1 00:00:18,000 --> 00:00:20,640 Speaker 1: Hello, and welcome to the Credit Edge, a weekly markets podcast. 2 00:00:20,720 --> 00:00:23,360 Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg. 3 00:00:23,760 --> 00:00:26,160 Speaker 1: This week, we're very pleased to welcome Aaron Fink, head 4 00:00:26,160 --> 00:00:29,560 Speaker 1: of asset finance at Center Bridge. How are you, Aaron, Well, Thanks, 5 00:00:29,600 --> 00:00:31,320 Speaker 1: thanks for having me, Thanks so much joining us today. 6 00:00:31,320 --> 00:00:33,960 Speaker 1: We're very excited to get your credit market views. Also 7 00:00:34,000 --> 00:00:38,240 Speaker 1: delighted to welcome back co host Himanshu Bakshiet from Bloomberg Intelligence. Hello, 8 00:00:38,320 --> 00:00:40,520 Speaker 1: him Manhu, Hi James, thank you for having me back 9 00:00:40,880 --> 00:00:44,400 Speaker 1: and with the tough questions from Bloomberg News. Carmen Arroyo. 10 00:00:44,600 --> 00:00:46,839 Speaker 1: Great to see you, Carmen. How's it going good? 11 00:00:46,920 --> 00:00:48,120 Speaker 2: Thank you for having me, James. 12 00:00:48,280 --> 00:00:50,080 Speaker 1: So, just to set the scene at the top pier, 13 00:00:50,400 --> 00:00:53,400 Speaker 1: credit markets are hot and borrowers globally are taking advantage. 14 00:00:53,440 --> 00:00:55,880 Speaker 1: This month could set a record for debt issuance by 15 00:00:55,960 --> 00:00:58,480 Speaker 1: US companies. Most of it is for refinancing. There's a 16 00:00:58,520 --> 00:01:01,360 Speaker 1: lot of debt coming due That means more cash returning 17 00:01:01,360 --> 00:01:03,880 Speaker 1: to investors who have already received a ton of inflows 18 00:01:03,920 --> 00:01:05,840 Speaker 1: over the last year and are very keen to buy 19 00:01:05,959 --> 00:01:08,560 Speaker 1: given how high all in yields are. You can get 20 00:01:08,600 --> 00:01:10,960 Speaker 1: over five point five percent right now on high grade 21 00:01:11,040 --> 00:01:13,360 Speaker 1: US debt with a very low chance of default. That's 22 00:01:13,360 --> 00:01:16,720 Speaker 1: the highest in about six months. A growing demand supplied 23 00:01:16,760 --> 00:01:20,160 Speaker 1: imbalance is keeping spreads raiser thin and also pushing investors 24 00:01:20,160 --> 00:01:22,880 Speaker 1: to other parts of credit like structured finance and private 25 00:01:22,920 --> 00:01:26,760 Speaker 1: debt where returns are higher some some people fear it's 26 00:01:26,800 --> 00:01:30,959 Speaker 1: also leading to complacency and mispricing of risk throughout credit markets, 27 00:01:31,080 --> 00:01:33,240 Speaker 1: which is only expected to get worse in twenty twenty 28 00:01:33,240 --> 00:01:37,160 Speaker 1: five as more investors piled in. Private credit is particularly interesting. 29 00:01:37,200 --> 00:01:39,520 Speaker 1: Apollo thinks it will get to forty trillion dollars in 30 00:01:39,600 --> 00:01:42,319 Speaker 1: five years, and that asset based finance is already at 31 00:01:42,400 --> 00:01:45,440 Speaker 1: twenty trillion dollars. That's in a previous episode you can 32 00:01:45,440 --> 00:01:49,680 Speaker 1: listen to from December. So, Aaron, whilst your view are 33 00:01:49,720 --> 00:01:51,400 Speaker 1: you very bullish like everyone else saw, do you think 34 00:01:51,440 --> 00:01:53,320 Speaker 1: there is reason for caution at this point? 35 00:01:53,680 --> 00:01:56,480 Speaker 3: Well, first, thanks for having me, James Simonshuw and Carmen. 36 00:01:57,400 --> 00:02:02,080 Speaker 3: We are constructive on the mark. There are a variety 37 00:02:02,120 --> 00:02:04,640 Speaker 3: of technicals at play that I think will lend a 38 00:02:04,640 --> 00:02:09,079 Speaker 3: decent amount of support. We'd expect to see banks continuing 39 00:02:09,080 --> 00:02:11,680 Speaker 3: to back up after a couple of years of balance 40 00:02:11,680 --> 00:02:15,720 Speaker 3: sheet de leveraging. There's been a lot of focus on 41 00:02:15,880 --> 00:02:19,480 Speaker 3: the capital coming into the private space, Insurers underinvested in 42 00:02:19,880 --> 00:02:24,320 Speaker 3: private assets and private capital growth generally, and so I 43 00:02:24,360 --> 00:02:27,880 Speaker 3: think those factors will help to underpin what is a 44 00:02:27,919 --> 00:02:31,080 Speaker 3: pretty well bid market. It's not to say that we 45 00:02:31,120 --> 00:02:34,160 Speaker 3: don't think there are some risks. Obviously, there's a lot 46 00:02:34,200 --> 00:02:37,440 Speaker 3: of potential for volatility in a new administration. Rates are 47 00:02:37,560 --> 00:02:40,320 Speaker 3: very high, and so I don't know that it's going 48 00:02:40,360 --> 00:02:42,920 Speaker 3: to just be a steady march tighter for the next year, 49 00:02:43,360 --> 00:02:46,200 Speaker 3: but we are constructive on where the market sits today. 50 00:02:46,840 --> 00:02:49,160 Speaker 1: The big thing that's changed over the last few weeks 51 00:02:49,160 --> 00:02:52,519 Speaker 1: and days really is the high rates. You know, people 52 00:02:52,600 --> 00:02:54,840 Speaker 1: did come into the expecting quite a few rate cuts. 53 00:02:54,840 --> 00:02:57,679 Speaker 1: They expected to yields to come down generally, but they've 54 00:02:57,680 --> 00:02:59,600 Speaker 1: gone up. I mean, that's been a bit of relief 55 00:02:59,639 --> 00:03:03,040 Speaker 1: this week CPI, but you know, talking about much to 56 00:03:03,120 --> 00:03:06,440 Speaker 1: five percent on the tenure, talking about potential rate hikes next, 57 00:03:06,480 --> 00:03:10,720 Speaker 1: not even the cut. That surely changes everybody's view of 58 00:03:11,120 --> 00:03:14,120 Speaker 1: how credit markets react this year. What's changed in your 59 00:03:14,240 --> 00:03:15,640 Speaker 1: outlook based on yields? 60 00:03:16,600 --> 00:03:20,640 Speaker 3: Well, our outlook has been higher for longer. I think, 61 00:03:20,760 --> 00:03:26,560 Speaker 3: you know, notwithstanding better CPI data today, we've had this 62 00:03:26,680 --> 00:03:29,720 Speaker 3: expectation that a lot of what is out in the world, 63 00:03:30,080 --> 00:03:33,400 Speaker 3: potential for tariffs in the new administration and the like, 64 00:03:34,080 --> 00:03:37,680 Speaker 3: are likely to keep rates reasonably high. And so I 65 00:03:37,680 --> 00:03:40,400 Speaker 3: think the question really comes down to what impact a 66 00:03:40,720 --> 00:03:44,880 Speaker 3: relatively high rate environment has on a couple of different constituencies. 67 00:03:45,520 --> 00:03:48,680 Speaker 3: We think about the world as the as it relates 68 00:03:48,680 --> 00:03:51,640 Speaker 3: to the impact for consumers. Consumers have faced, you know, 69 00:03:51,680 --> 00:03:55,480 Speaker 3: a good amount of inflation in their daily lives, and 70 00:03:56,120 --> 00:03:59,640 Speaker 3: it's made housing unaffordable. I think consumers generally are in 71 00:03:59,640 --> 00:04:04,280 Speaker 3: a pretty strong place, and we're watching the kind of 72 00:04:04,280 --> 00:04:08,200 Speaker 3: we're watching job creation, but obviously continued rate inflation and 73 00:04:08,200 --> 00:04:12,080 Speaker 3: continue inflation could get a pressure consumer pretty meaningfully. And 74 00:04:12,160 --> 00:04:15,440 Speaker 3: it's look, it's an attractive investing environment because base rates 75 00:04:15,440 --> 00:04:17,760 Speaker 3: are high, and I think one of the refrains I've 76 00:04:17,800 --> 00:04:20,599 Speaker 3: heard on this show and in other places is people 77 00:04:20,600 --> 00:04:22,920 Speaker 3: are willing to take tighter credit spreads because the absolute 78 00:04:22,960 --> 00:04:25,080 Speaker 3: returns of there, and I think that's true. In part, 79 00:04:25,640 --> 00:04:29,640 Speaker 3: we're focused on the potential for rate volatility, and we 80 00:04:29,680 --> 00:04:32,560 Speaker 3: want to make sure that we're setting up investments with 81 00:04:32,600 --> 00:04:35,360 Speaker 3: the right amount of downside protection. We don't have a 82 00:04:35,360 --> 00:04:38,640 Speaker 3: ton of explicit rate exposure, so that if there is 83 00:04:38,800 --> 00:04:42,200 Speaker 3: vol we feel like we're positioned to be insulated and 84 00:04:42,240 --> 00:04:44,719 Speaker 3: we're just taking the core risks that we're focused on taking. 85 00:04:45,920 --> 00:04:50,280 Speaker 4: And one of center bridge strategies in private credit involves 86 00:04:50,320 --> 00:04:54,560 Speaker 4: identifying overlooked and misunderstood assets. Can you share what instruments 87 00:04:54,680 --> 00:04:57,640 Speaker 4: or assets are either overlooked or misunderstood by the markets 88 00:04:57,720 --> 00:04:58,640 Speaker 4: As of today. 89 00:05:00,000 --> 00:05:02,800 Speaker 3: Center Bridge is set up twenty years ago to be 90 00:05:02,960 --> 00:05:07,680 Speaker 3: an opportunistic investor that is designed to pivot public to 91 00:05:07,800 --> 00:05:10,599 Speaker 3: private based on what the market gives us. That's our 92 00:05:10,680 --> 00:05:14,520 Speaker 3: core ethos, and we do it with an orientation where 93 00:05:14,520 --> 00:05:17,159 Speaker 3: we have one investment team that looks at a broad 94 00:05:17,240 --> 00:05:21,400 Speaker 3: range of opportunities organized by industry vertical. So I, for instance, 95 00:05:21,400 --> 00:05:23,839 Speaker 3: spend a majority of my time in financials and in 96 00:05:23,920 --> 00:05:26,280 Speaker 3: partnership with my peers on the private equity side and 97 00:05:26,320 --> 00:05:29,719 Speaker 3: on the credit side. We think about control private equity opportunities, 98 00:05:29,760 --> 00:05:33,080 Speaker 3: we think about credit opportunities in the corporate markets, and 99 00:05:33,160 --> 00:05:37,760 Speaker 3: of course asset finance opportunities. So we're always asking ourselves 100 00:05:37,880 --> 00:05:42,120 Speaker 3: this specific question in as a financed today, we've been 101 00:05:42,160 --> 00:05:45,600 Speaker 3: focused coming into the year on the ability to originate 102 00:05:45,640 --> 00:05:51,640 Speaker 3: consumer credit as at an overlooked and beaten up space. 