1 00:00:05,820 --> 00:00:08,010 Sean Aylmer: Welcome to the Fear and Greed business interview. I'm Sean 2 00:00:08,010 --> 00:00:10,619 Sean Aylmer: Aylmer. Australia is still in the midst of a housing 3 00:00:10,619 --> 00:00:14,429 Sean Aylmer: crisis. House prices have risen for 15 consecutive months. Rents 4 00:00:14,429 --> 00:00:18,059 Sean Aylmer: are soaring. Demand is outstripping supply. Today, I wanted to 5 00:00:18,059 --> 00:00:20,970 Sean Aylmer: look at one possible solution to help ease the housing 6 00:00:20,970 --> 00:00:25,560 Sean Aylmer: crisis. Could private credit make a real difference? Remember, this 7 00:00:25,560 --> 00:00:28,469 Sean Aylmer: is general information only, and you should always seek professional 8 00:00:28,469 --> 00:00:32,189 Sean Aylmer: advice before making investment decisions. Alan Greenstein is the Chief 9 00:00:32,190 --> 00:00:35,670 Sean Aylmer: Executive Officer and Co- Founder of Zagga, an Australian boutique 10 00:00:35,670 --> 00:00:38,760 Sean Aylmer: investment manager and non- bank lender, and a great supporter of 11 00:00:38,760 --> 00:00:41,580 Sean Aylmer: this podcast. Alan, welcome back to Fear and Greed. 12 00:00:42,120 --> 00:00:43,769 Alan Greenstein: Thank you, Sean. Nice to be here again. 13 00:00:44,670 --> 00:00:48,509 Sean Aylmer: We're talking much more about private credit nowadays, as banks 14 00:00:48,509 --> 00:00:52,350 Sean Aylmer: become much more particular about who they lend to. Has 15 00:00:52,350 --> 00:00:56,850 Sean Aylmer: private credit in Australia... I get the potential for it. 16 00:00:57,060 --> 00:00:59,520 Sean Aylmer: Previously, has it ever really been a big part of 17 00:00:59,520 --> 00:01:01,860 Sean Aylmer: the residential landscape, historically? 18 00:01:02,670 --> 00:01:06,569 Alan Greenstein: Sean, I think private credit has been around ever since 19 00:01:06,990 --> 00:01:10,199 Alan Greenstein: people first started lending money to one another. There's always 20 00:01:10,199 --> 00:01:13,740 Alan Greenstein: been, let's just called it a gray market, where privateers 21 00:01:14,400 --> 00:01:18,630 Alan Greenstein: have operated. But certainly over the last two decades, private 22 00:01:18,630 --> 00:01:22,770 Alan Greenstein: credit has emerged from the murky background and has become 23 00:01:23,730 --> 00:01:26,429 Alan Greenstein: much more acceptable on the forefront. That's not to say 24 00:01:26,429 --> 00:01:28,649 Alan Greenstein: that over the last couple of decades it wasn't still 25 00:01:28,650 --> 00:01:32,459 Alan Greenstein: considered to be lender of last resort type lending. In 26 00:01:32,459 --> 00:01:35,100 Alan Greenstein: other words, you were unable to get the money from 27 00:01:35,100 --> 00:01:37,860 Alan Greenstein: anywhere else, so you went to a privateer. And as 28 00:01:37,860 --> 00:01:40,110 Alan Greenstein: a result of that, you're considered to be high risk 29 00:01:40,110 --> 00:01:42,300 Alan Greenstein: and you paid a lot of money. I would say 30 00:01:42,300 --> 00:01:47,279 Alan Greenstein: that certainly since the GFC, and more particularly since COVID, 31 00:01:48,270 --> 00:01:51,900 Alan Greenstein: private credit has not only become an accepted part of 32 00:01:51,900 --> 00:01:55,230 Alan Greenstein: the funding waterfall, but that many of the private credit 33 00:01:55,230 --> 00:02:00,300 Alan Greenstein: operators today are really highly credible, highly competent, and highly 34 00:02:00,300 --> 00:02:02,880 Alan Greenstein: effective at what they do. And I would imagine that 35 00:02:02,880 --> 00:02:06,809 Alan Greenstein: a number of borrowers now see private credit as being 36 00:02:06,810 --> 00:02:10,169 Alan Greenstein: their first port of call for finance, before they go 37 00:02:10,169 --> 00:02:13,919 Alan Greenstein: to the bank. So private credit has definitely grown enormously, and 38 00:02:13,919 --> 00:02:15,749 Alan Greenstein: I think it's here to stay, and also here to 39 00:02:15,750 --> 00:02:19,110 Alan Greenstein: grow. And that's not only the case across the world. 