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The US and Iran trading fresh strikes in the Persian Gulf, putting the fragile ceasefire very much in doubt. Let's extend the conversation with John Lieber of Eurasia Group, writing the following. Risk of ceasefire collapsing remains elevated as a deal is unlikely until June. Negotiations appear deadlocked with both sides believing they hold the advantage. John joins us now for more. John, welcome to the program. Just out of interest, why is it unlikely until June? You know, both sides, I think, aren't at their pain threshold yet. Certainly, the U.S. is starting to feel some of the economic pain from this war, but mostly it's being felt abroad. And for the Iranians, they're dug in. They're not willing yet to give the concessions that Donald Trump wants to see on the nuclear program and they think they have the superior leverage in the deal. That's what these attacks over the last 24 hours were about. We're about reasserting Iranian dominance over the strait. So while we think there will be a deal, the deal will probably come sometime in June. It could come in May, but we think it could probably come sometime in June, which means a very delayed reopening of the Strait of Hormuz. But for right now, both sides are kind of still circling around each other. They're having these preliminary talks that aren't really going anywhere. And until they unlock this nuclear issue, I don't think there's space yet for a deal to come together until the pain is higher. John, for anyone watching the events play out yesterday, it was clear violation of the ceasefire. Is this administration prepared to say that? No, because they don't want the ceasefire to end. So structurally, I think we think both sides really don't want to go back to fighting. The U.S. doesn't have the domestic political space to do so, and the Iranians just want to stop being bombed. So I don't think either side wants to see the ceasefire break down. And I think that's what yesterday demonstrated. The Iranians were able to send a message, we still control the strait. United States, you cannot escort ships out of here easily without us retaliating. And the U.S. had the opportunity to declare the ceasefire over and strike back, and they didn't. And I think that really shows kind of the structural incentive set that both sides here have to keep the peace. Clearly, the blockade is hitting the Iranian economy, though. At what point will the pain be enough on this regime, though, to bring them to their table? Or does that point not even exist when you're dealing with a regime like this? Yeah. So you look at the blockade and Iran's now shipping about 30 percent of its pre-war oil out of Iran. But prices are much higher. So the hit to their budget is only about 30 to 40 percent of their pre-war budget. It's not great for them. And they've got a lot of reconstruction to pay for now. But they can keep going. And the regime is solid in that scenario. So, you know, again, they don't want to keep this fighting up. I don't think the economic pain is necessarily the thing that's going to drive them to the negotiating table. But at some point, you know, they're now putting out plans to open the strait with a phased discussion about the nuclear targets. And the U.S. is saying, no, we have to do nuclear first. You can kind of see the contours of a deal. And I don't think the Iranians would be engaging in these talks and putting out these proposals if they didn't want to get there. John, a lot of people thought that the deadline was May 14th when President Trump and Xi Jinping of China were supposedly going to meet. President Trump says that meeting is still on. Do you think that it's feasible that it could take place without some sort of better agreement in place between Iran and the United States? Yeah, absolutely. I don't think the Chinese need to see a deal come together. And they're not really that involved. I mean they might end up being involved in some aspects of how the peace deal comes together But right now they not important interlocutors in this debate and Trump himself is basically domestically resilient to the fight so far You had a clip on him earlier talking about how much worse he thought this was going to be. So I don't think that the Iran conflict is in any way an impediment to what both sides in the US-China relationship want, which is just calm right now. They don't want anything to disrupt their critical mineral supplies in the case of the U.S. and China's access to global markets in the case of China. So I think that that is going to be the overall state of play for U.S. China for the near term, and Iran is not going to disrupt that. Are there any checks then on exactly how long this goes for? Some people used to think that it was oil prices. Oil prices now well above $100 a barrel. When you take a look at Brent in December, we're over $90 a barrel. Some people were saying this meeting with Xi Jinping. That doesn't seem to be an issue. Other people were saying popularity. That doesn't seem to be an issue based on the polls that are currently coming out. So what are the checks on how long this could go on? Yeah, great question. I mean, I think that this has been gone longer than we anticipated for sure. But if you look at this accumulating economic damage, I mean, it's hard to see oil staying contained where it is right now if this conflict does go on another several weeks. You also have the enormous pain that's being felt globally from shortages of helium, from shortages of fertilizer, from shortages of aluminum. And all these disruptive effects across global supply