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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Alan, We're looking at

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Speaker 1: a challenging time in the economy. You have most investors

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Speaker 1: are still betting on rate cuts this year, a number

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Speaker 1: of them, and they're still confused about how soon those

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Speaker 1: rate cuts will come to fruition and how deep they

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Speaker 1: will go. Do you think that they're right to expect

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Speaker 1: so many?

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Speaker 2: I think everything about investing is about probabilities, and I

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Speaker 2: think the highest probability is that's going to be the

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Speaker 2: case because inflation is coming down. Having said that, I

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Speaker 2: think that there's a bit of an underestimation for how

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Speaker 2: easy financial conditions have come over the last couple of months.

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Speaker 2: You look at what's happened in the equity markets, you

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Speaker 2: look at how credit is tightened in the way it is,

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Speaker 2: and that's like the fed's worst nightmare. So it's very

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Speaker 2: difficult to arrest inflation when the consumer is as strong

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Speaker 2: as it is. So I think that's the one watch out.

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Speaker 2: But again, probabilistically, I think it's right for people to

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Speaker 2: assume that, but I think people might be misjudging the

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Speaker 2: probability that financial conditions have come to gotten too easy.

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Speaker 1: How do you prepare for that? Probability. What it assumes

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Speaker 1: is that interest rates could stay higher for longer, inflation

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Speaker 1: could stay higher for longer. What does that mean in

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Speaker 1: terms of how you invest.

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Speaker 2: Well, a big part of the economy, across a number

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Speaker 2: of different asset classes, whether it's real estate, whether it's

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Speaker 2: private equity, built a lot of their capital structures on

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Speaker 2: a very low rate environment. Some might say free money.

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Speaker 2: So I think the challenge with staying higher for longer

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Speaker 2: is that a lot of these capital structures that have

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Speaker 2: been built in a way that for free money air

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Speaker 2: that there that they're that that they need to be

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Speaker 2: reacquitized or more capital needs to come in, which which

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Speaker 2: creates an opportunity for six Streets to go in to

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Speaker 2: be a solution.

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Speaker 3: Provider, to be able to provide.

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Speaker 2: Capital so that they can grow into their capital structures.

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Speaker 2: But again, so much of the economy has been built

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Speaker 2: for low rate environments. I think that's the challenge that

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Speaker 2: that it might pose for the economy.

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Speaker 1: Well, do you have to prepare for the prospect of

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Speaker 1: not just higher for longer rates, but even a rate

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Speaker 1: hike at this.

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Speaker 2: Point, I think it's interesting you say that because it's

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Speaker 2: something in our Investment committe we've been talking about a lot.

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Speaker 2: When you think about the consumer, which has been the

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Speaker 2: super Bowl champion of the economy. People said everyone last

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Speaker 2: year is predicting hard landing, hard landing.

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Speaker 3: What really got us through this the consumer.

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Speaker 2: Consumer has a job, wages are growing, and most importantly,

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Speaker 2: their biggest liability is typically their mortgage that's been fixed.

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Speaker 2: With wages growing and inflation coming down, it's creating a

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Speaker 2: lot of real spinning power. So that probability of potentially

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Speaker 2: not even rate cuts, but a rate increase is I

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Speaker 2: think a lot higher than people expect for those reasons.

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Speaker 1: It's interesting you go back to around this time last year,

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Speaker 1: a little less than a year ago, and under the

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Speaker 1: weight of higher interest rates, you saw some significant things

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Speaker 1: start to break, particularly cracks in the the banking system.

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Speaker 1: If you saw rate hikes or even rates stay at

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Speaker 1: the level that they are, what else breaks.

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Speaker 2: Look, anything that is a levered asset class that has

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Speaker 2: floating rate liabilities is at risk, and that applies across

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Speaker 2: big parts of the economy. Again, is it going to break?

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Speaker 2: It may not necessarily get break, because it depends on

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Speaker 2: this how high rates get increased, And again that's not

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Speaker 2: our predominant probability, but it will create additional stresses in

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Speaker 2: the system, and that's something we're always watching out for.

