Rowan argues institutions should get paid for liquidity risk rather than equity or credit risk.
“I often say you can take equity risk. You can take credit risk. The risk these institutions should always get paid for is liquidity risk.”
“2022 was a good opportunity for us to realize that public can be both safe and risky, and private can be both safe and risky. The only difference is a degree of liquidity.”
Rowan says he wouldn't have taken Trump's tariff gamble and cites short-term uncertainty and longer-term brand as risks.
“That's not a gamble I would have taken from the position we had. Having said that, short term uncertainty, that's the risk. Longer term brand, that's the risk,”
Rowan states he would not have employed this riskier tariff strategy, citing short-term uncertainty and long-term brand risks.
“It's not the strategy I would have employed. It's a riskier strategy than I personally would have employed. I think it has risks short term, uncertainty, longer term brand,”
Rowan warns tariff strategy increases risk of financial accident and damages long-term US brand.
“Longer term brand, that's the risk, and the propensity for a financial accident has definitely gone up, but we just don't know yet.”
Rowan challenges the perception that public markets are safe and private markets are risky.
“We have a perception that what's public is safe and what's private is risky. But what if we're wrong? What if public is safe and risky and private is safe and risky?”
Rowan identifies the expectation of daily liquidity in everything as the biggest risk buildup in the world.
“What I worry about and the biggest buildup of risk I see in the world is we are brought up with an expectation of being able to trade everything every day. Everything is daily liquid.”
Rowan cautions that owning data center equity does not guarantee profits despite valuable data.
“But I don't think it is a foregone conclusion that because you own a data center and you own equity in it and data is valuable that you will make money in data center equity.”
Rowan warns owning data center equity is not guaranteed to be profitable despite valuable data and strong current demand.
“I don't think it is a foregone conclusion that because you own a data center and you own equity in it and data is valuable that you will make money in data center equity.”
Rowan contrasts tolerance for equity volatility with outsized reaction to single private credit defaults.
“We don't think anything of Nvidia or the S and P going up or down 10 or 15%, and yet one private credit loan or one broadly syndicated loan defaults and people lose their mind.”
Rowan says investors use levered lending to reduce risk compared to equities and high yield bonds.
“We don't think anything of Nvidia or the S and P going up or down 10 or 15%, and yet one private credit loan or one broadly syndicated loan defaults and people lose their mind.”
Rowan argues public and private markets both contain risk; the key difference is liquidity, not safety.
“What if private is safe and risky, and public is safe and risky, and we're talking about differing degrees of liquidity in different markets? I think that's what we're seeing.”
Rowan challenges the forty-year assumption that private markets are inherently riskier than public markets.
“The disconnect in people's minds of private and investment grade is actually funny to watch sometimes, because we've grown up with forty years of thinking that private is risky and public is safe.”
Rowan says investors fund BDC investments by selling equities, making safer first-lien choice.
“people are not funding their investments in these BDCs with their treasury portfolio. They're selling their equities. Last I looked, first lien debt is senior to equity.”
Rowan says investors de-risked by selling equities for private credit, not by selling safe bonds.
“no one sold their treasuries or their investment grade bonds to buy private credit. Investors sold their equities. Investors made a logical decision to get equity like returns by owning first lien debt,”
Rowan argues risky lending belongs in investment markets, not government-backed banking systems.
“I always ask the provocative question, if what the activity is risky, do we want it in the government backed, government guaranteed banking system, or do we want it in the investment marketplace?”