chains are going to start to have an impact on the U.S. economy in particular. And I think that that mounting pressure, I would be very surprised if you don't see oil going up from where it is today. And I think that mounting pressure is ultimately what makes the U.S. say, OK, fine, we'll do a deal here. But we don't expect that for another several weeks, which is a pretty bad economic story. That's not a good one. That's for sure. John, thank you, sir. John Lieber there of Eurasia Group with his own predictions on where this is going. Stay with us. More Bloomberg Surveillance coming up after this. with great liquidity? In the ETF markets, volume and liquidity lessens after 4 p.m. until the next morning. But with futures, you get trading opportunities both day and night. Learn more at cmegroup.com slash equity futures. As markets move and headlines break, what matters most is context. A Bloomberg subscription gives you unmatched reporting, sharp analysis, and powerful tools that help you connect the dots. Visit Bloomberg.com slash podcast offer to learn more. The New York Fed President John Williams staying positive on tech's labour market impact. Torsten Slock of Apollo writing, AI will drive productivity gains and create opportunities that will more than replace jobs lost today. Torsten joins us now for more. Torsten, good morning. Morning, morning. So the headline we got from Coinbase earlier on was job cuts. And job cuts attributed to becoming more of a startup, like culture, AI, all those things. Can we start with call centers in the Philippines and tell everyone why they're wrong about all of this? Well, what's so interesting about this is that running a call center has become cheaper and cheaper and cheaper, and in particular cheaper when you have, of course, voice recognition, when you have AI helping you. So that's why employment in call centers in the Philippines for the last 10 years has actually been going up, telling you that running a call center is cheaper. That means more companies are using call centers and they're expanding because it's becoming cheaper to produce the service of being a call center. Now, is that just call centers, or do you see this applying to a bigger proportion of the labor market? It is exactly something you can apply to the whole economy, because the issue is essentially that inputs are becoming cheaper. And when inputs become cheaper, maybe there's more demand for those inputs. So think of this for radiologists. Radiologists read a scan, and the scan, of course, can be read now by AI. But as that has become cheaper and cheaper, the salary for radiologists at the moment around $500,000 has continued to go up. And employment for radiologists has also continued to go up. And across the board, across industries, inputs of production have basically gone down very similar to what we saw during the China shock when China entered the WTO and goods coming from China became cheaper. The unemployment rate didn't go up. It was the case that cheaper goods from China made it cheaper to produce things in the U.S. And as a result of that, you also saw, therefore, higher economic activity. So broadly speaking, if you take your economic textbook out and you ask the question, what happens when it becomes cheaper to produce something? The answer is there's much more demand for that thing. The answer will be different if you go to the Rust Belt. The answer will be different if you go to centers of production in the United States that experienced complete washouts during the globalization. How do you ensure that the Jevons paradox of AI doesn't leave a lot of people unmoored, without work, and not feeling the benefit of all of these advances? And that is absolutely correct that the China shock or the entering of China into the trading system, it did create some very regional-specific shocks in the manufacturing sectors in the U.S. They certainly could not compete with U.S. and with Chinese production and U.S. production at the same time. So instead, we're now also seeing similarly that those job categories that are most impacted, they may see some negative impact in particular, of course, in programming and some parts of software. But more broadly speaking, this is input to the bigger part of the U.S. business universe. And that means that when that input becomes cheaper, we should, of course, see growth in employment. The best example is look at the weekly data for how many businesses are created in the U.S. It is literally at the highest level in U history We never seen so many businesses created in the U So some of these businesses of course will also result in more employment So in the last few years the very significant inflection point of seeing more business creation is indeed also going to result in more employment and at the same time also more productivity. This is what a lot of people are saying, which is the reason why you have even Kevin Warsh saying you could end up with stronger growth and even a disinflationary force because of all this productivity that's being introduced to the system. The transition period, though, is faster than anything we've ever seen before. This isn't like globalization. This is even a faster transmission. And a lot of people are being rendered, even me in my own home, useless by Claude. So at what point does it become a problem by virtue of its speed and how quickly it's displacing people? And what's really interesting about that, because that connects with the discussion we have today in markets about inflation is going up because of oil prices. Inflation is going up because of tariffs. Inflation is going