1 00:00:05,880 --> 00:00:08,680 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm Suan Alma. 2 00:00:08,840 --> 00:00:11,920 Speaker 1: Private credit is evolving. After a boom in this space 3 00:00:11,960 --> 00:00:14,840 Speaker 1: in recent years, there's now a rising co lending where 4 00:00:14,880 --> 00:00:18,640 Speaker 1: private credit providers are partnering with specialized lenders catering to 5 00:00:18,680 --> 00:00:21,360 Speaker 1: people who aren't getting capital from traditional places like banks. 6 00:00:21,680 --> 00:00:23,920 Speaker 1: M Financial, which is a great supporter of this podcast, 7 00:00:23,960 --> 00:00:27,080 Speaker 1: recently signed a one point seven billion US dollar joint 8 00:00:27,200 --> 00:00:31,800 Speaker 1: venture with US direct lender Monroe Capital and Japanese bank 9 00:00:32,080 --> 00:00:37,680 Speaker 1: SMBC Summatomo Mitsui Bank Corporation. Frank Danielli is Managing Director, 10 00:00:37,720 --> 00:00:40,720 Speaker 1: head of Global Credit Solutions at M Financial. Frank, welcome 11 00:00:40,760 --> 00:00:41,720 Speaker 1: back to Fear and Greed. 12 00:00:42,040 --> 00:00:43,080 Speaker 2: Suan, good to be back. 13 00:00:43,440 --> 00:00:46,840 Speaker 1: And Christian Samson his investment director, Global Credit Solutions at 14 00:00:47,000 --> 00:00:49,760 Speaker 1: MAA Financial. He joins us from New York. Christian, good morning, 15 00:00:50,040 --> 00:00:50,640 Speaker 1: Thanks Sean. 16 00:00:50,800 --> 00:00:51,520 Speaker 3: Nice to be here. 17 00:00:51,920 --> 00:00:54,920 Speaker 1: First up co lending. How does it work? Maybe I'll 18 00:00:54,920 --> 00:00:56,480 Speaker 1: go to you Frank on that one. 19 00:00:56,800 --> 00:00:57,280 Speaker 3: Here, Sean. 20 00:00:57,320 --> 00:00:59,600 Speaker 2: Look, we've always thought that partnership is going to be 21 00:00:59,680 --> 00:01:02,760 Speaker 2: the next evolution of private credit. What happens when you 22 00:01:03,040 --> 00:01:05,200 Speaker 2: partner in the world of lending is that you bring 23 00:01:05,280 --> 00:01:09,880 Speaker 2: together the best of loan origination, underwriting capabilities, and then 24 00:01:10,160 --> 00:01:13,600 Speaker 2: portfolio management discipline. You bring this together with some really 25 00:01:13,640 --> 00:01:16,480 Speaker 2: aligned part is and that's what partnership is all about. 26 00:01:17,160 --> 00:01:20,160 Speaker 2: This is a really big step change, we think, because 27 00:01:20,240 --> 00:01:24,760 Speaker 2: today the Rhetorican private credit has all been about these 28 00:01:25,280 --> 00:01:28,680 Speaker 2: new asset managers stealing share from banks, and that's actually 29 00:01:28,760 --> 00:01:31,080 Speaker 2: just not true. There's some things that banks are really 30 00:01:31,080 --> 00:01:33,640 Speaker 2: good at, there's some things they aren't at, and there's 31 00:01:33,640 --> 00:01:35,800 Speaker 2: some ways that we can actually partner together. And that's 32 00:01:35,800 --> 00:01:38,600 Speaker 2: what a venture like this one that we've done with 33 00:01:39,120 --> 00:01:42,360 Speaker 2: Monroe Capital and SMBC, but other partnerships that we've done 34 00:01:42,600 --> 00:01:45,360 Speaker 2: as well in the past, including here in Australia reflect. 