1 00:00:17,880 --> 00:00:20,360 Speaker 1: Hello, and welcome to the Credit Edge Weekly Markets Podcast. 2 00:00:20,400 --> 00:00:23,400 Speaker 1: My name is James Crumby. I'm a senior editor at Bloomberg. 3 00:00:23,079 --> 00:00:26,960 Speaker 2: And I'm your own Julius credit analyst at Bloomberg Intelligence 4 00:00:27,000 --> 00:00:31,000 Speaker 2: in London, covering European banks. This week, we are very 5 00:00:31,000 --> 00:00:34,760 Speaker 2: pleased to welcome Mike Dennis, Co head of European Credit 6 00:00:34,920 --> 00:00:39,240 Speaker 2: at Aris Management, one of the largest alternative investment managers 7 00:00:39,240 --> 00:00:42,320 Speaker 2: in the world, with close to five hundred and fifty 8 00:00:42,360 --> 00:00:45,440 Speaker 2: billion dollars in AUM as of the first quarter. 9 00:00:46,280 --> 00:00:48,840 Speaker 3: How are you doing, Mike, Yeah, very well, Thanks for 10 00:00:48,840 --> 00:00:49,319 Speaker 3: having me. 11 00:00:49,560 --> 00:00:51,800 Speaker 2: Good to have you. Mike serves as a member of 12 00:00:51,840 --> 00:00:55,320 Speaker 2: the Ares Credit Group's European Direct Landing Committee and also 13 00:00:56,160 --> 00:00:59,960 Speaker 2: the European Liquid Credit Investment Committee, and prior to joining 14 00:01:00,560 --> 00:01:02,680 Speaker 2: in two thousand and seven, he was head of the 15 00:01:02,840 --> 00:01:05,679 Speaker 2: London Financial Sponsor Group at Barclay's. 16 00:01:06,040 --> 00:01:08,000 Speaker 1: Should also add that Mike's a bit of a glutton 17 00:01:08,040 --> 00:01:11,119 Speaker 1: for punishment, as in he's our first repeat guest on 18 00:01:11,160 --> 00:01:13,000 Speaker 1: this show in three years of doing it. We tend 19 00:01:13,000 --> 00:01:15,440 Speaker 1: not to have repeat guests, but we are delighted to 20 00:01:15,480 --> 00:01:19,600 Speaker 1: have you back. And before we get to the questions, 21 00:01:19,600 --> 00:01:21,000 Speaker 1: I just want to set the scene a bit. Credit 22 00:01:21,000 --> 00:01:23,679 Speaker 1: markets are looking pretty complacent at the moment, with junk 23 00:01:23,680 --> 00:01:26,920 Speaker 1: bonds trading ever tighter as demand for yield rises and 24 00:01:26,959 --> 00:01:30,640 Speaker 1: supply of corporate debt dries up. Robust returns in public 25 00:01:30,840 --> 00:01:34,080 Speaker 1: debt leads people to question the value of private markets, 26 00:01:34,120 --> 00:01:36,679 Speaker 1: which have enjoyed stellar growth over the last few years. 27 00:01:36,959 --> 00:01:39,440 Speaker 1: Private debt is taking a bit of a beating. Jeff 28 00:01:39,480 --> 00:01:42,000 Speaker 1: Gundlack from Double Line recently compared the mania for that 29 00:01:42,040 --> 00:01:45,400 Speaker 1: market with the rush to collateralize debt obligations or CDOs 30 00:01:45,400 --> 00:01:47,280 Speaker 1: in the run up to the global financial crisis, and 31 00:01:47,319 --> 00:01:49,960 Speaker 1: we all know how that ended. He also doubted whether 32 00:01:49,960 --> 00:01:52,520 Speaker 1: the asset class is actually less volatile. Prices appear not 33 00:01:52,560 --> 00:01:54,200 Speaker 1: to have moved very much this year, despite all the 34 00:01:54,280 --> 00:01:59,000 Speaker 1: chaos of tariffs, rates, inflation, taxes, immigration, and global geopolitics, 35 00:01:59,240 --> 00:02:02,320 Speaker 1: but who knows whether the loans are actually being marked accurately. 36 00:02:02,880 --> 00:02:06,880 Speaker 1: And just this week Jamie Diamond, in his earnings call 37 00:02:07,160 --> 00:02:10,679 Speaker 1: said the words peak private credit. So Mike, what is 38 00:02:10,720 --> 00:02:13,320 Speaker 1: your take? Is private credit risk fairly valued at the moment? 39 00:02:13,320 --> 00:02:15,639 Speaker 1: Do you think are all the concerns warranted? Yeah? 40 00:02:15,720 --> 00:02:19,960 Speaker 3: Look, I think people are certainly taking a a closer 41 00:02:20,000 --> 00:02:24,639 Speaker 3: look at private credit valuations. You know, that's that's regulators 42 00:02:25,280 --> 00:02:27,800 Speaker 3: and other people alike. But you know, what I would 43 00:02:27,800 --> 00:02:30,560 Speaker 3: say is, if you think about the heritage of private 44 00:02:30,600 --> 00:02:33,720 Speaker 3: credit really from the US and the BDC model, which 45 00:02:33,760 --> 00:02:36,600 Speaker 3: are public vehicles, you know a lot of these valuation 46 00:02:36,720 --> 00:02:40,960 Speaker 3: processes are well trodden, you know, very granular. We've brought 47 00:02:41,000 --> 00:02:44,800 Speaker 3: a lot of that technology across in our business in Europe, 48 00:02:45,120 --> 00:02:48,639 Speaker 3: and I would say that, you know, the the kind 49 00:02:48,639 --> 00:02:51,760 Speaker 3: of regulators have looked at have looked at these best practices, 50 00:02:51,960 --> 00:02:56,120 Speaker 3: and you know, we value our portfolio on a quarterly basis. 51 00:02:56,720 --> 00:02:59,160 Speaker 3: We go line by line right through the portfolio. We 52 00:02:59,240 --> 00:03:04,560 Speaker 3: mark those assets both to market and to impairment. And 53 00:03:04,600 --> 00:03:07,720 Speaker 3: then of course, you know, our LPs would expect us 54 00:03:07,760 --> 00:03:12,520 Speaker 3: to have independent audit of those valuations, and we do 55 00:03:12,680 --> 00:03:16,080 Speaker 3: use independent firms to do that on a quarterly basis, 56 00:03:16,080 --> 00:03:18,800 Speaker 3: and and those are signed off in the audit process 57 00:03:18,800 --> 00:03:21,800 Speaker 3: as well. So I would push back and say, actually, 58 00:03:22,160 --> 00:03:26,079 Speaker 3: the process is the policies for valuing assets in the 59 00:03:26,120 --> 00:03:30,600 Speaker 3: private credit managers I know are actually pretty robust. Yeah, 60 00:03:30,639 --> 00:03:33,000 Speaker 3: so I would push back on that notion. 61 00:03:33,280 --> 00:03:36,080 Speaker 1: It's quarterly enough though, because we're getting such volatility, you 62 00:03:36,080 --> 00:03:38,280 Speaker 1: know intra day that you know, like maybe we're being 63 00:03:38,320 --> 00:03:39,120 Speaker 1: too slow to Martin. 64 00:03:39,520 --> 00:03:43,760 Speaker 3: Well, most of the most of the capital that private 65 00:03:43,760 --> 00:03:46,720 Speaker 3: credit managers or suddenly at areas is kind of in 66 00:03:46,840 --> 00:03:49,840 Speaker 3: locked up, closed end vehicles. Right. This is not hot 67 00:03:50,360 --> 00:03:52,840 Speaker 3: capital that flows in and out of the market. This 68 00:03:52,960 --> 00:03:55,760 Speaker 3: is capital that's taking a long term view, and so 69 00:03:56,320 --> 00:04:00,360 Speaker 3: I don't think necessarily, you know, daily valuations is sssarily 70 00:04:00,440 --> 00:04:02,720 Speaker 3: the right way to think about this asset class. 71 00:04:03,160 --> 00:04:07,440 Speaker 2: Mike, could I ask about the growth potential of private 72 00:04:07,480 --> 00:04:10,440 Speaker 2: credit in Europe? If you look at GDP growth, you 73 00:04:10,480 --> 00:04:13,960 Speaker 2: know that's quite low, even negative in some countries like 74 00:04:14,000 --> 00:04:19,359 Speaker 2: the UK, Germany around zero. Against that sort of backdrop, 75 00:04:19,440 --> 00:04:22,320 Speaker 2: what would you say are the growth prospects for private 76 00:04:22,320 --> 00:04:23,279 Speaker 2: credit as a sector? 77 00:04:23,680 --> 00:04:27,360 Speaker 3: Yeah, let me address GDP first, because there's a couple 78 00:04:27,360 --> 00:04:30,919 Speaker 3: of things to think about. One is obviously low but 79 00:04:31,040 --> 00:04:34,680 Speaker 3: steady growth is not actually a bad macro backdrop for credit, 80 00:04:35,040 --> 00:04:38,960 Speaker 3: right for senior lending. Firstly, in direct lending, a low 81 00:04:39,000 --> 00:04:43,480 Speaker 3: and slow GDP backdrop is not a bad thing, I 82 00:04:43,520 --> 00:04:46,039 Speaker 3: would say. On top of that, however, if you look 83 00:04:46,040 --> 00:04:49,520 Speaker 3: at what direct lenders are typically trying to do, they're 84 00:04:49,560 --> 00:04:52,200 Speaker 3: being very, very selective in the sectors the types of 85 00:04:52,240 --> 00:04:55,159 Speaker 3: businesses they're lending to, which I would argue are not 86 00:04:55,279 --> 00:04:59,200 Speaker 3: wholly correlated to the GDP backdrop. Anyway, if you look 87 00:04:59,200 --> 00:05:01,640 Speaker 3: at our portfolio, for instance, you know you do see 88 00:05:01,920 --> 00:05:04,920 Speaker 3: revenues across the piece across the portfolio growing in double 89 00:05:04,960 --> 00:05:09,160 Speaker 3: digits eb DA. Similarly with with with strong EBDA margins. 