Pimco's Seidner Expects Shift in Yield Curve: Bloomberg Invest

(Bloomberg) -- The yield curve’s recent inversion is poised to reverse, according Vanguard Group’s Gemma Wright-Casparius. The market hasn’t priced the inflationary impact of tariffs, she said, and the Federal Reserve will likely ease policy “very aggressively” should growth meaningfully slow.

“It’s almost a win-win on the steepener at some level,” Wright-Casparius said at the Bloomberg Invest New York conference Tuesday.

The 10-year Treasury rate has fallen below the three-month bill yield, a shift that has historically proven a strong signal of looming recession. The move has taken place as Treasury yields have plunged to multi-year lows in recent weeks as escalating trade tensions pushed investors toward the shelter of the world’s largest bond market.

The U.S.’s increasingly fractious relationships with China and Mexico, as well as a darkening growth outlook, have investors betting that the Federal Reserve will slash its target rate by around half a percentage point this year.

Marc Seidner, chief investment officer of non-traditional strategies at Pacific Investment Management Co., also reckons the U.S. curve won’t remain where it is for too long.

“It’s right to position for the steepener when the yield curve is flat or inverted,” he said. He also said that “an inverted yield curve is a troubling fundamental factor in the sense that the global economy is a levered economy and levered economies grow or contract based on credit creation.”

Keating Sees Stagnant Wealth-Management Fees (4:15 p.m.)

Catherine Keating, who runs Bank of New York Mellon Corp.’s wealth unit, said the low fees that have weighed on investment-management profits are here to stay.
“Today is a really great time to be a client and an investor -- fees are lower than they’ve been and, congratulations, they’re probably going to continue that way,” Keating said Tuesday at the Bloomberg Invest New York conference.

Intensifying competition from low-cost passive funds has put pressure on fees globally.

BNY hired Keating as CEO of wealth management last year to revamp and expand the unit, the smallest contributor to the bank’s revenue. She spent nearly two decades at JPMorgan Chase & Co., where her roles included head of investment management for the Americas and CEO of the U.S. Private Bank.

The bank generated $302 million in profit from its wealth business in the first quarter - a 5% drop from a year earlier -- as net interest revenue and fees fell. The unit had $253 billion of client assets as of March 31, according to preliminary numbers in its earnings release.

Jonathan Gray Sees Progress Ahead on Trade (2:56 p.m.)

Jonathan Gray, who was elevated to president of Blackstone Group LP last year, said if the U.S. trade dispute with China persists it will lead to slower growth and more uncertainty.

“It’s in the collective interest of both parties to come together,” Gray said at the Bloomberg Invest New York conference on Tuesday. “Progress will ultimately be made.”

Gray is helping lead the firm amid a fundraising bonanza in his industry. Blackstone’s latest flagship private equity fund is expected to raise $25 billion, which would set an industry record.

The world’s largest alternative asset manager is putting its war chest to work. The firm said Monday it’s paying $18.7 billion for 179 million square feet of urban logistics properties used by Amazon.com Inc. and other retailers. The expansion will almost double Blackstone’s U.S. industrial footprint.

“In real estate, logistics has been our high conviction theme for some time,” Gray said. “We have now, in the last nine years, bought close to a billion square feet.”

Blackstone also sees more opportunity in live entertainment, resorts and gaming, he said.

Gray built Blackstone’s real estate business after joining the firm straight out of college. Under Gray, Blackstone’s real estate group became the largest owner of property globally.

He led the firm’s 2007 deal for hotel operator Hilton Worldwide Holdings Inc., which after a global financial crisis and U.S. recession has generated about $14 billion in partly realized profit -- a record in private equity.

Blackstone’s assets under management last quarter crossed half a trillion, to $512 billion, for the first time.

Rockefeller’s CEO Sees Assets of $36 Billion (2:35 p.m.)

Greg Fleming, chief executive officer of Rockefeller Capital Management, said the family office’s assets under management should increase to about $36 billion by year-end.

“When we bought the business in March of 2018, we had about $18 billion in assets and I think by the end of the year, we’ll be close to double that,” Fleming said Tuesday during the Bloomberg Investor Conference.

Fleming said that advances in technology have made it easier for wealth managers to attract advisers and clients from larger companies. “The reason a smaller firm can compete so well in the wealth management space now is that you don’t have to vertically integrate and build all of your digital,” he said.

The former Morgan Stanley executive has been expanding the wealth management firm in the past year across the U.S., recruiting from Goldman Sachs Group Inc., UBS Group AG and Bank of America Corp.’s Merrill Lynch business. Before joining Morgan Stanley, Fleming was president of Merrill Lynch.

A 10-year bull market and an increase in the number of rich families across the U.S. are making wealth management increasingly attractive, but also drawing fierce competition. Banks are adding options to lure customers, such as loans and higher-savings rates, while smaller firms are drawing advisers from banks.

