WEBVTT - Goldman Demystifies Private Credit; BDCs Go Public 0:00:18.079 --> 0:00:20.640 Hello, and welcome to The Credit Edge, a weekly markets podcast. 0:00:20.920 --> 0:00:23.440 My name is James Crombie. I'm a senior editor at Bloomberg. 0:00:23.840 --> 0:00:26.720 This week, we're very pleased to welcome James Reynolds, Global 0:00:26.720 --> 0:00:29.480 head of direct Lending at Goldman Sachs. How are you, James. 0:00:29.840 --> 0:00:31.600 I'm doing very well. Thank you for having me. 0:00:32.000 --> 0:00:33.559 Thank you so much for joining us today. We're really 0:00:33.600 --> 0:00:35.640 looking forward to getting your take on the credit markets. 0:00:36.200 --> 0:00:39.120 We're also delighted to welcome back Bloomberg's own Lisa Lee. 0:00:39.479 --> 0:00:40.720 How are you, Lisa fine? 0:00:40.720 --> 0:00:41.160 Thank you. 0:00:41.960 --> 0:00:44.320 Lisa covers credit markets from London, and it's great to 0:00:44.360 --> 0:00:47.479 see you again. And from Bloomberg Intelligence. It's great to 0:00:47.479 --> 0:00:51.040 see David Havens, who's based in New York. How are you, David. 0:00:51.360 --> 0:00:53.000 I'm very good, looking forward to a little bit of 0:00:53.040 --> 0:00:54.720 snow to it here tomorrow, So. 0:00:54.680 --> 0:00:57.160 Let's start with you, James. Welcome. We spent a lot 0:00:57.160 --> 0:01:00.000 of time on this show talking to private debt. Investment 0:01:00.120 --> 0:01:02.840 is about what's widely being described as a golden age 0:01:02.840 --> 0:01:06.080 for this very fast growing market. The so called non 0:01:06.160 --> 0:01:09.120 banks are really very excited about the opportunity. Everyone from 0:01:09.200 --> 0:01:12.119 KKR and Apollo to black Rock is all over it. 0:01:12.120 --> 0:01:15.479 It's all the rage. You're in a somewhat different position though, 0:01:15.520 --> 0:01:17.959 given your firms attachment to what we would call a 0:01:18.000 --> 0:01:21.360 traditional lender, though of course Golden Sas is not really 0:01:21.760 --> 0:01:24.479 a typical retail bank. So I just wanted to kind 0:01:24.480 --> 0:01:27.720 of start by talking about the opportunity as you see it, 0:01:28.640 --> 0:01:30.520 and what's the gold and Sacks edge when you think 0:01:30.520 --> 0:01:31.440 about private credit. 0:01:32.000 --> 0:01:35.600 Thank you, thank you for having me and asking the question. 0:01:35.720 --> 0:01:39.200 And I would start by maybe stepping back and saying that, 0:01:39.280 --> 0:01:42.240 you know, we have been in this market since nineteen 0:01:42.319 --> 0:01:45.360 ninety six, and you know, for the last twenty seven 0:01:45.440 --> 0:01:50.320 years we've really enjoyed it and explosive growth in private 0:01:50.320 --> 0:01:54.320 credits and direct lending in particular. And so whilst you know, 0:01:54.400 --> 0:01:56.680 some participants talk about a golden age, I think it 0:01:56.720 --> 0:02:02.880 has been really the last three decades an amazing opportunity 0:02:03.000 --> 0:02:06.920 for direct landing and and certany with with witnessed and 0:02:07.040 --> 0:02:09.640 I joined these business twenty four years ago and we 0:02:09.760 --> 0:02:13.359 have witnessed a lot of growth across a number of 0:02:13.400 --> 0:02:19.000 strategies and also regions. You know, where where is our edge? 0:02:19.040 --> 0:02:21.120 I think certainly you know, as I started by saying, 0:02:21.160 --> 0:02:23.880 you know, having been around for a long time, you know, 0:02:23.919 --> 0:02:27.400 being time tested through a number of cycles. Clearly, the 0:02:27.440 --> 0:02:31.880 origination platform, I would say, is a real edge at Goldman. 