The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jonathan Guilford

LOS ANGELES, May 5 (Reuters Breakingviews) - The sun always shines in Michael Milken’s Beverly Hills. The former junk-bond king’s yearly financial Coachella kicked off as a conflict-induced energy crisis spooks consumers increasingly nervous about how they’ll make ends meet. With the big money managers in attendance aggressively targeting these same unsettled savers, the inequality gap feels especially surreal.

It's easy to stay upbeat when the approach has worked for so long. Blackstone’s BX.N Jon Gray noted during one panel discussion that after each period of tumult, the U.S. economy has simply "powered through." He predicted the cycle would repeat itself despite the bombs dropping in Ukraine and Iran that have choked off oil and gas supplies.

Even Waleed Al Mokarrab Al Muhairi, the deputy CEO of Abu Dhabi wealth fund Mubadala, put on a brave face. Seated beside Gray, he opened his remarks by praising his emirate’s military defenses.

The bloody reality does indeed seem far removed from the Beverly Hilton and Waldorf Astoria, between which well-heeled Milken Institute Global Conference revelers scurry through a basement tunnel flanked by security phalanxes more suited to Tehran or Kyiv. After all, there are artificial intelligence systems to fund. Jim Zelter, from buyout shop Apollo Global Management APO.N, cited the likelihood that more than $1 trillion of net investment-grade debt would exceed the amount of U.S. Treasury issuance this year.

The technical marvels in development at OpenAI, Alphabet, Anthropic or Meta Platforms are powering are a fresh push for private credit. Without these surging pools of capital, the historic rush to build data centers and attendant paraphernalia would be much harder to finance. It's a notion that jars with the attempted exodus by retail masses who were persuaded to back non-bank lenders. They asked for nearly $14 billion of their money back from business development companies, or BDCs, in the first quarter, according to investment bank RA Stanger.

Zelter dismissed the significance: Apollo estimates the market opportunity is closer to $40 trillion. Dark software clouds also have silver linings. The private markets are so bright, sunglasses are required. Frederick Pollock, GCM Grosvenor’s chief investment officer, said he would be shocked if retail money does not eventually rival or overtake the rarified world of pension and sovereign funds.

The forecast on how AI will affect everyone is hazier. Amid other panelists allowing for uncertainty about the future of white-collar work, Blackstone’s president touted a boom in blue-collar construction work, building data centers and the like, in the U.S. heartland. Carlyle CG.O boss Harvey Schwartz, meanwhile, shot down the notion of machines replacing human employees. Others skewed toward the idea of large-language models helping workers, though privately some managers express worries about a graver impact.

There were glimpses of publicly reckoning with recent events. Pete Stavros, KKR’s KKR.N private equity co-head, conceded that the industry as a whole leaned too far into a software-fueled mania in 2021. In the Beverly Hilton's corridors and cafes, ultra-competitive financiers shared similar sentiments. Nearly all of them, however, seem to see their rivals overdoing it and expect to profit from everyone else’s mistakes. Prudence also is paying off, with some private lenders saying that prospective borrowers have sheepishly come back with better deals after finding it hard to find large sums elsewhere. Welcome to Lake Wobegon, where all the investors are shrewd and will outperform.

The self-proclaimed resilience is overdone. Backward-looking data underestimates the Strait of Hormuz fallout. It’s too soon to dismiss the possibility of significant AI-related job losses. The threat of inflation lingers over shoppers and businesses alike. In Milken-land, however, the biggest and best firms can weather any storm.

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CONTEXT NEWS

The Milken Institute Global Conference is taking place May 3-6 in Los Angeles.