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Alt Goes Mainstream: The Latest on Alternative Investments, WealthTech, & Private Markets
Bloomberg's Brad Foster - driving the convergence between public and private markets
00:46:20
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- [00:05]
Brad Foster
I think anytime you're dealing in markets of this size, the first question you should ask yourself is, do you have that foundational aspect of what's going to allow you to scale that business and scale into this growth that we keep talking about that is, I think, going to be the focus for the next few years. And that I think has to be the question that we all ask, because I don't think that what you can do is take your public infrastructure, your public data, your public tools, and everything that worked for public isn't necessarily going to be what works for private. They're so they're going to be things that work in public. When it comes to data, technology, infrastructure, workflow tools, analytics, yes, sure, they're going to be things that are transportable if you want, but there's a lot of what makes this market up that's nuanced. And I think that our focus is very much to support our customers, whether asset managers, asset owners, on that foundational aspect so that we can help to support that growth. This is structural, no matter how you refer to it. I don't think there's any scenario where you turn around in five years time and the allocation into privates is less than it is today. And so if you believe that, the first question you have to ask yourself is, am I set up to capitalize on that growth? Yes or no?
- [01:10]
Podcast Guest or Host (Chorus/Intro)
Everybody gets a piece. We're going mainstream. Everybody's gonna eat. We're going mainstream. All my family see see you on Main street we're going mainstream.
- [01:29]
Podcast Host (Altgoes Mainstream)
From Wall street to Melrose Avenue, we're going mainstream. Venture capitalists to athletes to creators, to a person who is collecting trading cards in a collision of culture and finance.
- [01:45]
Podcast Guest or Host (Chorus/Intro)
We're going mainstream.
- [01:48]
Podcast Host (Altgoes Mainstream)
Welcome back to the Alos Mainstream podcast.
- [01:50]
Interviewer/Podcast Host
Today's episode takes us to a hub
- [01:52]
Podcast Host (Altgoes Mainstream)
of market structure, a powerhouse of trading, and a crossroads of public and private markets. To discuss how private markets are in the midst of a market structure evolution, we sat down at Bloomberg's New York City headquarters with Bloomberg's head of fixed income and private markets, Brad Foster, to discuss how technology and data are driving a convergence between public and private markets, particularly as it relates to the credit space. Brad is the head of fixed income and private markets at Bloomberg, where he's focused on the delivery of data analytics and tools that clients need to power public and private markets, investment strategies and workflows. Brad joined Bloomberg in June 2017 to lead its enterprise data content business as well as its fixed income evaluated pricing b val offering. He was appointed head of Fixed income including securitized products in early 2023 and head of fixed income in private markets in early 2024. Prior to joining Bloomberg, Brad spent almost 20 years on the sell side in multiple locations including London, Tokyo and New York for Deutsche bank as a Managing Director in global markets across global finance, fixed income and currencies, structured finance, special situations, structured lending and front office risk management including CVA and counterparty risk where he managed a team that built a cross product risk and portfolio margining platform. Prior to Deutsche bank he was at Credit Suisse in the Market Group. Brad and I had a fascinating conversation about public and private credit and how data and technology are shaping these markets. We covered how Bloomberg's history shaping other market structures are informing how private markets market structure is evolving, how public and private credit are converging, definitions and perspectives on liquidity versus liquidity, what's risky and what's not risky, what private markets need from a market infrastructure perspective in order to scale, why borrowers are choosing private and the investment grade private credit option, how Bloomberg is approaching private credit and private markets market structure and Bloomberg's build Buyer Partner strategy with private markets tech. Thanks Brad for sharing your wisdom, expertise and passion at the intersection of credit market structure and financial technology. Collision of culture and finance.
- [03:48]
Interviewer/Podcast Host
Brad, welcome to the OS Mainstream podcast.
- [03:51]
Brad Foster
Thank you. It's a pleasure to be here doing this with you.
- [03:54]
Interviewer/Podcast Host
Likewise. Well, thanks for having me Here at Bloomberg, some would call the home of market structure. We're going to talk a lot about that today because I think there's a ton of really interesting things to discuss around the convergence of public and private, how that relates to the evolution of market structure, some historical comps as it relates to market structures of other asset classes and market structure and private markets. And I think that's actually a great segue to your background. You have been in the fixed income world for quite some time. You were on a trading desk. Would love to hear your background and how it's gotten you to where you are today.
- [04:32]
Brad Foster
Started my career as an analyst as most people do in banks and once I was done with that I joined the trading desk building risk and pricing models. And so I had a lot of exposure in terms of creating through proprietary technology the same pricing and risk models that our traders and salespeople were using and ultimately what informed what we put in front of our customers. I did that in London, Tokyo and then came to New York all with the same bank, all over a 16 year period. And yeah, so I've been on the trading side I've been on the risk side, and almost 10 years ago, I joined Bloomberg to essentially build out our data and technology across our enterprise data business. And I manage fixed income, core business, and private markets.
