WEBVTT - Bloomberg Businessweek Weekend - October 6th, 2023 0:00:01.360 --> 0:00:05.720 This is Bloomberg Business Week Inside from the reporters and 0:00:05.880 --> 0:00:09.440 editors who bring you America's most trusted business magazine, plus 0:00:09.520 --> 0:00:13.680 global business, finance and tech news. The Bloomberg Business Week 0:00:13.720 --> 0:00:18.640 Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:00:20.000 --> 0:00:23.079 Hi, everyone, Welcome to the weekend edition of Bloomberg Business Week. Well, 0:00:23.239 --> 0:00:25.079 it was hard to keep track of the news flow. 0:00:25.120 --> 0:00:27.520 I never had enough Bloomberg screens up. Tim, I've just 0:00:27.560 --> 0:00:29.800 got to say a lot of stories this week with 0:00:29.840 --> 0:00:33.600 Sam Mekmin Freed and Donald Trump in Court of course DC, 0:00:33.880 --> 0:00:36.280 with Kevin McCarthy getting ousted from his role as House 0:00:36.280 --> 0:00:38.360 speaker in a moment. We're going to hear from the 0:00:38.360 --> 0:00:42.680 founder and executive chairman of logistics Giant XPO Trucking Giant 0:00:42.680 --> 0:00:45.879 as well on how politics at home and abroad affect 0:00:46.200 --> 0:00:49.000 his business and what higher rates really mean for the 0:00:49.000 --> 0:00:49.839 macro outlook. 0:00:50.120 --> 0:00:54.320 Also Ahead, Churchill's ken Kensal remains ultra bullish on private 0:00:54.360 --> 0:00:57.520 credit despite rising defaults. We're also going to speak with 0:00:57.520 --> 0:00:59.960 the head of Northwell Health on the promise in peril 0:01:00.120 --> 0:01:02.560 of AI when it comes to the healthcare sector. In 0:01:02.600 --> 0:01:06.479 the Bloomberg Equality Issue, it profiles entertainment local Tyler Perry, 0:01:06.720 --> 0:01:10.040 who's become a one man towrtive force despite being largely 0:01:10.120 --> 0:01:11.679 ignored by Hollywood studios. 0:01:11.720 --> 0:01:13.640 I love this story, so many great nuggets in it. 0:01:13.880 --> 0:01:16.040 All of that to come, We begin with the wild 0:01:16.040 --> 0:01:18.080 week that was for global bonds. 0:01:18.120 --> 0:01:20.080 I thought you were going to talk wild week for politics. 0:01:20.319 --> 0:01:24.440 Oh yeah, check check, all right, yes, also for American politics. 0:01:24.440 --> 0:01:27.240 It's how Speaker Kevin McCarthy was voted out of his role. 0:01:27.280 --> 0:01:28.600 I mean, it's just kind of hard to still get 0:01:28.640 --> 0:01:31.200 your head around all of it, and it's continuing to evolve. 0:01:31.640 --> 0:01:34.040 All of this against the backdrop of a big batch 0:01:34.120 --> 0:01:36.399 of US jobs market data, a lot for us to 0:01:36.440 --> 0:01:38.920 talk about and to help us make sense of it all, 0:01:39.200 --> 0:01:43.160 we turned to Bloomberg News rates reporter Michael McKenzie and, 0:01:43.319 --> 0:01:46.800 as we mentioned, Brad Jacobs, founder and executive chair at XPO, 0:01:47.200 --> 0:01:49.560 also the co founder of United Rental's former chair of 0:01:49.720 --> 0:01:52.680 United Waste. He has lots of experience when it comes 0:01:52.720 --> 0:01:55.880 to the real economy. Bloomberg Economics editor Molly Smith and 0:01:55.920 --> 0:01:58.200 I wanted to know how closely he watches yields, and 0:01:58.400 --> 0:02:01.160 this conversation happened about midweek. 0:02:00.880 --> 0:02:03.200 That determines what you want to do with your capital spending. 0:02:03.240 --> 0:02:04.360 Do you want to spend more, do you want to 0:02:04.360 --> 0:02:06.240 spend less? Do you want to invest? So pay a 0:02:06.280 --> 0:02:06.960 lot of attention to that. 0:02:07.160 --> 0:02:09.000 Well, Michael coman in on it, and then lay it 0:02:09.040 --> 0:02:10.720 out for us, because it's been kind of a wild 0:02:10.840 --> 0:02:13.639 ride once again when it comes to global bonds here. 0:02:14.720 --> 0:02:17.440 Yes it has, Carol, and I think the story remains. 