0:02:32.000 --> 0:02:35.800 It's how we work really hand in love with you know, 0:02:35.919 --> 0:02:40.200 thousands of investment bankers all around the world that that 0:02:40.400 --> 0:02:44.200 day to day connectivity, the trusts that we established on 0:02:44.320 --> 0:02:47.400 both sides of our teams really that that is being 0:02:47.880 --> 0:02:51.280 transcended by the one GS, which which is a huge 0:02:51.320 --> 0:02:54.800 priority that you know, our executive office launched a few 0:02:54.840 --> 0:02:58.200 years ago to really formalize what is effectively a way 0:02:58.240 --> 0:03:02.280 to collaborate across across teams and across divisions, and something 0:03:02.320 --> 0:03:04.480 that you know, we've done very well I think in 0:03:04.520 --> 0:03:09.080 the last three decades between our private credit investing team 0:03:09.280 --> 0:03:12.720 and all the other groups at the firm. And I 0:03:12.760 --> 0:03:15.800 think it does give us an edge when we're you know, 0:03:15.840 --> 0:03:18.440 dealing with you know, private equity owners of companies or 0:03:18.440 --> 0:03:21.520 management teams. I think the ability to bring the firm 0:03:22.280 --> 0:03:25.560 is something that we've refined over time, and I think 0:03:25.560 --> 0:03:29.720 we're doing well and something is appreciated by the privaty 0:03:29.720 --> 0:03:34.320 equity community, but also not only but also by our investors. 0:03:34.360 --> 0:03:37.720 I think they do recognize that the origination platform is 0:03:38.080 --> 0:03:39.080 highly differentiated. 0:03:39.720 --> 0:03:42.640 So James Commensas is sort of unique among the global 0:03:42.680 --> 0:03:46.560 banks for having a really strong leveraged finance group that 0:03:46.800 --> 0:03:50.520 raises capital from higher bonds and average loan market, as 0:03:50.600 --> 0:03:54.520 well as a really sizable direct lending platform that can 0:03:54.560 --> 0:03:57.960 do both multi billion dollar deals at least participate in them. 0:03:58.360 --> 0:04:01.840 So as direct lending is and bigger and starts eroding 0:04:01.880 --> 0:04:05.920 into some of the investment banking share of the market, 0:04:06.200 --> 0:04:09.920 how does Goman SAP navigate that? And and as other 0:04:10.000 --> 0:04:13.840 banks try to sort of play into private credit, well, 0:04:14.120 --> 0:04:15.640 how do you see that evolving? 0:04:16.240 --> 0:04:18.440 Sure? And thanks Liza, and for us, that's not a 0:04:18.520 --> 0:04:22.160 new phenomenon again because we've been operating very large vehicles 0:04:22.240 --> 0:04:25.760 for for a long time, and so the ability to 0:04:25.760 --> 0:04:28.880 to work well with our leveraged finance colleagues, I think it's, 0:04:29.000 --> 0:04:30.800 you know, back to the edge. I think that's that's 0:04:30.839 --> 0:04:34.000 one of the edge that we have this ability to 0:04:34.000 --> 0:04:37.640 to go and peach together mandates and and also kind 0:04:37.680 --> 0:04:41.240 of work together on large capital structures so that maybe 0:04:41.279 --> 0:04:43.760 will anchor part of the capital structure, or maybe will 0:04:44.000 --> 0:04:46.360 will anchor the junior part of the capital structure. When 0:04:46.560 --> 0:04:50.400 you know the firm a underwrite another part of that structure, 0:04:50.760 --> 0:04:55.760 and that ability to provide capital solutions to sponsors and 0:04:56.320 --> 0:04:59.640 companies something that is truly unique. And there are situations 0:04:59.800 --> 0:05:04.200 like take private where confidentiality is critical and so if 0:05:04.240 --> 0:05:07.680 you can effectively speak to one party that can do 0:05:08.200 --> 0:05:10.320 you know, the entire financing, either on our own or 0:05:10.320 --> 0:05:13.680 together with leverage finance, and maybe also you'll get the 0:05:13.720 --> 0:05:18.240 advisory from from Goldman. I think, you know, having that 0:05:18.360 --> 0:05:22.320 kind of capital complete capital solution and advisory solution is 0:05:22.400 --> 0:05:25.919 selt only very very different, and so we're used to 0:05:25.960 --> 0:05:29.600 dealing with this. Actually I think you know, we we 0:05:29.839 --> 0:05:31.760 we make the other side better and to make our 0:05:31.920 --> 0:05:36.680 side better, and so that's that's very complimentary to have 0:05:36.760 --> 0:05:40.560 both at Goldman. You know, we've noticed that all the 0:05:40.600 --> 0:05:44.040 banks are also trying to figure out how to deal 0:05:44.080 --> 0:05:48.080 with with private credit and direct lending, and every bank has, 0:05:48.160 --> 0:05:50.480 you know, a different way maybe of dealing with it. 0:05:51.120 --> 0:05:53.080 But I would say, you know, private credit is a 0:05:53.080 --> 0:05:55.960 force to reckon with. It's going to stay. It's loud today, 0:05:55.960 --> 0:05:57.240 it's approaching to trillion. 