- [05:18]
Interviewer/Podcast Host
How do you think your time on the trading floor has informed how you think about the business you're building at Bloomberg and how you're serving all of Bloomberg's clients?
- [05:28]
Brad Foster
I think when we think about product management, we always start with the client problem. We always start with client empathy. We really want to understand our client workflows. We want to understand when they come in every day, what is it that's defining success for them and what are the impediments to that. So when we build our product, it's very, very much in the context of what our clients are trying to do, how they're servicing their clients, their constituents, et cetera. And so I think having lived on the sales and trading side, having been on the bank side, having serviced what was our largest client base, which was the asset manager, asset owner, hedge fund community, I think I have a good understanding exactly what those workflows are and how that's evolved over time. If you consider I got into sales and trading a while ago, more than 20 years ago, 25 years ago, I've certainly seen how that has changed over time on the public side, and now I get to live and breathe it on the private side.
- [06:23]
Interviewer/Podcast Host
So I think that's a great segue into what market structure has looked like in other asset classes. Fixed income is a great example in Bloomberg was right there at the start of helping shape and create that market structure. And where we are today in private markets, particularly private credit, or maybe credit is just a spectrum and there's a liquid and liquid credit. And so would love to hear how the lens through which you see things today is informed by Bloomberg's origins of helping to shape the fixed income market structure. And what do you think the private credit space can learn from how that market structure evolved in fixed income?
- [07:11]
Brad Foster
I think if you look at Bloomberg's history, clearly it stepped into this space. Fixed income was where it largely spent most of its time solving these problems for customers. If you look at fixed income 40 years ago, a lot of the same structural issues or market structure issues or challenges we're looking at today in private markets were the same that existed in fixed income 40 years ago. Bloomberg systematically went about really trying to understand those, as I said, client challenges, problems, the things that our customers were challenged by then. And it could have been anything from moving towards markets that look more Liquid creating more transparency. Obviously over that time period, regulation evolved quite significantly. And so we built out what I would consider a market leading position when it comes to public fixed income. And I think when you look at where we are in private markets today, whether it's the data, the technology, the analytics, the workflow solutions across things like enterprise applications, all of these things are going to have strong parallels to the challenges and the market structure challenges we faced as fixed income public markets grew over 40 years.
- [08:20]
Interviewer/Podcast Host
What do you think the real turning point was in the evolution of fixed incomes? Market structure electronification and the ability to take something that was done in more bespoke ways, maybe didn't have uniform data and then electronified, and then those workflows became much quicker, much more transparent.
- [08:45]
Brad Foster
I think ultimately the need for efficiency is something that sales trading floors around the world that constantly grapple with. And efficiency is not just about managing your costs, it's about being more effective, more efficient in how you service your customers. I think it also touches and impacts as the demand for more transparency. When you look at banks making markets, providing liquidity to customers, obviously the more efficient you are as you do that, the better you are. So things like straight through processing, things like electronification of markets, moving away from voice execution, I mean, those are all things that have happened over time. It hasn't happened at the pace that anyone expected it to happen. And I think that speaks to the fact that it's not that straightforward. I think there are large parts of even what make up public corporate credit markets today that are not electronic. But I think that need for efficiency, that need to service customers more effectively, that need to find an edge versus some of the other market makers out there, I think a large part of what drove that was that. And I think regulation certainly had an impact too.
- [09:46]
Interviewer/Podcast Host
Something that Mark Rowan from Apollo has said, which is there's public credit, there's private credit, some may be risky, some may be safe, some may be liquid, some may be illiquid. And that distinction between public and private, whether it's credit or equity, is blurring a bit. How would you think about that as it relates to what you're trying to build out at Bloomberg in terms of serving those trying to transact in the private credit market.
- [10:18]
Brad Foster
First off, I don't think that whether something is public or private necessarily defines risk. I think, secondly, what I would say is that as we've gone about talking to customers, especially in the corporate credit space, but I could draw parallels elsewhere, we don't really talk about it as public or private anymore. When we think about it, we think about it very much as three legs of one stool. You've got the bond market across investment grade, high or distressed. You've got the bank loan market and now you've got this private direct lending market. And I think all three of those things are coming together to essentially provide what is absolutely critical to American companies, companies around the world, which is funding. And how those companies choose to fund themselves, whether public or private, I think is just it could be today, it could be in the bond market. If you're a high yield distressed company, if you're sponsored that company, today it could be a bank loan, tomorrow it could be a direct lending deal. When you look at a lot of where this growth is coming from in private direct lending, a large part of it's coming from investment grade. So I don't think first off that whether something is public or private defines how risky something is. I think you have to be a lot smarter than that. You have to look at the fundamentals of the company you're lending to. You have to look at the structure you're lending into. But I do think that when we talk to our customers, more and more they want to have a corporate credit discussion and that's across bonds, bank loans and profit directly in leave.
