Milken Latest: The War in Ukraine Is Seen Continuing For Years

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(Bloomberg) — It’s the first full day of speakers at the Milken Institute Global Conference in Beverly Hills, California, which brings together everyone from dealmakers to celebrities.

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The gathering, in its 26th year, is focusing on the theme of “Advancing a Thriving World,” looking in particular at challenges across public health, business, industry, society, and culture.   

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Speakers scheduled for the conference include Carlyle Group Chief Executive Officer Harvey Schwartz, Citadel Securities CEO Peng Zhao, and Glenn Youngkin, governor of Virginia. 

Former CEO of Ukrainian State Energy Firm Says War to Continue for Years (1:58 p.m. ET)

Ukraine should be prepared for the war with Russia to continue for the next three to five years, Yuriy Vitrenko, former chief executive officer of Ukraine’s state-run energy firm NJSC Naftogaz, said during a panel about the conflict and reconstruction efforts. Vitrenko, who was also previously an acting energy minister, added that Russia is not interested in a ceasefire and that Western nations should continue to support his country in its fight.

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Ukraine, which has been ravaged by war since Moscow’s invasion last year, should be expected to join both the European Union and the NATO coalition sometime in the next five to seven years, Vitrenko said.

Speed of Fed Hikes to Create More Trouble, Bridgewater Co-CIO Says (12:27 p.m. ET)

Credit tightening is still filtering through the economy, and the speed with which the Federal Reserve has boosted interest rates will likely create more trouble, said Karen Karniol-Tambour, co-chief investment officer at Bridgewater Associates. 

“Something is bound to break,” she said. “We don’t know exactly what the next shoes to drop are.” 

Inflation will probably be higher for a longer period of time, representing a paradigm shift after a long period of low inflation, Karniol-Tambour said. As more economies take steps like decarbonizing and making their supply chains more resilient, inflationary pressure will likely remain elevated. It’s taking markets time to catch up to the higher risk premiums that will result, she said. Gold and silver can offer good inflation protection, she said. 

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PGIM’s Hunt Says Markets Are Overly Optimistic (12:31 p.m. ET)

David Hunt, chief executive officer of asset management firm PGIM, said that markets are too optimistic now, given the potential for trouble from situations like the US debt ceiling.      

“What the market does very poorly is to price in very low-tail events, non-rational actions,” Hunt said, speaking on a panel about global capital markets. That includes the war in Ukraine, he added. 

Citigroup CEO Fraser agreed that the debt ceiling situation in particular was worrisome, saying that current negotiations feel different than in the past.

Interest rates will be higher for longer than is currently priced into markets, Hunt said.

Citi’s Fraser Says Return-to-Office Trends Drive Property Fears (12:01 p.m. ET)

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Pockets of commercial real estate, such as the area east of Third Avenue in Manhattan, are likely to come under stress as landlords continue to struggle to refill towers in the aftermath of Covid-19, Citigroup Inc. Chief Executive Officer Jane Fraser said. 

For her part, Fraser said she’s most worried about real estate with debt that’s been packaged into lower-rated commercial mortgage-backed securities.

“It’s the return-to-office phenomenon that’s driving it,” Fraser said Monday during a panel discussion at conference.    

Goldman’s Salisbury Sees Rising Investor Demand for Private Credit (11:52 a.m. ET)

Private credit is still in its early innings as a wider group of investors begins to see opportunity in the asset class, said Julian Salisbury, chief investment officer of Goldman Sachs Asset & Wealth Management. Attractive yields stand to lure pension and endowment funds, as well as retail investors, he said.

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“There’s tremendous interest and demand,” he said in an interview with Bloomberg Television, on the sidelines of the conference. “The nominal rates of return on private credit are getting up to a point where people are increasingly interested in making it part of their strategic asset allocation.”

Private credit is also filling the gaps as banks pare back lending, he said.

Citi’s Fraser Says Banks That Collapsed Were Poorly Managed (11:36 a.m. ET)

Citigroup’s Fraser said that the banks that have collapsed recently weren’t well managed, and that the US banking system is the “envy of the world.” 

With First Republic Bank being seized by the US, and JPMorgan Chase & Co. agreeing on Monday to buy the lender, the last major source of uncertainty in the banking system is gone, she said, speaking on Monday. 

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“No one likes to see a bank fail,” but the banking system is “a very solid structure,” she said. 

IMF Chief Says Rising Rates Exposed Banking Vulnerabilities (11:22 a.m. ET)

The International Monetary Fund’s chief said the rapid acceleration in interest rates “exposed vulnerabilities in the financial sector,” adding that the banking industry needs to be on watch for additional risks.

Industry leaders need to “anticipate shocks and be ready to act when they occur, because they will be coming,” Kristalina Georgieva said in an interview with Stephanie Flanders, the head of economics and government at Bloomberg News, at the Milken Institute Global Conference.

“What we have lived through in the last years has been a series of unthinkable events,” Georgieva said. “The pandemic, the war in Ukraine, the rapid jump of interest rates after many, many years of staying low.”

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Apollo’s Rowan Sees Commercial Real Estate Stress (11 a.m. ET) 

Marc Rowan, the co-founder of Apollo Global Management Inc., says that the next wave of turmoil across the financial sector will likely come from the commercial real estate market.

“It’s a bad day to be an office owner in San Francisco and Chicago,” said Rowan, who is also Apollo’s chief executive officer.

The stresses won’t be systemic, but they’ll be concentrated, according to Rowan. “We are going to see losses,” he said. 

As far as corporate credit goes, Rowan isn’t surprised that investors are rushing to lock in the best yields on debt in over a decade. The average US investment-grade bond yielded 5.1% as of Friday, according to data compiled by Bloomberg.

—With assistance from Eric Martin, Enda Curran, Olivia Raimonde, Sonali Basak, Stephanie Flanders, Sydney Maki, Michael Tobin and Taryana Odayar.