103 00:05:52,120 --> 00:05:55,080 Speaker 3: If you think about what happened leading up to COVID, 104 00:05:55,120 --> 00:05:58,440 Speaker 3: there was a big run up in origination, consumer credit 105 00:05:58,440 --> 00:06:02,560 Speaker 3: boxes were widened, you had COVID really super charge borrower performance, 106 00:06:03,040 --> 00:06:06,080 Speaker 3: and the hangover from all that's been pretty dramatic. You 107 00:06:06,120 --> 00:06:08,599 Speaker 3: had really the worst performance on record in twenty one 108 00:06:08,640 --> 00:06:12,240 Speaker 3: twenty two for many consumer sectors. So we viewed that 109 00:06:12,360 --> 00:06:16,080 Speaker 3: as a time history has told us to step in 110 00:06:16,320 --> 00:06:19,280 Speaker 3: and be an originator. We've owned a broad range of 111 00:06:19,560 --> 00:06:23,520 Speaker 3: consumer finance businesses and owned today throughout the history of 112 00:06:23,560 --> 00:06:26,159 Speaker 3: the firm, and it's always post blow up that we 113 00:06:26,240 --> 00:06:28,559 Speaker 3: want to be there originating. So that's been one space 114 00:06:28,640 --> 00:06:32,440 Speaker 3: that we've identified as attractive. Stepping back, we still think 115 00:06:32,480 --> 00:06:36,160 Speaker 3: there's attractive opportunities in the private credit markets. Holistically, I 116 00:06:36,200 --> 00:06:39,440 Speaker 3: know that's not a super hot take these days, but 117 00:06:39,960 --> 00:06:43,560 Speaker 3: you have to pick your spots. So we orient ourselves 118 00:06:43,640 --> 00:06:46,360 Speaker 3: thematically but with an opportunistic bent. So we want to 119 00:06:46,400 --> 00:06:48,719 Speaker 3: be in places that we think offer the most absolute 120 00:06:48,760 --> 00:06:51,520 Speaker 3: and relative value at any point in the cycle. Today 121 00:06:51,560 --> 00:06:54,240 Speaker 3: that might be consumer. We think there's opportunities in the 122 00:06:54,279 --> 00:06:58,320 Speaker 3: housing market, but ultimately that's how we set up to 123 00:06:58,440 --> 00:07:00,000 Speaker 3: make investments. 124 00:06:59,760 --> 00:07:03,279 Speaker 4: That's interesting. So private credit growth, if you look at it, 125 00:07:03,320 --> 00:07:05,880 Speaker 4: has largely been concentrated in direct lending for the last 126 00:07:05,880 --> 00:07:09,000 Speaker 4: few years, but we're seeing it branch out into new 127 00:07:09,040 --> 00:07:13,400 Speaker 4: areas like asset based financing. You mentioned consuming credit. Now 128 00:07:13,480 --> 00:07:15,960 Speaker 4: people are even calling it tailor swift of private credit 129 00:07:16,480 --> 00:07:17,280 Speaker 4: Reddit somewhere. 130 00:07:17,560 --> 00:07:18,080 Speaker 3: I love that. 131 00:07:18,120 --> 00:07:20,320 Speaker 4: How big is the addressable market if you look at 132 00:07:20,360 --> 00:07:22,400 Speaker 4: just asset based financing right now? How big is that 133 00:07:22,400 --> 00:07:23,440 Speaker 4: addressable market? 134 00:07:24,160 --> 00:07:27,600 Speaker 3: We haven't put a number out. I've heard pretty gaudy numbers. 135 00:07:29,440 --> 00:07:33,840 Speaker 3: I've heard a forty trillion dollar number, and I think, look, 136 00:07:33,920 --> 00:07:38,080 Speaker 3: acid finance has been around for a very, very long time. 137 00:07:39,160 --> 00:07:41,720 Speaker 3: Acid finance is every you know, in every day, in 138 00:07:41,760 --> 00:07:45,360 Speaker 3: every part of our daily lives, buying a home, buying 139 00:07:45,360 --> 00:07:47,520 Speaker 3: a sweater at a super you know, buying a sweater 140 00:07:47,560 --> 00:07:51,160 Speaker 3: at a at a department store, you know, charging money 141 00:07:51,200 --> 00:07:54,200 Speaker 3: on your credit card. Asset finance is really a part 142 00:07:54,200 --> 00:07:56,320 Speaker 3: of the real economy, drives the real economy, drives the 143 00:07:56,320 --> 00:07:59,840 Speaker 3: corporate economy. So it's really always been here. It is 144 00:08:00,000 --> 00:08:03,480 Speaker 3: coming out of the shadows a bit, but Ultimately, these 145 00:08:03,480 --> 00:08:07,880 Speaker 3: are products and sectors that existed before the financial crisis, 146 00:08:07,960 --> 00:08:12,240 Speaker 3: in the form of GE and CIIT other corporate originators. 147 00:08:12,600 --> 00:08:17,080 Speaker 3: So it's not really new in the traditional sense. And 148 00:08:17,560 --> 00:08:20,080 Speaker 3: so you know, I think we we we see it 149 00:08:20,120 --> 00:08:24,040 Speaker 3: as something that folks are focused on because increasingly, you know, 150 00:08:24,120 --> 00:08:27,520 Speaker 3: the insurance companies in particular, have a good liability set 151 00:08:27,560 --> 00:08:29,680 Speaker 3: up to be able to buy these assets that are illiquid. 152 00:08:29,880 --> 00:08:33,839 Speaker 4: But it's not new, it's just rediscovering the same old rediscovering. 153 00:08:34,040 --> 00:08:36,320 Speaker 4: So just to follow up on that, what kind of 154 00:08:36,360 --> 00:08:38,920 Speaker 4: assets are you most focused on when you're looking at 155 00:08:38,920 --> 00:08:41,680 Speaker 4: these ABF deals? Where do you see more opportunities and 156 00:08:41,760 --> 00:08:43,680 Speaker 4: what are you staying away from? Because you did mention 157 00:08:43,760 --> 00:08:48,319 Speaker 4: consumer credit, you're looking at more like mortgages, credit cards, abs. 158 00:08:48,760 --> 00:08:50,920 Speaker 4: What are you are you seeing more most opportunity? 159 00:08:51,640 --> 00:08:55,000 Speaker 3: I mentioned that coming into twenty four an important theme 160 00:08:55,120 --> 00:09:00,360 Speaker 3: for US was origination newly originated consumer credit. It came 161 00:09:00,360 --> 00:09:02,400 Speaker 3: out of this exercise we do at Center Bridge where 162 00:09:02,400 --> 00:09:07,040 Speaker 3: every year all of our industry teams develop ideas that 163 00:09:07,080 --> 00:09:10,560 Speaker 3: we believe our multi year thematic opportunities off which we 164 00:09:10,600 --> 00:09:13,560 Speaker 3: can invest, and then we present those to the firm 165 00:09:13,600 --> 00:09:15,920 Speaker 3: and distill them down to the best and most actionable things. 166 00:09:16,480 --> 00:09:19,880 Speaker 3: Consumer credit met that criteria for US coming into the year. 167 00:09:19,920 --> 00:09:23,439 Speaker 3: We still think that's interesting. We're obviously paying close attention 168 00:09:23,600 --> 00:09:26,120 Speaker 3: to interest rates and the health of the consumer, but 169 00:09:26,120 --> 00:09:29,200 Speaker 3: we think the consumer is still well positioned. We see 170 00:09:29,200 --> 00:09:32,880 Speaker 3: a lot of opportunities in US housing in various forms. 171 00:09:33,520 --> 00:09:37,000 Speaker 3: Since twenty nineteen, there's been something like sixteen trillion of 172 00:09:37,040 --> 00:09:40,520 Speaker 3: home equity built up on the balance sheets of consumers. 173 00:09:41,400 --> 00:09:44,559 Speaker 3: Consumers approach to tapping the value in their home has 174 00:09:44,559 --> 00:09:47,600 Speaker 3: evolved over time. Fifty years ago, you sold your house 175 00:09:48,200 --> 00:09:51,600 Speaker 3: late in life to create cash to live out the 176 00:09:51,720 --> 00:09:55,440 Speaker 3: end of your retirement years. Today people are much more, 177 00:09:56,400 --> 00:09:59,640 Speaker 3: much more proactive about viewing that as an asset that 178 00:09:59,679 --> 00:10:02,320 Speaker 3: can be managed and tapped on an ongoing basis. And 179 00:10:02,720 --> 00:10:06,440 Speaker 3: with mortgage rates high and the average borrower coupon three 180 00:10:06,480 --> 00:10:10,320 Speaker 3: point nine percent or so, there's an attractive opportunity to 181 00:10:10,440 --> 00:10:15,120 Speaker 3: create borrowing options for consumers. There's an attractive opportunity for 182 00:10:15,200 --> 00:10:19,199 Speaker 3: originators and investors to allow consumers to take money to 183 00:10:19,240 --> 00:10:23,160 Speaker 3: consolidate debt, to take money to do home improvement projects 184 00:10:23,840 --> 00:10:26,640 Speaker 3: as they're increasingly locked into their homes. So those are 185 00:10:26,640 --> 00:10:29,200 Speaker 3: two areas that we see pretty exciting opportunities. 186 00:10:29,840 --> 00:10:33,120 Speaker 2: I have a question for you on more like restructurings 187 00:10:33,320 --> 00:10:36,400 Speaker 2: or distressed in the space. And basically because one of 188 00:10:36,440 --> 00:10:38,400 Speaker 2: the mantras in private credit has always been like, you know, 189 00:10:38,440 --> 00:10:41,720 Speaker 2: it's much safe for the covenants are better. And over 190 00:10:41,760 --> 00:10:44,120 Speaker 2: the past six months we've seen a few restructurings in 191 00:10:44,200 --> 00:10:48,319 Speaker 2: direct lending. I'm wondering if that's a concern for center 192 00:10:48,400 --> 00:10:51,319 Speaker 2: Bridge and if workouts are in place, and also how 193 00:10:51,320 --> 00:10:54,120 Speaker 2: would that look if we were talking about asset based finance. 