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Speaker 1: Hello, and welcome to The Credit Edge, a weekly Markis podcast.

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

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Speaker 2: And I'm Stefan Kovachev, a senior credit analyst at Bloomberg Intelligence.

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Speaker 2: This week, we're very pleased to welcome Matthew Sestar, president

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Speaker 2: of Arene, the London based hedge fund. How are you

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Speaker 2: doing today, Matthew.

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Speaker 3: I'm doing super well. Great to be here. I'm a

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Speaker 3: huge fan of the podcast and so it's great to

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Speaker 3: play a rold today.

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Speaker 2: Oh great, Thank you for joining us. Matthew oversees Arene's

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Speaker 2: private credits strategies and Lee's It's direct lending business, launched

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Speaker 2: earlier this year through a sourcing partnership with loz Art.

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Speaker 2: Before joining Arene, Matthew was global head of Credit at ICG,

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Speaker 2: and prior to that, held various leadership rules at Credit

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Speaker 2: SUITEE in London and New York. We're looking forward to

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Speaker 2: his insights on the private credit landscape and more broadly,

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Speaker 2: on where the most attractive credit opportunities may be in

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Speaker 2: twenty twenty six.

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Speaker 1: Of course, we have loads of questions for you, Matthew,

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Speaker 1: but let's start with private credit. There is drama out

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Speaker 1: there at the moment. We're seeing more defaults, repayments in kind,

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Speaker 1: and debtholders becoming equity owners after borrowers failed to pay.

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Speaker 1: Blue Out scrapped, a private debt fund merger after investor's

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Speaker 1: bolt debt significant implied losses, and a black Rock YLO

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Speaker 1: failed over collateralization tests after it took one hundred percent

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Speaker 1: loss on a private loan. Big US private debt managers

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Speaker 1: meanwhile talking down previously lofty return expectations, just as the

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Speaker 1: fast growing asset class enters the mainstream, and the bond

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Speaker 1: king himself, Jeff Gundlack is calling private credit quote garbage lending.

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Speaker 1: There's a lot of doom mongering out there. The golden

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Speaker 1: age seems to be over. But what is your take, Matthew,

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Speaker 1: You're out there selling the product. That's the case for

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Speaker 1: going private at this point, particularly when you can get

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Speaker 1: pretty good yield right now on publicly traded debt.

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Speaker 3: Yeah, so, I think I think the real thesis is

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Speaker 3: to focus on other geographies, other capital structures, different sized businesses.

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Speaker 3: As you know well, James, the lion's share of the

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Speaker 3: growth in private credit has been a US phenomenon. It's

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Speaker 3: really been around, you know, financing sponsors, and it's really

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Speaker 3: focused on the upper middle market in large cap sort

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Speaker 3: of arenas, and so that's been a theme really for

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Speaker 3: the last ten to fifteen years. We're doing something a

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Speaker 3: little bit different. We're focusing not on the US, not

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Speaker 3: on the large cap, not on the sponsor financings, but

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Speaker 3: we're really looking at Europe, and we're looking at the

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Speaker 3: middle market, and we're largely looking at these non sponsor areas.

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Speaker 3: And so as we were just chatting as we began,

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Speaker 3: you know, that's where we see value. We see it

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Speaker 3: less where there's been a lot of yield compression particuling

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Speaker 3: the US, where leverage levels have stepped up, and where

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Speaker 3: some of the you know, the traditional productions of the

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Speaker 3: credit lenders have really leaked out through some of that stuff.

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Speaker 3: And so I think some of those commons Youdis mentioned

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Speaker 3: are really kind of a US phenomenon. And that's why

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Speaker 3: our investors and our focus is really and largely in Europe.

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Speaker 2: And what's the typical size or maybe structure or tenor

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Speaker 2: pricing of the deals you target.

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Speaker 3: Yeah, so maybe i'll just do it just a mini

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Speaker 3: history lesson on what happened in Europe. I'm an American

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Speaker 3: by background, though I've been there for about twenty five years.

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Speaker 3: This market in private credit in public capital markets really

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Speaker 3: grew post the GFC. This is when these markets were

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Speaker 3: growing at a rate of you know, five to tenfold

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Speaker 3: in that period of time, and most of the activity,

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Speaker 3: again was focused on larger borrowers, bigger companies, sponsor backed

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Speaker 3: sort of arenas, and not dissimilar to your dialogue in

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Speaker 3: the US, that's where you've seen in Europe equally real

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Speaker 3: compression of yields and an uplift in MS in terms

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Speaker 3: of leverage. And so what we've been focused on and

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Speaker 3: where we think there is value is staying just below

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Speaker 3: the size of the public capital markets. And so that

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Speaker 3: means kind of facility sizes in the context of probably

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Speaker 3: one hundred to four hundred million, and that's very much

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Speaker 3: by design, because the public markets and the large cap

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Speaker 3: private credit markets are really focused on that four hundred

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Speaker 3: level and up. And so in those areas, you're getting

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Speaker 3: you know, spreads in the private markets as tight as

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Speaker 3: kind of the low four hundreds. You're seeing public market

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Speaker 3: activity at all time, sprite tight spreads in the kind

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Speaker 3: of the mid three hundreds. What we're finding if you

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Speaker 3: step down below those public capital markets and really focus

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Speaker 3: on the non sponsor component, you're picking up spreads kind

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Speaker 3: of north as six hundred basis points. And so that's

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Speaker 3: the dialogue that we've been having for you know, quite

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Speaker 3: a long time at ARENI, which is really to unpack

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Speaker 3: some of the complexity in Europe. So when you come

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Speaker 3: to Europe, given all the jurisdictional vagaries, given all the

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Speaker 3: national regimes, given all the languages and cultures, you get

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Speaker 3: paid additional spread to come there. And then what you

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Speaker 3: want to do is not just think about Europe as

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Speaker 3: a main but you want to think about how do

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Speaker 3: you penetrate some of those areas where banks are either

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Speaker 3: pulling back or the public capital markets aren't aren't focused.

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Speaker 3: And so if you're focused on the size, as I

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Speaker 3: just referenced a moment ago, that think we think that's

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Speaker 3: kind of the sweeter of the sweet spots where you

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Speaker 3: enjoying nice margin, you are having leverage levels that are

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Speaker 3: below the sponsor community. And then very importantly you're really

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Speaker 3: able to design your own credit agreements. And so James

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Speaker 3: to your point, which is a lot of the activity

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Speaker 3: and a lot of the noise, particularly the UAS is

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Speaker 3: because there's been a convergence and you're almost perfect convergence

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Speaker 3: between the public markets, particularly the large cap in the

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Speaker 3: private markets, and so in Europe it's a little bit

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Speaker 3: of a different story. So I'd welcome unpacking that as

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Speaker 3: we continue the discussion, and we.

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Speaker 1: Have a fascinating perspective because you've been in Britain for

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Speaker 1: twenty five years, but you are originally American. I have

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Speaker 1: been in America for twenty five years and I am

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Speaker 1: originally British. So between us, we shall get to that.

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Speaker 4: That's why the dialog is so good, which you.

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Speaker 1: And I we've arranged as a swap by the King.

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Speaker 1: But the size of the deal is up to four

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Speaker 1: hundred million euros, right, and you can get six hundred

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Speaker 1: basis points over Sonya each.

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Speaker 3: Yeah, in the main, that's what you're finding. So but

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Speaker 3: when you focus on this corporate world, you're picking up

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Speaker 3: between one hundred and fifty two hundred fifty bases points

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Speaker 3: of incremental spread, and so that gets you from kind

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Speaker 3: of that mid to four hundreds to something north of

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Speaker 3: the north of six hundred. So that's an important dynamic.

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Speaker 3: I think what you're finding, you know, in Europe is

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Speaker 3: leverage levels are just lower than the US, and so

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Speaker 3: if you look at the data very carefully, it tends

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Speaker 3: to be depending on the industry, of course, between one

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Speaker 3: and three turns less levered, particularly in the non sponsor space,

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Speaker 3: because these family companies in Europe, which are private companies

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Speaker 3: that dominate the economies, tend to be multigener generational, and

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Speaker 3: what they're looking to do is not maximize a return

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Speaker 3: in some finite period three to five years. What they

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Speaker 3: want to do is hold the asset really to the

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Speaker 3: next generation, and therefore they tend not to maximize leverage.

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Speaker 3: And so we very much like that dynamic. So less

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Speaker 3: leverage and you're enjoying these higher spreads in large art

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Speaker 3: because you're providing a solution to them. You're providing certainty.

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Speaker 3: And James, you'll know Europe quite well, which is generally

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Speaker 3: there was not a romance in the you know, the

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Speaker 3: private company space with the public appal markets. They never

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Speaker 3: really like the anonymity of large syndicates, large public you know,

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Speaker 3: groups of investors accessing their private data. And so what

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Speaker 3: I found in my career and having done that for

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Speaker 3: a long time in Europe. Is a solution works well

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Speaker 3: if it really solves an issue. And the issue that

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Speaker 3: we're really solving in Europe is a pullback of the banks,

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Speaker 3: a skipping over this market segment by the large you know,

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Speaker 3: asset managers that are deploying in scale, and you're finding

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Speaker 3: a community of borrowers, companies, families that need solutions and

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Speaker 3: they're relatively you know, not being serviced in a proper way.

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Speaker 3: And so we found that to be a really attractive segment,

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Speaker 3: and we think is a scale segment in large part

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Speaker 3: because when you look at Europe, Europe is a middle

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Speaker 3: market type continent. Companies are just smaller given the regional

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Speaker 3: footprint of these twenty six you know, separate countries. And

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Speaker 3: so we get a lot of dialogue from the US,

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Speaker 3: which is, if it's not scale, that must be a

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Speaker 3: problem with the underlying business, and we say, no, no, no, no,

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Speaker 3: that's not the case. What you find is we've been

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Speaker 3: financing what are kind of regional champions in each one

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Speaker 3: of the underlying countries and they haven't enjoyed scale, in

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Speaker 3: part because the cross border nature in Europe tends to

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Speaker 3: be more difficult cultural linguistic amongst other areas. And so

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Speaker 3: we found this middle market space in Europe broadly away

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Speaker 3: from some of the sponsors. Now though we clearly finance

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Speaker 3: sponsors when it's attractive lending opportunities, that tends to be

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Speaker 3: a very stable area to generate some attractive returns.