0:05:58.120 --> 0:06:00.480 So you have about one hundred and ten billion in 0:06:00.520 --> 0:06:04.040 assets right now dollars. You want to double that, what's 0:06:04.080 --> 0:06:07.000 the time frame to get there and how do you 0:06:07.040 --> 0:06:07.560 get there? 0:06:08.720 --> 0:06:11.440 And we have we've not set a time frame, but 0:06:11.480 --> 0:06:15.840 we're certainly ambitious here in our leadership team and all 0:06:15.880 --> 0:06:19.360 our colleagues and and and we see great opportunities to grow. 0:06:19.400 --> 0:06:23.720 And it comes from various strategies, and I would say 0:06:23.760 --> 0:06:27.800 across different regions, right. And so if you think about 0:06:27.800 --> 0:06:29.880 our platform, by the way, has doubled in the last 0:06:30.120 --> 0:06:33.840 four years already to where we are today, we continue 0:06:33.880 --> 0:06:37.560 to to be in the market and a number of strategies. 0:06:39.080 --> 0:06:41.719 I think in the US, you know, we're getting into 0:06:41.960 --> 0:06:45.039 larger financings. I think that's one way to grow, which 0:06:45.120 --> 0:06:49.080 is to continue to penetrate the leverage finance market. Right 0:06:49.320 --> 0:06:51.600 and and as you know, as as we do it, 0:06:51.720 --> 0:06:54.000 maybe you know, either on our own or certainly or 0:06:54.040 --> 0:06:58.120 maybe in club deals, you're seeing some of these private 0:06:58.160 --> 0:07:02.120 financings getting to which you know, frankly maybe five years 0:07:02.160 --> 0:07:06.440 ago would have been difficult to was certainly difficult to 0:07:06.480 --> 0:07:09.800 execute and maybe even to imagine. And so that's one 0:07:09.840 --> 0:07:12.760 way to grow here, which is, you know, just getting 0:07:13.040 --> 0:07:18.040 a higher share of wallets of the entire leverage finance market. 0:07:18.800 --> 0:07:21.880 But we're launching new strategies, we're going into new regions. 0:07:22.600 --> 0:07:25.200 You know, Asia is an area of growth for us. 0:07:25.680 --> 0:07:28.920 We continue to deploy a lot of capital in Europe, 0:07:28.920 --> 0:07:33.400 for instance, even at times when M and A is slow. 0:07:34.560 --> 0:07:38.000 We have the luxury of having a very large portfolio, 0:07:38.680 --> 0:07:42.520 six hundred plus portfolio companies, and so staying close to 0:07:42.560 --> 0:07:46.920 these companies provide us with lots of opportunities to continue 0:07:46.920 --> 0:07:51.320 to deploy in this portfolio what we call the incumbency edge, 0:07:51.920 --> 0:07:54.440 And certainly in twenty twenty three, a lot of what 0:07:54.520 --> 0:07:58.280 we have deployed dollarwise came came from that portfolio. And 0:07:58.320 --> 0:08:00.920 then you know, we have other ideas us when it 0:08:01.000 --> 0:08:04.080 comes to private ig that's an area that we would 0:08:04.120 --> 0:08:08.240 like to grow and get more into. And we think 0:08:08.240 --> 0:08:12.840 we have again an edge here given at we're a bank, 0:08:13.200 --> 0:08:17.000 and so we tend to traffic in the kind of 0:08:17.120 --> 0:08:19.960 large corporate worlds or mid market corporate worlds. 0:08:20.240 --> 0:08:23.120 In terms of the Asia opportunity you mentioned, is that 0:08:23.160 --> 0:08:25.880 more on the lending side, in which case which countries 0:08:25.960 --> 0:08:27.760 you mostly focus on, which sectors? 0:08:28.480 --> 0:08:31.800 Yeah, I'm talking about credit here, and look, we've been 0:08:31.840 --> 0:08:34.880 in Asia for a long time. We've been in Asia 0:08:34.920 --> 0:08:39.600 for a long time, using our balance sheet initially and 0:08:39.640 --> 0:08:44.600 then gradually transitioning away from only using the balance sheet 0:08:44.840 --> 0:08:49.720 to having alignment of balance sheets alongside the party capital. 0:08:49.800 --> 0:08:52.680 And so we've announced a few months ago a partnership. 