1 00:00:18,120 --> 00:00:20,640 Speaker 1: Hello and welcome to The Credit Edge, a weekly markets podcast. 2 00:00:20,720 --> 00:00:23,120 Speaker 1: My name is James Crumbie. I'm a senior editor at Bloomberg. 3 00:00:23,280 --> 00:00:26,280 Speaker 1: This week, we're very pleased to welcome Hamsa Lemsiger, founder 4 00:00:26,320 --> 00:00:30,600 Speaker 1: of a Renie, a specialized alternative asset manager focused on credit. 5 00:00:30,760 --> 00:00:31,480 Speaker 1: How are you, Hamsa? 6 00:00:31,880 --> 00:00:33,839 Speaker 2: Very good, always good to be here. Thank you for 7 00:00:33,880 --> 00:00:34,319 Speaker 2: having me. 8 00:00:34,440 --> 00:00:35,839 Speaker 1: Thank you so much for joining us today. We're very 9 00:00:35,840 --> 00:00:38,600 Speaker 1: excited to have you on the show. And to Julia Morpurgo, 10 00:00:38,640 --> 00:00:41,680 Speaker 1: who covers distressed debt from Bloomberg for Bloomberg News in London. 11 00:00:41,720 --> 00:00:45,080 Speaker 1: Welcome Julia, Thank you. Also delighted to see Tollu Alamutu 12 00:00:45,280 --> 00:00:46,680 Speaker 1: with Bloomberg Intelligence. 13 00:00:46,720 --> 00:00:49,360 Speaker 3: Hello Tollu, Hello James. Great to be here as always. 14 00:00:49,760 --> 00:00:53,239 Speaker 1: So credit's getting exciting again. Investors are piling back in 15 00:00:53,400 --> 00:00:56,280 Speaker 1: chasing the highest corporate debt yields in years. It's a 16 00:00:56,360 --> 00:00:59,160 Speaker 1: golden age, or so we keep hearing, and private credit 17 00:00:59,200 --> 00:01:02,840 Speaker 1: in particular is hot. Most people love it, but there 18 00:01:02,840 --> 00:01:05,399 Speaker 1: are some big critics, like Jamie Diamond, who expect it 19 00:01:05,440 --> 00:01:07,840 Speaker 1: to blow up after very swift growth over the last 20 00:01:07,880 --> 00:01:10,440 Speaker 1: few years. Debt spreads are tight, You're not getting very 21 00:01:10,520 --> 00:01:13,120 Speaker 1: much compensation for the risk of default or downgrades and 22 00:01:13,200 --> 00:01:16,200 Speaker 1: corporate debt. On that note, companies that took on a 23 00:01:16,200 --> 00:01:18,080 Speaker 1: lot of debt when rates when near zero are coming 24 00:01:18,160 --> 00:01:20,119 Speaker 1: under a lot of pressure, not just the small ones. 25 00:01:20,400 --> 00:01:23,680 Speaker 1: We're seeing some significant stress in large capital structures like Altes, 26 00:01:23,880 --> 00:01:26,800 Speaker 1: which looks likely to force losses on creditors. And there 27 00:01:26,800 --> 00:01:29,440 Speaker 1: are some other big distress situations such as Atos and 28 00:01:29,480 --> 00:01:33,160 Speaker 1: Thames Water that are still ongoing. Creditor on creditor violence 29 00:01:33,200 --> 00:01:36,319 Speaker 1: is becoming more prevalent. Distress debt markets are getting tougher 30 00:01:36,760 --> 00:01:38,559 Speaker 1: over all, though there seems to be a fair amount 31 00:01:38,600 --> 00:01:41,280 Speaker 1: of complacency in market pricing given how much we all 32 00:01:41,319 --> 00:01:46,040 Speaker 1: have to worry about debt defaults, commercial real estate stress, war, geopolitics. 33 00:01:46,120 --> 00:01:48,920 Speaker 1: France is getting messy, and everyone's loaded up on US 34 00:01:48,960 --> 00:01:52,000 Speaker 1: assets going into a very noisy presidential election. So I 35 00:01:52,000 --> 00:01:54,080 Speaker 1: want to start there, Hams A. We're in Europe. You're 36 00:01:54,120 --> 00:01:57,440 Speaker 1: stomping ground for listeners in other regions who think Europe 37 00:01:57,480 --> 00:01:59,440 Speaker 1: is too small, to a liquid to risk in, too 38 00:01:59,520 --> 00:02:02,360 Speaker 1: complex compared to the US. What's the appeal right now? 39 00:02:02,640 --> 00:02:05,800 Speaker 1: Why for credit markets? Why should people think about Europe more? 40 00:02:06,120 --> 00:02:08,440 Speaker 2: Yeah, thank you a lot to consider. I'll try to 41 00:02:08,440 --> 00:02:12,960 Speaker 2: be helpful, but it's a very interesting start. Look, Europe 42 00:02:12,960 --> 00:02:16,160 Speaker 2: has been always considered very small versus the US. It 43 00:02:16,320 --> 00:02:18,359 Speaker 2: was small, but it changed over the last twenty years. 44 00:02:18,440 --> 00:02:21,440 Speaker 2: To give you some numbers, European leverage finance, which is 45 00:02:21,480 --> 00:02:23,720 Speaker 2: a mix of high bonds and loans, used to be 46 00:02:23,760 --> 00:02:28,400 Speaker 2: around seventy billion seven zero outstanding notional and today that's 47 00:02:28,440 --> 00:02:31,840 Speaker 2: over seven hundred billion, So the growth was a factor 48 00:02:31,880 --> 00:02:33,720 Speaker 2: of ten x. At the same time for the last 49 00:02:33,720 --> 00:02:35,880 Speaker 2: twenty years, the US market grew by a factor of 50 00:02:35,919 --> 00:02:38,880 Speaker 2: three and a half x. So Europe clearly outgrew the 51 00:02:39,000 --> 00:02:41,519 Speaker 2: US market. And all of that was done at the time, 52 00:02:41,600 --> 00:02:43,799 Speaker 2: as you said, when rates were negative, and I think 53 00:02:43,840 --> 00:02:46,240 Speaker 2: it's very important to go back and highlight what was 54 00:02:46,280 --> 00:02:48,519 Speaker 2: different in Europe versus the US over the last fifteen 55 00:02:48,560 --> 00:02:51,640 Speaker 2: twenty years. That allowed for the market to develop. What's 56 00:02:51,720 --> 00:02:54,640 Speaker 2: different now and what's going to happen we think in 57 00:02:54,680 --> 00:02:57,639 Speaker 2: the future. If I look in the last fifteen years, 58 00:02:58,480 --> 00:03:01,200 Speaker 2: the ECB policy was very different to the US. Both 59 00:03:01,200 --> 00:03:05,240 Speaker 2: were accommodative, but Europe had negative rates, the US was positive, 60 00:03:05,360 --> 00:03:10,480 Speaker 2: was always positive. The ECB purchased corporate investment grade bonds, 61 00:03:10,760 --> 00:03:14,320 Speaker 2: the US only did that after COVID, or for as 62 00:03:14,320 --> 00:03:17,639 Speaker 2: a measure for COVID. And I think those two factors 63 00:03:17,639 --> 00:03:20,200 Speaker 2: are really important to understand the risk capitite that developed 64 00:03:20,200 --> 00:03:23,480 Speaker 2: in the market. Those vicious at times you destroyed capital 65 00:03:23,480 --> 00:03:26,560 Speaker 2: by doing nothing. You never destroyed capital by doing nothing 66 00:03:26,760 --> 00:03:28,880 Speaker 2: in the US, So that's already pushes you to take 67 00:03:29,000 --> 00:03:31,600 Speaker 2: risk just to preserve your money. To keep your capital, 68 00:03:31,639 --> 00:03:34,680 Speaker 2: you had to take risk, which is not the nature 69 00:03:34,720 --> 00:03:37,200 Speaker 2: of fixed income. And then the second order is by 70 00:03:37,240 --> 00:03:40,520 Speaker 2: buying investment grade debt, they pushed the yield of investment 71 00:03:40,520 --> 00:03:44,200 Speaker 2: grade bonds below one percent for many, many years. And 72 00:03:44,240 --> 00:03:46,880 Speaker 2: as you think who are the investors in Europe, we're 73 00:03:46,880 --> 00:03:52,360 Speaker 2: talking about savers, so mainly pension funds, insurance companies. They're 74 00:03:52,480 --> 00:03:57,000 Speaker 2: used to buying ig investment grade and generating three, four, five, 75 00:03:57,040 --> 00:03:59,800 Speaker 2: six percent over the last decades, and all of a sudden, 76 00:03:59,840 --> 00:04:02,400 Speaker 2: that market is now paying one percent. So how can 77 00:04:02,440 --> 00:04:06,480 Speaker 2: you generate your cost of capital which is often above 78 00:04:06,520 --> 00:04:09,360 Speaker 2: four percent? To these institutions, you had to take more risk, 79 00:04:10,000 --> 00:04:13,760 Speaker 2: and they took more risk by borrowing to these high companies. 80 00:04:13,760 --> 00:04:15,440 Speaker 2: And I think that happened at the same time as 81 00:04:15,520 --> 00:04:17,839 Speaker 2: banks had a lot of debt to offload. If you 82 00:04:17,880 --> 00:04:21,120 Speaker 2: think about European economy in the nineties or early two thousands, 83 00:04:21,120 --> 00:04:23,599 Speaker 2: it was funded by banks. If you're a French business, 84 00:04:23,600 --> 00:04:25,359 Speaker 2: you went to a French bank. If you're a German business, 85 00:04:25,440 --> 00:04:29,400 Speaker 2: you went to your German bank. And after GFC capital 86 00:04:29,480 --> 00:04:32,280 Speaker 2: became a lot more expensive, banks had a lot of 87 00:04:32,440 --> 00:04:35,039 Speaker 2: debt to offload to syndicate, and that was met with 88 00:04:35,080 --> 00:04:37,520 Speaker 2: a lot of demand from pensions, from insurance, from the buyside, 89 00:04:37,560 --> 00:04:39,440 Speaker 2: and that's how the market grew from seventy to seven 90 00:04:39,480 --> 00:04:43,360 Speaker 2: hundred billion and created this big asset class that's now volatile, 91 00:04:43,440 --> 00:04:45,080 Speaker 2: that's now the subject of these headlines. 92 00:04:45,800 --> 00:04:49,280 Speaker 3: That's an excrudinary, useful introduction. Thank you so much, Hamza. 93 00:04:49,960 --> 00:04:53,400 Speaker 3: But one of the key things that we've been dealing with, 94 00:04:53,400 --> 00:04:55,880 Speaker 3: I guess in Green Bank Intelligence is all the headlines 95 00:04:55,960 --> 00:04:58,280 Speaker 3: around France, and I guess it goes to the point 96 00:04:58,320 --> 00:05:01,560 Speaker 3: on volatility that you mentioned. So there's all this talk 97 00:05:01,600 --> 00:05:03,840 Speaker 3: about the search to the right. I guess in some 98 00:05:03,880 --> 00:05:06,600 Speaker 3: places it's also concerned about search to the left as well, 99 00:05:06,760 --> 00:05:09,839 Speaker 3: I should say far right. Rather. Is that something that 100 00:05:09,920 --> 00:05:13,839 Speaker 3: you think that European investors are prepared for, or do 101 00:05:13,880 --> 00:05:16,360 Speaker 3: you think that maybe people shouldn't be concerned about the 102 00:05:16,360 --> 00:05:19,239 Speaker 3: political headlines that we're getting more and more of now. 103 00:05:20,080 --> 00:05:24,120 Speaker 2: Of course, I mean it's I think we're almost COVID 104 00:05:24,200 --> 00:05:27,520 Speaker 2: was very interesting because the market became immune to negative news. 105 00:05:27,600 --> 00:05:29,760 Speaker 2: It takes a lot to move the market now, and 106 00:05:29,800 --> 00:05:31,680 Speaker 2: we're living in a market in a world where we 107 00:05:31,800 --> 00:05:35,240 Speaker 2: have a lot of risks from geopolitically, risk, economy, risk, 108 00:05:35,320 --> 00:05:39,800 Speaker 2: inflation is very volatile, and we're just thinking what's more important. 