Markets Re wired

Thank you. Thank you. So, I'm really excited to be a part of this panel because here we have uh people representing very different parts of the markets. On the one hand, we have somebody who represents traditional banking in Bea. We have someone who represents private credit, Lawrence Golov, and someone who represents quant algorithmic approaches in Eigor.

And so with that in mind and with this diversity, my first question will be sort of the title of this is markets rewired. And when you think about how markets have changed and how they've been rewired, I'd like to get a sense for what that means to you and how that has affected your organization from your time in the market. So I'll start from the outside to in. So Bea please you have the floor.

Thank you very much Rob. So look I mean I think we have seen a very fundamental change in markets over the last uh years really there's been a shift in economic uh beliefs. There's been a shift in of course technological uh development and there's been a very big shift in uh geopolitical you know balances and and so I think as you look at markets today uh what we see is that fundamentally clients are more focused on you know thematic uh views. So whether you know they are supportive of the long-term value creation of certain sectors or themes and how are they looking at that in terms of what are the barriers of entry what is the value of IP for example and whether you know that is going to create not only revenue by the way but actually proper uh PBT as as you go along I think you know particularly when you think about the markets over the last years we've seen a very large you know value creation but when you look deeper into it there's been very few you know kind of uh stocks or positions that that have created that value and as you look forward I think the question is going to be is that sustainable is that a sustainable growth and are we going to be seeing those type of you know the developments over over the next years so that that I think it's it's a real important part for us as a you know as the biggest wealth manager global wealth manager uh in the world really it's important to be very close to clients in this uh really uh uncertain time. Um but I have to say you know we haven't seen big shifts from you know the dollar investments although we've read a lot about that and do you see clients coming out of the dollar you know asset pools I think the dollar is still the deepest uh asset pool and provides the more diversification and the one thing that is not changing is diversification.

So you see clients looking at diversifying their portfolios to make sure that they are resilient.

Thank you Lawrence. Please in in our shoes not just our markets redefined but the word market is redefined. There's been such a move toward private assets or what we're all referring to as private assets. Whether that's private credit, not just private equity, all sorts of different kinds of private investing. And the structures have really proliferated and they've proliferated in a way that is partly good and it's partly a distraction.

In the direct lending field where we are, the most innovative broad product is uh semi-liquid private credit. And the first three words just don't make any sense together. uh semi-liquid. Well, it's either liquid or it's not liquid. And private, if it's liquid, it's not so private.

And we've got secondary funds for credit, secondary funds for private equity. Many of these secondary funds trade publicly. BDC's trade publicly. Some BDCs don't trade publicly. I think that, you know, we are sponsor finance specialists.

We stay, we try to be boring in our results, boring in what we do. I hope I won't be too boring today, but being specialists makes us appreciate some of the benefits of these new structures that blend private and public markets. And it's good for investors to have more choices, but we we work really hard to educate about how the fundamentals are also very important. Things like is it a good loan is more important than the structure through which you own it.

Thank you, Eigor. Please, how have markets been rewired from your perspective?

From my perspective, uh the markets look essentially the same as they have for a long time.

So, uh no major rewiring,

no different approaches to markets, no uh you know, how how how have your how was your approach differed today from maybe some of the folks from the original business? You know, I I remember starting in this business with uh hand signals and writing my trades on pieces of paper. It's come a long way. Yeah.

Yeah. Well, it's the tools are better and uh the speed of uh research and uh all kinds of speed are a little bit faster, but basically everything's still the same.

Great. Thank you, Lawrence. This is for you. And one of the things that I heard today was uh Steve Schwarzman's interview where he said that private credit now has a seat at the table, which I thought was a really interesting statement. And so I I wanted to ask you, what role does private credit play now that it might not have in more traditional markets?

And secondarily, and this is the question, you know, sort of Steve brought this up as well, and this has been a topic of conversation, is this notion of are private credits in a bubble right now? Is private credit in a bubble right now? So, please, yeah, I'd be interested to hear your view.

Well, I'm really happy to hear Steve says we can have a seat at the table because typically when we're lending to a Blackstone buyout, they tell us to get out of the room. They don't even want to let us in. Uh I I I think part of this seat at the table is a matter of scale. Blackstone's a great firm. They have a big credit business.

