Future of Finance 2024

Anthony Scaramucci, Founder and Managing Partner, SkyBridge Capital, Andrew Yang, Co-chair, Forward Party Moderator: Jeff John Roberts, Fortune

Future of Finance 2024: Biden, Trump and What the 2024 Election Means for Finance

Conferences

Hello again, everyone. Let's get into it. I've got two very lively gentlemen who do not lack personality. I try them turn it down for at least the first five minutes and leave the partisan hats off and just tell us a down the middle take on what a Biden re election would mean for the economy and what a Trump re election means for the economy. Oh, ok. All right. Go ahead, Andrew. We know what you think of it. I'm very happy to, uh, uh, so I, I'm in the camp that thinks Trump would be a catastrophe. Um, a as our president again. Um, he's learned from his mistakes last time, which is hiring responsible adults who sometimes tamp down his policy desires and instincts. I unfortunately think he's the favorite to win. I think if the election was held today he would win. And the question is whether something changes over the next six months. One of the things that's under reported folks is that Biden's main advantage is money, but they spent $35 million in the swing states trying to boost his numbers and it has had no impact which augers very, very poorly for the fact that money is going to swing the approximately 7% of genuine swing voters in those states. Uh So right now, my projection would be Trump wins. Some very, very bad things happen uh administratively and institutionally, but the effect on the economy would be unclear. So I think the superficial analysis, particularly from people on Wall Street, Trump's better for the economy and then they list all these policy things that he would do that would be better for the economy. But I think he would be terrible for the economy and terrible for the country. And I'll tell a quick story and this happened in the White House and it happened on a Wednesday. The reason I know it happened on a Wednesday, I was only there for one Wednesday. So I know I know what happened on a Wednesday and it was him and Paul Ryan and they're bigger than me and they were fighting in the oval office and, and Trump was putting his finger on Paul and he was saying you work for me. You work for me. Polls again. I'm like, I, I don't work for you. I'm in a totally separate article. I don't work for you. And Trump was looking over at me. He's like, is he right? He doesn't work for me. I'm like, no, he doesn't work for you and Trump doesn't like that. And the people in this room that really understand the constitution is what has made this economy, the predictability of the laws, the separation of the powers, the inability to create an autocracy in the country for the last 250 years has protected your businesses because the sanctity of the laws allow for the free flow of capital and people own their property in this country. It's backed up by the court system and there's 900 years of legal precedent. Mr Trump doesn't like any of this and he's an orange wrecking ball for this society and he's gonna come in with a group of people that believe in something called unitary executive power. If you don't know what that means, you should google it somewhere tonight and you should understand what the Heritage Foundation believes and what Mr Trump believes that they want to expand and knock out the other two branches and make him uber powerful. And when that happens, you get what happens in every other autocracy, a really bad system and a lack of predictability in the law. So, yes, superficially, he sounds better for the economy, but he's a disaster for the economy. He's a disaster for the world and he's a disaster for your business and you gotta be really careful. I just say one last thing, there are 40 of us that are speaking out against him. One of them was on the ballot with him last year or 24 years ago, the president picked a guy named Mike Pence anybody remember him? He was the vice president. Ok. They were, they were, they were, they were chanting kill Mike Pence on the sixth of January in 2021. You know, Mike Pence said, you know, I've had enough of this. Ok? And under no circumstances, will I endorse or support Donald J Trump. There are 39 other people that have said the exact same thing I submit to everybody here rhetorically, let's say all of us work for a car company and we say, hey, this car sucks and they didn't build it, right. It's gonna kill your family. We, we work for an auto airline manufacturer so this plane is gonna fall out of the sky or we work for a drug company said the drug is gonna kill you. What is going on in this country where you have super smart, very patriotic people, guys like general Kelly who are not even partisan. Ok, Anthony, I gotta cut you off. I think we get it and I think, you know, for the record, I, I agree the institutions held last time. I, I don't know if the central bank and so on would hold this time, but we might find out let's switch it to Biden. I mean, not a plan to end the central bank. By the way, I've heard of that. Let's, let's, let's go to Joe Biden for a sec. I mean, I think the profligacy with the debts probably not just getting started, by the way, just saying getting warmed up. J you think Biden is better? But do you think there would be any economic pivots? Would you know Elizabeth Warren still be running her over the financial market? What would be different? It would be more of the same. Go for dinner. No, no, it would depend upon what happens to the House and the Senate. I mean, projections are Republicans take the Senate and then the House, it's gonna be pretty evenly split. But a lot of Biden's policies have yet to be fully implemented. I mean, they authorized $1.2 trillion of which just came out that maybe 18% of it's been spent or committed or allocated. So uh that they bit off a giant chunk and then they're still trying to figure out how to chew it. Um So if, if you have a second Biden administration, then the other 80 some odd percent of that gets deployed and spent in various ways. Uh If Trump comes in, then Trump will probably try and pull that back. Um So I, I don't imagine any whip sawing in terms of economic policy, uh depending upon who controls the legislative branches. And I do wanna say to you all, if you want to read more about Anthony's 10 or 11 days uh as coms director, he has a book out this week uh that goes in and, and don't, don't hurt my feelings and we're good friends. Don't hurt my feelings. It was 11 days. Don't get me out of that last thing. The big day I got, I got fired in L A. It was a big day, like a 10% Anthony. How do you feel? It's, it's actually become like a, a no, a short, a very short tenure is now with Scaramucci of work. Like, I think it's great. You know, listen, when the only problem is people are very sensitive. Ok? I, I tweeted out that Liz Trust lasted 4.1. Scaramucci's approximately 45 days. She got very upset. Ok. I, I tweeted out that Kevin mccarthy lasted 24.5. Scaramucci as speaker, I got very upset. I mean, these people, a bunch of babies just flat. We've got all the big topics. I gotta go granular for a second carried interest loophole. Do you have a hedge fund? Right, Anthony. And you get that, that very favorable tax break and every, every couple years they're gonna repeal it because who doesn't want to take money away from the hedge fund guys? And have you guys pay lower taxes than the rest of us? Is that you see that being repealed any time? Is that what I mean? I'm gonna, I'm gonna channel David Rubenstein. He said, God has ordained that was the 11th commandment on the tablets that we're gonna keep the carried interest loophole. I, I pay 50. I don't know about you guys. But I live here in New York. I pay 52% marginal tax. I'm a minority partner in my own life now. So the dollar comes in 52 cents goes to Eric Adams Cathy Hole and Joe Biden. I get to keep 48 cents for my family. I am totally fine with that if they want to end the carried interest loophole, if that's gonna benefit the society, I'm totally fine with that. OK. We have a huge disparity in the society right now and I don't wanna be a rich guy living in a barb wired security mcmansion uh while my fellow neighbors are suffering. So me personally, I have never complained about my taxes, don't mind paying them. I would love to audit the city or the state and see where the taxes have gone because it doesn't make sense that we have the budgets that we have and we have services. Yeah, it's like spending, that's why he was my guy for May, didn't work out. Yeah, man, I would have been happy to open the books. This would have been good times. Um And they wouldn't want somebody like Andrew over the books because you know, come on, it's bad $2 trillion. They can't find $2 trillion. Uh So III I want to comment on the dynamics of the economy. So you, you have capital on one side, then you have technology on the other and they're commingling to accelerate the most extreme winner, take all economy in the history of the world and, and the, and so you can take shots at addressing some of these uh inequities, but the inequities are getting more powerful and faster all the time. One thing I joke about, uh is that A I is getting faster and smarter and we are lucky not to get slower or dumber in any given day. Like if we say the same, it was a good day. You know what I mean? Um But then if, if you extrapolate that society wide, we're going to displace millions and millions of workers. And even now major corporations are cutting high priced employees because they're figuring out, wait a minute, I'm paying you 200 I can pay this person 75 and stack an A I on top of them and voila or it's like I can replace, I mean, there are 2 million Americans who work at call centers still? When will A I replace them? Now, what day of the week is it? People are like, oh, it's Tuesday, I'll get around to do it by Friday. So there are all of these trends that are speeding up. And the question is, what does the real economy of the future look like if you're trying to prioritize human values in an era where we're going to lose in epic fashion to the machine? And all of the people are like, oh, we're gonna, you know, work with the A I, we're going, we're going to reskill people. Uh It, it's generally, uh wishful thinking slash nonsense slash good for the, the press release. And then you, you go back and actually, you know, do what you're gonna do within your organization. So, the reason why I've been pro crypto this entire time is that, in my opinion, the only way out of this is to create a Multivariate economy that rewards various human activities independent of whether it's actually capitally efficient, if you measure it in just one axis, which is the monetary axis. So imagine a currency that was rewarding arts and creativity. And another one that was for nurturing and caring and education. And another one that was for health and wellness and you had millions of people pursuing these activities. That to me was the promise of cryptocurrencies and it has failed, it has failed because what crypto has primarily been used for. And, you know, I'm still pushing in this direction because it's necessary, but it's failed because it's primarily being used as an engine of financial speculation and as a hedge to collapsing confidence in fiat currencies. And that's a use, you know, you know, like, congratulations. Um but it's not addressing any of the big picture issues that in my mind are just speeding up all the time. So we're here about future of finance at the 24 election. To me that has to be the vision of the economy that we're moving towards as quickly as possible. Anthony, I'd like to ask you that A I has come up a lot today. It's coming up everywhere. What do we do with this risk of a whole bunch of just superfluous Americans? It's, you know, sucks to be poor in America right now. What if A I, you know, makes, you know, another 1020 million redundant? What, how do we address this? Yeah, I'm, I'm, I'm more optimistic and I think what ends up happening is you get these s curves that are transformative and they never work out exactly the way the doom and gloom people say. And so we had that problem with automotive, we had that problem with factories and automation and factories. We have that problem, believe it or not in telecom and delivery of mail. And so I'm a little bit more optimistic. There's a professor at Oxford by the name of Nick Bostrom. You may know who he is. He wrote the very famous 2001 memo about, are we or are we not in a simulation? He has a brand new book coming out right now. I interviewed him on my podcast and he's talking about what could be a deep utopia where you do have the people that are been displaced, but there's enough productivity in the economy where they're getting the universal income that Andrew is talking about. And all of a sudden people are actually in a weird way happier. And so that, that is quite possible. I'll just leave you with two quick things. Tom Malthus said in the 18 forties we were going to starve. He left out all the technology, the exponential technology of more people dying from obesity related illnesses and starvation. In 1985 at Tufts University had a professor, professor tell me we were out of oil. Some of us in this room are old enough to remember. Peak oil theory. Uh, oil gonna lose, lose the oil. In 2010, we have more oil than we know what to do with. And so I don't believe the gloom and doomers when it comes to people and innovation. I believe that we are problem solvers and if we get the right leadership, moral leadership in government and in politics we can solve these problems. Yeah. I think it's important to be optimistic. You're not the only one who has a view in Cola who I think we saw on Laguna Beach predicts that we'll get to a point where you all have to work if you want to. And let's hope it works out that way. Oh, yeah. I, I think that of abundance is possible if you had a functional government. Uh, and then I'll just leave it at that. You know, the hard part, we've got to touch crypto because it, we all like it. I probably half the room hates it, but there's you know, a giant crypto campaign, you know, vote crypto. And I know my reporter Leo is like, there's only one person who's going to vote based on crypto, but, you know, maybe not. Do you think, like we saw this movement in the Senate today? Do you think crypto could affect the election at the margins? Oh, yeah. I mean, this is, this election is gonna get decided by a razor thin margin in probably uh three states. Uh And the margin last time was, let's call it 60,000 votes in three states. Um So can you imagine that being swayed by some people staying at home because of something that, that uh you know, they don't like the president's stance on or crypto um or uh any of another number of other micro variables. I mean, 50,000 in a country of 330 million is not many, but it's certainly a much smaller number than our crypto enthusiasts uh at, at various in various parts of the country. Um And some of those interest groups are uh spending money. Uh you know, so it, it could easily be a tipping, tipping factor. So, you know, here's what I would say. If you read crypto Twitter or X, it's a huge deal. I don't think it's a huge deal, but I do agree with Andrew on the margin. It could stop young voters from voting for somebody does have that crypto. So I would just say if you looked at a Nash game theory analysis, it would probably be better for you to be pro crypto because you're not gonna lose any voters being pro crypto, but you may lose some not being crypto, but I'll just submit this to you. There's a movie, there's two movies playing at your local cinema in November on election day. One is weekend at Bernie's. Ok. We know that we know that right. And the other one is One Flew Over the Cuckoo's Nest. Ok. So you can choose between an elderly guy that's somewhat forgetful or a lunatic that needs a lobotomy. Ok. I'm going with the elderly guy. Somewhat forgetful. Fair enough. Ok. Let, let's, let's end on a high note, um, backstage Anthony was telling me, uh, he, he, he was, he offered his names for um, uh KMF. Uh ask your neighbor if you don't know what those stand for, but apparently it's New York Post. You can't do it again on stage to look it up, but it was, it was a good answer. But let's end with um, yeah. Um, very, very. Ok, quickly, Anthony. How far the Knicks gonna go? All right. So I'm an eternal optimist and I've been waiting for three, I've been waiting for three decades. So I'm gonna say all the way that, but here's the thing, the applause line, man. But here's the thing. If they don't go all the way this year, I think they actually have the chemistry in place for next year with a couple of changes. So I'm very happy. Very happy. All right. And my last serious question, name, someone in finance, in the finance industry in New York you admire morally and as this sort of accomplished financial professional, professional, you want to go first. I mean, they, they're a number but I suppose given the context of where we are, I like and admire Mike Novogratz. I think he's his own freaking human being. He has his own judgment. He's made calls that have been right wrong. Popular, unpopular, but he's a stand up genuine human being. So II, I love Mike. So since I was already taken, I'll say Larry Fink and I'll just say this the smartest people when they get something wrong or they get new facts, they change their mind. And Larry Fink was very negative on Bitcoin and crypto. Uh He spent the time and the energy and he moved towards Bitcoin and he had the most successful ETF launch in history this year with his Bitcoin ETF and a sign of great leadership is getting things wrong, taking risks, being able to admit that you got something wrong and adapt in pivoting. And I think Larry represents that. Ok, we're out of time. Thank you, gentlemen. Please give it up for Andrew Yang. Thank you.

Lloyd Brown,Bank Regulatory Senior Advisor, Brown Management Group Tom Davidson, Founder and CEO, EVERFI from Blackbaud Jesse Van Tol, President and CEO, National Community Reinvestment Coalition Moderator: Lee Clifford, Fortune 

Future of Finance 2024: Investing in Our Communities

Lloyd Brown, Brown Management Group, Tom Davidson, EVERFI from Blackbaud, Jesse Van Tol, National Community Reinvestment Coalition, Lee Clifford, Fortune 

Frank Keller, Executive Vice President, Large Enterprise and Merchant Platform, PayPal Steve Quirk, Chief Brokerage Officer, Robinhood Markets Tamara Romanek, Global Head of Partnerships, Plaid Moderator: Luisa Beltran, Fortune

Future of Finance 2024: The Next Era of Fintech

Frank Keller, PayPal, Steve Quirk, Robinhood Markets, Tamara Romanek, Plaid, Luisa Beltran, Fortune