109 00:05:39,920 --> 00:05:42,960 Speaker 2: In Europe particularly, we've seen Brexit. We've seen how long 110 00:05:43,000 --> 00:05:45,640 Speaker 2: it took and how uncertain that is. I mean, it's 111 00:05:45,680 --> 00:05:48,320 Speaker 2: been eight years since the initial vote and people are 112 00:05:48,680 --> 00:05:50,280 Speaker 2: still trying, all of us to figure out what are 113 00:05:50,279 --> 00:05:53,560 Speaker 2: the impacts. It's still not clear. As you think about politics, 114 00:05:53,600 --> 00:05:55,719 Speaker 2: it is absolutely very important. We've seen the UK in 115 00:05:55,720 --> 00:05:58,920 Speaker 2: September twenty twenty two, in October with the budget problems 116 00:05:58,960 --> 00:06:01,640 Speaker 2: in the UK impossible. We see that is it with 117 00:06:01,720 --> 00:06:04,400 Speaker 2: the left or the right or both in front? Very possible, 118 00:06:05,520 --> 00:06:08,080 Speaker 2: and I think these type of risks are we live with. 119 00:06:08,440 --> 00:06:11,400 Speaker 2: It is just very hard to know which one will 120 00:06:11,400 --> 00:06:14,680 Speaker 2: materialize more than another. And as investors, we prepare for 121 00:06:14,680 --> 00:06:18,240 Speaker 2: different scenarios because really everything can happen, and we think 122 00:06:18,240 --> 00:06:21,839 Speaker 2: about stress testing our positions, stress testing our analysis, but 123 00:06:22,000 --> 00:06:24,200 Speaker 2: not needing to depend on these things. And that is 124 00:06:24,240 --> 00:06:27,280 Speaker 2: why we have been avoiding sectors that are highly political, 125 00:06:27,279 --> 00:06:33,160 Speaker 2: like utilities or very stressed banks, because then the regulator 126 00:06:33,600 --> 00:06:36,600 Speaker 2: that can be influenced by the politics might influence your 127 00:06:36,600 --> 00:06:37,840 Speaker 2: recovery and we don't like that. 128 00:06:38,680 --> 00:06:42,120 Speaker 4: I'm just interested, obviously, like taking the political factor into account, 129 00:06:42,200 --> 00:06:47,080 Speaker 4: taking the macroeconomy and the financial health of single corporates. 130 00:06:47,640 --> 00:06:51,760 Speaker 4: How are you seeing the European corporate high yield market 131 00:06:51,839 --> 00:06:55,599 Speaker 4: right now and how are you positioning yourself to kind 132 00:06:55,640 --> 00:06:57,640 Speaker 4: of trade that thinking? 133 00:06:59,040 --> 00:07:01,760 Speaker 2: I think, Look, what's importance is, yeah, the market grew. 134 00:07:01,880 --> 00:07:03,960 Speaker 2: Another thing that is very important. We said, yeah, it 135 00:07:04,000 --> 00:07:06,920 Speaker 2: grew from seventy billion to seven hundred billion between bonds 136 00:07:06,920 --> 00:07:09,200 Speaker 2: and loans over the last fifteen to twenty years. The 137 00:07:09,240 --> 00:07:12,200 Speaker 2: second thing is all of these capital structures were put 138 00:07:12,240 --> 00:07:14,560 Speaker 2: in place at a time when rates were negative and 139 00:07:14,600 --> 00:07:17,360 Speaker 2: spreads were very tight. What does it mean? It gives 140 00:07:17,400 --> 00:07:20,560 Speaker 2: you the wrong or false sense of comfort that you 141 00:07:20,600 --> 00:07:22,280 Speaker 2: have a lot of money and that you can afford 142 00:07:22,280 --> 00:07:24,400 Speaker 2: a lot more debt. And that's what companies have been 143 00:07:24,440 --> 00:07:27,400 Speaker 2: doing over the last decade is push the leverage a 144 00:07:27,400 --> 00:07:29,920 Speaker 2: little bit more because you can afford it because rates 145 00:07:29,920 --> 00:07:33,000 Speaker 2: are stable, spreads our stable, and any episode of volatility 146 00:07:33,040 --> 00:07:36,240 Speaker 2: we had even COVID was very short lived, so companies 147 00:07:36,280 --> 00:07:38,960 Speaker 2: had time to access the market back again. And so 148 00:07:39,000 --> 00:07:42,920 Speaker 2: that increasing leverage obviously pushed MNA volumes. We had a 149 00:07:42,960 --> 00:07:45,080 Speaker 2: lot more m and A, and we had a lot 150 00:07:45,120 --> 00:07:48,640 Speaker 2: more DV recaps, and the market was extremely active. The 151 00:07:48,720 --> 00:07:51,400 Speaker 2: issue is, particularly in Europe, we're now moving from a 152 00:07:51,440 --> 00:07:54,080 Speaker 2: world where high yield debt. Think about your average single 153 00:07:54,120 --> 00:07:56,600 Speaker 2: BEE used to be funded at three and a half percent, 154 00:07:57,320 --> 00:08:01,760 Speaker 2: today is probably above eight percent, and that means that 155 00:08:02,000 --> 00:08:04,920 Speaker 2: your average single B company is more than doubling its 156 00:08:04,920 --> 00:08:08,920 Speaker 2: interest expense. And as we think about when does that happen, 157 00:08:08,960 --> 00:08:12,880 Speaker 2: because we've heard a lot of chatter around why is 158 00:08:12,920 --> 00:08:14,920 Speaker 2: the economy is still solid? Why our company is not 159 00:08:14,960 --> 00:08:18,280 Speaker 2: falling over when rates move from zero from negative to 160 00:08:18,280 --> 00:08:20,560 Speaker 2: four or five percent, And the reason is, if you 161 00:08:20,600 --> 00:08:23,320 Speaker 2: have a fixed debt, you don't necessarily see the impact 162 00:08:23,360 --> 00:08:27,360 Speaker 2: of those rates volatility until you have to refinance. And 163 00:08:27,760 --> 00:08:30,200 Speaker 2: we've seen it's been six nine months that the market 164 00:08:30,240 --> 00:08:32,840 Speaker 2: has been very active in refinancing these companies, but we 165 00:08:32,880 --> 00:08:35,320 Speaker 2: still have a lot to do. We have about half 166 00:08:35,360 --> 00:08:38,319 Speaker 2: of the market is mature in the next three years, 167 00:08:38,600 --> 00:08:41,280 Speaker 2: and as companies go through that exercise, they'll have to 168 00:08:41,400 --> 00:08:44,040 Speaker 2: start paying higher interest if they can afford it. So 169 00:08:44,080 --> 00:08:46,560 Speaker 2: we're seeing, to your point, the health of the market, 170 00:08:46,720 --> 00:08:49,559 Speaker 2: we're seeing two markets. We're seeing a market where eighty 171 00:08:49,600 --> 00:08:52,480 Speaker 2: percent of the companies need to refinance. They have to 172 00:08:52,559 --> 00:08:55,040 Speaker 2: pay two three times more than they paid in the 173 00:08:55,080 --> 00:08:58,480 Speaker 2: previous vintage, but they can still afford it, and that's 174 00:08:58,480 --> 00:09:00,960 Speaker 2: what the new issue market is about today. And then 175 00:09:01,000 --> 00:09:03,880 Speaker 2: we're seeing another tale of probably twenty twenty five percent 176 00:09:03,960 --> 00:09:07,800 Speaker 2: of the market where it's just impossible to afford the 177 00:09:07,840 --> 00:09:10,800 Speaker 2: current interest rates, and it's actually even very difficult to 178 00:09:10,800 --> 00:09:13,480 Speaker 2: afford any small deviation from the initial interest rate that 179 00:09:13,520 --> 00:09:15,880 Speaker 2: they paid a few years ago. And I think this 180 00:09:15,960 --> 00:09:17,840 Speaker 2: is the dynamic that we have now. We really have 181 00:09:17,880 --> 00:09:22,560 Speaker 2: two markets, one market credit risk limited and one market 182 00:09:22,760 --> 00:09:26,480 Speaker 2: probably twenty percent twenty five percent very risky and trading 183 00:09:26,520 --> 00:09:29,400 Speaker 2: at the press levels. However, when we think about the 184 00:09:29,440 --> 00:09:32,679 Speaker 2: impact of that on other asset classes, for example equity 185 00:09:32,760 --> 00:09:36,080 Speaker 2: or other things, companies have to pay a lot more 186 00:09:36,160 --> 00:09:38,800 Speaker 2: now and so there is a lot less money available 187 00:09:38,840 --> 00:09:41,720 Speaker 2: for capex, there is a lot less money available for equity, 188 00:09:41,760 --> 00:09:44,560 Speaker 2: for shareholder distributions, and so a lot of the cash 189 00:09:44,600 --> 00:09:47,880 Speaker 2: flow generation, even for safe companies, has to go to 190 00:09:47,960 --> 00:09:50,440 Speaker 2: pay the firstly in debt and then the unsecured debt, 191 00:09:50,520 --> 00:09:52,439 Speaker 2: and then we'll see what's left for other activities. 192 00:09:53,160 --> 00:09:55,360 Speaker 1: But to Julius question, how do you use an investor 193 00:09:55,679 --> 00:09:57,680 Speaker 1: take advantage of that? I mean, the performing stuff is 194 00:09:57,800 --> 00:10:00,240 Speaker 1: very very tight, you're not getting much. The other stuff 195 00:10:00,240 --> 00:10:03,400 Speaker 1: that's very stressed and distressed looks like it's you know, 196 00:10:03,600 --> 00:10:06,000 Speaker 1: pretty dangerous. But you know you're coming in as offering 197 00:10:06,120 --> 00:10:08,120 Speaker 1: rescue finance, you breaching them? What you what are you 198 00:10:08,160 --> 00:10:10,520 Speaker 1: doing an invested to exploit that situation? 199 00:10:11,320 --> 00:10:14,920 Speaker 2: Okay, from this tight stuff, as you said in credit, 200 00:10:15,000 --> 00:10:16,600 Speaker 2: you know what you can get and when it's tied, 201 00:10:16,679 --> 00:10:18,319 Speaker 2: you know that you're not going to get much. Be 202 00:10:18,520 --> 00:10:20,719 Speaker 2: long and that has been a good hunting ground for 203 00:10:20,800 --> 00:10:24,400 Speaker 2: us on the short side because you can, obviously if 204 00:10:24,440 --> 00:10:27,560 Speaker 2: you hit the company six nine, twelve months before negative surprise, 205 00:10:27,640 --> 00:10:32,560 Speaker 2: before change dynamic in the industry, before a margin dilution, 206 00:10:32,840 --> 00:10:35,760 Speaker 2: then you're able to benefit from that single big company 207 00:10:35,760 --> 00:10:38,920 Speaker 2: going to triple C and then suffering those that repricing. 