0:08:53.960 --> 0:08:58.959 We are active I was pretty much across Asia. We 0:08:59.280 --> 0:09:02.920 have teams there by the way, located in the major market. Obviously, 0:09:02.960 --> 0:09:06.600 government has been a formidable presence in Asia for a 0:09:06.800 --> 0:09:11.000 very long time, multi multi decades. I think probably one 0:09:11.000 --> 0:09:14.960 of the or if not the first, major US in 0:09:15.080 --> 0:09:18.880 Esman Bank. And so we benefit from having this network 0:09:19.960 --> 0:09:24.160 and having these long standing relationships with also the corporates 0:09:24.160 --> 0:09:29.040 there sectors. I think when it comes to our dark 0:09:29.160 --> 0:09:33.800 landing business, which you know we tend to really I 0:09:33.800 --> 0:09:38.640 would say stick to our knitting around avoiding defaults, right. 0:09:39.160 --> 0:09:42.439 And so the sectors in which we invest, whether it's 0:09:42.440 --> 0:09:44.840 in the US, in Europeora in Asia, they tend to 0:09:44.840 --> 0:09:48.960 be quite defensive and recession resilience. And you'll see the 0:09:48.960 --> 0:09:52.640 same whether we invest in Australia or in India. And 0:09:52.679 --> 0:09:56.600 then we have all our strategies where we look for 0:09:56.720 --> 0:10:00.120 maybe higher reason but we're getting paid for it, and 0:10:00.160 --> 0:10:03.280 they're in those strategies hybrid strategies. Then we've gone into 0:10:03.320 --> 0:10:08.800 more sicly call sectors in Asia, including hospitality or other 0:10:08.880 --> 0:10:13.880 type of more I would say, sickly call maybe retail 0:10:15.480 --> 0:10:19.319 sectors or you know, we've we've invested in the golf 0:10:19.320 --> 0:10:23.040 course or the largest operator in Japan for instance. We've 0:10:23.040 --> 0:10:25.520 looked at the number of other I would say, probably 0:10:26.400 --> 0:10:31.640 a bit different, and trying to bring capital solutions always 0:10:32.160 --> 0:10:35.280 to these corporates and the owners of those companies. 0:10:35.280 --> 0:10:37.400 In terms of fundraising, I mean, to get those assets 0:10:37.440 --> 0:10:39.880 over two hundred billion. What's your first port of call 0:10:39.920 --> 0:10:41.680 these as you flying more to Dubai or is it 0:10:41.679 --> 0:10:43.280 Toronto or is it Sydney? Where are you going? 0:10:43.960 --> 0:10:48.160 What's interesting about this environment is and it's helpful to 0:10:48.200 --> 0:10:51.160 have many voices, by the way, to have you know, competitors, peers, 0:10:51.679 --> 0:10:55.080 other platforms talk about private credits so that you know, 0:10:55.120 --> 0:11:00.280 they can also educate the market and educate LPs. And 0:11:00.360 --> 0:11:05.440 so to your question, we're flying and I'm flying everywhere literally, 0:11:05.520 --> 0:11:09.280 I mean twenty twenty three it was a heavy europhone 0:11:09.360 --> 0:11:14.440 raising for us, a successful one, and the nature of 0:11:15.800 --> 0:11:20.360 our investor base is very diversified. I think that's one 0:11:20.360 --> 0:11:25.439 of the strengths of our platform, you know, institutions, pension phones, 0:11:25.559 --> 0:11:31.959 insurance companies, sovereigned but also wealth management clients. And we're 0:11:32.000 --> 0:11:36.920 fortunate to have also long standing and loyal LPs on 0:11:36.960 --> 0:11:38.760 our platform. I mean again into back to our roots. 0:11:38.760 --> 0:11:41.720 We started in nineties, and you know, when we launched 0:11:41.760 --> 0:11:44.480 our first new dig landing phone in two thousand and 0:11:44.720 --> 0:11:50.079 early two thousand and eight, we were heavy, heavily invested 0:11:50.240 --> 0:11:54.800 or heavy partner up with European pension phones. And today 0:11:54.800 --> 0:12:00.880 we're really diversified across the world. And what's interesting here 0:12:01.360 --> 0:12:05.280 is that we're still getting a lot of new investors, 0:12:05.320 --> 0:12:09.240 new logos, and that's really important because we think that 0:12:09.280 --> 0:12:12.200 if we do a good job at delivering the returns, 0:12:12.640 --> 0:12:16.120 having you know, this kind of close intimate relationships with 0:12:16.160 --> 0:12:20.360 our investors, hopefully they will want to continue to be 0:12:20.480 --> 0:12:22.800 with us. And we take a long term view here. 0:12:23.920 --> 0:12:26.120 As I said earlier, I've been doing this for twenty 0:12:26.120 --> 0:12:28.360 four years, and we take the long term view. We 0:12:28.400 --> 0:12:30.720 want to make sure that we provide a good customer 0:12:30.760 --> 0:12:32.280 experience to our investors. 