Welcome everybody. This is the last panel before cocktails. So we're going to be very prompt here. No pressure. So my panelists first question is A I is on top of everyone's minds these days tomorrow. What do you think would be the next or the biggest near term impact for fintech? Oh, gosh. Well, like every good Disney movie, there's a lot of good and a lot of bad that can come with A I, right? Especially in financial services. I think there's a lot of opportunities that relates to uh customer service. We talk about that a lot, but I think that personal financial management connecting your bank accounts and things like that to give access to consumers so that they have better line of sight to a full picture of their financials. That could be pretty exciting. But I do think as an industry, we have a huge responsibility to think ahead of the fraudsters because they have access to the technology too and are innovating and thinking every day about how they can um you know, challenge us all. And so I think there's an opportunity for us to really get ahead. We think about that a lot at TAD every day, especially with onboarding experiences and KYC and those types of responsibilities. Yeah, we are. Um I'm actually looking into how that changes shopping behavior and the the purchase behavior. What's interesting is uh 70% of people want personalization. But when you drill in and you look at the research, people are super scared about what does the A I do with my data, what data is used and so on. So uh when you drill one level deeper, when people trust business, them with a business uh brands about, I think that's a mckinsey study. 87% of people want to make sure that data privacy is handled well. More than 70% of people want that A I policies are, are done well. And I think that's something we're just getting started with and it's, it's super interesting. So I'm looking into how how we can personalize those experiences while keeping customers safe. That's what paypal has done over many years and with fin financial data, we're doing this now holistically also in the world of A I with commerce data and how is A I impacting the move to open banking? Yeah, you want to take that your life. Yeah, I mean, I think I touched on it a little bit in the spirit of when you think about open banking and we'll have 1033 regulation coming out here in the fall in a more formal way. And everyone is starting to engage early wage access. Uh People are providing a lot of data as it relates to how do I get from where I am today to get to a proper financial aspect of how credit can make a difference in my life. But getting people to a proper path to credit is going to be pre pretty critical. Yeah, I think as I explained, uh open banking allows uh draw enough data and to be used for uh personalized. Uh A I decision. I think people want to understand how is my data used and that will be critical, but it allows us to do much faster credit decision on on boarding KYC and all these kind of things. So is it different here than in Europe? Is there more progress in Europe? I think so, I'm German. Um so I think the Europeans are a little bit more cautious. I think in general the sentiment is uh that is very surprising people want to use it. They are just not that sure. And I think the the Europeans are a little bit more cautious about it. But I think the the themes are the same and I, when when I see regulation across the world evolving in the same way, we're all rallying around especially now uh around the same things and, and I think the regulators are struggling to uh to to follow really the pace of the industry. So European regulators are not ahead of us. They're pretty much on pace with us. They're ahead of us. I think they're ahead of us. They're an open banking on open banking. I mean, with two way back, we had open banking regulation which forced the financial institutions to open up and then there's licensing around this and this is just now happening in the US, right? So it's less from an A F I perspective or from an open banking perspective. Yes. OK, Steve, I was enjoying the conversation. I'm no, I'm learning a lot. So let's talk about after hours trading at Robin Hood. Um How has the industry responded to the entrance of a new generation of investors who are active in the markets and want to invest on their own terms? And who are these investors? Are they Gen Zers? Are they millennials? So um the Robin Hood, there's, we have 24 million clients and they came at a speed which the industry has never seen before. So I, I came from the world of Schwab TD Ameritrade and you know, it took six decades to get to 15 to 20 million customers. It took about four years for Robin Hood, but they're, they're very different investors. Average age is early thirties. Half of them are first time brokerage clients and they're challenging the norms of the way that a sometimes dodgy business um operates. So the idea that some person who looks like me has to go ding ding two times a day for them to uh make an investment is quite foreign to them. You know, Amazon doesn't close and clearly we don't need the human beings on a trading floor. We survive COVID without a person on a trading floor. Um So, you know, the idea that um they can't make their invent a lot of them do their education and, and they find their um investment opportunities in the after hours, They work during the day. So it's always been a source of frustration that they can't invest whenever they want to invest. If I wanna buy a stock at $10 I don't really care if I get executed at 3 a.m. or, you know, when all these people are standing on a trading floor. So, um, we, we, we approached that problem and said, let's fix it. Let's find a way to accommodate their schedules and let people invest whenever they'd like. Um, and so we stood this up, we started very slowly with a small number of very liquid names, but we're up to about 900 symbols. And, um, we seen, well, this week you can guess it was quite busy because we're the only, we're the only game in town. And so, um, you know, we've seen huge volumes as a result of that. Is there any time that's busier than others, um, around earnings or when there's news that happens overseas, we'll see huge bikes in volume. Um, and you know, there's, there's an opportunity there for people. Either they, they want to capitalize on that or maybe they want to protect an investment that they have. Um, I, I do believe in five years. We'll laugh at the idea that this wasn't the norm because it, it really doesn't make a lot of sense. I mean, we have other asset classes that trade around the clock seamlessly. This one just needs to get on board. Ok, let's talk, let's talk, regulatory Tamara. You mentioned that there was some big regulatory issue that got announced today. Well, it was the Supreme Court, uh you know, kind of came out and said that the CFP B will continue to receive funding, right? And they're the ones that are driving the 1033 initiative, which is really good for consumer data rights setting standards for data sharing properly. It's gonna drive a ton of innovation in the ecosystem. I run partnerships at PLAD and just seeing the various types of fintech and financial services companies, big banks for the original fintech. So let's be clear about this. Um But I think what's fascinating is to see the type of innovation that everyone is, is being able to create, to help users access their favorite financial apps and engage these two gentlemen right here are customers of Plad and so it's great for us to see the long time. Um You know, having the, the relationship that we've had with you all for all the years and being able to take advantage of that in early stage, early movers here on the stage with us. Interesting. So let's sorry. II I think our first connection was with Venmo, right? Then. That was the very first one. So people linking their bank account to fund their Venmo account experience and pulling money out the same way. It's like an on ramp experience. So let's talk about fraud. Um So A I and fraud. So we've been talking about A I a lot at this conference. Can we talk about how it's helping criminals conjure up sophisticated means of fraud? And I know plat has been doing a lot of stuff. Um I mean, it's very interesting. I, um I just briefly gave a speech on this topic that like now school kids are basically can access uh tools that were not available just a short while ago and go online and actually get read a tutorial how to do fraud and using some of these A I tools. Um So it's, it's moving, it's democratizing fraud and fraud is now, I think if you, if you take the fraud economy globally, it's like the fifth largest economy in the world, I think in, in, in 10 years it will be the third largest economy in the world. It's crazy. Well, he just scared me. I didn't realize it's gonna be the third largest. Wow, maybe we should get into that. Well, there are other guys that don't like that either. So Tamara, can you talk about deep bakes? Are they sometimes too good for like the human eye to detect? So, when you think about it, so we have a product called Plaid Identity and Verification. And it's all about the on boarding experience, whether you're linking a bank account to any experience and you know, just deep fakes are probably one of the scariest things we can think about. I remember a couple of years ago, my bank account calling into the bru system. Would you like to record your voice? It's making different forms of authentication, like irrelevant, right? And so we really have to keep thinking about, it's not just about your one time picture, maybe it's the the way you move your head and making sure that the liveliness is there when you're on boarding a user. But it's not even just that it's like I think that our head of identity and verification is predicting that three years from now pure document verification will be obsolete. So we have to find other ways to get insights and network information to inform, you know, is Frank really who he says he is. I miss the days when you just asked what my favorite ice cream was. Yeah. Right. Might have to get a little more personal than that. I think the notion of a digital identity and how we can all work together to make that fraud proof. And future proof and how, how its constituents is uh is something that will need to evolve very rapidly. And again, something I think that uh the traditional way of how legislation and so on has caught up uh will be very difficult. If, if you go to Brazil, I think driver's license is digital by now, you go to some of the uh East eastern European countries. A lot of the uh all the identities are digital and some of the traditional Western European and us is just moving slow in comparison. So what are small businesses doing? I mean, it's going to be a big burden on them to deal with fraud. I mean, how are you guys helping them? I mean, I'd love partnering, of course. Right, I think that like leaning into partners to help leverage tools, I mean, a lot of the tools that we, you know, we we do serve as a small business community as well. Uh So making sure the developers are there to help integrate the right solutions to get them at the right point in time when they need to engage in onboarding on whether it's onboarding a merchant experience, paypal or if it's onboarding to a user experience at sofi or Robinhood, I think that being able to have access to those tools that and a lot of merchants I think have purchased bespoke solutions to solve for certain things. But I think it's really critical for all of these things to operate and be um leaning on one another to, to kind of have a full picture around what you can do to help drive your decisions. I mean, we've been operating in the payment space uh for, for quite a while. And the biggest thing is how do you compete with fraud? Uh How do you understand this is somebody just traveling or this is really fraud happening and we are democratizing that with our risk services also for small businesses making that accessible for them, giving them like you, you take a very large company, they have large teams that can deal with that. If you're a small business, you're the only person running your shop. You want everything out of one hand, you, you're not risk expert. So that's where we are thinking about how we can help them for sure. Great. So Steve back to you. Um So last week Robin Hood produced its second consecutive earnings surprise you guys reported. Um You guys beat earning expectations. You also received a wells notice over your crypto tokens traded on your platform. Were you surprised? Uh Yeah, we were surprised and I have to be careful about what I say, but I can, you know, I can share everything that we shared publicly. Um So we're one of the few firms that has both a brokerage business and a crypto business. So we are very accustomed to be high, being highly regulated. Um And we actually welcome regulatory clarity because it helps us understand. We have a model that's we can replicate and it's easy to do so. Um not easy, but it's, it's not, you know, if it's understood, we can, we can accommodate that and, and work compliantly. Um So we thought we were on a very good path. You know, we did not list 300 coins, we did not have staking lending, we were very careful. Um So we were kind of surprised. We also and I know glad shared this on C NBC. You know, we were asked to come in and register, we did that 16 times didn't happen, was not reciprocated. So, um so we were a little surprised that we um were the recipient of the well notice. And you said you mentioned that you're searching for regulatory clarity. Are you finding it anywhere? Uh not in the US, we're finding it in Europe. So we're now in Europe from a crypto standpoint because I think um they're at least providing a framework to start and it, by the way, it, you know, we're on the hill a lot talking to our elected officials and we're like, look, this is not an area where we want to fall behind um because of uncertainty about how we're going to regulate this. Um And I think, I think there's a lot of consensus around that. I just think they need to gather up and, and make sure that they're all unified and then let's get going on a path, you know. Do you think the SEC understands crypto? I do think they understand it. Um, I just think that there's not consensus about what exactly they wanna deem. I mean, look, the, the two regulatory agencies that we both are part of CFTC and the SEC don't even agree on what a security is. Like, one thinks Ethereum is not a security and one thinks it is. So if that's like mom and dad not telling you, you know, I'm a kid, how, how the hell am I gonna know? I mean, it's not exactly an environment you wanna operate in. Great. There's one way in this is really his area, I think, but I couldn't agree more on the regulatory clarity. I think that's super important. Uh, and, and again, outside of the US, moving much faster, much more clarity on things. Well, I don't know. It's, it's actually a really good opportunity. If I, if I just put myself in, in the shoes of people in these other jurisdictions, this is, um, this is the future and if I have an opportunity to have a competitive advantage, why wouldn't I take it? Ok, I'll provide you this regulatory clarity. Bring all your business over here. A lot of the firms are. Um, so, you know, how much momentum is that gonna gain before we, you know, wake up and I think if you're in the merchant market, what would you do? Right? If you lean into digital, uh digital rails, digital identity, crypto, these are the things that the biggest like you, you know, we launched our ST coin. So, so one of the huge opportunities is we heard it on the earlier panel is cross border. How do you bring down the cost? She sent $200 across, across border today? 6%. I think that you, you pay on average. How can you bring that down? Right. I have a friend of mine, she's a filmmaker. She sends money to uh her film crew in Malawi and it's really hard for her to get the money there. So that's where those rails could be very helpful, but we need the clarity and from an investment standpoint. So if you think about it, um the uh the 11 Bitcoin etf ctps that were launched recently, they got, you know, more traction in a very short period of time than virtually any ETF that's launched. And that happened in, in the world of Robin Hood as well. It's people just taking a small portion of their portfolio and, and saying I want some exposure to this. So it's look, it's the general public believes in it. Um I think some elected officials believe in it. We just got to get the middle to come to um the same view. OK. So one last question we have about a minute left. How is the payments landscape evolving? Is there one big trend you expect to come into fruition this year. Anybody I'll start. Um So when I joined Plaid two years ago and just realized the opportunity with open banking and linking a bank account, the natural transition to many people when I was thinking about was to pay with your bank versus just account funding. Like what we've done with, you know, Ben Mo and with Robin Hood. But what I I just went to the Merchant Risk Council not long ago in Las Vegas and top 50 global merchants are there. And every one of them is thinking about how they want to drive down some efficiencies and some costs out of the ecosystem. And so they're looking at ways that they can allow to the acceptance of paying with a bank account. And that's certainly a trend that I think we'll see and perhaps by the end of the year you'll see a major retailer even launching. Yeah, we're, we're on our PSP business, our payment service provider business. I see a lot of merchants right now, especially high interest rates. Everybody's trying to save costs uh to find ways to lower costs also on the payment rails and looking for options that uh are just cheaper than the, the credit card rails uh and the debit rails. And so a account to account again outside of the US um is happening more and more it requires consumer adoption. Uh but we're seeing slow optics on this Steve. Do you have any last words? Uh Yeah, the payment space is not really my, my wheelhouse. Ok. On that note, I'd like to thank everybody for coming. The conference is over. We're going to have drinks now and thank you, my wonderful piano. Thank you for having us.

Yanela Frias, Chief Financial Officer, Prudential Xihao Hu, Chief Financial Officer, TD Securities Wetteny, Joseph, Chief Financial Officer, Zoetis Moderator: Sheryl Estrada, FORTUNE

Future of Finance 2024: The Evolving Role of the CFO

Hi, everyone. Thank you all for being with us today. So traditionally, when you think of the role of the CFO, you think of maybe managing financial recordkeeping and things of that sort, but the rule has since evolved over the years to be more encompass many more things. So I wanted to get your take on how the role has evolved from your perspective. I'll start with you, Janella. Sure. Um Yeah, it's definitely evolved incredibly and, and part of it is the, the complex world we live in, but I'd say what you just mentioned, sort of the table stakes and we just spend much more time on what the strategy and the direction of the company should be execution of that strategy and making sure that we're executing appropriately operational efficiency, technology, understanding it and I implementing it throughout the organization A I. Um and, and then, you know, we're, you, we're really becoming a second spokesperson for the, for the organization, right? So you've got the CEO and then the CFO and, and in our industry highly regulated, that means you're spending time with investors, analysts, regulators, uh customers. And so like I like to say, we end up having to know everything about everything. I feel like we're talking about this topic for a long time. I think when I met you, we were talking about the future of finance and, and CFO and I was looking at one of the, um, uh, um, blueprint that we had put forth to our colleagues in finance. Uh, last year, it's called Finance blueprint. And look at four areas that, that future, uh finance person or CFO would need to do. The first one is deliver a strategic advice like J I just said, and uh and, and with the enterprise angle, so each of the CFO S for the segments have their segment views like a small home and they have a bigger home for enterprise. That's number one, number two is to build strong capabilities and tools uh for our people to deliver the stuff we need to deliver because it's much more complicated. So we need to have better tools. Number three is to provide effective challenge and effective control, which is very important as well because CFO should not be a cake watch and should not be just a rollover. When someone asks for, you know, resources, ask for investments, you should stand up to what you believe is, right? Give a, a voice at the bank. The last one is to give a rewarding experience to all of our colleagues in finance so we can grow together. And so I think those four areas represent the future of finance as CFO as well. Thank you, Whitney. Yeah, look, the danger in coming in third is that you get to agree what, what's already been said? Uh But look, I think Janella uh is correct in that you're in the middle of everything and over time and I think it's going to continue to evolve, but you're becoming a lot more like a coo because it's, it's one thing to be really engaged and involved in the set of the setting of the strategy and deploying capital. But we're operating in a world that's so dynamic that you wake up every day to something that's shifting and changing, whether it's with your customer or the markets, you're in your competition. And that means that you then have to redeploy and find opportunities to shift and move while staying focused on the main strategic objectives that you have. And so that means it's a full contact sport that you're constantly having to do that and operating like a coo whether you have a CEO in your company or not, you're wearing that hat. And so I do think there's a big stewardship responsibility that you have uh in terms of the company's assets, leading the finance function, engaging with investors and so on. But then there's this other component which is really actively engaging in how you execute that strategy and all the changes that come in. Uh So Shiha in the role of CFO uh you're always looking for ways to improve efficiency across organizations. Um What are some of the ways that you do that at TV? Yeah, I think General said earlier as well, you got to improve efficiency, improve the execution, to make everything run a little bit smoothly and hence your comment as the chief operating officer. And recently we launched a program at TD Enterprise Wide and I'm part of preservation and finance leads that and we call it C three. So it's capacity, complexity and cost. So it's essentially increase capacity, right? And reduce complexity and then save some money at the end. And so, so when you position that way, it's not always about just taking a few dollars away from the budget, it's trying to create better ways of doing things uh whether it's how you execute a project, whether just simply getting a sow approved through the process, how do we save some steps uh still have effective control, but then get the best experience to our people to get stuff done within the company and at the same time, reduce our expenses. So that's one of the things we're working on recently. Yeah, you know, we obviously every company focuses on operational e we think about it as continuous improvement, right? You constantly have to improve and keep up because we have inflation. We have all the challenges that we're dealing with. We need to continue to invest in our businesses and our growth. So it's a continuous improvement and I always talk about it as we are making a lifestyle change. We're not in a diet here. It's a lifestyle change and it's continuous improvement. And you always have like innovation in mind as well as you can just make those changes to create ideas and implement those ideas to self invests in a way. Yeah. Look, there's a never ending sort of demand on our time and our people's time to address more and more on the stewardship part of the equation, right? Uh whether you look at regulations that are coming in, uh ESG CS RD, et cetera, you can go on and on and changing shifts in the business are going to require that we and our teams are engaging to do those things. And so if you don't deliberately look for those efficiencies, then you won't have enough capacity or resource to then uh proactively engage in the business in a way again, going back to that coo mentality and that execution and actually getting out and understand what's happening customers so that you can then be able to understand what the value is and what you're doing and how you can shift uh uh sort of allocation of capital as well. So it's actually a requirement and if you don't do it, you have less and less of your time actually devoted to that part in regard to efficiencies. Where does technology come in? Is it is it an aid um in, in order to reach those goals. Um we, we're talking here about, you know, the future of finance A I things of that sort. So just wondering um maybe see how you can. Yeah, I think technology definitely plays a big role and also data played a pretty big role as well in order to execute some of the technology studies, especially A I, you got to have a good quality data and also can fetch those data much more easily. I think one of the things for banks are like we cover a lot of banks together through acquisitions. Sometimes we don't quite streamline the data piece. So right now like we're building a good foundation, hopefully we can have efficient data delivery and accurate data delivery to people so we can use those data to create more value using technology. Yeah, Cheryl I would add, you know, technology has always been an an enabler, but now it's a strategic enabler and a critical one like you just can't operate, you can't meet the customer needs, you can't provide the customer experience that is required without technology. And that's really the way it's evolved over the recent years and it's just a critical enabler. It's a competitive edge now and you know, you get your table steak done and then a little bit more so you can win over your customers and and actually make your colleague's life a little bit better as well. And it becomes a critical part of how in the context of finance and then we think about it in the context of the enterprise. But in the context of finance is just another tool that help you to be able to free your resources uh to do things that you can then be able to go out and actually ask questions. I mean, we look at a I it's a, it's a tool that can help drive productivity. But quite frankly, I always say one of the gauges I use is is my function asking as many questions of the business as the business is asking you of my function, right? And it's a sort of a loose gauge that says, how well are we uh you know, looking at what's happening on the outside? What does it mean to us on the inside in terms of the products and services that we're offering? And are we challenging the business enough? And sometimes it's not just being the recipient of a business uh sort of um case to evaluate and say yes or no to make these adjustments, actually asking the questions on what would it mean if we had this much more to invest in this area? So actually being a growth ally for innovation, ally and so being able to do that and using technology to free up. And A I is another means to ask a lot of questions by the way. And so we're gonna have to sharpen our, our, our ways of, of doing that, whether it's directly with, with each other or through the prompts that we, that we put in uh into the A I tool uh Janella, since uh technology is going to kind of, you know, change the way the finance organization functions that brings to question uh talent, you know, and when you're looking for finance talent to join an organization, are you looking for like data sciences or, or what, what is your take on that? No. Absolutely. So, first of all, you know, the way we think about talent, it's our most valuable resource. We, we don't make widgets, we don't make phones, we create financial solutions to serve the needs of uh retirement needs, protection, needs of Americans, right? So it's really all about our people. So when we think about hiring people, we're looking for athletes that can play different positions on the field. We're not, we're not hiring based on experience. We're hiring based on a skill set that then we can really attract, develop and retain over a long time. We also focus a lot on mobility. So I've worked in every US business, I've been in finance, I've run businesses within Prudential and it's that mobility and that diverse experience that allows you to be a huge value to the organization. And then when you link it to technology, um you're looking for different skill sets. So yes, we have data sciences and within finance, we have technology people, within finance and we're focusing on training our workforce to really understand technology. So an example of that is we are about to launch a three day program for our top 40 people in the organization and immersion in technology. And then over time, that will actually be rolled out throughout the entire organization. But we think it is that important for business people to understand technology as much as technology, people need to understand the business because it's, that's when we come together to really solve problems and create solutions. I feel like it's learning a foreign language. You need to have multiple foreign language in your in, in your tool kit. So like technology speaks technology language, finance speaks finance language and business speaks business language. So a good finance person can merge all three together can explain things to different parties in a very clear concise fashion and that's the finance talent that you want to have for the future. Yeah, look, I might be aging myself a little bit here, but there was a time that you had to basically sit down with a business analyst and describe what you need. And then they would go and translate that to a programmer and they would write a report for you and bring you back and do all that, right? But over, over time and more and more these powerful tools are put in our hands. And so we have to also make sure that not only we are hiring, developing our team so that they can be that much more technologically savvy to be able to interrogate, get the, get the value out of those tools. And I think more and more is going to continue to push into more power in our hands. Yeah, actually funny you, when you said that you reminded me of something when I ran the retirement business, a big part of our retirement business, you know, we model all these liabilities and we price all these liabilities and it's done by actuaries. And what we ended up finding is that if we could find actuaries that could code, they could actually create the models and they already knew what they needed the model to do. And if you took the actuarial knowledge with the coding knowledge, it was so powerful. So we used to say we need actuaries who can code. That was the, the hiring uh terminology. That's actually exactly a point. And, and the other thing is you need to find people that have that curiosity because uh when the bank first doing C car, you know, you have lots of models to run, right? And uh not everyone knows how to coding, but people on the team actually spend their own time learning how to use Python, use staff studio, self taught. So if you find curious talent, it would enhance your team's capability a lot. Sorry, I cut you off, we see the same thing. Um I wanted to ask under the purview of strategy, you know, growth strategies as a CFO, how do you manage the short term and prepare for the long term? Uh Yeah, look, I think it's um it's definitely a focus of our, in our business. It is a long cycle business, right? Uh We're a animal health company developing uh drugs that will solve the unmet needs out there. And the cycle runs, you know, seven years, give or take. And so you have to be disciplined and focused on continuing to make the investments to drive innovation based on what the customers on met needs are and, and improving the lives of animals around the world. And so then, but then you have friction in the short term that you have to address. And so I do think this goes back to the point earlier around driving efficiency and productivity, not just in finance, but across the business because that's your opportunity to be able to reallocate resources from where they are. There's always some underutilized uh asset, better utilization of your, you know, more productivity that you can drive year in and year out to then take those funds and drive them to the places that are going to drive the long term in terms of where you strategically are headed uh as, as a business. And, and if you don't do that, it might take, you know, a year or two years and our business might take longer. But you will see uh the pain from that uh come back. So you really have to remain disciplined uh in terms of making those. Yeah, we, we have a similar experience. So we are public insurance company uh that is making 30 year promises and guarantees to our, our customers. So, um it is very much a long term investment. We have to make sure we have the right amount of capital that we can withstand, you know, pandemics, you know, recessions. And then yet as a public company, there's the pressure of OK, are you paying a dividend? Are you buying back stock? Right? And it's that constant balance and you just have to have the conviction of this is what I'm investing for in the long term. And yet that may mean that I'm retaining capital that in investors and analysts may think I need to repatriate, but you have to have conviction in your strategy and in what you're investing in and that it will pay off over time, not next quarter, but over 2 to 3 years or five years. Now, we are talking about the evolving role of the CFO. Um I wonder what actually prepared you for the CFO role, you know, for people, maybe who want to take the same path. Whitney, look, I've had an opportunity to um be in a lot of different roles over the years and there was a 13 year period in one company where I had five different positions. But I think, you know, each one had an effect and impact whether it was when I was a controller or when I ran finance for business, when I went off to the UK, to live there to, to partner up with a business to, to help drive that. But one of the most impactful roles that I had was actually going out of finance for a little bit and, and I ran a business uh for, for just over three years. And that's when I, I think I always had this sort of um interest in what, uh you know, a customer sees and how do you drive value for the customer in their eyes? Right. And, and that led me to be very curious about a customer. But when you're running a business, you have no choice, right? And I remember going out in a very short time horizon, uh the 1st 90 days I went and visited 70 customers across the world. And at one point after that, I reflected on a core part of our offering, which was having project managers that would help customers, you know, sort of manage their clinical trial processes on, uh um, and, and at the time before I took the role, I was in finance, I always thought it was, it was not a profit center and we kept hiring more and more. And after meeting with our customers and seeing how the dynamics of their worlds were changing. What I realized was we needed to have more project managers that were even more experienced and they would be willing to pay for that because I could understand the value uh of that uh really in terms of their current world and where there was headed. So, uh it, it sort of changed the way I look at this and this is why I now consider myself a customer obsessed type CFO uh and, and get out to customers as often as possible. There is nothing like sitting across from a customer and hearing what their challenges are, how you need to up your game. You know, this is what you guys are not delivering, this is what you're doing well and that is very powerful and I have a very similar experience. I grew up in finance and then I went off and ran a couple of businesses and now I'm back in finance and that perspective of living the challenges of the business, having to deliver sales every day, having to solve those challenges that customers have managing expenses, dealing with the, the volatility in the marketplace that gives you an incredible background to then be the CFO and, and make decisions at the enterprise level. Yeah, for me, I, I didn't get a chance to, to, to have a customer facing which hopefully one of the, those days I'll have it. But for me, the, the learning coming from the technology and data side of the house. So I was chief auditor for about two years. One of the focus is to look at T DS technology stack and how it's paying out on a control side. Also on the delivery side for our customers, for our colleagues. The second one is uh when, when I joined the US finance for the first time, I was asked to build a data warehouse, I have no clue how to build data warehouse. I don't know what data look like. But that, that learning process changed me quite a bit and let me appreciate the importance of data. And then when you allocate capital to invest in the future, you know where the important critical part is importance of data. Well, that's our time. Thank you so much for joining us and thank you.