208 00:10:39,320 --> 00:10:42,080 Speaker 2: On the longside, we're focused on that twenty percent of 209 00:10:42,120 --> 00:10:45,240 Speaker 2: the market that is trading at the distressed or stressed 210 00:10:45,320 --> 00:10:48,360 Speaker 2: levels and focusing on ones that have ways of dealing 211 00:10:48,360 --> 00:10:51,000 Speaker 2: with those maturities. And by the way, even if there 212 00:10:51,080 --> 00:10:54,839 Speaker 2: is a destruction of capital from par you might pay 213 00:10:54,840 --> 00:10:56,600 Speaker 2: a lot less than that, you can still make money. 214 00:10:57,000 --> 00:11:00,240 Speaker 2: So we're not looking we're not private credit in that section. 215 00:11:00,360 --> 00:11:03,880 Speaker 2: We're not providing par capital. We're buying securities at a 216 00:11:03,880 --> 00:11:06,120 Speaker 2: fairly discounted price, so that even if there is a 217 00:11:06,200 --> 00:11:09,880 Speaker 2: heavy discount, we're still making significant total return. And our 218 00:11:09,880 --> 00:11:13,800 Speaker 2: focus there is really downside underwriting. If we're paying below 219 00:11:13,840 --> 00:11:18,360 Speaker 2: what we think is the fundamental downside, then it's only upside. 220 00:11:18,400 --> 00:11:20,800 Speaker 1: And how do you shoot? Is there enough liquidity in 221 00:11:20,800 --> 00:11:23,079 Speaker 1: the CDs the CDX to do that sort of trade. 222 00:11:23,960 --> 00:11:26,000 Speaker 2: I think what's been happening over the last few years 223 00:11:26,120 --> 00:11:29,360 Speaker 2: is the bond market became a lot more liquid for shorts. 224 00:11:30,280 --> 00:11:33,920 Speaker 2: We're seeing a lot more institutions lending their portfolio, which 225 00:11:33,960 --> 00:11:36,800 Speaker 2: means that you can short something that the US market 226 00:11:36,840 --> 00:11:39,559 Speaker 2: had for many years. European market took some time to 227 00:11:39,600 --> 00:11:41,439 Speaker 2: develop it, but I think banks did a very good 228 00:11:41,480 --> 00:11:43,440 Speaker 2: job in prime brokers did a very good job at 229 00:11:43,840 --> 00:11:48,040 Speaker 2: bringing inventory from different investors, from different mutual funds and 230 00:11:48,080 --> 00:11:49,440 Speaker 2: making it available to the market. 231 00:11:50,800 --> 00:11:53,080 Speaker 3: Can we maybe go back to something that you mentioned 232 00:11:53,120 --> 00:11:56,320 Speaker 3: about sectors, So you said you are a little bit 233 00:11:56,360 --> 00:11:59,680 Speaker 3: cautious on utilities and maybe some of the smaller banks, 234 00:11:59,679 --> 00:12:03,200 Speaker 3: and are there other sectors that you think people should 235 00:12:03,240 --> 00:12:05,920 Speaker 3: be avoiding at this point, and then on the flip 236 00:12:05,960 --> 00:12:08,120 Speaker 3: side of that, other sectors that you think, you know what, 237 00:12:08,200 --> 00:12:10,440 Speaker 3: maybe these sectors are a little bit over sold. I 238 00:12:10,480 --> 00:12:13,040 Speaker 3: know that, for instance, you've hired somebody recently in real estate, 239 00:12:13,200 --> 00:12:15,320 Speaker 3: structured credit and so on. Is that the sector that 240 00:12:15,400 --> 00:12:19,160 Speaker 3: you think has significant opportunity? 241 00:12:19,320 --> 00:12:23,320 Speaker 2: Yeah, okay, I think for us we never we rarely 242 00:12:23,400 --> 00:12:25,719 Speaker 2: take a view on the sector as a whole. So 243 00:12:25,800 --> 00:12:29,480 Speaker 2: everything we do is bottom up. We have different vehicles. 244 00:12:29,520 --> 00:12:32,959 Speaker 2: In some vehicles were required to be neutral or close 245 00:12:33,000 --> 00:12:35,520 Speaker 2: to neutral, so we have long short positioning, and in 246 00:12:35,559 --> 00:12:39,040 Speaker 2: other vehicles we have less constraint. And then we can 247 00:12:39,080 --> 00:12:42,400 Speaker 2: be a private credit provider, We can be a stressed investor, 248 00:12:42,520 --> 00:12:46,040 Speaker 2: or can be a performing investor. And the sectors that 249 00:12:46,080 --> 00:12:48,360 Speaker 2: we see are very busy. If you look at two 250 00:12:48,400 --> 00:12:51,440 Speaker 2: years ago, it was mostly consumers with the cost of 251 00:12:51,480 --> 00:12:53,280 Speaker 2: living crisis. There was a lot of confusion in the 252 00:12:53,320 --> 00:12:56,079 Speaker 2: system about which companies will be able to pass through 253 00:12:56,080 --> 00:12:59,280 Speaker 2: the cost to customers, which companies will probably lose market share, 254 00:12:59,640 --> 00:13:02,079 Speaker 2: and we companies have enough assets and cash flow to 255 00:13:02,120 --> 00:13:06,360 Speaker 2: defend their position in that tough time. Today, definitely, real 256 00:13:06,440 --> 00:13:10,080 Speaker 2: estate is something that is a big question mark and 257 00:13:10,120 --> 00:13:12,920 Speaker 2: we're seeing room for significant dispersions. So we've been hiring 258 00:13:13,400 --> 00:13:14,280 Speaker 2: and building that team. 259 00:13:14,280 --> 00:13:17,560 Speaker 4: As you said, just I know you mentioned you obviously 260 00:13:18,360 --> 00:13:20,480 Speaker 4: never take a sector view of things. You look at 261 00:13:20,640 --> 00:13:23,080 Speaker 4: companies one by one. But there is a sector which 262 00:13:23,120 --> 00:13:26,319 Speaker 4: has been in the spotlight as many issuers are trying 263 00:13:26,559 --> 00:13:30,560 Speaker 4: to adjust their maturities and you know, the market has 264 00:13:30,600 --> 00:13:34,160 Speaker 4: become more competitive and margins have gone down, and it's 265 00:13:34,200 --> 00:13:37,520 Speaker 4: the that collection sector. So just wondering, you know, your 266 00:13:37,600 --> 00:13:40,199 Speaker 4: view on that collectors and what's happening all across the 267 00:13:40,240 --> 00:13:42,280 Speaker 4: spectrum with them in Europe. 268 00:13:43,240 --> 00:13:46,200 Speaker 2: Yeah, I think that collectors is one of these sectors 269 00:13:46,200 --> 00:13:50,280 Speaker 2: that is complex. It is not your usual telecom company 270 00:13:50,320 --> 00:13:52,559 Speaker 2: where you can say subscribers are doing why in our 271 00:13:52,640 --> 00:13:55,320 Speaker 2: pool is here? So I can understand the revenue trends. 272 00:13:55,400 --> 00:13:57,720 Speaker 2: It is a little bit more complex than most sectors 273 00:13:57,760 --> 00:14:03,120 Speaker 2: we see in leverage finance, but from a creditor's lens, 274 00:14:03,200 --> 00:14:07,320 Speaker 2: we get comfort from the asset coverage. Dead collectors often 275 00:14:07,440 --> 00:14:11,160 Speaker 2: have a portfolio of non performing loans which we can 276 00:14:11,160 --> 00:14:14,080 Speaker 2: put a value on, and that really makes for our 277 00:14:14,120 --> 00:14:17,600 Speaker 2: downside scenario, and that's how we underwrite the downside case. 278 00:14:18,080 --> 00:14:21,120 Speaker 2: Whereas many other industries that probably don't have as much 279 00:14:21,160 --> 00:14:25,480 Speaker 2: complexity or volatility, they tend to have limited asset base 280 00:14:25,720 --> 00:14:28,200 Speaker 2: and become very hard to unteraction with downside. So whenever 281 00:14:28,280 --> 00:14:31,800 Speaker 2: we position or look to position, we think about our 282 00:14:31,840 --> 00:14:34,840 Speaker 2: protection as creditor, not necessarily as an equity holder. And 283 00:14:34,880 --> 00:14:37,360 Speaker 2: that's where really there's disconnect is when you look at 284 00:14:37,360 --> 00:14:39,400 Speaker 2: a company, you might think it's a good company, it's 285 00:14:39,440 --> 00:14:42,160 Speaker 2: a bad company, But what makes a good company for 286 00:14:42,280 --> 00:14:44,720 Speaker 2: creditor is not necessarily what makes for a good company 287 00:14:44,720 --> 00:14:48,800 Speaker 2: for an equity holder. The equity wants growth, the equity 288 00:14:48,880 --> 00:14:52,400 Speaker 2: wants a good story, whereas the creditor wants asset protection. 289 00:14:52,680 --> 00:14:56,640 Speaker 2: The creditor wants protectability, and we can get that from that. Collectors. 290 00:14:56,840 --> 00:14:58,560 Speaker 2: In some cases we. 291 00:14:58,480 --> 00:15:01,040 Speaker 3: Talked about real estate a little bit earlier, and obviously 292 00:15:01,040 --> 00:15:04,200 Speaker 3: that's a sector that is extremely asset rich and also 293 00:15:04,200 --> 00:15:09,880 Speaker 3: obviously very highly leveled in some instances. But within real estate, 294 00:15:09,960 --> 00:15:12,800 Speaker 3: one of the sub sectors that I guess has got 295 00:15:12,880 --> 00:15:19,040 Speaker 3: a lot of focus is offices. What your thoughts there, 296 00:15:19,120 --> 00:15:21,000 Speaker 3: you know, given that everyone is still a little bit 297 00:15:21,040 --> 00:15:23,600 Speaker 3: concerned about the work from home trends and vacancies and 298 00:15:23,960 --> 00:15:26,280 Speaker 3: prime versus non prime, do you think that there are 299 00:15:26,560 --> 00:15:29,440 Speaker 3: single name opportunities there or do you would you class 300 00:15:29,520 --> 00:15:32,040 Speaker 3: that in the twenty to twenty five bucket that you 301 00:15:32,080 --> 00:15:35,280 Speaker 3: were saying of credits that may not quite make it? 302 00:15:35,360 --> 00:15:38,600 Speaker 2: Basically, yeah, I think you know, real estates has gone 303 00:15:38,600 --> 00:15:41,400 Speaker 2: through different cycles over the last two and a half years. 