Tradeweb Markets, and on their behalf we have CEO Billy Hult. So Billy, welcome back.
Yeah, thanks very much, Patrick, for having me. Great to see you.
Terrific. So maybe just to kick this off, for people in the room who are a little bit less familiar with Tradeweb, can you just provide some context of what Tradeweb is, what it does, and kind of how you've maybe evolved the business model over the last five years or so?
Yeah, for sure. You know, thanks for having me. I was just, you know, just kind of thinking to myself, it's, you know, as CEO, you kind of get used to doing this. It's never, like, my preferred choice of kind of, like, telling the story of the company, but I really enjoy doing it with you. You know, great investors here, which from my perspective makes this whole thing work, and from our team's perspective makes this whole thing work really well. So thanks very much.
You know, there was a time (I won't say, like, a long time ago, but not quite a long time ago) where, when, when PIMCO wanted to buy $25 million five-year notes, they would pick up the phone and ask Morgan Stanley, Goldman, you know, maybe back in time long enough where I could say, like, "Bear Stearns for a quote," and where they would sell. And that's how business in fixed income kind of got done forever and ever and ever. That's the story of, you know, the fixed income markets. And Tradeweb was first and ultimately the pioneer around electronifying, you know, to start with transactions from, you know, the most important pieces of the buy-side community: asset managers, hedge funds, regional dealers, mortgage originators, etc.
You know, their biggest counterparties, Goldman Sachs, Morgan Stanley, J.P. Morgan, you know, etc., and we started off probably where you'd expect, which is government bonds. It's been a, you know, a story of, you know, expansion, you know, really and truly from the very beginning. You know, TBA mortgages, government bonds in Europe, European government bonds, into derivatives. Then this concept of we're not just gonna be settled in the client-dealer network. We also wanna be in wholesale. We also wanna be in retail. Oh, and by the way, we see, you know, tremendous opportunity, obviously, in credit. So that's become the focus for the company over the last few years. We went, as you know very well, Patrick, we went public, almost five years ago. So in April five years ago, will be our five-year anniversary of going public.
You know, when we went public, we were, like, kind of the, the rates platform, you know, and maybe even sort of worse than that, we were just like, "Oh, that's the government bond kind of guys. These guys are in the global market of government bonds." And I think, you know, over these past, you know, five years, we have really and fully, I would say, maybe not reinvented ourselves. That's probably, like, not the right word. We've differentiated ourselves in terms of our ability, you know, to continue to make massive progress in all of these businesses, specifically credit. We've doubled our revenue in five years with half of that growth coming from non-rates businesses. So it's been a big journey, but ultimately a journey around, you know, changing human behavior.
Which is never easy.
Which is never easy for sure and also comes with some kind of fun stories along the way. Very nice to meet you. Please don't ever do that again. I might consider calling security if I see you back here in a couple weeks or so. There was always this kind of resistance to it, right, because, you know, what does electronification of these markets do? It, you know, the concept is it, you know, collapses bid-ask and makes markets more transparent, which is harder for me, you know, to make money. And so we were always getting pretty used to this concept of, like, not always the most popular. There's always gonna be resistance. But if we stick to our guns and we understand where these markets are headed, we're gonna be able to keep applying technology in a way that works.
Terrific. So kind of with that as the background, what would you say that investors who are newer to the Tradeweb story don't necessarily fully appreciate in the same way that investors who are really familiar with Tradeweb understand?
A little bit maybe to what I was describing before around, like, this concept of resistance. I think it's like there tend to be these sort of questions or this thought process around, like, "Let me understand the environment that all of these businesses that you are in thrive in. What's the good environment? What's the bad environment? What's the neutral environment?" Actually, they can be tough questions to answer because we're in so many, you know, so many different marketplaces. I think the way that there has been a shift in understanding has been around the concept of, you know, in 2024, there is still sort of significant business, significant volumes in all of the marketplaces that Tradeweb is in that still gets done, you know, I joke and say, like, it like it's 1994, you know?