Lorenna Buck, Managing Director, Ariel Alternatives Ron Homer, Chief Strategist, U.S. Impact Investing, RBC Global Asset Management, Roy Swan, Director, Mission Investments, Ford Foundation Moderator: Lee Clifford, Fortune

Future of Finance 2024: Why ESG must survive political division and greenwashing

Lorenna Buck, Ariel Alternatives, Ron Homer, U.S. Impact Investing, RBC Global Asset Management, Roy Swan, Mission Investments, Ford Foundation, Lee Clifford, Fortune

Hi, everyone. All right. So we named this panel is Esg Dead, but obviously, I don't think that our panelists are going to say that ESG is dead spoiler alert. So, um let's just talk a little bit about the ESD backlash where it came from and what ESG is evolving into Marina, you want to go first? Sure. Um Well, that's a loaded question. I mean, I think the ESG backlash I think has come from a few dimensions in my mind. I mean, there's a piece of it that is, it's become politicized, right? And so there's a lot of drama around that. I think the other piece has been that what ESG means um has also been, you know, I'd say confusing for folks, right? I think we've all heard the term of greenwashing and so it's made it really hard to know what does it mean and how useful is it as a term. Um And so I don't know, in my opinion, I think that there's a high likelihood that the, the acronym ESG may be dying. Um But I think what's underneath it for the folks who actually believe that these are important parts of managing a business is not going anywhere. And you, you called that impact investing, which is another name, what, what well actually impact that investing is entirely different than ESG. So ESG to me is, is uh it, it, it's a way to evaluate how a company operates. It looks at its processes and it takes into account environmental, social and government factor factors that might impinge on its ability to make money and to, to survive. Uh Whereas impact investing, you're actually looking to make a financial return as well as provide a specific social outcome. So it's, it's kind of a, a hyper esg but it uh we're looking at the end product and outcomes uh trying to align that uh to make a financial return. Uh um And so I, I would say we, we're, we're creating Social Alpha and Investment Alpha and the, the best marriage is when one creates the other, when solving a social problem actually creates outsourced financial returns. All right. So I'm going to do something a little bit different without asking permission. Can I get a showing of hands everyone in this room? Who believes that fairness is bad? Who believes that fairness is good? OK, II I think I have an overwhelming majority. The reason, a definition of the reason why the reason why I wanted to raise that point is the power of words and semantics. So if you think about the s of ESG and you think about the concept of fairness. Most people agree that fairness is good, but there's also a backlash against DE I and DE I is just another term for fairness esg has faced backlash even though it is simply a risk management framework that was created to provide non GP information for investment modeling purposes. It has and I'm going to say it has the backlash um to some extent is rational. And here's what I mean by that. If your livelihood is based on, um, working at a fossil fuel company, uh, if your wealth is tied up in a fossil fuel company and you're receiving ratings for the company that are saying this is a terrible company. What reaction would you expect? So, um, there are, I think ways to address this and we can talk about that later, but that's, um, I wanted to layer in the power of words, the ability for words to be weaponized. So, what words are you using to describe what you do now? Oh, we, we, um, we've come up with the term called patriotic capitalism. And the reason why I came up with that term, I don't know if it's the first time it's been used is certainly in this context. The reason why is because of this, um, the word patriotic and the word capitalism are both imbued with such, um, positive meaning that they're much harder to weaponize than unknown terms like de I or even woke. And when we talk about patriotic capitalism in the context of impact investing. We think about investing with a few considerations in mind, country democracy in the common good. And we believe, and we have proof based on our investment performance. And there's plenty of others, we believe that it is possible to generate superior financial returns through patriotic capitalism, which is essentially fairness. The simplest example I can give on this is um fairness to workers. So one of our impact investing themes is quality jobs. The quality jobs theme looks at what has happened in the live lives of workers over the last sort of 40 to 50 years. And um one of the things I have to confess to everyone uh is because of my background um and educational um uh history. I rely quite a bit on um the, the advice of dead white men. And um um so Milton Friedman, Adam Smith, if you read all their stuff, what you'll find is the only way to have a healthy economic system is by being fair to work to workers. And I'm gonna stop there because I don't want to monopolize time. We can return to some of these thoughts. Anyone else have any confessions they wanna make. Well, one thing that the uh you talked about the semantics and, and the wordsmith, um what I like about the impact investment. It's, it's pretty clear you have a social outcome. You either want that social outcome or, or you don't and you have financial returns, you either make it or you don't. And so that, that, that uh cuts through a lot of uh the words manship. And I think there's plenty of opportunity to have impact whether it's in health care, education, promoting fairness, developing communities. Um There's plenty of problems to solve. One of the measurements that we use is the uh United Nations Sustainable Development Goals. And we try to uh uh look through those universal goals that societies and, and countries and individuals uh aspire to and see if we can find ways to make money fulfilling those needs. Yeah. Well, and it's funny because I would say so, I like the idea of patriotic capitalism because so we don't consider ourselves an impact fund. We actually say we are capitalist with a capital c um even though we expect to have a lot of impact. But part of it is because, um, I think we do see it as just so fundamental to the fairness that we're trying to drive and so similar to what, uh uh uh you know, the idea of quality jobs. We, that's a big part of how we think about it. We're thinking about if we're going to invest in a company, we want to invest in a company that's gonna create quality jobs in the US. And if we're gonna do that, we hope to have an impact on the folks that are the least employed who are those people who are the folks who need those jobs. It's going to be overwhelmingly minorities who need to be uplifted if we're going to get to a place where we have more equitable wealth distribution in this country. And so that's what we focus on. Well, I'll quote another dead white man, uh, Walter Riston who was the CEO of Citibank. And, uh, Citibank was just embarking on a global footprint. And, uh, they asked him, how does he decide where he goes with? Citibank was going? And he says, well, capital goes where it's invited and welcomed and stays where it's well treated. So, in part, um I, I think when you talked about ESG and uh whether there's impact um capital is impacted by its relationship to government relationship to society, relationship to its clients, to its individuals that it serves, et cetera. And so when you look at the question Esg did that, it's like saying due diligence is dead. I mean, why wouldn't you look at what a company does? Because it, it has geopolitical risk, it has government intervention risk. Uh It has a risk with its workers and, and so all of these things are important tools to evaluate the ability of a company to generate cash and to pay its bills and to survive. Well, let's dig into how you guys decide which companies to invest in and bet on. We were talking backstage and you said, you know, when you have a lot of money to deploy companies, find you, they, you know, they want the, they want the investment, what are you looking for? Um So for me, I would say we're right now very focused on identifying companies that create good jobs for um communities of color in the US. And so, and I wouldn't say just focus on that, but again, it's this idea of good jobs, not the ones that are gonna go offshore that are gonna go away, not the ones that are gonna be completely disrupted by A I, but the ones that are gonna stay around. And so for me, that's been actually looking at a lot of businesses that might be utility services, technician, businesses, places where no matter what you're gonna need a person doing something. Um And the benefit of that is to me, it's, you know, they are going to be good jobs, they're going to be skilled jobs. They may not all require a four year degree, right? So they can be more accessible. And if we're being thoughtful about the ways in which you actually start to create pathways into these jobs, um then we can have a more competitive workforce, right? One that might stay around with us for a while. Um If we're thinking about the various other levers that we can use as tools um to better incentivize those workers to stay with us, like actually finding ways to incent, not just like the fact that you have a 401k plan in place, but actually getting participation in that creating equity ownership plans. Um Things that actually make folks feel like they are owners of the business and therefore want to stay, then we're going to be able to have the best possible business that can grow faster than others because we can keep the talent, right. Um And so to me, that's what gets really exciting is getting to spend time identifying those pockets, those businesses and putting together the road maps that can allow us to be wildly successful. Yeah, so my background was in banking and I actually started back when the business of banking was actually growing its community uh when it was restricted geographically. So I'm kind of old school. So uh my focus has been and our focus at our R BC has been around building strong communities, particularly those communities that are under resourced and underdeveloped uh and underserved. And so we think our, our, you know, we're, we're, we stress homeownership, small business development and quality safe housing. And to me, that's the bedrock also health care, clean water and infrastructure. So we uh we, we, that's our focus. Um We actually think there's plenty of opportunity to make money. Ironically, when people look at under resourced and underserved communities, a big R sign comes up, risk, risk, risk, risk, and a negative return return return. But there is actually a number of tools that are available and those tools are actually growing and in the hands of uh more resourceful people around um making small business loans. I think after COVID uh with PPP and, and the Black Lives Matter pro protest, we realized there are many communities throughout our country that uh suffered inordinately and, and uh who um felt the brunt of all of that and that uh long term that's not going to be healthy for a strong country, talk about patriotism and that um there's interventions that have taken place in the past using government tools, whether it's uh the GS CS and Fannie and Freddie or whether it's the Small Business Administration and I'll give you a story. Starbucks came to us, uh uh right in the middle of COVID and they were having problems with expanding some of their stores and they wanted to do something with small businesses so that they could be a friendly neighbor. Uh We took 50 million from them invested uh in uh SB a loans around the country. Um at the time they had cash and they got a little extra spread out of their cash proceeds. It's, it's full faith and credit of the government. And um the return now is 666.7% return. Uh And um in a, an environment that was 1.5 2%. So you can actually uh same thing with home mortgages. Uh There's plenty of opportunity, you know, be between fintech. Part of the problem in some of these communities is there are plenty of people who are qualified and should have access to capital. But the transaction cost of finding them and because their deals are so small, they've been on the serve, but the combination of fintech uh as well as um uh social media to educate in financial literacy, uh I think it's opened some of those doors and when you aggregate those uh particularly in the mortgages areas, we've proven since 1996. And we've been doing this through 2007, 2008, 2009 that uh small balance mortgage loans to working class and lower income individuals based on 30 years outperform substantially and to the extent that even even Black Rock and Timco and all the rest will pay a premium for those if you can create a pool made up of those loans. Wow, that's a great stat. And where you said you're gonna name some names for us, I'm gonna let me first zoom out to 30,000 ft um for the Ford Foundation. Um We have what I'll refer to as the audacious and ambitious goal of systems change. We wanna change the way uh the form of capitalism in our country and, and, and perhaps the world going back to that quality jobs, impact investing theme and workers. There's a lot of as an investor, you're always looking for low hanging fruit and just real quickly, workers are the wellspring of innovation productivity, profitability in order to generate that they need to be engaged globally, 70 to 80% of workers are disengaged. That is costing $8 trillion in annual profits globally. 550 billion in the US alone. That does not include the going back to the fairness topic that does not include the cost of unfairness, race-based unfairness in the US, which has been estimated to cost to have cost the US $50 trillion since 1990. So we invest in private equity funds that focus on quality jobs. Uh We look for diverse fund managers because um 1.4% of all capital of 80 trillion plus and capital in the US is managed by firms owned by women and people of color, people of color. That's a problem and on the naming names, one of the things I mentioned we were talking backstage is in the ESG area. One way to manage uh the weaponization is to go from ESG qualitative disclosures to currency based quantification of the ESG disclosures. We just invested in a relatively early stage A I driven company um that is focused on uh quantifying ESG so that it can be used directly by investors in their investment modeling. It can be used by policymakers so they can decide whether to force companies to internalize costs or tax those costs and regulators and by consumers. So they can make decisions based on what is this company costing society, I should stop, you know, in, in Europe. Uh this has been long standing the use of ESG because uh in Europe, they, a company is part of an ecosystem and it's not divorced from the other sectors. And so ESG and uh um most companies, European companies are required to put out an ESG statement just uh and it's as required as, as an offering memorandum or perspective. Uh So I think um uh the US has a little bit of a catch up to come in. So it's patriotism in Europe as well as in, in, in the United States that takes us to the end of our panel. Um Thank you guys for the really thoughtful conversation. We appreciate it.

Dave LaValle, Senior Managing Director, Global Head of ETFs, Grayscale Investments, Pegah Soltani, Head of Payments Products, Ripple, Brett Tejpaul, Head, Institutional, Coinbase Moderator: Jeff John Roberts, Fortune

Future of Finance 2024: Crypto in a Post-ETF World

Dave LaValle, Global Head of ETFs, Grayscale Investments, Pegah Soltani, Ripple, Brett Tejpaul, Head, Institutional, Coinbase, Jeff John Roberts, Fortune

Tal Cohen, President, Nasdaq, Inc. Katherine Wetmur, Managing Director and Chief Information Officer, Cyber, Data, Risk and Resilience, Morgan Stanley Moderator: Luisa Beltran, FORTUNE

