1 00:00:18,800 --> 00:00:21,360 Speaker 1: Hello, and welcome to the Credit Edge, a Wiki Monkey's podcasts. 2 00:00:21,440 --> 00:00:24,560 Speaker 1: My name is James Crumbie. I'm a senior at Bloomberg. 3 00:00:24,360 --> 00:00:27,920 Speaker 2: And I'm David Haven's, a senior credit analyst at Bloomberg Intelligence. 4 00:00:28,480 --> 00:00:31,760 Speaker 2: This week, we're very pleased to welcome Tal Reback, global 5 00:00:31,800 --> 00:00:35,280 Speaker 2: investment strategists for kkar's three hundred and fifteen billion and 6 00:00:35,400 --> 00:00:39,320 Speaker 2: managed assets credit and markets business. Now correct me if 7 00:00:39,320 --> 00:00:41,839 Speaker 2: I'm wrong, but I think this segment of KKR includes 8 00:00:42,240 --> 00:00:44,560 Speaker 2: more than two hundred and sixty billion dollars of credit 9 00:00:44,640 --> 00:00:47,800 Speaker 2: assets with a balance between leveraged and private credit. Is 10 00:00:47,840 --> 00:00:48,159 Speaker 2: that right? 11 00:00:48,200 --> 00:00:51,239 Speaker 3: Tal? That is correct? And thank you guys so much 12 00:00:51,280 --> 00:00:52,360 Speaker 3: for having me on today. 13 00:00:52,680 --> 00:00:55,400 Speaker 2: Of course, Tal's been to KKAR for nearly a decade 14 00:00:55,440 --> 00:00:58,440 Speaker 2: and she has a wide remit spanning platform strategy as 15 00:00:58,440 --> 00:01:02,760 Speaker 2: well as engagement with investors, external stakeholders, and policy makers. 16 00:01:03,120 --> 00:01:07,200 Speaker 2: She's also a polymath with degrees in economics. In our history, we. 17 00:01:07,200 --> 00:01:08,640 Speaker 1: All get to that, and we have loads of questions. 18 00:01:08,640 --> 00:01:09,920 Speaker 1: I just want to start with a big theme for 19 00:01:10,000 --> 00:01:12,960 Speaker 1: next year. Supply issuance of all kinds of debt will 20 00:01:12,959 --> 00:01:15,920 Speaker 1: probably grow substantially in twenty twenty six, fueled by massive 21 00:01:15,920 --> 00:01:19,000 Speaker 1: AI funding needs and a long awaited m and a comeback. 22 00:01:19,480 --> 00:01:22,679 Speaker 1: But for years, global investors in credit have been running 23 00:01:22,720 --> 00:01:25,760 Speaker 1: short of things to buy, though their appetite for yield 24 00:01:25,760 --> 00:01:28,760 Speaker 1: just keeps on growing. That's kept debt spreads very tight 25 00:01:28,800 --> 00:01:31,360 Speaker 1: and has meant that the credit cycle just keeps getting extended. 26 00:01:31,640 --> 00:01:34,280 Speaker 1: But there is so much complacency out there. Everyone just 27 00:01:34,319 --> 00:01:38,520 Speaker 1: assumes that debt demand will grow faster than supply. Bad 28 00:01:38,520 --> 00:01:40,560 Speaker 1: stuff happens when a lot of new debt supply gets 29 00:01:40,600 --> 00:01:43,640 Speaker 1: created very quickly. If the corporate credit drought ends next year, 30 00:01:44,000 --> 00:01:45,800 Speaker 1: will that cause a massive reprice? 31 00:01:45,840 --> 00:01:45,960 Speaker 3: Oh? 32 00:01:45,959 --> 00:01:47,440 Speaker 1: Your still view tell. 33 00:01:48,400 --> 00:01:51,280 Speaker 3: So there's a lot of unpacked there. So maybe we'll 34 00:01:51,320 --> 00:01:54,600 Speaker 3: break it down a little bit. You're absolutely right. You know, 35 00:01:54,680 --> 00:01:59,080 Speaker 3: we've been in a supply demand pretty acute imbalance for 36 00:01:59,120 --> 00:02:01,920 Speaker 3: a while now. But I think on you know, just 37 00:02:01,960 --> 00:02:05,360 Speaker 3: in general, like we've already seen the you know, refine 38 00:02:05,480 --> 00:02:08,880 Speaker 3: and repricing wave hitting this year alone, so like we've 39 00:02:08,880 --> 00:02:11,000 Speaker 3: had a lot of issuance, but net new issuance is 40 00:02:11,000 --> 00:02:14,600 Speaker 3: still pretty anemic. And so you're absolutely right that like 41 00:02:14,639 --> 00:02:18,079 Speaker 3: everyone's looking to you know, high grade market, leverage, loan market, 42 00:02:18,200 --> 00:02:20,600 Speaker 3: high old market, what's going to come next. But the 43 00:02:20,639 --> 00:02:24,120 Speaker 3: reality is, and we've talked about this from a KKR perspective, 44 00:02:24,800 --> 00:02:27,600 Speaker 3: we need more M and A and I'm I'm happy 45 00:02:27,680 --> 00:02:30,240 Speaker 3: that we've seen a bit of a resurgence this year. 46 00:02:30,320 --> 00:02:32,400 Speaker 3: You know, in the third quarter alone, we saw almost 47 00:02:32,400 --> 00:02:34,680 Speaker 3: a trillion in M and A. A lot of this 48 00:02:34,800 --> 00:02:37,800 Speaker 3: has been triggered by strategics in corporates, which is a 49 00:02:37,800 --> 00:02:40,760 Speaker 3: big theme that we're watching, and some mega deals, as 50 00:02:40,800 --> 00:02:43,600 Speaker 3: you guys know, and they keep hitting the tape. But 51 00:02:44,000 --> 00:02:48,680 Speaker 3: until we get net new supply, which means continued increase 52 00:02:48,720 --> 00:02:52,240 Speaker 3: in M and A, that's really going to prevent spreads 53 00:02:52,280 --> 00:02:54,920 Speaker 3: from kind of normalizing, because right now we still have 54 00:02:55,480 --> 00:02:58,160 Speaker 3: a bit of that imbalance with you know, colo demand 55 00:02:58,240 --> 00:03:00,919 Speaker 3: eating up sixty plus percent of the left bridge loan market, 56 00:03:01,480 --> 00:03:04,440 Speaker 3: a lot of dry powder on the sidelines, you know. 57 00:03:04,520 --> 00:03:08,760 Speaker 3: Money markets are approaching almost eight trillion dollars, you know, 58 00:03:08,880 --> 00:03:13,359 Speaker 3: so investors are looking for places to park and a cruise, 59 00:03:13,560 --> 00:03:16,679 Speaker 3: just some safe in common yield. But the reality is 60 00:03:16,720 --> 00:03:20,320 Speaker 3: we're at the tights and we're grinding tighter, and markets 61 00:03:20,360 --> 00:03:23,440 Speaker 3: have been up into the left and it's been a 62 00:03:23,560 --> 00:03:26,080 Speaker 3: year of a lot of flavors too, So I do 63 00:03:26,160 --> 00:03:29,760 Speaker 3: think something's got to give, and as a credit person, 64 00:03:29,919 --> 00:03:34,080 Speaker 3: I suspect we may see some bumps in the road ahead, 65 00:03:34,080 --> 00:03:37,280 Speaker 3: and maybe that also catalyzes some additional deal making. 66 00:03:37,920 --> 00:03:40,560 Speaker 2: Yeah, Talas, you hit on a couple of things I 67 00:03:40,600 --> 00:03:43,080 Speaker 2: was going to ask about. We do seem to be 68 00:03:43,160 --> 00:03:49,680 Speaker 2: living in interesting times like the misapplied Chinese curse. Credit 69 00:03:49,720 --> 00:03:52,680 Speaker 2: spreads are ridiculously tight, with the IG and High Yield 70 00:03:52,720 --> 00:03:55,040 Speaker 2: Index at seventy seven and two hundred and seventy two 71 00:03:55,080 --> 00:03:58,040 Speaker 2: basis points, respectively. This puts some probably two or more 72 00:03:58,080 --> 00:04:02,520 Speaker 2: standard deviations away for the mean. So trying to put 73 00:04:02,560 --> 00:04:05,200 Speaker 2: money to work in this environment, that might be the 74 00:04:05,240 --> 00:04:08,840 Speaker 2: curse here. But your firm and others have identified a 75 00:04:09,040 --> 00:04:14,400 Speaker 2: vast forty five trillion dollar addressable credit market with you know, 76 00:04:14,480 --> 00:04:18,360 Speaker 2: areas that are emerging that pay pay excess spreads. How 77 00:04:18,360 --> 00:04:20,960 Speaker 2: do you reconcile the two? How is this going to 78 00:04:20,960 --> 00:04:22,440 Speaker 2: work out in twenty twenty six? 79 00:04:22,520 --> 00:04:25,880 Speaker 3: You think, Yeah, it's a great question, And I would 80 00:04:25,880 --> 00:04:29,440 Speaker 3: say the first thing is that there is a lot 81 00:04:29,480 --> 00:04:33,280 Speaker 3: of capital on the sidelines. While there is a lot 82 00:04:33,279 --> 00:04:36,200 Speaker 3: of opportunity. I do think it's really important to continue 83 00:04:36,240 --> 00:04:39,720 Speaker 3: to be really disciplined and patient. So that's something that's 84 00:04:39,760 --> 00:04:43,799 Speaker 3: really like a core principle of hours that patient capital 85 00:04:44,040 --> 00:04:46,919 Speaker 3: will find the right opportunities. And while it can be 86 00:04:47,040 --> 00:04:49,520 Speaker 3: frustrating and like you said, it's a blessing and a 87 00:04:49,600 --> 00:04:54,680 Speaker 3: curse in order to originate and find the opportunities where 88 00:04:54,720 --> 00:04:58,240 Speaker 3: you can source some excess spread. Typically we're going to 89 00:04:58,279 --> 00:05:01,280 Speaker 3: see those in the private markets can double click into that. 90 00:05:01,640 --> 00:05:04,000 Speaker 3: But that's not to say that they're abundant, right Like 91 00:05:04,080 --> 00:05:08,839 Speaker 3: those take time to source, their built on long lasting relationships. 