00:00We still would very much like to see a 25 basis point cut from the Fed.
00:04We think inflation is more contained, even though maybe there's higher goods inflation, services are softer in the housing residential sector.
00:13And at the same time, we're very worried about the employment picture.
00:16Unemployment has ticked up, hiring has slowed down, and consumer confidence is weaker.
00:21And so to really protect against this, we'd like to see the Fed take that 25 basis point cut.
00:27A little less clear as we move into 2026, we may be not calling for as much as 100 basis points, but somewhere in the neighborhood of 50 to 75 basis points makes sense to us.
00:38I also want to talk about how investors are positioning amid all these different cross currents, because one of the most interesting stories to me, I think, of 2025 is still this red hot demand for cash.
00:49You take a look at money market funds. You take a look at cash like ETFs.
00:52The lines just keep going up, even though you do have the Fed starting to reduce interest rates here.
00:58And I wonder, first off, what you make of that and what will finally break the fever.
01:02Is it lower interest rates or is it something else?
01:05Well, the need for income is very significant. And whether that's because of sort of developed economies of aging populations that are looking at cash.
01:15Cash is providing multiple uses within a portfolio. It's generating income. It's dry powder should there be a major correction.
01:22And it also helps to diversify the overall portfolio. And for that reason, we think cash probably stays at these sorts of levels may come down.
01:31But I think that might need some greater investment opportunity than perhaps investors see today.
01:38It's interesting to hear you say that because I talk to a lot of folks, a lot of investment professionals.
01:42And it's the most urgent question they have to answer is how do you get investors out of cash, get them off the sidelines, so to speak.
01:50But it sounds like you're saying this isn't necessarily the sidelines. That's not necessarily the way to be thinking about cash.
01:56I think that's right. And what we're seeing is just a continuation, a continuum of cash, if you will, right?
02:02Short-term deposits and money market funds to short duration and the like.
02:05And we do see some argument for extending maturity slightly in the short and intermediate term of the curve.
02:12At the moment, credit spreads are incredibly tight, investment grade and high yield.
02:18And so moving along that sort of treasury spectrum, we think, is warranted.
02:22But again, it's not the same as a lot of cash moving into the market.
02:27And so cash being one of the big stories of this year, so too are private markets.
02:31And I know that, of course, in November you took a minority stake in Collar Capital.
02:35That specializes in the secondaries market for privates.
02:39What is the plan there with that stake?
02:41And how does it fit into your overall strategy when it comes to private markets?
02:45We're very excited about this partnership and ownership interest in Collar Capital.
02:49They're one of the very first to develop the secondaries market and have capabilities on private equity and private credit secondaries.
02:56And if you look at the broader volume, secondaries are only 1-2% of all fundraising that happens.
03:03And so this is a segment that's been growing at 15% per year.
03:07We think has a chance to triple in the next five years.
03:12And so this liquidity aspect and being able to give investors access to already invested portfolios,
03:20we think is a really compelling proposition that we're looking forward to introducing more of our clients to their capabilities
03:26and looking at what we can do together from a product collaboration standpoint.
03:31Interesting.
03:31So when it comes to the secondaries market, it sounds like you're basically trying to position to take a bigger piece of what is a growing pie.
03:38That's correct.
03:39Interesting.
03:39And I know that you've said in the past that overall that you would be in the market to buy a private asset firm.
03:46Is that still the case?
03:47We're very excited about this acquisition.
03:49We'll continue to evaluate if it makes sense to add other capabilities.
03:55But for the time being, between our interest in Colorado Capital, our partnerships with Apollo, Blackstone, Bridgewater,
04:02bringing their really great capabilities to market alongside our ETF strengths, it's keeping us really quite busy.
04:09And, of course, State Street Investment Management, the first out of the gate with a private credit ETF.
04:14And I want to talk about retail demand for private assets more generally.
04:18Because you think about the turbulence that we've seen in the past couple weeks, of course, when it comes to private credit,
04:24when it comes to, for example, cockroaches and blue owls, polled fund merger.
04:29Has that dampened at all retail enthusiasm to get access to some of these private strategies?
04:35I think from where we said, we continue to see investment discipline in the private credit arena, defaults maybe rising slightly,
04:43but from a very low base.
04:45And some of the big profile ones we think are more idiosyncratic.
04:47And at the same time, there's a secular long-term trend of the private markets providing credit capability
04:55and availability, given that the banks are more limited.
05:00And so the liquidity aspect, the income aspect of private credit, we see continuing to be in demand by retail investors.
05:08One area that we're focused on is in the defined contribution arena.
05:12We're one of the largest USDC managers, and we've been first to market to introduce the target date fund
05:19with a 10% allocation across private equity, private credit, and real estate.
05:24And we think it makes sense for individual investors to really participate in this part of the market
05:30that is showing tremendous value creation, yet they don't have easy access.
05:35And Yishin, we only have a couple minutes left.
05:37I have to ask you about ETFs.
05:39That's, of course, the sandbox that I play in the most.
05:42And what's interesting is you think about share classes.
05:45Dimensional Fund Advisors, for example, last week, finally got the green light from the SEC
05:49to launch ETF share classes of existing mutual funds.
05:53I know that State Street Investment Management has basically asked for the reverse,
05:57to launch mutual fund share classes of existing ETFs.
06:01Given that approval hasn't been issued yet, let's just talk about what dual share classes,
06:07if improved en masse, could mean for the asset management industry,
06:10and what it could look like five years from now when we finally get up to speed here.
06:16Well, for the most part, asset managers are looking to issue ETF share classes off of their mutual funds.
06:22And investors will benefit because they won't have two separate vehicles,
06:26but they'll enjoy the scale and size and the cost efficiencies with the single asset base.
06:32We're a little different.
06:33We're a very substantial ETF player.
06:36We're also very significant in the retirement arena.
06:39And we're excited to be launching mutual fund share classes off of our ETFs,
06:44which are already very low cost, very efficient.
06:47And by virtue of the ETF structure, we lower transaction costs.
06:51And we think that'll be a substantial benefit to so many retirees.
06:55Interesting.
06:56So just to tie a bow on that, so basically, if you were able to launch mutual fund share classes,
07:01you would be able to put some of your ETF strategies as mutual funds into 401ks.
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