0:02:17.680 --> 0:02:20.000 People are still trying to work out whereas the top 0:02:20.040 --> 0:02:22.679 and yields, particularly for ten year yields, which matter a 0:02:22.800 --> 0:02:25.520 great deal for the US economy. That's the yield that 0:02:25.560 --> 0:02:28.320 determines mortgages, and also it helps determine a lot of 0:02:28.360 --> 0:02:32.760 the corporate boring costs. It made a run above for 0:02:33.000 --> 0:02:36.640 eighty A lot of people talking maybe five percent, but 0:02:36.680 --> 0:02:38.400 it wasn't that long ago. In fact, just a couple 0:02:38.360 --> 0:02:39.720 of weeks ago when we were talking about four to 0:02:39.800 --> 0:02:42.000 fifty was going to be the ceiling. So really, when 0:02:42.040 --> 0:02:44.400 you talk to investors and bond managers, as I've been 0:02:44.440 --> 0:02:47.280 doing for last a few days, there's still a census 0:02:47.280 --> 0:02:48.280 shell shock out there. 0:02:48.760 --> 0:02:51.000 Yeah, tell us rad if you want to come in here. 0:02:51.040 --> 0:02:53.680 On the logistics perspective, this has got to be such 0:02:53.680 --> 0:02:55.880 a tough environment to operate in right now, with the 0:02:56.280 --> 0:02:59.160 idea that interest rates are high, I'm going to stay 0:02:59.160 --> 0:03:01.639 that way for a while. Well, you've got goods demand 0:03:01.760 --> 0:03:04.400 in the economy seems to be waning. I mean, how 0:03:04.400 --> 0:03:06.480 are you managing this right now? And how would you 0:03:06.560 --> 0:03:08.840 describe how the business is doing? 0:03:10.160 --> 0:03:10.480 Well? 0:03:11.360 --> 0:03:13.919 Interest rates are higher than what they work. They were 0:03:13.919 --> 0:03:15.519 low for a while. But I'm an old dog. I 0:03:15.560 --> 0:03:17.360 remember when interest rates were much higher than where they 0:03:17.400 --> 0:03:17.840 are now. 0:03:17.960 --> 0:03:20.280 But is that an important point because we keep saying perspective. 0:03:20.280 --> 0:03:22.400 I remember working with folks who said, I remember having 0:03:22.440 --> 0:03:24.400 a fifteen sixteen seventy percent mortgage rate. 0:03:25.360 --> 0:03:27.880 I remember when hi yeal bonds were in the mid 0:03:27.880 --> 0:03:29.120 teens and that was normal, and that. 0:03:29.120 --> 0:03:30.040 Was for a number of years. 0:03:30.440 --> 0:03:33.920 And I remember back at United Rentals when Leon Black 0:03:34.000 --> 0:03:35.320 was on our board and. 0:03:35.240 --> 0:03:37.040 He of a poll of fame, of course. 0:03:36.960 --> 0:03:39.400 One of the first inventors of the junk bond, now 0:03:39.480 --> 0:03:42.440 of the high yield called high yield, and I remember 0:03:42.440 --> 0:03:45.000 when it when it went down to about ten percent. 0:03:45.400 --> 0:03:47.960 He said, we got to get as much yielded as 0:03:48.200 --> 0:03:50.200 hig yielded issue as much as Possiblely. 0:03:49.880 --> 0:03:51.000 It's never going to go below here. 0:03:51.000 --> 0:03:53.040 Of course it did and stayed there for a long time, 0:03:53.480 --> 0:03:56.160 so I historically we're not at very high levels. 0:03:56.520 --> 0:03:59.040 Michael, come on back in, because I think Brod brings 0:03:59.040 --> 0:04:00.640 in a good point right when we talk about the 0:04:00.640 --> 0:04:03.280 amount of money that continues to maybe come into the economy, 0:04:03.320 --> 0:04:06.400 fuel it and continue to put pressure on the inflationary 0:04:06.440 --> 0:04:09.080 side of things, what are the markets telling us about 0:04:09.120 --> 0:04:11.760 monetary policy and inflation at this point. 