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Speaker 1: As things start to weaken in some parts of the market.

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Speaker 1: You think about the regional banking system and how much

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Speaker 1: private credit players have been able to step into that fray.

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Speaker 1: What is the opportunity for you now and to buy

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Speaker 1: assets at prices that may have started to fall off

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Speaker 1: in value.

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Speaker 2: The way we look at the opportunities not only buying assets,

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Speaker 2: but really what we're trying to be is provide new

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Speaker 2: capital or new equity or more just general capital into situations,

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Speaker 2: whether it's companies or real estate assets. So that's kind

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Speaker 2: of the way that we think about it. I think

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Speaker 2: we're far off from banks fire selling out. That's not

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Speaker 2: our predominant probability, because again, the economy is pretty strong

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Speaker 2: right now and arguably maybe getting too strong, So that's

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Speaker 2: not our predominant probability. But obviously when you look at

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Speaker 2: what's going on in commercial real estate, again we don't

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Speaker 2: think this is systemic.

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Speaker 3: Risks, but there are obviously large exposures.

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Speaker 2: Particularly in some of the smaller and regional sized bank banks,

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Speaker 2: and that's something we're looking out for.

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Speaker 1: How much pain is there in that system.

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Speaker 3: It's meaningful.

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Speaker 2: You know, when you look at the tangible equity in

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Speaker 2: a lot of these regional banks and then you sort

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Speaker 2: of transpose it against the unrealized losses, it will create stresses.

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Speaker 3: You know.

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Speaker 2: Obviously it's banked by bank dependent. But again, the economy

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Speaker 2: is really strong right now, so I think that's providing

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Speaker 2: some protection for that. But if rates stay higher, that

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Speaker 2: will obviously create additional stresses.

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Speaker 1: You mentioned the commercial real estate market and the real

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Speaker 1: estate market more broadly. If you were to put money

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Speaker 1: to work in that sector at scale, what could that

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Speaker 1: look like for you.

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Speaker 2: It's interesting you say that because the last year, so

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Speaker 2: we have a big real estate team.

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Speaker 3: Last for years, we haven't really.

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Speaker 2: Done that much because we thought valuations got way too speculative.

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Speaker 2: And what's interesting right now, it's affect one of the

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Speaker 2: things that we think is one of the bigger opportunities

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Speaker 2: for six years, because we're sitting with a pretty clean portfolio.

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Speaker 2: There's lots of opportunities, and that's really across the whole

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Speaker 2: commercial real estate spectrum, not only in the US, but

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Speaker 2: also in Europe.

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Speaker 1: Are there parts that you avoid? You think about just

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Speaker 1: how damage the office sector has become and worries about

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Speaker 1: work from home and the impact that they might have

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Speaker 1: on big cities. Are there parts of the area that.

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Speaker 2: You avoid In general, there's obviously different markets that pose

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Speaker 2: different risk, But as long as something's not binary risk,

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Speaker 2: we can generally price it.

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Speaker 3: That's what we do. That's our job as investors.

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Speaker 2: Whether it's in real estate, whether it's in corporates, whether

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Speaker 2: it's in infrastructure, whether it's in agriculture, that's our job.

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Speaker 2: So again, it's as long as it's not like stroke

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Speaker 2: of the pen risk, we can enjoin price at risk.

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Speaker 2: So we're looking across the whole swath of commercial real estate.

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Speaker 1: So is that an easy way to say you can

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Speaker 1: get into office but for the borrow or it could

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Speaker 1: be expensive.

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Speaker 3: In a new money situation.

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Speaker 2: If you look at sort of the cost of capital

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Speaker 2: today versus what it was let's say pre COVID or

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Speaker 2: even in most parts of COVID, it's obviously different costs

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Speaker 2: of capital. But over time that'll start to work itself,

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Speaker 2: work itself out, and things will normalize once the economy

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Speaker 2: gets to a steady state.

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Speaker 1: Now let's take this massive step back for a second,

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Speaker 1: because you think about the wake of two thousand and

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Speaker 1: eight and just how much the large banks have retrenched.

