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Speaker 1: Hello, Welcome to The Credit Edge, a weekly markets podcast.

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Speaker 1: My name is James Crumbie. I'm a senior editor at Bloomberg.

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Speaker 1: This week, we're very pleased to welcome Chris Wright, president

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Speaker 1: at Crescent Capital. How are you, Chris, I'm great, I'm great, James,

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Speaker 1: and yourself very well. Thank you, Thank you so much

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Speaker 1: for joining us today and very excited to hear your

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Speaker 1: credit market views, and also delighted to have back on

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Speaker 1: the show as co host Julie Hung with Bloomberg Intelligence.

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Speaker 2: Hello Julie, Hello, good afternoon, Good morning. My name is

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Speaker 2: Julie Hung. I am Bloomberg Intelligence Credit sector analyst for

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Speaker 2: the consumer stables sector.

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Speaker 1: Great, So, I'm just going to set the scene here

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Speaker 1: at the top. Markets have been whipswored by trade wars

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Speaker 1: that will probably fuel inflation and could also dent US growth.

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Speaker 1: Both will be quite bad for credit. Yet corporate bonds

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Speaker 1: and loans remain priced for perfection. After getting squeezed a

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Speaker 1: lot last year, Debt spreads are pretty close to where

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Speaker 1: they were in two thousand and seven, just before the

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Speaker 1: global financial crisis blew everything up. If you only looked

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Speaker 1: at credit market pricing, you'd think the world was a

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Speaker 1: very peaceful, calm place right now, but the news headlines

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Speaker 1: would suggest the exact opposite. There seems to be quite

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Speaker 1: a lot of complacency out there. And I also think

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Speaker 1: that the very strong demand for credit product and not

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Speaker 1: a lot of new supply is actually keeping things artificially

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Speaker 1: tight at the moment. But I wanted to start there, Chris,

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Speaker 1: what's your take, Why the disconnect do you think between

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Speaker 1: pricing and all the external noise and are we in

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Speaker 1: for some kind of reckoning here?

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Speaker 3: Yeah, look, it's a it's a great question.

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Speaker 4: I mean, as you mentioned, you know, when I when

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Speaker 4: I'd look at the capital markets, you know, high yield,

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Speaker 4: incredibly tight, floating rate you know, they're you know, they're

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Speaker 4: obviously very tight too.

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Speaker 3: The in the loan market.

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Speaker 4: You know, at the same time, obviously default rates continue

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Speaker 4: to be very very low. We have a backdrop of

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Speaker 4: a very pro growth, you know, administration in place. There's

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Speaker 4: a lot of optimism that's being infused into the.

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Speaker 3: Economy right now.

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Speaker 4: You know, with the you we're starting to see a

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Speaker 4: little bit of visibility I think into what the how

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Speaker 4: the administration is gonna you know, act over the next

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Speaker 4: four years, as well as how the FED is going

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Speaker 4: to act over the next four years. We've seen them

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Speaker 4: obviously slow down and pause rate cuts. And what does

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Speaker 4: that mean. I mean that means that the economies is

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Speaker 4: on unstable footing. Capital markets are opening open right now,

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Speaker 4: and you know, my expectation is is you know, we're

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Speaker 4: gonna we're you know, we're in a good situation right now,

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Speaker 4: but you know, there certainly could be some volatility.

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Speaker 3: On the horizon.

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Speaker 2: Chris, I was looking at some spread movement yesterday. I mean,

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Speaker 2: Monday was just hectic coming into the office, and it

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Speaker 2: didn't seem like consumer spreads moved that much given that

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Speaker 2: there would be a threats of like higher like food inflation,

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Speaker 2: higher inflation generally for buyers. Is it more like a

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Speaker 2: function that consumers aren't believing that the tariffs are really

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Speaker 2: going to go through because we have, you know, the

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Speaker 2: thirty day pause for Mexico and Canada. Do you think

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Speaker 2: that it's just like a healthier overall economy and you know,

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Speaker 2: everyone's just kind of like waiting to see what's happening,

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Speaker 2: because it didn't seem like it would have the effect

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Speaker 2: on the credit markets as I thought it would have.

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Speaker 4: Yeah, Look, I think that I think the market is

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Speaker 4: understanding that we are in a business friendly environment. You know,

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Speaker 4: when you look at the people around the Trump administration,

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Speaker 4: they are relatively you know, it's.

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Speaker 3: Full of commercial people.

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Speaker 4: So I think when we see the headlines like the tariffs,

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Speaker 4: and obviously if they did go through, you know, inflation

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Speaker 4: would get passed along and we'd see price increases. But

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Speaker 4: I think the markets are kind of seeing through that

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Speaker 4: that that tariffs are in fact nuanced. You know, we

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Speaker 4: obviously have seen the pauses. This this is just of

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Speaker 4: you know, the beginning of a negotiation. I think Trump

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Speaker 4: would say, you know, look, I mean his negotiating style

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Speaker 4: is different than what we have seen historically in the president,

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Speaker 4: you know, so in in we're just starting to see that,

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Speaker 4: and I think I think the I think the markets

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Speaker 4: are seeing through that, and that's why you're not seeing

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Speaker 4: the quite the volatility that you may expect when you

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Speaker 4: see a twenty five percent tariff coming across the bottom

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Speaker 4: of the ticker.

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Speaker 1: Not in credit, but you definitely have seen it on

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Speaker 1: the FEX in the stock market, and so, you know,

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Speaker 1: I get the business friendly side of the administration. We've

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Speaker 1: all seen the guys behind Trump, but still it's very

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Speaker 1: hard to do business when it's been you know, when

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Speaker 1: it's so chaotic, you really can't see clear rules of

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Speaker 1: the game. It's really hard to take a long term view.

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Speaker 1: So operating businesses must be quite hard at this point.

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Speaker 4: Now. Yeah, you know, I may take a little bit

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Speaker 4: of the opposite side of that is that I think

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Speaker 4: we are aren't starting to see the breadcrumbs of things

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Speaker 4: to come right, that that things are going to be nuanced,

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Speaker 4: That the markets shouldn't react to every headline. That you know,

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Speaker 4: there are going to be a lot of actions and reactions.

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Speaker 3: And that is going to move things forward.

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Speaker 4: And so you know, I think you know, look, the

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Speaker 4: fattest is staying, you know, pretty steady right now as well.

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Speaker 4: The credit markets you know, are are pretty stable. So

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Speaker 4: you know, yes, there is going to be a lot

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Speaker 4: of volatility, but I think the markets are now, uh

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Speaker 4: becoming more accustomed to not reacting to those headlines.

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Speaker 2: Do you feel that, you know, just from a because

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Speaker 2: I covered the consumer sector that let's say, the tarffs

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Speaker 2: to go through and we do see like higher inflation

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Speaker 2: at that level, that eventually the consumer is going to

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Speaker 2: adjust to it. Because I feel like in this higher

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Speaker 2: food inflation environment that we've seen over the past couple

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Speaker 2: of years. There wasn't this big major shift to private label.

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Speaker 2: There was some like increasing valuable sales, but I feel

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Speaker 2: like in the United States it was a lot more muted,

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Speaker 2: and it seems like for you know, some of the

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Speaker 2: branded products, like there's more of an adjustment, like the

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Speaker 2: consumer gets concerned kind of like you said, like the

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Speaker 2: knee jerk reaction, and then they just adjust to it

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Speaker 2: and it just becomes normal life. So if these tariffs

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Speaker 2: do go through, do you think there will be like

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Speaker 2: like an eventual adjustment to higher prices.

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Speaker 4: Yeah. I mean, look, you know, I am by no

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Speaker 4: means a consumer expert here, but look, I think their

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Speaker 4: natural reaction is going to be initially to you know.

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Speaker 3: Trade down to help offset. And as you mentioned, you know,

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Speaker 3: there hasn't been a lot of trading.

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Speaker 4: Down over the you know, over the last few years,

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Speaker 4: and so I think that will be the first step.

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Speaker 4: And then look, I don't think you know, Trump was

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Speaker 4: elected certainly on an anti inflation platform, and as I mentioned,

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Speaker 4: you know, it does feel like there's a number of

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Speaker 4: commercial people that he's placed in very senior roles, you know,

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Speaker 4: My expectation is he is not going to let inflation

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Speaker 4: get out of control here. You know, it does make

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Speaker 4: me a little nervous when he says, hey, we're going

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Speaker 4: to have to go through some pain. I'm hoping that

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Speaker 4: is just a negotiating tactic, and I suspect that is

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Speaker 4: a negotiating tactic. But to your point, yes, the consumer

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Speaker 4: I think has some room to adjust, and I think

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Speaker 4: that adjustment will be made relatively quickly if we do

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Speaker 4: some see some inflationary pressures, particularly on the consumer side.

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Speaker 2: Yeah, So do you feel like you know that the

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Speaker 2: tear of talk is all not fear, But he's just like,

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Speaker 2: this is what we're going to do if you don't

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Speaker 2: help us with securing your borders. This is what we're

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Speaker 2: going to do if you know, you don't like stop

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Speaker 2: fentnel from coming into the country. So, kind of going

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Speaker 2: back to what you said, it's more of a negotiating

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Speaker 2: tactic than something that he really wants to impose on

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Speaker 2: our neighbors.