90 00:05:09,160 --> 00:05:12,040 Speaker 3: So again we're not trying to lend to a benchmark 91 00:05:12,120 --> 00:05:16,279 Speaker 3: or lend to the macro. I think in terms of growth, 92 00:05:16,440 --> 00:05:19,520 Speaker 3: there are a number of drivers at play. I think 93 00:05:19,600 --> 00:05:22,640 Speaker 3: one is if you just look at the differential between 94 00:05:23,040 --> 00:05:25,960 Speaker 3: the private equity class. Equity class that's been around now 95 00:05:26,000 --> 00:05:30,279 Speaker 3: for for decades, it's a more mature market. There are 96 00:05:30,600 --> 00:05:34,240 Speaker 3: you know, trillions of assets invested in private equity. The 97 00:05:34,240 --> 00:05:37,120 Speaker 3: same is not the case in private credit, and at 98 00:05:37,120 --> 00:05:40,000 Speaker 3: some point I think private credit will up with the 99 00:05:40,000 --> 00:05:44,040 Speaker 3: private equity markets. Look for every euro of private equity 100 00:05:44,160 --> 00:05:48,320 Speaker 3: capital invested, typically you're raising you know, a euro, a 101 00:05:48,400 --> 00:05:52,039 Speaker 3: dollar a pound of private credits. So I think just 102 00:05:52,080 --> 00:05:54,880 Speaker 3: in terms of the two markets, you know, private credit 103 00:05:54,960 --> 00:05:57,760 Speaker 3: is much more immature. There is a lot of dry 104 00:05:57,800 --> 00:06:00,839 Speaker 3: powder in private equity markets today. Know that both in 105 00:06:00,880 --> 00:06:04,359 Speaker 3: the US and Europe over two hundred billion in Europe, 106 00:06:04,560 --> 00:06:08,200 Speaker 3: as I guess a conservative estimate. And let's not forget 107 00:06:08,440 --> 00:06:10,800 Speaker 3: now that you know private credit, we've been doing this 108 00:06:10,880 --> 00:06:13,440 Speaker 3: for what's seventeen eighteen years in Europe. There's a lot 109 00:06:13,440 --> 00:06:16,240 Speaker 3: of private credit assets in the ground that will need 110 00:06:16,279 --> 00:06:19,040 Speaker 3: to be refinounced as well. So I think there's a 111 00:06:19,120 --> 00:06:21,919 Speaker 3: number of different drivers on top of the fact that 112 00:06:21,960 --> 00:06:26,400 Speaker 3: there's this secular trend of companies staying private or you know, 113 00:06:26,960 --> 00:06:29,720 Speaker 3: a lack of I guess companies going public to put 114 00:06:29,760 --> 00:06:33,120 Speaker 3: put to want of a better phrase. So private markets 115 00:06:33,160 --> 00:06:36,000 Speaker 3: in general are enjoying this, this secular trend, and I 116 00:06:36,040 --> 00:06:39,239 Speaker 3: don't see any reason why private private credit can't grow 117 00:06:39,360 --> 00:06:41,880 Speaker 3: or continue growing on the back of that. 118 00:06:42,680 --> 00:06:48,599 Speaker 2: So for areas specifically, then you have I believe, around 119 00:06:48,720 --> 00:06:53,120 Speaker 2: eighty billion dollars in European credit. Aum how high could 120 00:06:53,120 --> 00:06:56,799 Speaker 2: this go? Has the company got a specific target in mind? 121 00:06:57,040 --> 00:06:59,440 Speaker 3: Well, we certainly haven't got a specific target. And just 122 00:06:59,440 --> 00:07:02,080 Speaker 3: just to clarify, by the eighty billion of assets under 123 00:07:02,080 --> 00:07:05,880 Speaker 3: management you reference is in our direct lending or our 124 00:07:05,880 --> 00:07:09,760 Speaker 3: direct lending business. So of course we have liquid credit, 125 00:07:10,160 --> 00:07:12,920 Speaker 3: alternative credit, other credit strategies that would be on top 126 00:07:12,960 --> 00:07:18,240 Speaker 3: of that eighty billion. But I think it's it's well documented. 127 00:07:18,280 --> 00:07:23,360 Speaker 3: We had a successful fundraise during twenty twenty four, you know, 128 00:07:23,440 --> 00:07:28,720 Speaker 3: that's all public information. It was our biggest fundraise today. 129 00:07:28,960 --> 00:07:31,600 Speaker 3: There was a lot of investor demand for that fund, 130 00:07:32,080 --> 00:07:35,960 Speaker 3: and just the feedback we're getting from investors is there's 131 00:07:36,040 --> 00:07:38,360 Speaker 3: no let up in that kind of appetite. I mean, 132 00:07:38,720 --> 00:07:42,520 Speaker 3: investors like the yield, they like the low volatility, they 133 00:07:42,760 --> 00:07:47,080 Speaker 3: like the low losses that private credit has demonstrated over many, 134 00:07:47,120 --> 00:07:50,480 Speaker 3: many years, both in the US and Europe. So I 135 00:07:50,520 --> 00:07:53,800 Speaker 3: personally can't see that growth abating anytime soon. 136 00:07:54,320 --> 00:07:57,120 Speaker 1: That fund you reference my thirty billion euros. I mean, 137 00:07:57,160 --> 00:08:00,400 Speaker 1: that's the biggest of its kind. When we've got all 138 00:08:00,400 --> 00:08:03,920 Speaker 1: that cash slushing around, what's the pressure to deploy? You know, 139 00:08:04,040 --> 00:08:06,000 Speaker 1: in the US, we're not seeing enough deals to actually 140 00:08:06,280 --> 00:08:06,840 Speaker 1: get into. 141 00:08:07,280 --> 00:08:10,240 Speaker 3: Yeah, And I think that's something that we're obviously very 142 00:08:10,240 --> 00:08:13,240 Speaker 3: mindful of. I mean, the critical thing in direct lending 143 00:08:13,440 --> 00:08:17,040 Speaker 3: is to make sure that you are seeing the widest 144 00:08:17,160 --> 00:08:22,320 Speaker 3: opportunity set that you can see. And we've invested very heavily. Yeah, 145 00:08:22,320 --> 00:08:24,680 Speaker 3: every year since we started the business in seven, we've 146 00:08:24,720 --> 00:08:28,400 Speaker 3: invested very heavily in our origination capability. So the critical 147 00:08:28,440 --> 00:08:30,800 Speaker 3: thing is seeing as much flow as you can across 148 00:08:31,280 --> 00:08:34,480 Speaker 3: across the European jurisdictions in which we operate, and to 149 00:08:34,480 --> 00:08:38,920 Speaker 3: give you a sense, we now operate across seven real 150 00:08:39,320 --> 00:08:45,560 Speaker 3: core jurisdictions. We see fourteen hundred different deal opportunities a 151 00:08:45,679 --> 00:08:49,600 Speaker 3: year from the circa one hundred investment professionals that we 152 00:08:49,640 --> 00:08:54,400 Speaker 3: have out in those markets originating for assets. So you know, 153 00:08:54,640 --> 00:08:58,600 Speaker 3: given that flow and with a selective rate of say 154 00:08:58,640 --> 00:09:01,320 Speaker 3: three to five percent, that's really conversion rate of deals 155 00:09:01,360 --> 00:09:04,480 Speaker 3: seen to deals completed. You know, with that kind of flow, 156 00:09:04,600 --> 00:09:08,599 Speaker 3: we don't feel that compelled for any particular deal opportunity. 157 00:09:08,640 --> 00:09:14,359 Speaker 3: I EI. There's no pressure to deploy. And you know, 158 00:09:14,040 --> 00:09:17,439 Speaker 3: if you want to talk about kind of market market activity, 159 00:09:17,480 --> 00:09:21,040 Speaker 3: it's interesting there's a lot of headlines around lack of 160 00:09:21,160 --> 00:09:24,040 Speaker 3: m and a, et cetera. And whilst that might be 161 00:09:24,120 --> 00:09:26,440 Speaker 3: the case at the upper end of the markets that 162 00:09:26,480 --> 00:09:29,400 Speaker 3: we look at, when we think about the core middle market, 163 00:09:30,559 --> 00:09:33,760 Speaker 3: you know, we're actually see quite a buoyant picture. You know, 164 00:09:34,360 --> 00:09:38,120 Speaker 3: market activity started to build through twenty twenty four. We 165 00:09:38,240 --> 00:09:41,680 Speaker 3: came into twenty twenty five pretty optimistic. Yes, of course, 166 00:09:41,720 --> 00:09:44,560 Speaker 3: around you know, the April the second there was a 167 00:09:44,600 --> 00:09:50,079 Speaker 3: little hiatus, albeit short lived, and actually volumes have continued 168 00:09:50,080 --> 00:09:54,000 Speaker 3: to grow into into quarter two and we remain pretty 169 00:09:54,000 --> 00:09:56,400 Speaker 3: optimistic for the rest of the year. So I would 170 00:09:56,440 --> 00:09:59,839 Speaker 3: say middle market volumes have been much more robust than 171 00:10:00,000 --> 00:10:03,560 Speaker 3: maybe some of the headlines would lead people people to believe. 172 00:10:03,720 --> 00:10:05,880 Speaker 1: What does middle market mean to you now, Mike, because 173 00:10:06,240 --> 00:10:09,600 Speaker 1: one guess recently described a billion dollar transaction as a 174 00:10:09,600 --> 00:10:11,920 Speaker 1: middle market deal. Is that what you're seeing? 175 00:10:12,400 --> 00:10:16,199 Speaker 3: That's interesting? I would probably say that's more upper upper 176 00:10:16,200 --> 00:10:20,280 Speaker 3: market than the middle market. I mean, look, I think 177 00:10:20,800 --> 00:10:23,920 Speaker 3: a lot of the transactions that we would consider middle 178 00:10:23,920 --> 00:10:26,960 Speaker 3: market are companies with eb DA of say ten to 179 00:10:27,040 --> 00:10:31,480 Speaker 3: one hundred million euros pounds of eb DA, And really 180 00:10:31,559 --> 00:10:33,640 Speaker 3: you can you can kind of define it as a 181 00:10:33,920 --> 00:10:39,480 Speaker 3: market where there is a less or a less of 182 00:10:39,480 --> 00:10:42,240 Speaker 3: a bid from the capital markets. Let's put it that way. 183 00:10:42,320 --> 00:10:44,920 Speaker 3: Let's you know, where the syndicated loan markets, the high 184 00:10:44,960 --> 00:10:47,280 Speaker 3: yield markets are less interested, and that tends to be 185 00:10:47,320 --> 00:10:50,000 Speaker 3: as I say, ten to maybe seventy five, ten to 186 00:10:50,320 --> 00:10:52,679 Speaker 3: one hundred million of eb da, that's what I would 187 00:10:52,679 --> 00:10:54,640 Speaker 3: classify as the middle market. 188 00:10:55,080 --> 00:10:57,120 Speaker 1: And so when you talk about that competition. I mean, 189 00:10:57,160 --> 00:10:59,800 Speaker 1: the banks are very active, your colleagues have said that 190 00:11:00,160 --> 00:11:03,720 Speaker 1: so retrenching and private debt will supplant them. But at 191 00:11:03,800 --> 00:11:06,559 Speaker 1: least in the broadly syndicated loan market, bank debt has 192 00:11:06,600 --> 00:11:11,240 Speaker 1: been super cheap lately, unitranch lenders are struggling to compete. 193 00:11:12,280 --> 00:11:15,080 Speaker 1: What's the tension there, you know, is that only for 194 00:11:15,160 --> 00:11:17,439 Speaker 1: bigger deals, in which case do you go for the 195 00:11:17,480 --> 00:11:20,320 Speaker 1: smaller ones? What's your advice for private credit lenders in 196 00:11:20,320 --> 00:11:20,960 Speaker 1: this environment? 