92 00:05:08,920 --> 00:05:12,120 Speaker 3: We're seeing the market continue to evolve, and what I 93 00:05:12,160 --> 00:05:15,039 Speaker 3: think is really interesting is that you know, issuers and 94 00:05:15,160 --> 00:05:19,479 Speaker 3: sponsors alike are more open minded today on the type 95 00:05:19,520 --> 00:05:23,120 Speaker 3: of financing and the type of financing structure that they 96 00:05:23,160 --> 00:05:25,479 Speaker 3: could put in place depending on what their needs are. 97 00:05:25,839 --> 00:05:28,440 Speaker 3: And that's really what's going to create those opportunities where 98 00:05:28,480 --> 00:05:31,600 Speaker 3: you either have an i liquidity premium or some access 99 00:05:31,640 --> 00:05:35,560 Speaker 3: spread in your pricing, because those types of transactions or 100 00:05:35,600 --> 00:05:39,080 Speaker 3: investment opportunities are just not they just don't happen in 101 00:05:39,120 --> 00:05:43,360 Speaker 3: the transactional public markets. Now, with that being said, you know, 102 00:05:43,560 --> 00:05:46,080 Speaker 3: KKR has been I think, you know, one of the 103 00:05:46,120 --> 00:05:48,520 Speaker 3: first to really be in the camp of like public 104 00:05:48,520 --> 00:05:51,640 Speaker 3: and private will always coexist. You know, we saw the 105 00:05:51,680 --> 00:05:54,719 Speaker 3: headlines for a long time saying syndicated markets were dead. 106 00:05:55,160 --> 00:05:57,800 Speaker 3: You know, it's only about direct lending. And the reality 107 00:05:57,839 --> 00:05:59,760 Speaker 3: is what we've seen over the last couple of years 108 00:05:59,839 --> 00:06:04,600 Speaker 3: is as markets flow ebb and flow, as monetary policy changes, 109 00:06:04,680 --> 00:06:07,760 Speaker 3: as we see the macro landscape evolve and change as well, 110 00:06:08,240 --> 00:06:12,719 Speaker 3: having different sources and channels for capital is even more 111 00:06:12,800 --> 00:06:16,280 Speaker 3: valuable today and that's a global phenomenon. So to answer 112 00:06:16,360 --> 00:06:19,840 Speaker 3: your question on where we see opportunity across this forty 113 00:06:19,839 --> 00:06:22,880 Speaker 3: five trillion dollar TAM, a lot of that is in 114 00:06:22,920 --> 00:06:25,719 Speaker 3: the asset back market. A lot of that is also 115 00:06:25,760 --> 00:06:30,000 Speaker 3: transitioning into private investment create opportunities, and that goes back 116 00:06:30,040 --> 00:06:33,040 Speaker 3: to some of the themes we're seeing with corporates and issuers, 117 00:06:33,040 --> 00:06:36,320 Speaker 3: which we can talk about more. There's always going to 118 00:06:36,360 --> 00:06:39,680 Speaker 3: continue to be big LBOs that need to be financed. 119 00:06:39,960 --> 00:06:42,440 Speaker 3: Direct lenders are always going to participate in that, and 120 00:06:42,480 --> 00:06:45,320 Speaker 3: so are syndicated markets. And it's been really nice to 121 00:06:45,640 --> 00:06:48,080 Speaker 3: chart out the activity and see that there's really been 122 00:06:48,200 --> 00:06:53,760 Speaker 3: some equilibrium there after rates stopped rising, and so I 123 00:06:53,800 --> 00:06:57,360 Speaker 3: think now people look for efficiencies and markets are pretty 124 00:06:57,400 --> 00:07:00,799 Speaker 3: efficient too. So I think that really guides the investor 125 00:07:01,320 --> 00:07:04,120 Speaker 3: and where we are today is we're being very patient 126 00:07:04,680 --> 00:07:08,200 Speaker 3: or being very disciplined. We're lucky to be part of 127 00:07:08,240 --> 00:07:11,400 Speaker 3: a really diversified platform where we see a lot of 128 00:07:11,480 --> 00:07:17,520 Speaker 3: opportunities across corporate real assets in the credit markets in general. 129 00:07:18,080 --> 00:07:21,480 Speaker 3: And with that also we have the ability to kind 130 00:07:21,480 --> 00:07:23,440 Speaker 3: of pick and choose our spots and lean in where 131 00:07:23,480 --> 00:07:25,440 Speaker 3: we might think there's more of an imbalance and we 132 00:07:25,480 --> 00:07:27,240 Speaker 3: could be that liquidity provider. 133 00:07:27,880 --> 00:07:30,360 Speaker 1: How much more can you get paid for going into 134 00:07:30,400 --> 00:07:32,800 Speaker 1: the private markets compared to public So we've had that 135 00:07:32,840 --> 00:07:36,040 Speaker 1: discussion over the course of this year in that you know, 136 00:07:36,040 --> 00:07:38,440 Speaker 1: it started at let's say two hundred basis points more 137 00:07:38,840 --> 00:07:43,320 Speaker 1: for ig private versus public. Then it got squeezed and 138 00:07:43,360 --> 00:07:46,000 Speaker 1: some people by media was saying it's nothing, not worth it, 139 00:07:46,320 --> 00:07:48,120 Speaker 1: And by the end of it we're hearing again that 140 00:07:48,120 --> 00:07:50,360 Speaker 1: there's this wider premium. I guess it just depends on 141 00:07:50,400 --> 00:07:52,520 Speaker 1: where you look. But I'm interested in your view of 142 00:07:52,880 --> 00:07:56,040 Speaker 1: what extra pickup you get for the illiquidity of going 143 00:07:56,040 --> 00:07:57,640 Speaker 1: into private markets. 144 00:07:58,280 --> 00:08:02,240 Speaker 3: Sure it it's still around one hundred and fifty to 145 00:08:02,280 --> 00:08:05,800 Speaker 3: two hundred basis points. It is highly case and credit 146 00:08:05,840 --> 00:08:09,720 Speaker 3: dependent James, So I would say, you know, structure plays 147 00:08:09,720 --> 00:08:13,680 Speaker 3: a really big role. Something that I think is actually 148 00:08:13,680 --> 00:08:17,280 Speaker 3: even more important than all in price is making sure 149 00:08:17,320 --> 00:08:21,000 Speaker 3: your structure is really sound and you're downside protected. And 150 00:08:21,040 --> 00:08:24,360 Speaker 3: a lot of these deals and the private investment grade 151 00:08:24,360 --> 00:08:26,600 Speaker 3: markets have are very based on as you guys know, 152 00:08:27,040 --> 00:08:30,720 Speaker 3: like some type of contract or corporate guarantee. So structure 153 00:08:30,720 --> 00:08:33,760 Speaker 3: and call protection is in a way even more important 154 00:08:34,320 --> 00:08:36,600 Speaker 3: than your price and not being one or two basis 155 00:08:36,600 --> 00:08:39,439 Speaker 3: points smart. But you're still seeing a premium. I do 156 00:08:39,520 --> 00:08:43,920 Speaker 3: think you're absolutely correct. As we see more of these transactions, 157 00:08:44,000 --> 00:08:47,960 Speaker 3: you know, spread compression is definitely going to happen. The 158 00:08:48,000 --> 00:08:50,520 Speaker 3: good thing is these are large and chunky, and I 159 00:08:50,559 --> 00:08:53,280 Speaker 3: don't you know, the volume of these is not abundant, 160 00:08:53,640 --> 00:08:56,040 Speaker 3: so there takes a lot of work to get these 161 00:08:56,080 --> 00:08:58,840 Speaker 3: deals even into play, and that is really the price 162 00:08:58,920 --> 00:09:02,240 Speaker 3: and the premium for private market's origination, which I think 163 00:09:02,280 --> 00:09:05,959 Speaker 3: sometimes like we miss kind of like the message there. 164 00:09:06,040 --> 00:09:08,160 Speaker 3: You know, there's a lot of focus on okay, can 165 00:09:08,200 --> 00:09:10,560 Speaker 3: I how much more can I get today? And the 166 00:09:10,600 --> 00:09:12,960 Speaker 3: reality is like as we think about it and we 167 00:09:13,080 --> 00:09:16,400 Speaker 3: construct a broader portfolio, like we want to get you 168 00:09:16,480 --> 00:09:19,520 Speaker 3: a blended excess spread, you know, like that's our goal 169 00:09:19,679 --> 00:09:24,040 Speaker 3: is to have performing credits, to construct a highly diversified 170 00:09:24,080 --> 00:09:29,400 Speaker 3: portfolio that's income generative and like you know, obviously matches 171 00:09:29,559 --> 00:09:32,760 Speaker 3: the risk tolerance depending on what we're doing. But that's 172 00:09:32,800 --> 00:09:35,080 Speaker 3: that's the important point is you know, in credit my 173 00:09:35,280 --> 00:09:37,360 Speaker 3: the north star is never going to change in terms 174 00:09:37,440 --> 00:09:40,720 Speaker 3: of you know, get to principle back and get cube on. 175 00:09:41,240 --> 00:09:44,480 Speaker 3: But in the private market you can get some excess 176 00:09:44,559 --> 00:09:47,680 Speaker 3: premium in direct lending. You know, we've seen that compress 177 00:09:47,840 --> 00:09:49,520 Speaker 3: quite a bit. Again, I think that's a lot of 178 00:09:49,559 --> 00:09:54,000 Speaker 3: supply demand also factoring in to what we're seeing in 179 00:09:54,040 --> 00:09:58,040 Speaker 3: the broader loan market. So there's a technical aspect to 180 00:09:58,120 --> 00:10:00,719 Speaker 3: play a part of. But in the asset and I 181 00:10:00,760 --> 00:10:03,120 Speaker 3: would say in the private investment grade market, we're still 182 00:10:03,120 --> 00:10:05,800 Speaker 3: seeing that one fifty to two hundred over Yeah. 183 00:10:05,800 --> 00:10:11,560 Speaker 2: I get why investors in particular want that extra one 184 00:10:11,640 --> 00:10:13,920 Speaker 2: hundred and fifty to two hundred basis points, particularly if 185 00:10:13,920 --> 00:10:17,160 Speaker 2: you're an insurance company. And obviously you guys are are 186 00:10:17,160 --> 00:10:19,280 Speaker 2: hooked up with Global Atlantic and we get into that 187 00:10:19,320 --> 00:10:23,679 Speaker 2: a little bit more deeply. But I I a question 188 00:10:23,760 --> 00:10:25,360 Speaker 2: that a lot of people come to me with is 189 00:10:25,520 --> 00:10:29,240 Speaker 2: why are high grade you know, why is why is 190 00:10:29,440 --> 00:10:33,959 Speaker 2: power company xyz or consumer products company x y z 191 00:10:34,920 --> 00:10:38,600 Speaker 2: uh doing an asset back deal in the private markets 192 00:10:38,600 --> 00:10:42,560 Speaker 2: where they're paying this much of a spread premium with 193 00:10:43,320 --> 00:10:46,560 Speaker 2: the IG indexit at