0:12:32.720 --> 0:12:36.959 Hey, James, it's David Havens here. Switch it up a 0:12:37.000 --> 0:12:40.040 little bit. Big picture question, Golden Sachs. It's it's sort 0:12:40.040 --> 0:12:43.560 of the nexus of just about everything in global finance, 0:12:43.600 --> 0:12:47.640 except for maybe sort of the mass affluent market. You've got, 0:12:48.120 --> 0:12:55.480 you know, investment banking, contacts, contacts, private wealth, limited partnerships, 0:12:55.520 --> 0:12:59.360 et cetera, et cetera. There have been a number of 0:12:59.360 --> 0:13:03.920 incentives and disincentives that have caused the corporate credit market 0:13:03.960 --> 0:13:06.480 to change over the course of the last five, ten, 0:13:06.679 --> 0:13:09.760 twenty years or so. Where do we stand today, Like, 0:13:10.080 --> 0:13:13.760 isn't it the job of banks to lend to companies? 0:13:13.920 --> 0:13:16.480 I went through a credit training program a chemical bank 0:13:16.520 --> 0:13:18.520 way back when, and that's what we used to do. 0:13:18.559 --> 0:13:20.720 But it doesn't seem like banks do that much anymore. 0:13:21.440 --> 0:13:24.720 I think they still do that job, by the way, 0:13:24.840 --> 0:13:30.959 maybe in a slightly different form or maybe slightly different strategies. 0:13:31.760 --> 0:13:34.520 But we're not saying, by the way that you know, 0:13:34.520 --> 0:13:37.600 the banks will still be in the market. I actually think, 0:13:37.640 --> 0:13:39.400 you know, when we started in knowil seven o eight, 0:13:40.240 --> 0:13:44.080 and we would do a financing alongside us, if we're 0:13:44.120 --> 0:13:47.600 not the sole lender, we would have banks. And I 0:13:47.640 --> 0:13:50.560 think you know, now you see actually this type of 0:13:50.559 --> 0:13:55.720 collaboration partnership come back, and you know, there are situations 0:13:55.720 --> 0:13:57.800 that are totally private with a club deal of dark 0:13:57.880 --> 0:14:02.160 lenders and others that I could well see banks work 0:14:02.200 --> 0:14:07.640 with dark landers, and so I think you'll continue to see, 0:14:07.640 --> 0:14:11.480 you know, lending to good corporates too, high quality companies 0:14:11.640 --> 0:14:15.280 is a good business obviously the banks. I've gone through 0:14:15.480 --> 0:14:19.080 a number of regulation in the US and in Europe 0:14:19.080 --> 0:14:22.560 that we've had to comply with and adapt to ourselves. 0:14:23.120 --> 0:14:25.840 But I do think that you could see, you know, 0:14:25.880 --> 0:14:31.880 this kind of collaboration work between between banks and uh 0:14:32.120 --> 0:14:36.880 and and other forms of capital and celtany. You know 0:14:37.040 --> 0:14:40.840 that we we bring that to our advantage internally. As 0:14:40.880 --> 0:14:42.720 I was saying earlier, you know, to the question around 0:14:42.760 --> 0:14:45.640 the edge, we we bring into our advantage. The one 0:14:45.680 --> 0:14:47.960 thing that has changed maybe between when I started in 0:14:48.000 --> 0:14:52.920 two thousand and and today, the banks have incredible origination platforms, 0:14:53.280 --> 0:14:56.000 right and we certainly benefit from from it at at 0:14:56.040 --> 0:14:59.960 Goldman Sacks. But when I started, maybe twenty plus years ago, 0:15:00.040 --> 0:15:04.080 the banks would hold more on their balance sheets. Whilst 0:15:04.240 --> 0:15:06.960 you know, maybe they started, you know, the movement from 0:15:07.080 --> 0:15:12.120 under from holding on the balance sheets to underwriting and syndicating, 0:15:12.160 --> 0:15:14.920 and that that movement we've seen probably nearly two thousands 0:15:15.600 --> 0:15:18.800 I think the banks today, whilst they continue to be 0:15:18.880 --> 0:15:23.800 very active in certainly in direct lending, they probably hold 0:15:23.840 --> 0:15:26.040 less on their balance sheets to be fair. And then 0:15:26.080 --> 0:15:28.800 you know that that would that would depend yeah, exactly, 0:15:28.840 --> 0:15:31.000 also from banks to banks exactly. 