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Speaker 1: But the banks, you know, they have stepped back a

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Speaker 1: little bit, but they're not absent, so you know, they

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Speaker 1: are active, they have local currency balance sheets, they probably

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Speaker 1: have very competitive terms. Why would a company in Italy,

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Speaker 1: say or Germany go to you instead of the you know,

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Speaker 1: the bank that they've been going to for years and

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Speaker 1: does the payroll and everything else.

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Speaker 4: Yeah, it's a couple things.

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Speaker 3: So one is that the big banks, the muscular big banks,

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Speaker 3: large like large deals, and they would rather lend on

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Speaker 3: a portfolio basis than do the underlying company by company

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Speaker 3: type lending activity. And so that's an easier underwrite for them.

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Speaker 3: It's one that's flattered from a regulatory and a capital perspective.

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Speaker 3: So unbalance, the banks are certainly resurgent in Europe, but

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Speaker 3: they're doing it really on a portfolio level, and so

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Speaker 3: they're looking to finance not only individuals like ourselves, but

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Speaker 3: other managers, and so you see that happening quite a bit.

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Speaker 3: What you also find is you segment the market. I

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Speaker 3: think I talked about, you know, kind of this kind

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Speaker 3: of two hundred and fifteen four hundred million facility size

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Speaker 3: or loan size. This is kind of the sweet spot

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Speaker 3: because you go below two fifty, there's a tremendous amount

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Speaker 3: of local bank demand and all the national champions a

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Speaker 3: country by country, UK, Germany, Italy, France, Benelux unusually strong

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Speaker 3: and very very inexpensive financing, and so you want to

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Speaker 3: step out of that. And then, as I said, when

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Speaker 3: you go north or four hundred, you run right into

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Speaker 3: the public capital markets, and particularly in the sponsor community

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Speaker 3: have converged those marketplaces, and so we're finding that kind

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Speaker 3: of middle space desirous of financial solutions. They want someone

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Speaker 3: who is who understands their businesses and someone who can

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Speaker 3: move in a reliable sort of way. So that's been

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Speaker 3: a kind of a steady stem of you know, opportunity

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Speaker 3: set for us.

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Speaker 2: And what about private credit trading? How developed is the

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Speaker 2: secondary market for private credit and what's the outlook for

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Speaker 2: greater trading activity? Maybe?

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Speaker 3: Yeah, So I think it's been a theme in the

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Speaker 3: US and the investment grade space. We haven't seen that

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Speaker 3: in Europe yet. So, you know, the lions share of

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Speaker 3: what's happening in Europe is been on the below investment

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Speaker 3: grade side. It's been largely sponsored backed, and just given

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Speaker 3: the illiquidity and the private nature of those assets, there

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Speaker 3: hasn't there hasn't been that level of focus. We'll have

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Speaker 3: to see you in the coming years if that's going

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Speaker 3: to be a topic that's relevant to Europe. But I

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Speaker 3: to be candid today, that's really not you know, not

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Speaker 3: a not a topic. The bigger topic in Europe is

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Speaker 3: this you know, multi decade retrenchment banks. So when you

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Speaker 3: think about when I came twenty twenty five years ago

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Speaker 3: to Europe, all the corporates in that space where one

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Speaker 3: hundred percent bank financed, and you look now you dial

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Speaker 3: forward in the date we are today about twenty percent

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Speaker 3: of corporate borrowers finance either in the public markets or

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Speaker 3: in the private markets, the institutional markets, but it's still

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Speaker 3: seventy five eighty percent through the banks. That's why there's

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Speaker 3: this big structural shift that will you know, it's been

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Speaker 3: throughout my career and will continue well beyond mind which

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Speaker 3: is this this de leveraging of the banks who really

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Speaker 3: don't like complexity, who don't like single name borrowers. And

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Speaker 3: what you find is in Europe, just again given the

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Speaker 3: size of the companies, they tend to be below investment grade.

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Speaker 3: Because they're smaller, they have less diversification by company, by

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Speaker 3: client base and the like. For it's below investment grade.

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Speaker 3: So this theme will continue on sort of unabated. James,

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Speaker 3: you know the US market incredibly Well, it's just the

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Speaker 3: inverse here. So traditionally this this segment of the marketplace

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Speaker 3: corporates in the US, twenty five percent of that is

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Speaker 3: really intermediated through the banks. Seventy five percent or so

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Speaker 3: it's through the public capital markets or securitization market. So

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Speaker 3: it's the inverse. But we're seeing you know, strong growth.

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Speaker 3: You know, in connection with that, do.

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Speaker 1: You take the whole loan down yourself as it bi

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Speaker 1: lateral or you in a club with other lenders.

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Speaker 3: Yeah, So that's the other distinction versus the US, And

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Speaker 3: thanks for asking that, which is US public capital markets

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Speaker 3: private markets now are broadly syndicated also, so you're looking

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Speaker 3: at syndicate private lenders are coming in in Europe that

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Speaker 3: happens certainly on the sponsor back financings, certainly on the

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Speaker 3: large cap deals. And that's one of the things where

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Speaker 3: less we find less attractive in the market, which is

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Speaker 3: it's not just leverage that's attractive in Europe, it's lower,

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Speaker 3: it's not just spread that's higher, it's around the document itself.

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Speaker 3: And we're you know, highly cognizant of the product, the

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Speaker 3: products that we're involved in, which are loan products which

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Speaker 3: we've got a cap on the return uh. And so

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Speaker 3: the most important thing for those type of funds and

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Speaker 3: for our investors is downside protection. And the best way

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Speaker 3: to ensure a down downside protection is having a very

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Speaker 3: tight credit agreement. In what we find in what we're

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Speaker 3: focused on, particularly in the middle market where we operate,

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Speaker 3: is we're able to write our own credit agreement, and

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Speaker 3: so that really protects the underlying collateral and it protects

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Speaker 3: against some of the some of the flexibility you find

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Speaker 3: in the public markets, which you're going to know very well,

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Speaker 3: whether it's distribution to the equity or it's allows you

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Speaker 3: prioritization of debt, you know ahead of yourselves. The leakage

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Speaker 3: of asset value or cloutter value outside the borrower group.

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Speaker 3: And so yeah, so we focus on being the sole

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Speaker 3: lender or being the co lender, and that's that's where

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Speaker 3: we've been deploying capital. I think it's it's critical from

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Speaker 3: a risk perspective, but what you also find from a

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Speaker 3: borrower and company perspective, particularly again in this non sponsor area,

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Speaker 3: these companies, these families, they want to know who they're

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Speaker 3: dealing with. Europe is still very relationship oriented. It is

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Speaker 3: less transactional, and it was a maybe it was an

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Speaker 3: unnatural period for a period of years where these companies

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Speaker 3: and families were borrowing from the public markets and so

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Speaker 3: as that shifted really after the rate change in twenty two,

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Speaker 3: public markets were less supportive of smaller companies in Europe,

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Speaker 3: and we can talk about why that was. This product

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Speaker 3: has stepped into that and it's a it's a better

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Speaker 3: product for the families and for the private companies in

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Speaker 3: the main.

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Speaker 1: One thing that's giving people a bit of wherey here

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Speaker 1: is the amount of pick coming out in the US.

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Speaker 1: You know, so companies instead of paying the interests, they're

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Speaker 1: paying with new debt, some of them parently, you know

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Speaker 1: that they arrange that in advance. So it's a good pick,

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Speaker 1: but I honestly you can't see the difference how much

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Speaker 1: pick you sing in Europe and how much of it

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Speaker 1: you know, how much flexibility do you give your borrow

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Speaker 1: is in the case they do get into trouble.

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Speaker 3: Yeah, so you're seeing that as as you say, James, rightly,

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Speaker 3: it's really been a US phenomenon. It's really been the

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Speaker 3: sponsor phenomenon, and it's really in the tech and software spaces,

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Speaker 3: and so some of those some of that under writing

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Speaker 3: underwriting activity was you know, predicated on growth, and when

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Speaker 3: growth has been stalled or disrupted, loans aren't able to

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Speaker 3: be cash paid, and hence they're moving to this this

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Speaker 3: this pic arena. And you can see that very readily

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Speaker 3: in some of the public data you're seeing around the

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Speaker 3: BBC's some.

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Speaker 4: Of that's happened in Europe. Also.

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Speaker 3: What I say, however, in Europe is the software and

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Speaker 3: tech areas are less represented versus the US. In the

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Speaker 3: main we for example, are really just financing real economies

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Speaker 3: in Europe, and the real economy is in Europe tend

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Speaker 3: to be industrial businesses, hard asset businesses, some consumer businesses,

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Speaker 3: some service businesses, and there's those are not predicated on

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Speaker 3: underlying growth of those companies, and so we're not offering

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Speaker 3: pick you know, into our portfolios.

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Speaker 4: That presage is that you.

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Speaker 3: Know, the capital structure somehow is not right sized for

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Speaker 3: the underlying cash flows. And so we see that quite

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Speaker 3: a bit in the US, and that's something that we're

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Speaker 3: trying to stay away from. You do see it, as

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Speaker 3: I said, on some of the larger cap you know,

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Speaker 3: sponsor oriented trades in Europe as you know us, James,

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Speaker 3: we have you know, a mixture of businesses at are

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Speaker 3: any liquid businesses, structure credit businesses, private market businesses. We

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Speaker 3: do take some real insights from our public market activities.

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Speaker 3: You know, so in public market activities, if you have

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Speaker 3: a non accrual or you have a pick, that generally

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Speaker 3: means there's a default or downgrade, and in private markets,

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Speaker 3: heretofore that hasn't been the case. And so we've taken

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Speaker 3: some of the lessons, some of the risk management techniques

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Speaker 3: we have in our public businesses and utilize those in

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Speaker 3: our private businesses, which I think is a little bit differentiated.

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Speaker 3: You know, we run scenario analyzes, downside scenario analyzes based

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Speaker 3: on different different you know, macro events, different rate events,

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Speaker 3: different drivers of underlying economies, and that that scenario and

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Speaker 3: risk analysis is bedrock in the public markets, and many

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Speaker 3: many folks don't don't think about that in you know,

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Speaker 3: in private markets, and so generally a non or cool

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Speaker 3: or a picking of your underlying instrument. In the public markets,

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Speaker 3: that's a default, and in the private markets has been

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Speaker 3: it's been a little bit it's a little bit different

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Speaker 3: from that. We find also that you know, what's one

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Speaker 3: thing that it's interesting about public markets is the feedback

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Speaker 3: loop is is very important and it's it's readily available.

