Chapter 1: What is the main topic discussed in this episode?
Hello, I'm Joel Weber. And I'm Eric Balchunas. We're the hosts of the Trillions podcast from Bloomberg, a deep dive into all things ETFs and investing. Eric, what's so amazing about ETFs? It's never a dull moment.
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To get us started, we have here on set exclusively with us, David Solomon, chairman and CEO of Goldman Sachs. Good morning. Very nice to see you.
Good morning. Good to see you. I'm glad to be here. It's good to be back in Hong Kong.
Very good conditions. We're in an equity bull market, MAG7 and everything else. We've had this historic meeting last week between the two presidents, US and China. What do you make of the state of play right now? Are we in a much better position than we were at the start of the year?
Well, it seems like the meeting was constructive. I'm watching the news the same way you're all watching the news. I think at the moment, you know, a de-escalation is a good thing. But there's obviously a lot of work to do to really arrive at a... real stable deal that can endure over a period of time. I'm encouraged by the prospect of a potential visit from the U.S.
president that was telegraphed in the fall. But for the moment, I did not think the escalation on either side was constructive. And so I much prefer a de-escalation. I think both sides really had a purpose in that meeting to talk constructively, to have a more de-escalated environment. And that allows now for constructive conversations as they move forward. One-year truce, though.
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Chapter 2: What insights does David Solomon share about the US-China trade relations?
And look, these are the two most important economies in the world. I think it's very important that we arrive at a better place where we can both participate constructively with each other in the global growth of the world.
I mean, speaking of, let me borrow your phrase, participate, there's been a resurgence in equity capital market raising here in Hong Kong. A lot of the Chinese companies, tech or otherwise, are raising capital for the future. I want to get your sense, as someone who sits in New York, you travel, of course, all around the world.
Is there a lot of appetite now from U.S.-based investors to participate by giving that capital to Chinese companies right now in order to do... You know, realize their ambition.
Sure, there's more appetite for it than there was 12 months ago. I remember actually last November sitting in a dinner in the United States with a group of U.S. investors, and this topic came up, and there were a couple of investors that basically said, we all should be looking to China. And the reason that had evolved that way is if you look last fall, the prices had gotten so cheap
The capital flows have moved so in the other direction that you just knew that things would come more into balance and there'd be a recycling. And we've seen that recycling. You've seen a big move in prices year over year.
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Chapter 3: How does the recent US-China meeting affect trade dynamics?
You've seen more foreign capital come in and start to participate. That's a fundamentally different question about the big capital allocators really fundamentally shifting their allocations up to be higher again. So foreign direct investment in China has come down.
And I think one of the big questions is until we understand kind of the trade and the geopolitical landscape, it's harder to see significant shifts back to higher levels of foreign direct investment and more capital allocation. But for the moment, those flows are making for a better IPO market here and more opportunities here. How do you look at that?
The whole competition has kind of changed into the dynamics, right? You have so many of these Chinese banks now that are doing some of these deals with Chinese companies when it comes to going public. How does Goldman Sachs compete? Well, Goldman Sachs competes just fine, thank you very much. When it comes to taking companies public on a global stage, Goldman Sachs is a leading position.
We've had a leading position for 50 years. And there's always competition in the business. And we'll continue to compete. So we welcome competition. But we have a pretty active footprint out here, as you well know. We have a pretty active footprint around the world. Look, one of the big advantages, I just had breakfast this morning with a company here.
It's actually a Chinese company, but the CEO, the founder was here. And why does he value Goldman Sachs? He values Goldman Sachs because we have access to people, information, capital markets all over the world, not just in a narrow portion of the world. And so it's a competitive business. It always will be. But I'm comfortable that we have the resources and the position to compete effectively.
Right. You know, I've been reading up, of course, and I understand your history. You guys have been doing business in China a very long time. You guys took the big banks public back 20 plus years ago. So, I mean, you're headed there, my understanding, after here. You're going to China, of course, to speak with... regulators, what have you.
What's your long-term vision for the franchise in greater China? What do you want your franchise to become longer?
I think you have to look at Goldman Sachs and just think strategically that as a global firm, that when you think about our businesses, what are our two big businesses? Global banking and markets, the investment banking and trading business, and asset and wealth management. And so if you think about how we think strategically about the firm, what advantages does the firm have?
Besides the fact that we have at-scale businesses, we're very good at those activities, we're leaders in those activities, and we have a right to compete and win in those activities. Another big advantage for the firm is we're truly global. And in fact, we're more global and have a capacity to communicate and interact globally for our clients in a way that not many firms can.
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Chapter 4: What are the implications of a one-year trade truce between the US and China?
What's the advice now to clients now in terms of that intervention risk? Well, you just mentioned three different deals and they're completely different. Right. I mean, they're completely different. Governments are always going to opine and weigh in on different transactions. There are regulatory approvals in the United States of CFIUS.
I mean, there are all sorts of issues where governments weigh in. That is a very different thing, very different thing than a government taking an investment in a specific company. Wouldn't surprise you. I'm not a big fan of that as a general practice. That doesn't mean there aren't exceptions. Because I believe that the markets should allow capital formation and competition around companies.
And this administration is in one or two situations. They're taking actions like that. As I said, I'm not black and white and dogmatic. There can be exceptional circumstances. But I don't think, as a general practice, having governments take stakes in companies is the direction of travel we want our free market system to go. Right.
You mentioned... How would you describe the current environment for deals going into next year? Because I remember just sitting here this time last year, and we were going into 2025. There was a U.S. election. We weren't sure where the guardrails were going to be. Looking at next year, I was just speaking with Yvonne.
I can't seem to think about... Think of a major risk, apart from, I guess, fraud evaluation. We can talk about that later. But what's your sense of the environment right now and what risks we have to consider? What's not obvious?
Well, in the... In the U.S., and the U.S. is a huge part of the global M&A market, either for target or acquire, I would say it's extremely constructive. And we see it in our advisory business. You can take a look at our M&A revenues last quarter, which are a reflection of deals closing.
But if you also go through our earnings call, we made a comment about the level of our M&A backlog, a very high level of our M&A backlog. And that's just an indication of the fact that there's a lot of activity inside the firm.
I say this is really rooted from the fact that we went through a period for four years during the Biden administration where if you wanted to do something strategically, if you wanted to do something significant from an M&A perspective, whatever the question was, the answer was no. We're now in an environment where whatever the question is, the answer is maybe. And I think CEOs are unleashed
in believing that they have a chance of doing strategic things to advance their position, to advance their scale, to advance how they sit competitively. And so we see a tremendous backlog of significant consolidating situations, what I'll call large cap M&A. Large cap M&A in the United States is up very, very meaningfully, deals over $10 billion, very, very meaningfully year over year.
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Chapter 5: Is there growing appetite among US investors for Chinese companies?
By using AI technology to reimagine processes, we can create operating efficiencies and it gives us more of a scaled opportunity to reinvest in growth in the business. And look, of course, over the way, there are going to be shifts in jobs and job functions. as there always have been. I think one of the things you've got to wrestle with today is the pace of this is quicker.
And so since the pace is quicker, there's a chance that it might be a little bit more disruptive, you know, in the short term. But at the end of the day, technology changes jobs. It changes the way people work. This has been going on for a long, long time. It is continuing. I don't think it's different this time.
David, thank you so much for the time. I know you have to go and enjoy the conference. We'll see you again next time you're in town.
I appreciate it. Thank you very much for having me.
I appreciate this. David Solomon there, guys. Chairman and CEO of Goldman Sachs.
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