This concept that sort of Tradeweb's biggest competitor is the phone, right? It's the old way of doing business, which still sometimes captures these sort of larger trades, or more complex trades, is now becoming part of the story. I think there has become, you know, a lot of comfort as we sort of, you know, tell the community who we are. I think there's become a growing comfort around our ability to continue to do the right things that move these markets in the direction of electronification and transparency and all these great things.
And then maybe building off of that, how do you think about or, or maybe to phrase it another way, what's impossible for competitors to try to replicate about what Tradeweb has built over the last 20 years?
It's a really good question. You know, the network, I mean, the network, you know, that we have been able to connect with all of these years and then the marketplaces that we have kind of plowed through kind of all of these years, I think that's a, you know, a challenging situation to really compete against. The other thing I would say, and I mean this, like, in the best way, like, we're a technology company. We live and breathe around technology and how technology, you know, is applied to the marketplace. I do think we bring a very healthy kind of, like, financial service angle to really what we do. It's not that these markets are, like, you know, so complex that no one in this room could figure them out. Everyone in this room understands these businesses.
But we definitely have built technology into these markets with the sort of DNA of having lived and breathed and been a part of these, these pretty unique-type marketplaces. That's a big advantage for us. It's, again, like, not impossible to replicate, but I think a big piece of, of who we are. And then so when you combine this, like, big, big network with a company that, you know, I say proudly, I think really understands how these markets work in a kind of first-language way, it's an interesting formula.
As you have this deep understanding of how markets work and this thought of maybe where markets need to go in the future, what's the innovation process like at Tradeweb?
I think it's good. I mean, we try to make it really good, right? We try to sort of, like, you know, really nail this evolution from being a pretty small company once to a much bigger company today, 1,200, 1,300 people in all of these markets. You definitely can't lose sort of that grasp around, you know, idea generation and around innovation. So we definitely at the senior levels of the firm, and Sara, our CFO, a big part of this as well. It's like there is a concept of, like, ideas win. And by the way, like, there are no bad ideas, and we really mean it. And we really wanna give ideas up and down, you know, the company full vetting and really understand them. Then there is, I think, this concept of take advantage of the network.
So ideas shouldn't exist just in the bubble of a conference room. They should be applied and spoken with and collaborated with, like, our biggest clients. We have definitely had some good ideas through the years of this company. You know, I say that humbly. A lot of them weren't mine, but we've had some, some good ideas. The great ideas were always real collaborations with our most important kind of clients. You know, the BlackRocks, the Goldmans, the JP Morgans. We've been we've been fortunate, I think, to be a little bit of that kind of trusted partner, even though we did we did experience some resistance, that trusted partner along the way who you could build markets with. And from that concept, I do think you can be a little bit in the catbird seat around idea generation.
So it's interesting. You talked about collaborating with clients, and I think you termed both the buy side and the sell side as clients of Tradeweb.
Yeah.
How do you balance the needs and preferences of those two parties? And if ultimately, from where I sit, it would seem like, hey, the buy side decides where the flow goes. Therefore, they have a louder voice. Maybe that's not the right answer.
You know, it's a good way to frame it, especially when you're thinking about the concept of what we were talking about, which is, like, idea generation. We're not always perfect at it, but we do understand that this is a balance. Look, we are a global marketplace, and PIMCO's our client and BlackRock's our client and GSAM's our client, but they're also, like, let's be honest, they're also Goldman's client. They're also Citi's client. They're also BAML's client. They're also Raymond James's client. So we don't lose, like, sight of where we are, like, in the totem pole of this whole thing, right?
There are absolute moments in time, and I've had a few of them myself where, you know, you go down the elevators at PIMCO after having spent, you know, an hour with a PM, maybe having waited in the lobby for a while before you get up, but you know, you spend that hour, and they give you a couple of good ideas. "Hey, Billy, like, I like the way you're thinking about this, but actually, like, we'd be super supportive if you did it a little bit more this way." And it's kind of exciting, and it's pretty interesting. And then there's maybe a moment where you're, like, coming down the elevator and getting into the lobby where, like, you think to yourself, "Actually, it is kind of a good idea.