304 00:15:41,760 --> 00:15:45,920 Speaker 2: Initially all redistates was panished, and the reason there was, 305 00:15:45,960 --> 00:15:49,040 Speaker 2: you know, we had a discount curve that was moving 306 00:15:49,040 --> 00:15:52,480 Speaker 2: aggressively from negative to plus four or five. Lending has 307 00:15:52,480 --> 00:15:57,040 Speaker 2: stopped from banks. Visibility on valuation was very difficult. But 308 00:15:57,080 --> 00:16:01,119 Speaker 2: also there was the question of you know, office space, commercial, 309 00:16:01,520 --> 00:16:03,480 Speaker 2: what can you fill? So there are really two problems 310 00:16:03,480 --> 00:16:06,200 Speaker 2: with really state. One of them is assets. Can you 311 00:16:06,240 --> 00:16:09,520 Speaker 2: fill your really state? If it's residential In Europe, most 312 00:16:09,520 --> 00:16:11,920 Speaker 2: times it's okay you know, you can still get tenants 313 00:16:12,480 --> 00:16:15,200 Speaker 2: in commercial you have a big division for some commercial 314 00:16:15,240 --> 00:16:19,680 Speaker 2: you can get tenants for office space in more complicated 315 00:16:20,080 --> 00:16:23,720 Speaker 2: and more difficult spots, you have a challenge fit in 316 00:16:23,800 --> 00:16:26,560 Speaker 2: that space and increasing the rents. So the first step 317 00:16:26,640 --> 00:16:29,360 Speaker 2: is we're focusing on assets that don't have a problem, 318 00:16:29,720 --> 00:16:34,480 Speaker 2: which means they have good tenancy ability to increase the rents, 319 00:16:34,800 --> 00:16:37,080 Speaker 2: and that is a starting point, and then it becomes 320 00:16:37,080 --> 00:16:39,600 Speaker 2: really balanceyet exercise, and that's where we have been involved 321 00:16:39,600 --> 00:16:42,080 Speaker 2: in when we see good opportunities where you can size 322 00:16:42,120 --> 00:16:45,600 Speaker 2: the debt and decide what is the next level of 323 00:16:45,760 --> 00:16:49,560 Speaker 2: LTV that is sustainable with the current yields and with 324 00:16:49,640 --> 00:16:52,560 Speaker 2: the rates being stable for now six eight months, we're 325 00:16:52,600 --> 00:16:53,920 Speaker 2: able to do that for some assets. 326 00:16:54,600 --> 00:16:56,280 Speaker 3: Just a follow upon what you said about sort of 327 00:16:56,320 --> 00:17:00,400 Speaker 3: chasing the quality assets. So for displeasure, I'm primary real 328 00:17:00,480 --> 00:17:02,600 Speaker 3: estate analyst, so I'm always going to be sort of 329 00:17:02,920 --> 00:17:05,680 Speaker 3: a little bit positive on the sector, or more positive 330 00:17:05,680 --> 00:17:07,560 Speaker 3: than others, I guess. But one of the issues I 331 00:17:07,560 --> 00:17:09,680 Speaker 3: guess is that everybody seems to be chasing these sort 332 00:17:09,720 --> 00:17:12,400 Speaker 3: of prime assets, best in class and so on. So 333 00:17:13,160 --> 00:17:16,119 Speaker 3: wul do you not say that that's somehow reflected in 334 00:17:16,160 --> 00:17:19,040 Speaker 3: the valuations that you see, and those sorts of issuers 335 00:17:19,119 --> 00:17:23,240 Speaker 3: are allowed higher LTVs and so on. But the mid 336 00:17:23,320 --> 00:17:26,600 Speaker 3: to lower tier, where I guess fewer people are looking, 337 00:17:26,720 --> 00:17:29,280 Speaker 3: may be more attractively priced. Or do you think that 338 00:17:29,320 --> 00:17:32,080 Speaker 3: it's just not worth straying away from prime? 339 00:17:32,880 --> 00:17:35,920 Speaker 2: I think prime is a really big question mark depends 340 00:17:35,960 --> 00:17:39,560 Speaker 2: what you mean by it. For US, prime means you 341 00:17:39,600 --> 00:17:41,879 Speaker 2: have visibility on tenants. You know you can get tenants 342 00:17:41,920 --> 00:17:45,679 Speaker 2: and residential, think of residential in big cities. We're happy 343 00:17:45,720 --> 00:17:49,800 Speaker 2: to price a high LTV situation when the tenancy and 344 00:17:50,040 --> 00:17:52,840 Speaker 2: the quality of the returns are predictable and we can 345 00:17:52,880 --> 00:17:55,879 Speaker 2: cize the balance it as a result. Anything that is 346 00:17:55,880 --> 00:17:58,080 Speaker 2: lower than that we have been staying away for now 347 00:17:59,359 --> 00:18:02,240 Speaker 2: because one rates volatility is still not over. But also, 348 00:18:02,840 --> 00:18:06,120 Speaker 2: you know the trends that you talked about, work from home, 349 00:18:07,119 --> 00:18:09,280 Speaker 2: Brexit in the UK, the US, the move from west 350 00:18:09,280 --> 00:18:11,359 Speaker 2: coast to east coast. There's a lot of trends that 351 00:18:11,400 --> 00:18:13,760 Speaker 2: are happening for the asset that make it very hard 352 00:18:13,840 --> 00:18:16,199 Speaker 2: to combine that bad asset. That balance sheet makes it 353 00:18:16,320 --> 00:18:17,200 Speaker 2: very tough exercise. 354 00:18:18,040 --> 00:18:22,560 Speaker 4: I'm just curious, staying on real estate, how do you 355 00:18:22,640 --> 00:18:26,040 Speaker 4: invest in the sector, do you invest mostly via public markets, 356 00:18:26,040 --> 00:18:28,239 Speaker 4: do you have a private strategy as well, and what 357 00:18:28,280 --> 00:18:31,200 Speaker 4: are the type of returns that you're ideally targeting? 358 00:18:31,760 --> 00:18:34,560 Speaker 3: And to follow up on that, one of the issues 359 00:18:34,560 --> 00:18:37,120 Speaker 3: that has come up in some of our conferences has been, 360 00:18:37,960 --> 00:18:40,800 Speaker 3: I guess, the toggle if you like, between private and 361 00:18:40,920 --> 00:18:46,480 Speaker 3: public financing, especially in real estate, because the aims of 362 00:18:46,520 --> 00:18:49,879 Speaker 3: the two parties might be slightly different. The terms that 363 00:18:49,920 --> 00:18:53,639 Speaker 3: they look at in terms of like maturities or holding periods, 364 00:18:53,680 --> 00:18:55,960 Speaker 3: I guess can be different. How do you deal with 365 00:18:56,000 --> 00:18:59,480 Speaker 3: that when you're also on the public side, bondholder and 366 00:18:59,560 --> 00:19:03,760 Speaker 3: so on, and maybe may not have some of the 367 00:19:03,800 --> 00:19:06,879 Speaker 3: information that perhaps people on the private side may be 368 00:19:07,040 --> 00:19:07,480 Speaker 3: privy to. 369 00:19:07,480 --> 00:19:12,199 Speaker 2: You're not looking at asset by assets. You're looking at 370 00:19:12,200 --> 00:19:14,680 Speaker 2: a corporate level, just like any corporate debt. We're seeing 371 00:19:14,680 --> 00:19:19,560 Speaker 2: it as in the same process of any corporate debt. 372 00:19:19,600 --> 00:19:21,679 Speaker 2: On the writing, we look at the revenues, we look 373 00:19:21,720 --> 00:19:24,600 Speaker 2: at the profitability, and we look at the asset coverage 374 00:19:24,600 --> 00:19:28,560 Speaker 2: at an aggregate level. Whereas most private investors will likely 375 00:19:28,560 --> 00:19:30,840 Speaker 2: in real estate focus on asset by asset, so we're 376 00:19:30,880 --> 00:19:33,439 Speaker 2: going to tend to focus on bigger companies, larger caps 377 00:19:34,000 --> 00:19:38,240 Speaker 2: and catad is driven investing with shorter dated maturities and 378 00:19:38,359 --> 00:19:40,000 Speaker 2: less granular on asset by asset. 379 00:19:41,400 --> 00:19:43,280 Speaker 3: I have to too quick follow up questions on that. 380 00:19:43,400 --> 00:19:45,840 Speaker 3: The first is, when you're looking at that sort of 381 00:19:45,840 --> 00:19:49,040 Speaker 3: public lending, are you then saying it's mostly unsecured? That's 382 00:19:49,040 --> 00:19:51,680 Speaker 3: the first question. And then in terms of returns, what 383 00:19:51,720 --> 00:19:55,679 Speaker 3: would you consider sort of adequate or even attractive for 384 00:19:55,800 --> 00:19:57,800 Speaker 3: real estate at the moment, because obviously the sector did 385 00:19:58,000 --> 00:20:01,440 Speaker 3: extraordinarily well at the tail end of last year as 386 00:20:01,440 --> 00:20:04,439 Speaker 3: a whole in Europe, so that those yields are not 387 00:20:04,840 --> 00:20:06,800 Speaker 3: are still a little bit high, but not where they 388 00:20:06,840 --> 00:20:09,320 Speaker 3: were towards the end of last year. So what kind 389 00:20:09,359 --> 00:20:12,280 Speaker 3: of returns do you think real estate maybe could generate 390 00:20:12,400 --> 00:20:12,920 Speaker 3: this year? 391 00:20:13,560 --> 00:20:16,199 Speaker 2: I think from today it's definitely a lot of the 392 00:20:16,240 --> 00:20:19,640 Speaker 2: returns have been made already, and we've participated in those returns, 393 00:20:20,520 --> 00:20:23,120 Speaker 2: but we're not looking at high yield headline yield. It's 394 00:20:23,119 --> 00:20:25,680 Speaker 2: more the spread compression and the way you make money 395 00:20:25,680 --> 00:20:28,879 Speaker 2: in secondary bonds. If you buy an eight percent bond 396 00:20:29,080 --> 00:20:31,960 Speaker 2: that titans to five or four because of an upgrade 397 00:20:31,960 --> 00:20:34,400 Speaker 2: because of an asset sale, if the duration is long 398 00:20:34,480 --> 00:20:37,000 Speaker 2: enough then the total return can be significant and you 399 00:20:37,080 --> 00:20:40,119 Speaker 2: end up making fifteen to twenty percent total return of 400 00:20:40,359 --> 00:20:42,679 Speaker 2: a bond that had the headline yield of eight nine percent. 401 00:20:43,280 --> 00:20:46,200 Speaker 2: And that is how we targeted the sector and has 402 00:20:46,240 --> 00:20:49,199 Speaker 2: been profitable for us over the last six to nine months. 403 00:20:49,720 --> 00:20:52,879 Speaker 3: You talked there about catalysts and so on. I guess 404 00:20:53,160 --> 00:20:57,399 Speaker 3: one of the issues within real estate before we sort of, 405 00:20:57,400 --> 00:21:00,720 Speaker 3: I guess, take a step back to it as a whole, 406 00:21:01,240 --> 00:21:04,200 Speaker 3: is that some of those positives that you're talking about 407 00:21:04,200 --> 00:21:07,480 Speaker 3: have probably transpired already. So would you still say that 408 00:21:07,520 --> 00:21:10,520 Speaker 3: those opportunities still exist, as in, you know, the big 409 00:21:10,600 --> 00:21:14,800 Speaker 3: upgrades and so on, especially given the rate cuts which 410 00:21:14,800 --> 00:21:17,119 Speaker 3: were supposed to be the big catalyst where the relic 411 00:21:17,200 --> 00:21:20,440 Speaker 3: state sector haven't really transpired in the way that people 412 00:21:20,480 --> 00:21:21,720 Speaker 3: may have been anticipating. 