Looks Like a Bull Market, Feels Like a Crash

The one thing I feel you don't have enough breath of is noises.

So, I told you, I'm an emptinesser, but when my son was eight, he loved this, and I thought this might be very valuable. Because it has a whole, you know, just array of noises. Because I feel like the applause, you have very limited repertoire, right? And this, I think this could add like a whole-- I'm so glad you said that.

Multiple dimensions. So Josh is normally controlling the noises, but I've got him this time. But you know what? Do you have enough?

“I've got like 20 here if you want to try any.”

What is this face? Oh, I'm just the world one. He's stuck. Oh, he's stuck. Oh, did you hear this?

Yeah. I love it. Oh, he's supposed to-- Oh, he's supposed to wear these bones. Yes, yes, sir.

Didn't you criticize somebody for putting on the headphones in correctly? I did. I was wrong.

I will never say anything ever again.

Sorry. I've already done it. Okay. Okay.

“Let us know if like levels are finding your ears.”

How do we sound? I hear myself. I hear you too. Okay. Wonderful.

Christina, sound they good, feeling good. Mm-hmm. And feel free. Don't let me stop you, please. If you've got to hit the buttons, you want to add some noise.

I'm grabbing you. Absolutely. Let's do it. Silent screaming. Oh, here we go.

It's close. Come on in. All right. All right. The compound in France?

Two-thirds. All right. Okay. Whoa, whoa, whoa. Stop the clock.

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Finds of Redholds Wealth Management may maintain positions in the securities discussed in this podcast. While I'm excited to have you both here, it is not too often that we speak to. A gigantic, the most gigantic public-y traded hedge fund in the world. gigantic. Okay.

Alright, so with me today, we're going to do Robin first.

Robin Grill is CEO of Mangroot, a global, alternative investment management firm with over 200 billion dollars in assets of management.

As CEO, she leads the firm's executive committee and is an executive director on the Mangroot Board. Previously, she held senior global positions at investment banks, including Barclays, Capital and Lehman Brothers. And with her today is Kristina Hooper, the chief market strategist at Mangroot. In this role, she provides views and insights on the economy and markets in Barclays. Joining Mangroot in 2025, Kristina served as the chief global market strategist at a best go.

And previously, we're at all the unschoolable investors. Welcome. Thank you having us. Yes. Yes.

So excited. Okay. We're going to set the stage for the conversation today. We're going to do the macro backdrop, lots of going on in the world. We're going to get into your base case of a modest US recession, a little bit contrarian.

We'll do international stocks, absolutely on fire.

“And of course, how can we not get to the violent re-rating in the market, particularly?”

Anything that might be disrupted by artificial intelligence. But before we start, I don't want to take for granted that the audience is too familiar with who you are and what you serve. So gigantic hedge fund publicly traded long history, all sorts of stories. Who are you and who do you serve?

Okay. So yeah, we're over 240 years old. Not me, obviously, just the company. So we are UK-listed. We serve largely institutional clients.

Think about 8% of our AUM as institutional. And the rest is into the wealth space, but via platforms and via other function. We don't directly interface with wealth or retail. What do we do? Well, we kind of split our business up into three things.

We split ourselves up into a discretionary arm. So classic fundamental, you and me, people who make investment decisions. Both hedge funds are not only. We have a systematic business, which is about 130 billion or so. And that's both macro and macro.

“So I think, long only equities or think the largest macro CTA type space.”

And that is both hedge fund and again, long only. And then we have the single solutions, which is a word that we all use. But we drive and develop content capabilities for clients. We take our content and we package it, put it into a space and into a frame that fits the issue that a particular client might be facing.

And large allocators don't always have the right square pegs and the bits and pieces that go together.

So we drive a lot of looking at our content and saying, what do you need us to do? And then one of the consequences of that, could you and do you want overlays? Do you want to think about inflation protection? Do you want to think about volatility, prediction? How do you think about those things?

And then alongside that, we have a bunch of other stuff. We have Oxford Man Institute, which has been around for about 17, 18 years. Where we worked directly with Oxford University and has been. One of those things that enables us to think about and harness the great minds throughout an education to make us better.

And we do that with other universities across the world. But it can't be all made as a sales would. And so we put that together. And we service the largest allocators in the world. So it'd be the then-downments, pension funds, so-and-well funds, big family offices, those types of things.

Okay, very good. So you put out a 2026 paper outlook and robbing you wrote at Man Group. We have no house view. That's right. Our portfolio managers pursue opportunities based on individual high-conviction approaches,

whether because of a trade's fundamental value,

or an algorithm's powerful signal.

Yeah. So those are two very different things. Like the classic discretionary bottoms of boots on the ground. It's most information, as you can possibly have. Management, competition versus, like, I don't really care about that.

I'm looking at a signal and it's telling me to buy cell, hold whatever. Those are very different things. How do you balance it to? So, well, that's the point. In some ways, what you do is you tool out the capabilities of both sides of the house to do the very best.

So we use technology at every point in every part of the organization. And that's all the discretionary side of our floor as much as it's in our systematic. It's in our legal functioning, our operations function. I mean, it's tech is part of the reason we say, you know, tech and talent at Man Group is because, bizarrely as a statement, there's sort of the intersection of our DNA's technology as well.

But it enables every single discretionary measure to hold their own views in accordance with the strategy they're running. And likewise, if you've got a thousand issuers in a particular strategy in a micro-systematic space in our equity, long-owned space, you can be asked at agnostic, or into sector specific, without having to be aligned with what the discretionary manager over there is doing. So we can run these things completely freely, because we don't have a single view that says, we are a buyer of X and a seller of Y.