half of what the spread premium is. 194 00:10:48,240 --> 00:10:52,960 Speaker 3: Fantastic question. And so the you know what we've seen is, 195 00:10:54,640 --> 00:10:57,840 Speaker 3: you know, issuers are doing those deals because they want 196 00:10:57,880 --> 00:11:02,360 Speaker 3: to work with partners like KKR. They're paying you know, 197 00:11:02,480 --> 00:11:05,680 Speaker 3: a little bit extra for the expertise. You know, in 198 00:11:05,720 --> 00:11:08,000 Speaker 3: a lot of cases, we think of this, you know, 199 00:11:08,080 --> 00:11:11,800 Speaker 3: as a longer term partnership. It's not just about transacting 200 00:11:11,840 --> 00:11:15,679 Speaker 3: and executing. This is about potentially playing a strategic role. 201 00:11:16,000 --> 00:11:19,119 Speaker 3: Sometimes we sit on the board, you know, there's elements 202 00:11:19,120 --> 00:11:21,480 Speaker 3: of governance that we have, you know, from our whole 203 00:11:21,520 --> 00:11:25,320 Speaker 3: portfolio private equity portfolio. And so what we've seen and 204 00:11:25,400 --> 00:11:29,040 Speaker 3: this this is I think this applies broadly both corporate 205 00:11:29,080 --> 00:11:33,000 Speaker 3: and asset back, is that issuers are looking for more 206 00:11:33,000 --> 00:11:37,200 Speaker 3: of a strategic capital provider in a partnership as opposed 207 00:11:37,200 --> 00:11:41,320 Speaker 3: to just a transactional capital provider. And that is what 208 00:11:41,480 --> 00:11:45,559 Speaker 3: distinguishes the deals from just tapping you know, the public 209 00:11:45,679 --> 00:11:49,240 Speaker 3: bond market versus you know, working with the likes of 210 00:11:49,360 --> 00:11:52,440 Speaker 3: us and thinking through how do I accomplish all these 211 00:11:52,480 --> 00:11:54,480 Speaker 3: goals and maybe what how does this play into my 212 00:11:54,559 --> 00:11:58,720 Speaker 3: future growth or cappex budgeting, et cetera. And it's a 213 00:11:58,760 --> 00:12:01,120 Speaker 3: little bit we take it as step further and that's 214 00:12:01,200 --> 00:12:03,960 Speaker 3: really where the premium comes from. And I think that's 215 00:12:04,520 --> 00:12:07,640 Speaker 3: that's different than just buying something that's just you know, 216 00:12:07,880 --> 00:12:11,520 Speaker 3: out there and available, for example, like in a traded 217 00:12:11,559 --> 00:12:13,800 Speaker 3: ETF and that's the premium. 218 00:12:14,200 --> 00:12:17,160 Speaker 1: It sounds quite bespoke. Every transaction must require a lot 219 00:12:17,160 --> 00:12:19,480 Speaker 1: of work, though, I'm wondering how scalable it really. 220 00:12:19,320 --> 00:12:23,880 Speaker 3: Is, great question it, you know, I think it's funny 221 00:12:23,880 --> 00:12:27,679 Speaker 3: that you phrase it or position it that way. You know, 222 00:12:27,880 --> 00:12:31,280 Speaker 3: credit is extremely scalable, and like we talked about the 223 00:12:31,280 --> 00:12:35,720 Speaker 3: forty five trillion figure earlier, and these deals have no 224 00:12:36,200 --> 00:12:38,800 Speaker 3: cap and no limit. And so while it might be 225 00:12:39,280 --> 00:12:43,120 Speaker 3: more efficient sometimes to go through the public markets. And 226 00:12:43,120 --> 00:12:45,439 Speaker 3: by the way, it really depends on what the goal 227 00:12:45,559 --> 00:12:48,320 Speaker 3: is of the company. No one is you know, pitching 228 00:12:48,800 --> 00:12:50,840 Speaker 3: that you should do things for the sake of just 229 00:12:50,920 --> 00:12:53,920 Speaker 3: doing them. It's contingent upon like what are we trying 230 00:12:53,960 --> 00:12:58,280 Speaker 3: to solve for but absent, you know, just getting you know, 231 00:12:58,440 --> 00:13:01,120 Speaker 3: more of a pure vanilla th nancing and you're looking 232 00:13:01,160 --> 00:13:03,520 Speaker 3: to do something strategic or maybe it's a spin out, 233 00:13:03,640 --> 00:13:07,160 Speaker 3: or maybe it's a corporate carve out. You know, the 234 00:13:07,240 --> 00:13:12,080 Speaker 3: addressable market remains quite scalable, and it's scalable because it's 235 00:13:12,120 --> 00:13:16,760 Speaker 3: scaled lick capital providers who can actually provide that capital 236 00:13:17,160 --> 00:13:19,360 Speaker 3: in scale. So you know, we did care a Doctor 237 00:13:19,400 --> 00:13:21,520 Speaker 3: Pepper that we announced not too long ago. That was 238 00:13:21,520 --> 00:13:25,360 Speaker 3: a seven billion dollar strategic investment. So these are these 239 00:13:25,400 --> 00:13:29,559 Speaker 3: are not small deals. These are sizable. Now, You're right, 240 00:13:29,600 --> 00:13:31,920 Speaker 3: it takes a lot of eloped go grease to get 241 00:13:32,000 --> 00:13:35,760 Speaker 3: through this. There's it's not it's not the click of 242 00:13:35,800 --> 00:13:38,520 Speaker 3: a button. And I'm not insinuating that that's what the 243 00:13:38,559 --> 00:13:42,800 Speaker 3: public markets do anyway, but it's a different type of transaction. 244 00:13:42,960 --> 00:13:45,600 Speaker 3: And so our job, and we have nearly fifty years 245 00:13:46,240 --> 00:13:49,479 Speaker 3: of experience, like working with companies, is really to understand 246 00:13:49,640 --> 00:13:51,960 Speaker 3: what are they solving for? And I think you know, 247 00:13:52,000 --> 00:13:55,440 Speaker 3: what we've really seen in the last eighteen months is 248 00:13:55,520 --> 00:14:01,000 Speaker 3: a higher percent of core of issuers really thinking through Okay, 249 00:14:01,480 --> 00:14:04,440 Speaker 3: you know, I need to maximize my margins or I 250 00:14:04,520 --> 00:14:07,280 Speaker 3: need to think through the pressure I'm getting from shareholders, 251 00:14:07,640 --> 00:14:11,120 Speaker 3: or I'm looking to do this divestiture and solving for 252 00:14:11,240 --> 00:14:15,280 Speaker 3: other problems that you know may impact their performance. Or 253 00:14:15,320 --> 00:14:19,520 Speaker 3: maybe they're getting shareholder pressure and they can partner with 254 00:14:19,600 --> 00:14:22,560 Speaker 3: the likes of people like us who can help them 255 00:14:22,640 --> 00:14:26,240 Speaker 3: think through all of that. And so if that's the case, 256 00:14:26,400 --> 00:14:29,480 Speaker 3: you know, it's all addressable market. But I think you're 257 00:14:29,480 --> 00:14:31,600 Speaker 3: going to see again, just like we saw with direct 258 00:14:31,680 --> 00:14:34,280 Speaker 3: lending and broadly syndicated, I think you're going to see 259 00:14:34,280 --> 00:14:38,200 Speaker 3: this continued like you know, EBB and flow between the 260 00:14:38,280 --> 00:14:41,040 Speaker 3: different financing channels because you don't have to go through 261 00:14:41,040 --> 00:14:46,080 Speaker 3: an exhaustive structured equity transaction, for example, if it's not necessary, 262 00:14:46,320 --> 00:14:49,120 Speaker 3: but sometimes it absolutely is, and that's the only way 263 00:14:49,120 --> 00:14:52,560 Speaker 3: to accomplish all the things you're looking to do. And 264 00:14:52,640 --> 00:14:56,560 Speaker 3: again that's super case dependent, and I think it's relevant 265 00:14:56,600 --> 00:14:59,520 Speaker 3: to your original question as we started talking about with 266 00:15:00,120 --> 00:15:03,400 Speaker 3: data centers in AI, just given the amount of cash 267 00:15:03,480 --> 00:15:07,240 Speaker 3: cappax that is needed, right, we've seen big, big numbers 268 00:15:07,360 --> 00:15:10,560 Speaker 3: quoted recently north of you know, five hundred billion for 269 00:15:10,600 --> 00:15:13,960 Speaker 3: this year and you know those exceeding five trillion by 270 00:15:14,040 --> 00:15:18,360 Speaker 3: twenty thirty. Someone's got to fill that gap. And that's 271 00:15:18,440 --> 00:15:22,640 Speaker 3: why the partnership between the public markets, the private markets, 272 00:15:22,680 --> 00:15:26,400 Speaker 3: the banks, the asset managers, the insurance like, that's where 273 00:15:26,440 --> 00:15:28,760 Speaker 3: all of this gets really interesting, and that's something we've 274 00:15:28,800 --> 00:15:30,960 Speaker 3: been writing about quite a bit recently. 