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Speaker 3: Yeah, I have to imagine.

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Speaker 4: I mean, he looks at that as you know, it's

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Speaker 4: it's very headline worthy. It's something that he has the

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Speaker 4: power to an act. It's something that he has talked

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Speaker 4: about and it's something that he did implement, you know,

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Speaker 4: back in his first administration. You know, but I think

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Speaker 4: he's using terists for both economic and non economic purposes,

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Speaker 4: as you mentioned, and so I think that's what he's uh,

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Speaker 4: you know, he's focused on, is trying to use that

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Speaker 4: as a stick, if you will, to get outcomes that

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Speaker 4: are both economic and non economic.

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Speaker 1: So, Chris, you're head of private credit over at Crescent

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Speaker 1: and you also do a lot of middle market business,

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Speaker 1: and I think that really is the kind of foundational

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Speaker 1: piece of the economy that we don't often get to

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Speaker 1: hear of. But you know, you're close to that action.

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Speaker 1: What are you hearing from the middle market guys, How

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Speaker 1: are they operating on the ground.

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Speaker 4: Yeah, Look, you know it's been talked for the last

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Speaker 4: twelve months of rekindling of deal making activity.

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Speaker 3: We are starting to see, uh, some of that happen.

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Speaker 4: We saw, you know, increase in deal making activity towards

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Speaker 4: the end of last year. I think there's a number

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Speaker 4: of tailwinds that you know, are really going to kind

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Speaker 4: of move the market forward.

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Speaker 3: You know, certainly now with.

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Speaker 4: The election behind us, we do have you know, despite

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Speaker 4: the uncertainty that we just talked about. At least we

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Speaker 4: know what we're going to have over the next four years.

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Speaker 4: We've got a little bit better visibility on the path

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Speaker 4: of the FED. And you know, when you look at

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Speaker 4: some of the broad numbers out there, lots of dry

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Speaker 4: powder in the hands of private equity firms, plenty of

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Speaker 4: capital available to finance buyouts, portfolios that are getting long

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Speaker 4: in the tooth, institutional investors clamoring for some realizations. I

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Speaker 4: think a lot of those things set up for increased

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Speaker 4: M and A activity, and we're well prepared for that

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Speaker 4: and excited about that opportunity.

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Speaker 2: So private credit has been like another like big topic

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Speaker 2: that has been discussed, just like the explosiveness of it.

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Speaker 2: Do you see that continuing in the near term, near

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Speaker 2: to intermediate terms?

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Speaker 4: Yeah, look, I mean, you know, I think we've gone

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Speaker 4: through this, uh, you know, the start of a change

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Speaker 4: in capital formation, right, And and what private credit does

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Speaker 4: is is it brings capital to companies into sponsors in

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Speaker 4: a much more efficient manner than the old methodology of

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Speaker 4: going to a bank and having them underwrite and then

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Speaker 4: having them just move the paper to another buyer. And

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Speaker 4: so you know, I think We're going to continue to

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Speaker 4: see that growth as we evolve this capital formation and

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Speaker 4: efficiency and the.

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Speaker 3: Expediency of which we can bring capital to companies.

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Speaker 4: You know, I just sort of think about you know,

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Speaker 4: I started this business, you know, close to twenty five

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Speaker 4: years ago at at Creston, and at the time we

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Speaker 4: were primarily a you know, a junior debt investor. And

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Speaker 4: back then, the way it would work is we would

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Speaker 4: get called by a private actutity sponsor, and like I said,

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Speaker 4: we were primarily junior debt focused, and you know, we

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Speaker 4: would work with the banks.

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Speaker 3: They would the first lead.

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Speaker 4: We would come in with a junior piece typically at

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Speaker 4: the time it was a senior.

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Speaker 3: Subordinated note we would invest in.

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Speaker 4: That would be the last time that we would actually

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Speaker 4: infuse capital unless something went wrong. And so you know,

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Speaker 4: we'd obviously monitor the company and work with the management team,

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Speaker 4: and then we would get our current income, our coupon back,

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Speaker 4: and then we would look to get a realization and

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Speaker 4: then we'd move on to the next company.

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Speaker 3: So you you.

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Speaker 4: Transport that to you know, to today and and and

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Speaker 4: today you know, we'll make that initial acquisition, but.

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Speaker 3: We're working with the company in a lot closer ways.

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Speaker 3: We're providing revolvers. We're providing additional capital to help them

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Speaker 3: execute on their growth plan, whether that be capital to

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Speaker 3: make acquisitions, whether that be additional capital for them to

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Speaker 3: buy equipment and machinery to expand their business, whether it

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Speaker 3: be additional capital to expand their sales force. And so

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Speaker 3: we have become much more intertwined with companies and we

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Speaker 3: have been a much more important part of their growth thesis.

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Speaker 4: I think that dynamic, that's that capital formation change that

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Speaker 4: I'm talking about.

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Speaker 3: I think that dynamic is here to stay.

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Speaker 1: Is it getting tough of those to do this sort

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Speaker 1: of business? As as you said, you know, the fetis

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Speaker 1: on hold rates are quite high. Maybe inflation pushes them higher.

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Speaker 1: You know, some people are talking about a high as

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Speaker 1: a potential next move. And at the same time we're

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Speaker 1: seeing the stress from amendments, extensions, payment in kind. It's

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Speaker 1: hard to see the defaulops, but you know, there's definitely

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Speaker 1: some stress out there. Your colleague Mark at Snasio was

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Speaker 1: on the show last year and he called a golden age.

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Speaker 1: Is it still a golden age?

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Speaker 3: Yeah? Look, I you know, I certainly think it is.

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Speaker 4: Look, when we're investing at forty percent loan to value,

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Speaker 4: meaning we have sixty percent of the of the company.

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Speaker 3: Of the capital of the company sits below us.

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Speaker 4: We're able to generate intoday's environment, double digit return earns.

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Speaker 4: With senior debt, we as I mentioned, are much more

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Speaker 4: intertwined with the company. Oftentimes in the senior debt that

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Speaker 4: we're investing in, you know, there's two, three or four groups.

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Speaker 4: Oftentimes we're taking controlling positions. You know, that dynamic that

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Speaker 4: think sets up very very favorably as a you know,

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Speaker 4: as an investment manager, and so you know, I'm very

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Speaker 4: very optimistic. It's always going to get harder. I think

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Speaker 4: what you're seeing with the growth in private credit, you're

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Speaker 4: seeing a lot of the capital go to the scaled managers.

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Speaker 3: I think scale does matter.

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Speaker 4: Why does it matter because we have additional capital, because

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Speaker 4: we have experience, We've invested through cycles, we have the

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Speaker 4: resources to help companies, We have the resources to access

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Speaker 4: other you know, areas of capital or other avenues of capital.

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Speaker 3: And so I think you're going to continue to see that.

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Speaker 4: Trend towards you know, towards scale, towards consolidation, and you

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Speaker 4: just got to make sure you're.

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Speaker 3: On the right side of that.

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Speaker 2: I mean from from my perspective, like if I was

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Speaker 2: looking for capital, the ease of or how how much

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Speaker 2: easier it is in the private credit markets, like the

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Speaker 2: the investment in an entire companies capital structure. It seems

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Speaker 2: like your involvement with a company from beginning to end,

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Speaker 2: I mean, do you think that there would ever be

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Speaker 2: in the future more private credit activity versus going into

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Speaker 2: the public markets.

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Speaker 4: So just don't understand so more private market activity versus

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Speaker 4: going into the public markets. I mean, do I think

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Speaker 4: there's going to be a market share shift back to

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Speaker 4: the public markets exactly?

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Speaker 3: Yeah.

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Speaker 4: Look, I think you know, look, we've proven our wares, right,

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Speaker 4: I think the private credit all all all of our

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Speaker 4: peers here have really kind of proven our value add

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Speaker 4: to both the companies and the management teams. I think

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Speaker 4: that the stat that sort of you know that that

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Speaker 4: I like to that supports that is is you know,

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Speaker 4: when you look at how we're deploying our capital. You know,

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Speaker 4: nowadays a significant amount of our capital is going into,

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Speaker 4: you know, supporting existing companies. Those companies make you change hands,

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Speaker 4: they want the existing lenders to stay with them. So

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Speaker 4: I think it's important to CFOs that they know who

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Speaker 4: their lenders are, they develop that relationship.

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Speaker 3: It accrues to our benefit.

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Speaker 4: Because quite honestly, you know, if we're invested in a

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Speaker 4: company for four or five years, we're getting board packages,

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Speaker 4: we're seeing monthly financials, we're talking to the to the CFO,

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Speaker 4: to the CEO, to the salespeople on a on a

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Speaker 4: monthly basis. You know, that's we're doing diligence over that

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Speaker 4: long period of time. And I can can can you know,

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Speaker 4: invest in a company with a lot more conviction after

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Speaker 4: a four year timeframe with them than over a three

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Speaker 4: or four month period of a typical diligence into a

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Speaker 4: new company. So I don't see quite the shift that

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Speaker 4: you're talking about coming back to the public markets now

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Speaker 4: where we stay at an eighty five percent market share,

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Speaker 4: you know, private credit call it an eighty five percent

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Speaker 4: market share of new biots.