0:15:31.080 --> 0:15:32.960 And I think that according to some of the data 0:15:32.960 --> 0:15:36.840 that we have a Bloomberg intelligence, it looks like twenty 0:15:36.920 --> 0:15:39.160 twenty two twenty three was actually the first year where 0:15:39.200 --> 0:15:44.360 non non non bank financial institutions made more loans to 0:15:44.800 --> 0:15:48.160 corporations than banks actually did, which is which is interesting. 0:15:48.240 --> 0:15:50.400 I think that's right. And also in the market has 0:15:50.440 --> 0:15:52.960 been dislocated. Yes, let's face it, right, I mean we 0:15:53.320 --> 0:15:56.640 are in between markets. Yeah, and we came from twenty 0:15:56.680 --> 0:16:01.600 twenty one lots of activity and then rates certainly shot up, 0:16:01.880 --> 0:16:04.160 and that really shook up the fixing call market. Hence 0:16:04.200 --> 0:16:06.000 the banks were not as active. 0:16:06.640 --> 0:16:09.640 To your point that banks needs to hold more of 0:16:09.640 --> 0:16:13.000 this lending. When I look at the direct lending market, 0:16:13.040 --> 0:16:15.400 it looks early similar to the early days of the 0:16:15.440 --> 0:16:18.600 leverage law market, where banks needs to hold more and 0:16:18.640 --> 0:16:23.320 things didn't trade. So when you look forward to direct lending, 0:16:23.360 --> 0:16:26.480 do you expect trading activity to start picking up? I 0:16:26.520 --> 0:16:30.440 know there is some trading just for liquidity purposes, but 0:16:30.520 --> 0:16:35.120 more of that and perhaps at different levels. And if 0:16:35.160 --> 0:16:37.880 that happens, and what happens to the liquidity premium that 0:16:37.920 --> 0:16:38.480 you guys. 0:16:38.360 --> 0:16:42.280 Enjoy and thanks Liza. I think, first of all, when 0:16:42.360 --> 0:16:45.840 we commit capital, we have pre syndicated it. It's by 0:16:45.920 --> 0:16:50.200 having fund raised and our investors are, in particular the 0:16:50.200 --> 0:16:55.440 institutional investors, they're patients. This is patient capital, this is 0:16:55.520 --> 0:16:59.160 long term patient capital, and so we don't have the 0:16:59.240 --> 0:17:03.080 need to go and sell our positions, right, I mean, 0:17:03.080 --> 0:17:04.760 we can hold on to our loand for a very 0:17:04.800 --> 0:17:08.600 long time, and so that that's a major advantage of 0:17:09.400 --> 0:17:13.000 dark glanders for instance. Now, what you may see at 0:17:12.800 --> 0:17:15.120 the start, you know, when you put together a financing, 0:17:16.200 --> 0:17:19.800 is that a lot of our investors quite enjoy having 0:17:19.840 --> 0:17:23.199 co investment opportunities, and so we may commit for a 0:17:23.200 --> 0:17:27.280 bit more with a view that some of our key 0:17:27.560 --> 0:17:33.560 large LPs could get access to co investment opportunities. This way, 0:17:35.359 --> 0:17:37.840 I think to the point that you're making, and very 0:17:37.880 --> 0:17:40.040 similar to what we have seen in the private equity 0:17:40.560 --> 0:17:43.399 industry as we saw the explosive growth of private equity 0:17:43.440 --> 0:17:46.040 and as a result, you know, the first derivative is 0:17:46.040 --> 0:17:48.960 going to be secondary, and I think you're going to 0:17:49.040 --> 0:17:52.800 see you know, the staff and it's already started, and 0:17:52.840 --> 0:17:54.840 I think it's going to be a much much larger 0:17:54.920 --> 0:17:59.840 business of a credit secondary as a class. By the way, 0:17:59.880 --> 0:18:05.240 you start hearing about maybe some LPs that would like 0:18:05.320 --> 0:18:09.600 maybe to sell positions, and you know, there's there's a 0:18:09.600 --> 0:18:16.880 growing market here. And so whilst the underlying is ill 0:18:16.920 --> 0:18:19.480 liquid I think at the LP level, I think we're 0:18:19.480 --> 0:18:23.040 going to see growth of credit secondary where LPs can 0:18:23.080 --> 0:18:28.360 effectively fine liquidity in this in this way as well. Right, 0:18:28.600 --> 0:18:33.920 And we're quite excited actually about these market development. When 0:18:33.960 --> 0:18:35.680 you have an asset class that is getting close to 0:18:35.720 --> 0:18:38.119 two trillion dollar, you're certainly going to see you know, 0:18:38.200 --> 0:18:43.880 some some more strategies kind of flourishing out of the growth. Right. 