- [11:39]
Interviewer/Podcast Host
So the different constituents, the borrowers and then the investors. Why would a borrower choose public over private? Or why would they choose private over public?
- [11:51]
Brad Foster
If you're a borrower, if you're a private company, that may be your only access to capital. If you're an investment grade borrower, clearly you have options. You have the bond market, you have the loan market. I think that if you're an investment grade borrower, why would you choose to go to the private market? Well, I think you afforded a lot more flexibility. I think that you can get larger deals done, meaning you can have bought deals without necessarily having to involve banks. I think that the combination of that, plus if you consider some of these deals end up with asset owners, they end up in insurance pockets. They don't necessarily trade, they sit and buy and hold portfolios. I think there are many reasons, but I think first and foremost companies are looking to diversify their funding sources. I think that public markets has been the source of funding for many of these companies for a long time. As bank regulation ratcheted up, obviously banks were forced to retrench from certain parts of this market. And I think that private capital stepped in and provided absolutely critical funding to these companies. And I don't think it's just your private or your high on distressed companies anymore. In fact, it's not. It's your investment grade borrowers who are looking for that flexibility, looking to diversify their funding sources.
- [13:01]
Interviewer/Podcast Host
Air France, Intel, Apollo Finance, both of those deals. And those are investment grade borrowers choosing to go private. What data or workflow within that market structure is still missing that would make it easier for borrowers to choose private over public?
- [13:22]
Brad Foster
I think ultimately the place we need to get to when it comes to data to start with, and we can talk about technology too, but I think certainly if you start with data, the place we have to get to in private sector is the same place we are in public. The lines between public and private have blurred. They're not blurring, they've blurred. I think if you're going to start to bring these portfolios together, if you're going to start to look at relative value comps between public and private, you have to have your foundation. Foundational data is going to be critical not just to doing that analysis, but also if you believe that a secondary market is going to open up for a lot of this private direct learning paper. There's a lot of foundational data that you need. Start with your Security master. That Security Master is foundational not just to things like books and records and P and L for banks or NAV for asset managers, but it's critical to making markets. You cannot make markets, you cannot provide that secondary market with that foundational data. And it starts with your SEC master, but it doesn't end there. It goes into things like your life cycle events. How does that SEQ master update over time? You have to go into classifications, industry classifications, you have to have identifiers, you have to have a taxonomy, you have to have a data model. You have to be able to model these deals from a data perspective. You have to then have that feed downstream into things like your valuation systems. And so my expectation is that the requirements are going to be exactly the same for private as they are for public. When it comes to data, asset owners present a slightly different challenge, which is they are looking for more of a total portfolio view. So when you consider that your largest insurance companies, pension funds, sovereign wealth funds, the superannuation funds in Australia, they're internalizing a lot of their deal flow, they're internationalizing a lot of that deal flow, meaning they're looking at more privates as an investment pocket. I think that when they look at this, the thing that they're grappling with is how do I bring that total Portfolio together across public and private. And that has fast become a requirement. And so when in, in order to do that, ultimately this idea of going back to the data example that I used, that is relevant to asset managers and is also relevant to natural asset owners, you have to have complete interoperability between your public and your private SEC master, your corporate actions between both these systems. The data needs to talk to each other, the technology, the infrastructure all needs to talk together. And that has fast become a requirement to providing that total portfolio view. And it starts with basic position management, it then goes into exposure reporting, then you get into your factor based models and at some point you have to be able to do this across things like attribution for risk and performance, building out your risk modeling capabilities that go into stress testing. And that is an ambition of ours. We think that given our footprint in public markets, we have a real shot at providing that joined up view between public and private. And we think that as a firm it's something that our customers are going to need on the asset owner side.
- [16:12]
Interviewer/Podcast Host
So when I hear how you describe what asset owners need, I hear a need for transparency that comes from a lot of the reference data. How are participants in private markets thinking about transparency? On one hand, part of what has made private markets successful is to some extent a lack of transparency. There needs to be transparency in other areas, particularly as it relates to BDCs, Evergreen Funds, et cetera. But some of the inefficiencies in private markets have been what has enabled certain participants to generate alpha. So how does that tension get balanced as these lines have blurred, as you say, and as new sets of investors come into private markets?
