1 00:00:00,400 --> 00:00:01,480 Speaker 1: Heather duple Cel. 2 00:00:01,720 --> 00:00:04,880 Speaker 2: The unfolding private credit saga is flying a bit under 3 00:00:04,880 --> 00:00:06,720 Speaker 2: the radar here in New Zealand, but there is a 4 00:00:06,800 --> 00:00:10,039 Speaker 2: three point five trillion dollar corner of global finance. It's 5 00:00:10,080 --> 00:00:12,320 Speaker 2: showing some growing pains. What does it mean for investors? 6 00:00:12,320 --> 00:00:14,400 Speaker 2: Sam Dickey from Fisher Funds is with us. 7 00:00:14,400 --> 00:00:16,080 Speaker 1: Now, Hi, Sam, good evening. 8 00:00:16,440 --> 00:00:19,360 Speaker 2: All right, let's start with what actually private credit is 9 00:00:19,400 --> 00:00:20,840 Speaker 2: and why it's grown so rapidly. 10 00:00:22,160 --> 00:00:26,720 Speaker 1: At its core, private credit is actually quite vanilla, so 11 00:00:26,760 --> 00:00:30,760 Speaker 1: it's just lending, but it's done by investment funds rather 12 00:00:30,800 --> 00:00:33,680 Speaker 1: than banks. And this came about because after two thousand 13 00:00:33,720 --> 00:00:37,600 Speaker 1: and eight, after the Global financial crisis, governments forced banks 14 00:00:37,600 --> 00:00:40,640 Speaker 1: to pull back and this left a gap. So big 15 00:00:40,800 --> 00:00:43,800 Speaker 1: long established fund managers like Blackstone or black Rock or 16 00:00:43,800 --> 00:00:47,680 Speaker 1: Apollo stepped in and it really exploded from virtually nothing 17 00:00:47,680 --> 00:00:50,160 Speaker 1: in two thousand and eight to three point five trillion 18 00:00:50,200 --> 00:00:54,000 Speaker 1: dollars today and for a long time it did deliver. So, 19 00:00:54,360 --> 00:00:58,240 Speaker 1: for example, Blackstones Flagship Fund has returned about nine point 20 00:00:58,280 --> 00:01:01,680 Speaker 1: eight percent a year since inception, which is well above ponds. 21 00:01:02,520 --> 00:01:05,399 Speaker 2: When you say growing pains, what do you mean? 22 00:01:07,280 --> 00:01:10,840 Speaker 1: It's really four things converging at once and it is 23 00:01:10,920 --> 00:01:13,400 Speaker 1: slightly spicy the timing right now. So first of all, 24 00:01:14,240 --> 00:01:17,320 Speaker 1: with anything that's attractive like that at retractive ten percent 25 00:01:17,360 --> 00:01:21,280 Speaker 1: returns well above bombs and it's grown rapidly, it attracts 26 00:01:21,680 --> 00:01:24,680 Speaker 1: late entrants. So some newer, less experienced operators and lend 27 00:01:25,040 --> 00:01:27,320 Speaker 1: or lenders piled in and made loans they shouldn't have, 28 00:01:27,440 --> 00:01:31,040 Speaker 1: and two major borrowers went bankrupt last year, And as 29 00:01:31,120 --> 00:01:33,280 Speaker 1: Jamie Diamond summed it up, when you see one cockroach, 30 00:01:33,319 --> 00:01:36,120 Speaker 1: there were probably more. The second thing is the rush 31 00:01:36,160 --> 00:01:39,039 Speaker 1: to open this up to retail investors, So individuals who 32 00:01:39,040 --> 00:01:43,080 Speaker 1: don't always understand they're investing in something quite a liquid, 33 00:01:43,200 --> 00:01:45,759 Speaker 1: so they invest in these funds, and the funds then 34 00:01:45,800 --> 00:01:48,040 Speaker 1: lend that money out to private companies. But it's not 35 00:01:48,080 --> 00:01:49,840 Speaker 1: like investing in a list of stock. When you lend 36 00:01:49,880 --> 00:01:51,680 Speaker 1: to a private company, you need to be in for 37 00:01:51,720 --> 00:01:54,480 Speaker 1: the long haul. And a lot of sort of Johnny 38 00:01:54,480 --> 00:01:57,000 Speaker 1: Comme Lady retail investors didn't understand that they wanted their 39 00:01:57,000 --> 00:01:59,840 Speaker 1: money