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Speaker 3: So when you make a public markets investment, you get

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Speaker 3: feedback in three, six, nine, twelve months in terms of

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Speaker 3: what the market thinks about that underlying with the third

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Speaker 3: party recognized agencies think about that that investment. In private markets,

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Speaker 3: you really haven't you haven't had that right. And so

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Speaker 3: particularly in Europe, what you find in.

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Speaker 4: Europe is.

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Speaker 3: Maybe five percent or so of the public high heel

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Speaker 3: market has been restructuring pretty much every year. But we

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Speaker 3: haven't seen that that that parallel event in private markets.

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Speaker 3: So there's quite a bit of disparity between those two,

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Speaker 3: which is you know, quite concerning, and that's something we're

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Speaker 3: you know, we're watching, you know, relatively relatively carefully.

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Speaker 2: And what kind of all in returns are you targeting

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Speaker 2: in your direct lending business? So, looking at European high

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Speaker 2: yield market for instance, as somewhat of a proxy, the

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Speaker 2: average yield to wurds here in Europe is about five percent,

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Speaker 2: roughly four percent for double B, six percent for single

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Speaker 2: B names, and twelve for three plus C rated credits.

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Speaker 2: But when we factor in the illiquidity premium typical for

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Speaker 2: private investments, what all in annual yields and returns are

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Speaker 2: you aiming for?

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Speaker 3: Yeah, so we think about a little bit in spread terms.

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Speaker 3: So and maybe if you're a listener based because you

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Speaker 3: have a lot of listeners here in the US, we

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Speaker 3: do the build up really from the US to Europe,

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Speaker 3: particularly in private markets. And so you know, what you

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Speaker 3: find is when you move from the like private market

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Speaker 3: investment in the US to Europe, you earn about fifty

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Speaker 3: basis points in incremental spread. So you're getting paid for

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Speaker 3: that complexity. But I talked about it's not additional risk,

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Speaker 3: it's complexity. Twenty six separate countries, disparate solvency regimes, languages, cultures,

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Speaker 3: and the rest. And so you pick up about fifty

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Speaker 3: basis points. When you step into the middle market in Europe,

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Speaker 3: you enjoy another fifty basis points. So if you're doing

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Speaker 3: middle market direct lending, you know, in Europe versus some

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Speaker 3: of the larger cap stuff in the US, you're picking

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Speaker 3: up a spread of about one hundred basis points. And

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Speaker 3: so that's the bedrock of the business. What we find

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Speaker 3: interesting in this part of the cycle, and we're find value.

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Speaker 3: We're finding more value in the corporate non sponsor space.

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Speaker 3: And when you move from this middle market sponsor area

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Speaker 3: to non sponsor, you're able to enjoy you know, another

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Speaker 3: one hundred and fifty basiness points of spread. And so

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Speaker 3: that's that's something that I think we think is valuable,

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Speaker 3: our clients think are valuable. And so when you do

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Speaker 3: the math through that, that's how you get to these

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Speaker 3: kind of mid mid to six hundred type spread type

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Speaker 3: environments and you can see what the yield equivalent would

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Speaker 3: be on that.

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Speaker 1: Interested and why you're staying away from the sponsor space.

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Speaker 1: You know, private acty firms they say have already raised

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Speaker 1: some of their last funds, maybe a big shakedown coming

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Speaker 1: in private actually is that the concern or are you

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Speaker 1: just finding that's to commoditize in terms of the actual

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Speaker 1: lending going on there.

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Speaker 3: It's really a risk analysis where we're finding value in

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Speaker 3: the marketplace. And so, as I said, in the large

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Speaker 3: cap space, there's a lot of capital focusing on very

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Speaker 3: few few deals and therefore through that auction process in

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Speaker 3: private markets you're finding that spreads are being compressed, sponsors

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Speaker 3: are enjoying higher leverage, and then they've really converged the

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Speaker 3: credit agreements with the public market, and so that that's

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Speaker 3: been less less of an interest. We certainly do finance

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Speaker 3: and middle market sponsors, and we do the non sponsor base.

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Speaker 3: We do both of those, but I was just walking

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Speaker 3: through this sort of the relative value in this part

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Speaker 3: of the cycle is more compelling in a non sponsor space.

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Speaker 3: For in the main the challenge with Europe is getting

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Speaker 3: access to those and this is no I think if

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Speaker 3: you and I've heard a number of folks you've spoken with, James,

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Speaker 3: I think people on the main will say that the

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Speaker 3: sort of the corporate business is on balance less risky,

410
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Speaker 3: it's lower leverage, you enjoy more spread, and you're able

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Speaker 3: to really drive the document the challenge in Europe, however,

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Speaker 3: is how do you get access to that in a

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Speaker 3: scale way. So at our firm, we we have a

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Speaker 3: number of investors and originators in relationships with all the

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Speaker 3: corporates and we think that's highly highly differentiated. But we

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Speaker 3: did something a little bit different. We also up a

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Speaker 3: strategic partnership with Lizard and we did that very purposefully.

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Speaker 3: We did that and again your US folks will know, well,

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Speaker 3: they're eight or ten of these partnerships in the US,

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Speaker 3: many of which are very successful. We wanted to do

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Speaker 3: something a little bit different. We wanted access to a

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Speaker 3: firm that covered the middle market. They had pan European

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Speaker 3: coverage and that was a leader in each one of

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Speaker 3: the key markets UK, France, Germany, Italy, Bentelouques, amongst others,

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Speaker 3: but in a scale way. And so our firm is

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Speaker 3: approaching four four and a half years of age. Lizard

427
00:22:33,359 --> 00:22:34,960
Speaker 3: has been around for one hundred and seventy five years

428
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Speaker 3: and so they're they're really the corporate listener to private

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Speaker 3: families across Europe and that's given us lots of boots

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Speaker 3: on the ground to originate in a scale way, and

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Speaker 3: that just used that to complement our own origination techniques

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Speaker 3: and so we think it's a little bit different. Through

433
00:22:51,320 --> 00:22:55,520
Speaker 3: my background, I know, you had to have long standing

434
00:22:56,320 --> 00:22:58,600
Speaker 3: you know, advisors in market to be able to see

435
00:22:58,600 --> 00:23:02,040
Speaker 3: a big enough tam of opportunities that it's very hard

436
00:23:02,080 --> 00:23:05,199
Speaker 3: to do that from London. Many people try to do

437
00:23:05,200 --> 00:23:08,120
Speaker 3: the fly in, fly out type model, or they'll put

438
00:23:08,160 --> 00:23:11,240
Speaker 3: one originator in Spain and one in Italy and two

439
00:23:11,280 --> 00:23:14,320
Speaker 3: in Germany and think that's origination. So we've tried to

440
00:23:14,359 --> 00:23:16,520
Speaker 3: unpack this. We're thinking it a in a unique sort

441
00:23:16,520 --> 00:23:19,680
Speaker 3: of way. One that helps mitigate some of the conflicts

442
00:23:19,720 --> 00:23:22,000
Speaker 3: because they're not a balance sheet lender. So that's the

443
00:23:22,000 --> 00:23:24,439
Speaker 3: other way that we've kind of really complemented what we

444
00:23:24,440 --> 00:23:27,680
Speaker 3: do in the sponsor community. Plus this non sponsor sort

445
00:23:27,680 --> 00:23:29,360
Speaker 3: of sort of avenue.

446
00:23:29,119 --> 00:23:31,160
Speaker 1: Not a bad place to fly around that wouldn't mind

447
00:23:31,480 --> 00:23:35,520
Speaker 1: you know, Madrid or Barcelona today. But this took back

448
00:23:35,560 --> 00:23:38,439
Speaker 1: up in zoom out a little bit, Matthew, the concept

449
00:23:38,560 --> 00:23:41,840
Speaker 1: of Europe for an American investor. You know, I'd say,

450
00:23:42,280 --> 00:23:45,359
Speaker 1: you know, six months ago when the tariffs hit was

451
00:23:45,840 --> 00:23:47,600
Speaker 1: very exciting for a lot of people. You know, let's

452
00:23:48,240 --> 00:23:50,480
Speaker 1: we suddenly realized that we need to be diversifying a

453
00:23:50,520 --> 00:23:52,439
Speaker 1: bit more geographically, and everyone was so long in the

454
00:23:52,480 --> 00:23:55,920
Speaker 1: US and there's trouble here, so let's look and what's

455
00:23:55,960 --> 00:23:57,679
Speaker 1: the nearest place Europe, So let's have a look at that.

456
00:23:57,720 --> 00:24:00,000
Speaker 1: But that all seems to have kind of gone away

457
00:24:00,040 --> 00:24:01,840
Speaker 1: very quickly, and I'm wondering, you know, when you're here

458
00:24:01,880 --> 00:24:05,400
Speaker 1: in the US and you're talking to potential investors, potential clients,

459
00:24:05,600 --> 00:24:07,119
Speaker 1: you know, what kind of questions are they asking you

460
00:24:07,160 --> 00:24:10,639
Speaker 1: about Europe? Beyond the complexity beyond you know, there's lots

461
00:24:10,680 --> 00:24:12,720
Speaker 1: of different countries and everyone speaks different languages, and it's

462
00:24:12,800 --> 00:24:17,280
Speaker 1: terribly confusing. What what are they asking you about Europe

463
00:24:17,359 --> 00:24:21,280
Speaker 1: that you know that you know expresses some interest and

464
00:24:21,400 --> 00:24:24,320
Speaker 1: real like sense that they will diversify their portfolios.