- [16:56]
Brad Foster
Listen, I think there's certainly a large part of what makes up private markets that will remain opaque. There will be a lack of transparency into things like the data that underlie the deal terms, the company fundamentals that surround the companies that are ultimately the borrowers in this space. That is a feature of the market. It's not a flaw, that's just what we're dealing with. And so I think when it comes to this idea around transparency, firstly to your point around data, I think it's firms need data that they can use not exclusively for transparency, it's for simple things like tools and workflow solutions. It's about creating those books and records, just doing that basic workflow, which ultimately we see ourselves as the firm that's going to provide the plumbing that allows firms to be able to do that basic workflow so that they can focus on the things that are going to generate that alpha. And part of that alpha comes from the lack of transparency in the way that you just described it. But if we just take private direct lending as an example, if you believe that that market's going to continue to grow, the next question you have to ask yourself is, well, where's that growth going to come from? And on the borrower side, it's probably a large portion of that's going to come from your investment grade borrower base. And if you look at it from a investor or lender perspective, where's that going to come from? Well, it could come from retail. And so whether it's your large investment grade borrower base now coming to private markets, some of that paper is going to start trading in a secondary market, some of that's going to have to trade in. These deal. Deals are so large that you expect that at some point you'll see some secondary market start to develop as you create more retail product like the ETF that Apollo and SSGA launched. Someone has to manage that, create redeem. And when you think about it from a retail perspective, if retail investors are going to come into the space, I think at some point there's going to be a demand for more transparency. And so I think that this point around transparency is different depending on whether you look at it from an investor or you look at it from a borrower perspective. Needless to say, I think it's coming, but I do think there's a part of this market that will remain opaque, that will remain largely private. I think you have a lot of single lender, single borrower deals where the asset managers or the lenders will do what they need to protect that relationship because that's how they originate and they continue to originate these deals.
- [19:04]
Interviewer/Podcast Host
So where does that bring us as it relates to the endpoint of market structure? Do you think that this market ultimately looks a lot like the public fixed income markets in terms of the market structure pre to post trade workflows? Or is it different because of some of the nuances that we just discussed?
- [19:22]
Brad Foster
Ultimately it converges. Whether it fully converges, who knows? I think if you believe that this market's going to continue to grow to the sort of numbers that you hear many of our customers talk about or firms talk about. I think that seeing that absolutely has to happen is you have to find a way to support that scale. And supporting that scale means having the data, technology and infrastructure, the plumbing, as I referred to it earlier, to essentially support that growth. If you believe that privates is going to continue to grow. And I mean not just direct lending, I mean private abf, real assets infrastructure, commercial real estate. This market is diverse in its asset classes as it is in the fund structures that you can invest in these asset classes. And I think if ultimately you're going to scale and deploy the type of capital that we hear about and that growth over the next five years, you have to have the foundations in place, you have to have the data, you have to have the interoperability of that data between public and private. You have to have the technology, you have to have the tools and workflow solutions. And these are all things that we are focused on. These are things that we believe are going to largely define success, not just for us, but for our customers. And it's the reason it makes up one of the largest investments we're making right now.
- [20:33]
Interviewer/Podcast Host
How are asset managers leveraging a platform like Bloomberg to operate in private markets?
- [20:41]
Brad Foster
I think when it comes to the terminal, it's certainly the community is one way in which our asset manager customers are leveraging the terminal. I think when you look at Bloomberg's footprint in public markets, we, as I said earlier, have a leadership position there. I think that it's quite clear that when you are looking at privates, oftentimes you need public market comparables. I think it's an opportunity for our customers to look at that. And I think increasingly as we start to cover more of that private direct lending workflow on the terminal, customers are coming to the terminal to look at that and start to compare that private direct lending deal flow to what exists in the public bond and bank loan market. So I'll give you a tangible example. A big part of what we focused on is private credit. And we made a choice this time last year to go after what was publicly available. And a natural starting position is what sits in the BDCs today. They have 10K, they have 10Q filings. So what did we do? We went away and we aggregated all that data. We brought that data in. We're now in a position where we have every BDC traded non traded with 5 years of history that we can expose on the terminal to our customers through our direct lending monitor. What we want to do is we want to take that a step further. That's just the start. We want to give our customers the ability to take those direct lending deals and start to compare them to what exists in the public market. And so we have functionality today that our customers can go out and look at bonds versus loans. Imagine a world where you can look at those bonds and bank loans as well as private direct lending deals. But I'll take it one step further. I know that you want to ask me another question, which is this one question we get asked when we tell that story is well, what about that portion of the market that is private? Well, I got an even better story there and that is we want to incentivize our customers to bring their own data. We will create the uploaders, we'll create the permissioning and the entitlement so that if you want to preserve the confidentiality of those deals, we will allow you to do that obviously will give you that ability. But what you get in return is you get the ability to run the same yield and spread cogs ultimately that you can on a public bond and a BSL on that private direct lending deal so you don't have to run this entire workplace spreadsheet anymore. You can start to use the same things that have made us successful in public markets on those private deals.
