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Perspectives: Risks and ratings
625 Plays25 days ago
This episode of HSBC's Perspectives series features Rob Fauber, President and CEO, Moody’s, in-conversation with Danielle Johnson, HSBC’s Global Head of Institutional Clients. Rob shares his perspectives on the evolving private credit market and today’s interconnected risk landscape, as well as key moments from his own career journey – including what keeps him up at night.
Watch or listen to find out more.
This episode was recorded on the sidelines of the HSBC Global Investment Summit in Hong Kong on 26 March 2025. Find out more here: grp.hsbc/gis
Disclaimer: Views of external guest speakers do not represent those of HSBC.
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Transcript
Introduction to the Podcast
00:00:05
Speaker
Welcome to Perspectives from HSBC. Thanks for joining us. And now, on to today's show.
Introducing Rob Faber, CEO of Moody's
00:00:13
Speaker
Hello and thank you for joining us at our new series on perspectives. We are thrilled today to have Rob Faber, the CEO and president of
Rob Faber's Relationship with Hong Kong & HSBC
00:00:22
Speaker
Moody's. um I've had the pleasure of knowing you Rob for almost two decades now as a good friend and neighbor and really excited that you were able to join us here in Hong Kong for our big it's not our premier it's the second time we've been doing this conference GIS and it's hopefully you're feeling the buzz. I don't know. Yeah it's great to be here. It's the first time in the conference I lived in Hong Kong a number of years ago, so it's great to be back. But I tell you, coming from the United States, it really showcases what's unique and powerful about the HSBC franchise. So thanks a lot for having me. Absolutely, absolutely.
Career Journey: Wall Street to Moody's
00:00:52
Speaker
Now, there's loads of folks that probably don't know much about Moody's and much about yourself. don't you start with yourself and your journey to Moody's? I started my career on Wall Street at Solomon Brothers, and then became Citi, and I moved over to Moody's back in 2005.
00:01:08
Speaker
And we had just recently become a public company. So we spun out of Dun & Bradstreet a few years earlier. And I went over to Moody's to run their corporate development group.
00:01:20
Speaker
And i remember when I left Citi, somebody said, Why does Moody's have a corporate development group? What M&A is Moody's doing? Were you an M&A banker at Citi? I was, and it was a fair question.
00:01:32
Speaker
But shortly thereafter, a few years later, we set up the analytics business. So we set that up in 2008. And we grew that business but right around when the financial crisis was yeah a tough time to do anything. Actually, yeah, it's a tough time to do anything. But we set that business up in 2008 and then it was a combination of both organic growth and acquisitions. We probably did 40 acquisitions over the years. But data and analytics, you really saw the ball. You just knew that this was the future and you guys needed to set yourself up
Strategic Investments at Moody's
00:02:01
Speaker
for it. We did. um
00:02:03
Speaker
you know Now that business is about half of our revenues. So ratings is about half and our analytics business is about half. And Berkshire Hathaway came into our stock at the spin. Not a bad shareholder. They're our largest shareholder and we're we're really proud to have them as our largest shareholder. Excellent.
00:02:20
Speaker
So as part of running business, being involved with business development your whole career basically. Yeah. And so you've played a crucial role in building this company. Yeah. So it'ss it's the natural path that you would lead this company. When you think back on all the deals you've done in your career, what what deal were you most have you been most proud of?
00:02:36
Speaker
There were a few things. So ah one of the first things I did when I joined Moody's was set up our rating joint venture in China. There you go. a company called CCXI. And that is now the leading rating agency in the domestic debt markets in China. So that that has sustained and and been a great investment for us.
00:02:55
Speaker
i
Data Analytics in Risk Management
00:02:56
Speaker
Can I answer? Can I give two? Please. Is that OK? Yes. All right, two. So back in 2017, believed that
00:03:03
Speaker
ah we believed that data on private companies was going to be very, very important. So we acquired a company called Bureau Van Dyke that had a huge company database. We since invested in that, that is now one of, if not the largest company databases on on companies in the world. It's 550 million companies and counting.
00:03:27
Speaker
And what type of data are we talking about? Yeah, so it's firmographic data, it's financial data, and then it's all sorts of other data about these companies. So um we then acquired a company in 2021 called um RMS, which was is the world's leader in catastrophe and extreme event modeling.
00:03:51
Speaker
So it was funny, Danielle, because I was on our earnings call. Actually, no, I was on our investor presentation the day that we announced the deal. was a $2 billion transaction. And the business grew at 1% and we paid 32 times for it.
00:04:04
Speaker
So not cheap. Not cheap. And loads of scrutiny from your shareholders, sure. Not cheap. and i got on I got on the call and there were some grumpy analysts saying, why did you do this? Why did you pay so much for this business? And you know, a bit like what we did with Bureau van Dyke and the private company data, we had this thesis that we were going to need, our customers were going to need And who are those customers that you're thinking about? we've got we've got 2,500 banks.