0:04:13.240 --> 0:04:14.960 Well, he raises a very good point, and I think 0:04:14.960 --> 0:04:17.520 this is what the market has missed in particularly the 0:04:17.560 --> 0:04:20.360 bomb market. At the beginning this year. They really thought 0:04:20.400 --> 0:04:22.920 there was going to be a recession by now, and 0:04:23.000 --> 0:04:26.320 that hasn't come to fruition. And in fact, the stimulus 0:04:26.400 --> 0:04:30.560 coming through the Biden infrastructure and other plans is still 0:04:30.640 --> 0:04:33.479 kicking in. So the key here is that's probably going 0:04:33.560 --> 0:04:36.719 to keep employment pretty tight, and that's the one metric 0:04:37.080 --> 0:04:41.080 that everyone's now watching. And until you see employment severely 0:04:41.120 --> 0:04:45.839 weak and then suggest economies on a recessionary path, bond 0:04:45.920 --> 0:04:48.359 yields are going to stay high and they may go higher. 0:04:49.160 --> 0:04:53.680 And I think inflation is still fairly elevated. It's more 0:04:53.720 --> 0:04:55.920 than double the Fed's targets. So that still has going 0:04:55.960 --> 0:04:59.800 to take time to come down, but a sticky inflation environment, 0:05:00.320 --> 0:05:03.840 you know, a Brazilian economy by the job sector, and 0:05:03.880 --> 0:05:08.080 this fiscal stimul is still coming through from Washington. Rates 0:05:08.080 --> 0:05:08.880 are higher for London. 0:05:09.279 --> 0:05:10.800 I want to I'm curious, Brad, do you have a 0:05:10.880 --> 0:05:13.440 question for a rates guy? 0:05:13.839 --> 0:05:14.200 I do. 0:05:16.240 --> 0:05:18.320 How confident are you in that? What's your level of 0:05:18.440 --> 0:05:21.640 conviction on that? Because most people have gotten this completely 0:05:21.680 --> 0:05:24.240 wrong last couple of years. I remember I was at 0:05:24.440 --> 0:05:28.560 a trade organization for mostly fortune two hundred CEOs about 0:05:28.760 --> 0:05:31.120 year and a half ago, and we voted on the 0:05:31.279 --> 0:05:33.600 little slide o app of whether we're going to have 0:05:33.600 --> 0:05:36.200 a severe recession or a monitor recession or no recession 0:05:36.240 --> 0:05:38.560 or and n over ninety. 0:05:38.279 --> 0:05:40.839 Percent conference poll but go ahead yes. 0:05:40.960 --> 0:05:44.200 And and over ninety percent, well over ninety percent said 0:05:44.200 --> 0:05:46.080 it was either going to be a severe recession or 0:05:46.080 --> 0:05:49.320 a monitor recession last year. So obviously that never happened. 0:05:49.320 --> 0:05:51.640 So it's how confident are you in your in your 0:05:51.640 --> 0:05:52.240 in your prediction? 0:05:53.320 --> 0:05:55.479 Wells as you made that, you made that point, Brian 0:05:55.520 --> 0:05:57.400 so I was talking to investor this morning. He said 0:05:57.520 --> 0:05:59.800 he thinks now the rates are at levels where you 0:05:59.800 --> 0:06:05.039 will get a recession next year. However, he's still you know, 0:06:05.160 --> 0:06:07.520 that's his gut feel, but he says, I still got 0:06:07.520 --> 0:06:10.400 to check that I'm not confident enough that you know, 0:06:10.480 --> 0:06:13.600 we will get a real slow down, and so therefore 0:06:14.320 --> 0:06:18.120 it really I think the markets it's been saying recession, recession, 0:06:18.200 --> 0:06:20.960 it's been caught out every time. I think it's still 0:06:20.960 --> 0:06:23.000 going to take time for the stimulus to come through 0:06:23.040 --> 0:06:25.880 and wear off. And I think the other real factor. 0:06:26.120 --> 0:06:27.520 I think one of the big changes here is the 0:06:27.520 --> 0:06:29.560 Bob mark has always been used to this idea that 0:06:30.200 --> 0:06:33.279 oh our rates go up, something breaks, nothing's broken, And 0:06:33.360 --> 0:06:35.919 I think the reason why we haven't really seen anything 0:06:35.920 --> 0:06:39.240 break outside of course regional banks who've now been ring 0:06:39.279 --> 0:06:41.200 fenced by the FED. And that's a very important point 0:06:41.480 --> 0:06:43.760 because as long as they stay ring fenced, that's not 0:06:43.800 --> 0:06:45.760 going to bleed into the economy as much. But I 0:06:45.800 --> 0:06:47.240 think the key fact here is you've got a lot 0:06:47.279 --> 0:06:49.840 of people sitting on thirty or six mortgages below three 0:06:49.920 --> 0:06:53.560 percent who do not want to sell their homes and 0:06:53.680 --> 0:06:55.560 take out a new mortgage. And you've got a lot 0:06:55.560 --> 0:06:58.320 of companies that benefited from borrowing at very low rate 0:06:58.440 --> 0:07:02.520 back in twenty one and twenty twenty, and again you're 0:07:02.600 --> 0:07:05.960 not going to get that corporate bond hit that we 0:07:06.000 --> 0:07:07.440 would have got from higher rates. 0:07:07.640 --> 0:07:09.840 Delight to still have with us. Brad Jacobs, Founder and 0:07:09.920 --> 0:07:14.240 executive chair at XPO. Your customers include everybody from Amazon, Apple, 0:07:14.320 --> 0:07:18.360 eight Am, Low's, Walmart home depots, so many more companies. 0:07:18.440 --> 0:07:21.560 And you have a global perspective. Where is though the 0:07:21.600 --> 0:07:25.840 strongest parts of the global economy in your view, and 0:07:25.920 --> 0:07:30.880 how does geopolitics potentially continue to kind of impact that. 0:07:30.960 --> 0:07:32.480 Geopolitics is very important. 0:07:32.680 --> 0:07:35.360 I think the two biggest things are obviously of Vladimir 0:07:35.440 --> 0:07:38.960 Putin and Chi Jimpin, who could single handily, literally single 0:07:39.000 --> 0:07:42.120 handedly you them, throw a pretty big monkey ranch into 0:07:42.160 --> 0:07:46.320 whole world economy. Those are not insignificant possibilities. Those are 0:07:46.360 --> 0:07:48.920 not one percent possibilities. So we have to pay attention 0:07:48.960 --> 0:07:50.920 to that. But we can't be obsessed by that. We 0:07:50.960 --> 0:07:51.480 can't just be. 0:07:51.640 --> 0:07:53.240 Held down and just just. 0:07:53.280 --> 0:07:56.320 Enamored but just that those features, so. 0:07:56.240 --> 0:07:57.240 We just keep trucking along. 0:07:57.560 --> 0:08:01.400 But okay, cute, But Brett, in terms of the pushback 0:08:01.440 --> 0:08:07.360 against g you know, the globalization of the economy, and 0:08:08.120 --> 0:08:10.679 we talk about that being pushed back. Do you see 0:08:10.720 --> 0:08:12.040 that guy firsthand. 0:08:12.160 --> 0:08:15.240 Yeah, so every so you mentioned before and increasingly so, 0:08:15.480 --> 0:08:17.120 no question, but that she mentioned before some of the 0:08:17.160 --> 0:08:20.880 customers you have. So I'm privileged to have windows into 0:08:20.960 --> 0:08:23.720 g XO RXO XPO where we have a whole cross 0:08:23.720 --> 0:08:26.360 section of customers right around the whole world, and so 0:08:26.440 --> 0:08:27.679 you get to see a lot a lot of information 0:08:27.680 --> 0:08:29.840 what's going on, and you also get to interact with 0:08:29.880 --> 0:08:31.679 a lot of customers, a lot of boards of customers, 0:08:31.720 --> 0:08:34.559 a lot of C suite. There's not a single board 0:08:34.640 --> 0:08:39.160 in America that's not who has and has had business 0:08:39.240 --> 0:08:41.880 in China. Who's not thinking I need to diversify away 0:08:41.920 --> 0:08:44.040 from China. It's just the risk is too high. So 0:08:44.240 --> 0:08:45.640 everyone universally is doing that. 0:08:45.800 --> 0:08:48.600 What about the risks in our own political system? Does 0:08:48.600 --> 0:08:50.960 that crop up? Does that bother you? Does that worry 0:08:51.000 --> 0:08:52.960 you about? What happened this week with the Speaker of 0:08:52.960 --> 0:08:53.320 the House. 0:08:53.440 --> 0:08:55.480 Well, that's the two party system, and that's been going 0:08:55.480 --> 0:08:56.400 on for a couple hundred years. 0:08:56.400 --> 0:08:57.440 Do you consider it functional? 0:08:58.400 --> 0:08:59.760 It's worked for two hundred years. 0:08:59.800 --> 0:09:03.200 I mean so as a global traveler, I certainly would 0:09:03.200 --> 0:09:04.640 not want to be in any of the countries that 0:09:04.679 --> 0:09:05.760 have one party systems. 