNING OF THOSE COMPANIES,
WHICH PROVIDES ACCESS TO RETURN TO CLIENTS, WHICH IS GREAT. ALSO, A LOT OF COMPANIES,
BECAUSE THERE WAS MORE CAPITAL AVAILABLE, THEY MIGHT ARGUE IT
IS MORE FUN TO BE THE CEO OF A PRIVATE COMPANY THAN PUBLIC
BECAUSE OF THE REGULATORY SCRUTINY, SO THAT IS IN EQUITY
DIRECTION. ON THE DEPTH SIDE -- DEBT SIDE,
REGULATION. THANKS HAVE HAD TO WITHDRAW
FROM THE WAY THEY HAVE FINANCE THINGS, AND THEY HAVE GONE TO
THE PRIVATE MARKET AND THAT IS WHY DIRECT LENDING SPECIFICALLY
HAS BECOME SUCH A BIG MARKET. THERE IS GOING TO BE FURTHER
PRIVATIZATION AND THE SECURITIZED MARKET, OR YOU WILL
SEE MORE PRIVATE AND LESS LIQUID SECURITIZED PLACES.
BROADLY, WHILE WE CONTINUE TO BE VERY POSITIVE, PARTICULARLY
ON IDIOSYNCRATIC OPPORTUNITIES AND A LIQUID FIXED INCOME
MARKET, WE ARE PREPARING OURSELVES FOR A WORLD WERE
THERE WILL BE MORE FIXED INCOME OPPORTUNITIES IN THE PRIVATE
MARKET. ROMAINE: AND WHAT WE ARE SEEING BY
TRADITIONAL BANKS, DO YOU EXPECT THAT TO CONTINUE TO
ACCELERATE? KATIE: THERE ARE REAL REGULATORY
ISSUES THAT WE ARE GETTING DISINTERMEDIATION OF LENDING.
ONE THING TO HIGHLIGHT IS SPEAKING TO OUR CREDIT TEAM,
STEVE PURDY, JERRY, BRIAN, WHO WAS THE LEADER IN OUR
HIGH-YIELD SPACE SPECIFICALLY, THE FACT THAT BANKS HAVE
WITHDRAWN FROM THAT SPACE, BUT, IN ADDITION, ACTUALLY HEDGE
FUND, SO SMART MONEY IN THE CREDIT SPACE HAVE STARTED TO DO
MORE PRIVATE THAN PUBLIC AND THE BANKS ARE COVERING THE
COMPANIES LESS, WHICH MEANS LIQUIDITY HAS THINNED IT
RESEARCH COVERAGE HAS GONE DOWN, CREATING IDIOSYNCRATIC
OPPORTUNITIES AND THAT LIQUID PART OF THE MARKET WHICH IS
INTERESTING AND SOMETHING PEOPLE SEND -- SHOULD FOCUS ON.
ROMAINE: AS THAT PRIVATE WORLD GROWS AND
GROWS, THERE HAS BEEN A LOT OF TALK ABOUT IF THERE SHOULD BE
MORE REGULATION VERSUS WHAT WE SEE WITH TRADITIONAL BANKS.
MAYBE ONE DAY FOLKS IN WASHINGTON SAY, MAYBE WE SHOULD
DO MORE? KATIE: I THINK IT IS ALWAYS GOOD TO
HAVE REGULATION ON THE WAY THAT WE INVEST, BOTH FOR
INSTITUTIONAL AND INDIVIDUAL INVESTORS.
SO, REGULATION HAS PERHAPS HAD THE UNINTENDED CONSEQUENCE OF
MOVING MORE AND MORE INTO THE PRIVATE MARKET.
IT IS REASONABLE TO EXPECT ELEVATED LEVELS OF REGULATION
FOR THAT AND AS LONG AS THAT IS IN THE BEST INTEREST OF ASSET
OWNERS, I THINK IT IS A GOOD THING. ROMAINE:
GOOD CONVERSATION. KATIE KOCH, EVERYONE. KATIE:
THANK YOU FOR HAVING ME. [APPLAUSE]