194 00:10:55,440 --> 00:10:59,360 Speaker 3: So restructurings in distress in the asset based finance space. 195 00:11:00,320 --> 00:11:04,840 Speaker 3: When we think about our history is as an opportunistic investor, 196 00:11:05,080 --> 00:11:08,839 Speaker 3: we have, as I mentioned, pivot over time to make 197 00:11:08,880 --> 00:11:13,559 Speaker 3: distressed investments. And when we think about making asset finance investments, 198 00:11:13,920 --> 00:11:15,719 Speaker 3: one of the things we focus on. First you have 199 00:11:15,760 --> 00:11:18,880 Speaker 3: to source an underwrite, and that is an important piece 200 00:11:18,920 --> 00:11:21,199 Speaker 3: of the puzzle. But then you have to build systems 201 00:11:21,200 --> 00:11:24,600 Speaker 3: and infrastructure to be able to asset manage, to troubleshoot 202 00:11:24,920 --> 00:11:27,000 Speaker 3: and to see, you know, look around corners and to 203 00:11:27,040 --> 00:11:31,319 Speaker 3: spot problems. So the nature of asset finance investments, the 204 00:11:31,360 --> 00:11:36,400 Speaker 3: way they're set up, we try to you know, conceptualize 205 00:11:36,480 --> 00:11:40,480 Speaker 3: the potential risks beforehand. Are we building enough credit enhancement 206 00:11:40,600 --> 00:11:43,680 Speaker 3: into our structures? Do we have the right creditor rights 207 00:11:43,880 --> 00:11:46,920 Speaker 3: to protect us if there are issues? I don't expect 208 00:11:47,000 --> 00:11:49,360 Speaker 3: you'll see the same sort of you know, creditor on 209 00:11:49,400 --> 00:11:53,320 Speaker 3: credit or violence or LME style restructuring in the asset 210 00:11:53,360 --> 00:11:55,840 Speaker 3: finance space. It just doesn't lend itself to that. But 211 00:11:55,880 --> 00:11:59,679 Speaker 3: we're very focused on active risk management and active value 212 00:11:59,720 --> 00:12:01,360 Speaker 3: creation in the investments we make. 213 00:12:02,400 --> 00:12:06,360 Speaker 4: So Aeron you said, overall your constructive on us consumers. Right. So, 214 00:12:07,400 --> 00:12:12,280 Speaker 4: there's been a lot of chatter about this unmeasurable risk rise, 215 00:12:12,960 --> 00:12:17,520 Speaker 4: which is a risk of delayed charge of effect, which 216 00:12:17,559 --> 00:12:20,640 Speaker 4: is basically borrowers who could have defaulted back in twenty 217 00:12:20,640 --> 00:12:24,480 Speaker 4: twenty one twenty twenty two, they either delayed or completely 218 00:12:24,520 --> 00:12:26,960 Speaker 4: avoided it due to fourbearance stimulus checks and all that. 219 00:12:27,960 --> 00:12:32,520 Speaker 4: Does this concern you when evaluating consumer focused ABF. 220 00:12:32,200 --> 00:12:36,560 Speaker 3: Deals, Obviously twenty one and twenty two I mentioned, will 221 00:12:36,559 --> 00:12:39,920 Speaker 3: be the worst vintage, the worst couple of vintages for 222 00:12:40,120 --> 00:12:43,360 Speaker 3: a lot of consumer originators and a broad range of 223 00:12:43,360 --> 00:12:48,120 Speaker 3: consumer products. We're actually seeing a lot of that burnoff today. 224 00:12:48,240 --> 00:12:50,760 Speaker 3: So on the balance sheets of corporates or of banks 225 00:12:50,840 --> 00:12:54,240 Speaker 3: insurance companies that had those risks, you're largely through the 226 00:12:54,280 --> 00:12:58,920 Speaker 3: peak of the lost curve, and so nothing comes to mind. 227 00:12:59,080 --> 00:13:01,760 Speaker 3: For place is where you'd have a lot a big 228 00:13:01,800 --> 00:13:04,160 Speaker 3: build up of forbearons that could you know, where the 229 00:13:04,200 --> 00:13:08,960 Speaker 3: other shoe could drop. Ultimately, really now it's about are 230 00:13:09,000 --> 00:13:12,400 Speaker 3: the is the underwriting for new consumer loans, you know, 231 00:13:12,400 --> 00:13:16,800 Speaker 3: sufficiently conservative to capture the profile of the consumer today 232 00:13:16,840 --> 00:13:19,840 Speaker 3: and the potential for risk if rates rise or if 233 00:13:19,880 --> 00:13:23,280 Speaker 3: there is other you know us macro distress. But there's 234 00:13:23,280 --> 00:13:25,240 Speaker 3: no place I look and see a dramatic build up 235 00:13:25,240 --> 00:13:28,360 Speaker 3: of forbearance. Specifically, there are places where there could be 236 00:13:28,400 --> 00:13:30,320 Speaker 3: deteriorating performance in the coming year. 237 00:13:31,160 --> 00:13:33,160 Speaker 2: I wanted to ask you a little bit about home 238 00:13:33,200 --> 00:13:35,720 Speaker 2: equity just because you mentioned that you're looking into it 239 00:13:35,800 --> 00:13:37,839 Speaker 2: or you're bullish on it, and I feel a lot 240 00:13:37,840 --> 00:13:40,079 Speaker 2: of people have been bullish on it over the past year, 241 00:13:40,160 --> 00:13:42,800 Speaker 2: and there's been new products and the you know, the 242 00:13:42,880 --> 00:13:45,840 Speaker 2: use of helox is up. Where do you see like 243 00:13:46,000 --> 00:13:49,679 Speaker 2: opportunities or where do you think there's space to go in. 244 00:13:50,520 --> 00:13:53,440 Speaker 3: So we we actually see a handful of opportunities in 245 00:13:53,600 --> 00:13:57,280 Speaker 3: the housing market for US, build up in home equity 246 00:13:57,480 --> 00:14:00,760 Speaker 3: and some of the demographic trends fail seeing kind of 247 00:14:00,760 --> 00:14:05,160 Speaker 3: housing have been themes that we've discussed for years as 248 00:14:05,160 --> 00:14:07,679 Speaker 3: a part of our Themes effort. There are two that 249 00:14:07,720 --> 00:14:10,080 Speaker 3: come to mind here you can highlight. The first is 250 00:14:10,240 --> 00:14:14,120 Speaker 3: obviously that's sixteen trillion of equity creation since twenty nineteen. 251 00:14:14,160 --> 00:14:16,240 Speaker 3: I think the number if you go back to twenty 252 00:14:16,240 --> 00:14:20,920 Speaker 3: twelve is over twenty five trillion dollars. Increasingly, consumers are 253 00:14:20,920 --> 00:14:24,240 Speaker 3: trying to figure out ways to access that in various forms. 254 00:14:24,240 --> 00:14:28,640 Speaker 3: So you mentioned helocks and second leans, there's also you 255 00:14:28,680 --> 00:14:33,080 Speaker 3: know products called equity option products where consumers are selling 256 00:14:33,120 --> 00:14:35,840 Speaker 3: a portion of the equity of the home. And it 257 00:14:35,880 --> 00:14:38,680 Speaker 3: really is a function of the use of proceeds as 258 00:14:38,680 --> 00:14:40,560 Speaker 3: we think about like what's the best for the consumer 259 00:14:40,640 --> 00:14:43,040 Speaker 3: and where do we think there's the most compelling opportunities. 260 00:14:43,240 --> 00:14:45,320 Speaker 3: One of the things that's attractive about the equity option 261 00:14:45,400 --> 00:14:48,360 Speaker 3: products is in most cases they don't require any ongoing 262 00:14:49,360 --> 00:14:51,560 Speaker 3: payment from the borrowers, so they can be used to 263 00:14:51,920 --> 00:14:55,440 Speaker 3: consolidate debt, for instance, without taking an additional burden, in 264 00:14:55,520 --> 00:14:57,760 Speaker 3: contrast to helocks, where you're going to pay a ten 265 00:14:57,840 --> 00:15:01,080 Speaker 3: eleven twelve percent coupon and so cash but it comes 266 00:15:01,120 --> 00:15:04,920 Speaker 3: at a meaningful cost. But also we see an opportunity 267 00:15:04,960 --> 00:15:07,440 Speaker 3: to originate loans to consumers who want to make improvements 268 00:15:07,480 --> 00:15:10,640 Speaker 3: to their home. I think existing home sales are at 269 00:15:10,640 --> 00:15:14,440 Speaker 3: twenty five year lows. Most consumers are locked into their 270 00:15:14,480 --> 00:15:18,200 Speaker 3: mortgage rates to three point nine percent mortgage rate. Mortgage 271 00:15:18,280 --> 00:15:22,760 Speaker 3: rates are now north of seven percent, and increasingly consumers 272 00:15:22,800 --> 00:15:26,960 Speaker 3: are looking to make improvements and stay in place. Originating 273 00:15:27,000 --> 00:15:30,200 Speaker 3: loans for the purpose of doing home improvements is a 274 00:15:30,280 --> 00:15:32,880 Speaker 3: really i think attractive option for those consumers and for 275 00:15:32,960 --> 00:15:34,240 Speaker 3: originators and companies. 276 00:15:34,720 --> 00:15:36,840 Speaker 2: So the follow up on that, like in the run 277 00:15:36,960 --> 00:15:39,240 Speaker 2: up to eight, and I'm sure, like you hate to 278 00:15:39,240 --> 00:15:43,160 Speaker 2: talk about the same topic, but helocks for kind of 279 00:15:43,200 --> 00:15:45,120 Speaker 2: like one of the concerns because a lot of people 280 00:15:45,400 --> 00:15:48,680 Speaker 2: were just tapping home equity for daily needs. Is that 281 00:15:48,760 --> 00:15:52,320 Speaker 2: a concern that's coming up now, especially with inflation still. 