Alan Schwartz on AI energy demand, private credit risks, and Fed policy (with Romaine Bostick, Katie Greifeld)

Asks about the capital available for energy infrastructure buildout needed for AI.

Romaine Bostick

Alan Schwartz

The capital is there. Large data center users and hyperscalers can pay the high initial price for electricity, which will allow costs to come down through the learning curve, similar to how government credits worked for wind and solar.

We've had decades of flat electricity demand, now we're electrifying the entire economy plus AI. The demand curve is moving sharply upward.

Asks about regulatory and political risk from NIMBYism against data centers.

Katie Greifeld

Alan Schwartz

The NIMBY concern is backwards. In Georgia, data center power deployment is bringing down costs for the average consumer. The message needs to get out that this is the opposite of what people fear.

The government used to support new tech with credits; now hyperscalers can pay the high price to get it created and bring down the learning curve.

Asks about Larry Fink's idea of a new asset class in compute futures.

Katie Greifeld

Alan Schwartz

Yes, there will be significant opportunity for capital flow into what we need most. The move to a multipolar world requires reshoring and not being dependent on one country, creating investment opportunities.

We've gone through a period of believing we can get whatever we need from wherever is cheapest. That's changing.

Asks why Guggenheim raised a large private credit fund ($8.4B) when others are pulling back.

Romaine Bostick

Alan Schwartz

We didn't raise much private credit in the last 6-8 years because the market was too ebullient. Now is the time to raise capital to take advantage of opportunities if the private credit market cracks. We are concerned it will.

There has been a lot of demand, but that is beginning to fade.

Asks if parallels to the 2008 financial crisis are fair, given Schwartz's experience as the last CEO of Bear Stearns.

Romaine Bostick

Alan Schwartz

It's fair to draw parallels, but I don't think it will be as significant. The rapid growth of private credit is a concern, but the big players are sophisticated. The key difference is that the banking system (the arteries for liquidity) is in good shape now, unlike in 2008.

We're seeing an increase in shadow defaults. The lack of transparency and liquidity in private credit can cause spasms, but it's not systemic because the banks are healthy.

Asks about 'tourists' in private credit and the risk of consolidation.

Katie Greifeld

Alan Schwartz

Yes, tourists are a concern. Even good managers will have some issues. The illiquid and non-transparent nature of the asset class makes it difficult to fix when redemption and margin calls come.

We're seeing an increase in shadow defaults. It's something to keep an eye on.

Asks about Kevin Warsh as the next Fed chair and his ability to manage the committee.

Katie Greifeld

Alan Schwartz

There is no better person for the role. He is very analytical and will use the team to analyze data. He has a vision for the long term, seeing a bigger productivity revolution than most realize, which impacts how markets react to interest rates.

He won't dictate policy; he'll bring the credibility of research to the team.

Asks if markets are prepared for a philosophical change in Fed leadership.

Romaine Bostick

Alan Schwartz

Markets will react differently than models predict. We've seen this with tariffs—corporate profits kept going, inflation didn't take off. You have to rethink the models.

Look at what we've seen so far. The economy has flowed through against all these things we thought would cause problems.

Asks if there is hope for a meaningful rethink of fiscal policy.

Romaine Bostick

Alan Schwartz

It's very important but politically very hard. Post-financial crisis, we had a decline in consumer credit as a % of GDP for the first time, while the government borrowed more. This, combined with interest rate compression, created complacency. Now, with rates higher, pressure from the market could force reconciliation.

Interest expense was flat for 15-16 years while debt doubled or tripled. That complacency is now being tested.

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