Future of Finance 2024: Navigating Risks and Rewards of Latest Technologies

Hi, everybody. Thanks for coming today. So we're just gonna dive right in. Um So in the past few years, we've seen some major changes to market dynamics. There's rising regulatory scrutiny and clients have changed their expectations. Ty can you speak about the regulatory changes involving T plus one, basil three and how it's impacting the capital markets in the banking sector? But first, what is T plus one, T plus one is T plus one is just one day faster than T plus two, but it's a settlement cycle for equities and other asset classes. So when you execute a security, you, you need to settle that security settle and clear that security today, it's T plus two, 48 hours after that transaction. And that's being brought in to T plus 24 hours. And that requires the industry to invest in automation tools and processes that allow them to ensure that they're not taking undue risk as a result of bringing their settlement cycle. So, yeah, so I'll talk a little bit about it. Yeah, and, and so, and that was the tip of the iceberg when you mentioned T plus one and baseball three end game. There's just a number of regulations and a number of changes and they're regional, they're global and they're going downstream in terms of the impact that it's having. And the three themes that we hear from customers are really, really consistent. It's one they want to streamline and comply and they want to streamline. Comply. In the following way. They want a better man explosion, regulatory costs and obligations while simultaneously complying with enhanced liquidity and capital requirements, really not easy to do. And that's a big piece of work. But once they've done that, they're talking to us about simplifying and standardizing. That's kind of the second theme I'm hearing from customers where these organizations become very complex, operationally, complex and there's lots of silos and they want to break down those silos that introduce operational and financial risk. And then once they've done that, we're talking to clients about modernizing and digitizing and this is clients' ability to keep up with forces of change, forces of disruption, whether that's competitive or emerging technology. So a number of customers are looking for leaders in this space, but just as importantly as somebody who understands the challenges they face. Each of those challenges requires a real deep understanding of how those institutions work. Katherine, can you talk about modernization efforts? Yes, I mean, I tell spoke quite a bit about it, right? Is all of the all the items you mentioned we're having to implement, right? So T plus one balls of end game any of these things and there's a significant amount of work. So the focus that we've been having in our technology area at Morgan Stanley is saying, whenever we have an opportunity, um thinking about process changes, so process optimization or business processes or regulatory requirements is how can we also think about modernizing our technology stack? You have an opportunity to do some of these things together when you have big projects that are going to require a lot of work, it's an opportunity to do that and the more that we modernize our applications and more that we modernize our technology, we become much more nimble. So back to some of the comments you made earlier, how do you automate more? How do you do more straight through processing? How do we make sure that we're using modern tech to do it? How can we make changes really quickly? How can we be more api driven all of that has been a big focus of what we're doing in our modernization play? How can we make sure we can scale? Should we use cloud? Can we use bursting all of that is needed as we think about all of these big regulatory projects? Great. So everyone's talking about gen A I today and we're gonna continue with it. Um Morgan Stanley was the first mover with its partnership with Open A I. Katherine. Can you tell us about the challenges this created? Sure so I'll talk a little bit about it. I mean, it was, it was very exciting for us to be, um, a first mover in one of the, the financial industry, um, lead in working with Open A I. Um, and what we found with it is we learned a significant amount from Open A I that came with a lot of expertise and they learned stuff from us of how to deal with a financial regulated institution. Um So the first thing we learned is you got to make sure you're picking the right use case. There's so many generative A I use cases people have and you got to make sure you're using one that you can implement, you can implement in the time you want. It has an impact on your businesses and you can learn from and you minimize the risk with. So what did originally working with? Open A I is, we said, let's look at something in our advisors area. Our advisor could do work with our clients better if they can have more information at their fingertips and be able to answer their questions faster. So we said, ok, so let's look at how we can create a chat bot. We call it A I at Morgan Stanley assistant. We didn't name it a name, you know, like a lady's name or a man's name. We said it's an A I, it's not a person and that A I can assist our advisor by them asking questions to that. A and the key thing that we did, which was very important as we looked at everything. We didn't want any data loss. We didn't want any hallucinations. We didn't want these things. So we curated our own data. It's only going against the data that we have in Morgan Stanley. We also made sure we put all the controls around it. It meant when we were first starting out a lot of conversation with people in the privacy side, people in our legal people, in our cyberspace, people in our information security area and making sure we were choosing the right use case for that. And, um, you know, we're going to continue to do more and more, but I think it's just the beginning is that you have to make sure you're building some of these guardrails to start with and a lot of these products earlier on didn't have those guard rails in them. You're starting to see a lot more of that happen and we've had to build some of those ourselves. So when did you introduce it? Um, we introduced it about a year ago, we spent about six months building it and a key thing with it is we constantly get feedback from our advisors. So the advisors enjoy using it, but we did some things like this, gives thumbs up, thumbs down. Did it give you the answer you're wanting? Did it not? And that you're able to read to on that very quickly and how many advisers use it now? Um, thousands fast. And so is that a thumbs up or is it a thumbs up? It's definitely a thumbs up and it makes them quicker, makes them quicker and able to answer questions without having to go through reams of paper and look things up. Tal You guys also just announced the launch of your gen a feature for market surveillance technology. How's it going? Yeah, very exciting. So yesterday we announced it really a quarter our mission. So when we think about A I, whether it's Chen A I or algorithmic A I, the first question we ask is, is these are these use cases, are they going to deliver our mission in a bigger way in a better way? And one of the missions we have in NASDAQ is to ensure the integrity of the market and ensure investor confidence. And so we have a surveillance solution that Morgan Stanley and others use exchanges use and regulators use. And what we've done is we have announced that we're going to have a gen a co pilot investigation, co pilot and the way that it works, it is really cool. It allows an analyst to truncate the investigation time and increases the efficacy of each investigation. The way it works is the surveillance tool will generate alert of a potential market abuse or market manipulation really serious issue. Now that analyst now needs to undertake a number of manual activities once that alert is generated and it could take hours. In fact, it takes 4 to 6 hours every time an analyst needs to look at something. But what if we can have Genai? I provide the context and a summary of all that extensive information and provide that to the analyst shaving off about two hours of 33% of the investigation time. What that allows is the analyst now focuses on higher value, makes a better assessment of the situation and the client can scale that across their operations. So it has lots of benefits in terms of productivity. It lives up to our ambitions to make sure that we're protecting the market. And really importantly is the guard wells that we do. And Catherine mentioned this. So we've been, we've not only been putting this into POC, we're just out of PC, we're going to use it for our own markets. And that's really important for our clients to understand if we're using it for our own markets. That's a proof point that I think is, is really powerful. And so we'll look at use cases like this is one of many, we probably have 15 to 20 Po CS that we're running, but they have to be specific use cases with an understanding of how we're going to deliver value to our clients and we want to do it safely and responsibly. So, is it a thumbs up? It's a thumbs up. I mean, we haven't launched it yet, but the POC uh like I said, it showed a reduction of 33% in the investigation time. And think about what that means in today's dynamic markets where market manipulation, the way it was done in 1999 is not the way it's being done today with the advancements of technology. So putting intelligent tools in the hands of our clients so that they can better surveil the markets and we can help them and be their partner. That's terrific. That's, that's meeting our mission every day, all day long. Interesting. So, but with all the focus on A I, people are forgetting about cyberattacks, Kathy. Can you talk about that? What do you, what are big banks doing? I don't think we ever forget about cyber attacks but, but I was wondering how I do wanna thank Hal because I'm very excited that it's gonna take us half the time to deal with any of our alerts going forward. So that's a very important thing for us. And um it will be worth then going through the paperwork of all the model control as we bring the new products in. Um but on the on the cyber side, um and all the everybody right, you, you can't open a paper any day and not see some kind of cyber event, hearing something about fishing, something happened to individuals, something happening to companies. Um And we don't look at ever celebrating anybody having a bad day. Right. You know, nobody, we don't want to see that anywhere. So, we work very collectively across all the banks. All of our C OS, um, that's our chief information, security officers. We know each other at all the different, um, um, industries across all of our, um, banks. We work very closely together. We all sit on very, um, types of industry groups, whether it's F SI A or the ARC, which is a resiliency group. And um we're doing a lot of things, right? So you talked about um A I, you know, the amount of data that every single bank has to collect on any day to understand malwares, to understand any anomalies, to look at detections, to understand business, email compromise. There's a tremendous amount that all the banks do for that. We have to also protect our perimeter. Think about all the amount of emails we get the amount of file uploads, the amount of things that people are pulling off the internet, we have to protect our perimeter to make sure things aren't coming in through those routes and everybody's having to do those same things. And it's really a big data challenge, right? The amount of data that you're looking at to find these anomalistic behaviors is huge. So it's a huge technology challenge and we're all working together, fighting the good game in this space has A I increased. The cyber attacks are you seeing different sort of cyber attacks. I say, I say one thing you see in, you know, a little bit, you talked about how the world is changing. Also in, in the AM L space. You see that in any kind of the fraud areas, the cyber areas, you know, think about the phishing type emails you used to get, you'd look at them and go well, this wasn't written by somebody who really knows me. This wasn't a sophisticated actor. Now you anything very targeted, you know, people will look up, you know what kind of role somebody has, the type of job, something will be targeted at you. And it looks very much like something you should have gotten, right? A mail that makes sense and you click on it and now you have some malware exposed to you. So we're seeing more sophistication because the A I tools are now writing some of these things for them, right? So, you know, there's a positive on the A I tools and then that's maybe the negative of it. Same things with fake web sides. It's very simple to create things that used to take more sophistication to do before that is allowing it to be much easier for people to do. Also with just being able to automate, you can just automate attacks, anybody trying to do an attack, it doesn't have to be successful 100% of the time if they can try a million times one in a million is good. Right. So the new technology you see are just allowing things to be at a much higher pace and a much higher speed and that's what we're having to defend against. Yeah, I just add on, on what Catherine said. She made a number of good points. The way to think about A I and in the way that we think about it in the product for our red tech products is we're going to help our clients get to the right answer faster. And, and regulators expect us to surveil our markets, for example, or monitor our customers activity in real time. They also expect us to make connections between different patterns. They expect us to understand what's going on one side of the market and the other side of the market. And so A I could be really, really effective in allowing us to be much better at detecting those trends in real time and be that extra layer of defense because we know that A I can be weaponized, we understand that. But on the other side of that, we need to use it to make sure that we're making or the human element of it better. So A I is effectively like the best teammate, a surveillance analyst can have and that's how we think about it. Great. So with all these technologies that we're having all these emerging technologies and all the new capabilities, what do you think is it a blessing or a curse? I'll take that one. So to make it a blessing and not a curse, you need to do the following. You can never embrace emerging technology unless you've made the upfront investment. So for us, we're talking about A I for us to be able to embrace A I at NASDAQ or Morgan Stanley. You need to have invested in a couple of things. One is managing your data, you've got to know your data. You heard that right? Two, you've got to invest in the cloud, understand the cloud and the potential three is you've got to have a really mature posture on the infosec side. And fourth, you need to have great governance. You need to understand that governance is a lubricant for A I and these technologies. And then the last one and very importantly, you have to upskill your workforce, you have to bring your workforce with you when you're, when you're taking these emerging technologies into the market because your clients expect you to be a user and knowledgeable about these technologies. So that that requires a cultural change potentially. So it's investments, it's a cultural change and it's being committed to being a leader in a particular space. If that's your ethos, that's our ethos at NASDAQ, we need to be committed. And what that means is we need to start using it ourselves. We need to start getting uncomfortably comfortable with the technology within NASDAQ for us to then have a conversation with our clients. Have you increased investment, financial wise? Like, what's that? Have you increased your investment? We, well, it started for us in 2016 and we started with a small team. That team is absolutely increased. But the roi you know, the, the win rate, you have a lot of pcs, some of them are not going to work. So the win rate is one aspect of it. But if you can get it in production and you have the right use case, the RO I on this can be extremely high, extremely high. So that's the way to think about it because to Catherine's point, the automation and the drive and the productivity gains and the efficiency gains, you can recognize well pay for that investment up front when we do. And so we have a centralized team as well. So we're also making sure that anything is ubiquitous across the firm. You don't want to develop the same capability 34 or five times which a lot of firms I think are struggling with right now. So we've centralized it which allows us to make the investment and allows us to scale the investment. Katherine blessing or curse. Yeah, I, I say it's a blessing um for some of the same reasons that how said it's, you know, we've done many of the same things. We, we've named a, you know, a chief officer in A I, we've also um put a centralized team together, we have a centralized governance group. And I think all of that is actually very important because you could start building many different things and not using some of the same technology. Um I just imagine, you know, you had an assistant every day instead of you going, looking at how many times you go look up something online or go look over here and you're trying to bring everything together or you're trying to read a document, you wanna have somebody just quickly tell you, you know, paraphrase exactly what was there? There will be huge game changers, right? Huge time saves for everybody. Same things. You're in meetings, if that meeting minutes could be taken for you and then you can disseminate it out to people that weren't there. You take notes, all of these types of things are gonna become really helpful to folks to make them more productive. And I think that's the thing that we're gonna gain out of this and those are the, some of the easier type use cases if you think about it's really the productivity that everybody's gonna have. And I think that's a blessing. Do you use a I personally do I use it? Yes, I use the chat GP T and stuff like that. What do you have? I've asked it many different things. Sometimes it doesn't come back with the right answers though. I think that's the key back to your data. Right. Is that oftentimes and this is what we, you know, very important I said earlier is that we're curating our own data. You have to be very careful of the data that you have and you got to make sure your data is good. Otherwise it can answering the question in an old way is an example like it's no longer relevant because it's not current. So I think those are also going to bring out new roles in organizations as data curation type roles. Yeah, just to build on what Catherine said, we say this all the time. And as a I wasn't designed to be right. It was designed to give you an answer. And now it's your job to understand if that's the right answer and understand how you want to train it if it's not the right answer and what data it needs to get to the right answer. So a simple question like what's the price of an apple? You need to understand context to get that right. You know, how far do I live from the supermarket? Where am I am I buying from wholesaler? All these simple things, this reasoning that needs to happen. So you just need to understand the limitation of the tool and how you invest in the tool and what you're going to get out of it because it's not just a source of truth and we've run out of time. So I thank everybody for coming today and weren't my panelists. Wonderful. Yeah. And our moderator.

Sean Dobson, Chairman, CEO, and Chief Investment Officer, Amherst, Julie Ingersoll, Chief Investment Officer, Americas Direct Real Estate Strategies, CBRE Investment Management Moderator: Shawn Tully, Fortune

Future of Finance 2024: What’s Next for Real Estate in the Era of High Interest Rates

Sean Dobson, Chairman, CEO, and Chief Investment Officer, Amherst, Julie Ingersoll, Chief Investment Officer, Americas Direct Real Estate Strategies, CBRE Investment Management, Shawn Tully, Fortune

So I, I posed this question to Sean Dobson so many times and Sean has always said that what, what really makes people decide to buy a house or not buy a house. A huge factor is their monthly payment, Sean. And, and now we're in a situation where we've seen this unusual phenomenon of interest rates going way up, mortgage rates going way up and prices going way up too and many, many uh markets, although not all. So what's going on and what could justify this and prevent what we've usually seen under these circumstances. Well, thanks for having me and, and I'm not sure I'm the best source because I lost a lot of money on this in the last couple of years. Uh with interest rates spiking so much and home prices going up. But I think most of you probably already know the the fundamentals of the story is that what caught a lot of us off guard, maybe just me was that so much of the housing market is now locked, um locked up with the super low interest rate mortgages. So the float of homes fell about 35 or 40% and in some markets, a little bit more, a little bit less. So you have the inventory. Yes. We think about the, I mean, I'm a math nerd at the end the day, but we think about housing. There's a stock of housing, all the homes that exist and it's upwardly floating a little bit but not fast enough. And then there's a float of housing, which is that stuff that's for sale and that float, uh with the homes listed available for sale is down about a third as you all know, and that's really a difficult thing to th because of something that's truly only American, the 30 year fixed rate really prepay and it turns out non recourse mortgage. Um So these, these homeowners are enjoying really low interest rates really long time, right? And Julie, what do you see uh in the markets you're, you're, you're covering in terms of maybe some offsetting factors, low unemployment, rising incomes. Are, are they the counterbalancing some of the pressures from higher rates and higher prices? You know, we really thought that um the multifamily rental market would be buoyed right by this, this lock up effect. But we have seen uh some of these inflationary pressures, you know, impact our tenants. And so, um we have seen a little more doubling up than we'd expected. We also frankly delivered a lot of new supply on the multifamily side to many of our markets. So we thought the m the multifamily renter and the renter would be um relatively uh would be relatively strong and, and rents would be relatively robust during this period of time because there wasn't enough stock to buy. And we thought that this new paradigm of the American dream, which is to try different cities to move around to see where you fit best versus buy a home and live there for 30 years and never leave. You know, we thought this mobility option would drive a lot of the, the multifamily rental market and it's, it's, it's not um as dire maybe as the office market, but the rental, the multifamily rents have been a little softer than we expected this year. Right? And now we're seeing uh on the long end of the curve rates go down over the last few days, some positive information uh regarding uh uh inflation, but we have really high real interest rates and I know Sean is focused on this with a lot. You look at the tips rate. It's over well over 2%. Exactly. And, and the equity risk premium is practically zero and you know, the whole story. Um and I'm wondering, and Sean, I think Sean's position has always been. It's just too high. Exactly. Yeah. And so if it adjusts and goes back to a 1% growth economy, you're not gonna have a 2.2% real rate, right? So that, that would help housing would, wouldn't it, uh guys Yeah, I think so. I think, I mean, I, I'll dive on that one. I think that that real rates are, are about 100 basis points too high, in our opinion, which basically makes mortgage rates about 100 basis points too high. There's another problem that creates an opportunity for us on one hand and a problem on the other, uh, mortgages themselves, the, the, the security of, of mortgages, um, the bond itself has become really under sponsored. Um This doesn't get much coverage because it's kind of, you know, geeky fixed income nerd stuff, but basically pre financial crisis, you had large large inventories of mortgages held by the street and very large inventories held by Freddie Mac and Fannie Mae. Um and then a large inventory held by the banks, those three constituents are gone and the mortgage market is lacking a sponsor. So mortgage interest rates holding everything else the same um could be potentially almost 1% too high because of a lack of investor base. Right? Julie your view on the with with lower rates may really they happen in what will they cause? Well, I think the real story for residential and multi family and single family for rent is that um this new supply wave will uh bright and so we'll have a lot more opportunity to grow rent. But I do think that lower interest rates will unlock a little bit of mobility, maybe bring a little more housing stock back in the market which should benefit some other asset classes like self storage and retail, right? And we just suffer from such a dearth of new construction in America. We see some of it in the sun belt. You don't see any of it in places like New Jersey, right? The the the supply has been frozen forever. Um What, what, what needs to be done? For example, if you look at markets like Jacksonville, if there's new houses being built and coming on the market, it tends to have a very moderating effect on price increases. And you have a fixed supply. Any jump in demand causes these huge spikes. As you guys know, what do you think could be done to improve this situation? That's all you. Yeah. Uh Well, we just saw a big um law get passed here in New York, didn't we? Which is trying to address that very thing. So how do you add more to the housing stock? But the reality is it's municipality by municipality tax incentives. Um and whether it's conversion of office to multi family or it's ability to remove some of the obstacles like in California to providing new construction, whether it be for multi family, for single family. It is fortunately and unfortunately, a municipality by municipality story and that's where nimbyism unfortunately has really prevented us as an industry and as a nation from providing enough housing stock and certainly from providing enough affordable housing stock. And I think Sean, you had a project involving the construction of very affordable homes. The manufacturing process. Can you talk about that? Yes. So, yes, we've, um, we've, we're developing and we're not sort of new in that. I mean, this isn't a new business, but we think that the key to unlocking supply in the urban core and, and that may involve taking down some of the old toxic housing that's been around too long is building the home either in pieces or the majority of the home in a factory and bringing it in and placing it. So these are the same construction techniques you would use on site. So it's just off site construction. So we built the factory. We've we've completed about 250 projects. So we're just learning how it works. But I think that one thing to remember about the US housing, the single family housing stock is that the the development mechanisms in the US are, are designed to build neighborhoods and every trade is the is is set up to go and build 10 foundations or 10 frames or 10 rooms kind of in a row. When when the homes are ready to come down, the nation doesn't have a development infrastructure to go replace that one home, that one home, that's what we're trying to build, right? And I know in California there's a proposal to allow landowners with one home on obviously on a property to sub divide into two lots. Is there any potential there? Yeah. So our headquarters is in Austin, Texas. Austin was very aggressive with its zoning. Um, basically made single family lots illegal. Um And that allowed people to put up to three homes on a lot. It's, it's just now coming into play and, and a, as Julie said, the city can pass a law but that doesn't stop there. There's still neighborhood associations, there's a their barriers and they're not really sort of desirous of having their neighborhoods densify. And it's this tension between the cities trying to create more housing and the landowners trying to preserve what their view is of housing is really the, the source of the friction Julie who's gonna win. Well, uh I think when, when the tax revenues start uh running out, that's when real estate investors will win because I think, you know, when, when the, when tax revenue start drying up because you've had um degradation in office, you've had degradation in retail and people don't have a, an affordable place to live and they vote with their feet. That's when the pressure will come to these communities, which is what are we gonna do with these obsolete vacant um office buildings. What are we gonna do with our affordability, our housing crisis? So let's move on to the commercial side. Of course, the big news has all been about office. You mentioned perhaps the ability to turn office space into residential that tends to be very expensive with lots of retrofitting. But you see great projects like the Hudson Yards. It's totally new KKR. All the big Wall Street firms uh have moved in there, JP Morgan and that space seems to be highly desirable. Still, what are the areas or the categories in office that have been hit hardest and, and geographically, the areas that are hit hard? Sure. Well, you know, I'm here to tell you folks that the headlines are real uh for office now office as a as a percentage overall, commercial real estate represents a much smaller amount of the commercial real estate float today than it ever did. So I think in the past office used to be 40% of the value of all us commercial real estate. It's now down to 20%. So it is meaningful. It is material, but we do have other asset classes like data centers like single family for rent, like student housing that characterize the sector. What's going on in office is truly, I would say, um you know, uh I, well, it's, it's um a century long phenomenon, meaning today we have 18% quickly going to 20% vacancy in the office that has never happened before. Vacancy. So it, so the worst uh vacancy we ever had is in the high teens, right? So 14 15% going all the way back to the sixties. So now we have 18 to 19% vacancy going to 20%. And, and that doesn't even include sublease vacancy, which is two x of its historical average. And the winners, as you say are the one Vanderbilt stuff Hudson Yards, the new shiny uh office building. That is the amenity that you use to attract your talent uh back to the workforce. You have your, your um uh amenities on the bottom. You have your breweries and your restaurants. You have your pet spa and pet uh uh daycare in the middle and you have your rooftop deck lounge on top. But those are expensive tenants you still have to buy. So to answer your question, what, what happens to the rest of the stock? Well, we can look for malls. Uh The class B and C malls is an example. I was driving up to uh Rhinebeck the other day and you see these malls still by the side of the road that have weeds growing out of them, right? Because they have not yet been knocked down and repurposed. So a lot of these commodity office buildings are only worth land value and they have to be knocked down and redeveloped because as you said, this, the family conversion is not a salve for more than 2 to 3% of office stock in the US. That, that's kind of wild. Right. Right. So yeah. So where are we seeing pockets of good performance on the commercial side? Of course, Sean is an expert in single family rental. And I know Julie, you're also an investor in single family rentals. That market has been very good, hasn't it? Yeah, it's, it's been great. The demand. Our demand side is the opposite of what you're seeing in most commercial real estate classes. Um And what I like to point out to people is that occupy itself in the US is up with population. It's just shifted and all the things that we used to do someplace else are happening are happening at home. Now, everything from streaming and delivery. Uh and now working, we were already shopping. And so all of those things that we used to do sort of out and about in town. So many of them are just better experience at home. And when you took work into that equation, it really upset the Apple Cart and I think it upset it, you know, permanently, right? So on the commercial side, we see uh strength on the data center side, we have two years of astronomical rent growth, student housing, historically, high rent growth in that asset class and then modern logistics. So what most people don't realize about warehouse space in the US is the average warehouse is 40 years old. And guess what? The new robotics, the new stacking and racking systems that a Amazon uses to distribute solar panels on the roof, battery storage to support EV trucking and EV fleets cannot be supported by the legacy stock of warehouses in the US. So we see particular demand and resilience in that asset class. So a lot of bright spots counteracting some of the office storm clouds that may be with us for a period of time here. Want to hear an anecdote. Yeah, please. So we have a small business of lending to real estate, redevelops people that buys an old office building, spruce it up and then sell it at a discount uh or warehouse, whatever. So we're, we, we financed an office building that was the headquarters for the Phoenix Online University um in uh in Arizona. Uh the bar, we're very sophisticated bar. We had a very sophisticated plan when it was a single tenant building turned into a multi tenant building. Pretty simple strategy. Did all their cap e got it going and advertised it. COVID hit nothing. They gave us the keys back. So we're non recourse lenders. So they very politely said, we, we certainly to give up. So they lost all their equity. We own the building about 55% of their base. They were like, oh, we'll just cut rents and lease it up. Cricket couldn't find to buy. This was, this was a $50 million building in today's dollars. The structure was less than 20 years old. We're tearing it down and we're putting back last mile logistics in this place. So we're taking down $40 million worth of improvements and replacing them with another $40 million worth of improvements. And it's exactly as Julie said, what goes back there has to have the right ceiling heights, the right dock heights, the right floor plan. So, even, even if the economy is moving so quickly that even the, even that stock is a, yeah, but this is, was a, are you replacing it with a war warehousing or? We're taking, we're taking a 300,000 square foot office to the ground and, and rebuilding warehouses. Yeah, that's the solution for a lot of office. Unfortunately, many of these municipalities will not approve it. They don't want the truck traffic. They, they want their beautiful of an office or their old retail center. And so you've just got this, this tension between vacant buildings and municipalities. They want something and they won't allow you the, they develop around the buildings. They wanna improve your entitlements. They won't improve your price. I have, I have another one in Phoenix. That's, that's um 250,000 square feet, a beautiful 14 story tower and it's 50% occupied and the other 50% is building the market for three years. We went to the city and said, you know, when these tenants go so does the building and, and they said, and they said, no way. They said when this all turns around, we need offices and to run our city and we're not gonna take that thing down. So now we're like, ok, what do we do in the meantime, because our, you know, we start to pay property taxes and insurance and, and maintain the other building. But do you think what they're telling you is gonna happen will ever happen? I don't know. II I will come back. I don't think so. I don't think so. I think that work from home works. Um, and I think that the two day or three day in the office work week is with us for a long time. We have uh in Austin, Texas, we have a traffic problem, not too dissimilar from New York traffic problem where we had um people that were not in like super critical creative jobs but critical function. They, the people that do payroll in, in, in our hr department, someone got cut paychecks every two weeks. Those people were driving in an hour sitting at a desk working either by themselves or a team of two on something that wasn't super time sensitive and then driving home an hour. Why, why make them do that? Now, we know that a lot of this real estate uh debt is parked with the uh regional banks and Julie, are we going to see a wave of, of distressed sales from the regionals? Uh What's, what's, what's in store there? So we've been waiting for this now for a little while and it's finally starting to accelerate. Uh Banks have realized they've got to cut some of their losses. They've taken some assets back, they've seen where the new values are. And so they're a little, they're, they're willing to be more flexible and a little more active on uh removing some of their exposure. Remember, we have basel endgame coming which makes holding those distressed office loans especially so much more expensive to banks for hold and regulatory scrutiny. So I don't think, you know, the, the fed is saying, hey, um friendly, friendly lender work with your borrower, help with the blend to pretend and extend yet that regulatory pressure is doing the exact opposite. So we're definitely gonna see some friction there as we move forward. Well, thanks so much for our time. Unfortunately, this we could go on much longer and, but it's such a pleasure to see you to see me.

