00:00Well one thing we can guarantee you is that there will be a correction someday. Markets do go up and down. They tend to go up over time. And on that point our clients and their end clients were very focused with them on making sure that they stay invested through market cycles. And I think that's where you can really actually destroy a lot of value in all asset classes is selling low and buying high. So what we want to do is make sure that our clients understand that there will be a market correction. Maybe it's just started. Maybe it hasn't. There will be one one day. And the key is to manage risk thoughtfully through
00:29a cycle and stay invested through cycles. So how do you do that. How do you manage risk thoughtfully through a cycle. Well you think about long term value and you think about what in whatever asset class you're in. We're in the business of actively managed public fixed income and equity portfolios and thinking about the underlying securities. What what the issuers how durable the issuers will be through a cycle and critically what you're paying for them. So durability volatility price paid. If you carefully manage those through a
00:59cycle you'll have good long term risk adjusted returns. The last part that seems the most difficult. Right. I mean how do you know if valuations are too high or if we're in a whole new world. Well you're always in a whole new world. And the valuations always seem quite high in the beneficiaries of the whole new world. So that's a really great point that what you don't do and what we don't do is if we're talking about AI technology companies we don't look at a trailing earnings multiple and say that's too expensive and walk away.
01:26We have a team of investors around the world looking at what the future is going to be what the earnings and cash flows are going to be across the whole ecosystem and thinking about value there.
01:37We'll get some of it wrong. We'll get more of it right than wrong. We'll manage risk around positioning and portfolio construction around that in order to deliver excellent results.
01:44So in this part of the cycle where there are things that are arguing for one that's more fragile. Is it a problem then that to the last conversation we had more investors are being pushed or adding on.
01:56Assets that by their very nature are less transparent and less liquid in private capital.
02:03It's not a problem big picture. And we think there are really great asset managers across every asset class. And you were just speaking to one.
02:11We admire areas quite a bit and they will deliver great results for their clients as the ecosystem evolves to push private assets into parts of the investment ecosystem
02:22that haven't traditionally been invested there. We do get a little bit worried about making sure that everyone understands what they're investing what the what the trade offs are and also what the benefits are of where they've been invested in in the past.
02:33So you mentioned liquidity and transparency. We think that transparency and liquidity are features. There is a narrative out there that there are bugs.
02:40You know and you were just talking about it earlier this idea that in order to stay invested through a cycle a client needs to be locked up. We don't believe that.
02:47We believe that by working with our clients and the advisers who advise our end clients to understand the value of being long term investors.
02:55You can be a long term investor in the public space and then have the benefits of liquidity and transparency that you don't get in other asset class.
03:01So when the president talks about quarterly reporting being a problem and something we need to get rid of you disagree.
03:07No, we don't actually have a strong view on that one way or the other, but we don't get worried.
03:13But you think transparency is important. Transparency is important.
03:16The short term nature of transparency is not necessarily helpful to investing through a cycle.
03:20But how do you feel then, for example, private assets being in 401ks, say, is that one of the areas that you say, OK, when things are being pushed to different aspects of this market, that that worries you?
03:30It's something that we need to we need to make sure that the whole investment ecosystem understands what's what's happening when they do that.
03:37So when you talk about democratization of private assets, that sounds nice.
03:43But what it really means is exactly is putting asset classes and fee structures into structures that have served clients quite well for the long term.
03:52And when you introduce change, you introduce complexity and risk.
03:55And so we're not saying that this is going to be a major problem.
03:58We're just saying that it's important to analyze the complexity and the risk, most notably the fees, because the fees in the private space are much higher.
04:05It's one of the reasons why managers who charge those fees are looking to charge them to more and clients.
04:11When you put that into a very fee focused marketplace like the 401k market, there will be some challenges.
04:18Ted, what do you think about hedging in this market?
04:20Gabriel Santos was just on with us from JP Morgan and says, you know, bonds aren't going to help unless we go into a recession.
04:26Our next guest, Bob Sloan, points out that a lot of investors are shorting, you know, the mag seven stocks, not because they don't like the business,
04:36but because it's the only way to hedge in this market.
04:38Yeah.
04:38Well, we think that the index concentration in U.S. and global indices that include U.S. tech companies is dangerous in terms of its degree of concentration.
04:47So when we talk about the market correction where we started this discussion, it's almost mathematically impossible to have a market
04:53concentration, constant market correction unless it's led by that concentrated portion of the portfolio.
04:59So you could do that by owning an index or hedging against it.
05:02We would, from a biased position, recommend that you have a portfolio professionally managed by investors that don't need to be as overweight, that dangerously concentrated
05:12portion of the benchmark as the benchmark itself is.
05:15So different vehicles to get at different solutions.
05:18But, yes, we would share the view that there's a dangerous level of concentration in equity markets.
05:22Do you have a sense among your clients how much they want to be exposed to AI?
05:28There was the recent Bank of America fund manager survey that said the greatest share ever of Earth in 20 years had said that they were over,
05:35that companies were over investing and specifically over investing in AI among your clients.
05:40Is there that feeling, too?
05:41Are there nerves or is this a client base that is like more AI exposure, please?
05:45Well, we we have a very diverse client base and we sell through advisors who partner with and retail clients.
05:52And we sell to and we partner with the largest institutions in the world.
05:56And all of them want to make sure that they have exposure to the best performing long term asset classes.
06:01And clearly, AI on a trailing basis has been a major driver of that.
06:05And it's very likely to be a major driver on a long term basis.
06:08So everyone's focused on it.
06:10It's a question that we get in in almost every meeting.
06:12But the tone of the question isn't always give me all the AI you've got all the time.
06:16The tone is I want to make sure that we're driving, again, the best risk adjusted returns for our end clients over time.
06:23And there's a lot of potential and a lot of risk in that space.
06:25And managing those complexities is what's on everyone's mind.
06:28Are your clients maybe overexposed to the U.S. because the U.S. has been the only game in town for so long?
06:33Davide Serra at the New Economy Forum just pointing out that we've never had a time when 30 percent of the market is worth 70 percent of the valuation.
06:44Like this is substantially higher than during the dot com bubble burst.
06:47Since most of our clients manage their assets against broad indices and indices are no longer very broad and are very heavily weighted towards the U.S.
06:58and U.S. technology.
06:59Yes.
07:00As an output, most of our clients are overexposed to U.S. technology.
07:04They understand that exposure.
07:05We understand that exposure.
07:06We've managed a risk to it.
07:07But it is by any historical standards, as you reference, an overexposure and a likely dangerous one over time.
07:13We've managed a risk to about 80 percent of the conditions about what has happened in the U.S.
07:21We've managed a risk to it.
07:23At an overcrowding and a potential of the U.S. technology.
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