197 00:11:21,400 --> 00:11:24,200 Speaker 3: Yeah, Look, I think we saw in twenty twenty four 198 00:11:24,320 --> 00:11:29,680 Speaker 3: capital markets become much more active in Europe. We saw 199 00:11:30,640 --> 00:11:34,680 Speaker 3: record clo issuance, and therefore there is more liquidity in 200 00:11:34,720 --> 00:11:36,560 Speaker 3: that market than there has been for the last couple 201 00:11:36,600 --> 00:11:40,480 Speaker 3: of years, that's for sure. Twenty twenty five we've continued 202 00:11:40,520 --> 00:11:43,160 Speaker 3: in that same in that same vein. So for those 203 00:11:43,280 --> 00:11:47,439 Speaker 3: larger issuers there is now more choice. There is a 204 00:11:47,520 --> 00:11:51,440 Speaker 3: choice between a broadly syndicated loan or high yield deal 205 00:11:51,480 --> 00:11:55,120 Speaker 3: in the public markets and a private credit alternative. And 206 00:11:55,160 --> 00:11:57,480 Speaker 3: I do stress there is still an alternative, and actually 207 00:11:57,480 --> 00:12:01,160 Speaker 3: private credit providers are still being relatively successful there. And 208 00:12:01,280 --> 00:12:04,640 Speaker 3: we've talked before, James about the convergence between private and 209 00:12:04,679 --> 00:12:08,360 Speaker 3: public credit markets. And I think that that continues. Albeit 210 00:12:08,480 --> 00:12:11,200 Speaker 3: the bid as I say, the bid from the capital 211 00:12:11,240 --> 00:12:14,960 Speaker 3: markets is pretty strong today and you have seen spreads compress. 212 00:12:16,080 --> 00:12:19,320 Speaker 3: But the strategy that we've always had, and again this 213 00:12:19,440 --> 00:12:21,640 Speaker 3: goes back to the size of team, that we have 214 00:12:22,280 --> 00:12:25,920 Speaker 3: the ability to assimilate a lot of deal flow, a 215 00:12:25,920 --> 00:12:29,040 Speaker 3: lot of deal opportunity. The fact is that we can 216 00:12:29,080 --> 00:12:31,679 Speaker 3: pivot from the upper end of the market to the 217 00:12:31,720 --> 00:12:34,000 Speaker 3: lower end, to the middle part of the market depending 218 00:12:34,000 --> 00:12:37,120 Speaker 3: on where we see best relative value. And I would 219 00:12:37,200 --> 00:12:42,040 Speaker 3: argue today, given the liquidity that exists for those larger issuers, 220 00:12:42,679 --> 00:12:44,960 Speaker 3: I would say the best relative value sits in those 221 00:12:45,000 --> 00:12:48,040 Speaker 3: slightly smaller companies. And that's again, you know where our 222 00:12:48,080 --> 00:12:50,520 Speaker 3: heritage is. That's where we've built our business in Europe 223 00:12:50,520 --> 00:12:54,079 Speaker 3: over the last seventeen eighteen years. But you need good, 224 00:12:54,720 --> 00:12:57,400 Speaker 3: well developed infrastructure for that. You know, you need a 225 00:12:57,440 --> 00:13:00,040 Speaker 3: lot of people, you need local officers, you need a 226 00:13:00,080 --> 00:13:02,840 Speaker 3: good origination engine to make sure you see a lot 227 00:13:02,880 --> 00:13:05,240 Speaker 3: of that middle market deal flow. And that's that's I 228 00:13:05,280 --> 00:13:08,600 Speaker 3: think an advantage or a benefit that we're seeing today. 229 00:13:08,960 --> 00:13:11,680 Speaker 1: That's interesting because some of the bigger US competitors, we 230 00:13:11,760 --> 00:13:14,000 Speaker 1: taught to. You know, we had a guest from HPS 231 00:13:14,040 --> 00:13:16,360 Speaker 1: recently talking about risk in the middle market, and that's 232 00:13:16,360 --> 00:13:18,760 Speaker 1: where they see all the risk lying really, you know, 233 00:13:18,800 --> 00:13:20,880 Speaker 1: in terms of you know, where where the trouble is 234 00:13:20,920 --> 00:13:22,680 Speaker 1: because they think the bigger deals are going to be safer. 235 00:13:22,679 --> 00:13:26,360 Speaker 1: They're obviously more liquid, and they're more transparent, and they're 236 00:13:26,640 --> 00:13:30,080 Speaker 1: they're better you know, players to whether the volatility ahead. 237 00:13:30,480 --> 00:13:32,480 Speaker 1: But you're seeing the other side of that. 238 00:13:32,800 --> 00:13:37,280 Speaker 3: Well, Look, it depends how you depends how you define safer. 239 00:13:37,840 --> 00:13:39,959 Speaker 3: If you look at the quality of the companies. Look, 240 00:13:40,160 --> 00:13:42,560 Speaker 3: I'm not going to argue if you're a half a 241 00:13:42,640 --> 00:13:47,200 Speaker 3: billion euro eb DA company with lots of diverse revenue streams, 242 00:13:47,240 --> 00:13:50,760 Speaker 3: geographically different product lines, et cetera. Of course there are 243 00:13:50,760 --> 00:13:54,240 Speaker 3: some really good credit metrics or credit characteristics to those 244 00:13:54,320 --> 00:13:58,040 Speaker 3: kinds of businesses. However, there are still very very high 245 00:13:58,120 --> 00:14:01,400 Speaker 3: quality businesses just at that smaller and let's not forget 246 00:14:01,440 --> 00:14:03,840 Speaker 3: when you're looking at each of the markets in Europe, 247 00:14:04,000 --> 00:14:06,360 Speaker 3: it's very different to the US. Right, a thirty to 248 00:14:06,360 --> 00:14:10,800 Speaker 3: fifty million EBITDA business in a domestic market like Germany 249 00:14:11,000 --> 00:14:13,760 Speaker 3: or the UK, etc. That could be a market leader 250 00:14:13,760 --> 00:14:16,640 Speaker 3: in a niche it's unlikely to be a market leader 251 00:14:16,640 --> 00:14:19,000 Speaker 3: in the US just given the size of the US 252 00:14:19,040 --> 00:14:22,720 Speaker 3: economy and the markets over there. So I think middle 253 00:14:22,760 --> 00:14:26,960 Speaker 3: market doesn't mean necessarily small and more vulnerable smoke stroke 254 00:14:27,040 --> 00:14:30,360 Speaker 3: in increased risk. And the other thing that you need 255 00:14:30,440 --> 00:14:34,800 Speaker 3: to quantify or think about is just that the deal 256 00:14:34,880 --> 00:14:39,000 Speaker 3: structures that are available to lenders in that part of 257 00:14:39,040 --> 00:14:43,320 Speaker 3: the market. Right we are still seeing financial maintenance covenants 258 00:14:43,600 --> 00:14:46,720 Speaker 3: on deals in that part of the market. You're still 259 00:14:46,760 --> 00:14:52,920 Speaker 3: seeing quite restrictive documents. From a cash leakage perspective, you know, 260 00:14:52,960 --> 00:14:55,200 Speaker 3: there are lots of elements in the governance and the 261 00:14:55,240 --> 00:14:58,120 Speaker 3: controls and the terms on those deals which I would 262 00:14:58,240 --> 00:15:02,400 Speaker 3: argue make the structures safer, despite the fact that you 263 00:15:02,520 --> 00:15:05,440 Speaker 3: may argue that that that the credit quality of the 264 00:15:05,480 --> 00:15:09,680 Speaker 3: businesses is slightly is slightly lower, which again I would 265 00:15:09,720 --> 00:15:12,520 Speaker 3: push back on that notion because I think so there's 266 00:15:12,560 --> 00:15:16,000 Speaker 3: some very very high quality businesses in the middle market. 267 00:15:16,080 --> 00:15:18,320 Speaker 3: And again just from a structural point of view, you know, 268 00:15:18,360 --> 00:15:22,000 Speaker 3: when you're structuring deals to thirty forty percent loan to value, 269 00:15:22,600 --> 00:15:27,800 Speaker 3: lots of equity cushion beneath you. Firstly, in security protections, 270 00:15:27,840 --> 00:15:30,720 Speaker 3: et cetera. Again, I would push back on the notion 271 00:15:30,840 --> 00:15:33,120 Speaker 3: that that is somehow a much riskier place in the 272 00:15:33,160 --> 00:15:34,400 Speaker 3: market to play. 273 00:15:34,320 --> 00:15:38,520 Speaker 2: Mike, as a bank's analyst, private credit, to me, is 274 00:15:38,560 --> 00:15:42,360 Speaker 2: still quite an opaque sector with lots of well basically 275 00:15:42,400 --> 00:15:44,560 Speaker 2: it's it's it's a label that covers a lot of 276 00:15:45,360 --> 00:15:50,920 Speaker 2: different types of products, different types of lending. Which of 277 00:15:51,040 --> 00:15:55,000 Speaker 2: all those various products has the highest growth potential? Is 278 00:15:55,280 --> 00:15:59,360 Speaker 2: it vanilla mid market lending, is it leverage finances, infrastructure? 279 00:15:59,440 --> 00:16:00,000 Speaker 2: Is it something else? 280 00:16:00,440 --> 00:16:03,560 Speaker 3: I think they've they've all got, you know, really good 281 00:16:03,760 --> 00:16:07,000 Speaker 3: growth prospects. And you know, areas as you've just mentioned 282 00:16:07,000 --> 00:16:09,280 Speaker 3: some of the products there. Areas is very active in 283 00:16:09,400 --> 00:16:13,120 Speaker 3: direct lending. It's active in alternative credit, which is financing 284 00:16:13,120 --> 00:16:17,720 Speaker 3: of financial assets, portfolio of financial assets. It's active in 285 00:16:17,720 --> 00:16:20,680 Speaker 3: infrastructure debt, is it's active in real estate debt. And 286 00:16:20,800 --> 00:16:23,760 Speaker 3: you know what all these these strategies have in common 287 00:16:24,240 --> 00:16:28,560 Speaker 3: is the fact that they're all benefiting from banks shedding assets. 288 00:16:28,800 --> 00:16:31,440 Speaker 3: Right there is an asset transfer going on here between 289 00:16:32,160 --> 00:16:37,720 Speaker 3: banks balance sheets and balance sheets of institutions like areas. 