282 00:15:52,120 --> 00:15:56,160 Speaker 3: Up the main the big problem product in the run 283 00:15:56,240 --> 00:16:00,400 Speaker 3: up to eight, really we're piggyback seconds. So these were 284 00:16:00,480 --> 00:16:04,000 Speaker 3: scenarios where consumers would buy a home and put a 285 00:16:04,040 --> 00:16:06,040 Speaker 3: first and a second in place at the same time, 286 00:16:06,600 --> 00:16:10,320 Speaker 3: effectively having zero percent equity and that's an enormous risk 287 00:16:10,400 --> 00:16:13,240 Speaker 3: factor when you think about the probability of default. The 288 00:16:13,240 --> 00:16:16,480 Speaker 3: products that we're looking at today and places where we've 289 00:16:16,880 --> 00:16:21,160 Speaker 3: looked at second leans and helocks, these are typically underwritten 290 00:16:21,200 --> 00:16:25,040 Speaker 3: to government to GSE standards. The leverage is relatively low 291 00:16:25,120 --> 00:16:28,160 Speaker 3: versus one hundred percent advance rate in the GFC today, 292 00:16:28,160 --> 00:16:30,840 Speaker 3: maybe are at seventy or even eighty percent advance rates. 293 00:16:31,560 --> 00:16:34,600 Speaker 3: And leverage is correlated to the quality of the of 294 00:16:34,640 --> 00:16:38,240 Speaker 3: the consumer. So it's I think that piggyback second issue 295 00:16:38,240 --> 00:16:41,120 Speaker 3: that was really problematic in the GFC. I don't see 296 00:16:41,160 --> 00:16:44,119 Speaker 3: that as being a pervasive problem in these products. 297 00:16:44,760 --> 00:16:47,240 Speaker 1: Basic question though, Aaron, and I'm glad to be talking 298 00:16:47,240 --> 00:16:48,760 Speaker 1: about it because you used to work at Best Done, 299 00:16:48,800 --> 00:16:51,200 Speaker 1: so you remember the boom years, so you've got a 300 00:16:51,320 --> 00:16:54,200 Speaker 1: first time But why should I go to the center bridge? 301 00:16:54,200 --> 00:16:56,360 Speaker 1: I mean, if I think about, you know, helo or 302 00:16:56,520 --> 00:16:58,080 Speaker 1: equity in my house, I'm just going to go to 303 00:16:58,160 --> 00:16:59,640 Speaker 1: the same bank that I did a mortgage with, the 304 00:16:59,680 --> 00:17:03,080 Speaker 1: highest bank around the corner. I know the guy, It'll 305 00:17:03,080 --> 00:17:05,439 Speaker 1: give me a rate. Why should I cool you up? Instead? 306 00:17:05,560 --> 00:17:08,840 Speaker 3: Increasingly these products are not being funded in the bank community. 307 00:17:09,080 --> 00:17:12,199 Speaker 3: There's a cohort of borrowers that are able to go 308 00:17:12,240 --> 00:17:15,280 Speaker 3: to their banks and get helocked products. But increasingly the 309 00:17:15,320 --> 00:17:18,920 Speaker 3: more exotic and more convenient products for consumers are getting 310 00:17:18,920 --> 00:17:22,800 Speaker 3: funded in the private credit space. Center Bridge is set up. 311 00:17:23,240 --> 00:17:26,160 Speaker 3: Our team, the asset finance team is set up as 312 00:17:26,280 --> 00:17:29,200 Speaker 3: an effort that exists inside of our broader financial effort, 313 00:17:29,560 --> 00:17:33,440 Speaker 3: financials effort, and so we go out and face the world. 314 00:17:33,480 --> 00:17:37,280 Speaker 3: We meet with an originator of Heelocks, for instance, and 315 00:17:37,320 --> 00:17:39,600 Speaker 3: I'll go with my partners on the private equity side, 316 00:17:39,640 --> 00:17:42,000 Speaker 3: and we're able to sit with them. As an owner 317 00:17:42,040 --> 00:17:44,720 Speaker 3: of these types of businesses, We've owned a broad range 318 00:17:44,720 --> 00:17:47,639 Speaker 3: of consumer finance and mortgage businesses, we own some today, 319 00:17:48,320 --> 00:17:50,639 Speaker 3: and we're able to relate to and really be a 320 00:17:50,680 --> 00:17:54,880 Speaker 3: partner with these originators so that we can help them 321 00:17:54,920 --> 00:17:57,840 Speaker 3: solve the problems that they have, really addressed their capital needs, 322 00:17:57,880 --> 00:18:00,439 Speaker 3: and be a one stop shop and fit of that 323 00:18:00,480 --> 00:18:03,200 Speaker 3: for the consumer. To go back to your original question, 324 00:18:03,800 --> 00:18:06,080 Speaker 3: is that it gets them products that are the best 325 00:18:06,080 --> 00:18:10,640 Speaker 3: tailored to their needs while satisfying what's good for our investors. 326 00:18:11,520 --> 00:18:14,960 Speaker 3: Many times those products don't exist in the traditional bank community. 327 00:18:15,280 --> 00:18:17,000 Speaker 1: Doesn't mean I'm paying a lot more though, because I'm 328 00:18:17,000 --> 00:18:19,320 Speaker 1: going to a non traditional lender. 329 00:18:19,560 --> 00:18:22,600 Speaker 3: Not necessarily, I think it means you're in many cases 330 00:18:22,760 --> 00:18:26,040 Speaker 3: originating a product or taking a product that's going to 331 00:18:26,040 --> 00:18:29,440 Speaker 3: get funded outside of a bank balance sheet. That might 332 00:18:29,520 --> 00:18:33,240 Speaker 3: mean pricing that is more correlated to broader interest rates 333 00:18:33,240 --> 00:18:36,040 Speaker 3: and credit spreads than if you took a loan from 334 00:18:36,080 --> 00:18:39,800 Speaker 3: your local bank, but it's not necessarily tighter. And in 335 00:18:39,840 --> 00:18:43,080 Speaker 3: markets like this, when credit spreads are coming in, it 336 00:18:43,080 --> 00:18:45,760 Speaker 3: can also be beneficial to consumers because as these markets 337 00:18:45,760 --> 00:18:48,879 Speaker 3: develop and the financing gets more efficient, the cost of 338 00:18:48,960 --> 00:18:50,360 Speaker 3: borrowing can come way down. 339 00:18:50,480 --> 00:18:52,879 Speaker 1: Okay, this is kind of retail business we're talking about, though, 340 00:18:52,880 --> 00:18:55,080 Speaker 1: which kind of for a big shop like yourself, is 341 00:18:55,119 --> 00:18:58,320 Speaker 1: not particularly efficient to do one on one. I'm wondering, 342 00:18:58,320 --> 00:18:59,640 Speaker 1: sort of to back up a bit on the whole 343 00:18:59,640 --> 00:19:03,919 Speaker 1: asset based finance, how do you source the assets in general? 344 00:19:03,960 --> 00:19:06,040 Speaker 1: I mean, you know, there's there's such a big market, 345 00:19:06,040 --> 00:19:08,679 Speaker 1: there's so many different kinds of assets, and everybody's off 346 00:19:08,720 --> 00:19:11,720 Speaker 1: to these assets. The banks are less keen on them, 347 00:19:11,720 --> 00:19:15,280 Speaker 1: so they're kind of divesting. But you know, in basic 348 00:19:15,520 --> 00:19:18,800 Speaker 1: brule terms, what's your strategy forgetting these assets? 349 00:19:19,680 --> 00:19:22,280 Speaker 3: So I mentioned our setup we have one investment team 350 00:19:22,640 --> 00:19:26,639 Speaker 3: that looks at opportunities take our financials effort from control, 351 00:19:26,640 --> 00:19:30,760 Speaker 3: private equity all the way through public and private abs. 352 00:19:31,640 --> 00:19:34,040 Speaker 3: So the our approach, which I think is you know, 353 00:19:34,080 --> 00:19:36,959 Speaker 3: a pretty differentiated approach, is we go out and are 354 00:19:37,000 --> 00:19:40,000 Speaker 3: able to build partnerships with management teams because when we 355 00:19:40,040 --> 00:19:43,240 Speaker 3: sit down with them, we've built and created credit boxes 356 00:19:43,560 --> 00:19:47,560 Speaker 3: to originate heelocks, for instance, we've financed those loans. We 357 00:19:47,680 --> 00:19:53,000 Speaker 3: understand the challenges of actually running especially finance company, and 358 00:19:53,080 --> 00:19:56,719 Speaker 3: so we're able to a talk to these companies about 359 00:19:56,760 --> 00:20:00,440 Speaker 3: a broad range of capital needs they have. We're able 360 00:20:00,440 --> 00:20:03,880 Speaker 3: to build enduring partnerships, and ultimately it comes down, particularly 361 00:20:03,880 --> 00:20:05,399 Speaker 3: in a market like this where there's a lot of 362 00:20:05,440 --> 00:20:08,520 Speaker 3: capital chasing the space, where we're not going to compete 363 00:20:08,600 --> 00:20:11,359 Speaker 3: just on a cost of funds basis. For us, it 364 00:20:11,480 --> 00:20:14,240 Speaker 3: comes down to finding originators with whom we can have 365 00:20:14,640 --> 00:20:18,160 Speaker 3: recurring and really long term relationships so that we can 366 00:20:18,160 --> 00:20:20,359 Speaker 3: get to the best outcomes for consumers. Because we can 367 00:20:20,359 --> 00:20:23,439 Speaker 3: build stable funding for those businesses, we can create the 368 00:20:23,440 --> 00:20:25,960 Speaker 3: best outcome for our investors because we're able to create 369 00:20:26,200 --> 00:20:30,560 Speaker 3: stable opportunities, and ultimately that gives us a real sourcing edge. 370 00:20:30,560 --> 00:20:33,280 Speaker 3: We can't do it everywhere, but in the sectors we 371 00:20:33,320 --> 00:20:35,560 Speaker 3: want to focus, we're able to bring that effort to bear. 372 00:20:35,800 --> 00:20:37,760 Speaker 1: When you're talking about management teams, are you talking about 373 00:20:37,560 --> 00:20:41,000 Speaker 1: a retail banks or at special lenders that are on 374 00:20:41,040 --> 00:20:43,240 Speaker 1: the high street? I mean, what sort of partners are 375 00:20:43,280 --> 00:20:45,240 Speaker 1: you looking for and working with the Already. 376 00:20:46,840 --> 00:20:51,800 Speaker 3: We have invested in and alongside of major and banks, 377 00:20:51,840 --> 00:20:56,040 Speaker 3: regional banks. We have bank investments globally. We have long 378 00:20:56,080 --> 00:21:00,520 Speaker 3: standing relationships and experience investing in insurance companies of all type, 379 00:21:01,160 --> 00:21:05,040 Speaker 3: investing alongside of insurance and managing money for insurance investors. 