Tom Davidson, Founder and CEO, EVERFI from Blackbaud, David Nason, Senior Executive Vice President and Chief Operating Officer, TIAA; President, TIAA Wealth Management, Vanessa Okwuraiwe, Principal, Edward Jones Moderator: Diane Brady, FORTUNE

Future of Finance 2024: Preparing the Next Generation for Financial Success

Tom Davidson, EVERFI from Blackbaud, David Nason, TIAA; President, TIAA Wealth Management, Vanessa Okwuraiwe, Edward Jones, Diane Brady, FORTUNE

Hello, Tom. David Vanessa. Good to see you. II, I know I've been a start but I do like lightning rounds. I think it's good just to get the juices flowing since we're talking about, you know, preparing the next generation. I'm gonna start with you, Tom, what do you think we're spending too much time or money on when it comes to this space? And hi, thanks for joining us. Great. Hello, it's really great to be here, I would say and this will sound counter to like what I spend every single day of my life doing. But, um, I think we've talked too much about financial education and financial wellness. There's just an enormous amount of terrible advice kind of coming through the system now and new channels that there hasn't been before. There's also incredibly strong new ways to reach people, but we've done a lot of talking and I think it's the opportunity now to actually come behind that and build the infrastructure, particularly for young people to allow them to automate getting into the game of financial services. Do you disagree? I actually agree. And I'll kind of double down and say generic advertising about this is the biggest mistake. What, what really needs to happen in my view for financial education is it needs to be short, relatable and understandable and not at this very high macro level that people can understand and make it real for them. Well, no one has mentioned meme stocks yet. So if you're thinking about, so if you ask me about what's been overhyped at the moment, meals, definitely. But, but I would agree that, you know, we have spent a lot of time talking about financial education. Um But really we need to make sure we start to activate and use technology as an enabler rather than this. Um You know, I go bad for want of the best of phrase. So let me get to that second part, then let's go from the 30,000 ft down, you know, when you think about some of the more intriguing tools, um or, you know, maybe tactics out there, um You mentioned let's start doing what's rising on your radar in terms of what's actually making a difference. Yeah, I think that um you're seeing still the very early innings of um what what I would call is unlocking mechanisms. Um If you think about reward systems and things built into actual learning that allow you to actually activate an account of 529 a long term saving program for a child or families or others, um That's something that we feel very strongly about that there's lots of avenues, but the schools are the most structured um literal physical plant that we have in order to make this happen. So we've focused for 16 years on actually going into schools and going um literally going where uh all of the wonderful learning and there's infrastructure and support. And so we feel very strongly that that's not the only place, but that's a place and that um the co the country in particular needs to like triple down on that idea of enablement for young people in schools, in classrooms and use that as a venue. So I'm not gonna give you the perspective. Ti A is a company that is driven and mission driven to help people prepare for retirement. So I'll give you the employer's perspective, what's working, things like auto enrollment, things like making it easy for people to see opt out, not opt in, opt out, not opt in incentivize employers to provide the tax breaks that are available to their employers, teaching them what those things are. These are very easy things. Retirement policy is I think one of the three issues left in America that's bipartisan. So policy actually helps with this type of thing. So policy direction in the right way to help people save more and making it easier for employers to do this and then letting assets flow easily from different employers as people move around a lot more, these things really work. So an 18 year old, the beauty of compound investment and they'll put all their money in there. I do think that's very powerful. Have it for you, Vanessa. Well, so Edward Jones, we've been around for a long time. We've been around for over 100 years. But when almost every community in the United States, one but one count I might need to invest on the, we'll get there, we'll, we'll get there. But we know that we have this massive footprint that we can definitely leverage. And so what we've been trying to do is to make sure that we can get into schools. So of course, we have a financial education program. We partnered with F I in 2020 to make sure that we can get um into especially high needs schools. So we're in over 50% of high needs schools, over 6000 high schools and making a difference. We did say that by the end of 2025 our goal was to, to, to reach at least 1 million learners and we're over 900,000. So we're making progress. Thank you very much. We're, we're making progress in partnership with our, you know, um our, our great um company um fi but there's still a lot of work to do and just making sure that we can to have financial information in a smart and digestible way that's really appealing to young people because they want it, you know, one of the things that's interesting the last few years you think about, um what would seem to be innocuous, you know, um financial inclusion, um economic, you know, justice and addressing, especially for marginalized communities. This has become more difficult and I'm curious about whether the um or how the backlash against DE I and the like, how is that impacting if at all this space, is it just a conversation? Well, I would say broadly, you know, it's interesting, we do a lot of other things besides financial education. What's, what's interesting about this one? Is this, first of all, the politics, I was, I'm like a washed up politician. I was a state legislator for long time. And so I'm like kind of a state legislator at 22. I was, yeah, very lot of wisdom there, a lot of wisdom there at 22 all I had learned. Um the um but the uh you know, what's fascinating about this one is we focus on, you know, mental health, suicide prevention, we focus on bullying, like we focus on a lot of yours. Those are incredibly difficult things to um inculcate into the culture of a school. The conversations, kitchen table, conversations. This, you know, financial literacy is actually like the easiest put that we take and it's actually something in a world that's very complicated. This is actually one of the easier ones from an infrastructure perspective. You can either we have it in, you know, we have, these massive institutions have the ability to do it. We've got incredible hearts and minds that wanna do it. And this is just to focus on in the next 10 years. Can you do what Jones has done and, and, and go and do something on a massive scale for kids in areas that there isn't any money for? And are you willing to step up and do that? That's a big idea. But it's a, it's an attainable idea. And so that's what gets me excited is this is actually something that can. So there's momentum behind. Have you noticed any difference with the, with regards to, to sort of the um the political environment and such? Not really, I, I think to your point, people do align on the need for financial wellness. That's a goal that we have financial wellness for as many people as we can reach. So I think that's something that is bipartisan and people agree, we haven't really seen any push back. I would agree with that. The only thing I would say is that the stats are challenging for minority populations that need to be addressed if you think about. So our, our research has suggested that 40% of Americans are not ready for retirement, that number is 50 or higher for minority population. So the, the the issue is more profound, but I think you're exactly right, which is, it's bipartisan and everyone kind of aligns. You're more worried about those older generations. Some of all time helps all these types of issues and an older generation has less time and there's a food fight on all of these things. You, you know, you have to be prepared for the fact that some people don't want the private sector in schools. You have the fact that you've got lots of different constituencies around a school around young people. You've got different ways, you know, media that are coming at them. So it's, it's a little bit of a complicated surround sound, but again, doable. Yeah, I want to ask a little bit about the the role of the employer. And let's talk maybe whether it's millennials, Gen Z, this is a generation that's perceived to be coming from a deficit coming into the workplace. You know, they feel they can't afford housing. So the idea that their paycheck can then stretch into savings um maybe seems less attainable. If what is your message to employers? Are you working with them? In terms of you mentioned opt in, is there anything else? Uh opt in is a big one? We are absolutely working with their employers. There's a couple of things we do opt in auto escalation are two things. Number one is providing financial education at the employers that we service. So we will basically create curated programs for kind of high touch people that really understand it. We'll also do Spanish language classes for people in the cafeteria for other people who work at higher education institutions. So you have to, you have to go where people are. You have to understand those types of things. I would say. One other thing I think is important because there's a lot of skepticism around Gen Z and millennials. I'm less worried about them because of two things. One they've got time, time is your best friend for these types of things. And two, I like the fact that they're skeptical and they push back. I like the fact that they went through a very tumultuous period in COVID. Understand what risk looks like. Understand what it's like to come back from risk. I've got a lot of faith that this learning, this population is going to do well on this issue. They're not going to be as reckless as us. I don't know. I think that's, that's, you know, Vanessa, one of the things I want to ask about is this Ed? Wow. Um You know, uh what do you do differently? You know, what do you think moves the needle? How did you approach this space? Making things smarter and more digestible for, for young people? So, one of the things that we did, we, we do a lot of research all the time. It would loans and we partnered with a couple of companies to just really understand, do the, do the next gen or gen next, whatever we choose to call that big group between 18 and 34. Do they actually think in very short term, um, lenses, is that, is that the case? And so we did delve in a, a lot deeper to understand. Well, what's their situation? We found that one in 10 of them still have, still have student debts. Um, only a third have health insurance and, and half, um, don't have any life insurance, which you wouldn't expect, you know, if you're less than 34 for the most part. So once we understood what maybe some of the issues were, we decided to create this new platform that is really just a digital focus, you know, you don't have to come in person to get that education and, and do it nice and short. And so we did it in a way that acknowledges that this generation especially has high anxiety and we decided to just make these, you know, snappy little videos that really speaks to. Well, what does it mean? I use that as a parallel. I you Yes, more youtube videos very short. Um And it speaks to budgeting savings, compounded interest, all these things that we think are still important. I know value systems are changing, but there's still certain things that are universal and will apply whatever age you are. So we've got really good feedback that this is helping. And the other thing we found is that we can't underestimate the importance of our parents and guardians. Um in terms of immersion. So Children learn their first languages at home. Financial education should be treated as a language. And when, when people are immersed at the, the, the home front, you find that they develop better habits when it comes to financial services. So combine that lens to, to be able to create this new digital platform that is really snappy and is getting a really good feedback. We, we launched it last August. We've had over 500,000 engagements and, and, and people seem to be happy with what um what messages they're hearing, you know, you know, I like and it pivots to what you actually said earlier. You have to treat people as like the whole person. We talk about anxiety. How much do you think about that in terms of the programs you're developing? Because you now you have this expert teeth and mental health in other areas. Does that apply to how you approach financial education? Sure. Yeah, I think um I think they've made, made the point earlier about, um you know, all of this is moving to thinking about the student individually. Um unless, you know, the concept of classroom didn't change all that much for a couple of 100 years and 40 seats and a and a chalkboard. And um it's, it's now changing pretty dramatically and I think that's a positive thing because what it ultimately does allows you to within reason, take a lot of individual factors about that student's life. And I think that's been the biggest thing that we've learned, you walk into any classroom that is uh 40 very different humans showing up in very different ways. Um And, uh and any technology ultimately has to be able to track that over time. Um And that's, you know, that's really where we are in this moment. There's incredible things going on that make me very, very optimistic about that potential. This is like both, it's, these are national issues. It's hyper local. I'm going to ask each of you, what advice do you have in terms of how we can create better infrastructure around this? Of course, you mentioned the schools, you were a former lawmaker. I mean, um whether it's on the regulation side or the employer side, give us um something you would change. What would you prioritize to really move the needle? You were higher ranking than I was. Yeah, you higher ranking. We'll start with you. I would make, I like, I'm gonna go from the employer's lens again. I would make money portable. I would make financial education a part of a employee wellness program and I would make an employee wellness program mandatory for all employees over 100 people. Uh We already have the infrastructure. I think the educational institutions, the employers and of course, lobbying the government, we've got financial education in at least 33 states. They're not necessarily all mandated, but they're either recommended or required required. So that's the uh people are heading in the right direction. We just need more alignment across business in order to drive um policy in on the government side. So do you wanna add anything? I would just say um I think the concept of the public sector doing their part of implementing actually a very good required and multi step, not a one and done, you know, a lot of times including us, we tend to um you know, do something senior year during senior week or something, you know, have multi year from second grade on. Um and then on the private sector side, I think every financial institution should actually step up to open accounts and create the long term infrastructure that's portable and can travel with a young person and start that from kindergarten and rock and roll on that. That's a good tactic. My tactic was not giving them any money after 16. That works, that works very well. So I don't think it hasn't yet before we get any tactic or, or that stuck with you in terms of that you would adopt. Um Again, we are in the audience as parents, employers employees, et cetera. What advice? I think the portability and opening those accounts really is very powerful. Is there anything else you would have? I would say I want to do two things. Number one, when I say man, where I said mandatory by the companies doing it, not the government because it's gotta be true to myself here. But what you said is so important. I think parents, I think parents are underrated. I think parents can make these issues very la relatable, very relevant and very, uh tangible to people relatable and tangible is everything for financial education. So, I think parents and guardians are undervalued in terms of their necessity to be a part of this. Yeah. And, and David, I'll double down on that. So we, we find, found that in, in this research study that we did recently, we found that um, 18 to 34 year olds would rather go to their parents. So almost 70% of them would go to their parents for financial advice. So you would think that in the social media world, everyone is gravitating to social media, especially for financial guidance. But we're finding that maybe they can get their financial information and everything else, but when it comes to guidance, they're going to parents. So for me, what I do, I'm trying to start early with my kids. They're eight and 10 years old. Um not, not all your pocket money can be used for LEGO, it's not gonna happen, you know. So how do you take a small portion of that and put it into your bank account and just start those habits really early? So that's something again that we built into our um financial education, not just for the young people, but for the parents across the board. I love that. So I'm gonna give you each a chance to give some final thoughts takeaways. I'm gonna start with you. I think that this is, um, there's gonna be a really, really great next five years where t a lot of the work that the people in this room, uh, you should see yourself deeply in the middle of this conversation. Like every company that was up here today actually has a really important role in this and it sounds a little cheesy. But um you have the ability to weaponize your, you know, your employees and get people out in classrooms. And most importantly, figure out a way that your infrastructure can get baked into a long term infrastructure for kids and you're gonna change its tombstone stuff. You'll, you will change the trajectory of the country. If you do that. I I would say two quick things. The first is that I would like people to understand that we do have a preparedness crisis in this country that people are not saving enough and people are living longer and it's getting worse. So encourage people to save as much as they can as early as they can and understand that. And two, I run a wealth management business here in the wealth management business. People think that financial advice is just for the wealthy. It's not, it needs to be democratized. People need to feel comfortable asking questions about these types of issues and taking that fear away is massively important. Um Yes, um I will double down again on the importance we have as employers. We, we have over 52,000 employees and the influence we can have over all those people is immense. So I think we need to put our own oxygen masks on first, make sure that all our employees have the very financial information and then you create champions who take it out to the rest of the community. So I'd say double down on putting our own ox oxygen mask on first treat our own people, right? And then we can make a bigger impact. I love that. So David Vanessa, thank you very much. Please join me in making our gathering. Thank you. Thank you.