40 00:02:19,320 --> 00:02:23,250 Alan Greenstein: In Australia, we're beginning to see that... We see that 41 00:02:23,250 --> 00:02:27,210 Alan Greenstein: private credit is about 10% of the market right now. That's forecast 42 00:02:27,210 --> 00:02:29,669 Alan Greenstein: to grow to about 25% of the market in the 43 00:02:29,669 --> 00:02:32,460 Alan Greenstein: next four to five years, which means that one out 44 00:02:32,460 --> 00:02:36,000 Alan Greenstein: of every four deals will be a private credit deal. 45 00:02:36,179 --> 00:02:38,609 Alan Greenstein: But in the US, this is already at about 50% 46 00:02:38,610 --> 00:02:40,530 Alan Greenstein: of the market. So it can only grow. 47 00:02:41,279 --> 00:02:43,410 Sean Aylmer: And the point there is when it becomes such a... 48 00:02:43,410 --> 00:02:45,840 Sean Aylmer: Well, it is now an accepted asset class, in a 49 00:02:45,840 --> 00:02:48,840 Sean Aylmer: sense, on both sides of the equation, for investors and 50 00:02:48,840 --> 00:02:52,800 Sean Aylmer: also for borrowers. But that also perhaps not so good 51 00:02:52,980 --> 00:02:55,349 Sean Aylmer: for the middlemen, but it actually makes it a more 52 00:02:55,349 --> 00:02:59,070 Sean Aylmer: competitive market, which is actually, again, better for both sides 53 00:02:59,070 --> 00:02:59,579 Sean Aylmer: of the market. 54 00:03:00,329 --> 00:03:04,350 Alan Greenstein: Yeah, absolutely right. I think the critical thing about competition 55 00:03:04,350 --> 00:03:07,590 Alan Greenstein: and about it being competitive, private credit is definitely a 56 00:03:07,590 --> 00:03:10,500 Alan Greenstein: low barrier to entry market, especially if you're in the non- 57 00:03:10,500 --> 00:03:13,920 Alan Greenstein: regulated market, if you're on the commercial side. Obviously, if you're 58 00:03:14,490 --> 00:03:18,030 Alan Greenstein: lending to individuals in respect of their own residential properties, 59 00:03:18,299 --> 00:03:20,070 Alan Greenstein: you've got to deal with all of the credit, they're 60 00:03:20,070 --> 00:03:24,120 Alan Greenstein: regulated loans. But the large majority of the privateers are 61 00:03:24,120 --> 00:03:26,940 Alan Greenstein: not at that end of the market. And, eventually, therefore, 62 00:03:26,940 --> 00:03:29,790 Alan Greenstein: being a lender is not hard to do. So I 63 00:03:29,790 --> 00:03:32,070 Alan Greenstein: guess it really comes down to the quality of the 64 00:03:32,070 --> 00:03:35,489 Alan Greenstein: lender and the quality of the borrower. And that determines 65 00:03:35,549 --> 00:03:39,060 Alan Greenstein: the quality of the investment. So from an investor's point 66 00:03:39,060 --> 00:03:41,190 Alan Greenstein: of view, I think you've got to look very closely 67 00:03:41,190 --> 00:03:44,340 Alan Greenstein: at the counterparties. From a borrower's point of view, you've 68 00:03:44,340 --> 00:03:45,899 Alan Greenstein: got to make sure you're getting the money from a 69 00:03:45,900 --> 00:03:48,480 Alan Greenstein: credible lender because you want to make sure the money's 70 00:03:48,480 --> 00:03:49,920 Alan Greenstein: going to be there when you need it. 71 00:03:50,639 --> 00:03:53,909 Sean Aylmer: Okay, so let's talk about the housing crunch that's going 72 00:03:53,910 --> 00:03:58,860 Sean Aylmer: on now and how private credit can help. Where do 73 00:03:58,860 --> 00:04:02,760 Sean Aylmer: we stand with that? I outlined what's going on in 74 00:04:02,760 --> 00:04:05,940 Sean Aylmer: the housing market, and we all know the