275 00:15:31,360 --> 00:15:33,680 Speaker 2: Yeah, so it sounds like there's a there's it's a 276 00:15:33,760 --> 00:15:36,120 Speaker 2: very wide web, right Like one of the themes that we 277 00:15:36,160 --> 00:15:39,000 Speaker 2: talk about with private credit is is just lines are 278 00:15:39,000 --> 00:15:42,480 Speaker 2: blurring and it's interconnected that and it's growing. You know, 279 00:15:42,680 --> 00:15:44,760 Speaker 2: those things aren't going to change, or at least I 280 00:15:44,760 --> 00:15:48,120 Speaker 2: don't think they are. But if I sort of boil 281 00:15:48,160 --> 00:15:51,000 Speaker 2: it down into some of the constituents that makes this 282 00:15:51,520 --> 00:15:54,960 Speaker 2: attractive to all parties. Is pretty obvious that the excess 283 00:15:54,960 --> 00:15:57,520 Speaker 2: spread is attractive to the end investor, whether it be 284 00:15:57,560 --> 00:16:02,040 Speaker 2: an insurance company, a pension fund it has, or a 285 00:16:02,080 --> 00:16:06,520 Speaker 2: fixed income investor that has a rating requirements. That's obvious 286 00:16:06,560 --> 00:16:10,640 Speaker 2: you get that excess spread for the borrower. It sounds 287 00:16:10,720 --> 00:16:12,000 Speaker 2: like there are a lot of things that can be 288 00:16:12,040 --> 00:16:14,280 Speaker 2: done in the private markets where the public markets are 289 00:16:14,280 --> 00:16:18,040 Speaker 2: simply too rigid, And maybe the private markets are more 290 00:16:18,080 --> 00:16:21,240 Speaker 2: attractive than the banking markets in some instances because again 291 00:16:21,320 --> 00:16:24,600 Speaker 2: there's a rigidity there's a you know, maybe there's a 292 00:16:24,800 --> 00:16:27,760 Speaker 2: a some tailoring capabilities that you have that maybe banks 293 00:16:27,760 --> 00:16:30,120 Speaker 2: don't have quite as much flexibility with. Oh and the 294 00:16:30,160 --> 00:16:32,440 Speaker 2: final thing I was going to say is that we 295 00:16:32,480 --> 00:16:35,440 Speaker 2: talk about these these vast capital investments that have to 296 00:16:35,440 --> 00:16:38,400 Speaker 2: be made, and it's got to be easier for the 297 00:16:39,280 --> 00:16:42,080 Speaker 2: for the corporations themselves to to sort of fund this 298 00:16:42,960 --> 00:16:46,920 Speaker 2: UH in a secured form where there's recourse, as opposed 299 00:16:46,920 --> 00:16:48,600 Speaker 2: to doing it on balance sheet where they might blow 300 00:16:48,640 --> 00:16:50,120 Speaker 2: up some of their credit ratios. 301 00:16:51,240 --> 00:16:55,080 Speaker 3: Totally, I think that's completely spot on, and I think 302 00:16:55,120 --> 00:16:57,320 Speaker 3: you hit the nail on the head where you use 303 00:16:57,400 --> 00:17:00,600 Speaker 3: the word rigid. And you know, I've been at this 304 00:17:00,760 --> 00:17:03,880 Speaker 3: for a while now. I'm I'm not a total veteran, 305 00:17:03,960 --> 00:17:06,399 Speaker 3: but like as someone who came into the industry during 306 00:17:06,600 --> 00:17:10,120 Speaker 3: you know, after the aftermath of the GFC, like I've 307 00:17:10,160 --> 00:17:12,760 Speaker 3: seen things evolve in front of my own two wise 308 00:17:12,800 --> 00:17:14,919 Speaker 3: and like you know, more than a decade ago, Like 309 00:17:15,240 --> 00:17:17,960 Speaker 3: we're pret MNA fold like a super narrow template right 310 00:17:18,080 --> 00:17:22,119 Speaker 3: by with cash BYSTOC finance through the banks, aim fors energies. 311 00:17:22,560 --> 00:17:26,240 Speaker 3: What's so cool is like the market's tremendously involved, evolved 312 00:17:26,280 --> 00:17:28,240 Speaker 3: and I think that's where I mean, it's really been 313 00:17:28,359 --> 00:17:31,199 Speaker 3: a ton of that has been in credit, which you know, 314 00:17:31,280 --> 00:17:33,760 Speaker 3: for a credit junkie like me, has been really exciting. 315 00:17:34,200 --> 00:17:36,800 Speaker 3: And it's also like cool. You know, equity guys always 316 00:17:36,800 --> 00:17:38,679 Speaker 3: get all the attention, so it's kind of cool to 317 00:17:38,720 --> 00:17:41,760 Speaker 3: be in the spotlight recently. But you know, I joke 318 00:17:42,040 --> 00:17:45,960 Speaker 3: all jokes aside. You know, companies are adopting those new structures, 319 00:17:46,640 --> 00:17:51,000 Speaker 3: and like you said, there are things and characteristics that 320 00:17:51,119 --> 00:17:53,679 Speaker 3: you might not just be able to tick the box 321 00:17:53,760 --> 00:17:57,480 Speaker 3: on through a syndicated solution or you know, through just 322 00:17:57,520 --> 00:18:01,240 Speaker 3: going through the broader investment grade public marks and you're right, 323 00:18:01,400 --> 00:18:05,200 Speaker 3: recapitalizing balance sheets, thinking about how to structure things off 324 00:18:05,200 --> 00:18:09,320 Speaker 3: balance sheet, to optimize capex look through, to be able 325 00:18:09,320 --> 00:18:13,200 Speaker 3: to execute acquisition. That's all that's all on their list. 326 00:18:13,640 --> 00:18:16,280 Speaker 3: And what's really interesting is that some of the technology 327 00:18:16,320 --> 00:18:19,359 Speaker 3: being used, like a sale leads backstructure for example, Like 328 00:18:19,720 --> 00:18:23,359 Speaker 3: that's that's not totally new, right, It's just evolved and 329 00:18:23,440 --> 00:18:26,679 Speaker 3: now you know, we're more sophisticated and we can customize 330 00:18:26,680 --> 00:18:30,120 Speaker 3: it more. So that's what I think is really interesting. 331 00:18:30,359 --> 00:18:33,520 Speaker 3: And you know, going back also to what you said, 332 00:18:33,920 --> 00:18:36,280 Speaker 3: a big theme we've talked about at KKR here for 333 00:18:36,359 --> 00:18:39,640 Speaker 3: a while now is you know, asset heavy, capital heavy 334 00:18:39,640 --> 00:18:43,960 Speaker 3: to capital light, and that theme by itself is what's 335 00:18:44,000 --> 00:18:48,000 Speaker 3: catalyzing a lot of these investment opportunities and these financings 336 00:18:48,040 --> 00:18:49,440 Speaker 3: to happen in the private markets. 337 00:18:50,520 --> 00:18:54,439 Speaker 1: So it's more complex, certainly than the public. Does that 338 00:18:54,520 --> 00:18:58,600 Speaker 1: necessarily imply more risk? We just had your co CEO, 339 00:18:58,840 --> 00:19:02,000 Speaker 1: Scott that we'll talk about how he expects more defaults 340 00:19:02,040 --> 00:19:04,320 Speaker 1: to crop up in private credit as the section normalizes 341 00:19:04,359 --> 00:19:08,080 Speaker 1: after a period of you know, quite small losses. Should 342 00:19:08,119 --> 00:19:11,400 Speaker 1: we worry about the likelihood of more defaults? 343 00:19:12,160 --> 00:19:15,200 Speaker 3: So? I think James, there's two questions in your question, 344 00:19:15,320 --> 00:19:17,800 Speaker 3: if I may break them down, So I think you know, 345 00:19:17,840 --> 00:19:21,879 Speaker 3: Scott's absolutely right in highlighting that there will be more 346 00:19:22,119 --> 00:19:26,160 Speaker 3: default You know, we've been up until recently a very 347 00:19:26,200 --> 00:19:30,919 Speaker 3: benign rate environment, right, It's it's not unexpected that we 348 00:19:30,960 --> 00:19:34,800 Speaker 3: will see more challenging situations happen across the market. That 349 00:19:35,000 --> 00:19:38,119 Speaker 3: is actually normal. Like we are actually all in the 350 00:19:38,240 --> 00:19:41,719 Speaker 3: risk business because our job is to manage risk, and 351 00:19:41,760 --> 00:19:45,359 Speaker 3: you don't invest if you're not willing to take some risk. Now, 352 00:19:45,400 --> 00:19:48,080 Speaker 3: to address your question on is there more risk in 353 00:19:48,160 --> 00:19:51,919 Speaker 3: private markets, Again, it depends on what we're investing in. 354 00:19:52,480 --> 00:19:57,440 Speaker 3: Senior secured loans in direct lending is supposed to be 355 00:19:58,359 --> 00:20:00,760 Speaker 3: kind of as boring as it gets. It's a pretty 356 00:20:00,800 --> 00:20:04,399 Speaker 3: basic lending product. So you have to do you have 357 00:20:04,440 --> 00:20:07,160 Speaker 3: to get a lot of things wrong not to get 358 00:20:07,200 --> 00:20:09,600 Speaker 3: your money back. Now, that's not to say sometimes like 359 00:20:10,040 --> 00:20:14,880 Speaker 3: there's you know, adverse asset selection, things you can't foresee happening. 360 00:20:14,920 --> 00:20:17,919 Speaker 3: We've obviously seen everything in the press with first brands 361 00:20:17,920 --> 00:20:23,240 Speaker 3: and trycolor like that's that happens. Sometimes those are idiosyncratic, 362 00:20:23,359 --> 00:20:26,200 Speaker 3: but we will see dispersion in results. And we've seen 363 00:20:26,240 --> 00:20:30,520 Speaker 3: dispersion already in in corporate earnings. They've been you know, 364 00:20:30,640 --> 00:20:34,960 Speaker 3: for the most part, pretty fundamentally solid, but we've seen 365 00:20:35,000 --> 00:20:38,400 Speaker 3: different sectors go through you know, what we categorize as 366 00:20:38,440 --> 00:20:42,600 Speaker 3: these rolling recessions where there's been you know, like look 367 00:20:42,640 --> 00:20:46,520 Speaker 3: at retail, look at media, look at leisure, like you've 368 00:20:46,560 --> 00:20:49,760 Speaker 3: seen different parts of the economy slow for some time 369 00:20:49,800 --> 00:20:52,439 Speaker 3: and they've been working their way through the system, and 370 00:20:52,480 --> 00:20:56,480 Speaker 3: so that's going to impact performance. Now it's a I 371 00:20:56,480 --> 00:21:00,159 Speaker 3: think the dispersion will come twofold within sectors, within and 372 00:21:00,480 --> 00:21:04,720 Speaker 3: you know, credit quality. We've been really focused on making 373 00:21:05,000 --> 00:21:07,680 Speaker 3: being up and quality both in our public and private 374 00:21:08,400 --> 00:21:11,639 Speaker 3: portfolios to date, and it's going to come in also, 375 00:21:11,760 --> 00:21:14,000 Speaker 3: like what area of the market are you playing in 376 00:21:14,359 --> 00:21:16,720 Speaker 3: if we want to pick on direct lending. You know, 377 00:21:16,800 --> 00:21:20,479 Speaker 3: the middle market is big and so bigger than it 378 00:21:20,560 --> 00:21:22,480 Speaker 3: was ten years ago. But there's the upper part of 379 00:21:22,520 --> 00:21:24,639 Speaker 3: the middle market, and there's the lower part of the 380 00:21:24,680 --> 00:21:26,919 Speaker 3: middle market, and then there's the middle of the middle market. 381 00:21:27,240 --> 00:21:30,800 Speaker 3: And so I think that's where we're also seeing results dispersion. 