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Speaker 3: Will it stay that high? Look?

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Speaker 4: I think that is partly a function of of you know,

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Speaker 4: of the rising rate environment, the pullback in the public markets,

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Speaker 4: and so I think it will equalize a little bit more,

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Speaker 4: not fifty to fifty, but it will, I should say

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Speaker 4: stabilize a little bit more.

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Speaker 3: But we're going to continue to have a line share

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Speaker 3: of of the market share.

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Speaker 4: And I think as private credit grows, we're able to

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Speaker 4: write bigger checks. And so that addressable market that used

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Speaker 4: to be topped out with a certain size now continues

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Speaker 4: to increase. And so you know that's going to you know,

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Speaker 4: accrue to our benefit too, with with A with a

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Speaker 4: with a greater addressable market.

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Speaker 1: So what does a middle market deal like to you, Chris?

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Speaker 1: We had our guest a couple of weeks ago tell

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Speaker 1: us that a billion dollars is now a middle market loan.

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Speaker 1: But that surprised me.

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Speaker 4: That, Yeah, look, you know I kind of think about

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Speaker 4: you know, lower and core middle market at some one

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Speaker 4: hundred and fifty million of eba DA sized company.

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Speaker 3: You know, if you think about that at you know,

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Speaker 3: six times leverage, one hundred.

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Speaker 4: And fifty million dollars, Ebida company is kind of a

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Speaker 4: nine hundred million dollar you know called that that's you know, unitron.

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Speaker 4: So you know, sub I would always say, kind of

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Speaker 4: sub kind of nine hundred to a billion dollar unitranch

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Speaker 4: is middle market. I think when you get up north

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Speaker 4: of that, you know, you start getting into syndicated markets,

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Speaker 4: syndicated replacement opportunities that market has grown substantially. That's really

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Speaker 4: addressed by you know, the really large players. But that's

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Speaker 4: kind of how we break apart the market.

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Speaker 2: And then where do you see more of the the

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Speaker 2: use for funds like more like you mentioned M and

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Speaker 2: A before you mentioned some capex. Do you see more

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Speaker 2: companies borrowing for M and A or for other purposes?

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Speaker 4: Yeah, I mean, look at a huge use is M

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Speaker 4: and A, you know, especially in that in that middle

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Speaker 4: market that you know that I just defined right. You know,

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Speaker 4: they're going out, they're partnering with private equity sponsor, who

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Speaker 4: brings a ton of governance, who brings access to capital,

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Speaker 4: who brings you know, strategic advice, and oftentimes we're seeing

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Speaker 4: their investment thesis is centered around expanding the company through acquisitions,

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Speaker 4: and that's why they partner with someone like us. So

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Speaker 4: you know the primary use of additional capital after our

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Speaker 4: initial investment is going to be M and A activity.

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Speaker 1: You said double digit returns. I'm curious as to whether

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Speaker 1: that means ten twenty more than that and what kind

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Speaker 1: of deal would get you that return?

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Speaker 4: Yeah?

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Speaker 3: Look, I mean spreads.

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Speaker 4: You know, when the unitronch you know today are going

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Speaker 4: to be sort of you know, five hundred ish, you know,

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Speaker 4: give or take. You know, you'll see them as litt

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Speaker 4: as four to fifty, you'll see them to five fifty,

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Speaker 4: and so you know you can get sort of high

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Speaker 4: single digit, low double digit returns.

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Speaker 3: I think what we've done a good job.

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Speaker 4: To is is is using some leverage, but doing it

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Speaker 4: in a very reasonable manner. I think the industry is

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Speaker 4: been pretty disciplined about not overlevering their fund structures. And

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Speaker 4: so if you if you put just say one turn

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Speaker 4: of leverage on there, you'll get up into a you know,

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Speaker 4: gross levered yield and kind of that thirteen to fifteen

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Speaker 4: percent range. And so you know, we're talking kind of

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Speaker 4: low double digit returns at forty percent loan to value

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Speaker 4: in a company that you know is growing and is

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Speaker 4: obviously you know, given the loan to value, is you

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Speaker 4: know valued in the opportunes if not?

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Speaker 2: If not higher, Chris just shifting gears a little bit,

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Speaker 2: and you know, trying to delve into this more because

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Speaker 2: I'm a consumer analyst, Like, what sub sectors within consumer

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Speaker 2: services are you trying to gain more or less exposure to?

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Speaker 4: Yeah, Look, you know in private credit, we you don't

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Speaker 4: kind of set the year out and say, Okay, we're

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Speaker 4: going to go after this specific sector or that specific sector.

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Speaker 4: You certainly have to have a macro view of how

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Speaker 4: you want to put a portfolio together. You typically, you know,

387
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Speaker 4: how you manage a fund, you'll have between you know,

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Speaker 4: fifteen one hundred credits in there. But what you're doing

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Speaker 4: and how we execute is we're calling on the private responsors,

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Speaker 4: and so that's where we are originating our deal flow from.

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Speaker 4: And so what we look at from just from a

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Speaker 4: basic credit fundamental standpoint is highly cast generative companies that

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Speaker 4: we can look back and see how they performed through cycles,

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Speaker 4: low cap X, high free cash flow conversion, companies that

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Speaker 4: have leading market shares can have pricing power. So those

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Speaker 4: are the types of things that we tend to focus

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Speaker 4: on in the sectors. What that leads us to is

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Speaker 4: service related businesses, business services, consumer services, healthcare technology.

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Speaker 3: Though we do not focus on arr loans where.

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Speaker 4: You underwrite recurring revenue, and so that's kind of how

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Speaker 4: we focus now as I think about the consumer today

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Speaker 4: and where we are underwriting, particularly when you think about

403
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Speaker 4: some of the dynamics that are taking place right with

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Speaker 4: you know, We talked about inflation earlier, immigration reform and

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Speaker 4: so forth, and what we're seeing is obviously the higher

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Speaker 4: income consumer continues to spend well and we are seeing

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Speaker 4: some fractures in the in the lower income consumer. So

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Speaker 4: we're certainly factoring that into the types of businesses that

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Speaker 4: we invest in how we're underwriting in this different scenarios

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Speaker 4: that you know that we're putting together as we're underwriting

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Speaker 4: these companies.

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Speaker 1: I'm interesting, Christy what you said earlier about size scale

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Speaker 1: of your platform. You know, scale doesn't matter. There is

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Speaker 1: going to be consolidation. We are seeing it and we

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Speaker 1: had I think Goldman last year said something along the

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Speaker 1: lines of there's only going to be eight players in

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Speaker 1: this market ultimately, because it's a sort of arms race

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Speaker 1: at the moment and you are competing against very large

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Speaker 1: firms that are doing very large deals. What's yours rategy

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Speaker 1: to stay ahead?

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Speaker 3: Yeah?

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Speaker 4: You know, look, you know we've got just north of

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Speaker 4: forty five billion of a UM at Crescent today. We

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Speaker 4: did have we sold a portion of our business to

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Speaker 4: an insurance company, suddenlighte Financial, back in twenty twenty one,

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Speaker 4: and you know, likely it will be another transaction with

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Speaker 4: the same insurance company will go by the remaining part

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Speaker 4: of our business at the end of this year.

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Speaker 3: They have an asset management platform.

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Speaker 4: So the way I think about ways we can face

431
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Speaker 4: the market is there's a real estate arm, there's credit arm,

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Speaker 4: there's an infrastructure. So we face the market with over

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Speaker 4: three hundred billion of AUM and so that is very

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Speaker 4: beneficial when we're talking to investors, that's very beneficial, when

435
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Speaker 4: we're talking to banks, that's very beneficial when we're talking

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Speaker 4: to other service providers. And so we're getting scale from

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Speaker 4: our association with an insurance company. Now, when I look

438
00:22:59,160 --> 00:23:03,440
Speaker 4: at how do we grow Crescent, you certainly distribution is

439
00:23:04,280 --> 00:23:06,600
Speaker 4: a major growth avenue for us. When you look at

440
00:23:06,640 --> 00:23:09,400
Speaker 4: our investor base, it's almost all institutional today.

441
00:23:09,800 --> 00:23:12,600
Speaker 3: We can't look the other way on the.

442
00:23:12,560 --> 00:23:16,280
Speaker 4: Opportunity set within the wealth in the retail consumer. And

443
00:23:16,359 --> 00:23:19,959
Speaker 4: so we've made significant investments at the sun Life at

444
00:23:20,000 --> 00:23:24,359
Speaker 4: our parent companies level, and we've made significant investments Increscent

445
00:23:24,720 --> 00:23:29,520
Speaker 4: to capitalize on the democratization of private credit in bringing

446
00:23:29,880 --> 00:23:31,120
Speaker 4: that product.

