00:00I am here in Miami. Sanjay Jamna, the global head of credit trading and about 15 other titles,
00:05which I won't get into right now, joining us here at a time where there's a lot of questions around
00:09credit. Of course, the events over the weekend have taken front stage. Last week when we spoke,
00:14you said on the top concern for a lot of investors, geopolitics just wasn't there.
00:18Is it still the case this morning after the events that transpired over the weekend?
00:22Thank you, Lisa. It's amazing to be here. And look, all the conversations that we had
00:28on the weekend with clients indicate that they're still open for business. They will be attentive
00:33to energy prices. They will be attentive to rates in particular, which are very relevant for credit
00:39products. But by and large, they're laser focused on staying ahead of the curve. They don't see this
00:45as a complete surprise. And they will keep on looking at what's coming in order to decide.
00:52No change in strategy. You said that they are saying this wasn't a huge surprise. And I'm
00:57wondering, was this baked in, right? I mean, how much has this been part of some of the risk
01:02aversion that we've seen over the past couple of days and weeks that most people have been attributing
01:07to credit concerns? So that's really interesting. Clients have, for the most part, looked at the
01:15geopolitics and the macro risk really through the lens of what it means for the economy. And all
01:20conversations have been incredibly consistent. They've looked at AI as being the main driver and the
01:26main driver, both on the AI CapEx spend and how much is going to be spent, how much is going
01:32to
01:32come to the credit markets. And on the other side, the flip side of that, which is the disruption,
01:36margin compression, competition, what it means for obsolescence and business model transition.
01:42We're going to get into the AI discussion and some of the disruption that we've seen in credit in just
01:45a second. Staying on the economy, though, and the idea that the conflict in the Middle East,
01:50the war in Iran, that that could lead to a spike in oil prices. There's a question here
01:55about the backdrop of the global economy and, frankly, the U.S. economy and how stable things
02:00are, right? How strong is the economy to withstand a possible shock? Are you getting a sense from
02:05investors, there are 3,000 people here at this conference, you're having a lot of conversations,
02:09are you getting a sense of how confident people are in the economic backdrop to be resilient through
02:14some sort of crisis? It's amazing. Credit is the asset class of the moment. Why? For the reasons
02:22you just pointed out, Lisa, which is yields which are elevated, robust company fundamentals which
02:28continue to bring inflows into the asset class. You see it in primary with elevated record levels
02:35of issuance and you see it in secondary as well, record secondary trading volumes. And that's the part
02:42which is often missed, which is the impact of algorithmic and electronic on how credit trades.
02:50Right now, we have been talking about some of the disruptions in credit and how it's been stemming
02:55from the private credit market. Is this just tied to software? Is this tied to something in terms of
03:01a real check on an asset class that hasn't been through a credit cycle in its current iteration?
03:06What's your take on what we're seeing, the sort of pockets of dislocation,
03:09and whether it could become something a bit more systemic?
03:12So, every time that you've got like a tremendous productivity boost,
03:18there will be some consolidation. And that's what the market has been focused on,
03:22which are who are going to be the losers. What participants haven't focused on as much but will
03:28is that there will also be big winners, those companies which harness the power of the new
03:35technology in order to gain share. If I had to venture, the share of software in GDP will be,
03:42in five years, bigger, not smaller.
03:44At the same time, there is a likelihood of a pretty messy next few months and weeks. I'm just
03:50wondering how much you're feeling like there are investors with larger pools of capital who are
03:55getting ready to buy and are seeing opportunities versus those that are feeling increasingly vulnerable
04:00to potentially having to sell. So, it's interesting. Markets have been very orderly. I think that credit
04:07investors understand that some amount of sectoral and company stress is just a normal part of a normal
04:14credit cycle. So, they're looking at this as an immense opportunity to see dispersion and to see
04:22opportunities, as you say, to deploy capital at interesting levels.
04:26So, right now, you're seeing this more as an opportunity, even now, with some of the fears about, say,
04:31cockroaches and people doing dumb stuff.
04:34We see the credit market as being the asset class of the moment because it provides those opportunities.
04:42As you said, there's noise in the BDC space. There is focus on software and there will be on other
04:47sectors as well.
04:48But that is just a normal part of a normal credit cycle. We've been in an environment for years where
04:55default rates were
04:56very low. And so, I think participants, to some extent, have gotten used to an environment where default rates are
05:03very low.
05:04But it's just a normal part of the credit cycle.
05:06Last week at the JP Morgan Annual Investor Conference, the team was talking about how it's going to be an
05:12incredible year for trading revenues,
05:13an incredible year for trading profits. Can you give some sense about what that trading looks like? Why you've seen
05:19such an increase?
05:20So, as I was saying, first of all, credit is the asset class of the moment, continued inflows, and we
05:26see the secular trends
05:28that are powering that as being intact. But also, more importantly, the way credit is transacted today
05:35has changed profoundly. The impact of electronic and algorithmic trading, 90% of our tickets are electronic. That's 90%, right?
05:44And clients are very sophisticated. Clients have gotten sophisticated in using those tools. 25% of our flows are portfolio
05:51trading.
05:52That's a client favorite in order to rebalance hundreds to thousands of land items in markets which are normal or
05:59stressed.
06:00One other thing that you and I have been talking about over the past week is how much AI has
06:05changed the way you do your job and the way that your team does their jobs.
06:09And I'm just wondering if you can give us a sense of how you see this evolving in your own
06:14business in terms of how it changes the role of a credit trader.
06:19AI will revolutionize credit markets. So, let me unpack this a little. Credit markets is the last frontier when it
06:28comes to market automation. Why?
06:30Because the problem statement is a bit more complex than in other asset classes. In munis alone, we have a
06:37million active Q-sips.
06:39It means a lot of sparse data. It means a lot of unstructured data. And so, traditional AI models are
06:46not always well fit for that.
06:49However, it's the perfect problem for generative AI. And so, we see generative AI and agentic systems already penetrating the
06:57private credit market in particular.
06:59We're extremely optimistic about how that's going to develop.
07:03How will that change the composition of who's a player and who's not? In terms of, do you see this
07:07actually impacting your desk in terms of the size of it, making it smaller?
07:11Or do you see it, for example, taking out quant traders who might be making their entire business on capitalizing
07:17on some of those differences right now?
07:18I think that the coding base in particular, the fact that there are a number of systematic that are using
07:26coding and so on and so forth, that toolkit will level that playing field immensely.
07:31And it's going to reset who can compete and how they can compete. I think it will impact everybody.
07:39And in hindsight, when you look back, in general, what is the one factor that determines who is a winner
07:45and who is not a winner?
07:46It is really how forward-leaning the management has been, the culture has been, and how much they embrace those
07:55things more than where they stood at the start.
07:57Do you think that there are going to be fewer credit traders needed?
08:01We'll see.
08:03So, this is sort of a question of the evolution. Sanjay Jamna, thank you so much for being with us
08:07today.
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