They have a big private equity business, but their strategy is different than ours. They have a good strategy. Their strategy is to be a multi-asset general partner that raises money when a particular field has appealed to investors. And you know, they do a better job than average, but they're not specialists. They start, you know, all public GPS start their uh quarterly earnings calls with how much they've been growing their revenues.

I I think that this notion of seat at the table is also important the way we approach things, but I mean it a little differently than Steve does. I I think that private credit direct lending is now really important to how successful a private equity firm can be with their returns and with their companies. And if a borrower isn't thinking about who their lender is, not the terms, but who their lender is. If a private equity firm is not thinking about, well, when we hit a good opportunity or a bad opportunity or a problem, you know, do we have a long-term relationship, not that the lender is going to give anything away, but do we have a long-term relationship where nobody's going to take advantage of each other? You know, these are really things that improve the private equity business, improve returns to private equity LPs, improve the risk return to our investors because those relationships and being a credit specialist if we do it right, get us invited to have a seat at the table because the private equity firms want us to be sitting in that chair.

You know, the notion of a bubble, it it it's absolutely not a bubble in direct lending. There's abundant liquidity throughout the world in almost everything. It is more of a borrower's market than a lenders market. Loan spreads are a little below average. Uh leverage levels are a little above average.

I would say the documentation terms that protect lenders and protect collateral are actually a little above average. So that piece of it is lender friendly. I think that the bankruptcies, liquidity management exercises, uh some of these frauds with respect to assetbased loans, you have really helped firm up terms in documentation that protect lenders collateral that protect our rights when things go wrong. So, it's absolutely not a bubble, but it is a little bit more of a borrower's market than a lenders market right now.

Thank you. Um Be turning our attention to you for a second. Um, you spoke a little bit about dollar denominated assets. You talked a little bit about thematic investment. When you think about markets rewired, I I I wonder if you could comment a little bit about the reorientation of markets towards this region and the role that this region plays in this new era, this new structure of markets.

Well, I mean that that has been a very significant shift of course because you know this region so Abu Dhabi in particular, the GCC countries more broadly I think have been places where historically foreign asset gather or asset creators uh came to gather capital. So they used to be you know pools of capital where everybody will come and and seek uh you know investment. uh of course the GCC uh is home to 14 sovereign wealth funds uh and obviously the power of of that pool of capital is enormous. I think that that over time has shifted uh quite substantially. Um we have seen you know um the leadership in Abu Dhabi in particular but again more broadly I think in the region um seeking to decouple uh from the um from the dependency from the oil industry and really being extremely strategic in the way they are thinking about investments um building ecosystems that will create value for the region.

And now what you see is a lot of the foreign investors actually seeking investments in this region. Right? So I think that is a a very important uh shift that will continue in my opinion because we are you know I think investors see the opportunity to do that um you know close to those who know these markets for a long time and there's a lot of opportunities here. If you think about AI for example and you know the amount of land you have available the you know the power of energy of course things like that are are making this region a unique proposition uh for those uh international investors to see investment opportunities that is probably the biggest uh shift that that we see of course from a geopolitical point of view uh the region is playing a really important role as well there's a lot of stability there is a very stable framework a very friendly the um investment and commercial approach. So from that point of view, making it easy for investors to come here, settle down, you know, go go exist with the local um you know, sovereign wealth funds that have a lot of experience.

So that I think is probably the biggest shift that we see here in the region. And so would it be fair then to say that you've seen the traditional flows maybe start to shift a little bit in the sense that money was flowing from here to western markets investing in western markets and now in earnest you're seeing money flow into here in looking for investable opportunities in this region.

Yeah and I think the corridor is not only you know Europe to to the Middle East is actually Asia to the Middle East and it is Latam to the Middle East. So I think regionally there is a lot of uh really interconnectiveness across the different regions.

I I completely agree with what Bea is saying. I mean we're we're not especially active right now today in deploying money in this region but it's part of our plans. It's on our implementation schedule. I hope as early as next year and certainly, you know, five years from now, if you invite me to your panel, we're going to have an awful lot to talk about in terms of uh making loans, helping with acquisition finance, working with banks and partnerships,

not just because the investors want it here, but because it's good opportunity.