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Speaker 1: Regional banks really started to feel the pain of what

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Speaker 1: had happened at that time and the boom you saw

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Speaker 1: in private investment giants. And then you look at kind

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Speaker 1: of this second phase here where there's a chance once

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Speaker 1: again for you and your rivals to get much bigger.

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Speaker 1: There are a lot of questions about the loans that

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Speaker 1: are extended from regional banks and the place that private

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Speaker 1: credit could play in that space. Do you see this

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Speaker 1: as kind of a second coming, the ability for you

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Speaker 1: guys to get much bigger in the wake of so

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Speaker 1: many firms contracting on their lending practices.

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Speaker 3: So there's a couple of things happening. One is.

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Speaker 2: Stress or damage balance sheets that obviously contracts lending, and

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Speaker 2: a big part of that you're seeing in small regional

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Speaker 2: sides banks as a result of their commercial.

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Speaker 3: Real estate exposure.

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Speaker 2: That obviously creates an opportunity for private capitol players like

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Speaker 2: ourselves to come in. But the bigger thing is really

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Speaker 2: if you go back to what happened in two thousand

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Speaker 2: and eight, and obviously you start thinking about Dodd Frank,

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Speaker 2: is that when you go back through history, it's never

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Speaker 2: a credit thing that creates crisises. It's always a liquidity issue.

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Speaker 2: In the heart of every liquidity issue is mismatch assets

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Speaker 2: and liabilities. So I think, as a principle, and this

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Speaker 2: is we're talking about systemic risk here. One of the

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Speaker 2: benefits of private capital is that we have matched assets

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Speaker 2: and liabilities. When you think about a bank where you've

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Speaker 2: got short term deposits, it's very difficult unless you're one

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Speaker 2: of the larger banks that's got highly diversified base, it's

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Speaker 2: very difficult to sort of match assets and liabilities. And

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Speaker 2: that's why private capital is sort of a natural extension

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Speaker 2: into the spaces and by the way, good for the

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Speaker 2: economy because it fills in the gaps.

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Speaker 3: If you go back to the SVB.

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Speaker 2: Time period where banks stop lending, private capital was able

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Speaker 2: to step in there and, by the way, increase the

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Speaker 2: probability of the soft landing. And I think sometimes that

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Speaker 2: gets lost the in sort of the discussion, but that's

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Speaker 2: really the heart of it.

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Speaker 1: It's an interesting moment because over the last year you

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Speaker 1: saw private credit get into some massive deals. You guys

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Speaker 1: were just founded in two thousand and nine, and yet

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Speaker 1: you've become one of the most active players in this space.

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Speaker 1: You were on some of the largest transactions as a

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Speaker 1: lender that the market even saw. But now we fast

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Speaker 1: forward to this year and the banks are coming back,

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Speaker 1: the markets are opening back up. How do you see

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Speaker 1: the competition between the regular way banking system, the syndicated

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Speaker 1: loan market, and private credit playing out.

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Speaker 2: There's always, there's always been competition everything that we do.

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Speaker 2: This is not thirty years ago. There's always competition. So

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Speaker 2: for us, like when we think about banks, we think

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Speaker 2: about it more as partners. They they lend to us,

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Speaker 2: they advise us. In a lot of cases, they coin

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Speaker 2: mess with us. So there's a combination of competition, but

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Speaker 2: there's also a lot of partnership, and that's generally how

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Speaker 2: six Street as we're approaching sort of those relationships, that's

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Speaker 2: kind of how we think about it.

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Speaker 1: Well, I'm glad you mentioned that too, because I think

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Speaker 1: it's been an open question in the market how willing

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Speaker 1: firms like you would be to partner with a bank.

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Speaker 1: A lot of the banks are going off and starting

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Speaker 1: their own arms. Goldman Sachs, your alma mater, is doubling

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Speaker 1: down on direct lending while also syndicating loans. On the

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Speaker 1: other side, JP Morgan has their own private credit venture

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Speaker 1: at way here. Do you see yourself partnering with a bank.

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Speaker 3: We partner with banks all the time.