447
00:23:30,920 --> 00:23:32,760
Speaker 3: To the to the retail client.

448
00:23:33,080 --> 00:23:36,879
Speaker 4: At the same time, we've expanded our distribution from the

449
00:23:36,920 --> 00:23:40,199
Speaker 4: institutional side, and you know, it's just actually on a

450
00:23:40,200 --> 00:23:43,000
Speaker 4: call today, and you know, we've got to get more creative.

451
00:23:43,320 --> 00:23:45,240
Speaker 3: We've got to be thinking.

452
00:23:44,920 --> 00:23:49,840
Speaker 4: Outside the box in bringing better product to our institutional clients.

453
00:23:50,320 --> 00:23:52,200
Speaker 3: You know, like I said twenty years ago, we would

454
00:23:52,240 --> 00:23:52,840
Speaker 3: raise a fund.

455
00:23:52,880 --> 00:23:55,480
Speaker 4: It was a closed end fund, five year investment period,

456
00:23:55,600 --> 00:23:59,040
Speaker 4: ten year life and everybody would come into that fund.

457
00:23:59,320 --> 00:24:01,879
Speaker 3: That is just no longer the case. You know, you

458
00:24:01,960 --> 00:24:04,200
Speaker 3: have to you have to have.

459
00:24:04,359 --> 00:24:06,880
Speaker 4: The flexibility, You have to have the platform that can

460
00:24:06,920 --> 00:24:10,280
Speaker 4: take on capital that wants to come into different strategies,

461
00:24:11,560 --> 00:24:13,960
Speaker 4: it wants to invest in different assets, wants to take

462
00:24:14,000 --> 00:24:17,760
Speaker 4: on different structures, whether it be leverage structures, liquidity structures,

463
00:24:18,119 --> 00:24:22,280
Speaker 4: geographic focus areas. And so with the size of our platform,

464
00:24:22,560 --> 00:24:24,240
Speaker 4: we're able to do that, and I think that is

465
00:24:24,280 --> 00:24:26,440
Speaker 4: going to be the other huge growth area for us.

466
00:24:26,800 --> 00:24:30,000
Speaker 4: And then as I think about you know, we're credit focused.

467
00:24:30,200 --> 00:24:33,360
Speaker 4: You know, private credit focus is very very broadly defined,

468
00:24:33,400 --> 00:24:36,240
Speaker 4: and so I think there's going to be significant opportunity

469
00:24:36,520 --> 00:24:39,040
Speaker 4: to expand outside of direct lending as well.

470
00:24:39,800 --> 00:24:41,320
Speaker 1: Just to be clear that christ you said that some

471
00:24:41,520 --> 00:24:45,120
Speaker 1: Life will purchase the remainder of Crescent that it doesn't

472
00:24:45,160 --> 00:24:46,440
Speaker 1: already own by the end of this year.

473
00:24:46,720 --> 00:24:49,240
Speaker 3: They have an option too, yes, And.

474
00:24:49,200 --> 00:24:50,960
Speaker 1: Do you think they'll actually take that option?

475
00:24:51,240 --> 00:24:51,560
Speaker 3: I do?

476
00:24:52,280 --> 00:24:52,639
Speaker 2: Okay.

477
00:24:52,800 --> 00:24:56,520
Speaker 1: Interesting on the democratization, that's something we've discussed many times

478
00:24:56,520 --> 00:25:00,400
Speaker 1: on this show. You raised some concerns about that los year.

479
00:25:01,080 --> 00:25:03,840
Speaker 1: We wrote about it at the time. What's changed.

480
00:25:04,920 --> 00:25:07,760
Speaker 4: Look, I think you know our focus and what my

481
00:25:07,880 --> 00:25:12,439
Speaker 4: concern was derived from is, you know, we've grown up

482
00:25:12,440 --> 00:25:15,760
Speaker 4: in the institutional world where we focus on providing a

483
00:25:15,800 --> 00:25:21,320
Speaker 4: great experience for our institutional investor. In what that means

484
00:25:21,440 --> 00:25:25,080
Speaker 4: is is matching their expectations with what we can deliver

485
00:25:25,200 --> 00:25:27,520
Speaker 4: to them. You know what I raised last year, which

486
00:25:27,520 --> 00:25:29,959
Speaker 4: you guys wrote about and I still have concerns around,

487
00:25:30,040 --> 00:25:33,159
Speaker 4: is is we think about pivoting our business and addressing

488
00:25:33,240 --> 00:25:37,040
Speaker 4: the wealth and the red channel is making sure that

489
00:25:37,119 --> 00:25:41,520
Speaker 4: we can deliver a product that has the same experience

490
00:25:41,600 --> 00:25:44,800
Speaker 4: as they expect. You know, with the with the way

491
00:25:44,840 --> 00:25:47,720
Speaker 4: that the structures are set up today, I do think

492
00:25:47,760 --> 00:25:52,560
Speaker 4: there is some asymmetry within them that can create some confusion.

493
00:25:52,920 --> 00:25:55,360
Speaker 4: I'm not too sure that the you know, we want

494
00:25:55,359 --> 00:25:58,480
Speaker 4: to up our education process. We want to make sure

495
00:25:58,520 --> 00:26:01,919
Speaker 4: that we take on cas capital in a prudent manner

496
00:26:02,240 --> 00:26:05,320
Speaker 4: so that if there is volatility in the marketplace, and

497
00:26:05,920 --> 00:26:09,720
Speaker 4: that wealth channel investor, or, that retail investor wants the liquidity,

498
00:26:10,359 --> 00:26:13,479
Speaker 4: they understand the liquidity that we can provide. They have

499
00:26:13,560 --> 00:26:15,480
Speaker 4: to know that going in we're going to provide them

500
00:26:15,480 --> 00:26:17,800
Speaker 4: with an ill liquidity premium. We're going to aspire to

501
00:26:17,840 --> 00:26:19,560
Speaker 4: deliver an ill liquidity premium.

502
00:26:20,040 --> 00:26:23,520
Speaker 3: Obviously there's a cost to that on on on liquidity

503
00:26:23,520 --> 00:26:24,120
Speaker 3: for them too.

504
00:26:24,520 --> 00:26:28,639
Speaker 4: So we're focused on making sure that we put together

505
00:26:28,680 --> 00:26:32,840
Speaker 4: a product, we put together an educational process, we develop

506
00:26:33,160 --> 00:26:37,080
Speaker 4: the relationship with them that we can deliver and you know,

507
00:26:37,280 --> 00:26:40,040
Speaker 4: to their expectation and that that sort of is I

508
00:26:40,080 --> 00:26:43,040
Speaker 4: still have those same concerns and that's why we've been

509
00:26:43,320 --> 00:26:45,960
Speaker 4: you know, I think very prudent in our approach to

510
00:26:46,040 --> 00:26:48,359
Speaker 4: this is is we look to grow that channel of

511
00:26:48,359 --> 00:26:48,840
Speaker 4: our business.

512
00:26:49,800 --> 00:26:53,040
Speaker 2: And is that how you differentiate Crescent or you know,

513
00:26:53,080 --> 00:26:55,400
Speaker 2: is that how you market you guys are different from

514
00:26:55,440 --> 00:26:57,200
Speaker 2: other private credit lenders.

515
00:26:57,760 --> 00:26:59,000
Speaker 3: Yeah, I mean there's not many.

516
00:26:59,080 --> 00:27:01,240
Speaker 4: There's not many other private credit lenders that have have,

517
00:27:01,600 --> 00:27:06,359
Speaker 4: you know, thirty five plus years of experience investing across cycles.

518
00:27:07,400 --> 00:27:10,680
Speaker 4: That's comprised of teams that you know, the senior people

519
00:27:10,720 --> 00:27:15,040
Speaker 4: have all been there for fifteen plus years, invested across

520
00:27:15,320 --> 00:27:19,119
Speaker 4: economic cycles. You know, we've created the relationships with the

521
00:27:19,160 --> 00:27:23,480
Speaker 4: private acuity sponsors over the course of decades, not months.

522
00:27:24,000 --> 00:27:26,719
Speaker 4: We've you know, we've you know, as I mentioned, we've

523
00:27:26,760 --> 00:27:29,080
Speaker 4: kind of invested across those cycles. So you can look

524
00:27:29,080 --> 00:27:32,280
Speaker 4: at our default rates and our credit underwriting standards and

525
00:27:32,320 --> 00:27:34,520
Speaker 4: the relationships and the and so forth that we've developed.