00:04:32
Speaker
We now have about 1,000 insurers and brokers. And they probably didn't even know they needed this data. Exactly. So that was really the the thesis was that we needed industrial strength weather and climate modeling capabilities so that we could understand the risk of financial loss from an extreme weather event.
00:04:51
Speaker
And not just to serve the global insurance industry, but to serve banks, right? Who are underwriting loans secured by real estate and want to understand what the risk is.
Understanding 'Exponential Risk'
00:05:01
Speaker
um And so that that investment, you know. Super powerful. Yeah, we went from 1% growth to growing, you know, mid-teens in the last quarter.
00:05:10
Speaker
you think about risk, rest guys help everyone manage risk. We're a bank. you know we're We're in that business. We lean and need and your on your tools, right? And folks like yourselves. Weather, um you know cyclicality and weather and and unanticipated events is is kind of, it's now it's now a natural occurrence to think about fires and storms and flooding. and These are not things that we thought about a decade ago or certainly not to the same degree. you know And in general, you guys have written the loads about exponential risk. Maybe talk to us about what that means and how you think about it. Yeah. So let's let's zoom out for a second and think about back to those customers that we talked about. So our customers are the world's largest banks, insurers, corporations, and asset managers.
00:05:52
Speaker
And ah We all understand that we live in a very interconnected and complex world, yeah right? And that risks are not siloed, but they're they're interconnected and they they interact with each other and they can interact in unexpected ways and have more severe consequences than people had expected. it was interesting when we articulated
Impact of the Pandemic on Risk Assessment
00:06:17
Speaker
this idea of exponential risk, I think we we We articulated a challenge that our customers were dealing with that they didn't know how to verbalize.
00:06:27
Speaker
And so we're now in an environment where our customers want to understand much, much more about who they're doing business with. yeah right and I'll give you an interesting story. I was meeting with the the head of digital transformation at a ah ah big European bank and they said, Rob, at the time that I'm underwriting a loan or starting a relationship, I have to understand three things. i have to understand, can I do business with this entity? ye Do I want to do business with this entity?
00:06:59
Speaker
And are they going to pay me back? And I have to make that decision upfront and then throughout the life of the exposure. And so it's interesting also, if if you think about the pandemic, it was kind of the ultimate expression of exponential risk. Because let's think about what happened, right?
00:07:17
Speaker
Did you get a massive uptick in in demand, in product acceleration, in cross-selling? Like was the pandemic for you this this major inflection for your business? It was, and it started with a much greater demand for our insights.
00:07:33
Speaker
right So you think about our ratings business, we cover 74 trillion of of rated debt and you know in every country, in every sector around
Growth in Private Credit Market
00:07:43
Speaker
the world. And there was tremendous demand to understand how the pandemic was affecting countries yeah and industries and companies and how all of that was then interacting and what the first and second and third derivative impacts were. Do get paid for those insights and expertise and on top of what was already your, you know, whatever subscriptions people are on? Yeah, the the way we end up monetizing that is there's just,
00:08:07
Speaker
much more usage of our products. got More stickiness, more attachment. Stickier and ultimately translates to our ah ability to pass through value-based pricing. 74 trillion of of rated ah credit products. We just came from that credit panel, private credit panel.
00:08:22
Speaker
private credit is largely unrated. You know, it'd be interesting. I'm sure loads of folks who are tuned in I'm curious how you're thinking about that evolution, um because insurance money, which is really powering this private credit boom, really needs a rating. How how do you think that that plays out?
00:08:40
Speaker
So it's interesting, you think about the heritage of our company. For 115 years, we've been providing ratings, mostly to the public debt markets, right?
00:08:51
Speaker
There's a ah kind of a secular debanking trend, which means that assets are moving from bank balance sheets into in investors and capital markets.
00:09:03
Speaker
And the way I think about it is that just like we curated an ecosystem of methodologies and data and scorecards and research and ratings to help investors be able to assess public credit. yeah We're going to do the same for private. Now, the disclosure may be different and who we share things may be different, but for this market to go from
00:09:34
Speaker
call it two trillion today to anywhere from five to $10 trillion dollars over the next, call it 10 to 15 years, it's gonna need the same foundation, right?
Future Growth in Digital Infrastructure and Decarbonization
00:09:43
Speaker
It's going it's going to need data, it's gonna need benchmarks, it's going to need some form of trusted independent credit assessment. So we've got a ah role to play there.
00:09:55
Speaker
And what do you think is what do you think the market is missing in private credit? are they Are you getting lots of calls asking for assistance and in double checking the underwriting standards? Or how is that demand filtering through to the conversations you're Yeah, so imagine you are an LP and you have you've you've invested in a number of private credit funds.
00:10:18
Speaker
And so you're getting the reports from the GPs. And you want to understand you're getting you may be getting an assessment of credit of the credit risk in those funds from the GP, but there's a natural conflict of interest there, right? yeah And so we've heard from a lot of investors who say, hey, look, I want to be able to get an independent third-party view of credit risk.
