00:00The story of the first quarter has been the extent to which the concerns about the conflicts,
00:05the potential shortages, the rise in fuel prices has not really phased management teams.
00:10They have been through so much over the last six years, the pandemic, the supply chain crisis,
00:16inflation, rate shock, tariffs. And I think they've become extremely good at remaining
00:20focused on the business and driving results. I think the other big story of Q1 is very much
00:26the AI strategies. For a period of time, it was a lot of AI was productivity sapping
00:32because management teams had to take a step back and look at how these new tools could be integrated
00:38into workflows, into work streams. And now they're at the point where they're actually implementing
00:42their strategies. Spending on IT budgets was up about 28% in the first quarter, according to our
00:48data. So I would say that the private markets, it's just that focus on execution. It's ignoring the
00:54noise. It's not worrying about the headlines. And of course, I think some of the lessons of 2022
00:59are to make sure that you have all the supplies, the inputs that you need. Don't assume it's going
01:04to be available in the future. Are you surprised by the resiliency that we've seen in economic growth?
01:08I mean, particularly that we've got those numbers, obviously, for 2025 and even coming in now
01:13for what people are expecting in 2026. I mean, some of the expectations are pretty bullish. I mean,
01:18we had Rick Reeder on earlier. He's talking about five to 6% nominal GDP growth.
01:22Yeah, I think that, and you do see, of course, the earnings, the earnings growth, public and
01:26private. And there is a sense of optimism. Now, again, the longer the conflict goes, the greater
01:32the likelihood that we're going to deal with shortages of refined products. When you think
01:37about petrochemical feedstocks, the potential to actually have shortages of plastics. So those are
01:42parts, packaging. So there are a lot of risks ahead. But in terms of the underlying trend line,
01:47it's very positive. And I think you see that at the conference, a lot of optimism about economic
01:51growth and earnings. A lot of the optimism here is also about AI. And I mean that in the broadest
01:56of the sense. I mean, we've gone from just the picks and shovels buying chips phase to how this
02:01sort of gets integrated into almost every company, almost every industry. And the optimism you hear
02:05there, you talked about it before saying, oh, it was productivity sapping. But now everybody's
02:10talking about how it's increasing their productivity. That's right. And I think that these are
02:13different stages. Initially, particularly on the private equity side, when you have a financial
02:18sponsor, that you're pressuring the companies to make sure that they stay at the edge of the
02:23technological frontier. So use AI. But when you have new tools, you have to, of course, figure out how
02:28to use them for your specific business. And that, I think, was a period of time where they had to
02:33take a
02:34look, look under the hood, figure it out. Today, we're at the execution stage. And that's very important
02:39because the AI story thus far has been really about the CapEx data center investment. Now,
02:45I think it's transitioning to actually the company implementation. And I would say that
02:49the chief technology officer, the chief information officer of companies has become, in many cases,
02:55the most important person at the organization, central to the strategy going forward. And I think
02:59that's what's really exciting. We're going to see enormous productivity gains, particularly on the
03:03private side, again, where there's more pressure and no longer lead times in the next five years.
03:08It's funny you say that. I was at a luncheon with a particular asset manager, their president,
03:13the CEO, chairman, or all there, the CTO. And guess who got the most questions? The CTO.
03:20I am curious about just sort of the structural changes going on right now. We talk about AI
03:24potentially being a tailwind for the economy, but obviously a transformative one. That's also
03:28going to require a little bit more of a rethink of public policy, whether it's fiscal policy,
03:33monetary policy. Kevin Walsh has talked about this a lot in his confirmation hearing,
03:37just having to rethink how you assess inflation in this type of environment. Are you doing that
03:42also from the investment side right now? Yeah. And I think what's interesting is that
03:45there's a need to separate today from tomorrow. What I mean by that is today,
03:50AI is actually having upward pressure on inflation. I think in two important respects. First,
03:55just the scale of investment is actually taxing economy-wide resource constraints.
03:59This isn't just energy and electricity generation and related infrastructure, but just the scale of
04:06investment. It's almost the entire addition on net to the capital stock is related to AI data centers.
04:12And so again, upward pressure on the price level inflation. Secondly, a lot of the AI tools
04:17are empowering management teams to be more aggressive in their pricing. You're learning more
04:22about your customers and their switching costs. You can do real time experimentations with prices on
04:28different products, services you sell. And so that's a really interesting dynamic. Now,
04:32tomorrow in the fullness of time, this will be hugely disinflationary. I think we can all see that.
04:37Yeah. And as it relates to monetary policy, it is just how do you get it right? How do you
04:41balance
04:41this? Today, perhaps inflationary pressures, but we know what's coming tomorrow. I do want to get your
04:47thoughts on what's going on outside of the U.S. About a year ago, amid all the tariff turmoil, there
04:51was all
04:51this talk about people quiet quitting, investors quiet quitting the U.S., looking for more
04:56geographical, geographical diversification. I think we're still seeing that. But I am curious
05:00from your lens, are you still seeing, I'm talking about U.S.-based investors looking a little bit
05:05more towards Europe or even to Asia? Yeah, absolutely. And I think that in terms
05:09from an external investor perspective, I think they have differentiated between the U.S. public
05:14and private sector. For a long period of time that the net influence in the United States was
05:19the acquiring treasury securities. Today, it's actually primarily stocks, corporate bonds,
05:25and of course, private markets. So that's been interesting to observe. But from a U.S. investor
05:30perspective, I do think that the valuations are much more attractive. There was a period of time
05:34where people were pivoting out of tech, concerned about excess exposure to it, just the fact that all
05:40the data center investment, other areas had consumed all of their incremental risk budget. And so whenever
05:45you're actually wanting to lighten up on tech, it also naturally leads to lightening up on the United
05:50States, looking for some better value elsewhere in the world.
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