413 00:21:22,359 --> 00:21:24,199 Speaker 2: I think, yeah, six months ago is a lot more 414 00:21:24,200 --> 00:21:25,439 Speaker 2: interesting than today, for sure. 415 00:21:25,760 --> 00:21:27,280 Speaker 3: I think we were going to take a step back 416 00:21:27,280 --> 00:21:29,600 Speaker 3: and just considered maybe credit as a whole. So we 417 00:21:29,720 --> 00:21:33,520 Speaker 3: talked a lot about, you know, real estate returns and 418 00:21:33,560 --> 00:21:36,879 Speaker 3: so on. Would your comments regarding real estate also apply 419 00:21:37,000 --> 00:21:38,919 Speaker 3: to credit as a whole or do you think that 420 00:21:38,960 --> 00:21:40,560 Speaker 3: it's more of a special case. 421 00:21:40,960 --> 00:21:46,119 Speaker 2: I think From a passive investor perspective, credit is a 422 00:21:46,160 --> 00:21:48,600 Speaker 2: lot tighter than it was six months ago, nine months ago, 423 00:21:49,440 --> 00:21:53,359 Speaker 2: and that was a result of inflows. More certainty around 424 00:21:53,400 --> 00:21:56,680 Speaker 2: the rates of volatility gave investor confidence to invest in credit, 425 00:21:56,760 --> 00:21:59,040 Speaker 2: because two years ago we were moving from zero to 426 00:21:59,080 --> 00:22:04,040 Speaker 2: five percent. Today most investors have conviction that rates vole 427 00:22:04,240 --> 00:22:05,639 Speaker 2: is going to be lower and maybe we're going to 428 00:22:05,720 --> 00:22:07,320 Speaker 2: end up at six, maybe at four and a half. 429 00:22:07,520 --> 00:22:09,280 Speaker 2: We're not going to end up. We're unlikely to end 430 00:22:09,359 --> 00:22:12,520 Speaker 2: up at ten percent rates, and that confidence is what 431 00:22:13,119 --> 00:22:15,880 Speaker 2: drove a lot of the inflows, and those inflows drove 432 00:22:15,920 --> 00:22:20,720 Speaker 2: spread tightening. So from an investor passive investor perspective, it 433 00:22:20,840 --> 00:22:22,960 Speaker 2: is a lot less interesting than it was a year 434 00:22:22,960 --> 00:22:25,000 Speaker 2: ago or ear and a half ago, and spread we're 435 00:22:25,000 --> 00:22:27,160 Speaker 2: at four to fifty bases points five hundred basis points, 436 00:22:27,680 --> 00:22:31,720 Speaker 2: and we're positioning ourselves more as catalysts driven investor from 437 00:22:31,760 --> 00:22:35,400 Speaker 2: bottom up in situations that are a little bit more 438 00:22:35,440 --> 00:22:40,000 Speaker 2: complex and less market driven kind of return. So the 439 00:22:40,080 --> 00:22:43,040 Speaker 2: returns we think going forward will hardly be driven by 440 00:22:43,200 --> 00:22:46,320 Speaker 2: credit being cheap. They'll have to be driven by individual 441 00:22:46,440 --> 00:22:50,439 Speaker 2: situations where you have an edge, either a complex sector 442 00:22:50,680 --> 00:22:54,600 Speaker 2: you alluded to that Collectors which is now has been 443 00:22:54,640 --> 00:22:56,480 Speaker 2: seeing a lot of volatility over the last two to 444 00:22:56,520 --> 00:22:59,480 Speaker 2: three months, and that can drive a lot of total 445 00:22:59,520 --> 00:23:02,879 Speaker 2: return going forward. In Europe, particularly, twenty percent of the 446 00:23:02,960 --> 00:23:06,800 Speaker 2: market is seeing high level of dispersion, so we are busy. 447 00:23:07,600 --> 00:23:09,800 Speaker 4: Yeah, I'm just curious obviously. You know, since the beginning 448 00:23:09,840 --> 00:23:11,960 Speaker 4: of the year, which is something that James touched upon 449 00:23:12,000 --> 00:23:15,440 Speaker 4: and you also touched upon, we've seen strong credits in 450 00:23:15,480 --> 00:23:18,840 Speaker 4: the aield market coming to the market, refinancing with no issues, 451 00:23:19,359 --> 00:23:23,000 Speaker 4: high investor demand. Maybe even names that you know, a 452 00:23:23,040 --> 00:23:26,479 Speaker 4: few years ago we're trading at a big discount. But 453 00:23:26,600 --> 00:23:30,240 Speaker 4: we've also seen you know, I think some issuers and 454 00:23:30,359 --> 00:23:34,160 Speaker 4: some large ones especially kind of stumble onto their maturity 455 00:23:34,200 --> 00:23:37,560 Speaker 4: wall and having to rethink completely about their capital structure. 456 00:23:37,960 --> 00:23:40,600 Speaker 4: As an investor in the aield market, like, how do 457 00:23:40,640 --> 00:23:43,159 Speaker 4: you like, how's that been to kind of try to 458 00:23:43,240 --> 00:23:46,680 Speaker 4: navigate around those names and try to position maybe take 459 00:23:46,720 --> 00:23:49,560 Speaker 4: advantage of the sharp oper prices that we've seen. 460 00:23:50,200 --> 00:23:54,960 Speaker 2: Yeah, I think for our firm particularly, we've been organized 461 00:23:55,000 --> 00:23:58,920 Speaker 2: by sector. Our senior analysts have been covering their sectors 462 00:23:58,960 --> 00:24:02,399 Speaker 2: for sometimes twenty five years, and that allows for continuity 463 00:24:02,440 --> 00:24:05,800 Speaker 2: of intellectual property. What that mean is when that situation 464 00:24:05,880 --> 00:24:10,400 Speaker 2: becomes volatile, when it becomes risky or perception of risk 465 00:24:10,480 --> 00:24:13,159 Speaker 2: becomes higher for the market. We've looked at it for 466 00:24:13,480 --> 00:24:15,879 Speaker 2: some five years, ten years, fifteen years, twenty years, and 467 00:24:15,920 --> 00:24:19,199 Speaker 2: we have all the research done before the event, so 468 00:24:19,240 --> 00:24:23,280 Speaker 2: when the volatility starts, when the company needs capital, we're 469 00:24:23,320 --> 00:24:25,719 Speaker 2: not outsider to the situation. And I think that's what 470 00:24:25,920 --> 00:24:28,640 Speaker 2: allows us sometimes to be a first mover in these situations, 471 00:24:28,680 --> 00:24:32,080 Speaker 2: because you know, our dead collector analyst has covered these 472 00:24:32,080 --> 00:24:35,239 Speaker 2: sector for eleven years, our financials analysts have covered these 473 00:24:35,240 --> 00:24:37,959 Speaker 2: sectors for over twenty five years, and that allows us 474 00:24:37,960 --> 00:24:40,879 Speaker 2: to move quickly, and sometimes moving quickly means eliminating some 475 00:24:40,920 --> 00:24:43,840 Speaker 2: situations too because there are too risky, is hard to 476 00:24:43,840 --> 00:24:47,879 Speaker 2: get comfortable with the downside, and as the volatility kicks 477 00:24:47,920 --> 00:24:51,240 Speaker 2: off and a lot of forced setting happens, which is 478 00:24:51,359 --> 00:24:53,360 Speaker 2: very cute, as you've seen in Europe and you're reported 479 00:24:53,400 --> 00:24:57,439 Speaker 2: on many times, the ability to move quickly allows us 480 00:24:57,480 --> 00:24:59,719 Speaker 2: to get our size at the price that is very 481 00:24:59,720 --> 00:25:03,640 Speaker 2: interest seen before a lot of the credit investors come 482 00:25:03,720 --> 00:25:06,280 Speaker 2: up with the same conclusions as we do, and really 483 00:25:06,280 --> 00:25:08,800 Speaker 2: being first mover you can do it when you have 484 00:25:08,840 --> 00:25:11,320 Speaker 2: the intellectual property ready, and you can have the intellectual 485 00:25:11,359 --> 00:25:13,840 Speaker 2: property ready when you have continuity of IP. We have 486 00:25:14,040 --> 00:25:16,679 Speaker 2: very limited turnover in the analyst team, and we have 487 00:25:16,720 --> 00:25:19,640 Speaker 2: a long history of covering these credits and being prepared 488 00:25:19,680 --> 00:25:22,520 Speaker 2: to move or not or decide to stop the work 489 00:25:22,520 --> 00:25:24,760 Speaker 2: because you know, doing the work and not investing is 490 00:25:24,800 --> 00:25:27,560 Speaker 2: also a negative carery for the analyst team. If you 491 00:25:27,560 --> 00:25:29,800 Speaker 2: spend two months on a situation and you don't invest, 492 00:25:30,680 --> 00:25:33,160 Speaker 2: it's a time that is wasted that you cannot get back. 493 00:25:33,200 --> 00:25:35,679 Speaker 2: So the ability to decide where we spend time and 494 00:25:35,800 --> 00:25:38,919 Speaker 2: having high heit ratio a lot of confidence allows us 495 00:25:38,920 --> 00:25:40,720 Speaker 2: to position at interesting prices. 496 00:25:41,000 --> 00:25:42,960 Speaker 1: But in really basically terms of running a credit fund, 497 00:25:43,000 --> 00:25:46,199 Speaker 1: you basically just want to avoid losses, right You just 498 00:25:46,200 --> 00:25:48,080 Speaker 1: don't want to take any principal loss. A lot of 499 00:25:48,119 --> 00:25:51,520 Speaker 1: these big names in that we've been talking about, they're 500 00:25:51,560 --> 00:25:55,160 Speaker 1: blowing up. They're inflicting losses on traders. Then there's sorry 501 00:25:55,200 --> 00:25:59,440 Speaker 1: on creditors. Credits are also fighting against each other, which 502 00:25:59,600 --> 00:26:02,720 Speaker 1: is making the situation more complex. How do you avoid 503 00:26:02,760 --> 00:26:05,879 Speaker 1: these real trouble spots that we're seeing right now, and 504 00:26:05,880 --> 00:26:06,920 Speaker 1: how do you avoid losses? 505 00:26:07,680 --> 00:26:12,120 Speaker 2: I think it's important to highlight that you lose from 506 00:26:12,119 --> 00:26:14,600 Speaker 2: the price you enter. If you bought a bond that 507 00:26:14,680 --> 00:26:17,199 Speaker 2: in the primary market, you bought it at par or 508 00:26:17,200 --> 00:26:21,440 Speaker 2: close to par. Any loss is a loss. However, as 509 00:26:21,440 --> 00:26:24,240 Speaker 2: secondary market develops and a few months, a few years 510 00:26:24,240 --> 00:26:27,639 Speaker 2: after the initial issues, these securities that we're trading to 511 00:26:27,720 --> 00:26:30,560 Speaker 2: their investing in today have been issued over the last 512 00:26:30,560 --> 00:26:34,520 Speaker 2: five seven years close to par, and the price changes 513 00:26:34,600 --> 00:26:37,240 Speaker 2: with the perception of risk, with mature news on the sector, 514 00:26:37,320 --> 00:26:40,199 Speaker 2: on macro, on the country, on the company itself, and 515 00:26:40,240 --> 00:26:45,080 Speaker 2: as those developments happen, we look to position by paying 516 00:26:45,200 --> 00:26:47,639 Speaker 2: below what we think or what we have confidence on 517 00:26:48,119 --> 00:26:51,440 Speaker 2: being the downside valuation. And I think this is where 518 00:26:51,440 --> 00:26:55,520 Speaker 2: it's important. When you're lending. If you're a bank, you're 519 00:26:55,560 --> 00:26:58,160 Speaker 2: lending at par, so any loss is from your principle. 520 00:26:58,520 --> 00:27:01,800 Speaker 2: When you're buying security at four at fifty cents to dollars, 521 00:27:02,359 --> 00:27:04,840 Speaker 2: even if there's a big haircut of thirty cents, which 522 00:27:04,880 --> 00:27:07,960 Speaker 2: is a lot, you're making twenty cents on something you 523 00:27:08,000 --> 00:27:10,919 Speaker 2: paid fifty four, so that is a forty percent total return. 