The chances of it working and fitting Goldman's eye, Morgan Stanley's eye, and Citi's eye is actually pretty low. "I gotta vet this thing," right? And so we've always approached this as a bit complex. It's not to say that we're just, like, vanilla, you know, middle-of-the-road, you know, people, but at the end of the day, you know, this is a very, very important marketplace that we are in, and getting the rules of the road correct in terms of, you know, what I describe as, like, the balance of the whole thing is everything. You get the balance off, the marketplace sort of struggles to work the way it should work, and more importantly, you pay the price for getting that balance off on, like, newer opportunities.
So that becomes the real thing that you're trying to sort of make sure you're always getting right. It again, it's, like, not necessarily brain science or brain surgery kind of stuff, but it is a sort of nuanced way of understanding how these markets operate and develop, and that's been a big part of this company's kind of culture for a long time.
Yeah. That makes sense. It's really interesting. So maybe shifting gears a little bit, you know, you talk to a lot of investors at events like this. You obviously have a large shareholder in LSEG.
Yeah.
What do your shareholders and the ones who really understand the business really well, what are they saying, you know, "This is kind of what we hope for from Tradeweb," and what are they saying, "Don't go down this road"?
Quickly, that's a good question. Quickly, there's always the concept of, like, you guys have, you know, grown so much. You've shown the public market that you can do that by also increasing and amplifying your margins. Like, what's the kind of trade-off? How do you guys think about trade-offs, right? And so, you know, Sara gets to answer sort of the harder questions about that, lucky for her, but that becomes then, in some ways, I think, one of the most important questions, which is, like, do you see some very interesting sort of opportunities that are out there for you as a company given all that you've accomplished, and can you keep kind of performing on the margin side in a way that we need? And that becomes, like, this interesting, I think, conversation.
My instinct is, and this is a little bit of a way of answering your question, like, if we became shortsighted and we just, like, ultimately ran and met and managed this company just for the kind of margin side of it, and we just said, "Hey, we have margins of 53%, 52%," and we're like, "Our goal is 60," and, you know, we don't see, you know, opportunity in emerging markets. We don't see opportunity in Japan. We don't see opportunity to build a swaptions market that lives right next to this giant interest-rate swap market that we have. We don't see opportunities to kind of, like, further electronify the credit market. I think people would be pretty disappointed with that vision, you know?
So it really is this kind of, like, this way of continuing to be, I think, opportunistic around, you know, opportunities that exist for us, and also, you know, being mature and grown up around, you know, how we execute on those opportunities, but ultimately, that's what we're here for, right? Complicated trades and larger trades, whether or not you're talking about the most simplified aspect of the government bond market or you're talking about the high-yield credit market, those kinds of trades still get done on the phone. And so when I say that and as we think about that as a company, like, to us, that's opportunity, right? So what we're doing a lot of and you know this really well, Patrick, is, like, you know, applying sort of algorithmic technology.
We call it AiEX trading, the ability for data to get integrated into trade selection in a way that both that really solves for both of those things, incredibly sticky behavior for clients. We're, like, investing, like, a ton in that, right? A, we think it's a difference-maker for us in terms of the competitive landscape, particularly in rates, and B, we think it's the sort of portal, it's the door opener to getting after this kind of stubborn activity that still exists. So that's how we think about growth and investing into growth.
That makes sense. It's helpful. And then as you're thinking about those investments kind of, how do you organizationally define success? Is it market share? Is it EPS? Is it you know, what, what measures do you look at to say, "Hey, you know, we did a good job here"?