0:18:43.920 --> 0:18:46.440 And we've we've also obviously, as you mentioned, we've seen 0:18:46.520 --> 0:18:48.679 quite a bit of growth that we've words probably come 0:18:48.760 --> 0:18:52.880 up quite a bit in this conversation. Uh, private equity credit, 0:18:52.960 --> 0:18:57.320 I'm sorry, private credit has kind of gone mainstream. Maybe 0:18:57.320 --> 0:18:59.879 you can spend a few minutes talking about terms and conditions. 0:19:00.119 --> 0:19:03.280 You're seeing terms and conditions in the market evolving as 0:19:03.400 --> 0:19:05.879 newer entrants come in as sort of new quote unquote 0:19:05.920 --> 0:19:08.639 technologies are employed in the private credit. 0:19:08.400 --> 0:19:12.600 Space absolutely, And to the point you just made around mainstream, 0:19:12.640 --> 0:19:16.439 I think, you know, we collectively need to just demystify 0:19:16.920 --> 0:19:19.760 what we do, which is, in simple words, you know, 0:19:20.680 --> 0:19:25.439 lending to corporates. And but yeah, look the terms and 0:19:25.480 --> 0:19:30.199 conditions they do vary depending on market conditions, right, And 0:19:30.240 --> 0:19:33.280 so if you you need to step back and look 0:19:33.320 --> 0:19:36.119 at long period of time, you know, ten twenty years, 0:19:36.160 --> 0:19:42.600 and you certainly see a direk correlation of the activity 0:19:42.640 --> 0:19:46.760 of direct lending with dishuans of loans, right, So that 0:19:46.920 --> 0:19:49.119 really means that even when the banks are back on 0:19:49.240 --> 0:19:52.360 the writing, you have certainly more volume in the markets, 0:19:52.359 --> 0:19:55.159 more and many activity, more volume. I think that's overall 0:19:55.200 --> 0:20:00.679 good for the industry as well. When when you see 0:20:01.400 --> 0:20:04.280 a drop in loan issuance, when the markets turn more 0:20:04.359 --> 0:20:08.800 volatile and less MNA activity, what you see is, you know, 0:20:08.880 --> 0:20:14.360 less volume in direct lending, but you see somewhat higher pricing, 0:20:15.160 --> 0:20:21.560 maybe wider origination fees. And I would say probably we 0:20:21.880 --> 0:20:26.160 as an industry have more leverage when we negotiate documentation, 0:20:27.440 --> 0:20:30.400 and so the documentation tends to be maybe a bit 0:20:30.400 --> 0:20:36.439 tighter in those kind of cycles where volativity is hitting. 0:20:37.119 --> 0:20:39.800 I mean, as we saw the rates increase, for instance, 0:20:39.840 --> 0:20:43.480 in twenty twenty two, what happened is sponsors management teams 0:20:43.520 --> 0:20:47.399 were very focused on leverage ability of these assets and 0:20:47.680 --> 0:20:51.520 you know, what the true casual generation coming out of 0:20:51.760 --> 0:20:53.919 the corporate and how much you know, kind of quantum 0:20:53.960 --> 0:20:58.080 of that can this corporate effectively sustain. And what you 0:20:58.200 --> 0:21:02.560 saw as a result was lower leverage levels for the 0:21:02.600 --> 0:21:04.440 crop of deals that happened, I would say from me 0:21:04.600 --> 0:21:07.840 twenty twenty two and the subsequent year and a half. 0:21:08.480 --> 0:21:11.280 And so those those terms, you know, they tend to 0:21:12.000 --> 0:21:18.160 vary very much dependent on market relativity and market conditions. 0:21:18.600 --> 0:21:20.840 So as you know, James, you've been doing this a while, 0:21:21.680 --> 0:21:25.000 typically what blows up in finances what's just been growing 0:21:25.000 --> 0:21:29.119 the most quickly. Private credit is growing very quickly, and 0:21:29.160 --> 0:21:30.920 we've had a lot of guests on this show talking about, 0:21:31.040 --> 0:21:33.639 you know, red flags the speed of the market's growth. 