Okay, but at the same time, you did put out a 206 outlook, Christina, which I read yesterday in the airplane, and you said that we believe you believe, 2026 is likely to be an environment of high uncertainty. I would agree. Significant geopolitical risks and economies weighed down by tariffs and other policies.

“This is likely to result in slowing global growth with several key economies at risk of entering a recession,”

particularly the U.S., you said your base case is a modest recession, especially if the investment in AI slows. Can you unpack that a little bit more? Absolutely.

when he looked at the first half of 2025, he found there was one key driver of growth,

and that was AI cap expanding. It was responsible for the vast majority of the growth. And of course, we also know consumer spending has been an important part of this economy. It has been, you know, to use a off-to-use word resilient. But if we were to drill down, we'd see that it is only higher income consumers

that have spent the vast majority of the money that has gone into the economy in 25.

“So, I asked myself, looking at 2026, what could go wrong?”

Well, I think it's, we are resting on two fragile pillars in terms of economic growth. AI cap expanding and higher income consumer spending. Especially with AI cap X, there are a number of different potential speed bumps. And we've already seen them emerge somewhat, right? We could see nimbly movements, not in my backyard.

My electricity costs are already high, or data center noise is awful. I don't want any more of it. That could certainly impede slow down data center build-out. Also, the ability to access rare earth elements.

That has been a critical part of what many worry about for AI cap X just because the US doesn't have it.

Doesn't have much of it. I'm certainly doesn't have the ability to refine it. So, that could be a real issue, a way that AI cap X spending slows down. And then, of course, you also have borrowing.

“Will companies, will the hyperscalers be able to borrow enough?”

We saw a 100-year-old bond issue yesterday. But the reality is that there are more and more question marks. And there may not be the interest in financing going forward that we've seen thus far. For example, last year, if a company announced that they were spending more on AI cap X, that was actually a positive in terms of stock market reaction. Recently, that's been a negative.

And when from, whoa, look at how much they're spending to, whoa, look at how much they're spending. What are they doing? Exactly. And then, finally, you could have just a desire on the part of companies to say, hey, maybe we should slow down and see the results before we throw more money at this. Does a modest recession? Let's just assume that we get one. Does a modest recession in the United States mean a bear market for the stock market?

No, it doesn't because we're seeing greater and greater disconnect to be quite honest. So, we could see a scenario where, for example, you could have the stock market perhaps have some kind of a sell-off in forecasting recession. And then have a pretty brisk pickup, especially if monetary policy supports the stock market. If we were to see an environment where rates were cut, and especially if we were to see some QE,

“then I think the stock market would take off at the same time that Main Street could very well deteriorate.”

That's sort of what we're saying. There's this really weird dynamic playing out that has never happened before.

Matthew Bowes, a Bloomberg, showed a chart that shows US real GDP accelerating. But there's no job growth coming, and you really, those two things have historically gone hand in hand. So he said, what's happening in the US economy is looking less like Greenspan's 1990's productivity miracle. And more like Bernanke's 2000's jobless recovery, except this time it's a jobless boom with no recession first. So there are all sorts of socio-economic political ramifications.

But it's this weird thing where there's a lot of anxiety into the surface. Job growth is just not really there. And the stock market's hanging in. I'm not sure it's even on the surface. I mean, I just aren't at the surface. I think the anxiety is writ large right now. I think that if you, you'll get to any, I will get to any room, and I people jump on me with the,

it's going on with the idea. And what do we think? And how do I think about it? And whether that's my friends who, you know, don't luckily chose a better career and don't have anything to do with finance or actually every room, you're having a client meeting with or an allocated meeting with. So this is, this is the conversation and whether it's my 22 year old who's looking down a barrel along with the rest of his friends saying, "Hey, hang on a second, how do I get a job?" Or whether it's the graduating classes coming up who are equally frightened by that.

Or whether it's any of us who are like hang on a second, it was fine when this used to be a blue word collar thing, right? But the white collar recession, that's not very good. That doesn't sound fun at all. And it's that group, right? It's that group where the joblessness, that's a word, is really biting as well.

And how much is this a consequence of real delivery on AI? A wait and see is something going to happen in there for I'm just going to hold tight.

“How confusing is this? How much of jobs going somewhere else? How much people leaving and finding opportunities elsewhere?”

And is this a this year? Five years? Ten years? What it isn't is a easy-to-ring fence phenomenon, right? That's the interesting dynamic here is that I said the other day, you know, the one and the tin. Well, that's happened, right? Now we're redefining the tin business, and it's a bit of that. It's the sense that we know there's change, we know there's capability.

We don't know what speed this is going to impact, and speed, I think, is critical here.

If you take many revolutions, evolutions, and whether it's I was we were talking earlier today, whether it's the person I liked this, because I'm that old, who when he walked into the lift elevator, and there was a person there with a uniform knack app, and they used to say, and what floor do you like? And you used to say, I don't know, three, they used to say thank you very much, and they would press three. And you would say thank you very much, and you'd waste and three would come and they said, you'd have a good day,

and I'd say thank you very much, and I'd leave, and that job went away. We don't have those people anymore. We don't have people who connect telephones either anymore. We don't have a bunch of jobs, but the rate of change for those jobs happened in a way that was absorberable by our countries, by our communities, by our society.

“The difference here is rate of change, and I think if you look at many of the papers that we all talk about,”

by the way, you could talk about the Canaries paper, you could talk about any of the AA evolution papers. What you have are a bunch of people looking backwards and saying, how does change actually affect, and what are the numbers we need to take mind of?