It's factoring in, like, a bunch of things, obviously. Like, it's revenue growth. It's amplifying earnings in a way that doesn't stymie that revenue growth. I think we do a really good job, and I do think it's important. It's a really good question, like, internally around, you know, we built a pretty good machine. Who's really sort of a part of making a difference inside of that machine and who's kind of riding the wave of this kind of technology happening in our markets? We're pretty fine-tuned on that, and I think we have an expectation that, you know, the most important people inside of the company have to be producing differentiated results, which, to your point, goes, you know, a bit more into the sort of, like, the market share component of it all, which matters.
To make a sort of obvious point, it's not like the elephant in the room at all. Like, in credit, where there's a sort of, like, straightforward competitor for us, we're gonna be, like, pretty market share-oriented because we know that there is this sort of, like, straightforward, you know, competitive landscape thing happening. You know, that being said, we don't always have to look at things in terms of, like in terms of market share, in terms of electronic market share, right? There's also this concept of, you know, peeling this phone-based business into our world. And so I, you know, I say this very genuinely, like, you know, our biggest competitor is the phone.
The interesting thing is, pretty sure MarketAxess would say it kind of the exact way, and that shows you sort of all of this sort of very interesting room that there still is in our business. You gotta get a lot of things right. The low-hanging fruit thing I don't know if there was ever really, like, low-hanging fruit. That might be, like I don't know whoever thought that, but it definitely doesn't exist now, right? Like, that business that just got done because, like, who wouldn't use technology for a certain type of business? Now we're after, like, the tougher stuff. And that's actually really cool. So now when you go into PIMCO, they're not selecting dealers, like, randomly.
They're not, like, on Tradeweb picking out, like, you know, three dealers, and you're wondering why they pick those three dealers, and it's it's just because, you know, it's alphabetical. It's an alphabetical trade ticket, right? Those days are, like, over. Now it's really about sort of algorithms that point liquidity to the places where they're supposed to. Who's the act seller on the other side of the trade? How do I leave, as few footprints as possible as I engage in liquidity? The sophistication level has massively changed. Part of that, you know, is just, like, you know, I may be getting older, but the people kind of, like, in the seats are getting kind of younger, so that's kind of good news. I do think the pandemic. I mean, the first time we met was, like, almost, like, right after sort of.
I think it was, like, three years ago. We passed a COVID test and came here. The pandemic obviously helped. Like, if you're that sounds weird, but it's true. If you were under-resourced around technology, specifically in fixed income, at a moment in time where all that, like, terrible stuff happened, you paid a big price is the bottom line. And so you're never gonna be under-resourced that way again, right? And so that became one of the legs, I think, around, like, big-time investment, you know, in our space.
And then the other thing I would say is, like, if we were all kind of talking here, you know, for sure, like, seven or eight years ago, and you and people were wondering who were, like, the strong players on the bank side, you know, in the markets that Tradeweb is in, we would definitely be talking about the Credit Suisse, the Deutsche Bank, the Barclays, you know, the traditional European banks played very, very strong roles in a lot of these kind of U.S.-based markets. One of the shifts that has happened is, as those banks have, for a couple of reasons, now played lesser roles in these businesses, you know, and I don't even call them, like, alternative market makers anymore 'cause they're really not.
Like, the Citadel Securities of the world have stepped in big time, right, because they see a world where there are less counterparties than ever and more flow going through the pipes, and they're going to service this network through technology. I think they're very smart, so they're gonna hire salespeople. They understand this is still a relationship business. There's always going to be that component of it all, but they're gonna lead with technology. That kind of raises the bar, I think, across the board in kind of an interesting way. So those are the sort of big trends that are happening.
You know, Citadel Securities has gone from kind of global swaps to global government bonds to U.S. credit, where they now feel like the velocity, the turnover in that market is, you know, at a pace where they can really compete with, like, real technology. I definitely don't have their playbook, but they're probably looking. I don't think anyone has their playbook, but they, you know, they have to be looking at the TBA mortgage market, which is about to go through probably a little bit of a greenlight cycle of activity, and so they're formidable.