35 00:01:45,600 --> 00:01:48,040 Speaker 1: Okay, you talk about kind of this the next step 36 00:01:48,160 --> 00:01:50,560 Speaker 1: in private credit. Are you saying because there are more 37 00:01:50,600 --> 00:01:53,240 Speaker 1: parties coming to the table, in a sense, suddenly private 38 00:01:53,240 --> 00:01:56,160 Speaker 1: credit will become a lot more I'm going to say flexible, 39 00:01:56,160 --> 00:01:58,920 Speaker 1: that's probably the wrong word, but robust might be a 40 00:01:58,920 --> 00:02:01,520 Speaker 1: better word into what it can do. 41 00:02:02,240 --> 00:02:04,320 Speaker 2: I think the ambit of what it can do will 42 00:02:04,360 --> 00:02:07,680 Speaker 2: continue to expand, and that's what this sort of thing reflects. 43 00:02:08,800 --> 00:02:11,080 Speaker 2: The world of lending is huge. You know, this is 44 00:02:11,520 --> 00:02:14,760 Speaker 2: at its best the financing of just the real world economy. 45 00:02:14,800 --> 00:02:17,400 Speaker 2: And that doesn't matter if it's financing companies like we're 46 00:02:17,440 --> 00:02:20,840 Speaker 2: doing with this particular partnership over in the US midmarket companies, 47 00:02:21,160 --> 00:02:25,560 Speaker 2: or whether it's home loans, car loans, asset finance, business loans, 48 00:02:25,680 --> 00:02:28,760 Speaker 2: it's just the real world economy. Most businesses your own, 49 00:02:28,840 --> 00:02:32,040 Speaker 2: the listeners here, they need finance in many different ways. 50 00:02:32,360 --> 00:02:35,120 Speaker 2: That finance needs to be provided for them. How that 51 00:02:35,160 --> 00:02:38,480 Speaker 2: can happen is with a specialist lender, a bank, and 52 00:02:38,520 --> 00:02:40,760 Speaker 2: an asset manager all working together. And that's a I 53 00:02:40,800 --> 00:02:42,880 Speaker 2: think that's a path that will see more and more of. 54 00:02:43,200 --> 00:02:46,480 Speaker 1: Okay, Christian, take me through the JV with Monroe Capital 55 00:02:46,639 --> 00:02:50,320 Speaker 1: and SMBC, which of course sum Time im Sue Bank Corporation, 56 00:02:50,400 --> 00:02:54,760 Speaker 1: Japanese corporation. What's it mean and what type of borrowers 57 00:02:54,840 --> 00:02:56,400 Speaker 1: are you targeting through this model? 58 00:02:57,040 --> 00:02:59,480 Speaker 3: So, Sean, we did a lot of work in the 59 00:02:59,560 --> 00:03:02,960 Speaker 3: US marketing corporate lending, and what came out of that 60 00:03:03,320 --> 00:03:08,080 Speaker 3: is middle market and companies ranging from ten mil to 61 00:03:08,280 --> 00:03:11,959 Speaker 3: fifty milieb DAR are the most attractive part of the market. 62 00:03:12,320 --> 00:03:17,440 Speaker 3: These are real world US companies servicing other US businesses 63 00:03:17,639 --> 00:03:22,720 Speaker 3: and consumers. These loans feature covenants in the form of 64 00:03:23,200 --> 00:03:28,079 Speaker 3: leverage ratios and strong downside protection for lenders. So we 65 00:03:28,120 --> 00:03:32,280 Speaker 3: really think that this co lending structure provides our investors 66 00:03:32,880 --> 00:03:35,960 Speaker 3: unique access to the most attractive part of the corporate 67 00:03:36,000 --> 00:03:38,160 Speaker 3: lending market, being the middle market. 