You only have a bunch of people trying to crystal ball gaze, which is impossible. And the reality is, how much is this becoming a societal issue?

And the rate of change, the pace of change will determine whether there's an outcome there that feels deeply unsettling beyond markets and into society. The further complicating matters is that if you look around the globe and you're looking at the economics of the world, it looks pretty good. So who's this chart from? This is from Global Data, Macrobond. So they have a chart showing the proportion of countries with positive three-month momentum in 2026 GDP growth forecasts. And it is at a record height, 83%. And further supporting that,

the next chart shows an inverted central bank decision whether they're hiking or cutting, and a lot of central banks are cutting, and that tracks very nicely with the PMI's of developed markets manufacturing.

And it's just a bizarre set of circumstances to have that feeling that everyone has.

Am I going to have a job in 12 months? And yet the macro backdrop is pretty darn healthy. Well, that's because the macro backdrop is being driven by capital. It's being driven by investment in CapEx. It's being driven by, I mean, if we were to look in the US, labor, labor wages share of GDP, is that it's lowest point in since 1950. So I think we're just seeing a very different kind of economy.

It's a paradigm shift. And it is very hard for folks to get their arms around it. And there's a reason the lotites sabotaged far machinery deliveries because of all the fear. And of course they did lose their jobs. Now the good news is there were new jobs that were created. And perhaps the speed of change of job loss might mean the speed of change of job creation and faster as well.

“I think that's the thing. And when we talked about this with ATMs, right?”

That thing, when people had ATMs, everybody went, all of the jobs go away. Actually, more tellers than ever post ATMs. So there are technologies and capabilities that forget outcomes that are actually incredibly good. They're just the jobs I don't know how to describe it a little bit. So I think speed of change is exactly the challenge.

But it's also, as we think about markets, this involved that we're seeing. We're no longer, let's go back a bit into what we're seeing in markets. If you're trying to take a little bit more charge of what your financial planning looks like, now is the time where all of a sudden no longer are you in that passive environment where an index is going to just give you some certainty.

And we can touch on that thorny issue of private equity where you don't have liquidity.

“What we're seeing is the need and the institutional level and why would it not be there for you and me and Christina the same thing?”

Where we need to think about the portfolios we have and we need to think about resilience in those portfolios. We need to think about how do you navigate these choppy markets? We think about things and sort of we can pan out and go crumbs there's some big issues here. There are. But also we have to think about how we protect ourselves financially.

What are we doing to provide ourselves with a little bit of robustness, right? Okay, so that's the call. I should have warned you before we started and I was going to do that. All right, so let's get back to like markets and what we spend our time talking about. So you mentioned paradigm shift. There is this thinking that hey, wait a minute.

40% of the index is powered by these hyperscalers or whatever the number is. Maybe I don't want all of my eggs in what has been the greatest basket in the world. And investors are going elsewhere. They are pouring their piling into international stocks. Stay in the thought chart, six please. This is the estimated net flows for international ETF.

So it's like $50 billion less month. And one of the reasons why they're doing that is because the rest of the world is working really, really well, especially compared to United States. Stay in the previous chart, please. So this shows the path of returns for the US compared to the rest of the world going back to 1995.

And year to date, we have never seen a wider spread of international stocks outperform US by 8.3% through August yesterday.

This has never happened. Investors are voting with their dollars. And I will make a note that thus far the 2026 outlook is playing out quite well. Because it was about favoring emerging markets and favoring developed XUS.

“And I think that is what we're seeing is that valuations aren't predictive usually in the short term,”

but they are predictive in the longer term. And we've gotten to the point now where valuations are so stretched in the US stocks are priced for perfection. And here are these opportunities in lower valuation areas where there are catalysts for growth. So let me ask you about this because you know a lot more about what's actually driving returns. The election in Japan and all that sort of stuff than I do.

Coming into 2024 I feel like that was like December 2022 was like enough. I don't want. Don't tell me about international stocks anymore. I don't care. And I think even looking back with perfect foresight.

I still am not exactly sure what the catalyst was for international stocks. Yes, they were cheaper, but they've been cheaper for the last forever and ever and ever. Are there actually catalysts that you have better clarity into than I do? For more strivingness? Absolutely.

I think it has to be valuations plus catalyst. And so the catalyst in a broad brush is stimulus where we see more spending. And so if you look at Japan, there's a lot of excitement and really it started last year around the potential for far more spending. The new prime minister, she is all about fiscal stimulus. She's Abbey on steroids and I think that's going to make a huge difference for the Japanese economy.

It could also of course drive up debt, so that's had an impact on yields. But when I think about stocks, I think that's the reason. And we can look at Europe as well. Europe has a very real and immediate reason to increase defense and infrastructure spending. Russia and it is absolutely going to do a ramping up of defense and infrastructure spending quite quickly, especially Germany.

Germany actually has heard itself by being so fiscally austere, especially the manufacturing sector.

“That is changing now, and I think that's a very, very important source of significant stimulus.”

People were looking at Japanese yields for the first time and ever going like vertical and say wait a minute, something's going to break.

And maybe it's not that simple, maybe it's a result of policy changes and optimism. Yeah, I think it is a bit of that quite frankly. I think you're seeing that in multiple different places where whether it's forced, a little bit of force, I mean the policy. There is a moment where you drop a stone or a pebble in this great country. And it has ripple effects. I mean you might want to thank this current administration for Europe's focus and stimulus in defense, for example.

There's some very obvious outcomes of some of the policies that are happening domestically in the US, driving capabilities elsewhere in the world.

So I think the other, for me, and Christine, you're diving at me, but the other piece here is that we're coming out of this benign environment that we talked about.