380 00:21:05,560 --> 00:21:09,239 Speaker 3: And we have a history of managing building, buying and 381 00:21:09,280 --> 00:21:12,560 Speaker 3: managing specially financed companies. And so it's really all of 382 00:21:12,600 --> 00:21:17,240 Speaker 3: the above. It depends on what the opportunity that we're 383 00:21:17,240 --> 00:21:20,640 Speaker 3: talking about is and what the needs of that specific partner. 384 00:21:21,080 --> 00:21:24,040 Speaker 3: I would agree that the major banks we have less 385 00:21:24,040 --> 00:21:25,840 Speaker 3: to be able to do with because they have an 386 00:21:25,840 --> 00:21:29,119 Speaker 3: abundance of capital and it might not always fit. We 387 00:21:29,160 --> 00:21:32,520 Speaker 3: do seek to partner with these, you know, with banks 388 00:21:32,520 --> 00:21:36,240 Speaker 3: and strategics to create opportunities to be able to give 389 00:21:36,280 --> 00:21:39,600 Speaker 3: them additional leverage in their businesses, but ultimately it can 390 00:21:39,640 --> 00:21:40,520 Speaker 3: take all forms. 391 00:21:40,720 --> 00:21:43,320 Speaker 4: Okay, private credit comes in and buys asset, which on 392 00:21:43,359 --> 00:21:49,800 Speaker 4: which banks wipe left serious questions. So you did mention 393 00:21:49,880 --> 00:21:54,440 Speaker 4: about regulation when you introduced So regulation and policies can 394 00:21:54,480 --> 00:21:58,320 Speaker 4: be huge drivers or barriers for growth in the market, 395 00:21:58,480 --> 00:22:01,920 Speaker 4: like acid based financing. How do you see potential changes 396 00:22:02,040 --> 00:22:06,120 Speaker 4: like watered down version of BASILFO and GAY or reversal 397 00:22:06,200 --> 00:22:09,520 Speaker 4: of student loan cancelation by Trump administration, or even the 398 00:22:09,560 --> 00:22:13,600 Speaker 4: impact of tariffs or potential taffs on auto's shaping the 399 00:22:13,680 --> 00:22:17,880 Speaker 4: ABF space. Which of these are you watching most closely? 400 00:22:19,320 --> 00:22:23,480 Speaker 3: The market clearly believes that we are going to be 401 00:22:23,520 --> 00:22:27,280 Speaker 3: in a deregulation world, and we are trying to process 402 00:22:27,280 --> 00:22:31,879 Speaker 3: what that means for different asset classes. For instance, the CFPB, 403 00:22:32,160 --> 00:22:37,679 Speaker 3: are they going to be less aggressive about pursuing oversight? Clearly, tariffs, 404 00:22:38,320 --> 00:22:41,080 Speaker 3: if there are some versions of tariffs that could be 405 00:22:41,240 --> 00:22:44,680 Speaker 3: really inflationary and disruptive to certain markets, and so we're 406 00:22:44,680 --> 00:22:48,320 Speaker 3: paying really close attention to the impact tariffs could have. 407 00:22:48,840 --> 00:22:51,120 Speaker 3: I don't have a great answer today on what will 408 00:22:51,119 --> 00:22:53,000 Speaker 3: happen because I think there's there's quite a bit of 409 00:22:53,000 --> 00:22:57,320 Speaker 3: speculation on what form that ultimately takes. But you know, 410 00:22:57,720 --> 00:23:01,719 Speaker 3: the environment is going to change pretty dramatically. Another version 411 00:23:01,880 --> 00:23:04,880 Speaker 3: will be what happens with the GSS. There's a lot 412 00:23:04,880 --> 00:23:09,680 Speaker 3: of chatter around GSESE privatization, which isn't a direct regulatory point, 413 00:23:09,720 --> 00:23:13,600 Speaker 3: but ultimately could have a really dramatic impact on US 414 00:23:13,640 --> 00:23:17,679 Speaker 3: housing and it's something we're paying close attention to. I 415 00:23:17,680 --> 00:23:22,000 Speaker 3: think to the extent that these questions create volatility, it 416 00:23:22,040 --> 00:23:27,080 Speaker 3: could create opportunities and spread pressure, but we're paying attention 417 00:23:27,160 --> 00:23:30,960 Speaker 3: to all of those factors and hopefully it'll create interesting 418 00:23:31,000 --> 00:23:31,920 Speaker 3: investments for us. 419 00:23:32,080 --> 00:23:34,800 Speaker 4: Got it, And just to follow up to that, do 420 00:23:34,880 --> 00:23:38,760 Speaker 4: you see the regulatory landscape shifting in any way that 421 00:23:39,200 --> 00:23:42,880 Speaker 4: might let banks reclaim some of the market share they've 422 00:23:42,880 --> 00:23:43,879 Speaker 4: lost to private credit? 423 00:23:44,000 --> 00:23:48,000 Speaker 3: More broader question, just bank owing to deposit ratios have 424 00:23:48,080 --> 00:23:52,199 Speaker 3: trended lower, and our expectation in twenty five is that 425 00:23:52,240 --> 00:23:56,160 Speaker 3: banks will be in balance sheet build mode after shedding 426 00:23:56,160 --> 00:24:00,760 Speaker 3: assets for quite a few years post SVB. That'll, I 427 00:24:00,800 --> 00:24:04,440 Speaker 3: think create a lot of demand in the private markets. 428 00:24:04,600 --> 00:24:08,000 Speaker 3: That is definitely a place where we would expect, you know, 429 00:24:08,040 --> 00:24:09,919 Speaker 3: we would expect a good amount of activity and we do 430 00:24:09,960 --> 00:24:11,840 Speaker 3: expect the banks to be in risk on mode. 431 00:24:12,920 --> 00:24:14,639 Speaker 2: A question on that that is kind of in the 432 00:24:14,640 --> 00:24:17,800 Speaker 2: same vein. Last year was kind of like the year 433 00:24:17,800 --> 00:24:21,879 Speaker 2: that people expected banks to use synthetic risk transfers or 434 00:24:22,640 --> 00:24:26,439 Speaker 2: tools to kind of like offload risk. But now it 435 00:24:26,520 --> 00:24:29,159 Speaker 2: seems like that whole market is slowing down. What do 436 00:24:29,160 --> 00:24:30,880 Speaker 2: you think is going to happen in twenty twenty five? 437 00:24:32,040 --> 00:24:35,680 Speaker 3: Risk transfer is really just a transition mechanism to allow 438 00:24:35,760 --> 00:24:40,800 Speaker 3: banks to raise capital to manage exposures. So I think 439 00:24:40,840 --> 00:24:45,360 Speaker 3: it's a function of the agenda of this specific banks, 440 00:24:45,640 --> 00:24:47,760 Speaker 3: what mode they're in, if they're an asset growth mode 441 00:24:47,880 --> 00:24:51,439 Speaker 3: or not. We do think that risk transfer will continue 442 00:24:51,480 --> 00:24:54,640 Speaker 3: to be a part of the portfolio of options available 443 00:24:54,680 --> 00:24:56,720 Speaker 3: to banks. It's hard to put a number on what 444 00:24:56,920 --> 00:24:59,800 Speaker 3: SRT issue ins, for instance, will be in twenty five, 445 00:25:00,080 --> 00:25:03,719 Speaker 3: but I think increasing acceptance is going to drive it 446 00:25:03,760 --> 00:25:07,159 Speaker 3: to be a valuable tool for banks to use opportunistically 447 00:25:07,280 --> 00:25:10,320 Speaker 3: or programmatically to help manage their exposures. 448 00:25:11,280 --> 00:25:14,600 Speaker 4: Just to follow upon that question, so on SRTs, the 449 00:25:14,680 --> 00:25:19,879 Speaker 4: IMF recently flat concerns about synthetic risk transfers and the 450 00:25:19,880 --> 00:25:24,200 Speaker 4: one that they could destabilize the financial system during stress periods. 451 00:25:24,800 --> 00:25:27,040 Speaker 4: How much risk do you see in these. 452 00:25:26,880 --> 00:25:31,320 Speaker 3: SRTs depends on the asset class, So I think it's 453 00:25:31,400 --> 00:25:35,399 Speaker 3: hard to answer it on a broad basis. Again, we 454 00:25:35,480 --> 00:25:40,320 Speaker 3: see SRT as a vehicle for a bank to d 455 00:25:40,560 --> 00:25:44,040 Speaker 3: risk in auto or in sub lines or in other 456 00:25:44,200 --> 00:25:49,240 Speaker 3: specific exposures that they're looking to find protection, find capital in. 457 00:25:49,840 --> 00:25:51,320 Speaker 3: So I don't know that I look at the space 458 00:25:51,480 --> 00:25:55,760 Speaker 3: holistically as having systemic risk. It's really about what are 459 00:25:55,800 --> 00:25:59,200 Speaker 3: the discrete risks being taken in each of the sub sectors, 460 00:26:00,480 --> 00:26:01,200 Speaker 3: Like I just. 461 00:26:01,200 --> 00:26:03,600 Speaker 2: On the acid class, Like I think last year we 462 00:26:03,760 --> 00:26:07,520 Speaker 2: mainly saw corporate dead SRTs in the US, and some 463 00:26:07,560 --> 00:26:09,640 Speaker 2: of those can be a little bit more risky, I guess, 464 00:26:09,760 --> 00:26:12,800 Speaker 2: especially if there's leverage loans, but we haven't really seen 465 00:26:12,960 --> 00:26:15,479 Speaker 2: that many in auto or mortgages. Is that something that 466 00:26:15,520 --> 00:26:17,000 Speaker 2: you think it's going to come this year? 467 00:26:17,520 --> 00:26:19,680 Speaker 3: There have been some in the end of twenty four 468 00:26:20,160 --> 00:26:23,400 Speaker 3: banks buying protection on their subscription line books has been 469 00:26:23,440 --> 00:26:28,000 Speaker 3: one that has you know, been broadly discussed. Auto space 470 00:26:28,160 --> 00:26:32,440 Speaker 3: opportunistically has been a source of SRT flow. Again, it's 471 00:26:32,440 --> 00:26:34,040 Speaker 3: hard to get in the minds of the banks to 472 00:26:34,160 --> 00:26:37,119 Speaker 3: know where they're going to go. But those are asset 473 00:26:37,119 --> 00:26:42,399 Speaker 3: classes that lend themselves well to SRT. And SRT has 474 00:26:42,440 --> 00:26:44,879 Speaker 3: been really active in Europe for a very long time. 475 00:26:45,720 --> 00:26:48,320 Speaker 3: As you mentioned, you know often in the corporate in 476 00:26:48,359 --> 00:26:51,520 Speaker 3: their corporate loan books. I would expect they'll follow a 477 00:26:51,600 --> 00:26:53,440 Speaker 3: similar playbook in the US. Overtime. 