Fleming’s firm traces its roots to Rockefeller & Co., once the family office of John D. Rockefeller that later evolved into a business serving wealthy families, endowments and foundations. In March 2018, Rockefeller & Co. transformed into Rockefeller Capital Management following a transaction led by Fleming, with financing from hedge fund Viking Global Investors.

The rechristened family office is owned by its management, Viking and a trust that represents the Rockefeller family.

CC Capital’s Chu sees better exit options than IPOs (12:56 p.m.)

Blank-check companies offer a better exit for business owners than an initial public offering or sale to private equity, according to two dealmakers that specialize in so-called special purpose acquisition companies.

“It’s a real, viable solution in lieu of an IPO,” Chinh Chu, senior managing director of CC Capital Partners and a former Blackstone Group LP dealmaker, said at the Bloomberg Invest New York conference Tuesday. “The SPAC sponsors can often provide a halo effect.”

SPACs are shell companies that raise money by going public to buy an unspecified target. They’ve become popular in the past two years, thanks in part to strong equity markets, with 46 SPACs raising $10.8 billion last year, according to SPAC Analytics, which tracks the industry. That’s the most since 2007.

“They don’t have to sell their story to anybody other than the partners, the principals, that they are selling to,” Martin Franklin, chief executive officer of Mariposa Capital, a family investment firm based in Miami, said during the panel Tuesday.

PGIM’s Hunt Sees Bad Ending for Private Credit (12:14 p.m.)

David Hunt, the chief executive officer of Prudential Financial’s investment management unit PGIM, said the rapid expansion in private credit “is going to end badly.”

“We stand ready to get the distressed debt team cranked up on this area because it’s coming,” Hunt said Tuesday at the Bloomberg Invest New York conference.

PGIM has about $80 billion in private credit funds, mostly investment grade, Hunt said. “There’s going to be quite a lot of people who lose their shirts because they got into this late and don’t really have the credit skills to do it,” he said. “The good news is that this isn’t on bank’s balance sheets.”

Hunt also said industry consolidation is being driven more by clients than mergers as sovereign wealth funds and pensions reduce the number of managers they want to work with.

“People are doing more business with less people,” Hunt said. “So the bar for being one of those partners is going way up in terms of capabilities.”

PGIM, which manages more than $1 trillion in assets, oversees strategies including fixed-income, equity, multi-asset and real estate.

Atlas’s Diamond Wary of Large European Banks (11:19 a.m.)

Bob Diamond, former chief executive officer of Barclays Plc, said he wouldn’t invest in large European banks given the continent’s weak economy and the financial firms’ shaky recovery from the downturn.

The opportunity in Europe lies in smaller and newer banks, “not in institutions that have legacy technology, legacy loans, legacy talent,” Diamond, who now runs Atlas Merchant Capital, said Tuesday at the Bloomberg Invest New York conference.

Diamond also said U.S. regional banks are “quite healthy,” but their prices are too high for him to invest.

Diamond, 67, founded Atlas Merchant in 2013 along with African banking venture Atlas Mara Ltd. He handed over the reins at Atlas Mara to Michael Wilkerson earlier this year to focus on investing in European ventures.

General Atlantic’s Ford Still Bullish on Uber (10:38 a.m.)

Bill Ford, chief executive officer of private equity firm General Atlantic, said he doesn’t consider the initial public offering of Uber Technologies Inc. a disappointment despite the plunge in its shares.

“I don’t see it as the end of the road, I call it an important milestone,” Ford said at the Bloomberg Invest New York conference Tuesday. “I think it has a long way to go.”

Ford said Uber may have benefited if it had pushed its governance transition and moved to a professional leader more quickly. Shares of Uber have dropped about 9% since its May IPO. General Atlantic has been an investor in the ride-sharing firm since 2015.

General Atlantic, unlike many of its peers, doesn’t rely predominantly on closed-end funds and has long funded most of its investments through staggered managed accounts and permanent capital commitments. The firm, which manages $31 billion in assets, focuses on fast-growing companies globally within the consumer, financial services, health-care and technology sectors.

General Atlantic has about $2 billion invested in 15 companies in China, Ford said. He sees growth in nation continuing despite trade tensions and remains positive about investing there.

“We’ve been rewarded by staying bullish on China since we started investing there in 2000,” he said.

In March, Ford called on New York business leaders to ramp up their efforts to lure Amazon.com Inc. back to the city. The Internet giant ditching plans to build its second headquarters in Long Island City, Queens, sends a “negative signal” about conducting business in New York, he said.

Ford joined General Atlantic in 1991 and became CEO in 2007.

McCormick Sees Possible ‘Bad Deal’ With China (9:57 a.m.)

David McCormick, co-chief executive officer of Bridgewater Associates, said that the U.S. and China have many incentives to come to a trade agreement, but risks are growing that they’ll strike a “bad deal.”

“The discussion has gone from a market-access discussion and a tariff discussion to the weaponization of exports,” said McCormick, whose firm runs the world’s biggest hedge fund, at the Bloomberg Invest New York conference on Tuesday. He cited the U.S.’s decision to shut off supplies to Huawei Technologies Co. and China’s indication that it might respond by restricting rare metals.