“You have interest rates, and you have volatility, and you have dispersion, and you have that that out for opportunity, hedge fund, active managers are back.”

This is what we do. It's been a minute. It's been a minute. And I'd say that that was my full American ability to understand what that meant then. You know, there's it's been a minute.

And so it's it's right that we're finding ourselves in a place where what we do, what we've always done is you go actively into markets.

All over the world and you seek out alpha and the tools and the capability to do that, especially beyond the the footprint of America. There is real excitement out there for what opportunities can be part of activity of programs that we might run, but also in the opportunity set of being part of. Again, that moment of finding out performance because equities are not priced to perfection sectors are doing different things assets are doing things jurisdictions are doing different things.

And that's really interesting because it gives you some protection when markets are volatile and potentially a little bit unpredictable.

I love it. It's been it's been a relatively boring market the past couple of years. It was 24 it was AI hyper scalars and the 493 who cared about that 100. So this year year to date 57% of large cat mutual funds are performing their benchmark and 22 was a blep that was a good idea there, but it's been really it's been extraordinarily difficult because the biggest stocks have been the biggest winners and if you were on their way to Apple you might as well have been short and now finally there's opportunity.

Yes, absolutely, but I will give the caveat that when it comes to the S&P 500 in periods where we see the vast majority of stocks outperforming the overall index we tend to see pretty low returns.

“So I think this year we're over 330 stocks outperforming the S&P 500 and I suspect we're going to have a pretty low return year.”

Indexes up 10 basis points out of this more so be careful what you wish for. All right, let's let's talk so I was I was looking at some of your financial reports and I want to talk about the trend of. Retail behavior how it might impact market structure because you manage a lot of money and trend following strategies and market structure has changed they're now 25% of total volume. Everybody hurts all investors are professionals retail, but they do it I would say probably more than most so. In the first half of 2025 from one of your reports, you saw one and a half billion dollars of net outflows from absolute return reflecting a challenging market environment for trend function strategies.

So has how has I don't say has because it has how has market structure the rise of retail the zero days to expiration options like how is all of that changed. Some of the way that you think about the strategies that you deploy it's so if you don't mind I'm going to sort of zoom you out a bit. So let's understand what trend means as well because and I'm I'm open everybody knows but just bear with just in case you don't. There's ultimately what trend needs to work across macro spaces is what it says in the title it's trends now it's trends for somewhere between eight to 12 weeks right what you experience what we all experienced in 2025.

And especially past early April was an absolutely whip-souring market and so there was no space that enabled you to find strong signals which drove a version of trend right. Alpha signals across and it could be currencies it could be commodities it could be agricultural metals it could be any number of different things he'd be kind of macro spaces that's where trend does not do well now it's a tremendous other side of your defensive alpha because when you start to see things then trend out as they normally do actually post periods of high-vol.

“You start to see that you can build on these things and that's what happened at the end of last year so you started to see trend coming back really strongly but.”

The thing that where you see retail really playing I think is in equities is in indices it's in that space and it's the kind of the. It's a phrase that's sort of been used most recently it's indiscriminate in and it's indiscriminate out and so that provides an extra layer of volatility particularly in those things that people can see it's the.

That's that so I write my broker kind of thing he said they said it with a recognizing and so where you're seeing the retail place that sense of name recognition.

“But not fundamentally investing not not as we would historically think about it and that does change things that change things materially in that space what it doesn't tend to change.”

It's in commodities and agricultural's much and a bit in your precious metals might've seen that in silver and godly but it doesn't necessarily get to wheat and it's not an emerging market current says where you're looking at. Different you pay so dollar pairs for example so it's a different thing but it changes.

The way that equities in particular the S&P is operated and that is a different thing from the trend traditionally that you would be hearing in that space.

“I think trend following is intuitive for investors right like an object in motion station motion.”

But one of my favorite and rising prices attract buyers and foreign prices attract sellers like we know how it works right like you're more likely to buy something that after it's gone up because it's going to continue to go up and that does drive prices up. One of my favorite investment quotes is from Malabrod who said the trend has vanished killed by its discovery and not just particular to what retail is doing. But the rise of CTA is I mean the rise happened a long time ago but there's a lot more competition so even if retail investors aren't trading currencies and commodities to the degree that you are that actually might make it harder for you because now you are not competing against.

You're competing against other professional investors with a lot of resources and a lot of the same data and signals and information.

And that's it and they're in lies the nub of it right is when you say it's the same. The thing for any organization listen I said return of 40 years old and if we hadn't changed I'd still be making barrels on the side of the river terms and supply room to the Royal Navy on the daily ration and I'm not joking that was the monopoly right. The thing that changes through the lives of organizations like ours is the need to stay relevant and stay right at the bleeding edge the cutting edge of alpha signals and capabilities the one thing I can for sure.

Or sure you is that alpha becomes commoditized quicker and more data doesn't mean that more people are more skill that it also. So the product we had 30 years ago in a momentum trend product which had 30 markets and was had a fee structure that might be very happy today would trade for nothing today. It would be replicable you and I could sit on our computers right now and replicate that strategy across those eight markets and get the execution benefit. When you're at 800 markets and when execution becomes part of the alpha and when portfolio construction is part of it again and when risk management is part of it again and risk scaling and fall scaling is part of it.

“It's a much harder thing to replicate and that's where you have to continue to look is the capability to find more signals that are alpha signals that you can trade at scale.”