story very well. 75 00:04:06,179 --> 00:04:07,680 Sean Aylmer: How can private credit help? 76 00:04:08,820 --> 00:04:11,789 Alan Greenstein: That's a good question, Sean. And I think the way 77 00:04:11,789 --> 00:04:15,750 Alan Greenstein: private credit really helps right now, from a developer point 78 00:04:15,750 --> 00:04:19,650 Alan Greenstein: of view, is that there's an almost insatiable appetite for 79 00:04:19,650 --> 00:04:24,150 Alan Greenstein: residential type development in Australia today. I think as we 80 00:04:24,150 --> 00:04:28,769 Alan Greenstein: all understand, we've got huge immigration. The population is growing. 81 00:04:28,770 --> 00:04:32,700 Alan Greenstein: We've got an influx of people. Our large metropolitan areas 82 00:04:32,700 --> 00:04:36,779 Alan Greenstein: are not getting smaller, they're getting bigger. The metropolitan boundaries, 83 00:04:36,779 --> 00:04:41,219 Alan Greenstein: Greater Sydney, Greater Melbourne, Greater Brisbane, et cetera, are all 84 00:04:41,219 --> 00:04:45,299 Alan Greenstein: extending now. They're becoming wider and wider. And more and 85 00:04:45,299 --> 00:04:48,299 Alan Greenstein: more people need to be accommodated. We're going to take 86 00:04:48,299 --> 00:04:52,589 Alan Greenstein: in about 250,000 extra people a year for the next 87 00:04:52,589 --> 00:04:55,589 Alan Greenstein: four or five years, according to the immigration department, to 88 00:04:55,920 --> 00:04:59,040 Alan Greenstein: equalize the skill shortage. And all of these people need 89 00:04:59,040 --> 00:05:01,290 Alan Greenstein: somewhere to live. Now, when you need somewhere to live, 90 00:05:01,650 --> 00:05:03,509 Alan Greenstein: you also need somewhere to go to school. You need 91 00:05:03,509 --> 00:05:06,989 Alan Greenstein: somewhere to shop. You need somewhere to park. You need 92 00:05:06,990 --> 00:05:10,110 Alan Greenstein: somewhere where your healthcare needs can be satisfied. You need 93 00:05:10,110 --> 00:05:12,630 Alan Greenstein: somewhere to pray, et cetera, et cetera, et cetera. So 94 00:05:12,630 --> 00:05:16,440 Alan Greenstein: the housing market has a massive knock- on effect on 95 00:05:16,440 --> 00:05:18,449 Alan Greenstein: all of the other things that need to be built. 96 00:05:18,809 --> 00:05:21,299 Alan Greenstein: Now, that's on the one side, that's where the demand 97 00:05:21,299 --> 00:05:24,779 Alan Greenstein: is coming from. The traditional funders of this have been 98 00:05:24,779 --> 00:05:27,900 Alan Greenstein: the banks. And the banks have really got two problems. 99 00:05:27,900 --> 00:05:30,960 Alan Greenstein: Through no fault of their own, they've got massive regulatory 100 00:05:31,230 --> 00:05:33,720 Alan Greenstein: and prudential risk issues, which they need to deal with. 101 00:05:34,020 --> 00:05:38,428 Alan Greenstein: And that generally makes them unwilling participants in certain types 102 00:05:38,428 --> 00:05:43,200 Alan Greenstein: of lending. Or more particularly, creates restrictive lending practices for 103 00:05:43,200 --> 00:05:47,849 Alan Greenstein: them. They cannot be as agile and commercial as entrepreneurial 104 00:05:47,850 --> 00:05:52,109 Alan Greenstein: as, say, a privateer can be. And, secondly, banks have 105 00:05:52,110 --> 00:05:56,520 Alan Greenstein: to operate within very, very strict and finite credit criteria. 