0:09:06.040 --> 0:09:06.679 That's the worst. 0:09:06.760 --> 0:09:10.360 I mean, there's a very repressive, horrible cultures. And this 0:09:10.400 --> 0:09:13.199 is a country where, despite everyone fighting with each other 0:09:13.280 --> 0:09:17.000 and calling each other's names and certain levels of dysfunction, we, 0:09:17.120 --> 0:09:20.040 unlike China, don't have a million people in prison camps 0:09:20.080 --> 0:09:23.360 because of their religion. We, unlike in Russia, we don't 0:09:23.360 --> 0:09:25.800 have journalists like you. If you criticize the president, you 0:09:25.880 --> 0:09:27.640 go to jail for eight years. So I mean, it's 0:09:27.640 --> 0:09:29.520 still a great country, fantastic country. 0:09:29.640 --> 0:09:31.480 When we're looking at some of the trends in the 0:09:31.559 --> 0:09:33.760 US economy right now, I mean, we've been talking about 0:09:33.960 --> 0:09:37.479 for so long the shift of preferences from goods to services, 0:09:37.559 --> 0:09:40.719 and I would think from your perspective, that's probably the 0:09:40.800 --> 0:09:42.439 last thing you would want to hear. You want people 0:09:42.440 --> 0:09:43.640 to be buying stuff. 0:09:43.480 --> 0:09:45.240 Right we are good. 0:09:45.640 --> 0:09:48.199 All of the three companies I mentioned move goods one 0:09:48.200 --> 0:09:51.320 way or another, So more goods is better than more services. 0:09:51.679 --> 0:09:54.480 But for the economy as a whole, that's a normal cycle. 0:09:54.559 --> 0:09:56.920 Sometimes it's more goods, some it's more services. We're not 0:09:57.000 --> 0:09:59.080 in the best part of the cycle to be in transportation, 0:09:59.480 --> 0:10:01.719 but there are specific things that each one of those 0:10:01.760 --> 0:10:04.240 three companies are doing that are independent of the macro 0:10:04.400 --> 0:10:05.720 to improve the businesses. 0:10:06.200 --> 0:10:09.280 That was Brad Jacobs, founder and executive chairman at XBO, 0:10:09.320 --> 0:10:11.959 along with Bloomberg's Michael Mackenzie. Brad, by the way, has 0:10:11.960 --> 0:10:14.080 a new book coming out in January, How to Make 0:10:14.120 --> 0:10:17.080 a few Billion dollars. More of our conversation on that 0:10:17.240 --> 0:10:20.040 and on his portfolio of companies, it's all available on 0:10:20.080 --> 0:10:22.360 the Business Week podcast feed. Molly Smith will be back 0:10:22.360 --> 0:10:24.080 with us next hour. And I got to say Tim 0:10:24.120 --> 0:10:26.240 Brad's going to come back to talk about that book. 0:10:26.360 --> 0:10:28.680 And I've been exchanging conversations on LinkedIn. 0:10:28.920 --> 0:10:31.240 Well, hopefully I'm there that you better be there. Yes, 0:10:31.440 --> 0:10:33.720 he's a lot of market down you're listening to Bloomberg 0:10:33.720 --> 0:10:36.880 business Week coming up. Why Churchill Asset Management CEO Ken 0:10:36.920 --> 0:10:40.880 Kensel sees upside for his business despite upheaval in Washington 0:10:41.240 --> 0:10:44.000 and the higher for longer rate environment, Well, we appear 0:10:44.040 --> 0:10:45.040 to be destined. 0:10:44.640 --> 0:10:48.199 For all of those dynamics. Has come one of the 0:10:48.200 --> 0:10:51.360 most attractive opportunities that I've certainly seen in my career 0:10:52.000 --> 0:10:54.840 in direct lending in private credit. 0:10:54.880 --> 0:10:57.240 The head of New Ven's forty seven billion dollars private 0:10:57.280 --> 0:11:00.480 capital affiliate joins us next, This is Bloomberg. 0:11:00.520 --> 0:11:04.000 If you're listening to the Bloomberg Business Week podcast, catch 0:11:04.080 --> 0:11:07.440 us live weekday afternoons from three to six Eastern Listen 0:11:07.480 --> 0:11:10.960 on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg 0:11:11.000 --> 0:11:13.640 Business App, or watch us live on YouTube. 