Andrew Shapiro, Managing Director, PJT Partners, Tripp Shriner, Managing Partner, Point72 Private Investments Moderator: Diane Brady, FORTUNE

Future of Finance 2024: The Allure of Alternative Investments

The allure of alternative investments. I feel like I should say Van Gogh up, down, let's do I want to start with a lightning round first? Nice to see you, Andy Tripp. I feel like this is such a vast space. Let's start with, you know, what do you think is over hyped? You know, where is the dumb money going? I'm just going to start with you. Kick us off, right. Very provocative sneakers. I'm not a fan of any of the D to C so direct to consumer retail alternatives. So that's sneakers, art royalties, collectibles, even real estate that it's just rife with fraud and it makes me nervous. Ok. So that's the dumb category. How about for you? Trip? I mean, I have a slightly different view that a lot of these things are sort of point time as to whether or not they're overvalued or undervalued. But I think the challenging thing about alt is they're not liquid. And so I think for a lot of people out there, you need to be very aware of where you are in the cycle and when you're entering because unlike a stock or a bond that trades down, you can't get out once you're in, at least for not, not for the foreseeable future. So you're recusing yourself from making a direct answer that one. So that's, that's fair. I think that's very fair. So let's talk the other under appreciate maybe rising on your radar. How about that instead? Um So, so I think your, your question implies like rising is a good thing. I see like rising is a bad thing. Um So I'm gonna answer it that way. Um I get nervous. There's a lot of money right now flowing into private credit and that's these are kind of asset managers that are taking the place of, of banks, right? We talked about that this morning, actually huge category. And so I'm worried about all the assets flowing into that market and kind of a lot of money chasing maybe less and less quality, right? And loosening of of credit terms that maybe a bank wouldn't do. And then if I wanna drill down into that specific asset class, there's an emerging asset class out there that called NAV lending or net asset value lending. And that's effectively a loan that institutional investors make to other private equity firms on top of their portfolio. So basically the portfolio of several investments takes out a loan on top of it. So you're basically putting leverage on top of a portfolio of levered companies and so you're double leverage. Is it the leverage that makes you nervous or is it the fact that it's kind of an unregulated space relative to the formal system? It's both but it's really a, it's a, it's a coy way to put more leverage into a system and really a product that feeds off of leverage. And so, you know, it just takes one bad asset or one kind of bankruptcy and it could have a real kind of domino effect. Ok, because I met before, I love the way you're answering each question and that's, that's rising on the radar, but not a good thing. How about, is there anything rising on the radar that you like or don't like? Well, and keep in mind, I'm primarily a technology engineer. And so that's the lens through which I view uh view ALTs. And one of the things that I think is, is interesting, albeit in the early stages is whether you wanna call it tokenization um or securitization, just the fractionalization of ALTs. I mean, it's always been an area that as I alluded to earlier has been relatively a liquid. It's also been one that's hard to access for a lot of people. And so I think if you can take an office building and offer fractional uh opportunities around that or, or private equity fund or private credit, although you, you may think that's not a good idea at this point. Um I think that could really open up the space and, and democratize it to a certain degree, I think right now, we're kind of in the pilot phase of that. But to, to your question, I think that's an area that I'm particularly interested in, in tracking. And, and really one of the reasons we're having this conversation is that we're in this pilot phase, we're talking about the democratization, basically opening up this asset class to retail investors. Let me go back to you a second. You don't like this phenomena. Is it that, is it an education problem or is it a consequence problem regulation? What is it that I don't like some of the fluffy stuff I'd say, I agree with trip that the democratization of alternatives for retail investors is a very exciting uh place to be. And if you think about the typical financial advisor pushing the 6040 portfolio, 60% equity, 40% fixed income. And now a a piece of that pie is gonna be taken up by alternatives. If you wanna look at the data, the average retail investor has between kind of five and 8% of their portfolio. And alternative, the average institutional investor is closer to 20%. And so if you just do the back of the envelope math getting from that 5 to 7-Up to 20 is trillions of dollars of assets that could go into alternatives. And should it be 20? I mean, again, it depends. But if we're talking to retail investors, should our portfolio be about 20% in alternatives. Iiiii, I think it should, I think it, it provides an uncorrelated, um, market exposure and, you know, despite the kind of low interest rate environment we're not in anymore, it still provides a lot of yield. And so as the nation ages and you have baby boomers retiring and transferring assets, the assets that you do hold on to you, you could argue should be more of an alternative, uh, form factor. Yeah. Well, I think there's, there's a difference between what should be done and what's what's practical right now. I mean, the fact of the matter is it's still relatively hard to access alt for a lot of the alternatives platforms. They view the R A Ria channels as sort of the next level of growth right now. Um But there, there's a lot of work to be done there. Uh First and foremost, and you alluded to this earlier is, is education not only for the end customer, but for the advisers, a lot of them have never been familiar with this space. So that's hurdle one to overcome and then hurdle two. again, I go back to sort of technology and, and infrastructure um being involved with A T whether it's doing due diligence, subscribing, managing your portfolio. Those are really challenging things and, and by and large, we don't have a lot of that infrastructure built up right now. And so while I agree with Andy, um that the ideal state is for there to be more exposure for individuals. Um I just think it's going to take a little bit of time for us to get there. What would you prioritize for us to get where we need to go? Um The, the technology piece first, I mean, that really is, is the the friction here in terms of accessibility. And then I think once you have that and people understand how you can do it, it then goes to education and being informed of why you should be doing it. I mean, remember this is an ethics class that was designed for institutional investors. So when we talk about the state of New York, that's used to putting $100 million in a Blackstone fund. Now you're talking about an individual that wants to put 10,000 in all the infrastructure needs to be designed around that investor, being able to, you know, access their portfolio, monitor it, um have redemptions, capital calls and none of the infrastructure is designed for checks that size. Let me ask about how is the geopolitical landscape or even the macroeconomic landscape? How do you think that is um influencing this category? You're nodding. I'm gonna go to you first. Yeah. Well, Andy, you mentioned it earlier but um interest rates is, is the obvious one. I I agree with Andy that all provide a lot of benefits in the way of diversification and lower volatility. But the fact of the matter is, you can't ignore interest rates right now. If, if I'm looking at treasuries that trade at 5% it's great that I'm getting those additional benefits. But at a certain point, they need to make the returns for me to say, ok, the opportunity cost of me being in treasuries is offset by being an al, you know, and we haven't talked about gold, of course, but that's uh maybe that's such a big category. We don't even need to go there. But let's talk about some of the other. I mean, I want to ask you, we, we've talked a little bit about private credit. Um There is infrastructure, there are, you know, real estate, for example, can you look at some of the categories? What are you seeing out there in the landscape? I'm going to go to you, Andy because I know again your technology. Um So in real estate specifically, um a lot of the assets are flowing towards the distressed and opportunistic investors, um managers right now and these are the managers that are kind of experts at cleaning up, you know, buildings where they have to hand over the keys, right? And there's a ton of capital flowing into that right now. Um where it's distressed are these kind of plain vanilla real estate investors that just own office buildings that are have, you know, tenants that are fleeing, that's not a very popular asset class right now. Um I'd say infrastructure is also very uh exciting. I mean, again, like any kind of institutional manager, a lot of the flows are going to like a very a small handful of really mega managers. Um But again, there's a ton of money to be made and a ton of assets flowing towards what I generally call the energy transition trade. So that's basically uh you know, adding solar panels, things like that, the grid enhancements around the country, a ton of capital going there and a ton of institutional capital wanted to be put to work there. I want to step back a second more to the 30,000 ft level, which is you mentioned, this was these, these were, you know, asset class is designed primarily for institutional investors or accredited investors, which implies that you need a certain level of sophistication to invest in these products as we democratize, you know, obviously people talk about protections, they talk about education. How do you, is it antiquated to still think about this need for a certain level of wealth, a certain level of sophistication to get into these asset classes because they are basically becoming accessible to retail investors, you know, much more quickly than that. I'm gonna go to you first, you you're flicking back and forth. Um But what do we need to do? I think the other thing you, you you didn't mention is uh the time horizon, right? So, so typically one of the main barriers too is and why financial advisor also didn't like pitching to you. They don't wanna tie up their client's assets for 7 to 10 years. Right. They're not like a pension fund and so up to 100 why not? Exactly. But as the technology improves like the, the, the companies, the trip monitors and the form factors change and we have things like interval funds or, or tokenization, then it becomes more like a stock, right? And then it becomes a lot more liquid and then it becomes a lot more, you know, investable and understandable by the mainstream investor. But, but it's still perceived as risky assets, right? And is that fair, is that fair to say? Do you think that's a fair? Um I, I think, I think it can be, I think that comes down to a certain degree uh uh to curation and what type of vaults you're exposing people to, I mean, even within a given alternative asset class, there's a very big difference between the best manager and, and the worst manager. I think actually going back to what Andy was saying earlier, a lot of the early access for retail investors to this space um was more at the the lower end of that spectrum. And so in that case, I think there was an issue with and sophistication, but I think if you can curate the right way and bring the right type of assets to bear, you know, as an advisor, I believe you would be as comfortable as you would. Anything else? One of the benefits of sitting on stage, you know, with, with other people not here put on a regulator hat, if you are a regulator um in, in this sector, what do you, what are some of the steps that you think need to be taken? Um You mentioned developing infrastructure. Any advice you would have? Yeah, I'm gonna take my technology hammer again and apply it to this question which is um you need to make sure that people have robust infrastructure around everything from data collection to reporting to valuations. Those are things that depending upon the asset class are various degrees of maturity. If I I were looking at that, I'd say what, what is the infrastructure there? How close does this feel to other asset classes in terms of the quality of reporting and of information that I'm getting around these? Does it feel to you? Well, we're seeing a lot of companies now emerging that are going directly after those specific types of pain points, in particular, the data side, which I think is sort of underlying a lot of the other potential issues that you could have. And so if you look at a lot of the larger alternative managers, they're working with early stage start ups to address this problem. And a number of those are both gaining traction in the market. But as importantly starting to solve some of those issues. I um I get nervous about the self kind of policing aspect of the industry. And specifically, you know, if you're a, if you're a portfolio manager at a publicly like a public mutual fund, you know, at the end of the day, what the price of your portfolio is and it gets reported out in the NAV and it's, it's not disputed. The problem I have with a lot of alternative assets are the managers are the ones determining the price every quarter and reporting it to their LP S. And there's a robust layer of kind of checks and balances that they will tell you they use to ensure that they're not trying to game the system, but it's, it, it, it can be gained and um I won't mention names but there's definitely managers that have been in the news recently. Yeah, exactly. Um that, that, you know, don't understand why an entire asset class can be down but their fund is up because you know, their own mark, say that no, no, no, our assets are better. And so that needs to be, there needs to be uh a development of the technology there in terms of helping retail investors better understanding a little more transparency into how that is is doing his own thing, her own thing. Potentially, I want to give each of you a chance to give some final thoughts. What do you want the takeaway to be? I'll start with you I mean, from my perspective, it's despite the fact that this is a NASA class in the trillions of dollars, when you think about both the expansion of sub sectors within the space, as well as the sort of results of the capital flowing in and the need for technology. We're still in the relatively early innings, I would say, yeah, I completely agree. Early innings. I think there's a huge opportunity for retail investors to access this market. And as they access this market, the technology around the form factors of how they get into the market, how they get out of the market, the different types of asset classes are all going to evolve and it's going to be really exciting. Excellent. Please join me in. Thanking Andy and trip more to come on this space. Thank you.

Tracy Kerrins, Senior Executive Vice President, Head of Technology, Wells Fargo & Company, KC McClure, Chief Financial Officer, Accenture Moderator: Sheryl Estrada, Senior Writer, CFO Daily, Fortune; Co-chair, Fortune Future of Finance

Future of Finance 2024: How AI is Shaping the World of Finance

Tracy Kerrins, Senior Executive Vice President, Head of Technology, Wells Fargo & Company, KC McClure, Chief Financial Officer, Accenture Moderator: Sheryl Estrada, Senior Writer, CFO Daily, Fortune

Good afternoon everyone. Thank you for joining us. Thank you so much. We have Finance and Technology United on stage, which is awesome. So I'm gonna kick things off with you, Casey. Um you lead accenture's Global Finance organization, which includes strategic planning, financial reporting. A ton of things, right? What are the best use cases that you have for A I in the finance function? That's a great question. And we have a number of different use cases for A I. And I think the key first thing that we do is we look at what is the right technology for the process that we're talking about. So in some cases, you know, I have a predictive uh analytics tool that does revenue forecasting. I've used that for years. We're going to enhance that with gen A I, but we, we use that today and that works. I have A I machine learning again, a good old fashioned A I like not necessarily gen A I that we use for Treasury that helps us with uh we call it the Treasury A I application or, or platform and that has helped us identify $600 million of idle cash so I can put the better, better, you know, better use. And then now we're looking at gen A I for different functions. I have a function where we've looked at this for controllership. Again, we're working with clients um and internal use cases because I want to be our own best credential. So I'm privileged that we offer this work to clients. So we do it for myself. So I have a unique position. And one of the areas we're working on, for example, is controllership. Everybody closes their books every month and every quarter doesn't sound so exciting. But we are able to free up tens of thousands of hours annually based on using jet A I. Now, that's great. And that's amazing. But the key part is that we also have to then to really get the most benefit of that cost savings and efficiency is we're also looking at the processes that we need to change and the organizational structures that we need to change. So, you know, again, it's a I it's technology around the continuum of what you need for each tool. That's how we're evaluating it. And it's not just technology, it's, you know, you have to bring the people along along with the process and potentially organizational changes. Now A I uses large amounts of data. How do you determine, you know, the data process in the finance? Yeah. So I think, you know, the first thing is, you know, all companies really need to be focused on their digital core. And so if I talk about us and then what we're seeing with our clients, right? So the first thing is really, what's your data readiness? Right. What is your data readiness? Um We actually have decent. No one's ever done. That's a continued, that's a continued um movement as we know. Um And then with our clients, they're at different places with their data, right? So some of them have a strong digital core and they're getting ready to move faster. Others now are just really reckoning with the fact that they need to really focus more on their data uh in the, in their readiness. So we work on that in terms of data readiness. Um And then we also look at um you know, what is the capital allocation that we have and where, where do we want to put capital? And I think that's really where we collaborate with our my technology partners, but for our clients and as well as for us, in terms of how it is that we're going to approach um you know, the different use cases that we have now, Tracy in terms of data that's in your wheelhouse. Uh What is the importance of having like the right data structures? I mean, you, you're going to invest in A I technology. But you know, if you have an an ancient, you know, system that is incompatible, how do you manage that within your team. Well, I mean, when we're talking about um artificial intelligence, like whether it's machine learning, kind of more um kind of A I small A I and then you move into gen A I data is the most important thing, but good data in equals good data out, bad data in equals bad data out, I think as you know, so it's really important that you're looking at your data. And so one of the things we've been doing, we've been doing A I for, you know, the last 10 plus years, we're a heavy A I shop generative A I is a newer piece, but we have really robust data and model risk governance. Um And it's taking the time to do all of that analysis upfront, make sure you're complying, you know, to compliance law rule, reg you have ethical, you know, checks um for us, it's like fair lending all of that. Um And making sure that the data, we understand where it's coming from, the lineage of it, the quality and that has to be proven before we'll even approve a use case to be deployed or used in production. And we like to go slow to go fast, right? So we do a lot of piloting, we do a lot of checks. So based on the risk profile of the model that we're using or the use case that we're doing, we have frequent, we go back and we look at the output. Because the other thing you have to be careful on with A I is model, it's drift, right? As you add additional information into the model, are the decisions coming out of that model changing in a way that you don't agree with or that weren't originally approved? And you have to course correct when it comes to generative A I specifically and financial, uh, services. Um, it's a highly regulated, yep field. So, uh are there extra measures that you take in regards to safety of information or is it something that you've already been doing? Well, we, we've layered it on top of what we're already doing with A I but we have set up um a generative A I Council that includes, you know, legal risk compliance. Um myself as the head of tech. Uh we're all in there and we review use cases and we review it for a lot of different ways. Um And because generative A I is still so new and we wanna make sure that we're making the right risk based decisions. Um We do a lot of piloting first. Um And then again, we go and we compare results that we thought we would get to the results that we're seeing. Um And we come back and we look at that a lot. Um So yeah, we have a lot of extra scrutiny that we've put on it. We also evaluate the use cases themselves. So not just the data. But what is the use case? What are you trying to drive? What models are you using? Right. So when you look at generative A I, it's all about data, large language models and then the computing power needed to run the large language models. Your riskier use case scenarios are when you need to start using some of the external large language models that you're not controlling all the data input into it. And so that's a big point of uh discussion and review in that generative A I group that we have that reviews everything. Thank you. Uh Casey in terms of risk, I know uh in the finance function with generative A I, there's been some kind of hesitancy in some, in some cases. So I was wondering, are people still kind of like feeling out their way? Finance leaders in, in, in terms of genitive A I or? Yeah, I think that, you know, that it's, you know, I talked to a lot of CFO S because I've talked to a lot of our client CFO S and it's, there's no question that I, you know, A I gen A I is viewed, you know, as being very transformative, you know, in technology. So I think everyone is embraced that and, you know, as I said earlier, really, then it's figuring where do, how do I get started and where do I go? And with that, you know, we have designed what we call an A I um, Navigator for enterprises. And what does that do? That helps you take a look at your different industries and now we're doing it by function. So like for the finance function, we have a, an A I Navigator. Therefore, the finance function that goes through all the different core processes that every finance organization would do and you customize it a little bit for industry. Right, too. But there's some core things that all CFO S deal with. And we really look at three things like at least to start what's the value case, what then based on that value case, what is the A I architecture? Right? And then what is the A I solution? And then as we were just talking about how things will get more complicated with large language models and having to switch back and go and decide which, which avenue do you take for each of these pilots or points of view, we then have what we call an A I switchboard that helps us determine that how would you switch over and make sure that you use the right solution for the problem that you have. And so I think that is a big part of how we're helping ourselves. I spend a lot of time on that. And um our view is that for me, I'm taking, I would not take risk in terms of how I run accenture, but we want to be the leading, you know, company finance be our own best credentials since we do this uh as a company. So I am pushing kind of boundaries with the teams that deliver the work to the clients to say, let's see what we can do together because we can all, you know, they have access to all of our data and you know, and so it's all we as we as me and uh so that's really very, I feel very privileged to be able to kind of move and go fast on, on gen A I use cases which we have dozens that we're working on right now in the finance function. Are there best practices in kind of measuring the ro I of A I um within? Yeah, I think, and again, I think it does. There are and I think there's, it really depends on the organization. I, I do think that the key thing that we look at is, you know, what is the no regrets move, right? What am I looking at right now? What are the things that we should do? Right. What are the things that we should do that will pay for themselves very quickly? But then I call it the second box that we look at, which is what are the more transformative things at scale, right? So they may not be identified right now as a quick win. But really what I'm looking for is at scale efficiencies, risk mitigation, right? Cost savings. And I think that's really where it becomes even more um interesting as we're all working through our different use cases. Thank you, Casey. Um In regard to strategy, it can I quickly it can change. Um So that means maybe data structures need to change. How do you scale for growth? Tracy um in this type of environment. Yeah, I I would say it's not, it can change, it will change, it changes almost weekly. I mean, we're seeing um it's just an ever evolving industry. So from a data perspective, what we're doing is we want to design everything fit for purpose, right? And that's based off the use cases that Casey and I have both, both talked about. So when you come a use case comes in, you evaluate it and you say here's what we think the need is and that could be uh the large language model that you're using. Does it require a human in the loop kind of review? Do we want to run processes in parallel before we go and deploy things? You know, we're making the right, the right risk based decision. Um We're also making the right cost based decision. So one of the things I mentioned before was compute. So when you talk about these large language models, we have to make a decision do is that something we wanna run internally or is that something that we wanna run on, you know, a public cloud leveraging one of our partners in our case. Um So that's really what we're watching every time you move data right to one of these models. And if you're doing it not in house and you're moving it to, you know, a public cloud provider, there is a cost associated with that. Um Sometimes that's needed. Uh But it definitely always has to be a point of consideration is how I would look at it. Yeah, and, and maybe add on one other thing I think if we talk about value is, you know, you really need to look at responsible and ethical A I because that really is a value element too of it. And so as everyone is embracing A I, what they're also realizing is the additional responsibility that comes from the potential ethical implications of the, the way they choose to do their A I and really to unleash your value in A I, you really need in, in full innovation, you have to have guard rails around that, right? That also, you know, that, that serve to make sure that you have the trust of your consumers, your employees and your other stakeholders, right? And so it, you know, at accenture, we really start with responsible and ethical A I, we just named a chief um responsible A I Officer this week, this position and we, we are able to help clients because we've done it to ourselves. We're global, we have 740,000 plus people and it is an immense ongoing effort and task to stay along with that. And so, you know, we anchor to our accenture core values and our code of business ethics, right? And then have a compliance framework and it's, you know, and and also training that goes along with that. So each company has to do that though themselves to define what are, what is their ethical framework, what are their core values? Right? Because it could vary by industry, it's, you know, different by company. And they, I think everyone to really unlock the value and the innovation and to do it in a way that is taking care of, of people as well. You need to make sure that that's really at the heart of everything that you do. We talked, I, I just wanna, I wanna mention um because we've talked about a lot of use cases and you were talking about use cases even for finance, but I would be remiss if we didn't talk about A I and even generative A I and how it's transforming the technology industry itself and the technologists that develop the solutions, which is a big part of that. That's something I worry about and focus on every day. There's a lot of tools out there that help developers generate code better faster. Hopefully it reduces risk by proving the quality of the code. Uh making sure there's no gaps in, you know, uh test scripts, test cases, et cetera. Um we're also seeing, you know, the potential for value when you're developing um user stories or business requirements and the quality of those and how we can help improve the quality of those that we get from business partners. Um So there's, for me, it's an imperative is how I talk about it with the team. I say the best engineers in the world won't want to work here if we don't give them these tools because they're available in the industry and it makes them better and it allows them to do what they like to do well, which is develop high quality code and solutions. So we have to give them those solutions. So it's not just about technology delivering solutions for our customers and clients, which is of course, top of mind, but the way we do that better is looking at ourselves as a technology organization and how we use A I and gen A I to transform the way we do our own work. Speaking, that kind of leads to talent in my mind. Uh So what type of talent are you looking for your organization now that we have all of these advancements uh to keep up? Yeah. Well, we hire a lot of quants on the model side. Of course, uh that's not as new but I mean A I and gen A I, technology hasn't been out there that long. So you can go and hire, you know, talent, but they, what they have is expertise maybe in a certain technology or a tool which is great. But then when we put them into our environment, they still need to understand and how to, you know, deploy a solution or you know, deploy a solution for a use case in our environment that's aligned to the business and honestly at the scale and complexity that we operate in. So we found a lot of success just hiring great technology talent. We of course have a robust training program and we're bringing up our own talent, people who are interested in it, just good technologists, it doesn't matter what, you know, technology, you know, we can train you on this and you're kind of learning with us, right? And that's part of fun. It's actually it's a pretty big, we're a pretty big. I like to think we're a pretty big talent draw because we have so many different opportunities. We use a lot of different technology in the space and our scale and complexity is sexy to kind of top talent who like working in A I and gen A I and I think on the talent, if you look at just the finance function itself, we did a survey that said over 70% of CFOS who've worked on transformational efforts of which all of what we're talking about is clearly transformation. They have to collaborate across, you know, three plus parts of their business, right? So obviously, with technology is is obviously a no brainer. That's one of them. So you really need collaborative skills in finance and people who like to collaborate. And we've also shown that the CFO S and those and their entities who are able to collaborate actually perform, you know, I'll perform their peers in their industry. So like the way that, you know, I organize our team and I talk a lot about my CFO peers is I have a strategy and enablement function, which means I have a group of people who wake up every day and think about what we're talking about. And the lead of that has I call it a foot in finance and a foot in technology, right? And really just bridges that there's not a divide because maybe that was a divide a decade ago, but just is part of both worlds because this is so big that, you know, I you need someone who does wake up, you need people who in strong leadership with the ability to make decisions, collaborating across your enterprise to really drive this change. Because the pace of change as we say will never be as slow as it is today, right? Everything is just getting faster. And so to do that, you have to empower a team. And I I find it highly valuable to have a strategy and enablement function within my finance team that serves as key linchpin across the organization collaborating and it helps the team to say No to, you have to focus your efforts. Things are moving so fast and the technology is moving so fast. You can't have kind of that squirrel mentality where everybody runs and tries to work on all the cool things you really need to be focused. Pick what aligns to your strategic priorities and your strategy and do them well or try to. Right. Well, that's a great note to end on pick what aligns to your strategic priorities. Thank you both so much for joining us here today. Thank you. Thanks for having us.