back, and they wanted it all at once. And 40 00:02:00,080 --> 00:02:02,400 Speaker 1: Blue Our which is a bit of a poster child 41 00:02:02,400 --> 00:02:07,040 Speaker 1: for the current private credit stresses, blocked retail clients from 42 00:02:07,080 --> 00:02:10,240 Speaker 1: withdrawing funds, and that obviously causes consternation. The third thing 43 00:02:10,320 --> 00:02:12,679 Speaker 1: is many loans went to software companies, and you and 44 00:02:12,760 --> 00:02:15,480 Speaker 1: I have talked about headed that software has been hammered 45 00:02:15,520 --> 00:02:18,239 Speaker 1: as AI threatens their big business models. And the final 46 00:02:18,280 --> 00:02:22,520 Speaker 1: thing is people are questioning how these assets or loans 47 00:02:22,600 --> 00:02:25,360 Speaker 1: get valued. There's no daily sort of marked to market 48 00:02:25,360 --> 00:02:27,519 Speaker 1: price like there is for stock. So four things at once, 49 00:02:27,560 --> 00:02:29,600 Speaker 1: and it's causing a little bit of consternation. 50 00:02:29,840 --> 00:02:31,320 Speaker 2: Yeah, I can see why. Okay, So what does it 51 00:02:31,360 --> 00:02:32,119 Speaker 2: mean for investors? 52 00:02:32,120 --> 00:02:35,320 Speaker 1: Then? Well, the first thing is it's it's not a 53 00:02:35,400 --> 00:02:40,040 Speaker 1: GFC mark two. So private credit risk sits with asset managers, 54 00:02:40,040 --> 00:02:43,200 Speaker 1: not banks, and they are far far less leveraged than 55 00:02:43,320 --> 00:02:45,960 Speaker 1: the banks. We're in two thousand and eight, So you know, 56 00:02:46,040 --> 00:02:49,160 Speaker 1: take Goldman, Sachs and JP Morgan's word for it. This 57 00:02:49,360 --> 00:02:52,000 Speaker 1: is a point of stress, but it's not a systemic crisis. 58 00:02:52,200 --> 00:02:54,240 Speaker 1: It's really been called a healthy reset. And when you 59 00:02:55,120 --> 00:02:57,360 Speaker 1: have a new asset class, it hasn't yet been through 60 00:02:57,360 --> 00:03:01,400 Speaker 1: the ringer, it hasn't been through a full cycle a 61 00:03:01,480 --> 00:03:04,079 Speaker 1: cleansing event whereby you get rid of some week operators, 62 00:03:04,120 --> 00:03:08,079 Speaker 1: so some week lenders and some week retail investors, it's 63 00:03:08,160 --> 00:03:10,840 Speaker 1: a good thing. And the second thing is if you 64 00:03:10,919 --> 00:03:13,760 Speaker 1: are invested in private credit, remember what it is at 65 00:03:13,800 --> 00:03:15,679 Speaker 1: its core, which is just people with money lending to 66 00:03:15,720 --> 00:03:18,480 Speaker 1: those who don't. But bypassing the banks and done well, 67 00:03:18,520 --> 00:03:22,000 Speaker 1: it plays a critical role in the economy. So here 68 00:03:22,040 --> 00:03:24,840 Speaker 1: at Ficier Funds, for example, we do selective private credit 69 00:03:25,480 --> 00:03:28,440 Speaker 1: and we funded the construction of the car Waker Hospital 70 00:03:28,440 --> 00:03:31,240 Speaker 1: campus and Hastings for example. And that's private credit at 71 00:03:31,280 --> 00:03:35,040 Speaker 1: its best, and the Wall Street growing pains won't change 72 00:03:35,080 --> 00:03:36,000 Speaker 1: those fundamentals. 73 00:03:36,120 --> 00:03:38,200 Speaker 2: Interesting. Hey, Sam, thank you for running us through. Appreciate it. 74 00:03:38,200 --> 00:03:39,520 Speaker 2: We'll talk to you a new week's Times. It's Sam 75 00:03:39,520 --> 00:03:41,200 Speaker 2: Dickey Official Funds. 76 00:03:41,760 --> 00:03:44,920 Speaker 1: For more from Heather Duplessy Allen Drive, listen live to 77 00:03:45,040 --> 00:03:48,080 Speaker 1: news Talks. It'd be from four pm weekdays, or follow 78 00:03:48,120 --> 00:03:49,880 Speaker 1: the podcast on iHeartRadio.