So back to resistance, you know, if you're still having that same conversation with those banks that I was describing about, like, "We don't want this thing to keep coming," it's coming, and now you're competing with Citadel, who's going to take market share from you if you're asleep at the switch. And so, you know, these very well-run banks now get that joke in a huge way is what I would say.
So as you are building out these solutions that work for the banks, that work for the buy side, and you're generating the revenue growth and the earnings growth, how do you guys think about free cash flow in terms of the model, how it generates free cash flow, and then how you deploy that free cash flow?
I mean, we, you know, we like free cash flow, for sure, and we're generating a lot of it, and, you know, our business is doing really well. And so it's sort of a little bit kind of embedded in your question is, like, where, how do we, how are we thinking about and leaning things a little bit maybe more towards M&A? So we haven't, like, completely gotten here all through, like, organic growth and organic investment and organic development. We've done, you know, deals along the way, smaller deals, you know, early on that helped us get into both the retail business and the wholesale business. One of the things I definitely wanted to do over the last couple of years with, you know, with Sara is, we have momentum in our business. Let's take advantage of that momentum.
One of the ways to take advantage of that momentum is to, not to say, like, get, like, more aggressive in, like, M&A, but it's to be strategic and strong about it. And so we did two really good deals last year. We feel really good about it, a company called Yieldbroker and a company called r8fin. R8fin's, like, state-of-the-art kind of, an algorithmic technology company that lives in a very important part of the government bond market. Really excited about both. And that's cool because it's like, "Okay, now we're showing we can do a couple of deals. We wanna always make sure, you know, people see our work." So, like, having a good track record around those deals is a good thing to do.
And now we're gonna get a little bit more, you know, maybe ambitious is the right word, and continue to be opportunistic because we think we're in a really good place. We know we're in a really good place, and we wanna try to keep pushing those kinds of buttons when they work for us. The network of it all, like, like, so important, right? So how do we how do we acquire a company? How do we do a deal that enhances our network, right? We like that kind of thought. Definitely have great technologists who definitely feel like they can kind of build everything all the time. No one can build everything all the time.
So then there are these moments where we see these pockets of technology where we feel like we can acquire in a way that works for us, which was part of the rateFin strategy. Our instinct is some things kind of coming our way around that, and so we feel good about that.
All right. Interesting. Well, I think now is a good time to pause. A couple of minutes left. Anybody in the room have a question? All right. Well, I don't see any hands raised. So maybe just building off the commentary on M&A, how do you guys think internally about returns on capital and internal initiatives as opposed to M&A, as opposed to share buybacks or anything else?
Thanks to, like, both the rigor of a public company of being a public company and the rigor of hiring people now who fit really well into a public company, one of whom is Sara. Like, we've gotten we've gotten really good at that, right? And so we're rigorous around sort of what those returns should be. It's interesting, right? If you asked me what's one of the you know, the sort of, like, the best thing, Billy, that Tradeweb's done in the last, like, six or seven years, I would say the way that we painstakingly, I think, mostly thoughtfully, and we tried really hard to become this, like, pretty big competitive force in credit. It's, like, hard to do that, right? So that's what my answer would be like on probably the best thing we've done.
If we looked at the sort of, like, the metrics of that investment after, like, three years, it might not have looked very good, quite honestly, right? And so it's like, how do you kind of frame that and then also really, really be patient around when you see an opportunity the right way? If you keep running into a brick wall and it's not gonna happen, you don't wanna be patient just to be patient. But we felt like we had an opportunity there. Now it looks. I mean, now that those numbers look incredible for us, but if you looked at it over a three-year period, a four-year period, it wouldn't have looked as good. And so that's that's a little bit of the back-and-forth kind of conversations that we have on it. And we do deals.
We want those deals to be accretive, and we want those deals to kind of fit us both starting with strategically, but also we have pretty strong financial parameters in terms of how we look at deals.