0:11:14.920 --> 0:11:17.559 Banks, as you know, increasingly muscling in on the one 0:11:17.600 --> 0:11:20.120 and a half trillion dollar private credit market in a 0:11:20.160 --> 0:11:23.400 move that further blurs the lines between private lending funds 0:11:23.480 --> 0:11:27.120 and their traditional banking rivals. Bloomberg News reporting this month 0:11:27.120 --> 0:11:30.880 at Barklay's Associate General and Deutsche Bank have all made 0:11:30.920 --> 0:11:34.040 concerted efforts to grab a slice of the lucrative, increasingly 0:11:34.120 --> 0:11:36.280 lucrative corner of leverage finance. 0:11:36.679 --> 0:11:38.880 Back with us for a temperature check on the private 0:11:38.920 --> 0:11:42.000 credit world. As Ken can sell, he's president and CEO 0:11:42.120 --> 0:11:45.240 of Churchill Asset Management Nevians, a forty seven billion dollar 0:11:45.320 --> 0:11:48.319 private capital affiliate, which is the asset management arm of 0:11:48.440 --> 0:11:52.880 trillion dollar financial services firm TIAA. Ken spoke with Carol 0:11:52.920 --> 0:11:56.040 and Bloomberg Simone Foxman from the Greenwich Economic Forum in 0:11:56.080 --> 0:11:58.960 Connecticut this past Tuesday. This was just ahead of Kevin 0:11:59.000 --> 0:12:01.840 McCarthy officially using his post as House speaker. 0:12:02.720 --> 0:12:05.840 Uncertainty is generally not a good thing, and certainly we've 0:12:05.880 --> 0:12:08.760 had a lot of that over the last year. The 0:12:08.800 --> 0:12:12.120 current environment that we've been you know, living through has 0:12:12.360 --> 0:12:17.760 you know, certainly created a very challenging dynamic overall, and 0:12:17.760 --> 0:12:20.200 and of course the banking termail in the spring, and 0:12:20.200 --> 0:12:22.760 of course now some of the dynamics playing out of Washington. 0:12:23.200 --> 0:12:27.400 But but I would say that out of those dynamics 0:12:27.440 --> 0:12:30.440 has come one of the most attractive opportunities that that 0:12:30.480 --> 0:12:34.120 I've certainly seen in my career in direct lending, in 0:12:34.120 --> 0:12:38.000 in private credit. So I guess in that sense, you know, 0:12:38.040 --> 0:12:42.439 I never wanted to wish for for dysfunction and uncertainty, 0:12:42.480 --> 0:12:46.320 But but I will say that in many respects, you know, 0:12:46.440 --> 0:12:49.480 private credit and direct lending, you know, unlike the GFC 0:12:49.679 --> 0:12:52.600 Carrol you know, has been here if you will, to 0:12:52.679 --> 0:12:55.760 kind of come to the rescue a bit by providing 0:12:56.240 --> 0:12:59.760 the financing capital and lending capital and and ultimately growth 0:12:59.800 --> 0:13:03.840 can capital to the companies that need that capital and 0:13:03.920 --> 0:13:06.160 have you know, have done and have performed well through 0:13:06.160 --> 0:13:09.000 the current environment. So in that sense, we're super busy 0:13:09.760 --> 0:13:12.839 and hoping that if things settle down a bit. We 0:13:12.840 --> 0:13:16.000 were certainly hoping for that post labor day that you know, 0:13:16.040 --> 0:13:17.040 we get even busier. 0:13:17.600 --> 0:13:19.600 Well, interesting that you talk about private credit like this, 0:13:19.800 --> 0:13:23.760 because Bank of America actually put out a note they 0:13:23.840 --> 0:13:26.160 said that private debt defaults are going to reach five 0:13:26.320 --> 0:13:29.880 percent by early twenty twenty four because a lot of 0:13:29.960 --> 0:13:32.760 deals one third of deals come due in the next 0:13:32.800 --> 0:13:33.959 two and a half years. 0:13:35.440 --> 0:13:37.240 Is that bad for private credit though? 