290 00:16:38,200 --> 00:16:42,040 Speaker 3: So you know that that bank or that asset shift, 291 00:16:42,600 --> 00:16:45,000 Speaker 3: you know, we're still that's still not fully played out 292 00:16:45,120 --> 00:16:47,000 Speaker 3: and we can see that quite clearly in all those 293 00:16:47,040 --> 00:16:50,800 Speaker 3: strategies that we that that we're active, that we're active in. 294 00:16:50,840 --> 00:16:54,040 Speaker 3: So I wouldn't pick one, to be honest, Jeran, I would. 295 00:16:54,040 --> 00:16:56,720 Speaker 3: I would actually argue that each of those those product 296 00:16:56,800 --> 00:16:59,160 Speaker 3: strategies have have excellent growth prospects. 297 00:16:59,480 --> 00:17:01,600 Speaker 1: What about the fence might that's a massive theme for 298 00:17:01,840 --> 00:17:06,119 Speaker 1: Europe across the board, trillions dollars of spending potentially. How 299 00:17:06,400 --> 00:17:08,360 Speaker 1: much is private credit going to get involved there? 300 00:17:08,600 --> 00:17:11,480 Speaker 3: Yeah, that's a really interesting question, James. You know, we 301 00:17:11,560 --> 00:17:16,040 Speaker 3: are starting to see more defense opportunities come across the desk. 302 00:17:16,080 --> 00:17:18,600 Speaker 3: I mean, I think that's that's obvious given the spending 303 00:17:18,640 --> 00:17:24,240 Speaker 3: commitments that the governments in Europe have made. That said, 304 00:17:24,400 --> 00:17:27,800 Speaker 3: I think, you know, we would tend to be cautious 305 00:17:27,840 --> 00:17:30,439 Speaker 3: in the sense of, you know, we need to listen 306 00:17:30,600 --> 00:17:33,960 Speaker 3: to our you know, what our LP's appetite for those 307 00:17:34,119 --> 00:17:38,199 Speaker 3: types of businesses are, and it's not it's not a 308 00:17:38,240 --> 00:17:42,439 Speaker 3: sector historically that's been kind of a favorite of private 309 00:17:42,440 --> 00:17:44,720 Speaker 3: credit providers. That's not to say there aren't some very 310 00:17:44,760 --> 00:17:48,160 Speaker 3: good businesses, quality businesses in that sector. So I think 311 00:17:48,160 --> 00:17:52,360 Speaker 3: what you'll find is that selectively private credit providers will 312 00:17:52,400 --> 00:17:56,800 Speaker 3: get involved in that sector because just the volume of 313 00:17:56,840 --> 00:17:58,680 Speaker 3: opportunities will increase significantly. 314 00:17:59,160 --> 00:18:01,440 Speaker 1: What's the caution around, like, is it ESG related or 315 00:18:01,440 --> 00:18:02,760 Speaker 1: what's the pushback? 316 00:18:03,119 --> 00:18:05,640 Speaker 3: I think some some LPs would absolutely say from any 317 00:18:05,720 --> 00:18:09,240 Speaker 3: SG perspective, they wouldn't want to get heavily exposed to 318 00:18:09,480 --> 00:18:12,560 Speaker 3: the defense sector. And of course, you know, using you know, 319 00:18:13,200 --> 00:18:16,720 Speaker 3: a wide definition of defense isn't necessarily that helpful either, 320 00:18:16,880 --> 00:18:20,080 Speaker 3: right because you can have companies in the defense sector 321 00:18:20,119 --> 00:18:23,240 Speaker 3: at one end, which is involved in munitions et cetera. 322 00:18:23,520 --> 00:18:27,159 Speaker 3: That's very different from other defense you know, businesses that 323 00:18:27,440 --> 00:18:31,280 Speaker 3: perhaps are not involved in that kind of area. 324 00:18:31,680 --> 00:18:33,840 Speaker 1: I mean, I've heard the argument that defense is actually 325 00:18:33,880 --> 00:18:36,359 Speaker 1: very ESG because you know, you're keeping the peace and 326 00:18:36,440 --> 00:18:39,240 Speaker 1: defending your country and it's all good for society. But 327 00:18:39,760 --> 00:18:40,640 Speaker 1: depends on your point. 328 00:18:41,000 --> 00:18:42,800 Speaker 3: I've heard that arguments as well, James. 329 00:18:43,480 --> 00:18:46,119 Speaker 1: In terms of your your being on the ground, being local, 330 00:18:46,160 --> 00:18:50,040 Speaker 1: all that stuff. You recently opened up an Italy office. 331 00:18:50,560 --> 00:18:52,080 Speaker 1: Keen to know more about that, you know why? 332 00:18:52,119 --> 00:18:57,439 Speaker 3: Now? Yeah, it's we have just announced it very very 333 00:18:57,480 --> 00:19:01,359 Speaker 3: exciting development for our business in Yoururope. I think a 334 00:19:01,359 --> 00:19:03,680 Speaker 3: lot of the themes that we're seeing in Italy are 335 00:19:03,680 --> 00:19:07,280 Speaker 3: the themes that we saw playing out in other markets 336 00:19:07,320 --> 00:19:09,600 Speaker 3: where we open officers, you know, as I say, in 337 00:19:09,640 --> 00:19:13,640 Speaker 3: the Nordics, the Benelux, Madrid, Amsterdam in twenty nineteen, we're 338 00:19:13,640 --> 00:19:16,359 Speaker 3: seeing in Italy. Of course, Look, it's a it's a 339 00:19:16,359 --> 00:19:21,320 Speaker 3: big economy. There are some great companies in the Italian market. 340 00:19:22,000 --> 00:19:25,359 Speaker 3: We've been investing in Italy for the last couple of years, 341 00:19:25,440 --> 00:19:29,600 Speaker 3: just kind of testing the market, and we now feel 342 00:19:29,640 --> 00:19:32,080 Speaker 3: we're at a position where we can really scale that business. 343 00:19:32,880 --> 00:19:37,440 Speaker 3: We think the domestic private equity market in Italy is growing. 344 00:19:38,280 --> 00:19:41,080 Speaker 3: We think there's a lot of Pan European private equity 345 00:19:41,080 --> 00:19:45,359 Speaker 3: players becoming more interested in the Italian market. So deal 346 00:19:45,359 --> 00:19:49,680 Speaker 3: flow is ramping quickly. And whilst Italian banks have been 347 00:19:49,760 --> 00:19:53,399 Speaker 3: more active for longer, we do start to see the 348 00:19:53,440 --> 00:19:57,760 Speaker 3: Italian banks pulling back a little bit. So with those ingredients, 349 00:19:58,080 --> 00:20:00,240 Speaker 3: I think now is actually a really good time to 350 00:20:00,600 --> 00:20:03,679 Speaker 3: invest in that market. And as we have done in 351 00:20:03,760 --> 00:20:07,840 Speaker 3: other jurisdictions, you know, once we're serious about a market, 352 00:20:08,000 --> 00:20:09,879 Speaker 3: then we will invest and we will have a local 353 00:20:09,920 --> 00:20:13,280 Speaker 3: team on the ground. So that's that's very much the plan. 354 00:20:13,800 --> 00:20:17,359 Speaker 1: But the legislation there hasn't been super friendly towards private credit. 355 00:20:17,880 --> 00:20:20,720 Speaker 1: A lot of lenders haven't really ventured that far into it, 356 00:20:20,880 --> 00:20:22,880 Speaker 1: and you know, so we've gone from very little activity 357 00:20:22,880 --> 00:20:25,040 Speaker 1: there to suddenly, you know, quite a lot, but it's 358 00:20:25,040 --> 00:20:28,639 Speaker 1: still relatively small versus the rest of Europe. And you know, 359 00:20:28,680 --> 00:20:30,280 Speaker 1: the deals that are getting done, we're seeing a lot 360 00:20:30,320 --> 00:20:33,040 Speaker 1: of leverage, quite cheap pricing. And then we've got a 361 00:20:33,080 --> 00:20:35,280 Speaker 1: lot of companies you know, still in by the founders 362 00:20:35,359 --> 00:20:37,120 Speaker 1: or have gone through one or two rounds of pe 363 00:20:37,160 --> 00:20:39,760 Speaker 1: ownership rather than three or four like in UK of France. 364 00:20:39,920 --> 00:20:43,520 Speaker 1: They're seen as less sophisticated, possibly riskier, and then you know, 365 00:20:43,560 --> 00:20:46,240 Speaker 1: on the other side of the restructuring is very painful 366 00:20:46,280 --> 00:20:48,320 Speaker 1: in Italy as you know, so you know, to what 367 00:20:48,400 --> 00:20:50,240 Speaker 1: extent are you are you having to manage all those 368 00:20:50,359 --> 00:20:52,280 Speaker 1: risks and how how are you coping with that? 369 00:20:52,800 --> 00:20:55,960 Speaker 3: Yeah? I think you make some good observations, James, which 370 00:20:55,960 --> 00:20:59,400 Speaker 3: is why you know, we are selective in the investments 371 00:20:59,440 --> 00:21:02,240 Speaker 3: that we're making in Italy, because we are mindful of 372 00:21:02,280 --> 00:21:04,840 Speaker 3: all those those those issues. I would say from a 373 00:21:04,880 --> 00:21:09,080 Speaker 3: restricturing perspective, actually the situation is getting better any I 374 00:21:09,119 --> 00:21:12,439 Speaker 3: think that regulators, central banks, they they do want to 375 00:21:12,560 --> 00:21:19,359 Speaker 3: encourage a diversification of supplies of capital, you know, that's 376 00:21:19,359 --> 00:21:21,000 Speaker 3: that's the issue we had back in two thousand and 377 00:21:21,040 --> 00:21:23,359 Speaker 3: seven is that you know, banks dominated the market and 378 00:21:23,400 --> 00:21:26,680 Speaker 3: there was no alternative. So I think I think regulators, 379 00:21:26,840 --> 00:21:32,160 Speaker 3: central banks are keen to try and entice other providers 380 00:21:32,160 --> 00:21:34,600 Speaker 3: of capital into these markets. I think that just makes 381 00:21:34,600 --> 00:21:37,959 Speaker 3: for a healthier a healthier market. So you're right, there 382 00:21:37,960 --> 00:21:42,040 Speaker 3: are still considerations around the Italian market that that that 383 00:21:42,040 --> 00:21:44,920 Speaker 3: we're congnisant of, but also we're finding some really interesting 384 00:21:45,320 --> 00:21:48,159 Speaker 3: deal opportunity and as I say, now, we think the 385 00:21:48,200 --> 00:21:50,199 Speaker 3: time is right to have a team on the ground 386 00:21:50,400 --> 00:21:52,800 Speaker 3: because actually having a team on the ground, the diligence 387 00:21:52,800 --> 00:21:55,360 Speaker 3: issues that you just talked to, you know, you can 388 00:21:55,440 --> 00:21:57,480 Speaker 3: mitigate a lot of that risk. You know, if you 389 00:21:57,520 --> 00:21:59,760 Speaker 3: if you're on the ground, you're close to the management teams, 390 00:21:59,760 --> 00:22:02,600 Speaker 3: you're close to the advisors, you know what's going on. 391 00:22:02,720 --> 00:22:04,600 Speaker 3: I think you can mitigate a lot of the diligence 392 00:22:04,600 --> 00:22:06,600 Speaker 3: concerns that you that you just outlined. 