465
00:24:24,440 --> 00:24:27,320
Speaker 3: Yeah, I think it's it's what you say, James, which

466
00:24:27,359 --> 00:24:29,880
Speaker 3: is the private markets in the US have had such

467
00:24:29,880 --> 00:24:32,440
Speaker 3: a lead lead versus Europe, whether it's in the equity

468
00:24:32,440 --> 00:24:36,040
Speaker 3: product or the credit product that many allocators globally have,

469
00:24:36,240 --> 00:24:39,160
Speaker 3: you know, a lot of exposure there and they're looking

470
00:24:39,160 --> 00:24:42,440
Speaker 3: for the next they're looking for from a diversification perspective,

471
00:24:42,760 --> 00:24:45,400
Speaker 3: where else can I allocate capital in size? Where there's

472
00:24:46,480 --> 00:24:50,080
Speaker 3: rule of law, there's a set of quality companies, uh,

473
00:24:50,080 --> 00:24:54,199
Speaker 3: there's transparency in the like. And what we found and

474
00:24:54,240 --> 00:24:56,480
Speaker 3: I found over my my career, is that from a

475
00:24:56,560 --> 00:24:59,960
Speaker 3: US perspective, Europe can be fetish. So a lot of

476
00:25:00,000 --> 00:25:02,080
Speaker 3: global investors come for a few years as they wax

477
00:25:02,119 --> 00:25:03,680
Speaker 3: and wane, and I've seen this over the last twenty

478
00:25:03,760 --> 00:25:06,439
Speaker 3: years or so, and so I think the point that

479
00:25:06,840 --> 00:25:09,960
Speaker 3: we emphasize is, you know, we're dedicated in Europe. We're

480
00:25:09,960 --> 00:25:12,080
Speaker 3: focused in Europe. We've got boots on the ground in Europe.

481
00:25:12,960 --> 00:25:15,399
Speaker 3: You know, our investment committee is our CIO, all of

482
00:25:15,440 --> 00:25:19,360
Speaker 3: which make decisions based in Europe. And so clients want

483
00:25:19,400 --> 00:25:21,520
Speaker 3: to make sure that you're there for a long time,

484
00:25:22,440 --> 00:25:24,919
Speaker 3: a long period of time. And then equally from the

485
00:25:24,960 --> 00:25:29,720
Speaker 3: borrowers side, borrowers in Europe, particularly on this non sponsor component,

486
00:25:30,160 --> 00:25:33,760
Speaker 3: are quite suspicious of you know, people are coming in

487
00:25:33,800 --> 00:25:36,280
Speaker 3: for fetish sort of sort of reasons. And so that's

488
00:25:36,320 --> 00:25:38,600
Speaker 3: a lot of the dialogue you know that we have,

489
00:25:38,840 --> 00:25:41,159
Speaker 3: you know, in that space, and so yes, some of

490
00:25:41,160 --> 00:25:43,720
Speaker 3: the some of those tailwinds have dissipated in terms of

491
00:25:43,760 --> 00:25:46,320
Speaker 3: this interest in Europe. But I have to say, once

492
00:25:46,359 --> 00:25:52,080
Speaker 3: you unpack it across the countries across the sectors. The

493
00:25:52,119 --> 00:25:54,600
Speaker 3: fact that there's not a reliance really on tech tech

494
00:25:54,640 --> 00:25:59,080
Speaker 3: and software and you're in a debt product. We're diversification

495
00:25:59,160 --> 00:26:02,600
Speaker 3: and downside risk is the most important thing. I think

496
00:26:02,640 --> 00:26:07,600
Speaker 3: it's made people interesting interested rather in the European credit experience.

497
00:26:08,240 --> 00:26:11,399
Speaker 3: There's a lot of question marks around the equity story

498
00:26:11,400 --> 00:26:13,919
Speaker 3: in Europe, and I'm not an expert in that, but

499
00:26:13,960 --> 00:26:16,240
Speaker 3: I see the equity value created in the US, particularly

500
00:26:16,240 --> 00:26:17,280
Speaker 3: in the tech in AI space.

501
00:26:17,600 --> 00:26:18,679
Speaker 4: Europe really doesn't have that.

502
00:26:19,880 --> 00:26:24,120
Speaker 3: And so our thesis is you don't need equity story

503
00:26:24,240 --> 00:26:27,640
Speaker 3: on a credit investment. You need to have credit credit metrics,

504
00:26:27,640 --> 00:26:32,120
Speaker 3: cash flow, downside protection in order to generate interesting returns.

505
00:26:32,480 --> 00:26:35,520
Speaker 3: So Europe in the main is on balance is probably

506
00:26:35,520 --> 00:26:38,360
Speaker 3: have better credit investment than an equity investment.

507
00:26:38,640 --> 00:26:38,760
Speaker 1: Uh.

508
00:26:38,840 --> 00:26:41,240
Speaker 4: And that plays to kind of where we have our expertise.

509
00:26:41,520 --> 00:26:45,160
Speaker 2: I had a question about the sub sectors you're investing in.

510
00:26:45,160 --> 00:26:47,920
Speaker 2: In the industrial space I cover in Europe, I'm seeing

511
00:26:48,160 --> 00:26:51,280
Speaker 2: a bit of a K shaped recovery. So the clear

512
00:26:51,400 --> 00:26:57,400
Speaker 2: winners are aerospace, defense, maybe energy, great companies who have

513
00:26:57,520 --> 00:27:03,040
Speaker 2: big backlogs, while traditional heavy industries such as steel, chemicals

514
00:27:03,160 --> 00:27:07,399
Speaker 2: maybe autoparts still continue to struggle. So how does ARENI

515
00:27:07,480 --> 00:27:11,880
Speaker 2: allocate capital across different industrial segments in Europe?

516
00:27:12,320 --> 00:27:15,159
Speaker 3: Yeah, I think that's I think we would probably agree

517
00:27:15,200 --> 00:27:18,160
Speaker 3: with some of those comments. So I think that's wisely put.

518
00:27:18,400 --> 00:27:22,119
Speaker 3: What we've done is really sectorized all our teams. And

519
00:27:22,200 --> 00:27:24,840
Speaker 3: so for your US audience, it sounds like an obvious thing.

520
00:27:25,800 --> 00:27:29,080
Speaker 3: Most of the big alternative asset managers have deep sector

521
00:27:29,119 --> 00:27:35,040
Speaker 3: expertise industrials, chemicals, consumer services, healthcare and the like. In

522
00:27:35,119 --> 00:27:38,800
Speaker 3: you in however, they run a business called Europe, which

523
00:27:39,359 --> 00:27:43,200
Speaker 3: just given the complexity of both borrower type, country type

524
00:27:43,200 --> 00:27:45,120
Speaker 3: and the like, stress as unusual.

525
00:27:45,520 --> 00:27:45,600
Speaker 4: Uh.

526
00:27:45,720 --> 00:27:48,440
Speaker 3: And so that's why we've generated I think some attractive

527
00:27:48,480 --> 00:27:52,320
Speaker 3: returns over time, is that we've been dedicated in each

528
00:27:52,400 --> 00:27:55,240
Speaker 3: of these key sectors. And that's how it really we're organized,

529
00:27:55,280 --> 00:27:58,960
Speaker 3: which is we use this reservoir sector expertise and to

530
00:27:58,960 --> 00:28:02,439
Speaker 3: express views across a variety of areas. And then what

531
00:28:02,480 --> 00:28:04,959
Speaker 3: we're talking about today in direct lending is we use

532
00:28:05,000 --> 00:28:08,480
Speaker 3: that expertise around that and we're just unusually focused on

533
00:28:09,520 --> 00:28:14,600
Speaker 3: cash flow generation, downside protection and the next lender analysis.

534
00:28:14,640 --> 00:28:17,720
Speaker 3: And so unlike some of the large cap deals which

535
00:28:17,720 --> 00:28:20,720
Speaker 3: are really predicated on an exit in the public markets

536
00:28:20,800 --> 00:28:23,520
Speaker 3: or an m and a transaction. That's not what we

537
00:28:23,600 --> 00:28:26,359
Speaker 3: focus on. And so you know, some of the sectors

538
00:28:26,400 --> 00:28:29,000
Speaker 3: you mentioned, some of these more cyclical sectors have definitely

539
00:28:29,040 --> 00:28:33,720
Speaker 3: been under pressure and clearly we've been underweight those opportunity sets.

540
00:28:34,960 --> 00:28:37,800
Speaker 3: What's interesting about Europe in this middle market set is

541
00:28:37,840 --> 00:28:44,480
Speaker 3: these tend to be national champions, so local, local clients,

542
00:28:45,280 --> 00:28:48,280
Speaker 3: local suppliers, local ecosystem and so they've been a little

543
00:28:48,280 --> 00:28:51,360
Speaker 3: bit more immune to some of the tariff winds, some

544
00:28:51,400 --> 00:28:53,920
Speaker 3: of the trade winds which you've seen express certainly the

545
00:28:54,000 --> 00:28:58,360
Speaker 3: large cap large cap European companies, particular the chemical space

546
00:28:58,400 --> 00:29:02,040
Speaker 3: for example. You've seen that really expressed in the equity uh,

547
00:29:02,120 --> 00:29:04,560
Speaker 3: the you know, the share price performance of those companies.

548
00:29:04,560 --> 00:29:07,920
Speaker 3: And so again when you focus on this middle market,

549
00:29:07,920 --> 00:29:11,080
Speaker 3: they tend to be not immune, but more insulated from

550
00:29:11,120 --> 00:29:13,680
Speaker 3: some of those those global trade winds, tariff wins and

551
00:29:13,720 --> 00:29:15,840
Speaker 3: the like. Uh and we're seeing that in the underlying

552
00:29:15,840 --> 00:29:16,840
Speaker 3: performance of our companies.

553
00:29:17,200 --> 00:29:18,680
Speaker 1: Can you give us an example of, you know, a

554
00:29:18,720 --> 00:29:22,160
Speaker 1: deal that you've done that you're totally excited about. Just

555
00:29:22,240 --> 00:29:24,000
Speaker 1: to make it a bit more tangibly, you know that

556
00:29:24,000 --> 00:29:26,160
Speaker 1: we're talking middle market, we're talking about real essays, but

557
00:29:26,280 --> 00:29:27,800
Speaker 1: and local champions.