68 00:03:38,560 --> 00:03:41,200 Speaker 1: And the US obviously is a lot lot bigger than 69 00:03:41,440 --> 00:03:44,920 Speaker 1: anywhere else in the world, particularly Australia. Are there sectors, 70 00:03:44,920 --> 00:03:47,440 Speaker 1: are the geographies? I mean, how do you think about it? 71 00:03:48,080 --> 00:03:50,880 Speaker 3: So the market's very large, you know, so a ten 72 00:03:50,960 --> 00:03:54,720 Speaker 3: mil to a fifty milib dar is really deemed the 73 00:03:54,720 --> 00:03:57,119 Speaker 3: lower middle market and the core middle market, and these 74 00:03:57,160 --> 00:04:00,120 Speaker 3: companies range up to three hundred five hundred mili in 75 00:04:00,160 --> 00:04:03,960 Speaker 3: Aviva DA. So we're really targeting the area of credit 76 00:04:04,080 --> 00:04:08,119 Speaker 3: which is you know, downside protected where we have significant 77 00:04:08,200 --> 00:04:12,240 Speaker 3: lender protections available and it provides our investors with that 78 00:04:13,400 --> 00:04:16,039 Speaker 3: downside protection. They'll tell you I was actually just over there, 79 00:04:16,040 --> 00:04:18,600 Speaker 3: I landed yesterday, and you know, everything's bigger, the cars 80 00:04:18,600 --> 00:04:21,800 Speaker 3: are bigger, with bigger side of friars, large, and it's 81 00:04:21,839 --> 00:04:23,159 Speaker 3: you know, it's like that, but it's even like that 82 00:04:23,200 --> 00:04:25,800 Speaker 3: in the world of lending. That's also why partnership. 83 00:04:25,240 --> 00:04:28,960 Speaker 4: Works really well, you know, it's a really efficient way, 84 00:04:29,080 --> 00:04:31,280 Speaker 4: especially as an asset manager, for us to get access 85 00:04:31,320 --> 00:04:34,280 Speaker 4: to really attractive parts of the market working with specialists 86 00:04:34,279 --> 00:04:36,800 Speaker 4: in a particular space, or in the case of like 87 00:04:36,839 --> 00:04:40,720 Speaker 4: an SMBC, are really established global bank with a really 88 00:04:40,760 --> 00:04:42,440 Speaker 4: good US franchise. 89 00:04:41,960 --> 00:04:44,360 Speaker 2: That we can that we can partner up with and 90 00:04:44,400 --> 00:04:46,680 Speaker 2: just provide capital out there in the world. That makes 91 00:04:46,720 --> 00:04:48,040 Speaker 2: sense for US and our funds. 92 00:04:48,320 --> 00:04:51,960 Speaker 3: And when you think about the partners being Monroe and SMBC, 93 00:04:52,120 --> 00:04:55,839 Speaker 3: so Monroe is a very established and actually the largest 94 00:04:55,839 --> 00:05:00,200 Speaker 3: lower middle market originator of loans in the US have 95 00:05:00,240 --> 00:05:04,159 Speaker 3: a huge origination engine. You know, officers all over the US, 96 00:05:04,520 --> 00:05:08,640 Speaker 3: a team of thirty originators all looking at loan opportunities. 97 00:05:08,920 --> 00:05:11,479 Speaker 3: They look at in excess of three thousand loans a 98 00:05:11,560 --> 00:05:15,000 Speaker 3: year and generally execute on one hundred to two hundred. 99 00:05:15,279 --> 00:05:18,960 Speaker 3: So this really provides us with a unique access to 100 00:05:19,880 --> 00:05:23,279 Speaker 3: a large funnel of origination opportunities for our investigates. 101 00:05:23,960 --> 00:05:31,960 Speaker 1: Frank Christians say with me, We'll be back in a minute. 