106 00:05:56,520 --> 00:05:59,159 Alan Greenstein: And those don't always suit the market. And, generally, the 107 00:05:59,160 --> 00:06:01,890 Alan Greenstein: banks are a couple of steps behind the market. So, 108 00:06:01,890 --> 00:06:05,070 Alan Greenstein: today, if a developer wants to put something up that 109 00:06:05,070 --> 00:06:09,809 Alan Greenstein: is not 100% within the bank's credit specs, the developer 110 00:06:09,809 --> 00:06:12,990 Alan Greenstein: is going to have a real difficulty finding the money 111 00:06:12,990 --> 00:06:16,080 Alan Greenstein: for that. Now, to a developer, time is money. The 112 00:06:16,080 --> 00:06:18,299 Alan Greenstein: quicker they get this thing out the ground, the quicker 113 00:06:18,299 --> 00:06:21,390 Alan Greenstein: they're going to get their return. So developers have started 114 00:06:21,390 --> 00:06:25,890 Alan Greenstein: looking for alternative sources of finance. And the private credit 115 00:06:25,890 --> 00:06:28,650 Alan Greenstein: market has been there to provide that alternative source of 116 00:06:28,650 --> 00:06:32,130 Alan Greenstein: finance. Now, as developers have come to private credit, more 117 00:06:32,130 --> 00:06:35,159 Alan Greenstein: and more so private credit has grown. And that's really 118 00:06:35,160 --> 00:06:38,400 Alan Greenstein: how the market has grown. Now, speaking only for Zagga, 119 00:06:38,400 --> 00:06:40,890 Alan Greenstein: I can't speak for others, but if we speak to 120 00:06:40,890 --> 00:06:45,059 Alan Greenstein: the kind of developers that we're currently funding, they are 121 00:06:45,059 --> 00:06:48,210 Alan Greenstein: all clients of the large banks. They come to us 122 00:06:48,210 --> 00:06:50,879 Alan Greenstein: because we're able to do the deal quicker for them, 123 00:06:50,880 --> 00:06:53,128 Alan Greenstein: and we're a little bit more flexible. It's not to 124 00:06:53,129 --> 00:06:55,650 Alan Greenstein: say we compromise on our credit in any shape or 125 00:06:55,650 --> 00:06:58,110 Alan Greenstein: form. In fact, I'd like to believe that our credit 126 00:06:58,110 --> 00:07:00,659 Alan Greenstein: is as robust, if not more robust, than the banks. 127 00:07:00,960 --> 00:07:04,079 Alan Greenstein: But because we don't have these gargantuan structures, we're able 128 00:07:04,080 --> 00:07:07,020 Alan Greenstein: to turn this around a lot more quickly. And we're 129 00:07:07,020 --> 00:07:09,900 Alan Greenstein: able to be a bit more flexible on pre- sales 130 00:07:09,900 --> 00:07:12,179 Alan Greenstein: or other kinds of conditions, et cetera, to make it 131 00:07:12,180 --> 00:07:15,120 Alan Greenstein: worth the borrower's while. The quid pro quo for that 132 00:07:15,120 --> 00:07:17,010 Alan Greenstein: is the borrower's got to pay a bit more money. 133 00:07:17,310 --> 00:07:19,500 Alan Greenstein: And the advantage then to the investors, they're going to 134 00:07:19,500 --> 00:07:21,960 Alan Greenstein: get a better return than if they leave their money 135 00:07:21,960 --> 00:07:24,630 Alan Greenstein: sitting in a deposit account or return account. And that's 136 00:07:24,630 --> 00:07:26,070 Alan Greenstein: really how the cycle is working. 137 00:07:26,880 --> 00:07:28,619 Sean Aylmer: Stay with me, Alan, we'll be back in a minute. 138 00:07:36,120 --> 00:07:39,480 Sean Aylmer: I'm speaking to Alan Greenstein, CEO and Co- Founder of 139 00:07:39,480 --> 00:07:42,599 Sean Aylmer: Zagga. I suppose you're relying on the fact, particularly in 140 00:07:42,599 --> 00:07:47,699 Sean Aylmer: residential, people repay loans. That's the great thing about property. 141 00:07:47,789 --> 00:07:50,760 Alan Greenstein: Yeah, I think, Sean, what's important to understand there is 142 00:07:50,760 --> 00:07:54,810 Alan Greenstein: that most of the private credit operators are not funding 143 00:07:54,810 --> 00:07:59,340 Alan Greenstein: the individual owner at the end of the day. The banks are still very much 144 00:07:59,340 --> 00:08:03,299 Alan Greenstein: in that market. We're funding the developer who's building the 145 00:08:03,299 --> 00:08:06,389 Alan Greenstein: unit. But I guess, just to take your point, what 146 00:08:06,389 --> 00:08:09,480 Alan Greenstein: we have seen over the last four or five years, 147 00:08:09,480 --> 00:08:11,700 Alan Greenstein: and what maybe we would've expected to see, but what 148 00:08:11,700 --> 00:08:14,640 Alan Greenstein: we haven't seen, is pre- sales are still holding up. 149 00:08:15,179 --> 00:08:17,970 Alan Greenstein: So to the extent that developers have pre- sold units, 150 00:08:18,450 --> 00:08:20,910 Alan Greenstein: the market is strong. People who have paid for their 151 00:08:20,910 --> 00:08:23,699 Alan Greenstein: units are not letting those units go, even if the 152 00:08:23,699 --> 00:08:27,119 Alan Greenstein: development is taking longer, because property prices have gone up. 153 00:08:27,510 --> 00:08:30,510 Alan Greenstein: So the banks are still funding the end user, but 154 00:08:30,510 --> 00:08:33,000 Alan Greenstein: that is allowing cash to churn through the system, and for 155 00:08:33,090 --> 00:08:35,820 Alan Greenstein: the developers to be able to repay their loans to 156 00:08:35,820 --> 00:08:36,780 Alan Greenstein: the private credit lenders. 157 00:08:37,500 --> 00:08:40,559 Sean Aylmer: Okay, so on the investor side with Zagga, who are 158 00:08:40,590 --> 00:08:42,598 Sean Aylmer: your investors primarily? 159 00:08:43,109 --> 00:08:45,210 Alan Greenstein: So from a Zagga point of view, and I would say this 160 00:08:45,210 --> 00:08:47,640 Alan Greenstein: is true for most of us in the market, we 161 00:08:47,640 --> 00:08:51,210 Alan Greenstein: have a range of investors ranging from high- net- worth 162 00:08:51,210 --> 00:08:56,759 Alan Greenstein: individuals, including self- managed super fund trustees; to family offices; 163 00:08:56,759 --> 00:09:02,460 Alan Greenstein: to smaller institutions. We, at Zagga, have a number of smaller 164 00:09:02,460 --> 00:09:05,699 Alan Greenstein: institutions who also fund our loans. Whereas, some of the 165 00:09:05,700 --> 00:09:08,280 Alan Greenstein: other players are much bigger than us and they would've 166 00:09:08,460 --> 00:09:12,540 Alan Greenstein: much larger institutions, including sovereign wealth funds. But I guess the 167 00:09:12,540 --> 00:09:15,660 Alan Greenstein: point that you're making, and that I'm making, is that 168 00:09:16,020 --> 00:09:22,080 Alan Greenstein: the investor population for private credit ranges from the single high- net- 169 00:09:22,080 --> 00:09:25,740 Alan Greenstein: worth individual sophisticated investor, all the way through to the 170 00:09:25,740 --> 00:09:29,429 Alan Greenstein: large financial institution. And many of them are foreign. Some 171 00:09:29,429 --> 00:09:32,400 Alan Greenstein: of the statistics that are coming out today suggest that 172 00:09:32,400 --> 00:09:37,468 Alan Greenstein: foreign investment will make up about 48% of the market 173 00:09:37,470 --> 00:09:41,940 Alan Greenstein: over the next five years, which would've quadrupled over what 174 00:09:41,940 --> 00:09:44,309 Alan Greenstein: it was two decades ago. So we're seeing a lot 175 00:09:44,309 --> 00:09:45,240 Alan Greenstein: of foreign interest. 176 00:09:45,929 --> 00:09:49,320 Sean Aylmer: Okay. And so we've talked about residential then and lending 177 00:09:49,380 --> 00:09:53,280 Sean Aylmer: to developers, what else does Zagga do? What other areas 178 00:09:53,520 --> 00:09:54,718 Sean Aylmer: are you lending to? 179 00:09:55,350 --> 00:09:57,780 Alan Greenstein: So from Zagga's point of view, our model is quite 180 00:09:57,780 --> 00:10:02,790 Alan Greenstein: simple. We will lend for any legal business purpose or 181 00:10:02,790 --> 00:10:06,480 Alan Greenstein: any legal loan purpose, provided that we can get first 182 00:10:06,480 --> 00:10:10,378 Alan Greenstein: mortgage security over the property. So not every single one 183 00:10:10,379 --> 00:10:13,530 