393 00:22:07,200 --> 00:22:11,040 Speaker 2: Mike, you you mentioned the banks in Italy, and I'm 394 00:22:11,119 --> 00:22:15,480 Speaker 2: interested in the relationship between a private credit and the 395 00:22:15,520 --> 00:22:19,399 Speaker 2: banking sector. Is it is it a zero sum game 396 00:22:19,480 --> 00:22:23,080 Speaker 2: whereby private credit wins and banks lose in terms of 397 00:22:23,240 --> 00:22:27,400 Speaker 2: the lending or other instances whereby you you could team up. 398 00:22:27,760 --> 00:22:32,159 Speaker 2: I believe that you flagged multi channel origination strategy. I 399 00:22:32,200 --> 00:22:35,000 Speaker 2: don't believe banks are part of that of that of 400 00:22:35,040 --> 00:22:37,680 Speaker 2: that mix, but could you talk a little bit about that. 401 00:22:37,960 --> 00:22:40,640 Speaker 3: Yeah, we we view the banks very much as partners. 402 00:22:41,240 --> 00:22:44,720 Speaker 3: I mean we always we always have In every deal 403 00:22:44,760 --> 00:22:49,080 Speaker 3: that we do, the company in question is going to 404 00:22:49,200 --> 00:22:53,680 Speaker 3: need a banking relationship, it's going to need working capital facilities, 405 00:22:54,000 --> 00:22:57,880 Speaker 3: it's going to need banking transmission and other non risk product. 406 00:22:58,920 --> 00:23:02,200 Speaker 3: So we work with banks on every deal that we 407 00:23:02,240 --> 00:23:06,960 Speaker 3: do in some capacity or other. I think taking a 408 00:23:07,000 --> 00:23:09,840 Speaker 3: step back in terms of how we're working with banks, 409 00:23:09,880 --> 00:23:11,560 Speaker 3: and you say zero some game, I really don't think 410 00:23:11,600 --> 00:23:15,000 Speaker 3: it is. I just think that banks are choosing to 411 00:23:15,160 --> 00:23:17,560 Speaker 3: access this asset class in a different way. And what 412 00:23:17,600 --> 00:23:21,280 Speaker 3: I mean by that is it is more cost effective 413 00:23:21,320 --> 00:23:24,639 Speaker 3: from a regulatory capital point of view for them to 414 00:23:24,800 --> 00:23:29,480 Speaker 3: access this market through pooled asset risk i e. Providing 415 00:23:29,560 --> 00:23:34,040 Speaker 3: leverage facilities to managers like areas they can provide us 416 00:23:34,119 --> 00:23:37,800 Speaker 3: with leverage for some of our funds where where LPs 417 00:23:37,880 --> 00:23:42,840 Speaker 3: want that levered product and they can access that much 418 00:23:42,920 --> 00:23:46,200 Speaker 3: more favorable regulatory capital treatment than they can if they 419 00:23:46,200 --> 00:23:49,399 Speaker 3: were lending bilaterally to these middle market companies. So I 420 00:23:49,440 --> 00:23:54,200 Speaker 3: actually think it's a win win, and we're seeing increasing 421 00:23:54,200 --> 00:23:58,440 Speaker 3: appetite from banks to lend to managers like US. We've 422 00:23:58,440 --> 00:24:01,600 Speaker 3: got some very deep and good relationships with a number 423 00:24:01,600 --> 00:24:04,959 Speaker 3: of banks across Europe to provide these kind of facilities. 424 00:24:05,000 --> 00:24:07,840 Speaker 3: So I just think it's banks accessing the asset class 425 00:24:07,840 --> 00:24:10,080 Speaker 3: in a different way. Deron. I don't think it's necessarily 426 00:24:10,119 --> 00:24:10,920 Speaker 3: a zero some game. 427 00:24:11,520 --> 00:24:15,080 Speaker 2: Okay, okay, thank you for that. Now you mentioned the 428 00:24:15,560 --> 00:24:19,639 Speaker 2: capital treatment. Trump's new administration. As we all know, you 429 00:24:19,680 --> 00:24:22,719 Speaker 2: know that they are thinking about postponing Basil three end 430 00:24:22,840 --> 00:24:25,800 Speaker 2: game as they call it over in the US, possibly 431 00:24:25,800 --> 00:24:29,080 Speaker 2: and definitely you know regulates in Europe they may follow. 432 00:24:29,280 --> 00:24:31,320 Speaker 2: And you know, for instance, today you saw the UK. 433 00:24:31,800 --> 00:24:35,560 Speaker 2: In the UK, you saw the postponent of the aspects 434 00:24:35,560 --> 00:24:39,760 Speaker 2: of Basil three point one. Is there a possibility that 435 00:24:39,800 --> 00:24:45,080 Speaker 2: the pendulum is swinging back towards bank deregulation and as 436 00:24:45,119 --> 00:24:47,320 Speaker 2: a result of that banks being able to compete more 437 00:24:47,320 --> 00:24:48,800 Speaker 2: effectively with the prior credit. 438 00:24:49,160 --> 00:24:52,320 Speaker 3: Yeah, I think there's two things to think about on 439 00:24:52,400 --> 00:24:54,880 Speaker 3: top of just the regulatory capital treatment of the assets. 440 00:24:55,040 --> 00:24:58,520 Speaker 3: I think the first is the human capital element, right, 441 00:24:58,600 --> 00:25:02,879 Speaker 3: so you know, too, to have an origination capability, you 442 00:25:02,960 --> 00:25:07,160 Speaker 3: need to invest in people, in officers, in infrastructure, et cetera. 443 00:25:08,119 --> 00:25:11,639 Speaker 3: That's a fixed cost. And question do the banks have 444 00:25:11,680 --> 00:25:15,080 Speaker 3: appetite to reinvest, if you like, in all the fixed 445 00:25:15,080 --> 00:25:18,240 Speaker 3: cost around those origination teams that they might have had 446 00:25:18,440 --> 00:25:21,280 Speaker 3: pre the GFC. So I think there's a there's a 447 00:25:21,359 --> 00:25:23,600 Speaker 3: question mark there whether they want to take on that 448 00:25:23,600 --> 00:25:26,240 Speaker 3: that that cost today when, as I say, they can 449 00:25:26,280 --> 00:25:30,480 Speaker 3: access this asset class in other ways, and I think, 450 00:25:30,520 --> 00:25:33,880 Speaker 3: you know, building that capability up will take will take time. 451 00:25:34,240 --> 00:25:38,280 Speaker 3: You know, talent is incredibly scarce in this market. You know, 452 00:25:38,359 --> 00:25:42,040 Speaker 3: I think having a well built out, robust and resilient 453 00:25:42,080 --> 00:25:44,760 Speaker 3: team is actually a big competitive advantage because finding talent 454 00:25:44,920 --> 00:25:48,040 Speaker 3: is not is not is not that easy. So I 455 00:25:48,040 --> 00:25:50,440 Speaker 3: think that's the first thing. And then the second thing 456 00:25:50,560 --> 00:25:53,320 Speaker 3: is just if you look at the scale of some 457 00:25:53,480 --> 00:25:56,439 Speaker 3: of the institutional managers in the market relative to the 458 00:25:56,640 --> 00:25:58,639 Speaker 3: just the bank's balance sheets that they would have to 459 00:25:58,640 --> 00:26:02,000 Speaker 3: allocate to this asset class. Again, you know, when you're 460 00:26:02,000 --> 00:26:07,240 Speaker 3: thinking about institutional managers direct lenders investing one two, three, 461 00:26:07,320 --> 00:26:11,760 Speaker 3: four hundred, five hundred euros per asset. Is that something 462 00:26:11,800 --> 00:26:15,240 Speaker 3: that the banks can offer even with the more favorable 463 00:26:15,280 --> 00:26:18,200 Speaker 3: regulatory treatment. I'm not so sure. You know, the balance 464 00:26:18,240 --> 00:26:21,280 Speaker 3: sheets just aren't as big, or the allocations to this 465 00:26:21,359 --> 00:26:24,160 Speaker 3: asset class from these balance sheets aren't as big as 466 00:26:24,160 --> 00:26:26,919 Speaker 3: some of the some of the managers that operate in 467 00:26:26,960 --> 00:26:27,639 Speaker 3: these strategies. 468 00:26:27,680 --> 00:26:30,320 Speaker 1: Now, can we talk about returns in terms of you know, 469 00:26:30,440 --> 00:26:34,720 Speaker 1: how that's changed over time, because we were chatting with 470 00:26:35,160 --> 00:26:37,800 Speaker 1: PIMCO late last year about this kind of idea that 471 00:26:37,800 --> 00:26:40,639 Speaker 1: there should be roughly two hundred bases point pick up, 472 00:26:40,840 --> 00:26:43,840 Speaker 1: you know, for your inloquidity on a leverage deal in 473 00:26:45,080 --> 00:26:47,600 Speaker 1: private versus public. Obviously there's not an apples to apples 474 00:26:47,640 --> 00:26:49,880 Speaker 1: comparison because you know they're different deals and all that. 475 00:26:50,280 --> 00:26:53,000 Speaker 1: But you know, investors still want the return. They still 476 00:26:53,000 --> 00:26:54,920 Speaker 1: want to kind of get their arms around how much 477 00:26:54,920 --> 00:26:56,719 Speaker 1: more am I going to get for this lock up 478 00:26:56,840 --> 00:27:01,120 Speaker 1: and this lack of visibility? Where are we at now 479 00:27:01,160 --> 00:27:03,760 Speaker 1: in Europe and how is that changing and where is 480 00:27:03,800 --> 00:27:04,120 Speaker 1: it going? 