Adrienne A. Harris, Superintendent, New York State Department of Financial Services Moderator: Leo Schwartz, Reporter, Fortune

Future of Finance 2024: A Conversation with NYDFS Superintendent Adrienne Harris

I do love regulation. It's true. Yeah, it's an honor to be joined by you here today. So thank you so much for speaking with us. Um As a reporter covering the crypto industry, your department has taken on almost mythic status for being the sole regulator in the country to actually establish uh a regime for regulating digital assets. But I, I know that your remit extends far beyond crypto to also include little areas like banking and insurance and student loans. Um Before we jump into that though, as a New York regulator, I do wanna ask a very important question and I say this with the caveat of being a Bostonian, which I understand you have ties to as well. Do you think the Knicks are gonna make the finals? We're, we're optimistic about our New York team put it that way. Yeah. Well, none of that's out of the way. I do want to start with crypto because there's a number of key votes happening right now in DC, including one today to overturn key sec guidance. And it's created some strange political alliances where Democrats are now going against the SEC. And I know you've spent some time in DC advocating specifically for a Stablecoin bill. And I want to ask as a state regulator, how you approach your role in DC? Yeah, absolutely. Well, as you know, uh you know, I'm also a member of the so and so I spend a lot of time in DC and the state representative on. So, um but because we are the only prudential regulator in the country, state or federal with virtual asset specific authority, we, we weigh in a lot on these things. First, I will say we are very eager for there to be federal legislation on Cryptocurrency and unstable coins. I think the US really is falling behind and we need uh strong frameworks in place at the national level to make sure we remain competitive and that we protect consumers because these are risky assets. We have been advocating, of course, that any legislation that passes on the federal level maintains a strong role for the states because as you said, we've been at this now for almost a decade. Uh We are the gold standard in crypto regulation around the world. I have foreign regulators come to me and they say we know if a company passes new works standards, it's good for us because we are the only regulator that has licensing supervision, examination and then of course, also enforcement authority and real rules on the books. Uh So hopefully Congress will, will pass uh some good legislation both on crypto and on stable coins. But that'll maintain a rule for the state so that we can continue to lead in this space, be nimble and make sure consumers are protected. Yeah. And I assume not everyone in this audience knows that much about stablecoins, which are a fairly niche but important sector of crypto. And I'm curious from your standpoint, why you think Stablecoin legislation is so necessary and why it is an important sector? Yeah, I think, you know, there's a lot of history in the US if you go back a couple 100 years. So in addition to loving regulation, I like history and especially financial history uh about the tensions between public and private currencies. Uh And so I think it's important as this sector continues to get bigger and bigger, we see more uses, especially in the cross border context in trade finance. Uh as we start to see more tokenized assets that we are keeping pace and have a framework in place for stablecoins and, and Cryptocurrency, obviously, there's monetary policy implication should the space continue to, to grow and, and get much bigger. And so it's really important that there is a federal role here. Um And because again, I think just to be competitive, we see the UAE and France and the UK uh and Singapore really regulating and watching these industries grow in a responsible way and watching these innovations develop in other countries. And we want that here in the us as well. And you touched on this, but one of the central debates around stablecoin legislation is this balance between the role of the federal government and regulators and state regulators and how federal preemption will come in. Why do you think it's important to protect the rights of the states and regulation here? And, and what role do you think states should have? Yeah. Well, we have this in a lot of areas of financial law. I think banking is, is the most well known one where we have a dual regulatory system where both federal regulators and state regulators play a role. And we do that often. What you see is there's a federal floor in terms of compliance requirements and then states are at their leisure to exceed that if they want to have different standards to protect their consumers and protect their markets. I think in this case, it's particularly important because New York has been leading, we know how to do this very, very well. And that's evidenced by the fact that we didn't license FTX, we didn't license Voyage or we didn't license Celsius. We just got over $1 billion back for consumers from Gemini. We brought $100 million enforcement action against Coinbase. We, we're good at this and so to take that all away so that the federal government can then just start from scratch. I think both would lead to real chaos in the industry. Um But also just abandons almost a decade of, of expertise and good work by the DFS. So, from your talks in DC, do you think a deal is nearing? At least in the House for Stable Queen legislation? I'm very optimistic. I think there are deals to be had both in the House and in the Senate majority leader Schumer has been working very hard on the Senate side. So is Senator Gillibrand, Senator Lumus. So I think we will see deals come in the near future and then beyond stablecoins, what are you seeing as the main risks right now in the crypto industry? Obviously, you've had the approval and rise of the Bitcoin ETF S over the past few months. Are there other sectors that you're paying attention to? Absolutely, I think from our experience, the big risk that we see and it probably isn't a surprise to anybody in this audience are the BS A AM L compliance with the anti money laundering and illicit finance issues. This is industry really has a lot of room uh left to grow when it comes to AM L and, and BS A compliance. So that elicit finance those issues really are the big issues we see with our regulated Cryptocurrency, uh companies. The other issues that we see where they really struggle with compliances on cybersecurity. And as you know, DFS really is a leader when it comes to cybersecurity regulation, we published in the nation, cybersecurity regulation for financial services in 2017, we just amended the regulation last year to account for things like ransomware uh to do better tailoring across industries. Uh But crypto really is an area that I think for compliance. Uh The industry still really struggles with, with cybersecurity and making sure their institutions and their platforms are secure. So I know we could talk about crypto all day, but I do want to move on to other sectors and banking, in particular, the DFS took on a national spotlight last March when you took over signature bank. And we're now just over a year removed from that banking crisis. But I know that you've raised concerns recently over the risk exposure to commercial real estate in banks. And I'm curious how you're approaching the banking sector right now and if you do think there is continued risk of further collapses. Yeah. So I think in general, the banking sector is, is very stable. I think the uh the federal regulators did a wonderful job last spring when they invoked the systemic risk exception to, to contain the contagion that we were starting to see um across the banking sector from SVB and then to signature. So I'm grateful for them uh taking that action then, but there are still risks in the sector writ large. And I think a lot of regulators, federal and state are watching commercial real estate very closely. I feel good about our banks here in New York. They're very well diversified. So often when people talk about commercial real estate, there's obviously a lot of attention on office space, especially here in New York and the vacancy rates. Uh but commercial real estate is much more than that. It's affordable housing, it's market rate housing, it's construction loans, it's office, it's hospitality now and our banks are very well diversified. They have very conservative LTV S, they know how to underwrite uh this asset class. So I do think it is a risk for the sector overall, but regulators are doing a lot of work with institutions to make sure we're being mindful of those risks. I also think there's still some liquidity risk and the federal regulators are working uh to publish new rules on liquidity. But of course, what we saw last spring when you see 20% of deposits leave an institution in four hours, we've never seen something like that. And that's in part because the regulations we have around liquidity were written before a time that you could move millions of dollars from a tiny device in your hand while on the subway. And I think it speaks to the importance of having state regulators at the table because we are a little bit more nimble. And you see that with DFS and crypto cyber A I. Uh but it's time for us to update how we think about liquidity and liquidity regulations because the technology has changed since the financial crisis when those regulations were last looked at and how have you updated or, or changed the approach toward bank supervision in the wake of signature. Yeah, we've done really quite a bit of work, some of which was under way before uh signature collapsed. But we wrote a comprehensive report as did other regulators about the collapse of signature and really came out with a number of very practical regulations because in my mind, there's a lot you can do in the black and white of the regs. But so much of this comes down to the, the practice and the execution of the regs on the part of the supervisor. So we've gone back to revisit the training of our examiners and said, how do we make sure our examiners have the skills they need when they need it at certain parts of their career that they have the skills that they need. We went back and we wrote a new escalation policy. So signature, I think is a great of a bank that was getting c grades in liquidity risk management for for many, many years. And indeed liquidity risk management is what ultimately brought down the bank. So we went back and said, let's go look at the grades, the camel ratings that our banks have been getting over the last five years and where we have students that are getting C's in the same subject semester after semester after semester. How do we escalate that to executive leadership? And how do we memorialize that process change? So that those things are coming up to the executive much sooner before those issues, metastasize. And we see another issue like a signature. Uh We've also done operational stress testing with our banks. One of the things that happened with signature is the bank was really unable to give us accurate data in a timely manner and they were changing their estimates on the value of their collateral in particular very quickly. So now we're doing tabletop exercises with our institutions to, to emulate a crisis event like that and make sure that they can produce accurate data to us very quickly so that we don't run into the same sort of issues again. So it wasn't just their crypto exposure. It, it was not, it was not related to crypto exposure. Yeah. Uh you mentioned A I before and I know this is an area that your department has been looking closely at as has the rest of the world. Uh And I believe you've issued guidance recently on the role of discrimination specifically with insurance. So I'm curious how, how you're approaching A I and whether you do have any more guidance on the way. Yeah, absolutely. So we just proposed guidance on insurance pricing and underwriting, so not claims, not customer service and applied pretty standard anti discrimination principles. But I think added a couple more things that are particular to A I. One of those things being we're requiring outcomes testing. So it's not enough to say, oh, we don't think this is discriminatory. You gotta be able to test the algorithm and prove that it's no more discriminatory than insurance discriminates, right? As, as a business model. Um We also said third party vendor management is important here. It's not enough to say, well, we hired a firm, we outsourced, they wrote the algorithm, we don't know what's in it. Therefore, it's not our fault. Third party vendor management is a well known uh risk area for financial services, banking and insurance. And so that, that applies here too. And for this, I really drew on my own experience having started an insure tech company that was based in A I and I remember doing the tour of all 50 states and having to do the geography lesson of like which, which is every state capital. Uh I got some of them wrong to be sure and, but being able to explain to regulators what's in the algorithm, how do we know it's not discriminatory? I've been through that exercise myself. So I know it's possible we got a lot of great comments from, from industry, from academics and other stakeholders on the guidance and we should have it finalized in the next couple of weeks. How do regulators stay ahead of these emergent technologies? Like A I where I know a lot of the action is often retroactive. How are you able to have a foot ahead. Yeah. And it's really just about talent, right. I've, I've long since sort of advocated, I don't think regulators should ever front run innovation. But typically, what we see is that regulators lag so far behind innovation that then they have a tendency to have a knee jerk reaction when harm starts to crop up. So our goal is to shrink that timeline between when innovation is happening and when we can regulate it appropriately so that we can continue to foster responsible innovation. Uh but protect consumers and markets. What we see is when you have those transparent rules on the books, you actually can really have a flourishing marketplace and still protect consumers and markets, but you can't do it without experts. Uh So we, that's why we hired 60 people just in the crypto unit. It's the largest crypto regulatory un anywhere in the world. We have A I and data governance experts on staff. Now we've got uh lots of technology people throughout the department and then we rely on outside experts and stakeholder engagement as well uh very heavily. And I think it's, it's proving to be very beneficial for us. So one more quick question, uh I know you've spent a lot of time in DC, obviously, it's an election year. Do you see any future in national politics? Oh, no. Uh No. Uh I very much like the technocratic. Uh and I love my job now, I mean, as you said, we get to cover insurance, banking, crypto. Um and I really have a tremendous team, so I'm really honored to get to serve with them. Well, we're very happy to have you in New York and thank you so much for joining us here today.

Joshua Easterly, Co-Chief Investment Officer and Co-president, Sixth Street, Carey Lathrop, Partner, Chief Operating Officer, Credit, Apollo Moderator: Shawn Tully, Senior Editor-at-Large, FORTUNE


Future of Finance 2024: Future Areas of Growth in Private Credit

We're going to put up briefly, that should be helpful in understanding the immense scope of private credit. And you see all of these categories. Uh They're endless practically rail car infrastructure, agricultural lending, movie lending, uh inventory financing goes on and on. We don't have to get into all the categories, but just to give you an impression of how big this is. So the question I have for you guys is uh we'll start with, with uh with Josh, how did this enormous, not a pond? It's an ocean, be mistaken for a pond and fly below the radar for so long. Well, first of all, thank you for having me here and uh I can be more excited to have uh sure stage with Apollo. Um look, this was the intended consequence, not the unintended consequence of the regulation that came out of the global financial crisis, which was um policymakers woke up one day and there was a $700 billion put that they wrote for the global financial system or us banks and they wanted to figure out how to diffuse risk away from the taxpayer and away from the FDIC. Um And so you couldn't crush the economy by reducing credit. And so the private credit industry grew. Um the private credit industry actually has a I think a better model, more, more robust model holds more capital uh for the loans that they have on their balance sheet. Um has better funding, match funding. So, so more robust model with less risk without a taxpayer put uh so I think this was the intended consequence. Yeah, and but it's been mistaken for the high yield market, leverage loans. Could we go through that? Uh Sure. And first I wanna thank you. It's been a while since I was referred to me as young. So thank you. But um I think what Josh said was correct. I think there's a supply and a demand element, you know, and you know, we maybe we'll get into the demand for um you know, some of the uh the assets that you had up on the screen. Um But as the screen showed a number of people think about private credit as uh financing, maybe middle market uh loans and that is a, a portion of the market. But as that slide showed, it's a very small portion of the market and in Apollo, a large portion of what we do, which I think surprised a lot of people is actually investment grade risk. So when you looked at a lot of those categories, those assets generate um in investment grade um funding for um uh for us or that we provide to those uh to those originators and very attractive assets for our insurance balance sheet as well as our funds. So I think there's just a misnomer that private credit is a high yield or leverage finance market, which a portion of it is. But the large majority of what you had up on the screen actually is investment grade risk. And a lot of that, as Josh was saying, drives economic growth and prosperity. So we're lending to not just small companies but large companies as well. Yeah, and how did the the problems with the regional banks and the smaller banks that we've seen since the SVP collapse? How has that affected your growth or the the migration of assets to the alternative managers which had, of course, this trend started way before that the great financial crisis was it accelerated with these issues that the banks have had with capital essentially fleeing. Uh My, my view of it is is that it, it really showed the robustness of the business model, which was banks, business models are the lim long and borrow short and what kills financial institutions tend not to be an asset quality issue but tends to be a liability quality issue. And so banks have weak liabilities in the sense that you can go and take out your dollars anytime you want. And so it, it, I think it showed the value of our business model both from a, you know what we do for the economy, but what we do for investors because we don't have that asset liability mismatch. Uh and allows us to be a really good stable counter party for the issuer on the other side, which is we get to keep on supporting that company or supporting that asset class or supporting that originator. Uh uh And uh our capital is more durable. So I I think that was a watershed moment for the value of the asset class, both for the investor and for the, the end user of capital. And the one thing I would add again, think about like the assets that created some of the problems last year. They were, you know, HQ L A, they were treasuries and you know, mortgages, they just had long duration and to Josh's point, you just have this mismatch where you long gated assets or liquid assets with short term liabilities. We don't run a business that way we're much more, much more match funded. But I think the other misnomer about, you know, again, leverage, finance versus investment grade assets is we're not looking to disintermediate the bank. In fact, if anything, it's the opposite, like Mark Rowan will say we don't want the bank's client, we want the asset and I think the the banks or the uh entities that are smart and forward thinking realize our balance sheets are virtual extension of their balance sheet. They can use our balance sheet, which those assets have a more natural home and still kind of do all the other things of cross selling that they wanna do, uh, and own the client, but let us own the asset on our balance sheets. Right. So, are the banks working more? Did you? I think you guys would put it in the, uh, in the moving business, not the storage business. They're getting fees, they're doing originations, but then you're parking the, the assets with you. Is that pretty much what's happening? I, I think that's part of it. I think the banks, the regulatory regime of banks is the regulators want banks to not have the, the risk waiting asset system wants them to be wholesale financing sources for the private credit industry. That is the, that is actually what they want them to do. And so the, you know, the they already have hundreds of billions of dollars out to the private credit industry in wholesale financing. And I think what they really want to do is provide other services to that are capital, light services to the clients. So if it's, you know, liquidity management, checking 401k, all those types of services that we're not in the business of servicing, but they really want the assets to be in a different place. I wanted to go back also because you asked, you know, I think this is still the early innings of this game playing out because again, if you think about it, if you're a bank and you're kind of looking at your asset liability match you probably if you went back five or 10 years, you're like, ok, I have this deposit and it's going to be here for a long time, so I'm comfortable buying this long dated or a liquid asset. I think what we've all realized with just the speed of what happened last year is all of us can literally before this panel is over, withdraw our money from the bank and it just forces the banks to kind of get out of the business of holding either very long dated or illiquid assets because they don't have the liability structure that our firms have. Right? Um It's always amazed me too that you're, you're competing with the uh with the, the bond market too, the publicly traded bonds because the definition of private credit is it not publicly traded even though it's a gigantic asset class. Um But what I've always found amazing is you're able to get higher yields on the same duration. In other words, the length of maturity and the same credit quality for the rating agencies, the same ratings on these bonds as uh the public markets, but you get an extra 100 or 200 basis points in yield. Can you explain how that, how you're able to, to derive those, that those premiums? It, it's, I think it's perceive its value, it's not only perceived value but its value to the issuer which is banks are in the moving business, which when they talk to an issuer, they say, hey, we don't know where your bonds are gonna price. We'll underwrite them. We'll either do it on a best efforts basis or we'll do it with caps. And so your range of outcomes is X plus Y. Uh The private accredited industry basically says we will own that risk at X, That X is going to be wider than the tights, but probably inside the caps. And so that extra economics plus the origination fee gets economically picked up to the to to to the uh investor or the private credit provider. But there's real value of certainty being provided to the issuer. There's also less friction, there's, you know, you know who it's not going to be held in the markets, you know who your lender is, you are dealing with one counter party, you don't have to go through a ratings process. And so it's, it's all about value to the end user. And that value is just not captured in a single number of of spread number. It's captured through the process. It's captured through certainty, it's captured through ease of use. You know, I I think I would just echo the size speed and certainty there like we're not private credit is not going to eliminate like public markets. It's actually a compliment to them. And there are, you know, some assets So uh a triple B or a single A company needs to borrow money. They're just going to go to the investment grade market and blow that, you know, issue through the, you know, through the pipe. There are times that markets, you know, start to seize up a little bit as we saw in 22 and 23. And you may see some activity that maybe in a more benign environment would end up in uh public markets, end up in private markets. But I view it as a compliment to public what public markets. And again, even if you went back in time, like you think about the evolution of the investment grade market, high yield market, the tradable loan market, I think the private credit market is just that next, you know, evolution of assets and activity migrating out of the banking system into the, you know, pub the public if you will hands. Yeah. Also I know that both of you have specialized teams that many of which came out of the banks that specialize in rail car financing, airplane financing, leverage loans, numerous categories. And you got these teams on the ground, finding the best deals and the banks have lost those teams g credit. Many, many other organizations can you go through? Um Josh, the advantage that you have or the edge that you have with these specialized teams that uh uh that, that you have in house. Well, I think the, the the bigger I look for us, our competitive advantages are people and culture. And you know, hopefully we've tried to build a culture and we, we've had the opportunity to build a firm of firms only 15 years old to kind of build it in a new world where collaboration really matters. And so we've been able to, we have that 3.0 version of the alternative asset management firm. But the real issue is not only is capital changing in the regulatory framework for for banks, but that's led to, I think a little bit of a brain drain from DNA from banks. I started my career or middle part of my career was at Goldman Sachs. Before that I was at Wells Fargo Carry was at city for a long time. And there's a flow of talent, not only senior talent but junior talent away from banks and into our system. And that's ultimately what makes a difference that in culture and I would add in addition to people and culture, you know, we think one or two of the things that differentiate us is one, the Athene insurance balance sheet which has structural liquidity. It's raising seven and 10 year liabilities which allows us to take illiquidity or structure risk because we don't need daily liquidity, maybe like a mutual fund does and we capture that incremental 100 or 200 basis points. The other would be our origination platforms that we're actually we can create the alpha ourselves and you know whether it's then you know, those assets end up on the insurance balance sheet in the funds, some of those assets end up in the in the market. But being able to leverage off of the 16 origination platforms we think is, is differentiating alongside having uh a the balance sheet and the structural liquidity that comes with it. Yeah, it seems to me you guys both left major jobs and major banks. How did you see this thing coming so early? Because you immediately went into this business with you. You're coming, going to a policy. I thought of necessity. To be honest. I mean, I like I was sitting inside a business that ultimately survived in Goldman Sachs, but there was a vocal rule and it was, I remember I was sitting with my boss, there's a guy named Harvey Schwartz who now runs Carlisle and he says to me, hey, Josh, do you think the Feds gonna want Goldman in your business in, in 2000? This was in 2009 and I'm like, huh, I think I need to go find another job. So that, that mine was out of, you know, a little bit of a necessity. And I kind of joke around. I said Sixth Street wouldn't have been born if it wasn't for I was 32 years old and too dumb to think it was gonna be hard and the global financial crisis. Um look, I, I like to, we were joking with uh before this, like Josh was the founder, like I jumped on the band with, I'm a slow learner but, you know, I obviously knew Apollo and similar firms because they were, you know, great partners and clients of the firm. But, you know, it was clear how hard it was to get things done that made economic sense in, in the, in the bank environment versus, you know, I think both of our firms are probably more commercial and how we make decisions and how we price risk. Ok, guys. Thank you so much. A great job.