558
00:29:27,840 --> 00:29:29,600
Speaker 3: What does that look like? Yeah, so I just give

559
00:29:29,600 --> 00:29:31,680
Speaker 3: you just in the main. So we've done some financings

560
00:29:31,720 --> 00:29:33,600
Speaker 3: in each one of the geographies, but we've done really

561
00:29:33,640 --> 00:29:37,040
Speaker 3: one recently in France. And this is very, very typical,

562
00:29:37,120 --> 00:29:40,760
Speaker 3: which is a multi generational family looking to move the

563
00:29:40,800 --> 00:29:44,200
Speaker 3: asset from the patriarch to the next generation. They need

564
00:29:44,200 --> 00:29:46,840
Speaker 3: financing and connection with that. Maybe there's a distribution of

565
00:29:46,840 --> 00:29:50,040
Speaker 3: capital that happens back to the patriarch. And what you

566
00:29:50,120 --> 00:29:54,320
Speaker 3: find is, you know, banks tend to be very cookie cutter,

567
00:29:54,840 --> 00:29:58,280
Speaker 3: and so you know, if you're delivering a little bit

568
00:29:58,280 --> 00:30:01,360
Speaker 3: of flexibility, providing a solution and in connection with a

569
00:30:01,400 --> 00:30:05,680
Speaker 3: generational change in ownership, that's very ripe for us. And

570
00:30:05,720 --> 00:30:08,120
Speaker 3: what you're finding in Europe, this is a theme. You're

571
00:30:08,120 --> 00:30:10,680
Speaker 3: finding in France, you're finding it in Germany, you're finding

572
00:30:10,720 --> 00:30:13,480
Speaker 3: it in northern Italy, which has a lot of similarities

573
00:30:13,520 --> 00:30:16,000
Speaker 3: to the doc region. So that's something that we would

574
00:30:16,440 --> 00:30:17,760
Speaker 3: we would do and have.

575
00:30:17,800 --> 00:30:19,080
Speaker 4: Done on it.

576
00:30:19,200 --> 00:30:22,040
Speaker 3: And you'll find that if it's a family and it's private,

577
00:30:22,920 --> 00:30:24,360
Speaker 3: what they don't want to do is have all their

578
00:30:24,360 --> 00:30:28,360
Speaker 3: confidential information put in some kind of offering documents syndicated

579
00:30:28,480 --> 00:30:31,640
Speaker 3: very very very broadly, and so they want the the

580
00:30:31,680 --> 00:30:35,040
Speaker 3: tailoring of a financing solution, They want it done in

581
00:30:35,160 --> 00:30:37,960
Speaker 3: really a confidential way, and they oftentimes want to work

582
00:30:38,000 --> 00:30:42,760
Speaker 3: with someone who actually understands their their their under underlying.

583
00:30:43,640 --> 00:30:44,640
Speaker 4: Sector that they operate in.

584
00:30:44,760 --> 00:30:46,920
Speaker 3: So what we do is we pull in our private

585
00:30:46,960 --> 00:30:51,000
Speaker 3: credit team, who are you know, structuring experts, diligent experts,

586
00:30:51,200 --> 00:30:52,840
Speaker 3: and then we marry them up with our sector team.

587
00:30:53,200 --> 00:30:55,760
Speaker 3: And so if you're dealing with something in whether whether

588
00:30:55,800 --> 00:30:59,120
Speaker 3: it's autos or industrials or consumer, it's that that sort

589
00:30:59,160 --> 00:31:02,400
Speaker 3: of interaction of industry knowledge plus the unwriting sort of

590
00:31:02,480 --> 00:31:04,800
Speaker 3: acumen which unlocks these deals. And so I think you'll

591
00:31:04,800 --> 00:31:08,600
Speaker 3: see a lot of that coming from us. On the

592
00:31:08,640 --> 00:31:11,280
Speaker 3: sponsor side, where we're finding is it's not the large

593
00:31:11,280 --> 00:31:14,920
Speaker 3: cap sponsors who have dedicated capital markets teams. It tends

594
00:31:14,960 --> 00:31:18,480
Speaker 3: to be much more industry driven sponsors. So these could

595
00:31:18,520 --> 00:31:22,920
Speaker 3: be a collection of former executives who have domain expertise,

596
00:31:23,160 --> 00:31:26,520
Speaker 3: who are partnering with families as they think about the

597
00:31:26,560 --> 00:31:29,400
Speaker 3: next steps with their platform. So whether it's growing across border,

598
00:31:30,240 --> 00:31:34,680
Speaker 3: making a disposal, doing a buyout, but those types of

599
00:31:35,000 --> 00:31:38,480
Speaker 3: private equity firms tend to be much more operationally focused,

600
00:31:39,320 --> 00:31:41,760
Speaker 3: country based, and then there's a sector in which they

601
00:31:41,800 --> 00:31:44,040
Speaker 3: are unusually strong, and that's what we're finding most of

602
00:31:44,080 --> 00:31:44,320
Speaker 3: the time.

603
00:31:44,520 --> 00:31:47,200
Speaker 1: To be clear, these aren't stressed or distressed companies because

604
00:31:47,240 --> 00:31:50,400
Speaker 1: we do know ARENI because of the founder Hamza Lemsiga,

605
00:31:50,560 --> 00:31:53,080
Speaker 1: who made a lot of money doing great distressed trades.

606
00:31:53,120 --> 00:31:55,800
Speaker 1: And you do do some rescue financing some I'm interested

607
00:31:55,840 --> 00:31:57,920
Speaker 1: in sort of how you differentiate those two because you

608
00:31:57,920 --> 00:32:00,560
Speaker 1: are doing some private lends full you know, just press credit,

609
00:32:00,640 --> 00:32:02,080
Speaker 1: So what's the balance there.

610
00:32:02,240 --> 00:32:04,320
Speaker 3: Yeah, So what I've been focused on is really performing

611
00:32:04,360 --> 00:32:07,080
Speaker 3: loans for mid sized companies, which is a very scalable

612
00:32:07,120 --> 00:32:09,920
Speaker 3: sort of opportunity set, and we're using that same bench

613
00:32:10,040 --> 00:32:12,800
Speaker 3: of sector analysts to give us a view to really

614
00:32:12,840 --> 00:32:16,560
Speaker 3: drive each one of our investment decisions around that. And

615
00:32:16,640 --> 00:32:19,600
Speaker 3: so we spent I don't know, eighteen twenty four months

616
00:32:20,040 --> 00:32:24,560
Speaker 3: really thinking about the best risk reward in private markets

617
00:32:24,560 --> 00:32:27,360
Speaker 3: in corporate in Europe. And as I said, we looked

618
00:32:27,360 --> 00:32:32,360
Speaker 3: at this small MidCap and small to competitive in the

619
00:32:32,360 --> 00:32:34,560
Speaker 3: marketplace with the commercial lenders where they're willing to do

620
00:32:35,320 --> 00:32:37,880
Speaker 3: lending activity on the large cap north of kind of

621
00:32:37,920 --> 00:32:40,280
Speaker 3: three hundred and four to four hundred million facility size,

622
00:32:40,520 --> 00:32:44,560
Speaker 3: huge capital markets sort of competition. And so it's in

623
00:32:44,600 --> 00:32:47,800
Speaker 3: this mid market area where we're finding if you can

624
00:32:47,880 --> 00:32:51,240
Speaker 3: underwrite performing credit profind a solution and be consistent with

625
00:32:51,320 --> 00:32:55,640
Speaker 3: the borrow, where it's quite a scalable market opportunity. And

626
00:32:55,640 --> 00:32:57,800
Speaker 3: that's where we've been doing the line share of our activity.

627
00:32:58,040 --> 00:33:01,240
Speaker 2: And what's your review on credit d folds in Europe?

628
00:33:01,720 --> 00:33:06,000
Speaker 2: Do you expect defaults to rise potentially creating attractive opportunities

629
00:33:06,040 --> 00:33:08,600
Speaker 2: for you to deploy capital in the coming quarters.

630
00:33:09,400 --> 00:33:11,680
Speaker 3: It's interesting. So again you've seen this expressed in the

631
00:33:11,680 --> 00:33:14,920
Speaker 3: public markets, where you know, numbers are different. Two to

632
00:33:14,920 --> 00:33:17,960
Speaker 3: five percent of the public markets have been restructured in

633
00:33:18,040 --> 00:33:22,719
Speaker 3: some sort of format in Europe, and you haven't seen that,

634
00:33:23,720 --> 00:33:26,280
Speaker 3: you know, at all in the private side of the marketplace.

635
00:33:26,280 --> 00:33:29,080
Speaker 3: And so I think, you know, again, you know, private

636
00:33:29,120 --> 00:33:32,200
Speaker 3: credit is really financing some of the similar type of companies,

637
00:33:32,240 --> 00:33:33,840
Speaker 3: and so I think what you're going to find is

638
00:33:33,880 --> 00:33:36,320
Speaker 3: you'll see an uplift not just in the public markets,

639
00:33:36,360 --> 00:33:39,120
Speaker 3: but you also see it, you know, in the in

640
00:33:39,160 --> 00:33:42,360
Speaker 3: the private markets. And so this is you know, some

641
00:33:42,440 --> 00:33:46,320
Speaker 3: of the reflection of this rapid and transformational growth both

642
00:33:46,360 --> 00:33:50,360
Speaker 3: in private markets and public markets in Europe, which as

643
00:33:50,400 --> 00:33:52,400
Speaker 3: I said in the beginning of our conversation, had grown,

644
00:33:52,920 --> 00:33:55,480
Speaker 3: you know, five or eightfold after that GFC period. And

645
00:33:55,520 --> 00:33:58,880
Speaker 3: so when high yield was trading at three percent, sovereigns

646
00:33:58,880 --> 00:34:03,000
Speaker 3: were negative, there was tremendous amount of credit creation. Some

647
00:34:03,040 --> 00:34:05,120
Speaker 3: of that activity, some of that restructuring, some of that

648
00:34:05,160 --> 00:34:08,800
Speaker 3: dispersion of outcomes is highly evident in the public markets.

649
00:34:09,320 --> 00:34:12,120
Speaker 3: So you know, eighty percent roughly of the highield market

650
00:34:12,160 --> 00:34:14,520
Speaker 3: is trading at the all time tis, and then there's

651
00:34:14,520 --> 00:34:16,680
Speaker 3: a portion of it that it's trading very poorly. So

652
00:34:16,719 --> 00:34:19,360
Speaker 3: a huge amount of credit dispersion that you've seen in

653
00:34:19,400 --> 00:34:22,920
Speaker 3: public markets, and the collari will have to be that

654
00:34:23,000 --> 00:34:26,640
Speaker 3: must be happening also in private markets. Is those fund

655
00:34:26,680 --> 00:34:29,719
Speaker 3: managers really grew those portfolios in the zero rate environment.