481 00:27:05,000 --> 00:27:08,399 Speaker 3: I think the I think the relative value or the 482 00:27:08,720 --> 00:27:11,920 Speaker 3: spread differential, the return differential to the liquid credit markets 483 00:27:11,960 --> 00:27:14,800 Speaker 3: is still pretty robust. You know, if you go back 484 00:27:14,840 --> 00:27:19,000 Speaker 3: over a decade, we've seen that that pickup or illiquidity 485 00:27:19,080 --> 00:27:21,640 Speaker 3: premiums as you put it, James, you know, we've seen 486 00:27:21,680 --> 00:27:24,080 Speaker 3: that well over two hundred basis points in both the 487 00:27:24,200 --> 00:27:26,920 Speaker 3: US and Europe. And that's actually that's been that's been 488 00:27:27,000 --> 00:27:31,240 Speaker 3: preserved over time. And let's not forget the other important 489 00:27:31,280 --> 00:27:35,920 Speaker 3: aspect of economics for private credit or direct lenders is 490 00:27:36,240 --> 00:27:40,520 Speaker 3: that capture of the upfront the upfront fee, which you 491 00:27:40,560 --> 00:27:43,240 Speaker 3: know is anywhere between one and a half two and 492 00:27:43,240 --> 00:27:46,840 Speaker 3: a half points in Europe today, So there's that added 493 00:27:46,920 --> 00:27:50,840 Speaker 3: economic benefit where you're originating the assets yourself. So if 494 00:27:50,880 --> 00:27:53,760 Speaker 3: you if you include that that oad or arrangement fee 495 00:27:53,800 --> 00:27:56,760 Speaker 3: with the spread differential, there is still a you know, 496 00:27:56,880 --> 00:27:59,600 Speaker 3: kind of multiple one hundred basis points pick up or 497 00:27:59,600 --> 00:28:03,080 Speaker 3: illoquisity premium for investing in these direct lending assets relative 498 00:28:03,119 --> 00:28:04,160 Speaker 3: to liquid credit. 499 00:28:04,560 --> 00:28:07,560 Speaker 1: But as the demand intensifies, you know, everyone loves private credit, 500 00:28:07,600 --> 00:28:10,080 Speaker 1: everyone loves Europe. Now you know what stops that all 501 00:28:10,240 --> 00:28:11,000 Speaker 1: getting eroded? 502 00:28:11,520 --> 00:28:14,120 Speaker 3: Yeah, well, again it goes back to just the underlying 503 00:28:14,160 --> 00:28:16,720 Speaker 3: growth in the market. So you know, how much growth 504 00:28:16,760 --> 00:28:19,600 Speaker 3: is there an opportunity set relative to the capital that's 505 00:28:19,640 --> 00:28:22,879 Speaker 3: available to invest in these deals. I think that supply 506 00:28:23,080 --> 00:28:26,639 Speaker 3: demand dynamic is not out of kilter. And therefore, I 507 00:28:26,640 --> 00:28:29,600 Speaker 3: think if you've got a good origination engine and you're 508 00:28:29,640 --> 00:28:31,800 Speaker 3: willing to be selective in the deals that you invest in, 509 00:28:31,840 --> 00:28:34,959 Speaker 3: that you could still find you know, good relative value 510 00:28:35,000 --> 00:28:37,080 Speaker 3: and good yield for your investors. 511 00:28:37,560 --> 00:28:39,880 Speaker 1: And there's no need to sacrifice terms. You know, you're 512 00:28:39,880 --> 00:28:41,960 Speaker 1: not having to loose some covenants or get rid of 513 00:28:42,040 --> 00:28:44,640 Speaker 1: all those protections you mentioned earlier. There's not a pressure 514 00:28:44,720 --> 00:28:45,040 Speaker 1: to do that. 515 00:28:45,560 --> 00:28:48,760 Speaker 3: Look, the market, the market is competitive. I'm not trying 516 00:28:48,800 --> 00:28:51,040 Speaker 3: to suggest that we have it all our own way, James, 517 00:28:51,760 --> 00:28:55,160 Speaker 3: but I would say that the terms the governance, especially 518 00:28:55,200 --> 00:28:58,200 Speaker 3: in that middle market, are still very reasonable relative to 519 00:28:58,200 --> 00:29:00,080 Speaker 3: the risk you're taking in these structures, which are, as 520 00:29:00,080 --> 00:29:03,480 Speaker 3: I said before, you know, thirty forty percent LTV. You know, 521 00:29:03,520 --> 00:29:05,360 Speaker 3: call it four five times cash flow. 522 00:29:05,880 --> 00:29:08,680 Speaker 2: Mike, can I talk. I'll ask you a little bit 523 00:29:08,680 --> 00:29:12,280 Speaker 2: about loan book quality, which on the bank side has 524 00:29:12,320 --> 00:29:14,920 Speaker 2: been has been tested in recent years, and I'm guessing 525 00:29:14,920 --> 00:29:18,600 Speaker 2: for private credit providers the same rates short up in 526 00:29:18,680 --> 00:29:21,320 Speaker 2: twenty twenty two to twenty three and then they started 527 00:29:21,320 --> 00:29:24,560 Speaker 2: to come down last year. Probably they won't return to 528 00:29:24,600 --> 00:29:27,680 Speaker 2: the levels that we saw before twenty twenty two. What 529 00:29:27,880 --> 00:29:30,520 Speaker 2: has been your portfolio experience so far. 530 00:29:31,040 --> 00:29:34,080 Speaker 3: Yeah, we're pleased with the portfolio performance. I mean, I 531 00:29:34,080 --> 00:29:37,120 Speaker 3: think as an asset class, it's interesting. You know, the 532 00:29:37,240 --> 00:29:40,480 Speaker 3: argument made five six years ago was that private credit 533 00:29:40,520 --> 00:29:43,320 Speaker 3: really hadn't been tested. And we sit here today having 534 00:29:43,400 --> 00:29:46,520 Speaker 3: been through COVID, having been through an interest rate cycle, 535 00:29:46,800 --> 00:29:50,880 Speaker 3: and actually, when I speak to my peer group, my competitors, 536 00:29:51,640 --> 00:29:56,160 Speaker 3: people's loan books have performed, have performed pretty well, and 537 00:29:56,240 --> 00:29:59,600 Speaker 3: actually lost rates have been you know, very very low 538 00:29:59,680 --> 00:30:04,040 Speaker 3: through that those cycles. So I think we're sitting in 539 00:30:04,040 --> 00:30:06,600 Speaker 3: a position now where we can safely say to our LPs, 540 00:30:06,640 --> 00:30:08,560 Speaker 3: I can say to you that actually the asset class 541 00:30:08,560 --> 00:30:12,479 Speaker 3: has been tested relative to where we were sitting in 542 00:30:12,520 --> 00:30:15,640 Speaker 3: twenty nineteen, and the loan book, yeah, the loan book 543 00:30:15,680 --> 00:30:18,560 Speaker 3: is performing, is performing well. I go back to during 544 00:30:18,560 --> 00:30:21,760 Speaker 3: something I said earlier, which is, you know, we're looking 545 00:30:21,800 --> 00:30:25,680 Speaker 3: to back businesses that operate maybe in smaller niche markets, 546 00:30:25,720 --> 00:30:29,400 Speaker 3: but these businesses are growth businesses. You know, these businesses 547 00:30:29,440 --> 00:30:35,280 Speaker 3: are not necessarily linked to macro fluctuations, and it is 548 00:30:35,360 --> 00:30:39,280 Speaker 3: typical in these direct lending deals to see businesses growing 549 00:30:39,280 --> 00:30:42,080 Speaker 3: their revenues and eb da you know, in the double 550 00:30:42,080 --> 00:30:45,360 Speaker 3: digits with very high levels of cash generation. That's the 551 00:30:45,400 --> 00:30:47,400 Speaker 3: other thing obviously you need to think about is that, 552 00:30:47,840 --> 00:30:50,920 Speaker 3: you know, these are typically asset light businesses where they're 553 00:30:50,920 --> 00:30:54,320 Speaker 3: converting EBDA to cashlow that are kind of eighty to 554 00:30:54,440 --> 00:30:57,160 Speaker 3: ninety percent. If you're in that type of business, then 555 00:30:57,200 --> 00:31:00,480 Speaker 3: actually you can weather you know, most storms certainly in 556 00:31:00,560 --> 00:31:02,920 Speaker 3: terms of interest rate cycles, et cetera. That the cash 557 00:31:02,960 --> 00:31:05,600 Speaker 3: generative nature of these assets meant that they were pretty 558 00:31:05,640 --> 00:31:10,160 Speaker 3: well placed to perform through through the last couple of years. 559 00:31:10,560 --> 00:31:13,480 Speaker 1: How exposed Michael your borrowers to the whole trade war? 560 00:31:14,160 --> 00:31:15,880 Speaker 1: You know hasn't really shown up over here that much, 561 00:31:15,920 --> 00:31:17,680 Speaker 1: but you know, Donald Trump could wake up tomorrow and 562 00:31:17,680 --> 00:31:20,000 Speaker 1: impose one hundred percent tariff on EU if he wants. 563 00:31:20,440 --> 00:31:24,040 Speaker 3: We don't know, he could, who knows, who knows what 564 00:31:24,160 --> 00:31:26,600 Speaker 3: is next to his next move is. But no, of 565 00:31:26,640 --> 00:31:29,800 Speaker 3: course looks as prudent credit managers. I mean, the first 566 00:31:29,800 --> 00:31:32,320 Speaker 3: thing we did on April or third is go line 567 00:31:32,320 --> 00:31:35,560 Speaker 3: by line through our portfolio and look at where potential 568 00:31:35,640 --> 00:31:39,640 Speaker 3: first order or second order impacts might might exist. Again, 569 00:31:39,880 --> 00:31:41,680 Speaker 3: you know, go back to the types of companies that 570 00:31:41,720 --> 00:31:45,000 Speaker 3: we're investing in. These tend not to be you know, 571 00:31:45,120 --> 00:31:49,160 Speaker 3: manufacturing businesses with complex supply chains that that that that 572 00:31:49,320 --> 00:31:52,520 Speaker 3: trade internationally. These tend to be more domestic businesses. So 573 00:31:52,960 --> 00:31:56,240 Speaker 3: whilst I don't think any portfolio is is wholly immune 574 00:31:56,600 --> 00:31:58,960 Speaker 3: to some of these macro impacts, I mean, you know, 575 00:31:59,040 --> 00:32:02,400 Speaker 3: if if if Trump wanted to put you know, Taris up, 576 00:32:02,720 --> 00:32:05,720 Speaker 3: that created some kind of global recession. I'm not arguing 577 00:32:05,760 --> 00:32:08,400 Speaker 3: that any portfolio would be totally immune, but I am 578 00:32:08,520 --> 00:32:10,680 Speaker 3: saying that on an asset by asset basis, it is 579 00:32:10,720 --> 00:32:13,880 Speaker 3: difficult to see what the first order impacts might be 580 00:32:14,000 --> 00:32:17,320 Speaker 3: from from Taris. The companies that we've invested in just 581 00:32:17,360 --> 00:32:20,480 Speaker 3: aren't you know, aren't that that that that exposed. 