382 00:21:30,920 --> 00:21:34,040 Speaker 3: So from a credit perspective, the risks should not be 383 00:21:34,200 --> 00:21:38,360 Speaker 3: greater if you go public versus private. Now, if you're 384 00:21:38,359 --> 00:21:41,199 Speaker 3: investing in triple c's and the leverage low market versus 385 00:21:41,480 --> 00:21:44,960 Speaker 3: private investment grate, that's apples to oranges. But the reality 386 00:21:45,040 --> 00:21:50,200 Speaker 3: is this is a credit selection, you know, exercise, it's 387 00:21:50,240 --> 00:21:55,679 Speaker 3: a portfolio construction exercise. And then on the point of defaults, 388 00:21:56,240 --> 00:21:59,680 Speaker 3: you know, the environment has changed and it would be 389 00:22:00,160 --> 00:22:04,160 Speaker 3: unnatural not to see more default and I think that's 390 00:22:04,480 --> 00:22:08,000 Speaker 3: you know, that's what we're prepared for and that's our 391 00:22:08,080 --> 00:22:11,320 Speaker 3: job right to make sure that we are the preservation 392 00:22:11,400 --> 00:22:15,080 Speaker 3: of capital is our job, essentially. Does that answer that 393 00:22:15,240 --> 00:22:17,200 Speaker 3: was probably a long wooded answer for your question. 394 00:22:17,280 --> 00:22:20,879 Speaker 1: James, Yeah, I mean that's good. I just talking of dispersion. 395 00:22:20,920 --> 00:22:24,080 Speaker 1: I mean there is dispersion in the marks, and that's 396 00:22:24,119 --> 00:22:26,159 Speaker 1: worrying people. I mean there's lots of issues people are 397 00:22:26,160 --> 00:22:28,520 Speaker 1: worried about in private credit. And I think there's this 398 00:22:28,560 --> 00:22:30,480 Speaker 1: sort of sense you know what you what you can't see, 399 00:22:30,800 --> 00:22:35,399 Speaker 1: you're immediately suspicious of, So you know there there is 400 00:22:35,480 --> 00:22:39,639 Speaker 1: still a lot of concerns, I think, but as you say, 401 00:22:41,520 --> 00:22:43,840 Speaker 1: there are many different ways of investing in private credit. 402 00:22:44,400 --> 00:22:47,119 Speaker 3: And those concerns. Look, those concerns are valid. You know, 403 00:22:47,240 --> 00:22:50,520 Speaker 3: on on marks. Like many of our peers, we have 404 00:22:50,560 --> 00:22:54,240 Speaker 3: a third party valuation provider. We also mark our own books. 405 00:22:55,200 --> 00:22:59,760 Speaker 3: Dispersion and valuation typically comes when assets underperform. It's super 406 00:23:00,400 --> 00:23:03,880 Speaker 3: to have governance around these things and have a partnership 407 00:23:04,119 --> 00:23:06,960 Speaker 3: as you work with independent valuation providers. You need to 408 00:23:06,960 --> 00:23:09,200 Speaker 3: know what's happening in the credit. You need to actively 409 00:23:09,240 --> 00:23:14,159 Speaker 3: manage the asset. So there's a lot there. But you 410 00:23:14,200 --> 00:23:17,280 Speaker 3: know where we've seen things kind of come to a 411 00:23:17,359 --> 00:23:20,960 Speaker 3: head in the past is the velocity of price is 412 00:23:21,000 --> 00:23:25,000 Speaker 3: typically credit to pendant and it does sometimes move quickly 413 00:23:25,040 --> 00:23:27,320 Speaker 3: even to your point. In direct lending, you don't have 414 00:23:27,359 --> 00:23:30,359 Speaker 3: that marked market, so you're not seeing the whiplash that 415 00:23:30,400 --> 00:23:32,680 Speaker 3: you would that we saw on you know, in April 416 00:23:32,720 --> 00:23:36,399 Speaker 3: and the liquid markets after Liberation Day. But if you 417 00:23:36,480 --> 00:23:40,080 Speaker 3: hit a liquidity wall, you will see that. So it's 418 00:23:40,520 --> 00:23:44,359 Speaker 3: you can't hide, right like you can't ultimately hide in credit, 419 00:23:44,680 --> 00:23:47,919 Speaker 3: it's important the team you have, how you manage it, 420 00:23:48,400 --> 00:23:51,560 Speaker 3: and being like fully proactive and front footed on it. 421 00:23:51,880 --> 00:23:55,360 Speaker 3: And you know, private credit's funny. Private credits defined super broadly. 422 00:23:55,760 --> 00:23:58,680 Speaker 3: And so we can talk about direct lending right where 423 00:23:58,680 --> 00:24:01,960 Speaker 3: we've seen a lot to do commentary to date, and 424 00:24:02,000 --> 00:24:05,280 Speaker 3: then we've got the investment grade market continuing to develop, 425 00:24:05,320 --> 00:24:08,200 Speaker 3: and then we've got the ABF market, and so again 426 00:24:08,240 --> 00:24:12,680 Speaker 3: I think dispersion of results and also dispersion in valuation 427 00:24:12,880 --> 00:24:16,160 Speaker 3: comes a bit from that acid under performance or from 428 00:24:16,200 --> 00:24:18,960 Speaker 3: over concentration and overly reaching for risk. 429 00:24:19,480 --> 00:24:24,000 Speaker 2: Right, maybe sticking with this dispersion issue and sort of 430 00:24:24,000 --> 00:24:27,160 Speaker 2: sticking with the direct lending in sort of traditional middle 431 00:24:27,160 --> 00:24:31,560 Speaker 2: market or non investment grade areas AI is obviously a 432 00:24:31,560 --> 00:24:33,560 Speaker 2: big issue. And as we look across some of these 433 00:24:33,600 --> 00:24:38,400 Speaker 2: direct loan portfolios at FSKKR and elsewhere, there's a high 434 00:24:38,440 --> 00:24:43,120 Speaker 2: proportion of tech loans, or of loans to tech companies, 435 00:24:43,160 --> 00:24:47,840 Speaker 2: software companies, service providers, things like that. Those have been 436 00:24:48,119 --> 00:24:52,679 Speaker 2: you know, sort of nice recession non cyclical businesses for 437 00:24:52,760 --> 00:24:55,080 Speaker 2: the most part. But AI certainly has potential to be 438 00:24:55,119 --> 00:24:59,639 Speaker 2: a disruptor. Seems like AI has tremendous potential for you 439 00:24:59,680 --> 00:25:02,600 Speaker 2: across us all facets of the credit business, but it 440 00:25:02,640 --> 00:25:04,720 Speaker 2: may also disrupt areas. 441 00:25:05,960 --> 00:25:10,040 Speaker 3: It's funny that you mentioned that, you're right, but in reality, 442 00:25:11,000 --> 00:25:14,920 Speaker 3: we've been underwriting AI risk for almost six years at 443 00:25:14,920 --> 00:25:18,560 Speaker 3: this point. This is something that we've been really kicking 444 00:25:18,560 --> 00:25:20,760 Speaker 3: the tires in for a while. You know, I think 445 00:25:20,800 --> 00:25:24,280 Speaker 3: it's really in our faces today. But that's something that 446 00:25:24,359 --> 00:25:28,200 Speaker 3: again is not totally net new. The spotlights on it, certainly, 447 00:25:28,600 --> 00:25:30,920 Speaker 3: but this is something that even I can remember during 448 00:25:30,960 --> 00:25:34,199 Speaker 3: COVID we were double clicking and making sure and thinking 449 00:25:34,240 --> 00:25:37,000 Speaker 3: through all the permutations of how AI could affect the 450 00:25:37,040 --> 00:25:40,800 Speaker 3: business model or you know, earnings for specific credits in 451 00:25:40,840 --> 00:25:45,080 Speaker 3: our portfolio. And so you know, we are constantly refreshing 452 00:25:45,080 --> 00:25:49,040 Speaker 3: that I would say, as someone who is not a technologist, 453 00:25:49,080 --> 00:25:52,600 Speaker 3: we all continue to learn about the capabilities and see 454 00:25:52,920 --> 00:25:56,160 Speaker 3: in real time, right the sophistication of these technologies, which 455 00:25:56,200 --> 00:25:58,800 Speaker 3: is really cool to be a part of. But that's 456 00:25:58,800 --> 00:26:00,879 Speaker 3: something that's been you know, when we go through our 457 00:26:00,960 --> 00:26:05,000 Speaker 3: underwriting process like top of mind for some time, and 458 00:26:05,200 --> 00:26:08,280 Speaker 3: you know, we've just recently gone through the portfolio and 459 00:26:08,400 --> 00:26:11,440 Speaker 3: kind of re underwrote thinking through that lens. And we're 460 00:26:11,520 --> 00:26:13,960 Speaker 3: lucky to work with, you know, collaborate with our colleagues 461 00:26:14,000 --> 00:26:17,040 Speaker 3: and like our growth technology team to look through kind 462 00:26:17,080 --> 00:26:19,359 Speaker 3: of different angles that we might not see from a 463 00:26:19,359 --> 00:26:23,560 Speaker 3: credit perspective. And we're feeling like we're being very diligent 464 00:26:24,000 --> 00:26:26,800 Speaker 3: and we're doing everything that's in our control to you know, 465 00:26:27,600 --> 00:26:29,200 Speaker 3: select the right assets, if you will. 466 00:26:31,680 --> 00:26:35,240 Speaker 1: Do you worry though that there are more deferred interest payments, 467 00:26:35,359 --> 00:26:39,480 Speaker 1: more pick, more amendments to existing credit agreements, you know, 468 00:26:39,520 --> 00:26:40,920 Speaker 1: that's certainly what we're hearing. 