That you optimize that you can put in a portfolio that provides out performance that you can execute and that you can deliver the risk and the value back to clients that's what you do and that's what you have to be able to do again running something at 100 million dollars and running something at 10 billion dollars. There are a whole different kettle of fish and so we run man incredibly hard to be at that bleeding and cutting edge and it takes an army of that this is a shocker to people about but people like real people who are really smart, really capable but use every part of the advances in tech and in research to make sure that we can deliver value back to clients.

Okay, there was a bank from America does a global fund manager survey and they always ask what do you think the biggest tell risk is and they were the so they showed November chart for sea please Daniel November December January February and you could predict what happened. AI bubble was number one in November and then they got a little bit less worried in December a little less worried in January and a little less worried in February as the air came out of the bubble that never really blew up in the first place.

If there was to be a public proxy I think for open AI which of course is not publicly traded I think it would look something like this next start please Daniel. So we're looking at Microsoft divided by the S&P 500 since the launch of chat GPT and yeah people got really excited as well they should have and now no more excitement so Microsoft has underperformed the S&P 500 since November 2020 that's not how a bubble supposed to work.

We've seen over the last few weeks and really it started a few months ago was you know the investing world's version of a murder mystery. We know who the murder is but we don't know who was murdered or who will be murdered and so there has been this incredible sell off some of it quite irrational. And so many I think when we look back on this chapter we'll point out a lot of investing irrationalities that occurred and I would argue that Microsoft could very well be one of them we don't know today exactly how this shakes out I think this is very very similar to what we saw in the late 90s and early 2000s with telecoms and the money they spent to build out fiber optic networks.

“And there was a huge race and there was any enormous amount of excitement and ultimately that excitement was correct because that really laid the groundwork for a far more modernized economy and the internet.”

But there were some victims and so I think it's right to worry about who the victims are but certainly what we seen in terms of of these sell-offs. There's been a lot of irrationality. I love the murder mystery knowledge is a go on and you're right I think there is a lot of irrationality of course none of us know. Which players are acting irrational I'll let you know in a year or two but I shared a chart last week that went viral. Because it's so unusual. So Daniel chart templates. We've seen a surge in blowups while the stock market is near an all time high.

So last week we saw 115 stocks that fell 7% more in a single session meanwhile the S&P 500 was 1.5% away from an all-time high.

The last time that happened not to make comparisons for the record do not think that this is going to happen I don't think that like passes prologue in this case maybe it is and I'm going to idiot this age is poorly but the last time this did happen was in the late 90s now different to school or we don't need to necessarily get into that but the market is trying to figure out who is going to be the loser and who is going to be a bigger loser. Yeah, yeah it's and this is the point is it's the we can't we got a lot of data that goes backwards.

No front tests no front test and so this is I'm and I I like Kristina's and now she was the one that made me smile as well as they kind of yep motor mystery get it. We're playing it in reverse we know what's going we know the outcome now got to work out who I'm sure there's a movie that does that somewhere but it's the it's a set I'm sure it's like knives out.

“Yeah that's right and so so there is a bit of that I think the other pieces the players that we don't who aren't even on the chart yet.”

You know there's a bit of this which is we've talked about this isn't the first time it wasn't just calm it wasn't just fibroptics we can see through time.

The the people who go out and spend loads of money on this don't tend to be the people who end up with the institutions that end up with the net benefits here. But also they have public financials back in the day these are open eyes at the episode that that's the hub. Yeah and we don't know what they're up to I mean you know we hear drips and drabs but.

“We mentioned this earlier and in September of 2025 when they made the announcement with Oracle.”

Everybody's like oh my god look at how much they're spending and every stock I've been up in fitting all the chips and now it's like. Holy shit look at how much they're spending so Michael mobs and. I'm wrote a piece last week showing that open AI their sales forecast so 3.7 billion in 2024. They're projected at a hundred forty five billion dollars in twenty twenty nine because they. Oh, Oracle sixty billion dollars a year for the next five years and it's a way to met it. Let's take a look at how many companies.

In the history since 1950 to 2024 now these are it's apples to oranges because no you're companies weren't this big but whatever two to five billion dollars in sales.

How many of them I don't feel just inflation let's assume that he does how many of them were able to. I'm growing as let me just quote him Michael said and and as is colleague Dan the data revealed that no public company has grown this fast for five years and the last three quarters of a century. The results include all industries the average compound annual growth with a 7% and the standard deviation is 10.6%. This forecast implies a wealthy 9.5 standard deviation outcome for open AI which is extraordinarily unlikely obviously. So how are you all thinking about the relationship between the hyperscalers.

The gigantic startups and the markets reaction to this like are we not can use sales force or is I mean into it maybe it's a different story but how in trouble are these SaaS companies, particularly the the horizontal ones and serve everybody and then I guess maybe nobody.

So I'm huge caveat in here because then just stop maybe someone needs to press that button in a minute make a funny sound but.

I think thank you. So so there are a few things is a dynamic one we have this rather weird cycle where all of the hyperscalers and the software companies and the tech companies are all crossing. Crossing investing in one another so you've got this kind of AI financing cycle which in and of itself is producing some slightly weird outcomes.

When it comes to will we be using SaaS or will this what is this really under it is it really going after these guys well the answer I think is kind of yeah right it is how quickly though.

And how big let me take let me do a different analogy when we talked about things like the way that you may or may not want to think about using hydrogen as fuel at some point in shipping right the problem is you've got a bunch of ships that are not built and their entire fuel system is not going to be built for hydro anytime soon.

“Right so there is a delay in the ability to act even if you want to to put this kind of cleaner smarter cheaper potentially technology into some of the literal ships same thing goes with the way that.”