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Speaker 2: Would we do something in that type of structure, I

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Speaker 2: wouldn't roll it off the table. Is that one of

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Speaker 2: our top ten priorities? Not one of our top ten priorities.

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Speaker 2: But if there's a win win between one of our

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Speaker 2: banking partners, we're always going to be open minded to that.

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Speaker 2: I mean, that's Sixth Street. Our firm was built on

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Speaker 2: win win partnerships, So we'll always be open to it

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Speaker 2: and you know, happy to discuss with any of that

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Speaker 2: they if they've got a good idea, well.

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Speaker 1: Bring us inside the thinking what are the reasons for

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Speaker 1: it and what are the reasons against it? Should you

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Speaker 1: make some of those more formal partnerships work out? Why

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Speaker 1: would you do it?

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Speaker 2: It's hard, It's really hard to think about because it's

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Speaker 2: just not a we have a lot going on Sixth Street,

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Speaker 2: where as busy, literally as we've ever been in our history.

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Speaker 2: I mean, every one of our businesses is busy. So

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Speaker 2: given it's not a top priority for six Rate, it's

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Speaker 2: not something We're spent a lot of time thinking about.

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Speaker 1: Well, what it's interesting too, is not just partnerships, but

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Speaker 1: your ability to buy assets from other banks. Back in October,

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Speaker 1: you led a consortium here to buy GreenSky, this consumer

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Speaker 1: lending business that Goldman had bought and then exited. Why

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Speaker 1: why did you agree to do that again?

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Speaker 2: It goes back to sort of what we talked about earlier,

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Speaker 2: which is when you look at the components of the

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Speaker 2: consumer consumer, their biggest liability is a fixed rate mortgage.

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Speaker 2: Wage strow has been pretty pretty constant. Everyone's got everyone's

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Speaker 2: you know, everyone's got a job. It created pretty good conditions.

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Speaker 2: So that's number one. But the second thing is it's

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Speaker 2: just an incredible franchise. It's one of the best franchises

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Speaker 2: out there. We followed the we followed the business for

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Speaker 2: a long time, and marrying those two thesis is together

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Speaker 2: made it an interesting, interesting transaction.

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Speaker 1: So this is a big bet on the consumer.

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Speaker 2: It's it's it's a big I wouldn't say it's a

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Speaker 2: big bet on the consumer. I'd say it is absolutely

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Speaker 2: a component of the bet. But it's also just a

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Speaker 2: really good a really good franchise with a really good

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Speaker 2: management team and those three those three things together made

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Speaker 2: it really interesting for us.

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Speaker 1: As you navigate kind of the area of the consumer

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Speaker 1: that you've said a few times now has been so strong.

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Speaker 1: What worries you about the US consumer? You think about

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Speaker 1: the leverage that they hold today in credit card debt alone,

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Speaker 1: You think about any worries about a softening job market?

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Speaker 1: Are there concerns that you have?

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Speaker 2: The biggest concern is if you start to see big layoffs,

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Speaker 2: and what could r big layoffs is people start feeling

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Speaker 2: less good about the economy. What is the reason why

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Speaker 2: people can feel less good.

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Speaker 3: About the economy.

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Speaker 2: It's all of a sudden they have a mindset in boardrooms

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Speaker 2: that you know, financial conditions are easying. It goes back

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Speaker 2: to what I said earlier, which is if they start

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Speaker 2: to if financial conditions easy and they kind of gets

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Speaker 2: too strong and the Fed can't cut rates in fact,

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Speaker 2: possibly has to raise rates, that could have a big impact. Now,

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Speaker 2: I will say the Fed has done a very good job.

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Speaker 2: They've been very smart with respect to their management of

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Speaker 2: the tenure treasury. Like if you look at their balance sheet,

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Speaker 2: they've been managing down the risk. They've kept the short

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Speaker 2: end of the curve high, but tenures which finances a

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Speaker 2: lot of the investment grade companies, which a big part

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Speaker 2: of the job universe, by the way, have all fixed

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Speaker 2: rate debt. Those holdings have actually gone up. So in

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Speaker 2: the face of FED shrinking balance sheet, that is the

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Speaker 2: one part of the market where they've actually kept the

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Speaker 2: balancing fact actually grown the balance sheet, and that's I

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Speaker 2: think something people sometimes don't pay attention to. So that's

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Speaker 2: the biggest just getting back to it is job loss.