469 00:26:42,240 --> 00:26:44,199 Speaker 3: I mean, yeah, there's we've seen a lot of that 470 00:26:44,800 --> 00:26:47,200 Speaker 3: in the markets for some time. And I think James, 471 00:26:47,200 --> 00:26:49,520 Speaker 3: you made the joke right, there's there's good pick, and 472 00:26:49,560 --> 00:26:53,040 Speaker 3: there's there's bad pick. There's so again there's a there's 473 00:26:53,080 --> 00:26:57,320 Speaker 3: different sides. There's two sides to every story, and so 474 00:26:57,760 --> 00:27:00,120 Speaker 3: bad pick, right, Like that's something you need to be 475 00:27:00,320 --> 00:27:04,120 Speaker 3: mindful of. But certainly good pick is something that we've 476 00:27:04,160 --> 00:27:08,159 Speaker 3: seen utilized in the toolkit for some time when we 477 00:27:08,240 --> 00:27:12,280 Speaker 3: see stress in general in the market, like that is 478 00:27:12,320 --> 00:27:15,879 Speaker 3: something that we've seen happen in prior cycles. And it 479 00:27:15,880 --> 00:27:18,600 Speaker 3: does feel like we're in the midst of the like 480 00:27:18,920 --> 00:27:22,240 Speaker 3: middle to end of cycle now, right. It's a little 481 00:27:22,280 --> 00:27:26,640 Speaker 3: bit I think about white noise versus being totally white knuckle, 482 00:27:27,200 --> 00:27:30,320 Speaker 3: Like you know, the market's up with S andp's up 483 00:27:30,320 --> 00:27:34,840 Speaker 3: to sixteen percent, NAVZAC up twenty two, Like, where are 484 00:27:34,880 --> 00:27:37,399 Speaker 3: we right? Like does that totally feel right? So I 485 00:27:37,960 --> 00:27:42,159 Speaker 3: do think it's important to watch all of those credit 486 00:27:42,240 --> 00:27:47,399 Speaker 3: indicators just broadly about where we are today across the market. 487 00:27:47,640 --> 00:27:49,879 Speaker 3: And it's going back to your original question of like 488 00:27:49,920 --> 00:27:52,560 Speaker 3: how do we think or what do we expect in 489 00:27:52,640 --> 00:27:55,920 Speaker 3: twenty twenty six, And I do think that is we've 490 00:27:55,960 --> 00:27:58,679 Speaker 3: seen a lot of exuberants and so that's something to 491 00:27:58,800 --> 00:28:00,359 Speaker 3: really monitor cautious. 492 00:28:00,520 --> 00:28:03,720 Speaker 2: Yeah, exuberants or complacency, I guess, But I guess I 493 00:28:03,720 --> 00:28:05,840 Speaker 2: think that gets back to your point you were making 494 00:28:05,880 --> 00:28:08,919 Speaker 2: earlier about patient capital and and sort of putting money 495 00:28:09,400 --> 00:28:10,520 Speaker 2: to work judiciously. 496 00:28:11,520 --> 00:28:16,200 Speaker 3: Yes, yes, I think that's really like right now, it's 497 00:28:16,320 --> 00:28:20,199 Speaker 3: more important than ever, just given where we are. And 498 00:28:20,240 --> 00:28:24,240 Speaker 3: sometimes that's that's hard because that means you need to 499 00:28:24,280 --> 00:28:28,199 Speaker 3: be hyper disciplined and not you know, succumb to just 500 00:28:28,320 --> 00:28:31,320 Speaker 3: deploying for the sake of that. And but that's that's 501 00:28:31,400 --> 00:28:33,959 Speaker 3: why I think we are all in the seats that 502 00:28:33,960 --> 00:28:36,280 Speaker 3: we're in to make those types of decisions. But I 503 00:28:36,320 --> 00:28:39,880 Speaker 3: do think it's a bit unusual, right if you think 504 00:28:39,880 --> 00:28:43,680 Speaker 3: about we started the year with like deep seek chaos 505 00:28:44,200 --> 00:28:47,080 Speaker 3: and like the market freaked out, and we then we 506 00:28:47,120 --> 00:28:53,760 Speaker 3: went through kind of like macro geopolitical liberation day, coming 507 00:28:53,800 --> 00:28:59,959 Speaker 3: off of Liberation Day, continued negotiation on tariffs, escalation geopolitic 508 00:29:00,720 --> 00:29:04,800 Speaker 3: coming back down. You know, rate cuts. A lot has happened, 509 00:29:05,240 --> 00:29:07,080 Speaker 3: you know in this year. 510 00:29:07,440 --> 00:29:11,520 Speaker 1: Yeah, you obviously deal with investors. You talked to them directly, 511 00:29:11,560 --> 00:29:14,520 Speaker 1: and I'm wondering what kind of signs you're hearing from 512 00:29:14,520 --> 00:29:18,040 Speaker 1: them that they will, you know, continue to love credit 513 00:29:18,040 --> 00:29:19,840 Speaker 1: in twenty twenty six. Is there anything out there that 514 00:29:19,920 --> 00:29:21,320 Speaker 1: might change that equation. 515 00:29:22,440 --> 00:29:27,120 Speaker 3: Yeah, I think people will continue to love credit, which 516 00:29:27,160 --> 00:29:31,760 Speaker 3: is exciting. Where I think investors are focused are continuing 517 00:29:31,800 --> 00:29:35,800 Speaker 3: to diversify their credit exposure. So you know, it also 518 00:29:36,000 --> 00:29:39,000 Speaker 3: is very thematic with our conversation today, Like once upon 519 00:29:39,040 --> 00:29:42,000 Speaker 3: a time, you had very binary allocations to a portfolio. 520 00:29:42,040 --> 00:29:44,280 Speaker 3: If you're an alligator, maybe it was just fixed income 521 00:29:44,440 --> 00:29:46,960 Speaker 3: and maybe it was public equities. But now you've got 522 00:29:47,000 --> 00:29:49,360 Speaker 3: a lot of options. And what we're seeing as a 523 00:29:49,400 --> 00:29:52,160 Speaker 3: trend is a lot of investors thinking through how to 524 00:29:52,240 --> 00:29:55,560 Speaker 3: conduct more of a multi asset credit portfolio because they 525 00:29:55,600 --> 00:29:59,800 Speaker 3: want exposure to corporates, they want exposure to ABFs, they 526 00:29:59,800 --> 00:30:03,600 Speaker 3: will on exposure to the financings of data centers, right, 527 00:30:03,680 --> 00:30:07,880 Speaker 3: maybe a smidge of real asset exposure. They're structured equity 528 00:30:07,920 --> 00:30:11,240 Speaker 3: and capital solutions. That has been really interesting for those 529 00:30:11,280 --> 00:30:14,880 Speaker 3: seeking a little more risk premium, and that is where 530 00:30:15,000 --> 00:30:18,120 Speaker 3: investors are really intrigued. The other planes, I would say, 531 00:30:18,160 --> 00:30:22,440 Speaker 3: in addition to constructing more of a customized credit portfolio, 532 00:30:23,160 --> 00:30:30,160 Speaker 3: is expanding exposure allocations to either Europe or Asia. You know, 533 00:30:30,240 --> 00:30:33,280 Speaker 3: what we have really seen, I would say twofold this 534 00:30:33,440 --> 00:30:37,680 Speaker 3: year is like Europe kind of having its renaissance, if 535 00:30:37,680 --> 00:30:43,200 Speaker 3: you will, and pending you know, certain securitization reform and 536 00:30:43,560 --> 00:30:46,760 Speaker 3: investments in their own jurisdiction and regions like we've seen 537 00:30:46,800 --> 00:30:50,080 Speaker 3: Germany announced like there could be some really interesting investment 538 00:30:50,160 --> 00:30:56,040 Speaker 3: opportunities in Europe. Leverage typically sometimes is lower on the 539 00:30:56,080 --> 00:30:59,520 Speaker 3: corporate side. We've seen the most active LBO year in 540 00:30:59,560 --> 00:31:03,440 Speaker 3: Europe since twenty twenty or in five years. I think 541 00:31:03,560 --> 00:31:05,280 Speaker 3: I have to check that step, but I'm pretty sure 542 00:31:06,080 --> 00:31:08,840 Speaker 3: this has been a record year for Europe. So a 543 00:31:08,880 --> 00:31:13,240 Speaker 3: lot more cross border transactions happening. But in general, investors 544 00:31:13,440 --> 00:31:18,800 Speaker 3: much more intrigued about how to diversify geographically, and that's 545 00:31:18,800 --> 00:31:22,080 Speaker 3: something that you know, I think is super cool and 546 00:31:22,200 --> 00:31:25,160 Speaker 3: definitely was a bit you know, Liberation Day was a 547 00:31:25,160 --> 00:31:27,960 Speaker 3: bit of a catalyst for that. But as more investors 548 00:31:28,040 --> 00:31:32,480 Speaker 3: learn about, oh I can get single a risk in Japan, 549 00:31:33,240 --> 00:31:35,560 Speaker 3: you know, and get a little bit of like a 550 00:31:35,640 --> 00:31:39,960 Speaker 3: yield premium there, that's interesting. And so again depends on 551 00:31:40,040 --> 00:31:43,760 Speaker 3: what you're looking for, but investors are very focused on 552 00:31:43,840 --> 00:31:46,280 Speaker 3: relative value in the market where there's not a lot 553 00:31:46,320 --> 00:31:51,280 Speaker 3: of obvious relative value, and so geographic diversification has played 554 00:31:51,280 --> 00:31:55,040 Speaker 3: a big role there. Asset type diversification has played a 555 00:31:55,040 --> 00:32:01,040 Speaker 3: big role there, being very judicious on how to construct 556 00:32:01,160 --> 00:32:04,680 Speaker 3: or balance the portfolio as well. Between Okay, maybe I 557 00:32:04,720 --> 00:32:08,320 Speaker 3: want you know, sixty percent direct lending, but I do 558 00:32:08,400 --> 00:32:10,120 Speaker 3: want a little bit of spice, and I want to 559 00:32:10,120 --> 00:32:13,800 Speaker 3: add some capital solutions or structured equity or some junior debt. 560 00:32:14,200 --> 00:32:17,400 Speaker 3: And so again it's like solving for backing into what 561 00:32:17,440 --> 00:32:20,320 Speaker 3: you're trying to solve for. But I think the demand 562 00:32:20,440 --> 00:32:24,560 Speaker 3: is there. The bigger risk is the supply there, and 563 00:32:24,680 --> 00:32:29,440 Speaker 3: can we originate everything that we need to and then 564 00:32:29,560 --> 00:32:32,640 Speaker 3: just generally bring it in, bringing it all together and 565 00:32:32,720 --> 00:32:36,960 Speaker 3: managing that effectively. That is our that's our job. And 566 00:32:37,000 --> 00:32:41,040 Speaker 3: so that's where I kind of see investors really intrigued 567 00:32:41,080 --> 00:32:44,200 Speaker 3: and really wanting to learn more and to understand where 568 00:32:44,600 --> 00:32:48,080 Speaker 3: they could possibly stay in the same risk bucket, but 569 00:32:48,200 --> 00:32:50,719 Speaker 3: diversify where they hadn't done previously. 