478 00:26:54,040 --> 00:26:57,280 Speaker 1: Another big contrary and cool we've had this year on 479 00:26:57,320 --> 00:27:00,720 Speaker 1: the show. Sorry talking about last year already in January, 480 00:27:00,760 --> 00:27:04,560 Speaker 1: but CIRI Commercial were to say, you know, I mean, 481 00:27:04,560 --> 00:27:07,159 Speaker 1: obviously it's very localized, it's very specialized. You really have 482 00:27:07,200 --> 00:27:09,800 Speaker 1: to do a lot of data digging. But is there 483 00:27:09,840 --> 00:27:10,879 Speaker 1: an opportunity there for you? 484 00:27:11,640 --> 00:27:15,440 Speaker 3: We have a large real estate equity business. We are 485 00:27:15,480 --> 00:27:20,280 Speaker 3: active in the real estate debt space. Opportunistically, we see 486 00:27:20,520 --> 00:27:24,879 Speaker 3: attractive investments in commercial real estate. It's really about you 487 00:27:24,920 --> 00:27:27,520 Speaker 3: know where you are in the capital structure and in 488 00:27:27,560 --> 00:27:31,080 Speaker 3: what sector. But I do think that we do think 489 00:27:31,119 --> 00:27:33,040 Speaker 3: that there is going to be an opportunity in commercial 490 00:27:33,040 --> 00:27:36,960 Speaker 3: real estate. Not all of the chips have fallen from 491 00:27:37,080 --> 00:27:40,160 Speaker 3: some of the expected distress, and so in certain spots 492 00:27:40,200 --> 00:27:43,400 Speaker 3: we're in wait and see mode. But we're opportunistic. We're 493 00:27:43,440 --> 00:27:45,920 Speaker 3: optimistic that there'll be some opportunities in twenty five and 494 00:27:45,960 --> 00:27:46,400 Speaker 3: twenty six. 495 00:27:46,440 --> 00:27:49,320 Speaker 1: There is it in offices, in data centers, is it 496 00:27:49,359 --> 00:27:52,240 Speaker 1: in CMBs. What's the drill down. 497 00:27:52,800 --> 00:27:55,399 Speaker 3: On the performing side. Data center is an area that 498 00:27:55,720 --> 00:27:57,720 Speaker 3: I think has been talked about quite a bit. I 499 00:27:57,720 --> 00:28:00,400 Speaker 3: saw an interesting stat over the I think I saw 500 00:28:00,400 --> 00:28:03,160 Speaker 3: an interesting stat in the last day or two. Chod 501 00:28:03,160 --> 00:28:07,080 Speaker 3: GPT took two months to get to one hundred million 502 00:28:07,160 --> 00:28:13,200 Speaker 3: users Instagram, two and a half years, telephone seventy five years, 503 00:28:13,240 --> 00:28:17,959 Speaker 3: in the TV thirteen years, and the data usage for 504 00:28:18,560 --> 00:28:21,600 Speaker 3: chod gpt is ten x that of a traditional Google search. 505 00:28:22,320 --> 00:28:26,520 Speaker 3: So we know we're trying to understand the impact of 506 00:28:27,200 --> 00:28:31,800 Speaker 3: this AI revolution, and clearly it's going to drive data 507 00:28:31,840 --> 00:28:35,520 Speaker 3: center need, it's going to drive broad computing need. Data 508 00:28:35,520 --> 00:28:38,080 Speaker 3: centers are not a new concept. We're spending time to 509 00:28:38,080 --> 00:28:41,280 Speaker 3: try to understand the evolution. Whether it's in GPUs or 510 00:28:41,320 --> 00:28:44,560 Speaker 3: other picks and shovels. Energy consumption is going to be 511 00:28:44,640 --> 00:28:47,120 Speaker 3: very high. I do think that's going to be an 512 00:28:47,160 --> 00:28:50,240 Speaker 3: area of immense growth, and so we're spending time to 513 00:28:50,280 --> 00:28:51,480 Speaker 3: make sure we understand it. 514 00:28:52,280 --> 00:28:55,840 Speaker 2: Just on the AI bed and everything tech, we've been 515 00:28:56,120 --> 00:28:58,840 Speaker 2: covering a few kind of like big deals in the 516 00:28:58,880 --> 00:29:01,720 Speaker 2: corporate markets, and one of them, recently done by threct 517 00:29:01,760 --> 00:29:05,320 Speaker 2: lenders was data bricks, and it just seems like there's 518 00:29:05,360 --> 00:29:07,360 Speaker 2: a lot of opportunities now in that space because it's 519 00:29:07,360 --> 00:29:09,640 Speaker 2: like high quality companies that are growing very fast and 520 00:29:09,720 --> 00:29:12,360 Speaker 2: just need capital. Is that a kind of like your 521 00:29:12,680 --> 00:29:13,920 Speaker 2: view for this sector? 522 00:29:14,800 --> 00:29:19,040 Speaker 3: There is an immense capital need across everything that is 523 00:29:19,080 --> 00:29:23,880 Speaker 3: going to touch AI without a doubt, power generation, data centers, computing, 524 00:29:23,960 --> 00:29:26,800 Speaker 3: power and so I think the question is going to 525 00:29:26,800 --> 00:29:29,840 Speaker 3: be where the opportunities show up. But it's clear that 526 00:29:29,920 --> 00:29:32,080 Speaker 3: there is an enormous amount of capital that's going to 527 00:29:32,080 --> 00:29:36,120 Speaker 3: be needed to really fund the growth around everything AI. 528 00:29:36,320 --> 00:29:39,160 Speaker 2: And isn't it getting crowded because everyone wants to get in? 529 00:29:39,640 --> 00:29:42,760 Speaker 3: I'm not sure if it's crowded. I suspect that the 530 00:29:42,800 --> 00:29:47,520 Speaker 3: sheer quantum of dollars required still outstripped how much intelligent 531 00:29:47,600 --> 00:29:50,920 Speaker 3: capital there is able to be deployed currently. But I'm 532 00:29:50,960 --> 00:29:54,600 Speaker 3: sure there will be ups and downs in that space. Ultimately, 533 00:29:54,960 --> 00:29:58,080 Speaker 3: the data needs there and the cap X needs there 534 00:29:58,200 --> 00:29:59,720 Speaker 3: are going to be pretty great. 535 00:30:00,240 --> 00:30:02,280 Speaker 1: It also means a lot more regulation, doesn't it. Once 536 00:30:02,320 --> 00:30:04,040 Speaker 1: you get down to retail, once it's in my four 537 00:30:04,040 --> 00:30:07,760 Speaker 1: oh one K the regulation does that make it more 538 00:30:07,760 --> 00:30:12,000 Speaker 1: commoditized and therefore less profitable? As a business potentially down 539 00:30:12,040 --> 00:30:12,640 Speaker 1: the road. 540 00:30:12,760 --> 00:30:16,400 Speaker 3: Over time, anything that's attractive will get you know, the 541 00:30:16,440 --> 00:30:20,640 Speaker 3: returns will get eroded away. Ultimately, that for us means 542 00:30:20,640 --> 00:30:22,840 Speaker 3: that we need to stick to our knitting and continue 543 00:30:22,880 --> 00:30:26,560 Speaker 3: to find products and companies that might not be able 544 00:30:26,560 --> 00:30:29,760 Speaker 3: to access those broader markets. You need an enormous amount 545 00:30:29,760 --> 00:30:32,360 Speaker 3: of scale to be able to get into those products, 546 00:30:33,000 --> 00:30:36,480 Speaker 3: and we're a company that's really focused on the mintal markets, 547 00:30:36,640 --> 00:30:40,760 Speaker 3: on helping specially finance companies or banks or others who 548 00:30:41,160 --> 00:30:44,360 Speaker 3: have funding needs that we can tail our solutions for 549 00:30:44,600 --> 00:30:48,040 Speaker 3: that maybe don't quite fit at the scale that would 550 00:30:48,040 --> 00:30:51,440 Speaker 3: be required to deliver those products to retail markets, so. 551 00:30:51,440 --> 00:30:53,520 Speaker 1: On middle market. Just so people are aware, the listeners, 552 00:30:53,600 --> 00:30:55,280 Speaker 1: what do you actually mean by that? Because it's a 553 00:30:55,360 --> 00:30:57,720 Speaker 1: term that's so broadly applied in so many different ways, 554 00:30:57,800 --> 00:30:58,480 Speaker 1: what do you mean by it? 555 00:30:59,200 --> 00:31:02,280 Speaker 3: I mean we are trying to help companies that are 556 00:31:03,040 --> 00:31:07,160 Speaker 3: have maybe less regular access to the public capital markets, 557 00:31:07,280 --> 00:31:12,000 Speaker 3: that are in some cases more nascent or founder own. 558 00:31:12,680 --> 00:31:15,640 Speaker 3: We are helping businesses that might be at similar scale 559 00:31:15,720 --> 00:31:20,240 Speaker 3: but haven't quite yet hit sort of institutional level size 560 00:31:20,480 --> 00:31:23,520 Speaker 3: that would allow them to be massive public companies or 561 00:31:23,880 --> 00:31:27,360 Speaker 3: to have multi billion dollar funding needs. And so for us, 562 00:31:27,400 --> 00:31:29,440 Speaker 3: it's a it's a it's a place to play where 563 00:31:29,440 --> 00:31:34,600 Speaker 3: we can really differentiate ourselves, deliver attractive investments for our LPs, 564 00:31:34,920 --> 00:31:38,400 Speaker 3: and really solve problems for our capital partners. 565 00:31:38,440 --> 00:31:41,120 Speaker 1: But is that a five hundred million dollar max deal 566 00:31:41,240 --> 00:31:42,800 Speaker 1: or is it bigger than that? And what's the kind 567 00:31:42,840 --> 00:31:44,240 Speaker 1: of you know, deal size? 568 00:31:44,240 --> 00:31:47,080 Speaker 3: But it really it really runs the gamut. It can 569 00:31:47,120 --> 00:31:51,360 Speaker 3: be you know, quite small to quite large. It's so 570 00:31:51,440 --> 00:31:55,040 Speaker 3: it can it can run the continuum of of size 571 00:31:55,080 --> 00:31:57,120 Speaker 3: based on asset class, type of transaction. 572 00:31:57,400 --> 00:32:01,400 Speaker 1: Okay, billion dollars is middle market, it can be depending 573 00:32:01,400 --> 00:32:04,720 Speaker 1: on the asset acid finance sure, all right, yeah. 574 00:32:05,000 --> 00:32:07,920 Speaker 4: So I'm a credit guy. I'm looking at risk all day. 575 00:32:08,680 --> 00:32:11,840 Speaker 4: So we talked in length about private credit acid based financing. 576 00:32:12,560 --> 00:32:16,400 Speaker 4: What do you see as the largest risk facing private 577 00:32:16,440 --> 00:32:20,720 Speaker 4: credits stability and growth? Is it credit quality or borrows? 