Eric Jacobson: Let me switch gears. You mentioned the crisis a little bit. One of the things that we've seen over many years with Dodd-Frank and all the financial regulation issues, we talk about a lot in fixed income, is the dearth of liquidity or the sapping of liquidity as the banks have stopped supporting trading and so forth.
Big debate among people on how important it is or isn't because of all the holdings on the buy side and so forth. People have referred to the amount of volume as some sort of proof statement that everything is OK. But I've heard other managers express extreme worry about this, saying that there have been a couple of periods, mid-2013, another one mentioned January 2016, where things just stopped in their words. What is your thinking on the entire situation?
Rick Rieder: I think you have to be very careful about liquidity in the system. In our portfolios, we tier all of our instruments as to their liquidity, be thoughtful about--you can't count on the liquidity being there. I think somewhat, too much of the focus has been on the banks' balance sheets being lower. Because of the fact of the matter is, fixed income has grown so fast. It was roughly $20 trillion in size if you go back to 2000. It's about 3.5 to 4 times the size that it was because of the demographics, because of the ... anyway the market is very big. And if you have an event where people don't want to buy a certain asset class, even when the dealers who had a balance sheet, nobody was going to stand there and take it.
You have to be careful about it today. The currency markets have incredible liquidity; the Treasury markets have incredible liquidity. You got to be careful about your transaction costs outside of those markets. So, we tend to move our betas around, our convexity around using a lot of those liquid instruments. But the markets today, the reason why I think nobody is talking about it is markets are good and there's money that's going in the market. So, nobody talks about it. That story will rear its ugly head again when you have, whether it's one of the crises we talked about earlier, markets will close in some areas. I think you got to be really thoughtful about what is your staying power and what is your asset mix relative to that because the issue hasn't gone away.
Jacobson: So, at the time it started happening and in talking about it, one of the things to us that seemed possible was that it might be to the benefit of active managers to have a little bit less liquidity in the system. People don't seem to talk about that as much anymore. I'm just wondering is that something that you have perceived or you've felt is an advantage to you?
Rieder: So, yeah, I mean, particularly today, when the liquid markets are really rich, certainly because rates are distorted by the Fed, the ECB, and the Bank of Japan, that some of the less-efficient markets, definitely the less-liquid markets, are where there is real value.
They required incredible amount of analytics, they required incredible amount of research, understanding the convexity, understanding the documentation, attachment points, etc. So, yeah, we like to look at markets that are less efficient, less liquid, and use our resources, our risk management tools to try and manage them and understand them. We do think in active management--fixed income is different than equities and different than commodities. We've shown over time, there's some asset classes, municipals alone, I think the number is over 1 million different CUSIPs in municipals. Your ability to understand and analyze those--it's very, very different than commodity markets in that there is an extraordinary number of different parts of the capital stack, different regions, different sectors, which we think for active managers--so, I think, personally think active management of fixed income is not a zero-sum game, that you can actually have performance because there are so many different securities and areas to investigate.