Producing manufacturers had manufacturers had great big basements full of machinery with cogs and wheels and belts and stuff and the reason there was a delay perhaps in in the way that there was benefit in manufacturing kind of took 40 years or so to get the benefits of electrification all of those things in manufacturing was because you had to decommission some of this other stuff and put the new stuff in.

It is really hard in these very big companies to unpick the legacy systems and as Christina put a kind of finger on people have to help.

I mean this is one of those interesting things in order for there to be mass adoption and for people to be able to really take the benefits of AI and this capability they are part of teaching AI. I have a part of replacing and understanding the the pipe work in organizations.

“I sit in an organization where you know about a third of the organization are much cleverer than I buy far you know their quotes their developers their engineers their technicians.”

We have tech as part of the DNA of the organization. I have a lot of people very excited about the capability that this puts in their hands. They are the same people though who are also understand its limitations. The organization where we have a single version of the truth I have that capability because this is the way we've built man 35 years of content heritage helps you do stuff better driving systems scalable systems. But very large organizations out there have a ton of legacy systems and unpicking that.

In straight forward and requires real people to help them do that. So we talk about delays and you talk about a lot of it is a much sort of is a word that you know there is a bunch of things that are going to prevent delay naturally slow down adoption but are they going after it. Sure. That's such a great example go ahead. I was just going to add so for for investors wondering where to go what to do in this kind of environment I would say the key is diversification because if you look at the US landscape there will be winners and losers if we go back to the the dot com phase.

The first thing that I was going to do is to make sure that the opportunity was very much in old school company and it morphed so there is the very real potential that some some companies that we think might go obsolete actually more than become critically important.

“So I think it's important to diversify outside the US. China has had a very different approach to AI cabax. It's been more methodical. It's been slower and of course just given that it's more of a command economy.”

It has been targeted at helping older school industries like manufacturing and so I think that in a world where we don't know who the winners and losers will be diversification is very important. Rob and I loved your answer Christina yours was good to but it's fine. But spoken like somebody who runs a company who works with human beings who is not a techno weirdo. You can't just rip these things out and investors are acting as if.

To the extent of which these these new companies are going to just we don't know but my friend Warren pie has this incredible data point. He said there has never been until just now there has never been an S&P 500 industry.

That accounted for eight more than 8% of total market cap declined by 25% and have the index remain within 3% of an all-time high and it's completely indiscriminate selling.

So Rob Anderson from that Davis research Daniel char 13 says no software stock has escaped to sell off on skift 100% of industry stocks were in draw dents about least 20% from their 52 we guys and almost 80% of them saw draw down greater than 30% obviously the highest reading inside of any bear market. It's just unbelievable how quickly investors are pricing the send and maybe more.

“Yes, I think that's right and it's back to Christine's point let's zoom out people you know this is the zoom out moment if you want to not be glued to ex.”

And I'll get a chance like this if you want to have a little bit more of a wider perspective there's options here that help you and it's not a bad thing because this is a global economy.

It's not just a phenomenon that is being experienced in the US it's a phenomenon that's being experienced just about everywhere it isn't just the pervy you don't have a monopoly on this one. This is one where actually being part of how this impact societies and impact industries everywhere it's real. Overlay here is this is this is different in a social impact perspective politically and otherwise this is going to be for people to wrangle with everywhere in the world how our society is going to deal with this what is the role.

There's an actionism or allowing retraining or we're scaling people in our societies there's no doubt that this is great stuff but we've talked about it this is nerve racking you and daunting and you can't have excitement without a bit of that right we part of why this is exciting is because we don't know the outcome apart from the mismapal analogy you don't know the outcome of where this land what's what we're going to look like five years from now ten years from now. I don't know I do know that there are some things that we all want though and that's financial security and we want some stability and we want to be able to feel like we have some control over that and I think therefore.

It's incumbent upon people and organizations like ours I man to try and be part of a solution for financial security and stability we don't do that by just looking at one index we don't do that by just looking at one sector we do that by giving access to the largest institutions in the world as they're thinking about their portfolios and how they really need to.

“We think the allocations that they've had historically you know it's it's if you want to be dynamic you care about the quality all of a sudden if you want to be active.”

You need some ults in your space that are liquid if you don't want to just be the vagaries of an index you need to be active in that space not passive and so all of a sudden you've got the largest institutions in the world. Rethinking portfolio construction my question is why why aren't we doing more to help real people in the world at the world from the retail space to help think through that same.

And we're going to be so logic. We'll get the second. Last thing on this topic before we get there Christina you mentioned diversification as being a sensible solution and I would agree.

So the problem is that we're looking at the S&P 500 market cap divided by the equal weight and it was up into the right for the most part like it was really for it was seven versus everything else and we're seeing the exact opposite year to day which is lovely I love it I think it's phenomenal it's fantastic. And this, you think, is people rejecting the hyperscaler spending this is not sustainable Ottawa be a part of this versus not actually thank you for your spending because the 493 are going to be transformed.

They're going to see margin expansion after a long time of oppressive interest rates and it's going to be great for many industries.

“I think it's both I mean if we were to go back to that telecom example.”

You know there certainly was a rejection of it but also excitement about all the companies that benefited from it and I think that's very much the case with the hyperscalers today and who knows they could very well have second and third acts but for right now I think there is a very good reason to be cautious and careful with them.

It's slightly different as well so they've got broader business models that it's not just the only thing that they're throwing into the mixes that's I'm putting all of my eggs in one basket.

Yeah they're throwing a ton of money and capex at it but actually they've got whole areas of other business models in Amazon for example we're doing a lot of other stuff that might be extraordinarily benefited by this type of capability. Okay let's talk lending. So David there's been a lot of these just loud vocal skeptics of private credit. Yeah I don't think I've been one of them I understand the skepticism.

