Morgan Stanley CEO Ted Pick Talks Inflation, Private Credit | Bloomberg Talks

We have a team that I'm so proud of. And we've been building our firm for all these years and we had the strategies set now over the last couple years. Raise, manage, and allocate capital for clients. We've got a wealth and investment manager alongside investment bank. And the integrated firm are those divisions working together. So it begins and ends with the team. It's one quarter.

I think you're right about that. The crisis in the Middle East began to bubble up. And folks were thinking going into 2026 this would be a year of investment banking tailwinds, large cap corporate health, momentum, upside trade. And then this exogenous event was creeping up, but it wasn't sort of like a bang COVID that became pretty quickly uninvestable correlation of assets and the only thing you can do is put your pencil down. This is one where folks thought, well, we'll see how the conflict evolves, but I'd like to express a view, perhaps I want to hedge some of my portfolio, perhaps I want to diversify. So you start seeing dispersion activity. And our job at Morgan Stanley is to bring content like you and then to get folks to act. And if they're in a mood to act, we're effectively moving inventory, market making our best ideas, and then there buyers and sellers for hedging, insurance, and the like. And so in that sense, some volatility is a good thing because you can sort of measure. Where it becomes bad is if it's risk off and people say, 'Wow, I can't do anything.' They put their pencils down. So yes, this was a good vol environment because we were close to clients and those clients were listening to our content and evolving and trying to measure through scenarios and that worked both in equities and in fixed income.

An interesting point you're making that typically when you effectively have market making to sort of protect, you're not going to have the risk spirits of the new issue market or the M&A market function at the same time. And I think the M&A market and the new issue market worked in part because there was so much tailwind from the beginning of the year. And in certain sectors, the AI ecosystem, even with geopolitics, they were able to keep going. So the question that hopefully will become a hypothetical would have been if the conflict had gone for a number of quarters and we started to see energy costs get effectively imported from Asia through Europe to the US, what would that do to the calendar? Both the M&A calendar, the IPO calendar. And I hope that question will be for another day or maybe no day. Today's question is if the conflict can be boxed at some level, would we expect the coming to the market of these great companies, but also smaller, very high quality sponsored companies to either come via IPO or to engage in the M&A trade that has been sort of the logjam the last couple years. And I think we're seeing in pipelines that both corporates and sponsors want to come. So I think what you could have is a period now where you'll still have some volatility, maybe not the very high levels of charged activity at the beginning of the year that was generally speaking good for trading desks. Maybe you'll see more of a normalization of those types of activities. Remember now, the volatility measures already elevated. So the price of buying incremental insurance is high. But then importantly, the core corporate finance life cycle that we've been looking at over the last couple years, hopefully can resume against S&P 7,000 and 15% earnings growth and we can keep going. But the only caveat I'd make here, Lisa, is there are going to be some companies that are just not ready. They're locked in sponsor portfolios and they can need even more time. 5 years is not enough, they need 6, 7 years because of the higher rate of interest and that to sort of carry the debt. But there going to be other companies clearly that want to come. And we're beginning to see the lead sponsors and lead companies, not necessarily these mega caps. Those are coming in any case, but the next tier of companies we see in bake-offs, sort of M&A versus IPO type of bake-off. We're seeing those happening and I think that augurs well.

The biggest risk continues to be that inflation gets imported around the world again through the energy complex and then eventually works its way through the food and general living ecosystem and that becomes challenging. That queers the cost of capital and effectively then you start talking about the R word. The good news is we're not talking about the R word. And so that translates into I think continued momentum and high quality companies and the wealth piece of the spectrum is continuing to deploy, continuing to want to engage. So I think if there is some sort of, and again, I don't want to use the phrase, it's a serious and complex issue, but sort of a better understanding, maybe a narrowing of the cone of uncertainty around what is happening in the Middle East. That I think is going to be enough for folks to say, 'Okay, you know what? I can sort of manage through the imputed energy costs in the back end of 2026 and we're going to continue with sort of the game plan.' The game plan is to get bigger, to defease the cost of AI. Remember that the regulatory backdrop very favorable. And then the need to defease the cost of AI real. You put those two together. I'm not saying bigger is better for everyone, but bigger is better might be hip again.

Right. Well, on mergers inside of our space, I'll make, you gave me an opening to make a comment on that. I think one of the interesting phenomena of the last couple years and one of the things I've learned in this job is that the quality of the management teams and the quality of the business models of our closest competitors is very high quality. This is so important for us to have vibrant competitors now in a period when the economy is hopefully going to really have another leg and where we are able to conduct some of the businesses that we've been wishing to conduct and have been curtailed from conducting during this tough regulatory patch that we went through for the better part of 20 years. Now that we're able to compete in our traditional businesses, a lot of these firms have internal growth prospects, different models from each of the firms you know very well where we'll be competing, but we don't actually need to go inorganic. I mean, there may be ways where you want to bolt on, for example, an incremental business, but in our case, we have the wealth and investment manager, we have the investment bank on a global basis, and the organic growth potential for those businesses, the tailwinds are enormous and I think with some of our competitors, not that I want to make the pitch for our competitors, I think they have similar types of dynamics. And the reason that's so important is for investors, they want to know that there's embedded durable growth inside of this group that still trades at a low teens multiple.

Yeah, I think sort of the politics of the moment tend not to get too much into the focus of how you want to express a position because the question becomes sort of the bigger landscape items. Do we have interest rate policy that feels like it's on a path? Well, I think the answer to that question is more so than it was 18 months ago but for the war. So with the resolution of the war, do we feel again like we're on a path where there's sort of a equilibrium between price stability and employment. And if it's friendly enough or predictable enough that the CFO that she can model what the next 5 years look like, well then she's going to be more comfortable taking to her board the idea of buying company XYZ. And likewise, if there's a reasonable view of what the economy looks like because there isn't going to be an inflation shock, the asset manager can then go about investing in a particular sector and trying to generate alpha.

Well, I think when I say adolescence, I mean it's a learning period. You know, it's grown like a weed and that as you know is a function of an asset class that didn't exist 10-15 years ago. Effectively, the street was replaced on that. It's around a trillion seven. High yields at about a trillion seven, levered lending is at about trillion five, trillion seven. So, it's relevant. But the IG stack as you know is the investment grade stack is 10 to 15 trillion. It's all credit. It's all credit. So, all things being equal, if the economy is growing, credit does fine. It does fine. When there's a recession, credit struggles. And then the question is then which of the borrowers were really doing the work around what's in underlying portfolios, how quickly was the capital put to work, and I think what we're going to see is we're going to see dispersion of returns among great asset managers who really stuck to their knitting, thought about it in the sectors diversification, thought about how long it takes to put those investments to work, and managed to do less well. And over time, I think the alts will find their place as a growing asset class for all kinds of institutional investors.