- [22:49]
Interviewer/Podcast Host
Something you said in there made my mind go to one of the defining phrases of private markets today, which is something that one of my former colleagues, the co founder of iCapital, would always say. Nick Varonis Private markets products are sold, not bought When I hear you talk about, and now I know a BDC is different than a private equity fund and I still think many private markets products are still sold, not bought. But when I hear you say you're creating the taxonomy to help investors understand the differences between public fixed income BSLs, BDCs and maybe some BDCs are, are more click to buy than truly sold product. How far away are we from private markets being bought, not sold?
- [23:43]
Brad Foster
I think that again it's uneven depending on what part of private markets you're talking about. I think if you're talking about some of the more esoteric asset classes like infrastructure and real estate natural resources, I don't think changes anytime soon. I think that continues to be what you described. I think when you consider things like the private direct lending or even to some extent the private ABF market, where a large part of what's getting financed in the private ABF market is exactly what exists from a sector perspective in the public securitization or the bank securitization market, I think you're probably moving much closer to what you just described. And I think it's most likely to happen in private direct lending and probably more in the investment grade space where you've seen already a secondary market start to develop and you see banks setting themselves up to start making markets, you see some asset managers wanting to do the same thing. I think that that's probably where you're going to see it happen soonest, and it probably is happening already.
- [24:39]
Interviewer/Podcast Host
So we talk about products being bought, not sold. There's another element that Bloomberg has brought to bear that I think is important as it relates to private markets is the concept of being the desktop real estate. And part of being the desktop real estate is being the community for buyers and sellers to interact. How do you think about that aspect of the way in which participants in private markets interact, whether to something like chat or leveraging certain aspects of a desktop real estate to do all the workflow tools that they need as part of this whole conversation and concept around products and private markets being bought rather than sold. Because the electronification part of the click of the button comes from all of these different components of that in terms
- [25:32]
Brad Foster
of terminal and terminal real estate and what it brings to our customers, clearly community is one benefit, but I think the terminal, the desktop, is much more than that. When you think about what exists in public markets today and what I brought up earlier, that we think that not only are the lines between public and private converging, but so the solutions. I think what our customers are going to expect over time is that a lot of what they've come to expect from public on terminal, they're going to want to see for private on terminal, because a lot of these deal structures, transactions are quite similar, certainly in the private direct lending or the private ABF space. I think when we consider the fact that certain parts of this market are going to require things like valuation, not only be able to provide that through our enterprise data product, which essentially includes our vivo product, but also when we think about the desktop, it's much more than just the terminal. Our customers use the desktop as a desktop. We want to reimagine the terminal. In the age of AI, we want to reimagine the way in which our customers are going to interact with the terminal. They're going to want something more conversational. They're going to want something that allows them to ask questions and get answers back. And rather than having to know every function exists on the terminal, ask that question and get the answer they're looking for. And we're ultimately, as I said, reimagining the terminal in the age of AI. And so whether you're a public or a private investor, there's a large amount of data that exists within Bloomberg where we can not only answer those questions, but we can Provide the transparency in terms of that attribution and how you give to that answer. And that includes private markets. And so yes, the community is important, yes, the functions and analytics are important. Yes. As public and private start to come together and we cover more of that deal flow that exists in the private market and we're going to be able to do that internal, but so too are we going to give our clients a lot more flexibility in terms of how they engage with the ability to ask questions and get answers back.
- [27:22]
Interviewer/Podcast Host
How important do you think something like the chat functionality is to connect people in private markets to be able to better transact?
- [27:30]
Brad Foster
Well, I think the level of importance that you would place on that depends on whether you're in. You're talking exclusively about private credit. I think in private credit it's going to be absolutely critical. I think especially if you are investing across both public and private, or even if you're not, there are a lot of higher bond funds out there that aren't investing in private, that are exclusively in public, they're investing in bonds. But given the fact that some deals are now refiing out of the public market, the bond market, into the private market, and these are not small deal sizes either, they're some of the largest deals that are happening, you have to know where these deals are, pricing, where they're carrying in the private market. And so I think that community effect or that ability to send an RB or interact with, whether it's other asset managers, whether it's other lenders, whether it's banks, I think is going to be absolutely critical. And I would extend it to even things like the private ABF market.
- [28:19]
Interviewer/Podcast Host
How do you think about the balancing of end to end solutions and workflow tools? And Bloomberg is one in many markets that you cover. But as private markets continues to grow and mature, from a technology market structure perspective, you have a lot of point solutions being created. You've partnered with some of these point solutions. How do you think about the point solutions that are being created? And from Bloomberg's perspective, how do you think about the strategic question of build buyer partner?