102 00:05:33,320 --> 00:05:36,720 Speaker 1: My guest this morning, Frank Danielli and Christian Sampson from 103 00:05:36,920 --> 00:05:40,880 Speaker 1: m A Financial. Before the break, we were talking about 104 00:05:40,960 --> 00:05:42,960 Speaker 1: how it works and why you're working with Monroe what 105 00:05:43,000 --> 00:05:45,680 Speaker 1: they're bringing to the party, and Frank, you're talking about 106 00:05:45,839 --> 00:05:48,960 Speaker 1: SMBC what it brings to the party. I'm just kind 107 00:05:48,960 --> 00:05:52,080 Speaker 1: of interested whether we can take any lessons from what 108 00:05:52,080 --> 00:05:55,960 Speaker 1: you're doing in the US for the local market, because 109 00:05:57,000 --> 00:05:58,719 Speaker 1: we talk a lot about private credit, but we don't 110 00:05:58,760 --> 00:06:02,200 Speaker 1: talk about these sorts of jvs very much. Is that 111 00:06:02,240 --> 00:06:04,200 Speaker 1: where the local market's going, Frank. 112 00:06:04,440 --> 00:06:08,320 Speaker 2: I think it is sewn we in fact, funny, this 113 00:06:08,400 --> 00:06:11,799 Speaker 2: type of partnership is really applying something we call asset 114 00:06:11,960 --> 00:06:14,920 Speaker 2: back lending technology to the world of in this case 115 00:06:14,960 --> 00:06:19,200 Speaker 2: corporate loans, and Australia I think actually has some of 116 00:06:19,200 --> 00:06:24,520 Speaker 2: the world leading financial infrastructure around asset back lending. It's 117 00:06:24,520 --> 00:06:27,200 Speaker 2: been happening here for many years and been happening in 118 00:06:27,240 --> 00:06:31,440 Speaker 2: a really good way, good structures with good performance. I 119 00:06:31,560 --> 00:06:34,040 Speaker 2: raise that because in fact, we have actually done a 120 00:06:34,040 --> 00:06:36,920 Speaker 2: three hundred million dollar credit related partnership back in the 121 00:06:37,040 --> 00:06:39,919 Speaker 2: end of twenty twenty one with one of one of 122 00:06:39,920 --> 00:06:42,400 Speaker 2: the major Australian backs, one of the Big four. So 123 00:06:42,760 --> 00:06:46,320 Speaker 2: you know, we've been believing that this partnership model is 124 00:06:46,400 --> 00:06:48,880 Speaker 2: going to be the next evolution for a while. We 125 00:06:48,960 --> 00:06:53,160 Speaker 2: did a one billion dollar forward flow transaction, similar style 126 00:06:53,240 --> 00:06:58,040 Speaker 2: structure with Flexi Commercial, which is a subsidiary of HUM 127 00:06:58,240 --> 00:07:02,920 Speaker 2: last year. So we've really been pushing this partnership model 128 00:07:03,040 --> 00:07:06,440 Speaker 2: forward here in Australia, and we do see a world 129 00:07:06,480 --> 00:07:09,720 Speaker 2: where the Australian market evolves in the inner sort of 130 00:07:09,800 --> 00:07:12,880 Speaker 2: step change towards these structures in private lending. 131 00:07:14,200 --> 00:07:17,200 Speaker 1: Tell me on both sides of the private lending transaction 132 00:07:17,280 --> 00:07:20,200 Speaker 1: and private credit transaction, those providing the funds and those 133 00:07:20,240 --> 00:07:23,360 Speaker 1: actually receiving the funds. Why is this good for those 134 00:07:23,600 --> 00:07:25,760 Speaker 1: providing the funds your investors. 135 00:07:26,680 --> 00:07:29,480 Speaker 2: Yeah, well, we've always tried to deliver our investors a 136 00:07:29,560 --> 00:07:34,960 Speaker 2: very differentiated and proprietary set of lending opportunities. And if 137 00:07:34,960 --> 00:07:37,480 Speaker 2: you think about the nature of partnerships, let's take back 138 00:07:37,600 --> 00:07:39,720 Speaker 2: a couple of years ago, the partnership we did with 139 00:07:39,840 --> 00:07:44,240 Speaker 2: that major Australian bank. Those loans that we partnered up 140 00:07:44,280 --> 00:07:47,600 Speaker 2: to finance. They were in the world of medical asset finance. 