578 00:32:20,760 --> 00:32:26,320 Speaker 4: Cash flow, stricter regulation? What do you think is the 579 00:32:26,600 --> 00:32:29,560 Speaker 4: biggest risk facing private credit stability and growth? 580 00:32:30,320 --> 00:32:34,280 Speaker 3: Facing private credit or facing the underlying assets? 581 00:32:34,760 --> 00:32:37,760 Speaker 4: Underlying assets yep? So which will impact private credit deals? 582 00:32:38,240 --> 00:32:42,160 Speaker 3: The consumers that we spend time focused on subprime near 583 00:32:42,240 --> 00:32:45,880 Speaker 3: prime consumers, they have to deal with the cost of 584 00:32:46,160 --> 00:32:48,960 Speaker 3: inflation every day. The cost you know, the rising cost 585 00:32:49,000 --> 00:32:52,360 Speaker 3: of goods and interest rates will have an impact and 586 00:32:52,400 --> 00:32:56,479 Speaker 3: has had an impact on those consumers. That population is 587 00:32:57,160 --> 00:33:01,000 Speaker 3: really heavily indexed to, you know, the way market, and 588 00:33:01,040 --> 00:33:04,640 Speaker 3: so to the extent we see deterioration in jobs and 589 00:33:04,680 --> 00:33:07,600 Speaker 3: in the labor market more broadly, that'll be problematic for 590 00:33:07,680 --> 00:33:12,840 Speaker 3: this cohort of borrowers. So I'd say rates matter, broader 591 00:33:12,880 --> 00:33:18,000 Speaker 3: macro matters. Ultimately, we view those populations of consumers as 592 00:33:18,080 --> 00:33:21,240 Speaker 3: quite healthy today, but we pay close attention to, you know, 593 00:33:21,280 --> 00:33:24,640 Speaker 3: those factors to make sure that there's no risks sneaking 594 00:33:24,720 --> 00:33:25,360 Speaker 3: up on us. 595 00:33:25,600 --> 00:33:27,680 Speaker 1: How do you stay ahead of the pat you know, 596 00:33:27,760 --> 00:33:30,120 Speaker 1: we've had Goldman say last year that there's only going 597 00:33:30,160 --> 00:33:33,680 Speaker 1: to be eight potential participants in the private credit markets 598 00:33:33,720 --> 00:33:36,200 Speaker 1: globally over time, because it's just going to be a 599 00:33:36,200 --> 00:33:38,880 Speaker 1: scale business and anyone else who's not big enough just 600 00:33:39,320 --> 00:33:42,600 Speaker 1: gets pushed away. How does center Bridge maintain its edge? 601 00:33:42,640 --> 00:33:45,000 Speaker 1: Do you have to acquire, you have to expand is 602 00:33:45,040 --> 00:33:48,200 Speaker 1: there any kind of plan to significantly grow the business? 603 00:33:48,920 --> 00:33:53,120 Speaker 3: Center Bridge is one hundred percent partner owned, and so 604 00:33:53,240 --> 00:33:56,640 Speaker 3: when we think about growth, we are really focused on 605 00:33:56,840 --> 00:34:00,680 Speaker 3: growing our business in the best ways for our investors. 606 00:34:00,720 --> 00:34:04,720 Speaker 3: We don't have any pressure to grow just for growth sake. Ultimately, 607 00:34:04,720 --> 00:34:07,200 Speaker 3: we've been able to carve out a niche in the 608 00:34:07,240 --> 00:34:10,759 Speaker 3: middle markets where we're able to deliver value to our investors. 609 00:34:11,239 --> 00:34:13,840 Speaker 3: We're able to grow our firm and build real recurring 610 00:34:13,840 --> 00:34:18,839 Speaker 3: opportunities with the counterparties that we deal with, and so 611 00:34:18,920 --> 00:34:21,480 Speaker 3: we're not worried today about the risk that we're not 612 00:34:21,520 --> 00:34:23,120 Speaker 3: going to be one of the eight or nine or 613 00:34:23,120 --> 00:34:27,040 Speaker 3: whatever Goldman's number is. Our focus is just on sticking 614 00:34:27,040 --> 00:34:30,919 Speaker 3: to our knitting, continue to find attractive investments, grow as 615 00:34:31,120 --> 00:34:35,040 Speaker 3: is appropriate, and deliver returns to our health piece. 616 00:34:35,400 --> 00:34:37,320 Speaker 1: But what would your edge be if you have to describe, 617 00:34:37,360 --> 00:34:40,000 Speaker 1: you know, something you're doing potentially differently or you'll contrarian 618 00:34:40,040 --> 00:34:41,880 Speaker 1: on or what are you doing that you think sets 619 00:34:41,880 --> 00:34:42,200 Speaker 1: you upon. 620 00:34:42,640 --> 00:34:46,320 Speaker 3: The way we're organized as one investment team is really 621 00:34:46,960 --> 00:34:50,440 Speaker 3: a point of differentiation for us. We've chosen, you know, 622 00:34:50,440 --> 00:34:52,880 Speaker 3: I don't know if it's contrarian, but we've chosen to 623 00:34:53,480 --> 00:34:57,880 Speaker 3: partner with banks and strategics to build relationships because we 624 00:34:57,960 --> 00:35:00,440 Speaker 3: feel like as opposed to trying to compete with at them, 625 00:35:00,760 --> 00:35:05,520 Speaker 3: that is how we can grow collaboratively, so building strategic 626 00:35:05,680 --> 00:35:09,040 Speaker 3: partnerships so that we can really leverage the best of 627 00:35:09,080 --> 00:35:13,840 Speaker 3: what we're good at and our bank partners to identify 628 00:35:13,880 --> 00:35:17,640 Speaker 3: attractive opportunities. That's been for us a really an important 629 00:35:17,680 --> 00:35:18,400 Speaker 3: point of focus. 630 00:35:18,960 --> 00:35:21,640 Speaker 2: So one of those partnerships is with Wells. I wonder 631 00:35:21,680 --> 00:35:23,400 Speaker 2: if you could talk a little bit about that and 632 00:35:23,400 --> 00:35:26,399 Speaker 2: how it's structured, or if any deals are getting done 633 00:35:26,400 --> 00:35:28,839 Speaker 2: and how many and what type any color you have? 634 00:35:29,400 --> 00:35:32,600 Speaker 3: Well I want to talk about the specific transaction. What 635 00:35:32,640 --> 00:35:35,000 Speaker 3: I can say is that we're really excited about the 636 00:35:35,040 --> 00:35:38,759 Speaker 3: opportunity in the non sponsor direct lending space. It's an 637 00:35:38,840 --> 00:35:43,600 Speaker 3: important part of the market that was being underserved and 638 00:35:43,680 --> 00:35:47,759 Speaker 3: we think we can really deliver attractive set of investments 639 00:35:48,239 --> 00:35:52,080 Speaker 3: and attractive sets of solutions for these businesses and so 640 00:35:52,120 --> 00:35:53,919 Speaker 3: it's an exciting area of growth for the firm. 641 00:35:54,160 --> 00:35:55,799 Speaker 1: Do you have Sextess in mind when you're talking about 642 00:35:55,840 --> 00:35:56,240 Speaker 1: that space? 643 00:35:56,800 --> 00:36:01,080 Speaker 3: You know broadly across US? You know the US SME landscape. 644 00:36:01,440 --> 00:36:03,520 Speaker 3: I think there's a broad range of opportunity sets. 645 00:36:03,600 --> 00:36:06,960 Speaker 1: Okay, you mentioned US, are you looking globally at other 646 00:36:07,200 --> 00:36:09,279 Speaker 1: parts that? I mean, obviously everyone is loaded up on 647 00:36:09,320 --> 00:36:12,560 Speaker 1: the US and as always America first and exceptionalism going on. 648 00:36:12,600 --> 00:36:15,320 Speaker 1: But how do you diversify geographically if its aol. 649 00:36:15,520 --> 00:36:17,319 Speaker 3: Coming into twenty four One of the themes we were 650 00:36:17,360 --> 00:36:20,359 Speaker 3: focused on was in UK housing. For instance, we have 651 00:36:20,480 --> 00:36:22,919 Speaker 3: a presence in Europe and we spend a good amount 652 00:36:22,960 --> 00:36:26,120 Speaker 3: of time on investments we own, specially finance companies and 653 00:36:26,120 --> 00:36:30,040 Speaker 3: at bank investments in Europe. UK housing and UK bridging 654 00:36:30,120 --> 00:36:33,839 Speaker 3: was an area that we identified as really compelling. One 655 00:36:33,840 --> 00:36:36,200 Speaker 3: of the things we like to do when we identify 656 00:36:36,239 --> 00:36:39,360 Speaker 3: attractive investments but there's still risk is try to tailor 657 00:36:39,400 --> 00:36:43,600 Speaker 3: those investments to make sure that we've created sufficient downside protection. 658 00:36:43,840 --> 00:36:47,319 Speaker 3: UK bridging is a short duration kind of residential fix 659 00:36:47,400 --> 00:36:50,759 Speaker 3: and flip style product and we've been really active there. 660 00:36:50,840 --> 00:36:53,200 Speaker 3: That's a space that we're really excited about and will 661 00:36:53,239 --> 00:36:55,359 Speaker 3: continue to be focused on in twenty five. 662 00:36:55,640 --> 00:36:58,560 Speaker 2: Okay, I have a question on another asset class or 663 00:36:59,480 --> 00:37:03,280 Speaker 2: basically esoteric financings. We saw a lot in twenty before 664 00:37:03,280 --> 00:37:05,600 Speaker 2: twenty before the rates went up basically, and then last 665 00:37:05,680 --> 00:37:08,359 Speaker 2: year we saw a few like Hope business, We saw 666 00:37:08,400 --> 00:37:13,040 Speaker 2: the cosmetic you know, abs deal. Is there anything that 667 00:37:13,080 --> 00:37:15,480 Speaker 2: you're seeing that is going to come up this year 668 00:37:15,520 --> 00:37:18,880 Speaker 2: or anything. You know, any esoteric financings that are back 669 00:37:18,960 --> 00:37:20,920 Speaker 2: or you think they're going to, it's going to be 670 00:37:20,960 --> 00:37:22,280 Speaker 2: a slow burn. 671 00:37:22,840 --> 00:37:27,400 Speaker 3: Ultimately, originators are attracted to getting to the public markets 672 00:37:27,560 --> 00:37:30,520 Speaker 3: or getting to the distributed markets because it brings down 673 00:37:30,640 --> 00:37:33,520 Speaker 3: the cost of funds and it's a valuable part of 674 00:37:33,560 --> 00:37:37,160 Speaker 3: their financing strategy. And so I think there will be 675 00:37:37,280 --> 00:37:40,560 Speaker 3: new asset classes and esoteric asset classes that come into 676 00:37:40,640 --> 00:37:44,320 Speaker 3: the public and private ABS markets in the coming years. 