Yeah.

And we've seen a number of people moving over here as well. Not only billionaires, of course, but also a lot of professionals like affluent professionals moving here. So you can see a lot of wealth also moving in the region to live here and that's why you know from our point of view we also decided to open our advisory office in Abu Dhabi for example although we are already present in Dha and uh in Riyad in in Dubai I think Abu Dhabi becomes a really important center as well

right thank you and Eigor just to build on that a couple of things first is I want to talk a little bit about sort of the ways in which you use data algorithmic approaches technology in your market and are Are you seeing that in your business there are also opportunities here to make those kinds of investments to leverage those kinds of technologies for those opportunities? So a little bit about that.

So yes and in our business we use lots of data uh it's from data to uh signals to to trades pretty much everywhere. And uh yeah we see some flows uh into a into uh into Asia

I would say in last uh year or two and that depends on uh many things depends on liquidity depends on the amount of data available uh depends on the performance of the markets.

So in your business what do you think is critical? Is it better data having better data relative to the competition? Is it better algorithms having better way to better pricing models than what your competition does? Uh what what do you see as key and critical? What's what do you f and and what's the human part of it?

Do humans still play a role in this trading? Uh well for us as we typically get the same data everybody else gets it's the better algorithms that make the difference. Uh I understand that's pretty much the same way for everyone else. Uh getting secret data is is is not very common and uh I'm not sure how the regulators look at that. And so the role of the humans are they in building those algorithms that can outmath the others or are the humans still involved in pulling the trigger on the trades?

Sorry, can you repeat?

Uh is is it about the humans building better algorithms? So that's the human element to it. Or are the humans still involved in making the trades and actually executing and making the final decision on those trades? No, it's it's about making the algorithms.

About the algorithms.

Yeah.

Yeah.

Um Bea, if I could turn to you for one minute, you talked about sort of this rewiring toward this region and and sort of Lawrence, you kind of alluded to this a little bit in your response. What do you see as UBS's role in these markets rewiring or reorienting from uh you know outward looking toward the west to inward looking toward this region? Well, I think banks are and UBS in particular, I think being, you know, who we are, I think being in this region uh making sure that we are on the ground uh very close to the local specificities of the markets, but being able to connect across the world, the different you know insights, the different uh capital flows, the different information that is that is coming along. I think it's a very important part of what banks do. I also think that you know applying um solutions that you know we we've done in other markets applying them to these markets although historically perhaps if you think about banks for example and you think about the the need of you know freeing up capital that hasn't been the case up until now but I think as the economy grows and you know your your population starts taking mortgages and and and taking more borrowing more money um and you put your balance sheet to work I think the the need for things like securityization for example uh will will come to play and that is where you know we can bring the expertise and help you know uh the counterparties to achieve their goals basically.

Lawrence do you care to add to that? Is there something that you

Yes, I would. I mean from our perspective it's about bringing a uh expertise about flexible lending that is a little more expensive than bank lending but that create business opportunities. You know, one of the areas that we're exploring right now is actually working with some of the banks in region who are very good at originating loans, better than in categories that are better, excuse me, they're better at originating in categories than we are. But from a capital structuring, riskmanagement point of view from a matching investors who have certain desires, uh there are certain skills we can bring to bear. Uh, I do think that eventually there'll be a robust middle market M&A business in the region.

It's still a ways away. I wish that were closer. I wish I could say, you know, we were going to go full steam ahead on that tomorrow, but it will. It is coming.

Great. Thank you. All right, with one minute left, we're going to play lightning round. One-word answers to the questions that I'm about to pose. So, Igor for you, what's the biggest economic risk you're focused on in 2026?

One word.

Geopolitics.

Okay. Lawrence, one essential skill for leaders of financial institutions of tomorrow that they should be honing today.

Reliability. Bea, the most significant industry shift you're preparing for

AI.

Awesome. And with that, thank you very much to all of our panels. [laughter] Thank you to our panelists. This has been great. Thank you so much, everyone.

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