Alan Greenstein: of our loans is for a property purpose, i. e. 184 00:10:13,530 --> 00:10:17,010 Alan Greenstein: a development. We could be funding a management buyout. We 185 00:10:17,010 --> 00:10:19,708 Alan Greenstein: could be funding the purchase of stock. We could be 186 00:10:19,710 --> 00:10:24,660 Alan Greenstein: funding some other business purpose, cash flow funding. The first 187 00:10:24,660 --> 00:10:27,120 Alan Greenstein: deal we actually did was a buyout of one partner 188 00:10:27,150 --> 00:10:30,929 Alan Greenstein: over the other. But provided we have a real property 189 00:10:30,929 --> 00:10:34,858 Alan Greenstein: security, i. e. a first mortgage over property, together with 190 00:10:34,860 --> 00:10:37,920 Alan Greenstein: any of the other guarantees that we need based on 191 00:10:37,920 --> 00:10:41,069 Alan Greenstein: the actual credit assessment that we do of that deal, 192 00:10:41,280 --> 00:10:44,070 Alan Greenstein: we can just about fund any loan purpose that lends 193 00:10:44,070 --> 00:10:46,020 Alan Greenstein: itself to that type of security structure. 194 00:10:46,920 --> 00:10:49,890 Sean Aylmer: You've answered this question earlier on, but where does private 195 00:10:49,950 --> 00:10:52,050 Sean Aylmer: credit go? So with that as background, that's the kind 196 00:10:52,050 --> 00:10:55,800 Sean Aylmer: of thing that Zagga and others are providing money for. 197 00:10:56,070 --> 00:10:58,349 Sean Aylmer: What do you think the landscape looks like in 10 198 00:10:58,349 --> 00:11:01,200 Sean Aylmer: years time, in terms of someone looking for finance? 199 00:11:02,130 --> 00:11:04,348 Alan Greenstein: Okay, let's talk about it from a finance point of 200 00:11:04,350 --> 00:11:05,789 Alan Greenstein: view, and then, if you don't mind, I may talk 201 00:11:05,789 --> 00:11:07,349 Alan Greenstein: about it from an investment point of view. 202 00:11:07,409 --> 00:11:07,679 Sean Aylmer: Yeah, yeah. 203 00:11:07,770 --> 00:11:10,080 Alan Greenstein: I think in terms of somebody looking for finance, the 204 00:11:10,080 --> 00:11:15,179 Alan Greenstein: market is going to grow. Because as private credit grows 205 00:11:15,179 --> 00:11:18,509 Alan Greenstein: into the market and attracts more market share, it itself 206 00:11:18,509 --> 00:11:22,650 Alan Greenstein: becomes more sophisticated. It is able to fund larger loan 207 00:11:22,650 --> 00:11:26,820 Alan Greenstein: sizes. It becomes more accepted as an acceptable part of 208 00:11:26,820 --> 00:11:30,059 Alan Greenstein: the funding waterfall. And as I said earlier, if the 209 00:11:30,059 --> 00:11:33,540 Alan Greenstein: American and the European experience is anything to go by, 210 00:11:33,809 --> 00:11:37,230 Alan Greenstein: and the trend that we're currently seeing in Australia remains 211 00:11:37,230 --> 00:11:40,740 Alan Greenstein: on trend and is indicative of something coming, then this 212 00:11:40,740 --> 00:11:45,090 Alan Greenstein: market is going to grow to being about 25% of 213 00:11:45,090 --> 00:11:49,500 Alan Greenstein: the total lending market in Australia for commercial real estate 214 00:11:49,500 --> 00:11:52,650 Alan Greenstein: debt. That's not the total market, the commercial estate debt 215 00:11:52,650 --> 00:11:55,050 Alan Greenstein: market. So that part of it is going to go. 216 00:11:55,500 --> 00:12:00,208 Alan Greenstein: I'm not specifically talking about unsecured business finance or those 217 00:12:00,208 --> 00:12:02,490 Alan Greenstein: kinds of things. I'm not in that market and I 218 00:12:02,490 --> 00:12:05,460 Alan Greenstein: don't understand it well enough. But I see no reason 219 00:12:05,460 --> 00:12:09,840 Alan Greenstein: why that shouldn't continue to increase either. So, fundamentally, I 220 00:12:09,840 --> 