“I think the way that the financial markets have been structured with the legal stuff and the banks to the black stones of the world I think makes sense I think it's it's okay so I when Jamie diamonds had this never one cockroach.”

I said listen this was I think fraud and stuff fraud happens in public markets and sometimes loans go bad that happens it's not the unique to private markets okay but.

Let's guess where you're going but where I'm going and where I have legitimate concern is the software.

Becredits put out a piece they've got 26% exposure and that portfolio to software and a lot of the alternative asset managers the charts look really bad like really bad I don't look today looks really bad yours your guys looks great by the way you look nothing like the companies I'm talking about credit to you so we could see. In line of in in 2021 a lot of the real estate and you're ready to go around but I'm going to start a lot of the real estate the private real estate manager say no we're not an office.

Is that I could be private credit I don't know we're not in software. I think. So I'll I'll hand over to Christina and a sec I'll let them into the intro because I think it is. It was all about understanding the credits that you were lending to you know it's it's sort of sounds a bit straight forward a bit dull doesn't look. I mean, ain't it.

If you look at the rate of lending the speed of deployment.

“I think you scratch your head a bit don't you don't don't you yes.”

That sounds like a song I found like I thought I was going to burst into something but don't just you kind of stop and hang and say hang on if this is about risk management. Is this about any in this about understanding fundamentally the risk you are taking the terms of lending that you're providing. Then that takes discipline and it takes diversification and it takes you pricing things right. And if somebody or certain larger organizations and certain spaces are just writing checks. Billion a week.

Billion a week. At some point you got to go this is kind of hard and the the hardest thing in credit is to stop. Be patient. Be thoughtful. Deploy within integrity into those spaces with intellectual.

When you have inflow is relentless inflow. How do you do that? You be careful about the inflows you've got and you're honest about the deployment rate that makes sense. And this is one of those interesting conundrums it you know there's a reason why we think about our private credit space and in a very sort of disciplined way. We sat on dry powder last year and by doing that by the way it means I don't count it as a human I don't take fees on it.

And I'm comfortable with that because we need to keep disciplined on deployment. If you don't do that then you're investing crossing your fingers and that's not what people pay us to do.

“So just with that as the intro I think you are going to see some interesting outcomes here.”

I'm not so price you're seeing some of the red on the screen today. It's a I'm also in that point where you know I remember gating post GFC. You don't that's a big thing. You've just come back from that you've pressed a big red button when you've done it we know it we learned it. And so when you do that that's you are definitely signaling something that's that's painful.

I mean, Chris, you're too certain. No, I can't find something crazy before you jump in and you don't have to comment on this particular but I can. This is from the F.T. Private credit group, blue owl will permanently restrict investors from withdrawing their cash from its inaugural private retail debt fund. Backtrack from an earlier plan to reopen with to redemption is this quarter.

But that the company would instead return investors capital in episodic payments as it sells on assets and coming quarters in years. They made a couple of mega sales and at 99.7% of the city were all good at all and the publicly traded BDC opened up 3% and the last time I checked it was down a lot more than that.

The market is not buying what they're selling and they had the opportunity several times to maybe be a little bit more forthcoming with always happening they did not do that.

I listened to the earnings call last month and the CEO Mr. Looksholes were saying we don't have red flags, we have green lights. I mean it was just like a lot of and then boom and and he might not speak for the space but it doesn't matter because investors are now understandably and rightfully scared.

“Yes, they are and you're seeing it today. I think this will be a point where perhaps diligence, although it might sound becomes, you know, we're going to see clients we should be seeing clients doing really deeper dives on diligence.”

I think it's going to be very interesting to see whether there's a regulatory response to this.

You're one of those interesting points about mark to markets. Remember, I'm a public source house, a very dull means I am subject to marking the vast majority of my book to market. I care about liquidity matching. I care about the version of whether or not mark goes up and I have value on the mark goes down and I don't. I don't have that transparency in private credit. You can't see it and it's going to be quite interesting to see where the valuations are and that is nerve wrecking for people I understand it.

“And if the lenders can't have the visibility or the total visibility as an allocator, how are you supposed to get comfortable? Because really the only way to be confident is the relationship, hey, I think they're smart.”

They think they're disciplined. I'm not reading the sub docs. How would I even know it? What's the matter? You have to rely on the experts and this is why credit not go right back to it's a risk to risk making is risk investing.

It's understanding everything about that underlying and you have to deal with people who really care about that deployed capital carefully.

There's not every loan portfolio works, 100% you know, there are a result of fault and there are levels of default and you can understand that sometimes things don't work, whatever investment goes up, I wish. You know, so fundamentally portfolio construction is important, risk management is performing understanding the underlying support and thinking about whether you're in a space where you want exposure to lending to certain sectors. There will be entire parts of the lending books which have no technology exposure at all because they choose to be a we ran in one part of our business and in a recession.

“Less sensitive recession strategy effectively and I said, what does that mean?”

Well, what does that look like, for example, and somebody gave me great example when I don't know who I feel like I'm obsessed by elevators today and I don't mean to be just turns out that's what happens elevators there are things people who serve as elevators. They tend to be reasonably recession proof because you and I still need to go up and down in buildings. It was really useful for me to understand that. These are the types of thoughtfulness when you are talking and thinking about the people that you are putting money with. Do you understand how they go about putting that money to work for you under what circumstances, how why.

