00:00What's your read of what is happening here?
00:02Well, there are news every day on AI.
00:04And we want to step back about it.
00:06Yes, there have been massive investments into it.
00:09The way we look at AI at M&G, we look at three categories of players.
00:13The first ones are what we call the enablers.
00:16You have data centers, chip manufacturers, all the ones who allow us actually to use AI.
00:21The second categories are the software companies, you mentioned some of them.
00:25And the third ones are the rest of the world, the enablers.
00:28The one or the users, if you prefer.
00:31All companies tomorrow will use AI.
00:33Today, we are just at the beginning of the wave.
00:35We see a lot of noise on the first two.
00:37Massive investment into it.
00:39But we are a strong believer that when you want to invest into AI as an asset manager,
00:43you have to diversify across the three buckets.
00:45And tomorrow, there will be massive winners in terms of cost efficiency,
00:49providing better services to clients, or even improving the way companies.
00:53Do I know who those winners are yet?
00:54Have you got any visibility on it?
00:55I don't have, not yet.
00:56It's really early days.
00:57When am I going to get there?
00:59It takes time for companies to implement AI.
01:02I'm sure there are great companies out there who do that.
01:05We have some Chinese names, insurance companies there, for example.
01:08But we need to apply it as well in Europe with our own regulatory framework,
01:11as well as it's been applied in the US.
01:13We are very confident we are going to apply it more and more.
01:16Ourself are doing it.
01:17Yeah.
01:18We start seeing some early benefits.
01:20But what you want is massive benefits.
01:22That's where companies, I think, will start probably announcing more and more.
01:26Does AI need to get cheaper, though, for that to happen, I guess, is a key question.
01:29For wider adoption, wider dispersion, and for enterprise and for the consumer to really adopt.
01:34When you embed AI into energy asset management, how closely is the CFO looking at the cost of some of these solutions?
01:43And are you starting to see a return on investment?
01:46I think there are many ways to look at it.
01:48You can look at AI as effectively as a cost-savings initiative.
01:51You can look at it as a better way to service your clients.
01:54Or, eventually, to do, I would not say cost-saving, but cost-avoidance.
01:57Yeah.
01:58We want to grow.
01:59We have to invest in Asia, for example, in private markets.
02:03Using AI will help us to invest cheaper and have a better outcome.
02:07With a lower headcount.
02:08Exactly.
02:09Well, lower headcount or, let's say, less hiring or, effectively, and increasing the revenues faster.
02:16We don't necessarily need to reduce the headcount.
02:18Just in this moment, when we're looking at the sell-off in terms of software and the connections to private credit and private equity,
02:24and what's happening in the credit space and the CDS blowout that we're starting to see for some of these corporates.
02:29I guess I'm looking for the black swan.
02:31What breaks at this point?
02:33What are you most cautious about?
02:35Is credit the place to look?
02:36Is private equity the place to look?
02:38We invest into credit.
02:39We are a massive credit player.
02:41It all depends on the quality of what you buy, as always.
02:44Yes.
02:45Are you putting more scrutiny on those investments?
02:47We have invested a lot in terms of research, so we are extremely cautious where we invest into.
02:52We pay attention to leverage as well, so we don't try to leverage our funds.
02:56So whenever we actually lend money to companies, we want to make sure those companies are sound.
03:02That's the basic of private credit for M&G.
03:04And we've been doing that extremely well.
03:06If I look at our default ratio, it's been extremely low, lower than the average of the market.
03:11That's how we do it.
03:12Good morning to you, Joseph.
03:13So you're doing lots of due diligence, doing lots of research before investing in these private credit names.
03:18But if we don't really have clarity, if the dust hasn't settled on who the winners and losers of AI are, we're all a little in the dark on that subject, are we?
03:26Not necessarily, because effectively AI will help improve profitability of companies in the long run.
03:31There have been other factors that drive profitabilities of companies.
03:35It's up to us to analyze them to see that coming.
03:38And when it will be priced in the market, you will see it coming way before, if I may.
03:43But when you talk to clients, what do the conversations revolve around?
03:46Are they like this?
03:47Are they like what we've just discussed here?
03:48All this anxiety around AI?
03:50Or is it very different?
03:51Is it about the feds?
03:52It is AI.
03:53It's AI.
03:54It's much broader than AI.