00:12:13,440 Alan Greenstein: believe private credit will continue to grow. The two aspects 221 00:12:13,440 --> 00:12:15,869 Alan Greenstein: of that will be the banks will continue to become 222 00:12:16,139 --> 00:12:20,100 Alan Greenstein: less efficient, not more efficient. The banks will naturally go 223 00:12:20,100 --> 00:12:24,030 Alan Greenstein: to the bigger, larger, more complex transactions. And the middle 224 00:12:24,030 --> 00:12:25,800 Alan Greenstein: part of the market will get taken up by the 225 00:12:25,800 --> 00:12:28,708 Alan Greenstein: private operators. So over 10 years, I think it can 226 00:12:28,710 --> 00:12:32,759 Alan Greenstein: only increase. Just to be able to talk from an investment point of 227 00:12:32,759 --> 00:12:35,490 Alan Greenstein: view, I think that what's important, and what we haven't really 228 00:12:35,490 --> 00:12:39,390 Alan Greenstein: spoken about is, why are investors funding private credit? And 229 00:12:39,870 --> 00:12:43,500 Alan Greenstein: the simple result is returns. Investors are now earning between 230 00:12:43,500 --> 00:12:46,978 Alan Greenstein: 8% and 10%, maybe even more, for something that is 231 00:12:46,980 --> 00:12:52,889 Alan Greenstein: a reasonably safe, secure, but very transparent, very consistent, and 232 00:12:52,889 --> 00:12:56,370 Alan Greenstein: very non- correlated return. So if I've lent into the 233 00:12:56,370 --> 00:12:59,790 Alan Greenstein: private credit market, if I've put money into a one 234 00:12:59,790 --> 00:13:04,078 Alan Greenstein: year or 18 month deal at a 65% or 66% loan to value 235 00:13:04,080 --> 00:13:07,230 Alan Greenstein: ratio, and it's paying me 9% or 9. 5% per 236 00:13:07,230 --> 00:13:10,319 Alan Greenstein: annum, that is not going to be impacted by the 237 00:13:10,320 --> 00:13:13,470 Alan Greenstein: bond rate or what the equities market does. And I'm 238 00:13:13,470 --> 00:13:15,840 Alan Greenstein: going to get my return and I'm going to cash 239 00:13:15,840 --> 00:13:18,059 Alan Greenstein: out my return. Yes, I have a tax consequence for 240 00:13:18,059 --> 00:13:22,830 Alan Greenstein: that, but that is a stable, consistent, transparent, reliable return. 241 00:13:22,830 --> 00:13:26,098 Alan Greenstein: So in these markets where there's high inflation, but we're 242 00:13:26,099 --> 00:13:29,549 Alan Greenstein: not quite sure what's going to happen geopolitically, where there's 243 00:13:29,549 --> 00:13:32,848 Alan Greenstein: a lot of volatility around, an investor wants a safe 244 00:13:32,850 --> 00:13:34,980 Alan Greenstein: haven for their money, but they also want the highest 245 00:13:34,980 --> 00:13:38,670 Alan Greenstein: possible return. Now, as long as those conditions remain, there 246 00:13:38,670 --> 00:13:41,670 Alan Greenstein: are always going to be investors to fund private credit. 247 00:13:42,389 --> 00:13:44,159 Sean Aylmer: Alan, thank you for talking to Fear and Greed. 248 00:13:44,520 --> 00:13:46,290 Alan Greenstein: Thank you so much for the opportunity, Sean. 249 00:13:46,770 --> 00:13:52,170 Sean Aylmer: That was Alan Greenstein, CEO and Co- Founder of Zagga, that's Z-A-G-G-A, Zagga, 250 00:13:52,200 --> 00:13:54,720 Sean Aylmer: a supporter of this podcast. This is the Fear and 251 00:13:54,720 --> 00:13:57,750 Sean Aylmer: Greed business interview. Remember, this is general information only, and 252 00:13:57,750 --> 00:14:01,559 Sean Aylmer: you should seek professional advice before making investment decisions. Join 253 00:14:01,559 --> 00:14:03,360 Sean Aylmer: us every morning for the full episode of Fear and 254 00:14:03,360 --> 00:14:05,819 Sean Aylmer: Greed, daily business news for people who make their own 255 00:14:05,820 --> 00:14:08,250 Sean Aylmer: decisions. I'm Sean Aylmer. Enjoy your day.