McCormick echoed the sentiments of Bridgewater founder Ray Dalio, who has been outspoken about the trade war between the U.S. and China. Bridgewater registered its first private securities fund in China last year.

“There’s lots of costs of not finding an agreement, but there’s also a growing risk that both parties have created on both sides, through the way they’ve spoken about this publicly, of getting a bad deal,” said McCormick. “The question will be how we manage through this last phase.”

McCormick oversees the $160 billion firm’s governance and business operations with co-CEO Eileen Murray. A West Point graduate who worked as U.S. Treasury undersecretary for international affairs under George W. Bush, McCormick was poised to join the Trump administration as deputy defense secretary before withdrawing his name. McCormick was also at one time considered as a possible Treasury secretary in the Trump administration.

Black Sees Possible Downturn After Election (9:36 a.m.)

Leon Black, chief executive officer of Apollo Global Management LLC, said after 10 years of an upward economic cycle the next downturn won’t likely come until after the presidential election.

“We have an administration, like them or not like them, they have done a pretty good job extending economic growth and consumer confidence,” Black said in an interview with David Rubenstein at the Bloomberg Invest New York conference Tuesday.

Apollo, like its peers, has been benefiting from a robust fundraising environment as investors search for yield. The New York-based firm saw inflows of $24.9 billion during the first quarter, helped by its annuity seller Athene Holding Ltd.

Black said he has some regrets about taking Apollo public because investors don’t understand private equity firms like his. He said Apollo has many sides, operating as a value firm, a growth enterprise and a yield company, and shareholders have trouble seeing all the parts.

“The public market does not understand creatures like us very well,” he said. “They don’t know how to value. We trade at half of what we should be.”

Last month, Apollo announced plans to convert to a corporation from a partnership -- a shift that is expected to take effect during the third quarter. The change in structure may help boost the firm’s stock price since it will be eligible for inclusion in indexes, potentially increasing mutual and exchange-traded fund ownership.

As critics of the industry call for firms like Apollo to pay ordinary income tax on its carried interest, the co-founder of Apollo also said he can see both sides of the argument. But in defending the current capital gains tax rate, he said Apollo doesn’t collect an incentive fee until its funds hit an 8% return hurdle and then return the management fees to investors.

“I think PE has one of the more fair formulas with all of its investors,” said Black. “We get a relatively small management, which is taxed as ordinary income.”

Black founded Apollo in 1990 with Josh Harris and Marc Rowan. He helped build the firm into one of the largest alternative asset managers with $303 billion in assets.

Mark Wiseman Sees Long-Term Capital Challenges (Earlier)

Mark Wiseman, global head of active equities at BlackRock Inc., said the firm has faced challenges in trying to raise a fund to take long-term stakes in companies.

The Long-Term Private Capital fund was seeking to raise as much as $12 billion by mid-2018 but fell behind schedule. In April, BlackRock said it had secured just $2.75 billion from investors, including $1.25 billion in hand and $1.5 billion committed.

“It’s been hard to explain a new model, a model that’s more of a permanent capital structure but private in nature,” Wiseman said at the Bloomberg Invest New York conference Monday night. “Having said that, sophisticated investors have understood it and we’re now seeing a lot of interest in the vehicle.”

Wiseman also voiced concern that public company executives are having difficulty focusing adequate energy on the long term. He said they need to look deeper into the future, rather than getting mired in quarter-to-quarter considerations. Public markets can put enormous pressure on a company’s leadership, making it easy to lose sight of the bigger picture, he added.

“You’re under constant pressure, under constant scrutiny day in and day out to perform. And if your stock is down, there are questions asked. You’re on the news, your shareholders are by definition selling, your board might be asking questions,” Wiseman said. “So there is this pressure put on public company executives to meet short-term targets.”

Wiseman understands that thinking given his previous role: he was chief executive officer of the Canada Pension Plan Investment Board. In that job, he said he liked to keep the mentality that “a quarter wasn’t 90 days, it was 25 years.”

BlackRock’s Long-Term Private Capital fund is part of its alternatives business, which it is trying to bulk up. The asset management industry is currently facing pressure on fees for indexed products, which make up about two-thirds of the firm’s assets. Its alternatives division is still tiny by comparison. BlackRock had about $152.9 billion in assets under management in alternatives as of March 31, making up just 2% of total assets under management at the world’s biggest money manager.

Wiseman is one of about seven contenders widely thought to be in the running to succeed CEO Larry Fink, who turned 66 in November.

--With assistance from Annie Massa, Hema Parmar, Erik Schatzker, Sabrina Willmer, Katia Porzecanski, Alexandra Stratton, Hannah Levitt, John Gittelsohn, Matthew Monks, Sophie Alexander, Heather Perlberg and Michelle F. Davis.

To contact the reporter on this story: Katherine Greifeld in New York at kgreifeld@bloomberg.net

To contact the editors responsible for this story: Alan Mirabella at amirabella@bloomberg.net, Dan Reichl, Steven Crabill

©2019 Bloomberg L.P.