656
00:34:30,200 --> 00:34:32,840
Speaker 3: You think of it also, if sovereign rates were negative,

657
00:34:33,560 --> 00:34:36,520
Speaker 3: high yield was at three percent and some of the

658
00:34:36,520 --> 00:34:40,000
Speaker 3: private credit lenders were lending a ten percent, so it

659
00:34:40,040 --> 00:34:41,839
Speaker 3: tells you there's quite there could be quite a bit

660
00:34:41,840 --> 00:34:46,200
Speaker 3: of credit credit risk embedded in those portfolios. And so

661
00:34:46,560 --> 00:34:49,080
Speaker 3: we'll see how it unfolds in the coming years, but

662
00:34:49,120 --> 00:34:50,440
Speaker 3: something we watch out very carefully.

663
00:34:50,880 --> 00:34:54,560
Speaker 1: You no doubt hearing all about the AI craze while

664
00:34:54,560 --> 00:34:57,239
Speaker 1: you're here. I'm wondering how it's affecting Europe and how

665
00:34:57,320 --> 00:35:00,319
Speaker 1: much private credit will be involved in how you might

666
00:35:00,320 --> 00:35:02,759
Speaker 1: be involved. But I'm also we hear a lot about

667
00:35:02,800 --> 00:35:06,520
Speaker 1: European defense spending, so that's potentially another big area of

668
00:35:06,719 --> 00:35:10,240
Speaker 1: investment and capsule raised. Are there either of those interesting

669
00:35:10,320 --> 00:35:10,840
Speaker 1: for ARENI?

670
00:35:11,080 --> 00:35:11,400
Speaker 4: I think so.

671
00:35:11,480 --> 00:35:14,120
Speaker 3: We spend a lot of time in Germany, and so

672
00:35:14,440 --> 00:35:16,600
Speaker 3: it's all the sort of the so called middle stock

673
00:35:16,680 --> 00:35:20,479
Speaker 3: companies is mid size family run companies that are really

674
00:35:20,480 --> 00:35:22,880
Speaker 3: providing the sort of the industrial backbone to the country.

675
00:35:22,880 --> 00:35:25,480
Speaker 3: And so all those end markets aren't necessarily defense. They

676
00:35:25,480 --> 00:35:29,239
Speaker 3: can be broadly diversified. But that's a very interesting area

677
00:35:29,320 --> 00:35:32,080
Speaker 3: to spend time on. We have great expertise in some

678
00:35:32,160 --> 00:35:36,360
Speaker 3: of those those those areas from a sector perspective, and

679
00:35:36,360 --> 00:35:38,800
Speaker 3: then our origination partner at Loazard has a fantastic business

680
00:35:38,800 --> 00:35:41,120
Speaker 3: there also, So I think that's a very interesting, very

681
00:35:41,160 --> 00:35:45,040
Speaker 3: ripe area. As you know, they Germany becomes a bit

682
00:35:45,040 --> 00:35:48,400
Speaker 3: more muscular and fiscally sort of expands in that area.

683
00:35:49,040 --> 00:35:50,960
Speaker 3: On the AI topic that we haven't been involved in that.

684
00:35:51,600 --> 00:35:54,919
Speaker 3: You know, we're highly highly aware of our products, right,

685
00:35:54,960 --> 00:35:58,040
Speaker 3: so lending products are capped, you're trying to get back,

686
00:35:58,080 --> 00:35:59,759
Speaker 3: you're trying to get it, enjoy a coupon in your

687
00:35:59,760 --> 00:36:03,440
Speaker 3: money back, and so that whole dialogue between equity and

688
00:36:03,440 --> 00:36:05,880
Speaker 3: credit in connection with technology is a more challenging one.

689
00:36:05,920 --> 00:36:06,919
Speaker 4: So we've been.

690
00:36:06,840 --> 00:36:09,279
Speaker 3: Steering clear of that. And again that's not been the

691
00:36:09,320 --> 00:36:12,719
Speaker 3: opportunity set really really in Europe.

692
00:36:12,760 --> 00:36:14,560
Speaker 1: And to kind of zooming on what's going on right

693
00:36:14,600 --> 00:36:16,239
Speaker 1: now based on a little this noise we're hearing from

694
00:36:16,280 --> 00:36:18,759
Speaker 1: the US. How is that affecting pricing in Europe? If

695
00:36:18,800 --> 00:36:19,440
Speaker 1: it's all right?

696
00:36:19,520 --> 00:36:22,560
Speaker 3: Yeah, So so on the I think there's been sympathy

697
00:36:22,640 --> 00:36:25,680
Speaker 3: in the public markets between the public eh yield markets uh,

698
00:36:25,680 --> 00:36:28,360
Speaker 3: in both geographies, and so that's that's the media trans

699
00:36:29,320 --> 00:36:32,160
Speaker 3: transmission sort of mechanism. So you can you can see that.

700
00:36:33,239 --> 00:36:36,879
Speaker 3: You've also seen in the large cap direct lending, you've

701
00:36:36,920 --> 00:36:41,000
Speaker 3: seen some flow through of that because of the the

702
00:36:41,080 --> 00:36:43,440
Speaker 3: nature of those types of deals and oftentimes is the

703
00:36:43,480 --> 00:36:46,440
Speaker 3: same sponsored buyers in that and so there's been a

704
00:36:46,719 --> 00:36:49,560
Speaker 3: you know, a rethought process around those in the middle market.

705
00:36:49,600 --> 00:36:51,640
Speaker 3: You haven't seen that. So we haven't seen a real

706
00:36:51,760 --> 00:36:54,640
Speaker 3: change in the in the margins, the opportunity set and

707
00:36:54,680 --> 00:36:57,680
Speaker 3: the rest, and it seems to be a bit asynchronous

708
00:36:58,280 --> 00:37:00,440
Speaker 3: with the larger markets. And hence what we think that's

709
00:37:00,560 --> 00:37:02,440
Speaker 3: you know, probably a place to spend more of our

710
00:37:02,480 --> 00:37:04,200
Speaker 3: time and so that that'll be my commic jams.

711
00:37:04,280 --> 00:37:05,759
Speaker 1: And the other thing people do worry about here is

712
00:37:06,080 --> 00:37:09,279
Speaker 1: the marks on the loans in the portfolios. I mean

713
00:37:09,440 --> 00:37:12,400
Speaker 1: we've seen wide divergence, you know, ten points in some cases,

714
00:37:12,719 --> 00:37:16,080
Speaker 1: you know, the mark the loan is marked at path

715
00:37:16,560 --> 00:37:18,360
Speaker 1: and then suddenly it drops to eighty and then everyone

716
00:37:18,360 --> 00:37:20,360
Speaker 1: freaks out, what what is your view of that?

717
00:37:20,440 --> 00:37:20,680
Speaker 4: Now?

718
00:37:20,680 --> 00:37:22,520
Speaker 1: Does that work in Europe?

719
00:37:22,640 --> 00:37:22,879
Speaker 4: Yeah?

720
00:37:22,920 --> 00:37:25,000
Speaker 3: So I think it's absolutely critical to have third party

721
00:37:25,600 --> 00:37:28,600
Speaker 3: organizations marking your books and so that that's been one

722
00:37:28,600 --> 00:37:31,320
Speaker 3: of the challenges where it's you know, if you're marking

723
00:37:31,320 --> 00:37:34,200
Speaker 3: your own homework so to speak, that is that's a

724
00:37:34,200 --> 00:37:35,960
Speaker 3: more challenging area. So what we do is we have

725
00:37:35,960 --> 00:37:38,480
Speaker 3: a third party mark and everything that that sort of

726
00:37:38,480 --> 00:37:41,920
Speaker 3: transparency is going to be required. I think for the

727
00:37:41,960 --> 00:37:44,799
Speaker 3: continued growth and scaling of the business. It's and you

728
00:37:44,840 --> 00:37:46,600
Speaker 3: see that again, you know again we have a number

729
00:37:46,640 --> 00:37:51,040
Speaker 3: of public businesses at the firm, and it's really that

730
00:37:51,040 --> 00:37:55,759
Speaker 3: that that belief that you know, marking happens on a

731
00:37:55,880 --> 00:37:59,200
Speaker 3: very frequent basis. It's not something that's stalled, uh And

732
00:37:59,239 --> 00:38:01,840
Speaker 3: that's ever flection of sort of the structures of some

733
00:38:01,880 --> 00:38:04,520
Speaker 3: of the funds. But it's also a demand by the

734
00:38:04,600 --> 00:38:06,759
Speaker 3: underlying investors for that transparency. So I think that's a

735
00:38:06,800 --> 00:38:09,960
Speaker 3: long term trend that will probably unfold in Europe, not

736
00:38:10,080 --> 00:38:11,480
Speaker 3: just similar to here, and I know there's a lot

737
00:38:11,480 --> 00:38:13,680
Speaker 3: more noise around it in the US at the moment,

738
00:38:13,760 --> 00:38:18,000
Speaker 3: but it's critical to have that third party validation outside

739
00:38:18,040 --> 00:38:20,759
Speaker 3: of the investment teams. And that's that's going to be

740
00:38:20,760 --> 00:38:23,839
Speaker 3: the health I think of a barometer of the health

741
00:38:23,840 --> 00:38:25,120
Speaker 3: of the growth of the marketplace.

742
00:38:25,440 --> 00:38:28,439
Speaker 1: But the concerns about you know, valuation, about all the risk,

743
00:38:28,520 --> 00:38:31,120
Speaker 1: all of this concealed trouble that's brwing up, you know,

744
00:38:31,440 --> 00:38:33,400
Speaker 1: all the way to the IMF and the regulators. Do

745
00:38:33,440 --> 00:38:35,480
Speaker 1: you think it's overdone? Based on what you're saying, you're

746
00:38:35,520 --> 00:38:38,000
Speaker 1: much closer to the action than they are. You see

747
00:38:38,200 --> 00:38:41,440
Speaker 1: what's going on. You know, the quality of the firms

748
00:38:41,440 --> 00:38:44,880
Speaker 1: you're lending to and how they're paying you back. What

749
00:38:45,480 --> 00:38:47,400
Speaker 1: do you make of that compared to all of the noise.

750
00:38:47,960 --> 00:38:50,280
Speaker 3: What I think is, I think the regulators and the

751
00:38:50,680 --> 00:38:53,520
Speaker 3: and the like are very concerned with the opacity and

752
00:38:53,600 --> 00:38:56,560
Speaker 3: so just giving the growth in size of these marketplaces.