526
00:27:34,600 --> 00:27:37,520
Speaker 4: I think that's really how we kind of differentiate, you

527
00:27:37,520 --> 00:27:41,120
Speaker 4: know that that that investor experience. It certainly is first

528
00:27:41,160 --> 00:27:43,639
Speaker 4: and foremost on our mind, and I think we have

529
00:27:43,880 --> 00:27:45,960
Speaker 4: always been very, very thoughtful, and that's why we've been

530
00:27:46,000 --> 00:27:48,479
Speaker 4: able to develop an institutional following that has stayed with

531
00:27:48,560 --> 00:27:50,560
Speaker 4: us for years and years and years. As global in

532
00:27:50,640 --> 00:27:54,000
Speaker 4: nature is comprised of you know, the gold standard and

533
00:27:54,040 --> 00:27:56,040
Speaker 4: institutional investors, and we want to make sure we take

534
00:27:56,040 --> 00:27:57,879
Speaker 4: that same approach with the wealth and retail channel.

535
00:27:58,680 --> 00:28:01,720
Speaker 1: Some of the private credit shops you're competing with teaming

536
00:28:01,760 --> 00:28:03,560
Speaker 1: up with retail banks that are trying to get some

537
00:28:03,600 --> 00:28:05,399
Speaker 1: of these loans off their books. Is that something that

538
00:28:05,440 --> 00:28:06,160
Speaker 1: you might consider.

539
00:28:07,080 --> 00:28:09,200
Speaker 4: Yeah, Look, I mean, you know, never say never. I

540
00:28:09,240 --> 00:28:12,600
Speaker 4: mean the you know, as regulation comes, you know, and

541
00:28:12,640 --> 00:28:14,440
Speaker 4: we've seen it in Europe we actually saw a couple

542
00:28:14,480 --> 00:28:17,560
Speaker 4: of trades in Canada last year. We've seen a few

543
00:28:17,600 --> 00:28:20,760
Speaker 4: trades here in the US. You know, I think, uh,

544
00:28:20,880 --> 00:28:24,600
Speaker 4: you know, partnering with banks can be very very interesting

545
00:28:25,080 --> 00:28:29,200
Speaker 4: if if done appropriately. You know, some of the partnerships

546
00:28:29,200 --> 00:28:32,080
Speaker 4: that have been struck out there, you know, weren't necessarily

547
00:28:32,160 --> 00:28:34,639
Speaker 4: of interest to us. But I think that partnership model

548
00:28:34,680 --> 00:28:36,720
Speaker 4: is going to continue to evolve. I think that partnership

549
00:28:36,800 --> 00:28:39,120
Speaker 4: model is going to evolve with banks. I think it's

550
00:28:39,120 --> 00:28:42,000
Speaker 4: going to evolve with kind of traditional asset managers where

551
00:28:42,000 --> 00:28:44,240
Speaker 4: you can tap into their distribution channels.

552
00:28:44,600 --> 00:28:46,480
Speaker 3: And so there's different things. I think what you needed

553
00:28:46,480 --> 00:28:49,000
Speaker 3: to define and you need to be.

554
00:28:49,000 --> 00:28:52,720
Speaker 4: Clear on when you start to enter into these you know, conversations,

555
00:28:52,800 --> 00:28:54,960
Speaker 4: is what your need is, what what are you trying

556
00:28:55,000 --> 00:28:57,800
Speaker 4: to solve for? And so you know, we we we

557
00:28:57,880 --> 00:28:59,760
Speaker 4: have been pretty clear and kind of figuring out what

558
00:28:59,760 --> 00:29:02,400
Speaker 4: we're trying to solve for. And you know, I think

559
00:29:02,400 --> 00:29:05,120
Speaker 4: you'll see some partnerships and we've had some conversations over

560
00:29:05,160 --> 00:29:07,560
Speaker 4: the years, you know, but I think you are going

561
00:29:07,640 --> 00:29:09,080
Speaker 4: to see continued.

562
00:29:08,600 --> 00:29:10,280
Speaker 3: Evolution of that partnership model.

563
00:29:10,720 --> 00:29:13,360
Speaker 4: And you know, I think it's it's it's beneficial for

564
00:29:13,440 --> 00:29:14,200
Speaker 4: the asset manager.

565
00:29:14,240 --> 00:29:15,480
Speaker 3: It's beneficial for the bank.

566
00:29:15,560 --> 00:29:18,640
Speaker 4: It's it's beneficial for the traditional asset manager that has

567
00:29:18,680 --> 00:29:20,680
Speaker 4: the distribution network set up.

568
00:29:21,640 --> 00:29:24,480
Speaker 2: And what would be a downside to partnering with the bank.

569
00:29:25,360 --> 00:29:27,600
Speaker 3: Well, again, it depends upon kind of that partnership.

570
00:29:27,640 --> 00:29:31,000
Speaker 4: You know. Some of the concerns with you know, some

571
00:29:31,080 --> 00:29:33,400
Speaker 4: of the partnerships that have struck is if you look

572
00:29:33,440 --> 00:29:36,440
Speaker 4: at the at the bank, is simply a sourcing model

573
00:29:36,640 --> 00:29:40,120
Speaker 4: for assets, you know, the sourcing of an asset, of

574
00:29:40,160 --> 00:29:43,640
Speaker 4: a private credit loan. That's only one component of what

575
00:29:43,680 --> 00:29:47,040
Speaker 4: we really need to do in order to be successful. Right,

576
00:29:47,200 --> 00:29:50,880
Speaker 4: You've got to manage that portfolio or that asset and

577
00:29:50,920 --> 00:29:55,000
Speaker 4: not everything is going to you know, end up how

578
00:29:55,040 --> 00:29:58,080
Speaker 4: you underwriter, how you expect it, and so you've got

579
00:29:58,120 --> 00:30:01,800
Speaker 4: to be able to have control, make decisions, work with

580
00:30:01,840 --> 00:30:02,720
Speaker 4: the management teams.

581
00:30:03,120 --> 00:30:05,560
Speaker 3: And I think that you know, that is one area

582
00:30:06,080 --> 00:30:06,520
Speaker 3: where we.

583
00:30:06,560 --> 00:30:10,200
Speaker 4: Have concern with some of these, with some of the

584
00:30:10,240 --> 00:30:13,480
Speaker 4: partnerships is who controls the assets once they're on your books,

585
00:30:13,760 --> 00:30:19,040
Speaker 4: who's making the uh, the investment decision? You know, are

586
00:30:19,080 --> 00:30:23,800
Speaker 4: there peripheral products that are involved that may drive decisions

587
00:30:23,800 --> 00:30:26,440
Speaker 4: that aren't necessarily aligned with both of.

588
00:30:26,400 --> 00:30:28,080
Speaker 3: The partners in a partnership.

589
00:30:28,200 --> 00:30:29,920
Speaker 4: Those are kind of some of the things that you know,

590
00:30:29,920 --> 00:30:32,600
Speaker 4: we are focused on and we want to make sure

591
00:30:32,640 --> 00:30:35,360
Speaker 4: we're lined up when we do find a partner, that

592
00:30:35,400 --> 00:30:36,440
Speaker 4: they're lined up with us.

593
00:30:37,600 --> 00:30:40,960
Speaker 1: You mentioned regulation earlier. One thing regulations have flagged in

594
00:30:41,000 --> 00:30:45,960
Speaker 1: this market is valuations on the b d C loans.

595
00:30:46,800 --> 00:30:49,040
Speaker 1: You know, valuation has been a bit of a tricky

596
00:30:49,640 --> 00:30:53,960
Speaker 1: subject around private credit. But what I'm wondering is, given

597
00:30:54,000 --> 00:30:55,800
Speaker 1: some of the situations we've seen over the last year

598
00:30:55,880 --> 00:30:59,920
Speaker 1: or so, whether that needs to be more frequent valuation

599
00:31:00,120 --> 00:31:03,400
Speaker 1: and more frequent disclosure of what's going on under the

600
00:31:03,440 --> 00:31:05,080
Speaker 1: surface on these loans.

601
00:31:05,840 --> 00:31:06,240
Speaker 2: Yeah.

602
00:31:06,480 --> 00:31:10,600
Speaker 4: I certainly think that's an evolving topic, particularly as we

603
00:31:10,720 --> 00:31:15,120
Speaker 4: take private credit out to the retail and wealth channels

604
00:31:16,120 --> 00:31:18,480
Speaker 4: and when they're coming in and out and so forth.

605
00:31:18,680 --> 00:31:22,800
Speaker 4: So I think, you know, it's we're going to see

606
00:31:22,800 --> 00:31:28,360
Speaker 4: that evolve. But at the end of the day, these

607
00:31:28,440 --> 00:31:33,360
Speaker 4: loans are held by a small number of of investors.

608
00:31:34,480 --> 00:31:37,719
Speaker 4: We have secured structures, and what I mean by that

609
00:31:37,880 --> 00:31:40,480
Speaker 4: is the capital behind us is secured. They can't there

610
00:31:40,520 --> 00:31:41,960
Speaker 4: can't be a run on the bank of quote quote

611
00:31:42,040 --> 00:31:46,040
Speaker 4: unquote run on the bank and so you you don't

612
00:31:46,080 --> 00:31:50,200
Speaker 4: you don't have that daily liquidity momentum that is moving

613
00:31:51,400 --> 00:31:54,880
Speaker 4: the price of these loans. And so that's why I

614
00:31:54,880 --> 00:31:57,680
Speaker 4: think you tend to see a lot, you know, less

615
00:31:57,760 --> 00:32:02,600
Speaker 4: volatility within private credit. But we all have the capability

616
00:32:02,640 --> 00:32:05,880
Speaker 4: to value them on a on a daily basis, if

617
00:32:05,920 --> 00:32:07,840
Speaker 4: you will. But there's just not going to be a

618
00:32:07,840 --> 00:32:10,120
Speaker 4: lot of movement because of the structures and so forth

619
00:32:10,160 --> 00:32:13,080
Speaker 4: that we have set up and the protections around our

620
00:32:13,160 --> 00:32:15,640
Speaker 4: ability to hold these loans to maturity.