- [28:51]
Brad Foster
We've been in privates for a long time. I think sometimes people miss that point. We can go back and look at very solutions that Bloomberg has had for more than a decade. I include funds data. For example, we've collected funds data, GPLP portfolio data for more than a decade. If you talk about private credit, that borrower base, we've had a DE risk, a default risk product for years. So we've been in that point Solution provider space. What happened a few years ago is we decided to make this a strategic priority. And part of that was defining what our vision was and defining what were the things we wanted to focus on. And what we realized is that bringing the story together across public and private was critically important to our customers. And so obviously we do that because we have a large public footprint, but we do that because a large part of our client base is growing into this private space. I think that what has shifted for us is that, yes, we're going to build to where it plays to our strengths. So, for example, in the private credit space, there are things that we are building that align really well with our footprint in public markets. But then there are things that perhaps don't align as well and where we can partner with some of the point solutions that you were referring to, because we believe that those point solutions are going to act as an accelerator to our larger ambition, the vision that we've created for ourselves when it comes to private markets. And so an example of that would obviously be our investment alongside Apollo Hamilton, Lane Motor Partners in Daphne, where when we were out talking to our asset owner customers, what became really clear really quickly is that workflow between asset owners and asset managers is not particularly efficient. There's a lot of room for improvement. It's ripe for disruption. And we saw Daphne as although a pre investment workflow to start with, we saw this as something that we could step into and invest alongside the firms that I just mentioned, as well as obviously use that as an accelerator to something that we would have had to build anyway. So rather than build it ourselves, yes, we could have built it. Yes, we have the people, yes, we have the smarts. But why do that when something exists that we can buy into leverage and start to service our customers sooner?
- [30:58]
Interviewer/Podcast Host
I want to unpack that a little bit because Daphne is solving an important problem in the ecosystem, particularly pre investment. As you say, what is the biggest challenge that the asset owners have today that that you and Dafni and the others involved are trying to solve?
- [31:15]
Brad Foster
The first thing I'd say is when we invested in Dafni, yes, it was a pre investment workflow solution. One of the things that we've really pushed hard for is to extend this beyond the pre investment workflow. The second thing we've pushed hard for is we want this to be more than just about the fund level data. We want this to be about the portfolio level data. And the reason we've pushed for this is we believe that solving that sort of, to your Question around what is the largest challenge our asset owners are facing? I think it is that workflow between GPs and LPs. I think it's at the end of every reporting end. It's a really painful process that a lot of asset owners have to go through in terms of collecting that information, normalizing that information, and ultimately bringing that information to bear on the investments that they're making and the risk that they need to manage.
- [32:01]
Interviewer/Podcast Host
What's the most valuable piece of data for a private markets investor or an asset manager to own? You talk about fund level data, you talk about portfolio level data. What in your mind is the, is the most critical line item or piece of data that will help inform people's ability to make decisions in private markets?
- [32:24]
Brad Foster
Firstly, it's really difficult to isolate it to one thing. But listen, if I were to isolate it to one thing, I'd go back to first principles, which is what is the thing that you are simply not going to be able to solve this problem without? And I would say it's your security master. I'd say it's your fund master, any master data, whether it's your security master, your entity master, which is your private company master or your fund master, those things are absolutely foundational to solving this problem for both asset managers and asset owners. I think it quite quickly ratchets up to how does that master update? So for example, in a security master, that is your source of truth when it comes to the instruments themselves. But how does that instrument master update? Well, it updates through things like corporate actions. So you have to be able to capture those lifecycle events so that you can update that master. And the reason I go to that is because back to my point earlier, we are essentially trying to create or building out the data, the tools, the technology that give our customers the confidence to go out and invest, to go out and scale their business. We don't want them to have to worry about that data, those tools, those workflow solutions. We just want this to be a seamless experience for them and we want that to exist between public and private and foundational to that is your data. And foundational to data are things like your security entity and fund master.
- [33:45]
Interviewer/Podcast Host
So if you could wave your magic wand and say, I would love for this piece of the workflow in private markets, market structure to be solved, something that's still missing today that you could fix or solve, what would it be?
- [34:01]
Brad Foster
I mean, honestly, the thing that I would love to be solved and it's something that we're building some thought leadership around. Is really starting with a taxonomy. The amount of time that you go into a conversation and you spend the first five, ten minutes reconciling, what you actually mean when you're talking about private markets is. It's necessary, but can be quite frustrating. And I think that as an industry, we need to come together around this and we need to decide and define what that taxonomy is. When you hear people quoting the size of the market, the numbers often differ quite dramatically. And it comes down to how ultimately you're aggregating up to that number. And that's dependent on your taxonomy. And it's something that as an industry, we need to come together. It's not Bloomberg driving what is the taxonomy, it's us working with our customers, our clients, industry bodies. How do we define private markets?