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Speaker 3: That's always the big concern.

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Speaker 1: Do you worry about a market that's still on life

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Speaker 1: support if we still have quantitative tightening kind of propping

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Speaker 1: up parts of the market, like the ten year end

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Speaker 1: of the curve.

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Speaker 3: View, Well, I think.

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Speaker 2: It's all about managing a series of risk, and I

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Speaker 2: think the FED, at least so far, maybe early you

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Speaker 2: could argue they're a little slow to get in the game,

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Speaker 2: but I think so far they've been really thoughtful and

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Speaker 2: ultimately their job. It's a very difficult job. They're managing

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Speaker 2: a series of risk, and you weigh that versus the

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Speaker 2: other risk. I think from a risk work perspective, I

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Speaker 2: think they've done a pretty good job.

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Speaker 1: Now. Consumer more in the consumer You've made a very

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Speaker 1: notable bet on sports. Here. You have exposure to all

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Speaker 1: sorts of different franchises, from women's leagues to soccer to

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Speaker 1: the NBA. What is there a part of that you're

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Speaker 1: not a part of yet? When you think about sports

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Speaker 1: and events, is there a league that you'd wish you're

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Speaker 1: a part of.

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Speaker 2: I think we're very bullish on women's sports. We started

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Speaker 2: in women's soccer, or some might say women's football. I

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Speaker 2: think women's sports. When you look at technology, it's broken

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Speaker 2: down the barriers for people to access women's sports. You'll

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Speaker 2: get all the trends on attendance, on sponsorship revenues.

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Speaker 3: It's just the very beginning.

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Speaker 2: And it's not just soccer, which is we think the

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Speaker 2: most obvious one today. It's really across every sport and

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Speaker 2: you're seeing it across volleyball, you're seeing across basketball. I

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Speaker 2: just saw something recently about cricket.

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Speaker 3: It's just the.

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Speaker 2: Beginning, at the very big We're at the very beginning

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Speaker 2: of that, and anything related to that theme is something

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Speaker 2: we're very focused on.

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Speaker 1: It begs the question too, as investors like you go

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Speaker 1: into different areas, different themes, sports being one large one

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Speaker 1: that has been noticeable. Are there things investors are ignoring?

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Speaker 1: You think about private credit, and you think about the

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Speaker 1: big Meggie deal, the financing of mergers and acquisitions. Are

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Speaker 1: there areas that are more exciting to you in sports

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Speaker 1: in general?

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Speaker 2: Look, I think sports live experiences very sure. We've talked

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Speaker 2: about that. It's not only women's sports, it's also live experiences.

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Speaker 2: The other thing is real estate we spoke about, but

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Speaker 2: part of being interesting is a clean portfolio. Because we

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Speaker 2: didn't do a lot of the sins I think some

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Speaker 2: people have done over the last three years. It positions

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Speaker 2: us in a pretty unique way. That's a big opportunity,

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Speaker 2: not only in US and Europe. And then lastly, just

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Speaker 2: going back to what we've been talking about today, is

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Speaker 2: just when you think about a big part of the economy,

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Speaker 2: companies were financed in a free money or a low

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Speaker 2: rate environment, and those capital structures were not built for

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Speaker 2: higher rates. And again they possibly that's a predominant case,

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Speaker 2: they'll come down. That just creates a lot of opportunities

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Speaker 2: to be partners with companies and be able to provide

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Speaker 2: re equitization or additional capital into businesses and assets.

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Speaker 1: So this is not just the regular way M and A.

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Speaker 1: This is leverage finance as it pertains to would you

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Speaker 1: be refinancing some of the riskier companies.

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Speaker 3: And it's everything.

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Speaker 2: So Sixth Street our investment philosophy is flexibility. You know,

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Speaker 2: the way the way our firm was built from literally

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Speaker 2: day one is no silos, no politics.

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Speaker 3: No bs.