621
00:32:16,520 --> 00:32:18,920
Speaker 1: And on the same kind of line, I mean, secondary

622
00:32:18,960 --> 00:32:21,560
Speaker 1: trading is picking up a little bit that have been

623
00:32:21,760 --> 00:32:24,520
Speaker 1: pushed by some some of the banks to do that,

624
00:32:24,560 --> 00:32:26,600
Speaker 1: but it is not really taking off as first as expected.

625
00:32:26,600 --> 00:32:28,320
Speaker 1: Do you think there will be more trading of these

626
00:32:28,360 --> 00:32:30,520
Speaker 1: loans secondary, you.

627
00:32:30,440 --> 00:32:31,080
Speaker 3: Know, we haven't.

628
00:32:32,760 --> 00:32:35,920
Speaker 4: There's been a lot of capital coming in long term

629
00:32:35,960 --> 00:32:40,240
Speaker 4: holders that create partnerships with companies, that create partnerships with

630
00:32:40,320 --> 00:32:44,400
Speaker 4: the private equity sponsors. We're investing to maturity, and so

631
00:32:44,720 --> 00:32:48,240
Speaker 4: the long term scaled providers. You know, I don't think

632
00:32:48,240 --> 00:32:51,040
Speaker 4: you're going to see a big uptick once you have

633
00:32:51,160 --> 00:32:53,400
Speaker 4: invested in a good loan. What you want to do

634
00:32:53,520 --> 00:32:57,040
Speaker 4: is provide that current income stream to to to our

635
00:32:57,160 --> 00:33:00,080
Speaker 4: investor and and and provide.

636
00:32:59,840 --> 00:33:00,880
Speaker 3: Them with that yield.

637
00:33:01,120 --> 00:33:02,480
Speaker 4: So, you know, I think there's going to be a

638
00:33:02,480 --> 00:33:05,480
Speaker 4: lot less trading kind of post you know, investment. I

639
00:33:05,520 --> 00:33:07,360
Speaker 4: do think what you'll see is, you know, we are

640
00:33:07,400 --> 00:33:14,120
Speaker 4: seeing credit secondaries space grow in popularity and that is

641
00:33:14,160 --> 00:33:17,480
Speaker 4: providing LPs with liquidity. I do think you're going to

642
00:33:17,520 --> 00:33:19,600
Speaker 4: continue to see that. You're seeing firms out there raise

643
00:33:19,880 --> 00:33:23,880
Speaker 4: very specific vehicles around credit secondaries, and so that will

644
00:33:23,920 --> 00:33:26,240
Speaker 4: be another liquidity feature that we I do expect to

645
00:33:26,240 --> 00:33:28,880
Speaker 4: see grow significantly within the space.

646
00:33:30,080 --> 00:33:32,720
Speaker 1: On the capital coming in, you mentioned that we are

647
00:33:32,760 --> 00:33:36,240
Speaker 1: seeing a lot of larger fund closes. Is that expected

648
00:33:36,280 --> 00:33:38,320
Speaker 1: to continue? I mean, how big can you get?

649
00:33:39,280 --> 00:33:44,480
Speaker 4: Yeah, Look, you know it is a scale game, as

650
00:33:44,480 --> 00:33:49,760
Speaker 4: I mentioned, and and so some of the particularly the

651
00:33:50,840 --> 00:33:55,120
Speaker 4: publicly traded managers, you know, they can go out and

652
00:33:55,560 --> 00:33:59,920
Speaker 4: they will raise very very large funds. We've seen fourteen

653
00:34:00,280 --> 00:34:02,760
Speaker 4: you know, fifteen to twenty billion dollar funds out there

654
00:34:02,760 --> 00:34:03,440
Speaker 4: being raised.

655
00:34:04,360 --> 00:34:06,479
Speaker 3: It does mean that they have to write bigger checks.

656
00:34:07,160 --> 00:34:09,680
Speaker 4: It does open up that addressable market that I was

657
00:34:09,760 --> 00:34:13,799
Speaker 4: referencing earlier. It makes you know, the opportunity set for

658
00:34:13,880 --> 00:34:18,040
Speaker 4: all of us more significant, and you know, it puts

659
00:34:18,160 --> 00:34:21,520
Speaker 4: the entire syndicated loan and bond market within the range.

660
00:34:21,200 --> 00:34:22,799
Speaker 3: Of private credit providers.

661
00:34:22,880 --> 00:34:24,680
Speaker 4: And so, you know, I think we are going to

662
00:34:24,680 --> 00:34:29,840
Speaker 4: continue to see that movement to scale, increasing fund size.

663
00:34:30,480 --> 00:34:34,799
Speaker 4: Where I think it gets, I think it is going

664
00:34:34,840 --> 00:34:38,279
Speaker 4: to require some investor discipline around what we have seen

665
00:34:38,320 --> 00:34:42,480
Speaker 4: in that upper middle market is tighter spreads, looser documentation,

666
00:34:43,120 --> 00:34:47,000
Speaker 4: a closer correlation with the syndicated markets. We've tried to

667
00:34:47,000 --> 00:34:48,839
Speaker 4: stay in that kind of that core and lower middle

668
00:34:48,880 --> 00:34:51,399
Speaker 4: market where we do think we can provide some differentiation

669
00:34:51,800 --> 00:34:58,400
Speaker 4: different portfolios, incremental spread, better control features, closer relationships with

670
00:34:58,440 --> 00:35:01,319
Speaker 4: the with the management teams and sponsors, and so we

671
00:35:01,360 --> 00:35:06,040
Speaker 4: think that is going to all accrue to our investors' benefit.

672
00:35:06,960 --> 00:35:08,040
Speaker 3: But I do think you're going to.

673
00:35:08,040 --> 00:35:11,520
Speaker 4: Continue to see expansion within private credit fundraising. And I

674
00:35:11,560 --> 00:35:14,160
Speaker 4: think you know, total AUM within the private credit space

675
00:35:14,160 --> 00:35:16,040
Speaker 4: has continue to grow quite dramatically.

676
00:35:16,719 --> 00:35:19,520
Speaker 1: And do you think spreads get tizer and documentation gets

677
00:35:19,560 --> 00:35:21,839
Speaker 1: looser in the private middle market this year?

678
00:35:22,600 --> 00:35:24,480
Speaker 3: You know, Look, I think what we're going to see is,

679
00:35:24,560 --> 00:35:24,959
Speaker 3: you know.

680
00:35:26,480 --> 00:35:29,480
Speaker 4: What happened last year is we had a dearth of

681
00:35:29,640 --> 00:35:32,080
Speaker 4: m and a activity and so let you know, very

682
00:35:32,080 --> 00:35:35,440
Speaker 4: little new paper out there. My expectation is we are

683
00:35:35,440 --> 00:35:39,920
Speaker 4: going to see more new paper. Obviously, the trajectory or

684
00:35:39,960 --> 00:35:43,720
Speaker 4: the trajectory of the of the base rate has changed,

685
00:35:43,880 --> 00:35:47,400
Speaker 4: and as it comes down, we have seen stabilization in spreads.

686
00:35:48,719 --> 00:35:51,239
Speaker 4: You know, it's it tightened up one hundred to one

687
00:35:51,320 --> 00:35:54,200
Speaker 4: hundred and fifty basis points in the last twenty four

688
00:35:54,239 --> 00:35:56,759
Speaker 4: months or eighteen to twenty four months. But we have

689
00:35:56,800 --> 00:36:00,960
Speaker 4: a scene a stabilization of that. My expectation is, you know,

690
00:36:01,120 --> 00:36:04,960
Speaker 4: now that the base rate has slowed its descent and

691
00:36:05,000 --> 00:36:08,160
Speaker 4: we're in a pause environment, we're going to see a

692
00:36:08,200 --> 00:36:11,000
Speaker 4: pause in the compression of the spreads. And you know,

693
00:36:11,040 --> 00:36:15,080
Speaker 4: if we do see another rate decrease here, we'll probably

694
00:36:15,239 --> 00:36:18,200
Speaker 4: you know, you could theoretically see an increase in spreads,

695
00:36:18,200 --> 00:36:19,600
Speaker 4: and I think that's what the history would tell you

696
00:36:19,600 --> 00:36:20,000
Speaker 4: as well.

697
00:36:20,600 --> 00:36:22,960
Speaker 1: Is there still relative value on the private against the

698
00:36:22,960 --> 00:36:23,680
Speaker 1: public market?