03:55It's effectively the geopolitical tensions.
03:58And effectively how we've seen rebalancing from clients last year.
04:03And we are back to what I have to admit a bit boring topic, which we like.
04:08It's diversification.
04:09Clients understood the benefit of diversification.
04:12Many of our clients were over invested in the US last year.
04:15Yeah.
04:16And they've decided to reallocate a bit more to Europe or to Asia.
04:19They are still heavily invested in the US.
04:21Don't get me wrong.
04:22But they were way above what the MSCI index, global index, will say.
04:26So diversification is key.
04:28You have great pockets of investment, even geographically.
04:31Asia, emerging market, Europe for sure.
04:34And that's what we've been, you know, pushing our clients to.
04:36How are they feeling about gold?
04:38Gold is more, you know, a safety net for them.
04:41We don't advise them on gold.
04:42You don't?
04:43We don't.
04:44We don't.
04:45We are more in equity, fixed income and private markets.
04:47And effectively many of them do hold gold.
04:49Why not gold?
04:50Well, it's just that we don't pretend to be excellent everywhere.
04:53We are just our center of excellence.
04:55And these are the ones.
04:57You mentioned the allocation or reallocation out of the US.
05:02Where are we in that story?
05:03How much of a sell America trade is there?
05:05How much of a buy Europe trade is there?
05:07Well, I don't want to give.
05:09Well, I may share some numbers from, let's say, a poll of clients may not be representative
05:14of the whole world.
05:15We've seen clients who were invested into, let's say, US at the level of 70% of their portfolio,
05:2270, even 75, while the global index should say around 65 to 67.
05:28So just by rebalancing from 70% to 67, it is a massive rebalancing.
05:34We should never forget US is the biggest investable universe, you know, on earth.
05:39That's exactly what we are talking about.
05:41So we still see that trend and we still see the demand in January from clients on that diversification.
05:48It is taking time, especially on private markets, as these are illiquid private asset classes.
05:53So it takes time for clients to decide how to reallocate money eventually in the medium
05:58or longer term to, let's say, broader market, not just the US.
06:02And has the news around Kevin Walsh changed that US diversification conversation at all?
06:06Not yet.
06:07It's still early days.
06:08We still want to understand how he will play versus Trump's agenda.
06:13Will he try to shrink the balance sheet of the Fed?
06:16Will he try to, you know, try other, let's say, means against what Trump wants?
06:20I think more to come ahead of us.
06:22But it did give some confidence to the market.
06:25US equity markets and the Fed have had a codependent relationship.
06:28Some people argue that the Fed's job basically has been to support the S&P.
06:32If he shrinks the balance sheet, what is that good and what is that bad for?
06:37Can he shrink the balance sheet without causing problems?
06:40Well, first and foremost, looking at the balance sheet of the US, of the US treasuries.
06:44I mean, so big compared to the banks.
06:48You look at the banks as intermediaries.
06:50They are not big enough, actually, to support all these $30 trillion effectively
06:55to hold those assets before sending them to investors.
06:58So first, there is a problem to solve here.
07:00That's why there will be some pressure on trying to reduce the balance sheet.
07:03There are other reasons why.
07:05And for sure, the government of the US will try to increase the balance sheet for other reasons.
07:09So we need to figure out who's going to win between the two.
07:13And yes, there will be impacts on the currency, impact on the economy,
07:17and various impacts as well on inflation as well.
07:20So we have to watch out.
07:21How do I invest around that?
07:23You want to make money out of it?
07:25Yeah, tell me how I make money on that trade.
07:27Right.
07:28We are long-term investors.
07:29We don't try to be too tactical.
07:30But this is a long-term story.
07:32Well, let's wait for him to be, you know, at the job.
07:37Let's see how his first move will be.
07:39And don't try to, you know, overplay.
07:41It's a bit too early for that.
07:42When does the US debt story come home to roost?
07:46It's been in the press all the time, huh?
07:48Yeah.
07:49And then we're going to be talking about it more and more.
07:51It's going to be a topic for 2026 for us.
07:53A topic, but not necessarily a crisis.
07:54It will be, well, moving from a topic to a crisis, we see a number of steps in between.
07:59Okay.
08:00So we have time to come back if you invite me again to talk about it.
08:03Yes, please.
08:04I think you'll get that invite, yeah.
08:05Bye-bye.
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