up because of restrictions on immigration. So, so far, inflation is not being negatively impacted, meaning disinflationary because of AI. So it's that transition period that becomes so important. But even though we all agree that we will get productivity gains and therefore downward pressure on inflation, clearly markets are not looking at it that way. The next expectation is, of course, as we know, that the Fed will be cutting only in December 2027. And there's now a higher probability that they will be hiking in the beginning of next year. So in that sense, yes, that transition is critical. But if this is going to take several years, which it likely will, then we still need to talk about, well, maybe there's a risk that rates will stay higher for longer before we get that inflationary force. issue, Torsten. How much of a sequencing problem is there? Well, there's also an identification problem because maybe the risk is that this is just going to take a lot longer than what people expect at the macro level. It's very clear we're seeing it at the micro level. There's a lot of corporate finance examples of where this is coming very, very quickly. But at the macro level, that's a much, much more slow-moving animal because at the macro level, before we begin to see inflation come down, before we begin to see this have impacts on the broader economy, it can take several years, and it may even take longer than several years, up to five years. And if that's the case, then the Fed will not have the luxury of saying, oh, AI is disinflationary because the Fed instead has to look at inflation that's going up because of the conflict in the middle. This massive capex in certain places driving up prices, too. Part of the problem. This has been a huge issue. So far, capex has been incredibly, incredibly inflationary. At what point does that alone end up leading the Fed to have to hike rates, given the fact that the sequencing is so off? Do you think that we're underpricing that risk? Yes, so that's exactly why the big, big capex we're seeing is inflationary, of course, for semiconductor prices very clearly. It's also very inflationary for wages for those who construct data centers. It's also inflationary, of course, for the price of energy, not only because of the Middle East, because of what's required to build the energy build out. All that combined is exactly saying that the sequence is which you'll be expecting inflation to go up initially as a result of the data center build out. And then once we begin to see the gains and the question is maybe a few years away, we should expect to see inflation begin to come down. And that's particularly challenging for the Fed when we at the same time have energy prices continuously going up at the moment. Torsten Schlark of Apollo, Torsten. Appreciate it. Lots to think about in the labor market right now. Stay with us. More Bloomberg Surveillance coming up after this. let's turn to private credit and private equity kkr reporting first quarter earnings that beat wall street estimates the kkr cfo robert lewin joins us now for more rob welcome to the program i want to start with the stock price and then talk about the underlying business the stock into today down 19 so far this year then i look at the underlying business and it just feels like There's a massive disconnect right now, Rob. What explains it? Well, first, thank you so much for having me on this morning. I really appreciate it. You know, Q1 was a really great quarter for us in a lot of respects. A lot of momentum across our different business lines, geographies. You know, I spent a lot of time here talking about the health of our business. And I tell people that the number one metric to look at is management fees. And our management fees in the quarter were up 30% year on year. That translated to our second highest fee-related earnings quarter in our history. our third largest adjusted net income quarter that the firm has ever had. And so when I take a step back, there's definitely a lot of market noise. We can't control our near-term share price. But what we can do is we can lean into share buybacks, which you saw us do in Q1. You also saw our co-CEOs and several of our directors buy stock personally in the quarter. You know, all we can do here is control how we're performing and operating. And if we do that over a long period of time, we feel really confident that our share price will follow. Rob, how would you describe the macro backdrop underpinning some of the noise, as you call it, or some of the fears, particularly around private credit? We did see negative returns for the first time in a while in that asset class. How do you view things as changing in terms of investor appetite around this area? Yeah, thanks for the question, Lisa. You know, it's interesting. If you look in Q1 of this year, this was one of our best credit fundraising quarters in our history. And a lot of that is because we're in the very earliest of innings of investors allocating more to asset-based finance. And while there's a lot of noise around the direct lending space, which for us is around a $40 billion business today relative to our close to $760 billion of AUM, so about 5% of our business, We have a number of institutional investors calling us up right now wondering, because of the pullback we're seeing across the private wealth space for private credit, for direct lending, is now a good time to be entering as an entry point into direct lending? And we think it is. What you seen is because capital has come out of the direct lending space spreads have gone out a little bit And I think that is positioning