524 00:27:11,760 --> 00:27:13,399 Speaker 2: I think this is the math we're looking at, is 525 00:27:13,480 --> 00:27:16,800 Speaker 2: avoiding being involved too early in some of the risky situations, 526 00:27:17,359 --> 00:27:19,639 Speaker 2: and we can do that thanks to that sector coverage 527 00:27:19,680 --> 00:27:22,320 Speaker 2: we have and that continuity of intellectual property that were 528 00:27:22,320 --> 00:27:23,919 Speaker 2: built in our firm. 529 00:27:24,000 --> 00:27:27,680 Speaker 4: Jumping in, I'm interested in something that James mentioned earlier, 530 00:27:28,320 --> 00:27:30,960 Speaker 4: which is, you know, kind of the notion of creditor 531 00:27:30,960 --> 00:27:36,119 Speaker 4: and creditor violence more aggressive liability management. That's been a 532 00:27:36,160 --> 00:27:37,960 Speaker 4: trend in the US for the past few years, but 533 00:27:38,080 --> 00:27:42,520 Speaker 4: now we're seeing it spilling over in some European situations. 534 00:27:43,119 --> 00:27:47,800 Speaker 4: You know, sometimes creditors are protecting themselves preemptively and signing 535 00:27:47,840 --> 00:27:50,879 Speaker 4: these creditor corporation agreements. How are you thinking about this 536 00:27:50,960 --> 00:27:54,320 Speaker 4: concept in general, and how are you trying to protect 537 00:27:54,359 --> 00:27:56,879 Speaker 4: yourself as a credit investor in a lot. 538 00:27:56,720 --> 00:28:01,440 Speaker 2: Of these situations. I mean, just to give background, covenants mean, 539 00:28:01,680 --> 00:28:05,560 Speaker 2: you know, the creditors have rights and protections, which sometimes 540 00:28:05,600 --> 00:28:09,000 Speaker 2: it's a definition of the fault. What constitutes a default. 541 00:28:09,040 --> 00:28:11,480 Speaker 2: If you go back fifteen to twenty years ago, default 542 00:28:11,720 --> 00:28:14,119 Speaker 2: was not just not having money to pay your interest. 543 00:28:14,200 --> 00:28:16,440 Speaker 2: It was a lot of things like having too much leverage, 544 00:28:16,880 --> 00:28:21,560 Speaker 2: like having too little cash today or recently with the 545 00:28:21,560 --> 00:28:26,200 Speaker 2: negative rates environments and covenant light that that was issued 546 00:28:26,240 --> 00:28:30,520 Speaker 2: in that time. Default means almost just missing your interest 547 00:28:30,560 --> 00:28:33,080 Speaker 2: payment or not being able to pay your principles. So 548 00:28:33,200 --> 00:28:37,760 Speaker 2: companies can do a lot before their default, and they 549 00:28:37,800 --> 00:28:40,360 Speaker 2: can use that week covenant package to take collateral out, 550 00:28:40,600 --> 00:28:44,200 Speaker 2: raise additional debt, use a creditor class against another to 551 00:28:44,320 --> 00:28:47,800 Speaker 2: kind of try to extract some discounts. And we've seen 552 00:28:47,840 --> 00:28:51,440 Speaker 2: the market. We've seen those techniques and moving in the 553 00:28:51,520 --> 00:28:53,680 Speaker 2: US earlier than Europe, so they've been taking place in 554 00:28:53,680 --> 00:28:55,600 Speaker 2: the US, I would say for the last three to 555 00:28:55,680 --> 00:28:58,440 Speaker 2: four years, and it's been happening in here for the 556 00:28:58,480 --> 00:29:01,040 Speaker 2: last few months, as you've seen with large capital structures, 557 00:29:01,480 --> 00:29:07,400 Speaker 2: engaging in restructurings or targeting det reduction through exchanges and 558 00:29:07,440 --> 00:29:12,320 Speaker 2: sometimes coercive, sometimes friendly, and I think you cannot do that. 559 00:29:12,560 --> 00:29:14,840 Speaker 2: It can be defense mechanism, you know, these co ops 560 00:29:15,000 --> 00:29:17,640 Speaker 2: and working with different creditors, But for us, we see 561 00:29:17,680 --> 00:29:21,480 Speaker 2: it as something you need to do before investing. So 562 00:29:21,560 --> 00:29:23,880 Speaker 2: it is something you need to analyze before you invest. 563 00:29:23,920 --> 00:29:26,440 Speaker 2: It cannot be Hey, something is going wrong. I need 564 00:29:26,480 --> 00:29:28,480 Speaker 2: to call the lawyers. I need to figure out what's happening. 565 00:29:28,840 --> 00:29:31,239 Speaker 2: You have to call the lawyers before you invest. You 566 00:29:31,320 --> 00:29:34,120 Speaker 2: have to be prepared for the downside scenario before you invest. 567 00:29:34,160 --> 00:29:36,080 Speaker 2: You have to be in touch with your fellow creditors, 568 00:29:36,520 --> 00:29:39,840 Speaker 2: bank lenders for the situations before you invest. And when 569 00:29:39,920 --> 00:29:43,160 Speaker 2: these things happen, they are just one of different scenarios 570 00:29:43,200 --> 00:29:45,480 Speaker 2: that can play out. They shouldn't come at a surprise 571 00:29:45,800 --> 00:29:48,440 Speaker 2: because over levered companies will have to find ways of 572 00:29:48,520 --> 00:29:51,080 Speaker 2: dealing with their capital structures. So I think we're going 573 00:29:51,120 --> 00:29:52,000 Speaker 2: to see more and more of that. 574 00:29:52,560 --> 00:29:55,200 Speaker 4: Yeah, and you know, when it comes to creditor creditor 575 00:29:55,280 --> 00:29:57,560 Speaker 4: and violence. Speaking to people in the market, I heard 576 00:29:57,600 --> 00:30:01,000 Speaker 4: that is something that you know, LP are also starting 577 00:30:01,040 --> 00:30:04,040 Speaker 4: to ask about think about. But I just wanted to 578 00:30:04,040 --> 00:30:06,560 Speaker 4: ask a more general question. You know, you obviously are 579 00:30:06,640 --> 00:30:10,560 Speaker 4: running your own fund. What are LPs looking for these 580 00:30:10,640 --> 00:30:14,960 Speaker 4: days that they changed their requirements? Do they want more disclosure, 581 00:30:15,120 --> 00:30:18,840 Speaker 4: more transparency? What is it that they want, you know, 582 00:30:18,880 --> 00:30:22,520 Speaker 4: to ensure that their money is invested well, especially actors 583 00:30:22,560 --> 00:30:25,880 Speaker 4: like sovereign wealth sons or state back entities. 584 00:30:26,560 --> 00:30:29,120 Speaker 2: I cannot comment particularly on one type or another. I'm 585 00:30:29,120 --> 00:30:32,040 Speaker 2: not sure I'm the right person for that, but I 586 00:30:32,080 --> 00:30:36,400 Speaker 2: think in general rates are moving from zero to five percent. 587 00:30:37,000 --> 00:30:41,200 Speaker 2: So if you think about what should hatch funds or 588 00:30:41,240 --> 00:30:44,640 Speaker 2: investment firm deliver when rates are at five percent, it's 589 00:30:44,680 --> 00:30:46,760 Speaker 2: not the same thing as when rates for zero percent. 590 00:30:47,240 --> 00:30:49,520 Speaker 2: And I think that's the really big question is what 591 00:30:49,640 --> 00:30:52,800 Speaker 2: is the excess return we need above risk creer rate? 592 00:30:53,160 --> 00:30:55,760 Speaker 2: Now that risk creer rate is no longer zero, it's 593 00:30:55,800 --> 00:30:58,240 Speaker 2: five percent. I think that would be one consideration. The 594 00:30:58,320 --> 00:31:00,640 Speaker 2: second thing, and what allowed us to grow very quickly 595 00:31:01,160 --> 00:31:06,080 Speaker 2: is partnership. We are in a very transactional industry, but 596 00:31:06,600 --> 00:31:08,959 Speaker 2: if you take a long term view with your clients, 597 00:31:09,040 --> 00:31:10,920 Speaker 2: if you take a long term view with your colleagues, 598 00:31:11,240 --> 00:31:14,040 Speaker 2: you see the benefits very quickly. And I do think 599 00:31:14,080 --> 00:31:15,960 Speaker 2: that investors value that a lot. 600 00:31:16,520 --> 00:31:18,800 Speaker 3: So you mentioned partnership, which is exactly what I was 601 00:31:18,800 --> 00:31:21,320 Speaker 3: sort of thinking of, but maybe in a slightly different way. 602 00:31:21,360 --> 00:31:25,160 Speaker 3: So obviously you do have a relationship with square points 603 00:31:25,160 --> 00:31:27,640 Speaker 3: at the moment. But one of the trends I guess 604 00:31:27,680 --> 00:31:30,160 Speaker 3: we're seeing in the asset management sector as a whole 605 00:31:30,360 --> 00:31:34,080 Speaker 3: is some forms of consolidation. But you also mention that 606 00:31:34,120 --> 00:31:36,840 Speaker 3: it's good to be sort of nimble and good to 607 00:31:36,840 --> 00:31:40,320 Speaker 3: be able to act quickly when you see an opportunity. 608 00:31:40,360 --> 00:31:43,000 Speaker 3: So how do you square those two things, as in 609 00:31:43,040 --> 00:31:46,719 Speaker 3: being nimble but also dealing with the fact that the 610 00:31:46,720 --> 00:31:52,160 Speaker 3: industry is consolidating in some ways. Basically so playing small 611 00:31:52,240 --> 00:31:56,720 Speaker 3: enough to act fast, but big enough to be relevant. 612 00:31:57,080 --> 00:32:01,280 Speaker 2: I guess yeah. I think big structures benefits from the 613 00:32:01,280 --> 00:32:06,640 Speaker 2: fact that they have good operations, good counterparts, relationships, and 614 00:32:06,720 --> 00:32:08,840 Speaker 2: you get good advice on how you structure your business 615 00:32:08,840 --> 00:32:13,800 Speaker 2: to make it scalable, efficient and avoid beginner's mistakes. However, 616 00:32:14,160 --> 00:32:15,760 Speaker 2: you know, the way we organize our firm, we're an 617 00:32:15,760 --> 00:32:19,240 Speaker 2: open floor. I don't have a corner office. We all 618 00:32:19,240 --> 00:32:22,920 Speaker 2: sit next to each other, We communicate. We have pretty 619 00:32:22,920 --> 00:32:26,040 Speaker 2: flat structure, and that's what guarantee I really think. I've 620 00:32:26,040 --> 00:32:29,200 Speaker 2: seen organizations that are very small but still very bureaucratic, 621 00:32:29,640 --> 00:32:32,640 Speaker 2: and I've seen large organizations that still manage to keep 622 00:32:33,080 --> 00:32:35,120 Speaker 2: fairly flat structure. And that's what we're aiming to do. 623 00:32:35,240 --> 00:32:39,920 Speaker 2: Keeping communication, making sure that it's meritocracy, that junior talents 624 00:32:39,960 --> 00:32:42,360 Speaker 2: can speak up, can really share their ideas, that their 625 00:32:42,400 --> 00:32:45,800 Speaker 2: ideas are valued. And you know, we're in this city 626 00:32:46,240 --> 00:32:48,960 Speaker 2: and in this industry, meritocracy is very important. So it 627 00:32:49,080 --> 00:32:51,000 Speaker 2: is one of our most important principles. 