- [34:50]
Interviewer/Podcast Host
Brings us to another interesting, more nuanced question about how do we define private markets? As something you talked about earlier, which valuations. So standardization around valuation, how does that happen? Or will standardization of valuation and the methodology behind it not necessarily happen? Because that is just part of the feature of private markets.
- [35:14]
Brad Foster
Yeah, again, and I caveat this heavily because it is so different depending on what parts of private markets are talking about. But if you're talking about valuation on a infrastructure deal, that's very, very different to talking about what valuation might look like in private direct lending. If you look at public markets, we already have an evaluated pricing service called bval. Bval. Not only does it provide pricing, both snapshot pricing, but now intraday pricing across govies, supras agencies, corporates. We are a leader in that space and we do provide debt pricing to our customers. And they use it in many, many ways. They use it for books and records, for nav. They use it for a bunch of different things, P and L risk. But increasingly we've sold more of that data into the front office use case where as portfolio trading is developed, portfolio trades are being quoted as a spread to bvol. This has happened over time. And I think part of that is because we've built this pricing product that not only prices the Bloomberg indices, every constituent within our Bloomberg indices is priced using viva. You can imagine why portfolio trades are happening as a spread today. We want to take that discipline, we want to take that coverage. For example, we expanded that last year to include bank loans. And because we were able to include bank loans. So again, back to my three legs of the same stool. You got your bond market, we price the bond market. We do really well on that. We've got the bank loan market. We now Price bank loans. We do very well at that. To a point. We were able to release a global index, a European and US LEV loan index. We now want to take that same discipline and apply it to private direct lending. And we've started that already. So we have created a methodology that leverages the BSL methodology. We have looked at loans that have more deterministic cash flows to start to expand that methodology. We're now able to, on a lot of that BDC loan coverage that I was referring to earlier, we've used that data to essentially build out that methodology. And we're out having conversations with customers as I speak around how we expand that methodology to include not just those loans with deterministic cash flows, but with optionality embedded in them too. But we think that is going to be an absolutely key requirement for this market to grow. And as the demand for more transparency grows and in whatever form that comes.
- [37:28]
Interviewer/Podcast Host
Transparency looked at through the perspective of helping investors understand when it's okay to have illiquidity versus when they might have liquidity, I think is a really interesting way to think about the concept of transparency, particularly as it relates to private, private credit. Let's take that as an example. There might be public credit that could be relatively illiquid. High yield bonds. There might be private credit that is also illiquid, but doesn't necessarily look terribly different from some elements of or some aspects of public credit. How do you think transparency can help investors not just have better reference data around pricing, but also help them rethink how they might want to approach the question of liquidity versus illiquidity when it
- [38:20]
Brad Foster
comes to liquidity or illiquidity. I think the mistake some people make is they assume that public markets are liquid and private markets are illiquid. I don't think that's true. A market that might look like it trades two way, three deep. When you come to find liquidity, it might not be there. So I think the first thing is liquidity again in public markets can be patchy at best. I think the other thing I would say is if I look at my own experience, the way in which people assess liquidity historically, meaning 10, 15 years ago, was looking simply at and I'm going to simplify bid offer spreads. The reality is, and we built a product around this, we call it our liquidity assessment product. You can imagine how much data we sit on and it takes a machine learning approach to assessing liquidity because we felt like bid offer spreads weren't necessarily reflective of any the actual liquidity that exists in the market. And I think the variables that we applied to that were time, cost and volume. How much time do you have to liquidate a position? At what cost are you willing to absorb the need to find liquidity? And what sort of volume are you looking at in terms of like how big is the position you're looking to unwind? And so we've taken a much more quantitative approach to assessing liquidity. I think when it comes to private markets, I think there is a large pocket of investors that invest in private markets that, that don't necessarily need liquidity. They're not going to go in search of it. If you're an asset owner and you're taking down a large, I don't know, private direct lending deal, private ABF deal, you're putting it in your buy and hold portfolio and you're doing it because it's long duration and matches your liabilities. Well, the last thing you want to do is go and unwind that position unless you believe it's fundamentally flawed or you believe that your risk assessment of that position has changed. Maybe you want to reduce your position, you want to get out of it and you're going to go in search of liquidity. But if what we're talking about is at what point do we see a two way market for private direct lending? There are people way better placed than I am to make that assessment. But we're preparing for the fact that our customers are going to need more transparency around this asset class and we're going to focus on where we do well, providing that transparency today into private markets?
- [40:18]
Interviewer/Podcast Host
Well, the other piece to the puzzle there is there's places for illiquidity and there's places for liquidity in a portfolio. But that requires a total portfolio approach and an ability to look at one's entire portfolio. How have you thought about that element of the Bloomberg platform as you think about serving asset owners?