0:21:33.640 --> 0:21:36.080 It's already bigger than the US highyeld bond market, which 0:21:36.119 --> 0:21:38.040 took a lot longer to get there. Plus the lack 0:21:38.080 --> 0:21:40.840 of transparency and liquidity and the risks of companies just 0:21:40.880 --> 0:21:44.520 falling behind on debt payments rates stay high for much 0:21:44.560 --> 0:21:47.719 longer than people had expected. There's also the fear that 0:21:47.840 --> 0:21:50.119 new entrants will spoil the party. You know, that the 0:21:50.200 --> 0:21:53.239 so called private debt tourists will do bad underwriting that 0:21:53.359 --> 0:21:56.800 ends in tiers and some people just calling it a bubble. So, 0:21:57.080 --> 0:21:58.200 you know, what do you think about that. 0:21:58.960 --> 0:22:02.439 It's a love of a lot of themes here. I 0:22:02.440 --> 0:22:06.359 think at the core of direct landing it's all about 0:22:06.680 --> 0:22:12.400 credit discipline, underwriting discipline. And you know, we've been doing 0:22:12.440 --> 0:22:15.359 this for twenty seven years. If you stick to lending 0:22:15.440 --> 0:22:19.800 to very high quality businesses and the discipline and you 0:22:19.920 --> 0:22:24.960 don't lose that discipline, you don't get the POMO. You know, 0:22:25.000 --> 0:22:28.280 our experience, you know, through those more volatile environments or 0:22:28.280 --> 0:22:32.480 even crises like the GFC, you know, the these these 0:22:32.520 --> 0:22:35.720 corporates that tend to be more resilient I have certainly proven 0:22:35.760 --> 0:22:40.040 to be the case. And so will we see more dispersion, 0:22:40.720 --> 0:22:45.840 Absolutely we will. You know, there's been very little dispersion 0:22:46.200 --> 0:22:49.840 for about ten years, as as the rates were low 0:22:50.040 --> 0:22:52.399 or even negative, and so I think, you know, in 0:22:52.440 --> 0:22:55.040 this environment of the system, you know, kind of receiving 0:22:55.359 --> 0:22:58.800 a shock, a certain shock I think you'll see that 0:23:00.000 --> 0:23:03.679 managers will fare very differently over time. It will be 0:23:05.040 --> 0:23:07.760 it will be seen in their ability to raise capital. 0:23:08.600 --> 0:23:11.080 And and it's no different than you know, when I started. 0:23:11.280 --> 0:23:13.080 You know, there were names on the private EQUII that 0:23:13.320 --> 0:23:16.320 don't exist anymore, right, and so I think you're going 0:23:16.400 --> 0:23:19.720 to see you know, more of that. Obviously, this is 0:23:19.720 --> 0:23:23.080 these are the pride markets. Things tend to take some time. 0:23:23.680 --> 0:23:27.000 Another advantage that you have as a lender is that 0:23:27.040 --> 0:23:30.320 you can things don't go according to plan, and as 0:23:30.359 --> 0:23:33.760 a you know, a default, a lender can also take 0:23:33.800 --> 0:23:37.199 over an asset and then continue as as as the 0:23:37.200 --> 0:23:39.919 owner of the asset. And so that that's why I 0:23:39.960 --> 0:23:42.840 think to play out and be able to say, well, 0:23:43.440 --> 0:23:46.320 this was a good vintage or not, and and this 0:23:46.480 --> 0:23:49.880 is what the average prior credit returns have been. Well, 0:23:49.920 --> 0:23:53.080 we'll have to have another podcast probably in about eight 0:23:53.119 --> 0:23:53.800 to ten years. 0:23:54.080 --> 0:23:57.160 Now we're going into you know, the slower economy. Earnings 0:23:57.160 --> 0:24:00.159 of suffering rates are still going to stay high. It's 0:24:00.160 --> 0:24:02.159 a tougher environment than let's say, last year or the 0:24:02.200 --> 0:24:02.760 year before. 0:24:03.200 --> 0:24:06.320 I wouldn't say so. When we look at the performance 0:24:06.520 --> 0:24:11.880 of our portfolio companies, it remains very resilient, and it's 0:24:11.880 --> 0:24:14.600 really surprised us too. On the upside, I would say 0:24:15.880 --> 0:24:18.000 including you know, I would say around twenty twenty one, 0:24:18.040 --> 0:24:21.440