582 00:32:21,080 --> 00:32:25,040 Speaker 1: Okay, going back to the European market for private credit 583 00:32:25,520 --> 00:32:28,600 Speaker 1: and to get a little bit in the weeds, unitrand 584 00:32:28,680 --> 00:32:32,560 Speaker 1: clubs are kind of the way that people there seem 585 00:32:32,640 --> 00:32:35,160 Speaker 1: to seem to have accepted that's the way things go. 586 00:32:35,280 --> 00:32:37,440 Speaker 1: Areas hasn't done that. Many just wondering why, you know, 587 00:32:37,480 --> 00:32:39,200 Speaker 1: what's what's the issue with that structure. 588 00:32:39,720 --> 00:32:41,840 Speaker 3: Yeah, we just we have done some of those club deals. 589 00:32:42,360 --> 00:32:45,400 Speaker 3: You know, our preference, especially in the middle market where 590 00:32:45,920 --> 00:32:49,240 Speaker 3: that the the loan sizes aren't that significant relative to 591 00:32:49,320 --> 00:32:55,280 Speaker 3: the the appetite or capability we have, the preference would 592 00:32:55,320 --> 00:32:57,760 Speaker 3: be to be soul lender and to have that bilateral 593 00:32:57,800 --> 00:33:01,720 Speaker 3: financing relationship with the the borrower. I think at the 594 00:33:01,760 --> 00:33:05,720 Speaker 3: upper end. Yes, you're right, there's been an increased number 595 00:33:05,760 --> 00:33:09,960 Speaker 3: of unitranch club deals, but we've been we have been 596 00:33:10,000 --> 00:33:13,200 Speaker 3: acting in those as well. I guess relative to the 597 00:33:13,280 --> 00:33:15,600 Speaker 3: amount of deals that we do in any particular year 598 00:33:15,640 --> 00:33:17,280 Speaker 3: and the fact that we're focused on the middle market, 599 00:33:17,520 --> 00:33:20,360 Speaker 3: it might look like a smaller percentage, but we've still 600 00:33:20,360 --> 00:33:20,840 Speaker 3: been active. 601 00:33:21,360 --> 00:33:22,840 Speaker 1: So where are the problems? 602 00:33:22,880 --> 00:33:23,040 Speaker 2: Then? 603 00:33:23,080 --> 00:33:25,560 Speaker 1: You know, people do worry about private credit. Maybe they 604 00:33:25,600 --> 00:33:29,720 Speaker 1: worry too much, but for example, you know, software technology 605 00:33:29,800 --> 00:33:32,560 Speaker 1: was a big recipient of private credit over the years. 606 00:33:33,000 --> 00:33:35,600 Speaker 1: People worried about how those businesses will do as the 607 00:33:35,720 --> 00:33:39,520 Speaker 1: use of AI accelerates. Do you expect a big issue 608 00:33:39,520 --> 00:33:40,640 Speaker 1: in that sector particularly. 609 00:33:41,880 --> 00:33:44,080 Speaker 3: I'm not sure about that sector specifically. I mean, we've 610 00:33:44,080 --> 00:33:46,840 Speaker 3: done a little bit in that space, but yeah, Look, 611 00:33:46,880 --> 00:33:50,960 Speaker 3: I think AI impacts businesses in every sector. I don't 612 00:33:50,960 --> 00:33:54,080 Speaker 3: think it's just limited to software and technology. I think 613 00:33:54,120 --> 00:33:58,680 Speaker 3: AI has the potential to accelerate change in most sectors 614 00:33:58,680 --> 00:34:01,400 Speaker 3: that we all operate in. So I think any good 615 00:34:01,400 --> 00:34:04,960 Speaker 3: credit manager is having an eye to AI impacts on 616 00:34:05,320 --> 00:34:07,720 Speaker 3: all their assets, not just not just in the software 617 00:34:07,760 --> 00:34:12,279 Speaker 3: and technology technology space, and actually how AI can be 618 00:34:12,440 --> 00:34:18,200 Speaker 3: used within our businesses to create efficiency and competitive advantage, 619 00:34:18,360 --> 00:34:20,920 Speaker 3: whether it be an origination or portfolio management. I think 620 00:34:20,960 --> 00:34:24,480 Speaker 3: you know, we're obviously exploring how we can use AI 621 00:34:24,560 --> 00:34:25,520 Speaker 3: to our benefit as well. 622 00:34:26,000 --> 00:34:28,480 Speaker 1: So there's not just a bunch of dodgy software loans 623 00:34:28,480 --> 00:34:29,719 Speaker 1: out there that are going to blow up. I mean 624 00:34:29,719 --> 00:34:32,520 Speaker 1: that seems to be the assumption from some corners. 625 00:34:32,719 --> 00:34:35,000 Speaker 3: I wouldn't have thought so, James, No, okay. 626 00:34:35,320 --> 00:34:38,080 Speaker 1: In terms of the risks, though, we are hearing a 627 00:34:38,080 --> 00:34:41,080 Speaker 1: lot more about payment and kind other kinds of issues 628 00:34:41,080 --> 00:34:44,920 Speaker 1: that are right. Obviously they can be good pick, but 629 00:34:44,960 --> 00:34:47,920 Speaker 1: there's also bad pick. As the economy slows and rates 630 00:34:48,080 --> 00:34:52,000 Speaker 1: stay high, to what extent you seeing worrying signs in 631 00:34:52,040 --> 00:34:53,320 Speaker 1: private credit right now. 632 00:34:53,719 --> 00:34:57,000 Speaker 3: Generally across the market, we're not seeing an increased use 633 00:34:57,160 --> 00:35:00,920 Speaker 3: of pick or I think what you're referring to James's 634 00:35:00,920 --> 00:35:06,959 Speaker 3: pictoggle mechanisms in transactions It's true that pic toggle mechanisms 635 00:35:07,080 --> 00:35:09,719 Speaker 3: have become more market standard in deals, and I think 636 00:35:10,560 --> 00:35:12,960 Speaker 3: you know, financial sponsors now ask for those as a 637 00:35:13,000 --> 00:35:15,719 Speaker 3: matter of course. But then the question is, you know, 638 00:35:15,840 --> 00:35:18,799 Speaker 3: how are they being used or are they being used 639 00:35:18,840 --> 00:35:22,080 Speaker 3: more frequently? We're just not seeing that. And the reason 640 00:35:22,120 --> 00:35:24,719 Speaker 3: that you're not seeing that is typically, you know, these 641 00:35:24,760 --> 00:35:28,680 Speaker 3: pictoggle mechanisms are controlled, they're not necessarily always available for 642 00:35:28,760 --> 00:35:31,919 Speaker 3: the life of the loan. They are expensive to use. 643 00:35:32,360 --> 00:35:35,600 Speaker 3: So again the notion that you can just pick the 644 00:35:35,880 --> 00:35:40,680 Speaker 3: coupon without any financial or economic penalty, that's not right. 645 00:35:40,840 --> 00:35:44,440 Speaker 3: It does cost borrowers more to use these mechanisms, and 646 00:35:44,880 --> 00:35:47,560 Speaker 3: I would have thought that most managers I know our 647 00:35:47,600 --> 00:35:50,120 Speaker 3: view is that, you know, you would always protect a 648 00:35:50,239 --> 00:35:54,960 Speaker 3: minimum cash yield in any event. So whilst this mechanism, 649 00:35:55,200 --> 00:35:58,440 Speaker 3: I can't argue that they don't exist in documents today. 650 00:35:58,480 --> 00:36:01,640 Speaker 3: They do, but we're not seeing a proliferation of their 651 00:36:01,760 --> 00:36:05,160 Speaker 3: usage because of the controls and the economic penalty that's 652 00:36:05,200 --> 00:36:06,160 Speaker 3: associated with them. 653 00:36:06,400 --> 00:36:09,640 Speaker 2: Mike, could I ask about all terms of asset managers. 654 00:36:09,800 --> 00:36:13,160 Speaker 2: You know that they're increasingly trying to attract retail investors 655 00:36:13,360 --> 00:36:16,000 Speaker 2: into the space as opposed to the institutional money that 656 00:36:16,040 --> 00:36:20,320 Speaker 2: has been driving growth and au M until now. For instance, 657 00:36:20,600 --> 00:36:25,480 Speaker 2: areas you know yourselves, you've launched a European credit fund 658 00:36:25,600 --> 00:36:30,200 Speaker 2: for for wealthy individuals. What what are the risks around 659 00:36:30,239 --> 00:36:31,160 Speaker 2: that development. 660 00:36:31,920 --> 00:36:34,160 Speaker 3: I think it's a huge opportunity Jerane, to be honest, 661 00:36:34,200 --> 00:36:37,160 Speaker 3: because I think you know, there's there's there's huge amounts 662 00:36:37,200 --> 00:36:39,760 Speaker 3: of assets that still sit in the in the wealth 663 00:36:39,840 --> 00:36:44,720 Speaker 3: management channel, and to date it's been harder for individuals 664 00:36:44,760 --> 00:36:48,799 Speaker 3: to access directly access these types of asset classes. So 665 00:36:48,840 --> 00:36:51,600 Speaker 3: I think, you know, these types of products are you know, 666 00:36:51,640 --> 00:36:55,560 Speaker 3: being well received by the wealth management channel in general, 667 00:36:56,560 --> 00:36:59,120 Speaker 3: and we see in the future, you know, quite strong 668 00:36:59,160 --> 00:37:03,000 Speaker 3: growth opportunity the business in Europe, and I would say 669 00:37:03,040 --> 00:37:06,600 Speaker 3: European managers in general are much more weighted to institutional 670 00:37:06,680 --> 00:37:10,560 Speaker 3: capital at this point, and the European retail channel is 671 00:37:10,600 --> 00:37:13,799 Speaker 3: more nascent, but it is fast growing, as you you know, 672 00:37:13,920 --> 00:37:16,279 Speaker 3: as you outline, and I think when you start to 673 00:37:16,320 --> 00:37:20,600 Speaker 3: introduce retail money and capital into the system, then yes, 674 00:37:20,800 --> 00:37:24,640 Speaker 3: I think you then start to think about regulation just 675 00:37:24,680 --> 00:37:27,759 Speaker 3: the regulator take more of a kind of interested view. 676 00:37:27,840 --> 00:37:31,040 Speaker 3: But again, you know, we the regulator to date, I 677 00:37:31,080 --> 00:37:35,160 Speaker 3: think quite rightly has been focused on transparency, valuation, et cetera. 678 00:37:35,400 --> 00:37:38,640 Speaker 3: All the things that actually most private credit managers are 679 00:37:38,680 --> 00:37:41,560 Speaker 3: doing and are doing pretty well in my in my opinion. 