753
00:38:56,960 --> 00:38:58,920
Speaker 3: You know, as I said, the public markets in Europe

754
00:38:58,920 --> 00:39:01,600
Speaker 3: are about a trillion dollars. There's some numbers in the

755
00:39:01,600 --> 00:39:05,439
Speaker 3: corporate private corporate private corporate area could be also another

756
00:39:05,480 --> 00:39:08,080
Speaker 3: trillion dollars of private credit, and so those are just

757
00:39:08,440 --> 00:39:11,759
Speaker 3: you know, it's a very big marketplace that's broadly outside there,

758
00:39:11,840 --> 00:39:14,880
Speaker 3: you know, sometimes outside of their net. And you can

759
00:39:14,880 --> 00:39:16,719
Speaker 3: see why there's quite a bit of focus on that.

760
00:39:17,719 --> 00:39:19,920
Speaker 3: And again it tends to be larger companies, tends to

761
00:39:19,920 --> 00:39:24,480
Speaker 3: be larger corporate companies. But you've got to be very

762
00:39:24,480 --> 00:39:27,240
Speaker 3: cognizant of that. And I can see why there's been, rightfully,

763
00:39:27,440 --> 00:39:28,919
Speaker 3: you know, a lot of focus on that. They see

764
00:39:28,920 --> 00:39:33,120
Speaker 3: the rapid ballooning of these markets and and it it

765
00:39:33,200 --> 00:39:35,319
Speaker 3: only makes good sense for them to, you know, spend

766
00:39:35,360 --> 00:39:35,800
Speaker 3: more time.

767
00:39:36,280 --> 00:39:39,839
Speaker 1: The counter argument for private credit is really that you

768
00:39:39,880 --> 00:39:42,879
Speaker 1: get to see everything. You have so much more transparency

769
00:39:42,960 --> 00:39:46,040
Speaker 1: because you are doing everything. You know, they use the

770
00:39:46,160 --> 00:39:50,920
Speaker 1: farm to table analogy. But is that do you think

771
00:39:50,920 --> 00:39:53,439
Speaker 1: that's fair? I mean for private credit that you really

772
00:39:53,440 --> 00:39:55,759
Speaker 1: are so much more hands on that you are way

773
00:39:55,800 --> 00:39:56,880
Speaker 1: more protected as a lender.

774
00:39:57,000 --> 00:39:59,200
Speaker 3: Yeah, so the merits are we talked about a little bit.

775
00:39:59,239 --> 00:40:00,719
Speaker 3: You have a little bit like less leverage in the

776
00:40:00,719 --> 00:40:03,920
Speaker 3: public markets, you get you enjoy a higher spread, and

777
00:40:03,960 --> 00:40:06,799
Speaker 3: then you have downside protection around you know, the the

778
00:40:06,840 --> 00:40:09,440
Speaker 3: credit agreement, but you you hit around a grade point.

779
00:40:09,520 --> 00:40:13,000
Speaker 3: Which is the other huge benefit is you're doing primary diligence,

780
00:40:14,160 --> 00:40:18,600
Speaker 3: so you're meeting companies, meeting management teams, understanding their operating models,

781
00:40:18,840 --> 00:40:24,480
Speaker 3: and having time to understand the underlying investment. That's one

782
00:40:24,480 --> 00:40:26,719
Speaker 3: of the challenges is you know, given the public you

783
00:40:26,760 --> 00:40:29,279
Speaker 3: know public markets or the syndication of private credit, is

784
00:40:29,680 --> 00:40:32,719
Speaker 3: it becomes one or two steps removed from doing primary diligence.

785
00:40:32,760 --> 00:40:36,239
Speaker 3: And so we pride ourselves on our sector expertise, in

786
00:40:36,239 --> 00:40:40,680
Speaker 3: our underwriting acumen, and by getting direct access to companies,

787
00:40:41,280 --> 00:40:44,040
Speaker 3: not in an accelerated way, because what you find is

788
00:40:44,040 --> 00:40:47,399
Speaker 3: in public markets or in the syndicated private markets, it's

789
00:40:47,400 --> 00:40:49,839
Speaker 3: always a timetable. You've got to come back in three days,

790
00:40:49,880 --> 00:40:52,319
Speaker 3: are you inigure out? And there's all this pressure and

791
00:40:52,360 --> 00:40:55,640
Speaker 3: then it, you know, adds an unusual dynamic on your

792
00:40:55,719 --> 00:41:00,000
Speaker 3: underwriting process. And so I think this fourth area where

793
00:40:59,880 --> 00:41:02,399
Speaker 3: the real value in private credit is just that which

794
00:41:02,440 --> 00:41:07,840
Speaker 3: is doing primary diligence largely on site, meeting management teams,

795
00:41:07,880 --> 00:41:12,000
Speaker 3: operating teams, and then making an underwriting decision. It's kind

796
00:41:12,040 --> 00:41:14,680
Speaker 3: of old school, old school lending, I believe it or not.

797
00:41:15,000 --> 00:41:17,480
Speaker 1: It's almost like leverage loans used to be twenty five

798
00:41:17,560 --> 00:41:21,600
Speaker 1: years ago. But it's in terms of a renie you

799
00:41:21,600 --> 00:41:24,160
Speaker 1: know when we talk to I mean, this is maybe

800
00:41:24,200 --> 00:41:26,640
Speaker 1: more of a US perspective, but there is a sense

801
00:41:26,680 --> 00:41:29,040
Speaker 1: that and I think Golden stat Season said it a

802
00:41:29,160 --> 00:41:31,560
Speaker 1: year and a half ago that there'll only be eight

803
00:41:32,200 --> 00:41:35,719
Speaker 1: potentially players left after a huge amount of consolidation that

804
00:41:35,760 --> 00:41:37,880
Speaker 1: needs to be done in private credit because you have

805
00:41:37,960 --> 00:41:40,960
Speaker 1: to be big to do this kind of business. How

806
00:41:41,000 --> 00:41:42,640
Speaker 1: do you scale up? Do you need to scale up,

807
00:41:42,640 --> 00:41:44,240
Speaker 1: do you need to hire people, do you need to acquire?

808
00:41:44,280 --> 00:41:45,960
Speaker 1: What's the long term strategy?

809
00:41:46,360 --> 00:41:49,160
Speaker 3: Our strong belief is that public markets in private markets

810
00:41:49,200 --> 00:41:52,240
Speaker 3: in Europe are converging, and so we need to express

811
00:41:52,320 --> 00:41:55,320
Speaker 3: views around those, and so we have certain products that

812
00:41:55,320 --> 00:41:58,200
Speaker 3: are all public only. We have products that are convergence

813
00:41:58,239 --> 00:42:01,040
Speaker 3: of public and private and then we have private and

814
00:42:01,160 --> 00:42:03,440
Speaker 3: so I think to be relevant in Europe, to be

815
00:42:03,480 --> 00:42:06,319
Speaker 3: relevant to our clients and be relevant to borrowers, you

816
00:42:06,320 --> 00:42:08,879
Speaker 3: need to provide all of those solutions. And so what

817
00:42:08,920 --> 00:42:10,680
Speaker 3: you find in the main in Europe is that there

818
00:42:10,719 --> 00:42:13,120
Speaker 3: tends to be a lot of specialized managers. Some just

819
00:42:13,160 --> 00:42:15,960
Speaker 3: do structure credit, some just do public liquid credit, some

820
00:42:16,080 --> 00:42:19,880
Speaker 3: just do private credit. That that's a much more narrow

821
00:42:20,360 --> 00:42:22,960
Speaker 3: way to do the business, and it's one of that

822
00:42:23,000 --> 00:42:26,200
Speaker 3: doesn't leverage the connectivity between those marketplaces. And so I

823
00:42:26,200 --> 00:42:28,360
Speaker 3: think we've had relevance and we've enjoyed some good growth

824
00:42:28,680 --> 00:42:31,480
Speaker 3: in large part because we're a European focused credit manager

825
00:42:31,840 --> 00:42:35,200
Speaker 3: and we can express our views in just different risk

826
00:42:35,239 --> 00:42:38,080
Speaker 3: profile depending on the underlying liquidity of that risk. And

827
00:42:38,120 --> 00:42:41,600
Speaker 3: so that's how we differentiate ourselves. That's how I think

828
00:42:42,239 --> 00:42:47,000
Speaker 3: we'll continue to be relevant in Europe. And that's you know,

829
00:42:47,040 --> 00:42:48,640
Speaker 3: that's really been the game plan and we're just you know,

830
00:42:48,719 --> 00:42:50,480
Speaker 3: kind of day to day executing on that and we'll

831
00:42:50,480 --> 00:42:52,800
Speaker 3: see that where that takes us in the coming coming period.

832
00:42:53,160 --> 00:42:56,360
Speaker 2: And what keeps you up at night, Matthew, is it

833
00:42:56,400 --> 00:43:00,080
Speaker 2: the risk of an a AI bubble, maybe political risks

834
00:43:00,080 --> 00:43:04,400
Speaker 2: in Europe, more coproaches emerging from cracks in the walls,

835
00:43:04,520 --> 00:43:05,880
Speaker 2: or something else.

836
00:43:06,040 --> 00:43:10,080
Speaker 3: Entirely, I think it's I think it's just risk risk.

837
00:43:10,960 --> 00:43:15,360
Speaker 3: You risk transparency. So you know a lot of that

838
00:43:15,440 --> 00:43:19,120
Speaker 3: risk transparency has been you know, clouded in private markets,

839
00:43:19,160 --> 00:43:21,360
Speaker 3: and you know, as that unfolds in the coming period,

840
00:43:21,360 --> 00:43:25,200
Speaker 3: it's you know, we're not expecting any kind of cataclysmic issue,

841
00:43:25,239 --> 00:43:28,960
Speaker 3: but you know, when there's been less, less transparency, less

842
00:43:29,000 --> 00:43:32,759
Speaker 3: third party marking, you know, that's an area that we're

843
00:43:32,960 --> 00:43:35,000
Speaker 3: that we're keeping a very very close eye on. It's

844
00:43:35,040 --> 00:43:38,160
Speaker 3: again in Europe, you've seen this sort of the very

845
00:43:38,160 --> 00:43:41,960
Speaker 3: wide dispersion of credit performance in public markets, but heretofore

846
00:43:42,000 --> 00:43:43,759
Speaker 3: you haven't seen it in the private markets, and it's

847
00:43:43,800 --> 00:43:47,239
Speaker 3: probably the same are similar underliars, uh And therefore that's

848
00:43:47,239 --> 00:43:51,360
Speaker 3: that's something that we keep an eye out for, and

849
00:43:51,440 --> 00:43:53,839
Speaker 3: that's you know, in the coming period, that's an area

850
00:43:53,840 --> 00:43:54,920
Speaker 3: of focus for certain.

