00:00It seems like, I mean, you think about some of the issuers in the bond markets, switching between private and public markets.
00:07Then you think about some of the companies in the equity markets, too, those take privates that are happening.
00:14As the CEO of an asset manager with about $4 trillion in assets under management, how are you approaching that blurring distinction?
00:22Well, the way I think about it is that it's happening.
00:26The opportunity to be able to provide investors with the advantage of public markets, deep liquidity, transparency, fees, and combine that with the diversification potential that you have in private markets, I think, is great for investors.
00:46I do think, though, you need to approach it relatively cautiously.
00:49Many investors face liquidity issues in their portfolios, and I think it's important to weigh those challenges as well as the advantages that you see.
01:01But you're absolutely right.
01:03In fixed income markets, borrowers and issuers are approaching the syndicated lending market.
01:09They're issuing public bonds.
01:11And sometimes they're negotiating private transactions with private credit providers.
01:16The ability for a portfolio manager to look at relative values across all of those markets, and the answer isn't always private credit.
01:23It's not always high.
01:25The answer isn't always high yield.
01:26But the ability for a portfolio manager to move across those markets, I think, is going to be a big advantage over time, assuming investors can handle the liquidity of private markets, which is a very important consideration.
01:38Yeah.
01:39Well, there's a lot to dig into there.
01:40But let's dig into that last point specifically, the liquidity.
01:44When you think about how much private credit should be in the average portfolio, and I know that doesn't exist, I wonder where you fall on that question.
01:52I know that J.P. Morgan Asset Management filed for a total credit ETF yesterday that has an up to 15 percent allocation to private credit.
02:01I know you can't speak specifically to an active filing, but, I mean, 10 to 15 percent, does that sound right?
02:08Well, I think it really depends on the individual circumstances and the investment horizon and risk tolerance of the individual investors.
02:18I don't think you can answer that as a general statement.
02:22I do think, importantly, for ETFs and mutual funds, which are daily valued and daily redemptions and purchases occur, that it's very important that the liquidity considerations be paramount and important.
02:35And that's particularly important as we move towards defined contribution plans and other conversations that are happening in the industry around the use of private securities in daily valued portfolios.
02:48There's been also a lot of talk, in addition to the liquidity issues, about return possibilities, if you will, and how that stacks up against more traditional assets.
02:57I mean, obviously, you know, the 60-40, I know that's long gone, but that was sort of, at least from a retirement plan perspective, that was sort of the model, maybe on a sort of a targeted sort of ramp up into one or the other.
03:07How much does that change?
03:08Well, listen, the way I think about it and our teams think about it is the advantage of public markets in terms of the liquidity profile.
03:21And public markets aren't dead.
03:23There's a tremendous amount of innovation that is happening.
03:26We pioneered the use of derivative income strategies, and that's become a major opportunity in the market to produce uncorrelated returns to diversify portfolios further.
03:40Private markets are going to offer the same opportunity to do that.
03:44And, importantly, though, disclosures, transparency, the level of fees are something that individual investors and institutions need to consider quite closely in evaluating the use of private markets and diversified portfolios.
04:01Are you getting that diversification, too?
04:03If we start to see more of this convergence between public and private markets, I mean, is that separation that has traditionally sort of made private markets more attractive, does that get blurred or muted a little bit as it sort of moves, I guess, more into the public sphere?
04:17Yes, I think so.
04:18I mean, if you think about what's going to happen in five to ten years tomorrow, is the private markets going to look more like public markets?
04:24Probably.
04:24And that's going to relate to transparency.
04:27It's going to relate to fees, secondary market liquidity.
04:31Those are all going to change the dynamics of the markets.
04:35But the innovation that's going to continue to occur in the development of these tools for investors, I think that's one of the most exciting things about markets today and what's happening in the asset management space.
04:47I also want to talk about relative valuations a little bit here because you and I last spoke, I think, at the end of June.
04:53And you made the interesting point that you take a look at the private credit landscape and it looks a little bit frothy, especially when you take a look at public high yield, for example.
05:03It feels like since then, spreads have only gotten tighter.
05:06So, I mean, right now, where do you stand?
05:08Well, I think markets are pricing in a very favorable outlook on both credit and equity markets and for good reason.
05:20The economy is quite healthy.
05:22Consumer balance sheets are healthy.
05:24The corporate sector.
05:27And that's priced into equity and spreads in high yield markets.
05:32I continue to believe that public markets offer tremendous opportunity for investors.
05:40And I think if you look at particularly taking into account liquidity considerations, I tend to steer today towards public markets as being relatively better valued.
05:52And, George, before we let you go, I have to ask you about something fairly in the weeds.
05:55And that is what we saw on Monday, the SEC putting on a statement that it intends to grant dimensional fund advisors exemptive relief to offer ETF share classes as share classes of their mutual funds.
06:08I know that J.P. Morgan has filed for similar exemptive relief.
06:12And I think for a lot of people, it's hard to grasp why this is important.
06:16So I would love if you could put this into context, the ability to offer ETF share classes of existing mutual funds.
06:23I mean, what would that mean for J.P. Morgan and the asset management industry at large?
06:27I think one of the most exciting things that's happened in the asset management industry is now world-class active investment capabilities available with the benefits of ETFs, transparency, liquidity, and fees.
06:42Now, we have today 145 ETFs around the world, over $300 billion in assets.
06:48We're one of the leaders in active ETF capabilities.
06:52The additional tool of being able to offer a share class and the ability for an individual investor to tax-free exchange from a mutual fund and then to get the benefits of an ETF traded on an exchange is going to be just another potential transformation of the asset management industry and one that we are excited to see.
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