570 00:32:51,240 --> 00:32:54,760 Speaker 1: And you expect a big revival in European asset backed 571 00:32:55,040 --> 00:32:57,720 Speaker 1: markets that's been kind of flat for years. It's really 572 00:32:58,200 --> 00:33:00,600 Speaker 1: very very active in the US to accept that, you know, 573 00:33:00,720 --> 00:33:02,680 Speaker 1: people are signed to worry about how active it is, 574 00:33:02,920 --> 00:33:04,920 Speaker 1: but why Europe abs? Why no? 575 00:33:06,200 --> 00:33:11,719 Speaker 3: So in Europe there is pending EU securitization reform, and 576 00:33:11,880 --> 00:33:14,080 Speaker 3: if that reform, which looks like it's trending in the 577 00:33:14,160 --> 00:33:17,719 Speaker 3: right direction, happens, that can open up what we estimate 578 00:33:17,760 --> 00:33:21,120 Speaker 3: as close to a trillion dollars of high grade ABF 579 00:33:21,160 --> 00:33:27,480 Speaker 3: opportunities because insurers today are essentially are penalized from a 580 00:33:27,480 --> 00:33:31,160 Speaker 3: capital charge perspective to hold that type of exposure. So 581 00:33:31,320 --> 00:33:34,480 Speaker 3: European life insurers only they hold less than one percent 582 00:33:35,040 --> 00:33:39,840 Speaker 3: of investments in securitizations versus it's around seventeen percent for 583 00:33:40,080 --> 00:33:44,440 Speaker 3: US life insures, despite like the industry size or adjacencies, 584 00:33:44,480 --> 00:33:48,240 Speaker 3: and so that's something that is largely on tap today. 585 00:33:48,720 --> 00:33:53,320 Speaker 3: The most significant barrier is insolvency to do capital framework 586 00:33:53,440 --> 00:33:58,160 Speaker 3: for insurance companies specifically, so pending that reform and if 587 00:33:58,200 --> 00:34:04,120 Speaker 3: those rules become less unitive and allow insurance capital to participate, 588 00:34:04,480 --> 00:34:07,120 Speaker 3: which from what we're seeing in the financing needs across 589 00:34:07,160 --> 00:34:10,840 Speaker 3: the EU, and Drahi had put out a report earlier 590 00:34:11,000 --> 00:34:13,719 Speaker 3: talking about the renewed investment in the region right for 591 00:34:13,840 --> 00:34:17,319 Speaker 3: large scale projects. Some of that is digital infrastructure and 592 00:34:17,360 --> 00:34:20,440 Speaker 3: renewables like we've seen in the US that would be huge, 593 00:34:20,800 --> 00:34:23,120 Speaker 3: and so we're watching that really closely. We think that 594 00:34:23,160 --> 00:34:26,399 Speaker 3: can be very interesting because it is a little peculiar, right, 595 00:34:26,440 --> 00:34:30,040 Speaker 3: like you should be having those types of deals happening 596 00:34:30,280 --> 00:34:34,120 Speaker 3: in Europe as well, and so that's where in a 597 00:34:34,160 --> 00:34:37,880 Speaker 3: way they're kind of they haven't been open for business yet, 598 00:34:38,080 --> 00:34:41,279 Speaker 3: So if we see that all take place, that could 599 00:34:41,320 --> 00:34:43,560 Speaker 3: be a very interesting opportunity to lean. 600 00:34:43,440 --> 00:34:47,440 Speaker 1: In autos, is it consumer, is it whole business? What 601 00:34:47,760 --> 00:34:48,800 Speaker 1: kind of deals are you expecting? 602 00:34:49,760 --> 00:34:54,000 Speaker 3: I think it's all of the above, plus power solar infrastructure. 603 00:34:55,080 --> 00:34:58,320 Speaker 3: That's where I think, you know, we would be circling. 604 00:34:58,719 --> 00:35:00,680 Speaker 1: Also interested in your vis of sectors right now. I 605 00:35:00,719 --> 00:35:02,320 Speaker 1: mean you get to see a lot of different things 606 00:35:02,360 --> 00:35:07,080 Speaker 1: from you know, industrials, utilities, infrastructure to sports, you know, 607 00:35:07,160 --> 00:35:10,280 Speaker 1: the one of so called hottest frontiers for private equity. 608 00:35:11,080 --> 00:35:13,840 Speaker 1: I'm interested in where you see relative value. You know, 609 00:35:13,880 --> 00:35:16,120 Speaker 1: what kind of you know, products are you're looking at 610 00:35:16,160 --> 00:35:19,200 Speaker 1: that that really jump out as opportunities for next year. 611 00:35:20,360 --> 00:35:25,520 Speaker 3: Yeah, so on on the relative value again hard because 612 00:35:25,560 --> 00:35:29,200 Speaker 3: it's been it's not been obvious relative value. But we've 613 00:35:29,400 --> 00:35:34,680 Speaker 3: we've been leaning into securitized products such as clos looking 614 00:35:34,719 --> 00:35:38,960 Speaker 3: to shorter duration credit. Recently, you know, we've seen a 615 00:35:39,120 --> 00:35:42,280 Speaker 3: modish we've been doing a modest shift, but really shorter 616 00:35:42,360 --> 00:35:45,439 Speaker 3: duration credit. Some of that has really been in high 617 00:35:45,520 --> 00:35:49,960 Speaker 3: yield where you know, we are managing a bucket of 618 00:35:50,160 --> 00:35:54,319 Speaker 3: credits and there could be you know, an early takeout opportunity, 619 00:35:54,400 --> 00:35:58,560 Speaker 3: i e. They pull forward the maturity. And so we've 620 00:35:58,560 --> 00:36:02,040 Speaker 3: seen some catalyst type trades and those have been in 621 00:36:02,120 --> 00:36:05,760 Speaker 3: like building products and industrial and very blue chip names 622 00:36:05,840 --> 00:36:09,759 Speaker 3: essentially where those have come to fruition, which has been 623 00:36:09,800 --> 00:36:12,480 Speaker 3: really cool. You know. I think a good example is, 624 00:36:12,800 --> 00:36:17,160 Speaker 3: you know, earlier this year, we were invested in energy 625 00:36:17,239 --> 00:36:20,640 Speaker 3: producer and it was a yield tours of around seven 626 00:36:20,640 --> 00:36:22,640 Speaker 3: and a half percent at the time, and then the 627 00:36:22,680 --> 00:36:26,359 Speaker 3: issue where refinanced and they tendered the bonds at one 628 00:36:26,400 --> 00:36:29,840 Speaker 3: oh one five ahead of the first call date, and 629 00:36:29,880 --> 00:36:31,840 Speaker 3: so that ended up being north of you know, a 630 00:36:31,920 --> 00:36:35,319 Speaker 3: ten percent yield. So we've been looking at catalyst type 631 00:36:35,320 --> 00:36:39,319 Speaker 3: of event driven trades within specific sectors or credits that 632 00:36:39,360 --> 00:36:42,360 Speaker 3: we like and that we've been tracking for a long time. 633 00:36:42,840 --> 00:36:45,920 Speaker 3: You know, we tend to avoid secular decliners and and 634 00:36:46,120 --> 00:36:49,600 Speaker 3: very cyclical businesses. That's something that you know, that's not 635 00:36:49,880 --> 00:36:53,320 Speaker 3: that's not new per se. We've obviously seen weakness and 636 00:36:53,920 --> 00:36:59,080 Speaker 3: in autos recently in chemicals you've seen the market react 637 00:36:59,160 --> 00:37:02,560 Speaker 3: and you know, in mentally incrementally you know, go wider 638 00:37:02,560 --> 00:37:05,359 Speaker 3: on some of these consumer services names and retail. We've 639 00:37:05,400 --> 00:37:09,040 Speaker 3: always been pretty light in those areas. So it's really 640 00:37:09,080 --> 00:37:12,880 Speaker 3: about for us, we've been adding where we have conviction. 641 00:37:13,520 --> 00:37:16,840 Speaker 3: We've been again very patient too, so you know, there's 642 00:37:18,040 --> 00:37:20,759 Speaker 3: things are tight, and so like we you have to be, 643 00:37:20,960 --> 00:37:23,160 Speaker 3: we're being a bit prudent as well and picking and 644 00:37:23,239 --> 00:37:26,520 Speaker 3: choosing our spots. But that's a bit of like a 645 00:37:26,600 --> 00:37:29,440 Speaker 3: flavoring across you know, the public markets. And for a 646 00:37:29,480 --> 00:37:34,520 Speaker 3: time there was a bit more premium on European leverage 647 00:37:34,600 --> 00:37:37,440 Speaker 3: credit where you can have you could get a little 648 00:37:37,440 --> 00:37:40,520 Speaker 3: bit of a yield pick up. That's kind of disappeared 649 00:37:40,560 --> 00:37:44,000 Speaker 3: at this point, but that's really where you know, for 650 00:37:44,040 --> 00:37:46,400 Speaker 3: the most part we've been hanging out these days. 651 00:37:46,680 --> 00:37:49,000 Speaker 1: You mentioned colos, so you like them because you have 652 00:37:49,040 --> 00:37:52,280 Speaker 1: a COLO platform, but there is you know, a massive 653 00:37:52,680 --> 00:37:55,160 Speaker 1: you know, excitement about them. Generally there's a lot of issuance, 654 00:37:55,600 --> 00:37:58,359 Speaker 1: and yet there is concern about the underlying leverage loans, 655 00:37:58,360 --> 00:38:00,759 Speaker 1: whether the default rates are higher or so floating rate 656 00:38:00,800 --> 00:38:02,640 Speaker 1: assets may not be quite as attractive if the Fed 657 00:38:02,640 --> 00:38:04,719 Speaker 1: gets really really dubvish. So I'm wondering if there are 658 00:38:04,719 --> 00:38:08,680 Speaker 1: any potential risks in clos that you would you would flag. 659 00:38:10,320 --> 00:38:13,640 Speaker 3: Not really I mean clos you know, post crisis, clos 660 00:38:13,680 --> 00:38:16,520 Speaker 3: have been a great place to be. Clos are you know, 661 00:38:16,680 --> 00:38:19,000 Speaker 3: north of sixty consumed north of sixty percent of the 662 00:38:19,080 --> 00:38:22,480 Speaker 3: leverage loan market. As you know, they've got you know, 663 00:38:22,680 --> 00:38:26,320 Speaker 3: really stringent rules this you know, stringent triple C seven 664 00:38:26,360 --> 00:38:30,640 Speaker 3: percent basket and so where you could see disbursion again 665 00:38:30,760 --> 00:38:33,759 Speaker 3: back in depending on on COLO performances, really on what 666 00:38:33,880 --> 00:38:38,319 Speaker 3: Triple c's are those clos invested in, and so that 667 00:38:38,360 --> 00:38:41,000 Speaker 3: that's again that's going to be super manager dependent. But 668 00:38:41,400 --> 00:38:45,520 Speaker 3: clos are fairly resilient vehicles and they're an important part 669 00:38:45,520 --> 00:38:49,400 Speaker 3: of the ecosystem. You know, people have liked being invested 670 00:38:49,440 --> 00:38:52,040 Speaker 3: in COLO equity and in triple a's. That's been a 671 00:38:52,080 --> 00:38:54,359 Speaker 3: really strong spot to be in. Obviously Triple a's are 672 00:38:54,360 --> 00:38:57,640 Speaker 3: at the tights too, So nothing particular that we would 673 00:38:57,680 --> 00:38:59,640 Speaker 3: call out. I think it really comes down again to 674 00:38:59,719 --> 00:39:02,000 Speaker 3: like the asset selection within the portfolio. 