628 00:32:51,440 --> 00:32:53,640 Speaker 4: I think, you know, kind of going back to fund 629 00:32:53,680 --> 00:32:58,440 Speaker 4: management and the way you trade in this market. There's 630 00:32:58,880 --> 00:33:01,120 Speaker 4: been a spotlight in recent tiers on you know, how 631 00:33:01,360 --> 00:33:05,200 Speaker 4: hedge funds use leverage. How are you thinking about leverage 632 00:33:06,160 --> 00:33:08,400 Speaker 4: to which its standard user? Do you have like self 633 00:33:08,440 --> 00:33:11,160 Speaker 4: impose limit to it? Just curious from you know, fund 634 00:33:11,160 --> 00:33:12,920 Speaker 4: manager perspective, how you go about it. 635 00:33:13,200 --> 00:33:16,680 Speaker 2: Yeah, I think these are in credit. You will not 636 00:33:16,760 --> 00:33:20,520 Speaker 2: see the most leverage in the market from a fund perspective. 637 00:33:20,800 --> 00:33:24,000 Speaker 2: We have a very moderate leverage or sometimes close to 638 00:33:24,040 --> 00:33:27,400 Speaker 2: none in different funds, but I think that's a fund 639 00:33:27,400 --> 00:33:30,400 Speaker 2: by fund basis and you have to position yourself as 640 00:33:30,400 --> 00:33:31,320 Speaker 2: an investor to see it. 641 00:33:31,600 --> 00:33:34,080 Speaker 4: So there's no precise number to it, I guess no. 642 00:33:34,280 --> 00:33:37,400 Speaker 2: And to clarify that there is a precise number that 643 00:33:37,480 --> 00:33:39,360 Speaker 2: I'm not sure I'll be able to share here, but 644 00:33:39,400 --> 00:33:42,000 Speaker 2: because it depends on the strategy, on the investor's requirement. 645 00:33:42,160 --> 00:33:44,480 Speaker 3: But one of the things that you mentioned earlier was 646 00:33:44,480 --> 00:33:47,760 Speaker 3: the focus on research, which coming from Bloomberg Intelligence, is 647 00:33:48,440 --> 00:33:50,240 Speaker 3: extremely great to hear. You know, we have like five 648 00:33:50,320 --> 00:33:54,000 Speaker 3: hundred analysts here looking at various sectors, various industries, even 649 00:33:54,040 --> 00:33:58,640 Speaker 3: have people doing through legal work, I guess sometimes even 650 00:33:58,680 --> 00:34:01,000 Speaker 3: partnering with some of Julius team and so on. So 651 00:34:01,080 --> 00:34:04,120 Speaker 3: I think you know, I agree definitely that research is 652 00:34:04,160 --> 00:34:09,040 Speaker 3: extraordinarily important and doing the work is important as well. 653 00:34:09,239 --> 00:34:11,920 Speaker 3: But one of the issues I guess you faced the 654 00:34:11,960 --> 00:34:15,520 Speaker 3: analyst can face is that an opportunity a new name 655 00:34:15,600 --> 00:34:18,560 Speaker 3: sort of comes up. So are you able to act 656 00:34:18,719 --> 00:34:23,640 Speaker 3: quickly when it's a new name that maybe the market 657 00:34:23,719 --> 00:34:26,520 Speaker 3: doesn't know as well? Given what you said, is the 658 00:34:26,680 --> 00:34:30,920 Speaker 3: emphasis on deep analysis and deep single name analysis, or 659 00:34:31,200 --> 00:34:34,200 Speaker 3: do you think that sometimes you would sort of pass 660 00:34:34,440 --> 00:34:37,120 Speaker 3: over those opportunities because you haven't had the time to, 661 00:34:37,320 --> 00:34:40,640 Speaker 3: as you say, speak to the lawyers before stepping in. 662 00:34:41,440 --> 00:34:43,960 Speaker 2: Yeah, I think we have a high bar from new 663 00:34:44,000 --> 00:34:46,480 Speaker 2: investments if we didn't know the credit for some time, 664 00:34:47,160 --> 00:34:49,640 Speaker 2: and we're happy to miss. Sometimes you have to be 665 00:34:49,680 --> 00:34:53,640 Speaker 2: disciplined because we just don't feel confident in underwriting the 666 00:34:53,680 --> 00:34:57,880 Speaker 2: downside because of lack of history the credit, lack of 667 00:34:57,960 --> 00:35:01,360 Speaker 2: understanding of the industry cycle, understanding of the balance and 668 00:35:01,440 --> 00:35:04,520 Speaker 2: off balance sheets agreement that the company has. And sometimes 669 00:35:04,560 --> 00:35:06,600 Speaker 2: there are things that are tempting for the short term 670 00:35:06,719 --> 00:35:09,879 Speaker 2: that we just avoid because the research is not enough, 671 00:35:10,400 --> 00:35:12,440 Speaker 2: and we're just happy to miss on those opportunities. 672 00:35:13,000 --> 00:35:15,880 Speaker 4: I think in the past that you know, we've seen 673 00:35:16,320 --> 00:35:19,480 Speaker 4: from ARENI are really taking high conviction trades going in 674 00:35:19,520 --> 00:35:23,759 Speaker 4: with large positions, and I'm just is this kind of 675 00:35:23,760 --> 00:35:27,799 Speaker 4: the signature trade of the fund do you Is it 676 00:35:27,800 --> 00:35:29,960 Speaker 4: the one that you mostly use? Do you take a 677 00:35:30,120 --> 00:35:32,800 Speaker 4: more you know, do you take a different approach in 678 00:35:32,840 --> 00:35:36,960 Speaker 4: other situations? Is this a trade that can work long 679 00:35:37,040 --> 00:35:39,319 Speaker 4: term in the market? How are you thinking about that? 680 00:35:39,719 --> 00:35:39,879 Speaker 1: Yeah? 681 00:35:39,920 --> 00:35:43,520 Speaker 2: I think you know, in every strategy you have high conviction, 682 00:35:44,320 --> 00:35:49,319 Speaker 2: medium conviction, less conviction, all good trade, but you have 683 00:35:49,360 --> 00:35:53,040 Speaker 2: different levels of conviction. We have over one hundred positions 684 00:35:53,680 --> 00:35:55,720 Speaker 2: just to give you, so it's highly diversified. But obviously 685 00:35:55,719 --> 00:35:58,399 Speaker 2: you have different levels of conviction. What ends up being 686 00:35:58,440 --> 00:36:01,880 Speaker 2: communicated usually is the highest conviction ones, but it is 687 00:36:01,920 --> 00:36:04,399 Speaker 2: not you know, like any strategy, we don't have only 688 00:36:04,440 --> 00:36:07,439 Speaker 2: high conviction positions or size as such. We have different 689 00:36:07,560 --> 00:36:08,800 Speaker 2: levels of positions. 690 00:36:09,200 --> 00:36:11,640 Speaker 3: So, I mean, you talked about over one hundred positions, 691 00:36:11,680 --> 00:36:15,719 Speaker 3: so I'm just imagining over one hundred documents to go 692 00:36:15,800 --> 00:36:21,840 Speaker 3: through over one hundred different spreadsheets with multiple tabs and 693 00:36:21,920 --> 00:36:25,400 Speaker 3: so on. One of the issues that's come up recently 694 00:36:25,440 --> 00:36:28,800 Speaker 3: again in the sector that I look at is different 695 00:36:28,840 --> 00:36:35,239 Speaker 3: ways of interpreting documentation, can you maybe talk about potential, 696 00:36:35,280 --> 00:36:39,200 Speaker 3: the potential for that happening where like maybe the issuer says, hey, 697 00:36:39,239 --> 00:36:41,040 Speaker 3: you know what, we haven't breached any of the terms, 698 00:36:41,320 --> 00:36:43,839 Speaker 3: but the investor might have a slightly different view. How 699 00:36:43,880 --> 00:36:47,920 Speaker 3: do you square that? Especially where as Julia was asking 700 00:36:47,920 --> 00:36:50,799 Speaker 3: you earlier, even within the creditor body, there might be 701 00:36:50,920 --> 00:36:55,040 Speaker 3: different views of whether or not the issuer has breached 702 00:36:55,320 --> 00:36:58,240 Speaker 3: certain covenants or whether there's been an event of deforce 703 00:36:58,360 --> 00:37:00,160 Speaker 3: or not. How do you think about that? 704 00:37:00,400 --> 00:37:03,960 Speaker 2: Yeah, so to the number, we have thirty investment professionals, 705 00:37:04,000 --> 00:37:08,080 Speaker 2: of which fifteen are analysts, And so when you think 706 00:37:08,080 --> 00:37:10,560 Speaker 2: about how many positions per analyst, is not that much. 707 00:37:11,560 --> 00:37:13,959 Speaker 2: And that's what matters is really the focus. We're giving 708 00:37:14,000 --> 00:37:19,600 Speaker 2: every position and every model, every legal analysis, every coverage, 709 00:37:19,760 --> 00:37:23,640 Speaker 2: and that is a relatively concentrated way of thinking about 710 00:37:23,680 --> 00:37:26,600 Speaker 2: it because it's a big team. Even if the funds 711 00:37:26,600 --> 00:37:30,360 Speaker 2: are diversified and the strategy is diversified, analysts have time 712 00:37:30,480 --> 00:37:33,759 Speaker 2: to take a deep dive for the legal side, the 713 00:37:33,800 --> 00:37:37,440 Speaker 2: game theory, and as you said, sometimes it takes hundreds 714 00:37:37,480 --> 00:37:40,279 Speaker 2: of pages to read from the legal side, many many 715 00:37:40,280 --> 00:37:44,120 Speaker 2: hours of calls, and a lot of modeling, in scenario analysis. 716 00:37:44,920 --> 00:37:47,640 Speaker 2: And I think what's important is that again continuity of 717 00:37:47,640 --> 00:37:50,920 Speaker 2: intellectual property. Not to repeat myself again three times, but 718 00:37:51,080 --> 00:37:55,279 Speaker 2: really the ability for the same analysts to cover these 719 00:37:55,320 --> 00:37:58,960 Speaker 2: credits over many, many years allows us to really be 720 00:37:59,040 --> 00:38:02,120 Speaker 2: able to develop these when times change, when there's an 721 00:38:02,120 --> 00:38:05,400 Speaker 2: inflection one way or another, we're able to revisit our models. 722 00:38:05,400 --> 00:38:07,800 Speaker 2: We're able to update them. Instead of starting from zero. 723 00:38:08,080 --> 00:38:10,239 Speaker 2: If you always have to start from zero, it is 724 00:38:10,280 --> 00:38:12,960 Speaker 2: a difficult job. You know, you start from zero. Okay, 725 00:38:12,960 --> 00:38:14,840 Speaker 2: today it's going to be a TMT company to the 726 00:38:14,920 --> 00:38:17,000 Speaker 2: hit tomorrow is going to be a bank that heastor 727 00:38:17,120 --> 00:38:18,920 Speaker 2: is going to be a cruise line. That is why 728 00:38:18,960 --> 00:38:22,160 Speaker 2: we prefer the sector coverage, even if at times some 729 00:38:22,280 --> 00:38:24,920 Speaker 2: sectors tend to be boring and nothing is happening, but 730 00:38:24,960 --> 00:38:27,400 Speaker 2: the analysts are still tasked to do in the work 731 00:38:27,719 --> 00:38:30,560 Speaker 2: doing the research. We think about them as R and 732 00:38:30,640 --> 00:38:34,000 Speaker 2: D not just risk takers, but also sometimes it's developing 733 00:38:34,080 --> 00:38:37,040 Speaker 2: research that why it might not be useful today, it 734 00:38:37,120 --> 00:38:39,560 Speaker 2: is going to be useful next year, in two years. 