Tomasz Piskorski, Edward S. Gordon Professor of Real Estate, Finance Division, Columbia Business School

Future of Finance 2024: The Future of Banking After Silicon Valley Bank

Uh Welcome everybody. Glad to be here. I'm a professor at Columbia Business School. I do a lot of work on financial intermediation, banking, fintech, and real estate. And recently, along with my colleagues, I've done quite a lot of work on uh financial stability and drawing lessons from the recent bank failures such as the Silicon Valley Bank. I would like to tell you a little bit about. So let me tell you our view. What we think is one of the main sources of risk currently in the US financial system. From our perspective, it's really the fact that banks have very high leverage if you look on AAA typical bank in the United States. And there is really very little variation whether you're a small bank, whether you're a large bank, banks are essentially about 90% debt funded and only 10% of equity. So think about what it means. Consider, for example, a situation when there is a modest decline in the value of bank assets, let's say 10% that already potentially put these institutions at the brink of insolvency because the value of the assets will be less than the face value of the liabilities. And if you look on the banking sector as a whole, you know, this is a $24 trillion of assets on the asset side, banks take a lot of duration risk and credit risk. They give a lot of assets like securities, long term treasuries, long term mortgage backed securities. On the. In addition, they have real estate loans including commercial real estate loans and other, you know, loans like corporate loans with the credit risk and the way they finance it is essentially with short term debt. Most of these debts are deposits about 18 trillion of them and about half are insured by the ac and half are uninsured. These are deposits above $250,000. And in addition to that, the banks have fairly thin equity C So you can see this is a pretty uh fragile system with very little equity financing and a lot of debt financing. And in that sense, the recent monetary tightening illustrates this point. The fed raised interest rates very aggressively and essentially in a matter of a year, they went from 0 to 5% what it means to the value of long duration assets. There has been a very big decline in the value including us treasuries and so on. If you look on long duration assets, long term bonds, they decline by, you know, in the order of 30%. So when you take this decline, the market implied decline in the value of assets and applied to bank balance sheets. What you will find is that in the aggregate, the value of the bank assets right now is about $2 trillion less relative to where it was at the beginning of the fed tightening cycle. And in fact, there's quite a few banks in the US right now and Silicon Valley Bank was one of them, but currently have the value of the assets. The market value being less than the face value of the debt. So in principle, if the depositors would show up, this bank would fail unless of course regulators step in. Now, I'm not trying to say that all these banks will fail. It depends on your funding and in particular, it depends what portion of your funding is unstable, especially uninsured deposits because uninsured depositors can lose money if the banks fail. And you know, in that sense, you know, the Silicon Valley Bank was an outlier that 80% of its assets were financed with uninsured deposit. Essentially Silicon Valley Bank had just uninsured deposit funding. So it is very fragile in that sense. And the question is, you know, and the mechanisms as follows, you know, the interest rates go up, you can add to this credit risk. Bank asset values decline like they did and ensure depositors get spoke, they see the big declines in asset values, they worry about solvency of the bank, they start withdrawing money and then you can end up with a run equilibrium. The key question and I was talking a lot with regulators about that is. How special is the Silicon Valley Bank? Are there other banks like that? And the short answer is yes, there is quite a few banks in the United States right now. They have very similar risk characteristics, not as extreme as Silicon Valley Bank, but you can support a run on them. They are actually at the risk of run and this is just the duration effect if you add to discredit risk. Remember that for a mid size banks, about 25 to 40% of the assets are commercial real estate loans. With that analysis loan by loan, 14% of these loans are underwater, meaning the property value is less worth less currently than the face value of debt. If you look on office loans, it's 44%. So in addition to this duration risk, there is also a credit risk that will enlarge the set of banks that could potentially fail. So the obvious question is, and you know, talking all the time with this with regulators, you know what to do about it. And one natural answer is well, let's raise the bank capital requirements. Maybe not right now. Once the things come down a bit that would make the system more safe. But the obvious question is how much leverage financial institutions really need to provide efficient functions like originating clowns and doing other things. And in fact, we have a window in it. We compare the leverage of banks to non bank lenders. The black curve shows you the non bank lenders. These are the institutions that make loans like banks. This is in the mortgage market, but don't have access to ensure deposit funding and are lightly regulated. And guess what in this private market benchmark without access to insured deposit funding, these institutions have much less leverage and much more equity funding. And the lesson we draw from this, you can be a pretty good lender with much lower leverage. And what's interesting is the biggest discrepancy is actually for smaller and mid size banks. What it means is, let's say the JP Morgan, they leverage is pretty close to what they would have been leverage even if they wouldn't have access to ensure deposit funding. It's precisely the smaller and mid size banks including banks like Silicon Valley Bank that were leverage much more. And because of this implicit and explicit guarantees, you know, Silicon Valley Bank did not have much inured deposit funding, but there was a lot of other banks that do and take advantage of that. One. Of course think is that, you know, if you talk to uh uh bank CEO S, they will tell you, hey, if you raise bank capital requirements, the landing will collapse and we want to have contraction of economic activity. We just really cannot do it. Of course, the answer to this question depends on how important are banks in financing credit to households and firms. And let me just tell you they are not as important as commonly thought in the 19 seventies, bank balance sheets financed 60% of lending to households and films. So in other words, in the 19 seventies, banks were very important. Nowadays, bank finance only about a third of credit to house consent. The the rest is finance with debt, securities, private credit and so on and so forth. So in the aggregate, the banks are much less important than they were a few decades ago. And what it means, it has interesting implications for capital regulation. What would happen? We actually did a simulation if you would raise capital requirements on us banks. Well, the amount of bank balance sheet lending will drop substantially and so is the bank profit. So you know, it's kind of understandable why some bank CEO S might not like it. But the aggregate decline in lending would actually be quite modest. What would simply happen, bank would still make loans, but instead of keeping them on balance sheet, they would sell them and there will be expansion of non bank and private credit. So let me just conclude with some thoughts where I'm thinking it will go going forward first, I think the banks are continue to become increasingly less relevant and especially smaller and mid sized banks. We have ongoing consolidation in the banking industry, I predict in a few years, we'll have much fewer smaller and mid size banks. I also think that we will see a growing rise of debt, securities and private credit, private credit is rapidly increasing right now. And of course, we are going to finance a lot of debt, you know, vehicles like money market, funds, exchange traded funds and so on. On the asset side, the traditional banks already lost a lot of edge think about the mortgage finance, which is a very important debt market. Now, banks account for less than half of the lending there. And the biggest lender is quicken loan, no quicken loans currently called rocket mortgage. You know, they just have, you know, the platform, they don't have deposits. It's a non bank and you know, impact of A I is likely to make things potentially worse for banks. As we just heard a little bit in the recession, I expect this non bank financial institutions to possibly be more able to innovate in this space especially because they are more lightly regulated. And so essentially the main value the banks currently derive is on the liability side is this access to ensure deposit funding allows this cheap debt, they can recycle into loans but also in securities on other vehicles. So in some ways, survival of especially mid size and smaller banks critically depends on continued access to this implicit and explicit subsidies. And if the regulators decide to crack it down, we will see further contraction of smaller and mid-sized banks. Bigger banks of course, will have to innovate harder and harder to stay relevant, but they have a scale. So they probably will be able to uh to continue operating. And the last thing even on the liability side, there are many innovations with threatened bank. Think about central bank, digital currency or alternative payment systems. If this takes the deposit role from the banks, they will be really in a precarious state because you know, on the asset side, it is already very difficult for them to make money. Once they lose the deposit advantages, it will be a difficult position for them. So thank you very much and thanks for your attention.

Robert Goldstein, Senior Managing Director and Chief Operating Officer; Member, Global Executive Committee; Co-chair, Global Operating Committee, BlackRock Moderator: Lee Clifford, Executive Editor, Enterprise, Fortune

Future of Finance 2024: BlackRock and the Future of Finance

Robert Goldstein, Senior Managing Director and Chief Operating Officer; Member, Global Executive Committee; Co-chair, Global Operating Committee, BlackRock Moderator: Lee Clifford, Fortune

Good morning, everyone. All right, Rob, you made it here in the nick of time. Brave some awful traffic. Let's dive right in. A little traffic is good. It shows the city is sort of back. I like it. Absolutely. The city might be too back. Um OK, so you guys founded an A I lab in 2018. You've been at this for a little while. Tell us where is it, what does it do? What have you learned? And I think that when people talk about A I, they forget that the A I lab at MIT was actually founded in the 19 fifties. So a lot of these ideas, these concepts, these methodologies are actually not brand new. What's brand new for the past few years has been this confluence of there's more data than anyone could have imagined even a few years ago. And the amount of compute capacity in the world and how you access. It has just fundamentally changed a couple of years ago, even less when Chachi Pt started what I would call a gen A I revolution, the world changed again. So we have started our A I lab in 2018 we've been using these methodologies really for a couple of decades and what the purpose of the A I lab, which is literally like right on the border of the campus of Stanford. And we have a lot of people who are affiliated with the math department, the electrical engineering department of Stanford, who are effectively running the lab. And the vision at the time was a very simple vision, which was, we have a lot of things we're solving for. We have a group of people who are solving for them using a variety of methods we've been trying for many, many years. And let's get a group of people who are more focused on natural language processing optimization, more focused on the math than the finance. And let's throw the same problems at them and see how they would ultimately solve those problems. And we've had great, great success with that. What changed a couple of years ago? And I think at the most basic level, you could think of it as everything we were doing really was centered on numbers. Now. What's happening with gen A I is that you're able to extend your problems and solutions to be more about words and language. And that unlocks what I believe will be the most significant technology innovation evolution, revolution of my 30 year career because the kinds of things you could do have just expanded greatly. And I'll, I'll give, can I give one quick example? OK. So, so the quick example that I would give is we had a presentation to Blackrocks Board several months ago. It was uh either October or November or last year. And the presentation was on Gen A I. And what our strategy associated with Gen A I is. And as part of that presentation, because we normally would write a memo as part of the board materials, we had the idea of let's actually use chat EPT to write the memo. So we took what our strategy document was and we fed it into chat EPT with a very simple prompt and that prompt was write an executive summary. I think it was 500 words, maybe 1000 words um for the board explaining our strategy, some of the risks and so on. So it gave us a memo and then we gave that memo to a bunch of people internally to read. And what was most amazing to me is and, and we have some tough graders within Blackrock. Let me be very clear as we gave the memo to those tough graders to read. Everyone had comments and the comments were typically things like I hate the tone. The comments were like, I think you're selling yourself short. The comments were like, what about this? No one realized it was actually written by a computer. A couple of people when we told them it was written by a computer, they said, I don't like the computer's tone I'm like, well, you should take that up with the computer. And then what became clear is that even something like the tone, the computer will be able to modify its tone a little nicer to or you feed it 10 other memos with the right tone and you say give me the tone of those memos. So it's just those are the kinds of problems you would have never thought of a computer solving three years ago, writing the memo describing your strategy. So the unlock here is a generational unlock and particularly through the lens of a coo it's a incredible force with regard to how you need to think about operating a company, the talent strategy and just the overall strategy of how you engage with and communicate with clients, how you process information to generate investment ideas. It's a whole new world one. Let's talk about strategy a little bit. One thing I'm hearing from a lot of companies is suddenly you need to re evaluate your strategy every three months, every six months, it's no longer something that you know gets evaluated every couple of years. As what are you finding? Well, I think is a starting point without question, everything is just happening faster. So if you take a step back, I think this is another we would think of technology innovation and consequence, maybe an unintended consequence, but everything is happening faster in this world. And a big part of it is because one of the fundamental ingredients for change is information flow and the information flow is just accelerating, accelerating accelerating. So I think we view strategy as an incredibly fluid assignment. But what's interesting from a black rock lens is that the strategy has been uh largely unchanged because from our perspective, we're really looking at what are the challenges that clients have with their whole portfolio, with the whole investment portfolio. And the core of our strategy is really fulfilling that whole portfolio requirement. And if anything many of the forces that are happening, including the forces that we're describing now are just accelerating the client requirement to work with people who could do more and more things for that whole portfolio. When you look back over your 30 year career at Blackrock, what are some of the things that you think are unique about your company and have made it so successful over the past 30 years? We only have six minutes. II, I think I could talk for a year about my 30 years. But importantly, I think that if you look at the history of Blackrock and if you look at what Blackrock is today and even as we were being introduced, we spoke about Blackrock, we spoke about the Aladdin platform, we spoke about the ETF platform, the is shares platform that we have. And what's interesting is that if you think about the asset management industry, particularly if you go back 30 years ago, 20 years ago, 10 years ago, you could argue even today, it really is organized much more around the service providers, the asset managers. And then there's this expectation that the clients have to put all these service providers together. So even if you look at Black Rock and our size and scale, it still is under 10% of the market, the industry is incredibly bifurcated, which leads to the client having to do a lot of work. And the strategy that we've been employing at the most basic level is that the clients are our compass for where we take the company. So the clients are building these whole portfolios. Those whole portfolios involve taking investment strategies that seek alpha investment strategies that are designed to provide exposures through replicating indices, public markets, private markets across a whole array of things. Then you need to understand the risks in those portfolios. You need to understand asset allocation, you need technology to do the processing. So our strategy has always been how do we be able to solve the client's whole problem or any building block piece or the technology infrastructure? Now, if you look back when we started to provide Aladdin, people said, why would an asset manager provide technology when we bought Barclays global investors? And we as part of that had the ishares leading ETF franchise. People basically said you need to be an active manager or you need to be an index manager, they would call it back then, a passive manager, there could be nothing further from the truth. You can't be both. It was religious. And we just said, why is it religious? If clients are taking all these pieces and putting them together, isn't the industry an industry designed to serve its clients? And I think if you look at the past three decades, the industry is just shifting more and more. And I like to think Blackrock is leading in that shift to how can you really service the whole portfolio and how could you be able to talk to clients where even if they buy one LEGO piece, one building block from you as an individual product, you recognize it's in the context of that whole portfolio and you can talk to them about that LEGO piece in the context of the whole portfolio. OK. Well, we're here at the Future of Finance conference. So now it's time for some bold predictions. We're sitting here 10 years from now. What is going to look different about the whole finance industry? I I think that the Black Rock was founded and from the earliest days, there was a thesis that at its core, the asset management industry is an information processing industry. And I think the past three decades have been, if you look at it as a line, it's been going like this towards that vision. I think the line is gonna go like this. I think that the asset management industry and the broad business of investments in aggregate is gonna just increasingly become an information processing and technology business. There's gonna be mass personalization that clients are gonna be able to experience. There's gonna be a mass ability to look at all the data that's being created. And, and, and remember if you look forward as a prediction, I'm not smart enough to know if it's five X 10 X 100 x 500 X. I just know it's lots of x more data in the world that asset managers will need to understand and process and these businesses are just gonna increasingly become technology businesses in every way possible. I think it's also quite clear that the lines between the public markets and the private markets, the lines between where you are within a, a capital structure and a capital stack, all of these lines are getting more blurry. So the portfolio of the future will clearly have public market exposures and private market exposures. It will clearly have fixed income and equity, but it will clearly be thought of more as a series of exposures than the convenience technology of being able to label things a certain way and assume as a simplifying assumption, assume that that label behaves a given way. Last question, you've said tech a lot I haven't counted but it's many times. Is it changing who you're hiring? What, what type of background are you looking for now? That's a great question. We within blackrock, roughly um a little over a quarter of the company would be people who are technologists. That is something that we've been doing for for quite some time. But it's interesting because I feel like is we have more and more conviction that we need more technologists. We also have more and more conviction. We're, we're, we're a firm that has a very large analyst class every year that we hire out of university. We also have more and more conviction that we need people who majored in history in England in things that have nothing to do with finance or technology. And it's that diversity of thinking and diversity of people and diversity of looking at different ways to solve problems that really fuels innovation. As a history major, we have to stop there. But as a history major, I'd love to hear that. Thank you so much for joining us.

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