- [40:40]
Brad Foster
When we look at our asset owner client base, and I'm going to generalize to be more initiative in the short space of time we have, generally asset owners are investing in private markets either directly or they're investing through the various fund structures that exist out there. And that allocation has significantly changed. I mean, we estimate that on average asset owners are somewhere close to 30% invested in private markets or alternatives today. And as that grows, obviously as privates make up a much larger portion of their portfolio, clearly the things that have mattered to them historically in public markets are going to be exactly the same things matter to them in private markets. And so our approach has been very much bottom up. What are the things that our customers care most about when it comes to public and they'll care about in private? Well, it's basic position management. I'm not even talking about second order effects or factor based modeling. I'm simply talking about where are my risk concentrations and the reporting that comes off the back of that. And then you get into things like your factor based models. And so we've already using that actually that 10 years of history that we built up sourcing funds data. We've already built out a factor based risk model that we're out there talking to customers today about. So for our asset owner customers that are investing in various fund structures, we can have a conversation with them about more than position management, more than exposure management. We can talk to them about our approach to factor based measure, which is the direction of travel for many of our customers, that factor based approach, not just to managing risk, but investing. And our goal is obviously to extend beyond that into things like attribution across risk and performance, like building out stress testing, var, et cetera. But that has very much been the focus and you can imagine that a decent portion of that valuation is going to be at the heart of it.
- [42:25]
Interviewer/Podcast Host
So being at the epicenter of market structure and with so many different constituents, you talked about taxonomy being important. There are many listeners on both sides of the equation. On the asset manager side, on the asset owner side. I think it's something that the space together can help move forward because it helps everybody. If people understand taxonomy. What are the areas of taxonomy or the specific terms that you would like for people to have complete agreement on to be able to move the space forward?
- [43:04]
Brad Foster
Well, firstly, it'd be great to get 80% agreement on some of these things, but I think simple things like what is private credit? Some people would define private credit simply as private direct lending. Others will say private credit is as well that portion of what makes the fixed income market essentially what some people refer to as fixed income replacement. So is it that 41 trillion of fixed income that could potentially get refinanced out of the public fixed income market into the private market. Is private credit simply that 1.8 to 2 trillion direct lending that exists? Is it the 5 to 6 trillion of private ABF? When we talk about various fund structures, what is the taxonomy around these different fund structures? I think honestly if we can just get to a place where we're talking about these things consistently, a lot of good stuff happens off the back of that. Aside from just the fact that we're all talking about the same thing, we can then start to take that taxonomy and build out things like data models, we can start to build out classifications, we can start to focus on things like identify. I think there's so much that happens off the back of that that I think is important. And so just getting consensus and consensus doesn't mean 100% consensus, just means some agreement on what that looks like would be helpful.
- [44:16]
Interviewer/Podcast Host
Sitting in the mecca of market structure here, what advice would you give to those who are in the market as to what they can look back at and reference the history and evolution of fixed income markets and say, this is what we should take from that as an industry, in private markets, as it relates to the comment you just made about some of the taxonomy, I think
- [44:41]
Brad Foster
anytime you're dealing in markets of this size, the first question you should ask yourself is, do you have that foundational aspect of what's going to allow you to scale that business and scale into this growth that we keep talking about that is, I think, going to be the focus for the next few years. And that, I think, has to be the question that we all ask, because I don't think that what you can do is take your public infrastructure, your public data, your public tools, and everything that worked for public isn't necessarily going to be what works for private. They're so they're going to be things that work in public when it comes to data technology, infrastructure, workflow tools, analytics, yes, sure, they're going to be things that are transportable if you want. But there's a lot of what makes this market up that's nuanced. And I think that our focus is very much to support our customers, whether asset managers, asset owners, on that foundational aspect so that we can help to support that growth. I don't think there's any scenario where you turn around in five years time and the allocation into privates is less than it is today. And so if you believe that, the first question you have to ask yourself is, am I set up to capitalize on that growth? Yes or no?
- [45:42]
Interviewer/Podcast Host
Great way to end this conversation because that is the question that everybody should be asking. And hopefully people take this away and say, all right, what do we need to do to be able to be set up for growth? Who better to help people understand that than you and what you're building at Bloomberg? So, Brad, fantastic conversation. Thanks so much for having me.
- [46:03]
Brad Foster
Thank you for having me.
- [46:04]
Podcast Host (Altgoes Mainstream)
Thanks for listening to this episode of Altgoes Mainstream.
- [46:07]
Interviewer/Podcast Host
I hope you enjoyed it it.
- [46:08]
Podcast Host (Altgoes Mainstream)
You can read more about alts at my substack altgoes mainstream.substack.com Thanks a lot and have a great day.