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Speaker 2: And the reason why we have that is so that

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Speaker 2: people can work together. Like when we sit out Sixth Street,

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Speaker 2: we said, we don't want to be private equity or

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Speaker 2: private real estate, or private credit or infrastructure real estate.

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Speaker 2: We just want to be investors. But you can't just

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Speaker 2: be investors that people aren't talking together. And that's how

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Speaker 2: we're set up. So like when we think about the

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Speaker 2: whole universe of things, we go into a company we

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Speaker 2: want to we don't go in there with it's refinancy

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Speaker 2: and it's buying assets. We go in there, what are

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Speaker 2: you trying to solve? And then based on what they say,

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Speaker 2: we customize a bespoke solution for that.

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Speaker 3: That's really the heart of our firm.

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Speaker 2: That's like flexibility at scale is really how we built

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Speaker 2: Sixth Street. So we're not going in there with the hammer.

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Speaker 2: We go in there with twenty different tools. They tell

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Speaker 2: us what they're trying to solve, and then we try

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Speaker 2: to solve it with them through a series of typically

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Speaker 2: whiteboard exercises, iterating on what's the best solution for them.

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Speaker 1: It's funny, it seems like everyone in the market is

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Speaker 1: doing something opposite from what you did. It's you had

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Speaker 1: a relationship back in the day with TPG, right, you

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Speaker 1: had a relationship with another firm, and now you're watching

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Speaker 1: all these other firms tie up and can solid I'm

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Speaker 1: very curious about what you think about all this industry

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Speaker 1: consolidation and if you see it again for your future.

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Speaker 2: I think it's going to continue because the natural maturation,

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Speaker 2: you're going to continue to see that. That's not what

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Speaker 2: six streets thinking about. You know, we set up our

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Speaker 2: firm work. We're a little bit unique in that we

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Speaker 2: set up our firm day one to be a multi

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Speaker 2: strategy firm in.

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Speaker 3: A private capital basis.

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Speaker 2: A lot of the larger firms they start up as

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Speaker 2: private equity and they've reverse engineered into other businesses. From

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Speaker 2: day one, we had a plan because that's a business

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Speaker 2: that I ran, and some of my other partners at

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Speaker 2: Goldman and most recently our newest partner joined Salisbury ran

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Speaker 2: at Goldman, so we've always been thinking about it this way.

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Speaker 2: So is that that's not what we're thinking about. We're

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Speaker 2: thinking about building a long lasting firm to serve our clients,

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Speaker 2: and that's what we're most focused on.

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Speaker 1: Is there something you know you yourself had come from Goldman?

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Speaker 1: Julian had also come from Goldman quite recently, Marty Chavez

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Speaker 1: former CFO of Goldman. Is there something about Sixth Street

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Speaker 1: that is kind of like the Goldman of the past

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Speaker 1: pre IPO.

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Speaker 3: We don't look at it that way.

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Speaker 2: Like the way we look at it is we had

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Speaker 2: a vision from the first day we set up Sixth Street,

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Speaker 2: which is as we've talked about, no silos, no politics,

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Speaker 2: no bs, just good human beings trying to write by

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Speaker 2: our clients. Complete flexibility. We go in there now with

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Speaker 2: the hammer. We try to be completely flexible. And then

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Speaker 2: lastly is wrapping technology around every aspect of our business,

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Speaker 2: from sourcing, the asset management, every aspect of our business,

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Speaker 2: which is Marty Chavez and Adam Korn come into the

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Speaker 2: best engineers of the world and we think about what

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Speaker 2: we're trying to be. We're not trying to build anyone

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Speaker 2: else we're trying to build Sixth Street and that vision,

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Speaker 2: you know, it's been people have been attracted to it.

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Speaker 2: That's why we've had a number of people join us.

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Speaker 2: But we don't really I don't spend any people that

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Speaker 2: know me, I never spent I never read anything that

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Speaker 2: our competitors do. I don't care what our competitors do.

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Speaker 2: We like to think independently and we're trying to be

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Speaker 2: Sixth Street. That's all we're thinking about, and that's kind

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Speaker 2: of how we approach the world.