141 00:07:47,840 --> 00:07:51,000 Speaker 2: Those loans are not available. You just cannot get them 142 00:07:51,000 --> 00:07:53,200 Speaker 2: anywhere else. They're otherwise sitting on the balance sheet of 143 00:07:53,200 --> 00:07:54,960 Speaker 2: a bank. The only way to get exposure that would be, 144 00:07:55,000 --> 00:07:56,640 Speaker 2: I don't know, by a bank bond or maybe have 145 00:07:56,720 --> 00:08:02,040 Speaker 2: some deposits. This provides direct access to that cohort of lending. 146 00:08:02,080 --> 00:08:04,000 Speaker 2: We thought it was really attractive and that was a 147 00:08:04,160 --> 00:08:07,520 Speaker 2: very well performing portfolio for us for many years. I 148 00:08:07,560 --> 00:08:09,440 Speaker 2: think this will be the same. You can't go and 149 00:08:09,480 --> 00:08:11,680 Speaker 2: get these lines. If you think about some of what 150 00:08:11,720 --> 00:08:14,679 Speaker 2: we're partnering up here, the nature of what we're getting 151 00:08:14,680 --> 00:08:17,560 Speaker 2: exposure to is not widely available. This is co lending. 152 00:08:17,640 --> 00:08:21,280 Speaker 2: So we're out there with our partners lending together in partnership. 153 00:08:21,560 --> 00:08:24,200 Speaker 2: We're making credit decisions about what we do and don't want, 154 00:08:24,240 --> 00:08:27,760 Speaker 2: consistent with our framework of lending and underwriting, and then 155 00:08:27,800 --> 00:08:32,120 Speaker 2: providing that finance out there. So really, although it's a partnership, 156 00:08:32,440 --> 00:08:36,000 Speaker 2: the partnership model is quite proprietary and that's what investors 157 00:08:36,040 --> 00:08:38,560 Speaker 2: get access to. It's something you can't get any other way. 158 00:08:38,880 --> 00:08:41,120 Speaker 1: And then on the other side of it, if I'm 159 00:08:41,480 --> 00:08:44,680 Speaker 1: receiving the money, obviously I'm getting access to funds which 160 00:08:44,679 --> 00:08:45,840 Speaker 1: I may not have gotten otherwise. 161 00:08:46,240 --> 00:08:49,200 Speaker 3: Well, Christian, you're on the ground, so that's exactly right. 162 00:08:49,360 --> 00:08:53,520 Speaker 3: So we think about this as providing in the middle market. 163 00:08:53,559 --> 00:08:59,800 Speaker 3: We're providing private equity sponsors with flexible capital available via 164 00:09:00,080 --> 00:09:02,920 Speaker 3: banks and non bank lenders. In the market. So we're 165 00:09:02,920 --> 00:09:05,199 Speaker 3: providing a meaningful amount of capital. We have one point 166 00:09:05,240 --> 00:09:09,640 Speaker 3: seven billion dollars and we're really looking to provide borrowers 167 00:09:09,720 --> 00:09:15,600 Speaker 3: with flexible capital, a quick turnaround, as well as a 168 00:09:15,600 --> 00:09:17,080 Speaker 3: collaborative approach to lending. 