735 00:38:39,800 --> 00:38:42,240 Speaker 2: And that's what's important in the ren is that taking 736 00:38:42,239 --> 00:38:44,560 Speaker 2: that long term view of the research we're doing, not 737 00:38:44,640 --> 00:38:45,760 Speaker 2: about the next trade. 738 00:38:46,040 --> 00:38:48,880 Speaker 4: So can we ask you what's your highest conviction trade 739 00:38:48,920 --> 00:38:51,960 Speaker 4: right now? I mean, even without names, just some details 740 00:38:51,960 --> 00:38:52,279 Speaker 4: of it. 741 00:38:53,160 --> 00:38:56,880 Speaker 2: I think European credit is a lot is happening, and 742 00:38:56,920 --> 00:39:00,239 Speaker 2: what is exciting is spreads are extremely tight, so there's 743 00:39:00,280 --> 00:39:03,400 Speaker 2: no easy money, because you know, the easy money is 744 00:39:03,400 --> 00:39:06,080 Speaker 2: the market, and the market is extremely tight. It's close 745 00:39:06,160 --> 00:39:10,000 Speaker 2: to levels we've seen in QWI. But within that, we're 746 00:39:10,000 --> 00:39:13,160 Speaker 2: having a high level of dispersion, a lot of different 747 00:39:13,239 --> 00:39:15,359 Speaker 2: views on some names that are tight that we think 748 00:39:15,400 --> 00:39:19,040 Speaker 2: are risky, or some names that are at distress levels 749 00:39:19,040 --> 00:39:22,960 Speaker 2: as stress levels that need new capital, or where securities 750 00:39:22,960 --> 00:39:25,920 Speaker 2: and secondaries are interesting and we think they're going to 751 00:39:25,920 --> 00:39:29,279 Speaker 2: be catalyists for positive repricing. So we're very busy. That's 752 00:39:29,280 --> 00:39:29,880 Speaker 2: what I can tell you. 753 00:39:30,640 --> 00:39:33,400 Speaker 3: That's great to hear. I mean, obviously, the fund started 754 00:39:34,000 --> 00:39:36,120 Speaker 3: a couple of years ago. Now it was an especially 755 00:39:36,360 --> 00:39:40,120 Speaker 3: challenging time, So kudos for getting that done. Despite what 756 00:39:40,160 --> 00:39:42,880 Speaker 3: was happening in twenty twenty two twenty three, as we 757 00:39:42,880 --> 00:39:45,120 Speaker 3: were saying was a better year, this year has been 758 00:39:45,160 --> 00:39:48,880 Speaker 3: a little bit lukewarm. So in that context, I know 759 00:39:48,920 --> 00:39:52,560 Speaker 3: you're saying that there's sort of still opportunities to consider 760 00:39:52,960 --> 00:39:56,160 Speaker 3: going forward. But what would you say worries you the most? 761 00:39:56,160 --> 00:39:58,279 Speaker 3: What would you say keeps a RENI people up at 762 00:39:58,360 --> 00:40:02,840 Speaker 3: night at this point? Is it something on the political side, geopolitics, 763 00:40:02,960 --> 00:40:06,759 Speaker 3: or is it more single name stresses that you would 764 00:40:06,800 --> 00:40:07,919 Speaker 3: say are the concern. 765 00:40:09,600 --> 00:40:12,759 Speaker 2: We always have concerns or credit investors. We only think 766 00:40:12,760 --> 00:40:17,120 Speaker 2: about the downside. I think, you know, for all of 767 00:40:17,160 --> 00:40:20,080 Speaker 2: us as a group, we're really concerned about the politics. Obviously, 768 00:40:21,080 --> 00:40:23,120 Speaker 2: things are changing very quickly and we always have to 769 00:40:23,160 --> 00:40:25,320 Speaker 2: assess what is the impact of that, and it's somewhat 770 00:40:25,360 --> 00:40:28,160 Speaker 2: outside our control. And what we're trying to do is 771 00:40:28,200 --> 00:40:31,760 Speaker 2: just focus on industries that are as decorrelated as possible. 772 00:40:31,920 --> 00:40:34,480 Speaker 2: That is why we avoided a lot of the utility situations, 773 00:40:34,840 --> 00:40:37,759 Speaker 2: we avoided a lot of the financial institutions that are 774 00:40:37,880 --> 00:40:40,799 Speaker 2: highly political. We try to focus on things that we 775 00:40:40,840 --> 00:40:44,600 Speaker 2: can predict, control or as best as we can. But 776 00:40:44,719 --> 00:40:48,200 Speaker 2: the politics is really definitely gee. Politics in general are 777 00:40:48,360 --> 00:40:51,560 Speaker 2: very challenging for us, and we try to react, we 778 00:40:51,600 --> 00:40:54,600 Speaker 2: try to stress tests, but we don't position on and 779 00:40:54,640 --> 00:40:58,480 Speaker 2: we don't bet on that For me personally, is clearly 780 00:40:58,480 --> 00:41:01,680 Speaker 2: the talent only as good as we are or where 781 00:41:01,719 --> 00:41:05,000 Speaker 2: we are. Thanks to our team and keeping the team together, 782 00:41:05,440 --> 00:41:08,759 Speaker 2: keeping the senior team, interacting, keeping that long term view 783 00:41:08,960 --> 00:41:12,360 Speaker 2: with our investors, with our colleagues is a priority for me, 784 00:41:12,480 --> 00:41:14,160 Speaker 2: and that is really what keeps me up at night, 785 00:41:14,640 --> 00:41:18,439 Speaker 2: is keep my colleagues happy, keep them busy, keep them 786 00:41:18,480 --> 00:41:22,200 Speaker 2: intellectually challenged, and keep the atmosphere that we have. And 787 00:41:22,600 --> 00:41:25,160 Speaker 2: that's what we delivered and that's what hopefully will continue 788 00:41:25,160 --> 00:41:25,520 Speaker 2: to deliver. 789 00:41:26,120 --> 00:41:28,399 Speaker 1: So we are the credit edge hands what is your edge? 790 00:41:28,400 --> 00:41:29,880 Speaker 1: What's the almost contrarian trade? 791 00:41:29,880 --> 00:41:33,040 Speaker 2: Do you think our edge is really being in a 792 00:41:33,120 --> 00:41:36,040 Speaker 2: high transactional industry and still keeping the long term view 793 00:41:36,120 --> 00:41:36,600 Speaker 2: with our. 794 00:41:36,440 --> 00:41:39,000 Speaker 1: People and with our clients, And how do you do that. 795 00:41:39,440 --> 00:41:44,400 Speaker 2: Being principled integrity and having high standards internally and externally, 796 00:41:45,200 --> 00:41:49,279 Speaker 2: even if sometimes you know things are driven by short 797 00:41:49,400 --> 00:41:53,560 Speaker 2: term trends, we are focused on the long term. It's 798 00:41:53,600 --> 00:41:55,680 Speaker 2: tempting sometimes to be focused on the short term, but 799 00:41:55,719 --> 00:41:58,600 Speaker 2: we always think about the long term. We're a young 800 00:41:58,640 --> 00:42:01,439 Speaker 2: firm in many ways, and we want to be seen 801 00:42:01,520 --> 00:42:04,000 Speaker 2: as the long term firm that thinks about clients and 802 00:42:04,040 --> 00:42:09,480 Speaker 2: colleagues and has a very long term vision, not just transactional. 803 00:42:09,920 --> 00:42:11,960 Speaker 1: And last y, I've got to ask about the parrots. 804 00:42:11,760 --> 00:42:14,759 Speaker 1: What's a lot about? Come on, tell us, tell us 805 00:42:14,480 --> 00:42:15,680 Speaker 1: what goes on there? 806 00:42:15,960 --> 00:42:19,520 Speaker 2: It took some time. Yeah, so you know I. Reni 807 00:42:20,320 --> 00:42:23,239 Speaker 2: is the name of our firm, is a family of 808 00:42:23,400 --> 00:42:27,640 Speaker 2: parrots in Latin America, mostly Brazil, in the Amazonian forests. 809 00:42:28,120 --> 00:42:30,160 Speaker 2: And that's a passion of mine that started when I 810 00:42:30,200 --> 00:42:32,160 Speaker 2: was eight. So I was breeding parrots when I was 811 00:42:32,160 --> 00:42:36,279 Speaker 2: in Morocco, and then when COVID happened, I stopped doing that. 812 00:42:36,320 --> 00:42:39,320 Speaker 2: When I left Morocco when I was seventeen, studied in France, 813 00:42:39,360 --> 00:42:42,760 Speaker 2: came to the UK about ten years ago and started 814 00:42:42,760 --> 00:42:47,600 Speaker 2: again in COVID, started breeding parrots that are endangered for 815 00:42:47,719 --> 00:42:52,000 Speaker 2: conservation purposes. So we have a conservation effort of over 816 00:42:52,000 --> 00:42:55,880 Speaker 2: one hundred parrots with some of the most endangered parrot species, 817 00:42:56,560 --> 00:42:59,239 Speaker 2: and the effort is trying to reproduce them and then 818 00:42:59,320 --> 00:43:02,520 Speaker 2: hopefully or introduce them to the wide further down the line. 819 00:43:02,840 --> 00:43:03,800 Speaker 1: Where are they in London? 820 00:43:03,960 --> 00:43:05,640 Speaker 2: They are in Sorry, great stuff. 821 00:43:05,640 --> 00:43:08,879 Speaker 1: HANSA. Lensiger, founder of Areni. It's been a pleasure having 822 00:43:08,920 --> 00:43:10,240 Speaker 1: you on the credit edge many. 823 00:43:10,040 --> 00:43:12,279 Speaker 2: Thanks, thank you very much for having me and. 824 00:43:12,239 --> 00:43:14,480 Speaker 1: Julia Moreporgo with Bloomberg News cheers. 825 00:43:14,880 --> 00:43:15,319 Speaker 3: Thank you. 826 00:43:15,760 --> 00:43:18,120 Speaker 1: Check out all Julia's scoops on the Bloomberg Terminal and 827 00:43:18,160 --> 00:43:20,359 Speaker 1: of course at Bloomberg dot com. And to Tolu ali 828 00:43:20,400 --> 00:43:22,239 Speaker 1: Muto with Bloomberg Intelligence, thank you so much. 829 00:43:22,600 --> 00:43:25,480 Speaker 3: Great to be here. As always, thank you James. 830 00:43:25,520 --> 00:43:27,800 Speaker 1: For more analysis read all of Tollu's great work on 831 00:43:27,840 --> 00:43:30,880 Speaker 1: the Bloomberg Terminal. Bloomberg Intelligence is part of our research department, 832 00:43:30,880 --> 00:43:33,960 Speaker 1: with five hundred analysts and strategists working across all markets. 833 00:43:34,160 --> 00:43:37,320 Speaker 1: Coverage includes over two thousand equities and credits and outlooks 834 00:43:37,320 --> 00:43:39,759 Speaker 1: on more than ninety industries in one hundred market industries, 835 00:43:39,880 --> 00:43:43,080 Speaker 1: currencies and commodities. Please do subscribe on to the Credit 836 00:43:43,200 --> 00:43:46,000 Speaker 1: Edge wherever you get your podcasts. We're on Apple, Spotify 837 00:43:46,080 --> 00:43:49,040 Speaker 1: and other good podcast providers, including the Bloomberg Terminal at 838 00:43:49,080 --> 00:43:51,520 Speaker 1: b pod Go. Give us a review, tell your friends, 839 00:43:51,600 --> 00:43:54,960 Speaker 1: or email me directly at jcrombiate at Bloomberg dot net. 840 00:43:55,280 --> 00:43:57,040 Speaker 1: I'm James Cromby. It's been a pleasure having you join 841 00:43:57,120 --> 00:44:15,160 Speaker 1: us again next week on the Credit Edge.