677 00:37:44,600 --> 00:37:46,760 Speaker 3: You've seen a broad range of things over the last 678 00:37:46,760 --> 00:37:49,239 Speaker 3: few years, but I think ultimately that the journey is 679 00:37:49,239 --> 00:37:52,239 Speaker 3: in part to bring down your cost of funds, and 680 00:37:52,280 --> 00:37:53,840 Speaker 3: the best way to do that is to get into 681 00:37:53,880 --> 00:37:57,359 Speaker 3: the U to the ABS markets. I mentioned potentially in 682 00:37:57,480 --> 00:38:00,719 Speaker 3: data centers for instance. Maybe we'll see GPU financing or 683 00:38:00,760 --> 00:38:04,919 Speaker 3: other financings that will try to capitalize this really kind 684 00:38:04,920 --> 00:38:08,560 Speaker 3: of capital needy space. And ultimately I think we'll see 685 00:38:08,560 --> 00:38:11,440 Speaker 3: that from you know, asset classes far and wide. 686 00:38:11,120 --> 00:38:15,320 Speaker 4: And are looking ahead, I'm talking about the next ten years. 687 00:38:15,600 --> 00:38:18,600 Speaker 4: How do you see private credit landscape evolve over the 688 00:38:18,640 --> 00:38:22,400 Speaker 4: next decade. Are the any particular trends or opportunities that 689 00:38:22,480 --> 00:38:24,840 Speaker 4: excite you the most about what industry is heading. 690 00:38:24,920 --> 00:38:28,839 Speaker 3: It's a big question. It is a big question. I'd 691 00:38:28,840 --> 00:38:34,000 Speaker 3: expect a continued productization, if you will, of these markets. 692 00:38:34,160 --> 00:38:38,719 Speaker 3: So the objective for businesses that generate financial assets is 693 00:38:38,760 --> 00:38:41,320 Speaker 3: to figure out how to finance them in the most 694 00:38:41,560 --> 00:38:45,480 Speaker 3: matched way. When we think about the opportunity set, and 695 00:38:45,520 --> 00:38:50,880 Speaker 3: I mentioned earlier private spreads compressing versus public spreads, originators 696 00:38:50,960 --> 00:38:54,080 Speaker 3: I think increasingly understand that what they went through post 697 00:38:54,680 --> 00:38:58,480 Speaker 3: SVB and the bank issues underscores this idea that they 698 00:38:58,560 --> 00:39:01,640 Speaker 3: need to not just be relying on the public markets, 699 00:39:01,680 --> 00:39:05,640 Speaker 3: which can have a boombust aspect to them. And so 700 00:39:05,680 --> 00:39:09,960 Speaker 3: I think we'll see a continued trend of originators balancing 701 00:39:10,000 --> 00:39:14,480 Speaker 3: their funding strategy by having private market exposure, having private 702 00:39:14,480 --> 00:39:19,120 Speaker 3: market capital partners, and accessing the public markets and maybe 703 00:39:19,160 --> 00:39:22,840 Speaker 3: doing that opportunistically. That'll wend to the growth in the 704 00:39:22,880 --> 00:39:27,440 Speaker 3: private markets. Ultimately, we're constructive that there's a lot of capital, 705 00:39:27,480 --> 00:39:29,680 Speaker 3: but the private markets will continue to grow, the real 706 00:39:29,719 --> 00:39:33,239 Speaker 3: economy will continue to grow. We talk about inflation, All 707 00:39:33,280 --> 00:39:36,200 Speaker 3: of those things drive increased borrowing needs, and so I 708 00:39:36,239 --> 00:39:38,200 Speaker 3: think the markets will grow and we'll see more products 709 00:39:38,239 --> 00:39:39,120 Speaker 3: find their way into them. 710 00:39:39,520 --> 00:39:41,279 Speaker 1: When you talk about the spreads between the two, though, 711 00:39:41,360 --> 00:39:43,359 Speaker 1: can you quantify what they are right now? And why 712 00:39:43,360 --> 00:39:44,160 Speaker 1: do you think they're going to go? 713 00:39:45,040 --> 00:39:47,760 Speaker 3: It depends on asset class. Yea, It depends on asset class. 714 00:39:47,840 --> 00:39:50,879 Speaker 3: So we want to always make private investments where we're 715 00:39:50,960 --> 00:39:53,279 Speaker 3: picking up a sufficient amount of spread to what we 716 00:39:53,280 --> 00:39:55,880 Speaker 3: could get done in the public markets. If we're not 717 00:39:55,960 --> 00:39:57,640 Speaker 3: able to do that, then we're going to look at 718 00:39:57,640 --> 00:40:01,240 Speaker 3: the public markets. What's sufficient depends on the asset class, 719 00:40:01,320 --> 00:40:04,400 Speaker 3: so one hundred, a few hundred basis points. It depends 720 00:40:04,400 --> 00:40:07,239 Speaker 3: on what type of risk we're taking. And there are 721 00:40:07,320 --> 00:40:11,080 Speaker 3: sectors today where private spreads have compressed in some respects 722 00:40:11,280 --> 00:40:13,640 Speaker 3: too much versus where you can go and execute in 723 00:40:13,640 --> 00:40:18,759 Speaker 3: the public markets. And our capital is opportunistic in its orientation. 724 00:40:18,920 --> 00:40:21,319 Speaker 3: We don't have to be invested in any sector, and 725 00:40:21,360 --> 00:40:24,839 Speaker 3: so we won't make investments in the private sector in 726 00:40:24,880 --> 00:40:28,480 Speaker 3: those places where that spread premia has compressed. We'll focus 727 00:40:28,480 --> 00:40:31,320 Speaker 3: in other places where we can pick up sufficient access return. 728 00:40:31,480 --> 00:40:32,880 Speaker 1: If you have to put your finger on where that 729 00:40:33,040 --> 00:40:35,799 Speaker 1: is right now for twenty twenty five, what is it? 730 00:40:36,280 --> 00:40:40,560 Speaker 3: Well? I mentioned consumer finance, I mentioned housing finance. I 731 00:40:40,560 --> 00:40:44,040 Speaker 3: think there's going to be good opportunities there to originate 732 00:40:44,520 --> 00:40:47,640 Speaker 3: home improvement loans. A space in housing that we've been 733 00:40:47,640 --> 00:40:50,920 Speaker 3: constructive on because of some of the affordability issues is 734 00:40:50,960 --> 00:40:53,880 Speaker 3: in manufactured housing. That's an area that we see a 735 00:40:53,920 --> 00:40:58,920 Speaker 3: lot of excess return potential. Increasingly homeowners find it hard 736 00:40:59,000 --> 00:41:02,839 Speaker 3: to fund home ownership. The average home price has gone 737 00:41:02,920 --> 00:41:06,799 Speaker 3: way up. In manufactured housing is a really fantastic alternative 738 00:41:07,239 --> 00:41:09,520 Speaker 3: for a lot of people to solve that affordability question. 739 00:41:09,600 --> 00:41:11,680 Speaker 3: But who want to own a home? So those are 740 00:41:11,680 --> 00:41:14,000 Speaker 3: three areas that will be focused in twenty five. 741 00:41:14,160 --> 00:41:15,319 Speaker 1: And what are you steering clear of. 742 00:41:15,960 --> 00:41:18,000 Speaker 3: There's a lot of sectors we're not investing in today. 743 00:41:18,480 --> 00:41:23,640 Speaker 3: We're mentioned earlier. We're conscientious of the risks from inflation 744 00:41:23,800 --> 00:41:26,240 Speaker 3: from rates in certain areas. I don't think there's anything 745 00:41:26,239 --> 00:41:29,600 Speaker 3: more explicitly not doing. It's more about what hits the 746 00:41:29,960 --> 00:41:33,359 Speaker 3: absolute and relative turn threshold for us to make investments. 747 00:41:33,800 --> 00:41:36,560 Speaker 3: So you know, that's that's really kind of what our 748 00:41:36,600 --> 00:41:37,600 Speaker 3: orientation is today. 749 00:41:37,960 --> 00:41:39,759 Speaker 1: Great stuff. Aaron Fink from Center Bridge has been a 750 00:41:39,800 --> 00:41:41,160 Speaker 1: pleasure having on the Credit Edge money. 751 00:41:41,160 --> 00:41:42,920 Speaker 3: Thanks thank you guys very much for having me. I 752 00:41:42,920 --> 00:41:43,520 Speaker 3: appreciate the. 753 00:41:43,440 --> 00:41:45,319 Speaker 1: Time and of course so very grateful to him Anschu 754 00:41:45,360 --> 00:41:48,680 Speaker 1: Bakshi from Bloomberg Intelligence, thanks for joining us today. Thank you, James, 755 00:41:48,920 --> 00:41:52,280 Speaker 1: and to Conra Notaroya with Bloomberg News Miil gracias as always, 756 00:41:52,880 --> 00:41:55,200 Speaker 1: thank you. Check out all of Comman's great scoops on 757 00:41:55,239 --> 00:41:58,120 Speaker 1: Bloomberg dot com and the Bloomberg Terminal for more credit 758 00:41:58,120 --> 00:42:01,040 Speaker 1: market analysis and insight. Follow him in shoot Bacshee's work 759 00:42:01,080 --> 00:42:03,839 Speaker 1: on the Bloomberg Terminal as well. Bloomberg Intelligence is part 760 00:42:03,840 --> 00:42:06,640 Speaker 1: of our research department, with five hundred analysts and strategists 761 00:42:06,640 --> 00:42:09,960 Speaker 1: working across all markets. Coverage includes over two thousand equities 762 00:42:09,960 --> 00:42:12,680 Speaker 1: and credits and outlooks on more than ninety industries and 763 00:42:12,760 --> 00:42:16,880 Speaker 1: one hundred market indices, currencies and commodities. Please do subscribe 764 00:42:16,880 --> 00:42:18,799 Speaker 1: to The Credit Edge wherever you get your podcast. We're 765 00:42:18,800 --> 00:42:21,960 Speaker 1: on Apple, Spotify and other good podcast providers, including the 766 00:42:21,960 --> 00:42:25,600 Speaker 1: Bloomberg Terminal at bpod Go. Give us a review, tell 767 00:42:25,640 --> 00:42:28,319 Speaker 1: your friends, or email me directly at Jcromby eight at 768 00:42:28,360 --> 00:42:31,520 Speaker 1: Bloomberg dot net. I'm James Crombie. It's been a pleasure 769 00:42:31,520 --> 00:42:50,920 Speaker 1: having you join us again next week on the Credit Edge.