169 00:09:18,040 --> 00:09:20,560 Speaker 1: I'm just interested co lending. How much do you lend? 170 00:09:20,640 --> 00:09:22,960 Speaker 1: I mean, I'm sure it's deal by deal, and I'm 171 00:09:22,960 --> 00:09:25,120 Speaker 1: sure there's all sorts of nuts and bolts on it, 172 00:09:25,520 --> 00:09:29,360 Speaker 1: but broadly Christian, how much do you lend as a 173 00:09:29,360 --> 00:09:30,400 Speaker 1: proportion of the total loan? 174 00:09:31,120 --> 00:09:35,520 Speaker 3: So it really depends generally, we're lending a material portion 175 00:09:36,000 --> 00:09:39,840 Speaker 3: of the loan alongside Monroe and SMBC. And why we 176 00:09:40,040 --> 00:09:42,560 Speaker 3: like that is it creates this really nice alignment of 177 00:09:42,600 --> 00:09:46,280 Speaker 3: interest between our co lending partners. We're all in it together, 178 00:09:46,440 --> 00:09:50,320 Speaker 3: and this vehicle will lend alongside them, providing them with 179 00:09:50,760 --> 00:09:55,000 Speaker 3: additional carpital to service private equity sponsors in the US market. 180 00:09:55,400 --> 00:09:56,720 Speaker 1: Frank, We're going to see lots more of this in 181 00:09:56,720 --> 00:09:57,480 Speaker 1: the next ten years. 182 00:09:57,880 --> 00:10:01,040 Speaker 2: I think that this will be really almost paradigm shift 183 00:10:01,040 --> 00:10:03,480 Speaker 2: in private lending. You've already seen JP Morgan come out 184 00:10:03,520 --> 00:10:06,400 Speaker 2: globally and say they're going to commit Well, they're committing 185 00:10:06,440 --> 00:10:08,760 Speaker 2: fifty billion of their balance sheet towards private credit, but 186 00:10:08,800 --> 00:10:12,520 Speaker 2: they see fifteen billion dollars of co lending opportunities. You've 187 00:10:12,520 --> 00:10:15,800 Speaker 2: seen other banks talk about it in the order of 188 00:10:16,200 --> 00:10:19,839 Speaker 2: single digits or tens of billions of dollars of opportunity. 189 00:10:19,440 --> 00:10:22,880 Speaker 2: This is really significant. And if you just think about 190 00:10:22,920 --> 00:10:25,280 Speaker 2: the amount of lending that's done out there in the 191 00:10:25,320 --> 00:10:28,760 Speaker 2: real world by banks, not just in we're doing this 192 00:10:28,800 --> 00:10:31,559 Speaker 2: for middle market private equityby thing, but the whole spectrum 193 00:10:31,600 --> 00:10:34,080 Speaker 2: of everything that's on a bank balance sheet. This is 194 00:10:34,120 --> 00:10:36,920 Speaker 2: a way where asset managers can partner up and access that. 195 00:10:36,960 --> 00:10:37,760 Speaker 2: It's really exciting. 196 00:10:37,960 --> 00:10:39,920 Speaker 1: Frank, Christian, thank you for talking to Fear and Greed. 197 00:10:40,480 --> 00:10:41,480 Speaker 2: Thanks Sean has been great. 198 00:10:41,679 --> 00:10:42,240 Speaker 3: Thanks Sean. 199 00:10:42,679 --> 00:10:45,120 Speaker 1: That was Frank Danielli and Christian Sampson from m A 200 00:10:45,240 --> 00:10:47,480 Speaker 1: Financial are great supporter of this podcast. This is the 201 00:10:47,520 --> 00:10:50,200 Speaker 1: Fear and Greed Business Interview. Remember this is general information 202 00:10:50,280 --> 00:10:54,000 Speaker 1: only and you should see professional advice before making investment decisions. 203 00:10:54,240 --> 00:10:56,439 Speaker 1: Join us every morning for the full episode of Fear 204 00:10:56,480 --> 00:10:58,480 Speaker 1: and Greed Daily Business years with people who make their 205 00:10:58,480 --> 00:11:01,199 Speaker 1: own decisions. I'm Sean Ail. Enjoy your day.