675 00:39:03,000 --> 00:39:05,759 Speaker 1: What positive credit markets globally the most excited about for 676 00:39:05,800 --> 00:39:06,279 Speaker 1: next year? 677 00:39:07,680 --> 00:39:12,920 Speaker 3: Oh, I would say, I'm really I'm excited about Asia 678 00:39:12,960 --> 00:39:17,920 Speaker 3: investment grade in the liquid markets. I'm excited about high 679 00:39:17,960 --> 00:39:21,399 Speaker 3: grade ABF in the European market. If everything we talked 680 00:39:21,440 --> 00:39:25,719 Speaker 3: about comes to fruition or starts to trend and accelerate. 681 00:39:27,080 --> 00:39:31,480 Speaker 3: I continue to be excited about the growth of capital solutions, 682 00:39:31,520 --> 00:39:35,920 Speaker 3: both in sub investment grade and investment grade opportunities, because 683 00:39:35,960 --> 00:39:42,600 Speaker 3: I do think corporates are leaning into partnering with investors 684 00:39:42,640 --> 00:39:46,839 Speaker 3: who can help them be strategic and thinking through what 685 00:39:46,880 --> 00:39:52,520 Speaker 3: they can accomplish through the right structure and right capital provider. 686 00:39:53,040 --> 00:39:55,919 Speaker 3: And that to me is really exciting because we see 687 00:39:55,920 --> 00:39:59,359 Speaker 3: a lot of that at KKR, and I think that's 688 00:39:59,400 --> 00:40:03,960 Speaker 3: where you're real strives an evolution in the market, and 689 00:40:04,000 --> 00:40:07,400 Speaker 3: that provides an opportunity to be really creative and to 690 00:40:07,520 --> 00:40:11,720 Speaker 3: really provide value and help create value in a way 691 00:40:11,880 --> 00:40:15,600 Speaker 3: that goes beyond just writing a check. And so that 692 00:40:15,680 --> 00:40:16,840 Speaker 3: makes me really excited. 693 00:40:17,280 --> 00:40:18,719 Speaker 1: Is there a product or an act class or a 694 00:40:18,760 --> 00:40:20,880 Speaker 1: region do you think that you are very positive on 695 00:40:21,040 --> 00:40:24,279 Speaker 1: and the rest of the market isn't, or another contrarian 696 00:40:24,400 --> 00:40:25,160 Speaker 1: view that you highlight. 697 00:40:26,960 --> 00:40:31,800 Speaker 3: I think the I think the broader market is underestimating 698 00:40:32,239 --> 00:40:35,719 Speaker 3: Asia liquid markets and the you know, I think that's 699 00:40:35,800 --> 00:40:41,359 Speaker 3: one misnomer where you think Asia means emerging market and 700 00:40:41,440 --> 00:40:44,200 Speaker 3: it means risk, or it means property development and it 701 00:40:44,239 --> 00:40:47,879 Speaker 3: means distress, debt but I think there's actually a lot 702 00:40:47,920 --> 00:40:51,120 Speaker 3: of very high quality and I mentioned Japan earlier, like 703 00:40:51,920 --> 00:40:55,319 Speaker 3: japan Japanese financials for example, Like I think there's that's 704 00:40:55,360 --> 00:40:58,239 Speaker 3: an area where if you are willing to go under 705 00:40:58,280 --> 00:41:01,520 Speaker 3: the hood and you want to find some relative value 706 00:41:01,560 --> 00:41:04,319 Speaker 3: and not take a lot of incremental risk, like that 707 00:41:04,320 --> 00:41:08,120 Speaker 3: could be really interesting. Like you know, high yield and 708 00:41:08,360 --> 00:41:12,319 Speaker 3: investment great performance in the region has been really outperformed 709 00:41:12,320 --> 00:41:15,200 Speaker 3: this year, and so that's an area that I think 710 00:41:15,280 --> 00:41:17,560 Speaker 3: is kind of overlooked. And then again I would say 711 00:41:18,200 --> 00:41:22,560 Speaker 3: just the continued you know what private origination could potentially 712 00:41:22,600 --> 00:41:27,120 Speaker 3: provide in the US because it's it's not an OTC product, 713 00:41:27,360 --> 00:41:29,200 Speaker 3: and so that to me are those would be my 714 00:41:29,280 --> 00:41:30,160 Speaker 3: two areas. 715 00:41:30,480 --> 00:41:32,640 Speaker 1: And what gives you pause, where's the where's the frost 716 00:41:32,760 --> 00:41:35,919 Speaker 1: or where's the worry in danger for next year? 717 00:41:36,200 --> 00:41:39,440 Speaker 3: So if we stranger danger to really round out the 718 00:41:39,480 --> 00:41:43,000 Speaker 3: credit and be true to our personalities, yere is, it 719 00:41:43,040 --> 00:41:47,840 Speaker 3: does feel exuberant out there, you know, I think it 720 00:41:47,960 --> 00:41:53,799 Speaker 3: doesn't totally feel right that, like, you know, there's there's 721 00:41:53,800 --> 00:41:56,320 Speaker 3: a lot of things still happening on the micro level 722 00:41:57,520 --> 00:42:00,520 Speaker 3: that don't feel like they're reflected in the broader in 723 00:42:00,680 --> 00:42:03,160 Speaker 3: disease or just in the sentiment. And so I think 724 00:42:03,640 --> 00:42:07,000 Speaker 3: it's easy to get caught up in like big headlines 725 00:42:07,680 --> 00:42:10,759 Speaker 3: and kind of miss the forest through the trees. And 726 00:42:10,840 --> 00:42:14,360 Speaker 3: so I go back to kind of being like, we 727 00:42:14,400 --> 00:42:19,920 Speaker 3: should scrutinize everything, right because markets are terribly efficient, but 728 00:42:20,000 --> 00:42:22,920 Speaker 3: nothing is. Nothing is that easy. So it does feel 729 00:42:22,920 --> 00:42:26,520 Speaker 3: a little peculiar to me, and we still have a 730 00:42:26,560 --> 00:42:30,520 Speaker 3: supply demand problem. Spreads are really tight, but it's you 731 00:42:30,560 --> 00:42:36,000 Speaker 3: know that that feels a little unnatural. So that's where 732 00:42:36,320 --> 00:42:38,040 Speaker 3: you know, if I had a crystal ball, I would 733 00:42:38,040 --> 00:42:42,000 Speaker 3: be I'd probably be off on a private beach somewhere 734 00:42:42,040 --> 00:42:45,440 Speaker 3: because I would know everything. So it just that's my 735 00:42:45,600 --> 00:42:48,200 Speaker 3: gut feeling. But obviously, you know, time will. 736 00:42:48,040 --> 00:42:50,960 Speaker 1: Tell that with late cycle and potentially something bad happens. 737 00:42:51,080 --> 00:42:54,439 Speaker 3: Sounded maybe not, Yeah, we're late cycle. I don't want 738 00:42:54,440 --> 00:42:57,000 Speaker 3: to like be alarmist and bad happens, But I think 739 00:42:57,040 --> 00:43:00,040 Speaker 3: you have to be super aware and alert, and I 740 00:43:00,120 --> 00:43:02,160 Speaker 3: think you have to kick the tires. I think you 741 00:43:02,320 --> 00:43:05,680 Speaker 3: have to go deeper. I think you have to be 742 00:43:05,719 --> 00:43:09,480 Speaker 3: more selective and more patient. And I would argue that 743 00:43:10,000 --> 00:43:13,480 Speaker 3: you should probably be higher in quality right now. Versus 744 00:43:13,520 --> 00:43:19,520 Speaker 3: the opposite, and and be patient. That's what I would say. 745 00:43:19,960 --> 00:43:22,960 Speaker 1: Great stuff. I'll readback Global Investment Strateges at KKR. Thank 746 00:43:23,000 --> 00:43:25,480 Speaker 1: you so much for being on the Credit Edge. Thank you, 747 00:43:26,120 --> 00:43:28,800 Speaker 1: and of course very grateful to David Havens from Bloomberg Intelligence. 748 00:43:28,880 --> 00:43:31,399 Speaker 1: Cheers for even more credit market analysis and insight. Read 749 00:43:31,440 --> 00:43:34,040 Speaker 1: all of David Havens's great work on the Bloomberg Terminal. 750 00:43:34,239 --> 00:43:36,799 Speaker 1: Bloomberg Intelligence is part of our research department, with five 751 00:43:36,880 --> 00:43:40,360 Speaker 1: hundred analysts and strategists working across all markets. Coverage includes 752 00:43:40,400 --> 00:43:42,839 Speaker 1: over two thousand equities and credits and outlooks on more 753 00:43:42,840 --> 00:43:47,000 Speaker 1: than ninety industries and one hundred market indices, currencies and commodities. 754 00:43:47,440 --> 00:43:49,640 Speaker 1: Please do subscribe to the Credit Edge wherever you get 755 00:43:49,680 --> 00:43:52,600 Speaker 1: your podcasts. We're on Apple, Spotify and all other good 756 00:43:52,640 --> 00:43:56,440 Speaker 1: podcast providers, including the Bloomberg Terminal at bpod Go. Give 757 00:43:56,520 --> 00:43:59,000 Speaker 1: us a review, tell your friends, or email me directly 758 00:43:59,040 --> 00:44:02,840 Speaker 1: at j crumby eight at Bloomberg dot nets. I'm James Crombie. 759 00:44:02,880 --> 00:44:05,000 Speaker 1: It's been a pleasure having you join us again next 760 00:44:05,000 --> 00:44:06,200 Speaker 1: week on the Credit Edge.