699
00:36:24,440 --> 00:36:24,680
Speaker 3: Yeah?

700
00:36:24,719 --> 00:36:28,000
Speaker 4: Look, I think when you when you look at you know,

701
00:36:28,280 --> 00:36:31,439
Speaker 4: relative value right now, private credits trading about one hundred

702
00:36:31,440 --> 00:36:35,320
Speaker 4: and fifty basis points wide of the syndicated markets. I

703
00:36:35,400 --> 00:36:38,719
Speaker 4: think there is true value. I think that value is

704
00:36:38,760 --> 00:36:41,560
Speaker 4: going to stay here. You know, Look, we're able to

705
00:36:41,640 --> 00:36:44,760
Speaker 4: deliver upfront fees, coupon call protection.

706
00:36:44,840 --> 00:36:46,600
Speaker 3: We deliver that all to our investors.

707
00:36:47,200 --> 00:36:51,440
Speaker 4: That's not something that you know happens across the syndicated markets.

708
00:36:52,040 --> 00:36:54,200
Speaker 1: Talk to us about Europe, Chris, because you're one of

709
00:36:54,239 --> 00:36:57,640
Speaker 1: the rare guests who covers both Europe and the US.

710
00:36:57,680 --> 00:36:59,359
Speaker 1: I know it's not a big part of your value.

711
00:36:59,440 --> 00:37:01,080
Speaker 1: What's what's the opportunity there?

712
00:37:01,760 --> 00:37:03,960
Speaker 4: Yeah, Look, I think when you think about Europe, you

713
00:37:04,000 --> 00:37:06,840
Speaker 4: have to think about it not just as one region,

714
00:37:06,960 --> 00:37:08,239
Speaker 4: but multiple regions.

715
00:37:08,719 --> 00:37:10,520
Speaker 3: And so our strategy.

716
00:37:10,000 --> 00:37:13,680
Speaker 4: Over there is lower middle market direct lending and so

717
00:37:13,800 --> 00:37:17,640
Speaker 4: that's really sub thirty five to forty million of EBA

718
00:37:17,760 --> 00:37:23,520
Speaker 4: DA sized companies. We are seeing greater yield per turn

719
00:37:23,560 --> 00:37:27,360
Speaker 4: of leverage over there. But again you have to be

720
00:37:27,440 --> 00:37:29,760
Speaker 4: I think, very careful when you think about what's happening

721
00:37:29,800 --> 00:37:32,040
Speaker 4: in the UK or in Germany. It's different than what's

722
00:37:32,040 --> 00:37:35,280
Speaker 4: happening in the Benelux region or in Spain and Italy,

723
00:37:35,760 --> 00:37:39,160
Speaker 4: and so we have seen a slower environment in Germany.

724
00:37:39,160 --> 00:37:41,680
Speaker 4: In the UK, we have had a lot of success

725
00:37:41,760 --> 00:37:43,320
Speaker 4: up in the you know, as we call it, the

726
00:37:43,840 --> 00:37:48,440
Speaker 4: northern beer drinking regions, and so we have feet on

727
00:37:48,480 --> 00:37:49,239
Speaker 4: the ground there.

728
00:37:49,719 --> 00:37:53,800
Speaker 3: We have the local relationships. We've got an excellent team

729
00:37:53,920 --> 00:37:57,160
Speaker 3: that's out creating these relationships. It has an excellent, excellent

730
00:37:57,200 --> 00:37:57,800
Speaker 3: track record.

731
00:37:58,520 --> 00:38:00,360
Speaker 4: It's led by someone that's been in that mark for

732
00:38:00,400 --> 00:38:03,160
Speaker 4: over twenty five years, and so you know, we're very

733
00:38:03,160 --> 00:38:07,240
Speaker 4: excited about that opportunity. Uh, with what you know, combined

734
00:38:07,280 --> 00:38:09,480
Speaker 4: with the with with our strategy there.

735
00:38:10,080 --> 00:38:11,840
Speaker 1: And if you step back, I mean we started I

736
00:38:11,880 --> 00:38:14,200
Speaker 1: started by by talking about all the stuff I'm worried about.

737
00:38:14,239 --> 00:38:16,120
Speaker 1: I worry a lot about stuff because I'm a credit

738
00:38:16,360 --> 00:38:20,360
Speaker 1: personally generous as well, spend my whole time worrying. But

739
00:38:21,280 --> 00:38:23,680
Speaker 1: do you you you've seem a bit more up upbeat.

740
00:38:23,719 --> 00:38:25,239
Speaker 1: You have been doing this a long time though, and

741
00:38:25,239 --> 00:38:27,960
Speaker 1: you've seen the cycles. What what are we missing?

742
00:38:27,960 --> 00:38:28,479
Speaker 3: Why? Why?

743
00:38:28,719 --> 00:38:30,960
Speaker 1: You know, why should we be more positive on the

744
00:38:31,000 --> 00:38:33,040
Speaker 1: market than maybe I'm sounding.

745
00:38:33,800 --> 00:38:35,680
Speaker 4: Yeah. Look, I'm a credit guy too, so I you know,

746
00:38:35,920 --> 00:38:37,680
Speaker 4: I'm I'm always a skeptic.

747
00:38:38,560 --> 00:38:41,799
Speaker 3: You know, It's as my wife would constantly remind me.

748
00:38:42,800 --> 00:38:45,520
Speaker 4: Look, I you know when I look back at you know,

749
00:38:46,120 --> 00:38:50,040
Speaker 4: I started here in two thousand and one. You know,

750
00:38:50,080 --> 00:38:53,759
Speaker 4: we were fighting for twenty five percent equity contributions and

751
00:38:53,840 --> 00:38:56,879
Speaker 4: highly leverage transactions. We'd be putting five and a half

752
00:38:56,880 --> 00:38:59,719
Speaker 4: six times leverage on a you know, eight or nine

753
00:38:59,719 --> 00:39:03,280
Speaker 4: time valued company. You Know, what I am highly encouraged

754
00:39:03,320 --> 00:39:07,319
Speaker 4: by is the amount of capitalists coming in behind us,

755
00:39:07,760 --> 00:39:11,359
Speaker 4: our ability to really work in a senior position with

756
00:39:11,480 --> 00:39:14,640
Speaker 4: these with the management teams. I think that addressable market

757
00:39:14,680 --> 00:39:18,560
Speaker 4: continues to expand, you know, I do think you know.

758
00:39:18,480 --> 00:39:21,600
Speaker 3: We obviously have a lot of optimism.

759
00:39:20,920 --> 00:39:25,800
Speaker 4: And a pro growth environment over the next foreseeable future.

760
00:39:25,840 --> 00:39:28,200
Speaker 3: Here the economy seems to be on stable footing.

761
00:39:28,600 --> 00:39:32,120
Speaker 4: So you know, I'm highly encouraged by some of the

762
00:39:32,160 --> 00:39:34,160
Speaker 4: opportunities that we're seeing out there. I think there's a

763
00:39:34,200 --> 00:39:37,680
Speaker 4: maturation in the industry. I think there has been discipline

764
00:39:37,719 --> 00:39:40,040
Speaker 4: within the industry when we talk about the use of leverage,

765
00:39:40,040 --> 00:39:42,480
Speaker 4: when we talk about you know, valuations and so forth,

766
00:39:42,520 --> 00:39:44,520
Speaker 4: and so, you know, I continue to be very bullish

767
00:39:44,520 --> 00:39:45,759
Speaker 4: on the opportunity set.

768
00:39:46,120 --> 00:39:49,280
Speaker 2: Well, what's going to be the cause of the shoot

769
00:39:49,280 --> 00:39:51,200
Speaker 2: to drop if anything at all?

770
00:39:52,040 --> 00:39:54,399
Speaker 4: Yeah, Look, I mean, look, there's going to be volatility, right,

771
00:39:54,480 --> 00:39:56,600
Speaker 4: so if we go into recession. At some point, we

772
00:39:56,640 --> 00:39:59,799
Speaker 4: are going to go into a recession. And I think

773
00:39:59,840 --> 00:40:02,319
Speaker 4: that that's where you're going to see differentiation that takes

774
00:40:02,320 --> 00:40:05,640
Speaker 4: place in the marketplace for private for private lenders, right,

775
00:40:05,960 --> 00:40:07,440
Speaker 4: you know. I think the concern is there's been a

776
00:40:07,520 --> 00:40:10,760
Speaker 4: lot of new capital with new managers raised in a

777
00:40:10,800 --> 00:40:13,439
Speaker 4: short period of time in the last few years, where

778
00:40:13,440 --> 00:40:16,840
Speaker 4: they have been investing in a in a bull market,

779
00:40:17,840 --> 00:40:19,360
Speaker 4: and so I think that's where you're really going to

780
00:40:19,360 --> 00:40:23,200
Speaker 4: see differentiation from the tenured long term managers that have

781
00:40:24,040 --> 00:40:27,920
Speaker 4: stayed disciplined in their investment philosophy and those that were

782
00:40:27,920 --> 00:40:29,719
Speaker 4: putting money to work because they had to put money

783
00:40:29,800 --> 00:40:31,200
Speaker 4: to work to grow the firm.