851
00:43:55,280 --> 00:43:59,040
Speaker 1: So you've spotted this opportunity in European middle market private credit.

852
00:43:59,719 --> 00:44:02,359
Speaker 1: Once show goes out, everyone else will be piling in.

853
00:44:02,760 --> 00:44:04,799
Speaker 1: How do you stay ahead of that competition? How do

854
00:44:04,840 --> 00:44:06,920
Speaker 1: you differentiate what's your edge.

855
00:44:07,560 --> 00:44:09,400
Speaker 3: I think it's I think it's relatively hard to do

856
00:44:10,080 --> 00:44:12,160
Speaker 3: for a couple of different reasons. One is you need

857
00:44:12,200 --> 00:44:16,560
Speaker 3: to have deep research teams that are sectorized and deeply

858
00:44:16,600 --> 00:44:20,759
Speaker 3: relevant to each one of the underlying borrowers. That's a

859
00:44:20,760 --> 00:44:23,600
Speaker 3: big teams. It's got a lot of expertise from a

860
00:44:23,640 --> 00:44:26,600
Speaker 3: company by company perspective. Two is Europe is not just

861
00:44:26,640 --> 00:44:31,000
Speaker 3: looking at underlying cash flows, it's also understanding structure. And

862
00:44:31,120 --> 00:44:34,879
Speaker 3: so having had teams that have worked a long time

863
00:44:34,880 --> 00:44:38,360
Speaker 3: in Europe, some of them have great restructuring capabilities, allows

864
00:44:38,440 --> 00:44:41,759
Speaker 3: us to bring forward that sort of legal analysis, that

865
00:44:41,880 --> 00:44:45,000
Speaker 3: legal underwriting analysis upfront. And so I think that combination

866
00:44:45,080 --> 00:44:49,600
Speaker 3: of sector focus, a very strong legal analysis, and being

867
00:44:49,640 --> 00:44:52,680
Speaker 3: acutely focused just on Europe is really differentiating ourselves. And

868
00:44:53,120 --> 00:44:55,880
Speaker 3: I think what you as I said before, what you

869
00:44:55,960 --> 00:44:59,160
Speaker 3: find is Europe for a lot of the non European

870
00:44:59,200 --> 00:45:02,160
Speaker 3: managers tends to be something that is in vogue. Sometimes

871
00:45:02,200 --> 00:45:04,200
Speaker 3: they wax and weigh down Europe. And I've seen this

872
00:45:04,239 --> 00:45:07,200
Speaker 3: five or six times in the last twenty years, and

873
00:45:08,000 --> 00:45:11,640
Speaker 3: I think, are you know, our longevity is really focused

874
00:45:11,680 --> 00:45:14,640
Speaker 3: on the fact that we're European specialist. We have this

875
00:45:14,719 --> 00:45:19,440
Speaker 3: sector expertise, We understand the the insolvency regimes, uh, and

876
00:45:19,480 --> 00:45:22,600
Speaker 3: we're looking very holistically, holistically across as public and private

877
00:45:22,600 --> 00:45:24,560
Speaker 3: sort of convergence theme. And I think that's that's enough

878
00:45:24,640 --> 00:45:26,319
Speaker 3: for us to focus on for some period of time.

879
00:45:26,560 --> 00:45:28,320
Speaker 1: And if you have to pick one product, one sector,

880
00:45:28,320 --> 00:45:31,000
Speaker 1: one country, is our best relative value idea, You've got

881
00:45:31,200 --> 00:45:31,640
Speaker 1: tons of.

882
00:45:31,920 --> 00:45:33,000
Speaker 4: Yeah, I really like this.

883
00:45:33,360 --> 00:45:37,520
Speaker 3: We like this senior middle market direct lending activity from

884
00:45:37,520 --> 00:45:40,319
Speaker 3: a risk adjusted perspective. We don't like it in just

885
00:45:40,360 --> 00:45:42,719
Speaker 3: one country with like on a pan European basis, and

886
00:45:42,800 --> 00:45:45,360
Speaker 3: we're generating really attractive, you know, risk adjusted returns for that.

887
00:45:45,440 --> 00:45:48,120
Speaker 3: And so that's that's what we've been focused on in

888
00:45:48,160 --> 00:45:51,279
Speaker 3: this partnership and part with Lizard and using our own

889
00:45:51,320 --> 00:45:53,239
Speaker 3: investment teams, and so I think that's something we'll come

890
00:45:53,280 --> 00:45:55,160
Speaker 3: back hopefully, James, and I'll give you an update in

891
00:45:55,200 --> 00:45:55,759
Speaker 3: the coming years.

892
00:45:55,840 --> 00:45:59,279
Speaker 1: No particular industry that you really love for city in

893
00:45:59,320 --> 00:46:01,399
Speaker 1: Europe that you love to visit to do this sort

894
00:46:01,440 --> 00:46:01,840
Speaker 1: of business.

895
00:46:02,239 --> 00:46:03,600
Speaker 4: We like northern Europe quite a bit.

896
00:46:04,000 --> 00:46:06,960
Speaker 3: We spend a lot of time in Germany, a lot

897
00:46:07,000 --> 00:46:09,560
Speaker 3: of time in the Nordics, a lot of time in UK,

898
00:46:10,080 --> 00:46:12,160
Speaker 3: and those are pretty rich environments for US.

899
00:46:12,719 --> 00:46:16,879
Speaker 1: And in terms of fundraising, how's that going generally? I mean,

900
00:46:16,920 --> 00:46:19,480
Speaker 1: I don't need to getting specifics, but do you find

901
00:46:19,480 --> 00:46:21,600
Speaker 1: that there is appetite for what you're describing in terms

902
00:46:21,640 --> 00:46:23,600
Speaker 1: of when you go out and see big pension funds,

903
00:46:23,640 --> 00:46:25,720
Speaker 1: big institution investors in the US.

904
00:46:26,120 --> 00:46:26,960
Speaker 4: I think there are two themes.

905
00:46:26,960 --> 00:46:29,240
Speaker 3: One is, I think a number of the communities continue

906
00:46:29,239 --> 00:46:33,120
Speaker 3: to be investment communities are underweight credit, and with rates

907
00:46:33,160 --> 00:46:35,440
Speaker 3: staying at the level they are and so higher for

908
00:46:35,520 --> 00:46:38,320
Speaker 3: longer they're in the main, there's interest in credit product,

909
00:46:38,360 --> 00:46:42,239
Speaker 3: particularly alternative credit product we can enjoy an uplift and

910
00:46:42,239 --> 00:46:45,000
Speaker 3: spread and so we're finding that to be a theme

911
00:46:45,080 --> 00:46:47,720
Speaker 3: in many of the geographies the US, the Middle East, Asia,

912
00:46:47,760 --> 00:46:51,800
Speaker 3: amongst others. So this movement towards credit. And two is

913
00:46:51,840 --> 00:46:56,879
Speaker 3: the geographical which is they've been many investors have enjoyed

914
00:46:57,040 --> 00:47:00,279
Speaker 3: the US private markets equity and credit. Now theen a

915
00:47:00,280 --> 00:47:03,960
Speaker 3: real compression of returns and therefore they want to focus

916
00:47:04,040 --> 00:47:06,239
Speaker 3: on a place where they think there's rule of law,

917
00:47:06,320 --> 00:47:08,600
Speaker 3: where they think there's opportunity set and that's really been Europe.

918
00:47:08,640 --> 00:47:11,239
Speaker 3: And so that's a theme that it's not going to

919
00:47:11,280 --> 00:47:13,759
Speaker 3: be fatish. I think it's one that has, you know,

920
00:47:13,840 --> 00:47:15,560
Speaker 3: medium term growth in it, and that's when we've been

921
00:47:15,600 --> 00:47:16,160
Speaker 3: enjoying quite a.

922
00:47:16,160 --> 00:47:19,440
Speaker 1: Bit great stuff. Matthew Sestar, President of IRENI, It's been

923
00:47:19,480 --> 00:47:21,160
Speaker 1: a real pleasure having you on the Credit Edge money.

924
00:47:21,200 --> 00:47:22,960
Speaker 4: Thanks James, a treat to be here and we'll see

925
00:47:22,960 --> 00:47:23,480
Speaker 4: you very soon.

926
00:47:23,640 --> 00:47:26,920
Speaker 1: And of course very grateful to Stephan Kovichef from Bloomberg Intelligence.

927
00:47:26,960 --> 00:47:29,440
Speaker 1: Thank you for joining us today. Thank you, and for

928
00:47:29,520 --> 00:47:32,719
Speaker 1: more credit market analysis and insight, read all of Stefankovicheff's

929
00:47:32,800 --> 00:47:35,640
Speaker 1: great work on the Bloomberg Terminal. Bloomberg Intelligence is part

930
00:47:35,640 --> 00:47:38,399
Speaker 1: of our research department, with five hundred analysts and strategists

931
00:47:38,480 --> 00:47:41,840
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932
00:47:41,840 --> 00:47:44,239
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933
00:47:44,280 --> 00:47:48,520
Speaker 1: one hundred market industries, currencies and commodities. Please do subscribe

934
00:47:48,520 --> 00:47:51,160
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935
00:47:51,200 --> 00:47:54,120
Speaker 1: on Apple, Spotify and all other good podcast providers, including

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937
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Speaker 1: tell your friends, or email me directly at Jcrombie eight

938
00:48:01,000 --> 00:48:04,680
Speaker 1: at Bloomberg dot net. I'm James Crombie, it's been a

939
00:48:04,680 --> 00:48:07,040
Speaker 1: real pleasure having you join us again next week on

940
00:48:07,160 --> 00:48:08,040
Speaker 1: the Credit Edge.