some institutional investors for an interesting compelling point to enter And that's in part why you've seen such strong fundraising numbers and credit for KKR this quarter. Do you think that the pain is behind us then? Some of the shakeout tied to software, tied to some of the lending standards that have gotten loosened up? Yeah, no, listen, I think you had a lot of capital come into the private credit space very quickly. You were also through a period of time where the markets were really benign and default rates were really low. So we could see a scenario here as things play out where some of that capital that came in very quickly continues to come out and redemption levels and private wealth around the private credit space remain a little bit elevated. I think that would be our base case. You could definitely see defaults increasing a little bit. You know, we've talked about that often. We were in a period of time that was been unusual the last few years. And so both things we think could be true. At the same time, we still view this as a compelling asset class to deploy capital against. And I think our investors agree. Rob, could you tell us a little bit more about that, the money coming in very quickly? Is that another way of saying we sold to retail too much? And not just you I'm talking about as an industry at wide. Yeah, I think what you saw is for a period of time, the individual investor allocating very quickly to the private credit space. and some of the other asset classes like private equity and infrastructure were more measured in terms of how investors allocated income. That might be why you're seeing a little bit more strength in those asset classes with the individual investor. You take a big step back, you know, we see the individual investor today 1 to 2 percent allocated to alternatives. The most sophisticated institutional investors in the world can have 30 to 50 percent allocated to alternatives. Now, we obviously don't see the individual investor getting to that level, But what we do see is the individual investor over time going to 4% to 5% plus allocated to alternatives really as a means to saving against their retirement. Rob, what do you think the lessons will be with regards to marketing through retail channels? What are the lessons from the last year or so? Yeah, so, well, listen, I could speak for what's happened at KKR on the private wealth side. And if you look at our business in Q1, we have seven scaled products. All seven of them had net inflows in the quarter. We raised roughly $4 billion of capital and we had $250 million of redemption. And so we feel like we're pacing it pretty well. And we're focused on the long term and how we build products and vehicles that can really scale over time. And that we're really proud of the performance that we're delivering to clients. And we're really proud of the experience that they're having in one of our KKR private wealth products. So it's a long term focus. we really aren't focused on the quarter-to-quarter capital raising as much as I think the market is. On a broader level, there's a question about all of the money that's been going into private credit and private asset management just in general that's been going toward financing this push-out for hyperscalers, given the needs to build out data centers and other infrastructure. How do you both participate in an industry that is going through an absolute revolution while not having over-concentration in particular areas? Yeah, it's a really good question, and we spend a lot of time talking about that. Anytime you see a lot of capital going into a space very quickly, we think there's going to be some winners and there's going to be some losers coming out of that. And so as we think about where we've got capabilities inside of KKR, where we've got deep industry expertise, we've got geographic breadth across the firm that can help us, we've got outside capabilities that we're bringing to bear. You take that together with our really industry-leading infrastructure platform that's leading the charge across all things digital infrastructure. And we feel really good that we're going to emerge from this as a winner. Now, you mentioned concentration. It's a huge point. You know, we feel very strongly that as you look at our fund platforms, we need to be linear deploying over a long period of time. So I think that both negates some asset level concentration, but more importantly, you know, that fights against vintage concentration, which is, I think, the number one thing that has driven poor performance. If you look back in history in certain fund complexes, getting too concentrated in any one vintage. You know, if you look at the private equity space, you know, a lot of the underperformance over the last few years, I think, is rooted in some of our industry over deploying in 2021 and early 2022. I'd love to just finish up with the idea that you've had incredible fundraising success in the first quarter. How much do you expect that to be pressured going forward because of Middle East investors that are pulling back as a result of needs at home that they need to deploy cash to? Lisa, we really haven't seen that to date. And so it's been very much business as usual. Middle East investors represent roughly 6% of our limited partners globally. And we continue to do business with them today, like we did at the end of 2025 before the war broke out. Rob, appreciate your time this morning. Thanks for joining the program. Thank you, sir. The KKR CFO, Robert Lewin. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg Terminal and the Bloomberg Business App.