I'm a little like the indiscriminate in indiscriminate out. There's a little bit of I worry and I care about making sure there's transparency about what people are expecting and the quantity mismatches. I've been there before. So it's difficult for advisors to really understand what's under the hood if you were to ask an advisor who's looked at. Blackstone, blue owl, all cake, whoever and you said, okay, well, what's difference between this black box version? Come on, right? Like what can they really tell you and then you think about the transition and the cynical take on the transition from Ivy Leagueers, the Ivy League's institutions and diamonds pension funds.

They're already invested. They're 40% distributions haven't been great. They're full. They're not allocating more returns haven't been great. Okay, well, there's a whole new channel. It's the 40 trillion dollar wealth channel. Whatever it is, the 401k market, the 11 trillion dollars, the advisor market.

So how are you all thinking about the, I hit this phrase, but the democratization of alternatives? I mean, you, you're, you're a very serious asset manager.

“Yep. And I'll start and then Christopher, how are you?”

One debockization of into liquor adults is exactly that. It's not just into private credit, by the way, just sort to, to make that clear. So there are many, many liquid alternative products. So I think the democratization into liquid alternatives is something that is sensible and a portfolio. I think it's just, it's out there to find that the right price point. There are many, many different styles of alternative liquid products that are beyond passive investing and aren't throwing your money to private equity.

So, so number one, we need to demystify that hedge funds all look the same, all do the same stuff, they don't, and you can be their via systematically, you can be there with discretionary managers, you can be there and emerging market, you could be there in European equities, you could do a bunch of different things.

But do you want retail money and your hedge funds?

“I want retail, I want wealth to have an opportunity to benefit via the right rappers and the right products from the returns that you can get in alternatives and that will diversify their portfolios, and I think that's right.”

I think it's the right thing that the straight, so let's do it a different way around. I work with the institutional, the institution environment that I work with, are people who run your pensions, are people who are responsible for 401Ks, are responsible for the protection of teachers and firemen all over the world, metal workers in Holland, whatever it may be, I mean it tries in Japan. We work with those people all day long to put your hard earned and saved money to work so that you have financial security, they do it in a way that is across diversified portfolios, and they ask us to help them do that.

There's also something as a pool of money that you would like to have access to that same type of exposure, there are mechanisms which you can do that, and you can see that with active ETF, so you can see that with interval funds, you can see that through any number of different rappers and processes which are designed for retail and wealth consumption.

“I think that is very very important that it's that mechanism. You're going to come bowling in and just write checks where we have minimums to get into some of the systematic CTA type space.”

You can't do that directly, but there are mechanisms by where you can absolutely benefit from the credit capabilities that we have. You can absolutely, in the public space, you can absolutely benefit from an emerging market space.

You can absolutely get access, but in rappers that are going to give you liquidity and are going to give you multi-market.

I think the key is liquidity. I think what so many universities and downmen, especially the IVs, learned during the global financial crisis, is the importance of liquidity. May have been lost, just given allocations today, but I think this is true for institutional investors. It's true for wealth investors. It's all about ensuring that there is adequate liquidity and portfolios. The kind of pressures, it's been anishorabillus for universities and they've had to draw a lot more from their endowments on average. There are years when there are many individual investors that also face those kinds of difficult headwinds.

So liquidity should be at a premium for all of them. I was at an institutional investor conference in the fall, and I was on a panel with an institutional consultant who said, "I've gotten more interest in hedge funds in the last five months than I've gotten in the last five years." And I think that really speaks to the uncertain environment we're in. But my qualifier was, but there should be just as much interest in liquidity as there should be in alternatives. And some of the retail wealth base, but let's be super clear, some of the biggest organisations, the biggest allocators in the world, trillions of dollars, are fighting themselves in a heavily and denominated outcome of being illiquid.

So as they required liquidity and they haven't had equalisation, larger proportion of their portfolio is sitting in illiquid assets. Now that's going to take, that takes time to rebalance, it just does.

Who doesn't want to have the capability of being dynamic of having the opportunity to participate in new alpha sources, in new spaces and diversifying capabilities, in new countries asset classes, in new technologies even, right?

“And so to find yourself hamstrung is frustrating, what we're talking about is I'm going back maybe 15 years, but that capability of choice of freedom to be able to be dynamic, the liquidity is back.”

This story about how pension funds think about liquidity and long-term management and working for the firefighter, all checks.

Alpha is finite, right? These alpha sources will turn into beta very quickly as they are democratized. There is just a fundamental difference between how these long-standing pensions with investment teams and we forget about all the biases that go on there, but at least their systems and processes in place and they understand deeply the pros and cons of each strategy and where they fit into a portfolio.

“The reality is individual investors just do not behave that way. They line item everything and if something is a work for three years they get rid of it, we know this, it's been this way and it will always be this way.”

I think a maybe sensible place to start and I even like hesitate, shut it to say this because there's so much people thrown tomatoes at this idea is the forum on K because at least that is long-duration capital, you look at it last, you're less likely to panic, so maybe maybe in a target date fund, where it's professionally managed.

The idea that people are going to have access to these alternative premiums in their brokerage account and it's going to go well, I just don't think so.

“Well, we made one of that on that and we'll see where there will be a prediction marker for that, I'm sure.”

Absolutely. So maybe next time you guys come back and we'll talk to you tomorrow because this was really excellent, thank you so much.

Thank you. Thank you. Thank you. For people that want to learn more about man group, the 240 year old, rum trading, shut up. Not rum. We tell rum, we tell rum, we tell rum, we tell rum, we tell rum, we tell rum, we tell rum, rum, rum, rum, rum, rum, rum, rum. This is probably a sound for that. Look at that, we're at a website. Okay, man group. All right, thank you so much. Thank you. [Music]