00:10:44
Speaker
And so you know we have all of the tools and capabilities to do that. Yeah, absolutely. Absolutely. What is the um most, when you you know think about what gets you super excited about the business in the future and the direction? you know it sounds like that climate business has been spot on. It sounds like quite pression in building up a lot of the data analytics capabilities that you've got. Private credit could be a huge boom. What what are what are kind of the vectors out there driving growth for you? When we look across the business and and look at the big drivers of demand for our data, for our analytic tools, our models, our research,
00:11:23
Speaker
you know First of all, is private credit is a huge opportunity. and You see that as a big tailwind for our business. um Second, you've got um just in you've got huge financing needs for years to come. We think about the two and a half trillion that's got to get deployed for funding digital infrastructure over the next, two call it five years. You think about ah companies' investments in transitioning to a lower carbon economy. And while some of the landscape may have changed, the direction of travel is still towards.
00:11:57
Speaker
So ESG is still a driver? I'm not going to call it ESG. I'm going to call it decarbonization business models. I think that's different. And there are trillions of dollars annually that have got to get raised to fund that. Right. So as as you think about fossil fuel companies investing in renewables and all of that. Right.
00:12:15
Speaker
It's amazing here in Hong Kong, just over the border in Shenzhen, EVs everywhere and you don't hear anything, you know, and just the the the pollution is just absent. it's It's wild to think about how quickly we've come to this place.
00:12:30
Speaker
Yeah, it is. And and there's still a lot of investment that's still got to get made. And you also think about as there's a shift in the source of energy, there will have to be investments made in the and transmission and the grids and all of that. And that's going to be, again, going to be measured in trillions of dollars. So yeah a number of drivers of of demand for investment and financing that is great for our business.
AI's Role in Moody's Future
00:12:57
Speaker
and the other thing I would say is that you know, AI is a there's a tremendous unlock for a company like ours. You know, you think about what we've got at Moody's. We have a a massive data estate. We've got 74 trillion in rated debt. We have the world's largest database of companies, 550 million companies. 550 million companies.
00:13:15
Speaker
2 ownership links. It's a lot. We've got 500 million economic time series, 20 million commercial properties. The list goes on and on and on. right So there's a massive data state.
00:13:29
Speaker
Which segments of that have exploded the most? yeah um The private company data is in huge demand. yeah And the fastest growing use case for the private company data is around know your customer and third party risk management. got it right So this again goes to the customer onboarding. You know what's interesting, Danielle? it's It's moved from banks to corporates because when Russia invaded Ukraine and we had sanctions, all of a sudden,
00:13:57
Speaker
You know, you think about every United, every American company had to make sure they were in compliance with sanctions. What keeps you up at night? Like you're in the business of exponential risk. So what keeps you up at night for your business? So it's funny, I
Cybersecurity Concerns in the Age of AI
00:14:09
Speaker
got asked this at a town hall the other day and I said, you know, the obvious answer is to talk about what's going on in the world around us and what does it mean? And, you yes, we're trying to navigate that.
00:14:20
Speaker
um Cyber risk keeps me up. The Wiz acquisition was super interesting. I certainly understand why Google was doing that. And you know with the with the advent of AI, it it just accelerates the ability for criminals to to to be able to ah attack uh companies and and engage in in all sorts of nefarious activity and it's uh it's funny because at the company i said i'm no longer going to use terms like threat actor i'm going to use criminals cyber criminals because if you think about it we have cyber criminals that are attacking your company and and and our company and yeah every other company around the world 24 7. and takes
00:15:08
Speaker
and all it takes is is one and weakly vulnerability. unv vulnerabilit So that that does keep me up at night. Wow, me too. um What else do you want folks who are tuning in to to know about yourself and Moody's?
00:15:21
Speaker
That's a great question. I guess I'd just come back, Danielle, to there's the Moody's that I think a lot of people think, you know, they they they think they know Moody's and that that's the ratings business. As I said, that's half of our business. And the other half is is really leaning into helping our customers, banks, insurers, corporations, and investors to navigate this complicated, interconnected world that we live in.
00:15:49
Speaker
And you know we've been investing heavily to build out ah capabilities the the data, the analytics, and the AI to really, really help our customers not just manage the risk,
00:16:06
Speaker
in in in the world around us, but to really be able to capture the opportunity because they really are two sides of the
Conclusion and Future Collaborations
00:16:12
Speaker
same coin. Totally. We'll play offense and defense at the same time. That's right. I don't know if you've coached Jackson in lacrosse, but you've certainly been a fan for all your kids with their sports, so you know you know it well.
00:16:23
Speaker
It's, ah you know, offense gets all the glory, but defense wins the games, right? That's right. Well, look, we're thrilled that you joined us here today and in Hong Kong for this conference. So thank you. Thank you for your partnership. Thank you for your friendship.
00:16:34
Speaker
And we will hope you'll be back in Hong Kong maybe next year at this event, if not sooner. I would love to. Thank you very much, Danielle. And thank you to HSBC for having me. Great. Thank you. Thank you for joining us for this episode of Perspectives.
00:16:47
Speaker
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