784
00:40:31,560 --> 00:40:33,600
Speaker 1: So we shouldn't expect a big wave of defilise and

785
00:40:33,760 --> 00:40:36,319
Speaker 1: until the recession. Is that the take away?

786
00:40:36,719 --> 00:40:37,520
Speaker 3: Yeah, that would be.

787
00:40:37,840 --> 00:40:39,920
Speaker 1: I mean one of the things I worry about is

788
00:40:39,920 --> 00:40:42,920
Speaker 1: that the high rates that are being charged by private

789
00:40:43,000 --> 00:40:48,600
Speaker 1: lenders are unsustainable. Is that a completely rung proposition run assumption.

790
00:40:49,520 --> 00:40:50,279
Speaker 3: Look, we I.

791
00:40:50,239 --> 00:40:53,920
Speaker 4: Think when you look at the underlying portfolios and not

792
00:40:54,040 --> 00:40:56,359
Speaker 4: just speaking for for our portfolio, but you know, when

793
00:40:56,360 --> 00:40:59,160
Speaker 4: you look through the BBC filings and so forth, and

794
00:40:59,239 --> 00:41:04,360
Speaker 4: there's been a an incredible amount of resilience within these

795
00:41:04,400 --> 00:41:08,400
Speaker 4: companies in the face of this higher rate environment. I

796
00:41:08,400 --> 00:41:10,640
Speaker 4: think management teams have done a good job at kind

797
00:41:10,640 --> 00:41:14,280
Speaker 4: of cutting costs and right sizing their cash flow streams.

798
00:41:15,360 --> 00:41:17,440
Speaker 4: You know, there are times and you have seen an

799
00:41:17,480 --> 00:41:20,000
Speaker 4: increase in pick rates, right, So you've seen that in

800
00:41:20,040 --> 00:41:23,279
Speaker 4: the BBC universe, and in some ways it's reflection of

801
00:41:23,760 --> 00:41:26,720
Speaker 4: lenders working with management teams to give them the runway

802
00:41:26,800 --> 00:41:29,360
Speaker 4: to allow the companies to grow into their balance sheet.

803
00:41:29,600 --> 00:41:29,759
Speaker 3: Right.

804
00:41:29,800 --> 00:41:31,560
Speaker 4: Where I get concerned is when you have a lot

805
00:41:31,600 --> 00:41:36,200
Speaker 4: of bad companies that are overlevered today. And to your point,

806
00:41:36,280 --> 00:41:37,600
Speaker 4: you know, I think you still have a lot of

807
00:41:37,600 --> 00:41:44,080
Speaker 4: good companies that are capitalizing on a very constructive macro backdrop.

808
00:41:45,080 --> 00:41:47,759
Speaker 4: Maybe they have a little bit too much leverage, but

809
00:41:47,880 --> 00:41:51,279
Speaker 4: they have lenders in there that are working with them

810
00:41:51,800 --> 00:41:55,640
Speaker 4: to affect a successful outcome for everyone. So I think

811
00:41:55,680 --> 00:41:58,560
Speaker 4: that collaboration is a very positive thing that's in the

812
00:41:58,600 --> 00:42:03,840
Speaker 4: economy or in in our space. And that's what you're seeing,

813
00:42:04,960 --> 00:42:07,520
Speaker 4: you know, in the performance of the underlying portfolio companies

814
00:42:07,560 --> 00:42:09,080
Speaker 4: in this higher for longer environment.

815
00:42:09,400 --> 00:42:11,080
Speaker 1: And there's not one thing right now that you worry

816
00:42:11,080 --> 00:42:13,120
Speaker 1: about in credit markets that kind of keeps you up

817
00:42:13,120 --> 00:42:13,760
Speaker 1: at night worrying.

818
00:42:14,440 --> 00:42:17,080
Speaker 4: Well, look, I like you said earlier, I'm a credit

819
00:42:17,320 --> 00:42:19,800
Speaker 4: I worry about a lot of things, you know, the

820
00:42:20,080 --> 00:42:23,400
Speaker 4: you know, look, we've got geopolitical issues, notwithstanding what we

821
00:42:23,440 --> 00:42:25,880
Speaker 4: talked about earlier, you know, tariffs.

822
00:42:25,360 --> 00:42:30,040
Speaker 3: And immigration and inflation, obviously a recession. I mean, those

823
00:42:30,080 --> 00:42:32,480
Speaker 3: are the types of things that that that that I'm

824
00:42:32,520 --> 00:42:33,439
Speaker 3: I'm really worried about.

825
00:42:34,280 --> 00:42:35,600
Speaker 1: And if you have to put your finger on the

826
00:42:35,600 --> 00:42:39,120
Speaker 1: best credit market opportunity, that's say for the next twelve

827
00:42:39,160 --> 00:42:42,200
Speaker 1: to eighteen months, what's what's what's the undiscovered value? Where's

828
00:42:42,200 --> 00:42:42,760
Speaker 1: your edge?

829
00:42:43,360 --> 00:42:45,680
Speaker 4: Yeah, Look, I mean we have a capital markets business too,

830
00:42:46,680 --> 00:42:49,080
Speaker 4: you know, so when I think about, you know, where

831
00:42:49,080 --> 00:42:51,840
Speaker 4: we're finding value right now, you know, it's that lower

832
00:42:51,960 --> 00:42:55,920
Speaker 4: core middle market in private lending right where we can

833
00:42:55,960 --> 00:42:58,680
Speaker 4: deliver on a levered basis double digit returns at that

834
00:42:58,719 --> 00:43:00,720
Speaker 4: forty percent lonch of value. So I like that space

835
00:43:00,760 --> 00:43:02,520
Speaker 4: a lot, and I think that we're going to see

836
00:43:02,880 --> 00:43:05,920
Speaker 4: a resurgence as I mentioned in deal activity and so deployment.

837
00:43:06,520 --> 00:43:09,560
Speaker 4: I would say number two, we have a lightly syndicated

838
00:43:09,600 --> 00:43:11,600
Speaker 4: product that we have an edge on. We've been executing

839
00:43:11,600 --> 00:43:14,000
Speaker 4: that strategy for a number of years. We can deliver

840
00:43:15,239 --> 00:43:19,160
Speaker 4: you know, a significant premium to the syndicated markets through

841
00:43:19,160 --> 00:43:21,840
Speaker 4: our origination channels, and so that's.

842
00:43:21,719 --> 00:43:23,360
Speaker 3: A product that's been around for a while.

843
00:43:23,719 --> 00:43:25,720
Speaker 4: Like I said, we have a differentiate and other people

844
00:43:25,760 --> 00:43:27,440
Speaker 4: haven't been able to figure out the special sauce.

845
00:43:27,480 --> 00:43:29,320
Speaker 3: And so we're seeing a lot of capital come into.

846
00:43:29,160 --> 00:43:32,279
Speaker 4: That strategy and then unstructured products right now, you know,

847
00:43:33,280 --> 00:43:36,760
Speaker 4: you know, we are seeing structured products. Obviously spreads have compressed,

848
00:43:36,800 --> 00:43:40,239
Speaker 4: but they still do offer a very very attractive premium

849
00:43:41,239 --> 00:43:47,040
Speaker 4: relative to other called investment grade products. So you know,

850
00:43:47,040 --> 00:43:50,480
Speaker 4: we're seeing some very kind of specifically for kind of

851
00:43:50,480 --> 00:43:53,920
Speaker 4: the COLO space. So I think that's a very attractive

852
00:43:54,320 --> 00:43:56,040
Speaker 4: area to invest in as well.

853
00:43:56,520 --> 00:43:58,759
Speaker 1: And the golden age for private credit just goes on

854
00:43:59,320 --> 00:44:02,600
Speaker 1: keeps going. Great stuff. Chris Wright, President at Crestin Capital.

855
00:44:02,600 --> 00:44:04,160
Speaker 1: It's been a pleasure having you on the credit edge.

856
00:44:04,160 --> 00:44:07,640
Speaker 1: Many thanks, great well, thank you, and of course very

857
00:44:07,640 --> 00:44:09,840
Speaker 1: grateful to Julie Hung from Bloomberg Intelligence. Thank you for

858
00:44:09,920 --> 00:44:12,920
Speaker 1: joining us today. Julie, thank you for more credit analysis.

859
00:44:12,920 --> 00:44:15,080
Speaker 1: Read all of Julie Hung's work on the Bloomberg terminal.

860
00:44:15,200 --> 00:44:17,759
Speaker 1: Bloomberg Intelligence is part of our research department, with five

861
00:44:17,800 --> 00:44:21,600
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862
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864
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865
00:44:30,840 --> 00:44:34,120
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866
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867
00:44:37,680 --> 00:44:39,960
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868
00:44:40,080 --> 00:44:44,560
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869
00:44:44,560 --> 00:44:46,520
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870
00:44:46,560 --> 00:45:07,480
Speaker 1: week on the Credit Edge.