680 00:37:42,440 --> 00:37:47,560 Speaker 2: But would you expect regulators to introduce oversight to the 681 00:37:47,760 --> 00:37:51,680 Speaker 2: proud credit sector? Do you expect regulars to come up 682 00:37:51,719 --> 00:37:55,080 Speaker 2: with additional requirements at some point? And have you got 683 00:37:55,239 --> 00:37:58,760 Speaker 2: some sort of a dialogue with regulars already? 684 00:37:59,360 --> 00:38:02,520 Speaker 3: And we have very get a very regular dialogue with 685 00:38:02,520 --> 00:38:06,360 Speaker 3: with regulators. I think it's it's good for you know, transparency. 686 00:38:06,680 --> 00:38:09,000 Speaker 3: They're still learning about the asset class. We're very happy 687 00:38:09,040 --> 00:38:12,120 Speaker 3: to help them on that that that journey. So you know, 688 00:38:12,160 --> 00:38:14,800 Speaker 3: we've got regular dialogue. There's nothing that I know about 689 00:38:14,880 --> 00:38:19,080 Speaker 3: that's in the system about oversight, et cetera. But at 690 00:38:19,080 --> 00:38:22,000 Speaker 3: this point, I think it's just incumbent on us to 691 00:38:22,600 --> 00:38:25,800 Speaker 3: provide that transparency and education about the asset class. 692 00:38:26,320 --> 00:38:28,000 Speaker 1: So in terms of your platform, mate, I mean, you've 693 00:38:28,040 --> 00:38:30,920 Speaker 1: got a massive amount of cash and you've got boots 694 00:38:30,960 --> 00:38:33,200 Speaker 1: on the ground, and it all seems like a pretty 695 00:38:33,640 --> 00:38:36,319 Speaker 1: optimistic outlook at least the way you're expressing. But what's 696 00:38:36,360 --> 00:38:38,160 Speaker 1: your edge in terms of you know, how do you 697 00:38:38,200 --> 00:38:42,480 Speaker 1: position and maintain dominance in the space and you know, 698 00:38:42,719 --> 00:38:43,480 Speaker 1: keep ahead of the pack. 699 00:38:43,960 --> 00:38:46,799 Speaker 3: Yeah, we continue to invest in our business. I mean, 700 00:38:46,840 --> 00:38:49,200 Speaker 3: I think that's something that people have seen year in 701 00:38:49,280 --> 00:38:51,279 Speaker 3: year out since we started. You know, we continue to 702 00:38:51,320 --> 00:38:55,440 Speaker 3: grow the team, both in our origination capability, in our 703 00:38:55,480 --> 00:38:59,360 Speaker 3: portfolio management capability. As you've highlighted, we're opening in the 704 00:38:59,480 --> 00:39:03,200 Speaker 3: land this year and that's really to make sure that 705 00:39:03,280 --> 00:39:07,760 Speaker 3: we are seeing the biggest opportunity set that we can see. 706 00:39:08,600 --> 00:39:10,600 Speaker 3: And then our edge, I think is the ability to 707 00:39:10,640 --> 00:39:15,880 Speaker 3: be selective underwright well and pivot between the different segments 708 00:39:16,239 --> 00:39:19,640 Speaker 3: geographies in this market depending on the best relative value. 709 00:39:19,880 --> 00:39:21,720 Speaker 3: You can only do that with a lot of people. 710 00:39:21,880 --> 00:39:23,560 Speaker 3: And as I say, we've got close to one hundred 711 00:39:23,560 --> 00:39:27,480 Speaker 3: investment professionals today across our platform in Europe and that 712 00:39:27,520 --> 00:39:29,640 Speaker 3: will continue to that will continue to grow. 713 00:39:29,960 --> 00:39:32,120 Speaker 1: Where's the next office in Europe? Opening? 714 00:39:32,400 --> 00:39:36,400 Speaker 3: Good question? Yeah, Look, we've looked at and we continue 715 00:39:36,440 --> 00:39:39,320 Speaker 3: to look at some of the central Eastern European markets. 716 00:39:39,520 --> 00:39:42,920 Speaker 3: You know, I think there's some really interesting growth coming 717 00:39:42,960 --> 00:39:47,120 Speaker 3: out of maybe Poland, Czechoslovakia or the Czech Republic. There 718 00:39:47,160 --> 00:39:49,799 Speaker 3: are some interesting economies in the in the in the 719 00:39:49,840 --> 00:39:54,759 Speaker 3: CE and a developing capital markets or financing markets. I 720 00:39:54,760 --> 00:39:57,520 Speaker 3: don't think we're quite ready to expand there now, but 721 00:39:57,520 --> 00:39:59,200 Speaker 3: but you know, in the in the future. 722 00:39:59,200 --> 00:40:01,759 Speaker 1: Who knows where's the best relative value right now? 723 00:40:01,920 --> 00:40:05,400 Speaker 3: I think in terms of activity levels. I'll frame it 724 00:40:05,480 --> 00:40:08,520 Speaker 3: like that because I've talked about the best relative value 725 00:40:08,520 --> 00:40:10,360 Speaker 3: I think being in the kind of middle market. But 726 00:40:10,640 --> 00:40:13,040 Speaker 3: from an activity perspective, you know, we're seeing really good 727 00:40:13,080 --> 00:40:18,360 Speaker 3: activity across some of our continental European officers, you know, Germany, 728 00:40:19,280 --> 00:40:22,560 Speaker 3: the Nordics, etc. They're very active at the moment. But 729 00:40:22,719 --> 00:40:26,960 Speaker 3: relative value, I think from a risk return perspective, I 730 00:40:27,080 --> 00:40:30,200 Speaker 3: just think because of the liquidity that exists in the 731 00:40:30,239 --> 00:40:33,160 Speaker 3: capital markets today, I do think it's in that slightly 732 00:40:33,480 --> 00:40:34,880 Speaker 3: smaller middle market. 733 00:40:35,000 --> 00:40:36,759 Speaker 1: But if you have to drill down all the way 734 00:40:36,800 --> 00:40:38,520 Speaker 1: to country and sector, mic, what would it be. 735 00:40:39,640 --> 00:40:42,279 Speaker 3: I'm not going to get drawn on that, James, And 736 00:40:42,760 --> 00:40:45,120 Speaker 3: we look at every asset on its merits, and who 737 00:40:45,120 --> 00:40:46,880 Speaker 3: knows what's going to come across the desk tomorrow. 738 00:40:47,520 --> 00:40:50,560 Speaker 1: You sound very optimistic though, which is, you know, very 739 00:40:50,640 --> 00:40:53,680 Speaker 1: encouraging and it's great to have that view express But 740 00:40:53,760 --> 00:40:56,080 Speaker 1: is there anything at all that worries you out there? 741 00:40:56,120 --> 00:40:57,960 Speaker 1: I mean, you know, we hear a lot of concerns. 742 00:40:58,000 --> 00:41:00,960 Speaker 1: We're credit people. We worry about everything. So what keeps 743 00:41:00,960 --> 00:41:01,480 Speaker 1: you up at night? 744 00:41:01,520 --> 00:41:04,280 Speaker 3: Mike, Well, of course, I mean you've mentioned it. Of course, 745 00:41:04,480 --> 00:41:08,560 Speaker 3: you know Trump and you know whatever he does next. 746 00:41:08,600 --> 00:41:11,520 Speaker 3: I mean it's it's you know, it's very hard to predict, 747 00:41:11,920 --> 00:41:15,120 Speaker 3: and credit managers don't like things that they can't predict 748 00:41:15,280 --> 00:41:20,240 Speaker 3: or control, so that has to be a concern. Albeit, 749 00:41:20,320 --> 00:41:22,799 Speaker 3: I think you know, the types of investments and that 750 00:41:22,840 --> 00:41:27,640 Speaker 3: we're making are somewhat insulated here in Europe. But but 751 00:41:27,760 --> 00:41:29,880 Speaker 3: of course, but of course you know that that that 752 00:41:30,080 --> 00:41:34,240 Speaker 3: introduces uncertainty. Other than that, I think I talked about 753 00:41:34,239 --> 00:41:36,520 Speaker 3: this on the last time we spoke, James. Is just 754 00:41:36,520 --> 00:41:39,960 Speaker 3: just talent, and as say, it is scarce. Retaining and 755 00:41:40,280 --> 00:41:43,280 Speaker 3: looking for good talent is difficult, and once you've amassed 756 00:41:44,120 --> 00:41:45,880 Speaker 3: a team like we have, you know, I'm very proud 757 00:41:45,920 --> 00:41:48,680 Speaker 3: of the team that we've built over the years. It 758 00:41:48,719 --> 00:41:51,160 Speaker 3: is it is one of our competitive advantages that that's 759 00:41:51,160 --> 00:41:51,760 Speaker 3: for sure. 760 00:41:52,120 --> 00:41:54,040 Speaker 1: And expensive we're hearing as well well. 761 00:41:54,239 --> 00:41:55,040 Speaker 3: I couldn't comment. 762 00:41:56,640 --> 00:41:58,839 Speaker 1: Great stuff, Mike Dennis with Airies, Thank you so much 763 00:41:58,880 --> 00:42:01,120 Speaker 1: for joining us again on the Credit Edge. Thanks Jake, 764 00:42:02,520 --> 00:42:04,560 Speaker 1: and of course we're very grateful to you. Run Julius 765 00:42:04,560 --> 00:42:07,720 Speaker 1: with Bloomberg Intelligence. Cheers. Thank you for even more credit 766 00:42:07,719 --> 00:42:10,280 Speaker 1: market analysis and insight. Read all of your Roun's great 767 00:42:10,280 --> 00:42:13,080 Speaker 1: work on the Bloomberg Terminal. Bloomberg Intelligence is part of 768 00:42:13,120 --> 00:42:15,759 Speaker 1: our research department, with five hundred analysts and strategists working 769 00:42:15,760 --> 00:42:19,440 Speaker 1: across all markets. Coverage includes over two thousand equities and credits, 770 00:42:19,560 --> 00:42:22,520 Speaker 1: plus outlooks on more than ninety industries and one hundred 771 00:42:22,520 --> 00:42:26,520 Speaker 1: market industries, currencies and commodities. Please do subscribe to the 772 00:42:26,520 --> 00:42:29,760 Speaker 1: Credit Edge wherever you get your podcasts. We're on Apple, Spotify, 773 00:42:29,800 --> 00:42:33,240 Speaker 1: and all other good podcast providers, including the Bloomberg Terminal 774 00:42:33,440 --> 00:42:36,120 Speaker 1: b pod Go. Give us a review, tell your friends, 775 00:42:36,239 --> 00:42:39,880 Speaker 1: or email me directly at Jcrumby eight at Bloomberg dot net. 776 00:42:40,280 --> 00:42:42,399 Speaker 1: I'm James Crumby. It's been a pleasure having you join 777 00:42:42,480 --> 00:43:04,520 Speaker 1: us again next week on the Credit Edge