0:13:39.679 --> 0:13:41.079 Well, first of all, I'm not sure I agree with 0:13:41.120 --> 0:13:44.600 those numbers. You know, the reality is if you look 0:13:44.640 --> 0:13:48.679 at our portfolio or the portfolio of any number of 0:13:49.040 --> 0:13:52.640 you know, what are arguably high quality, you know, the 0:13:52.760 --> 0:13:56.040 top tier you know, private credit managers, you know, some 0:13:56.080 --> 0:13:58.400 of which are publicly traded, I think what you would 0:13:58.440 --> 0:14:03.000 see is generally portfolios have held up extremely well. So, 0:14:03.679 --> 0:14:06.640 you know, I think that the prediction that default rates 0:14:06.920 --> 0:14:11.520 would reach five percent is not supported by what we're 0:14:11.559 --> 0:14:13.960 seeing today. Now, now that doesn't mean that it won't 0:14:14.120 --> 0:14:18.079 won't play out, but I would say that just because 0:14:18.679 --> 0:14:22.320 there's a maturity wall doesn't necessarily mean that those companies 0:14:22.400 --> 0:14:24.600 are going to ultimately default. I mean, I think what 0:14:24.640 --> 0:14:27.680 you may very well see, and you're already seeing it today, 0:14:27.760 --> 0:14:30.400 is that you know, a lot of those companies are 0:14:30.440 --> 0:14:32.960 going back to their lendings lenders and say, look, this 0:14:33.120 --> 0:14:35.640 is a good business, it has strong cash flow, it's 0:14:35.680 --> 0:14:40.520 performed well, and we need to extend and the frankly, 0:14:40.760 --> 0:14:43.800 the reality is that to the extent that the businesses 0:14:43.880 --> 0:14:46.320 have performed, the odds are very good that they can 0:14:46.360 --> 0:14:48.600 work something out with their lenders and extend the maturity. 0:14:48.720 --> 0:14:54.880 So I wouldn't necessarily equate maturities to defaults because you know, 0:14:54.960 --> 0:14:57.480 as a direct lender is a private credit lender, you 0:14:57.520 --> 0:14:59.640 know we have the ability to sit down with the 0:14:59.680 --> 0:15:03.400 company and work out the dynamics if in fact those 0:15:03.480 --> 0:15:05.640 need to be done. Now, it's a totally different story 0:15:06.040 --> 0:15:09.160 if the company is performing poorly or underperforming it, or 0:15:09.280 --> 0:15:12.200 you know, is otherwise not able to make its payments. 0:15:12.200 --> 0:15:16.960 But I would not attribute just maturity to necessarily creating 0:15:16.960 --> 0:15:19.840 that problem. And certainly we are not seeing evidence of 0:15:19.880 --> 0:15:23.000 that today, so you know, it'll being to see how 0:15:23.360 --> 0:15:23.920 that plays out. 0:15:24.080 --> 0:15:26.480 Ken Raight, Defaults can tell one story, and you're saying 0:15:26.520 --> 0:15:29.160 you're not necessarily seeing that, But in terms of rewriting 0:15:29.280 --> 0:15:31.880 terms and working with your borrowers, are you doing a 0:15:31.920 --> 0:15:33.600 lot more of that in this environment? 0:15:34.560 --> 0:15:38.160 Frankly not right now, I would tell you that our 0:15:38.240 --> 0:15:42.800 portfolio today, so we have investments in over five hundred 0:15:43.480 --> 0:15:47.720 US mid market companies in in areas like healthcare and 0:15:47.840 --> 0:15:51.440 software and business services. These are all backed or owned 0:15:51.480 --> 0:15:55.360 by private equity investment firms, which is largely the case 0:15:55.360 --> 0:15:57.120 for many of our peers. And I think, you know, 0:15:57.160 --> 0:16:00.000 I've certainly had an opportunity to talk to my peers 0:16:00.040 --> 0:16:03.200 You'rredish Economic Forum. Number of them are here. You know, 0:16:03.240 --> 0:16:05.640 we trade notes, and I can tell you that our 0:16:05.680 --> 0:16:09.360 portfolios overall are holding up quite well. So you know, 0:16:09.640 --> 0:16:16.280 our quote unquote workout person is frankly not that busy. Surprisingly, 0:16:16.360 --> 0:16:19.560 I think to some and and our new deal people, 0:16:19.720 --> 0:16:23.240 you know, the folks that are underwriting new transactions are 0:16:23.240 --> 0:16:27.320 actually quite busy. In fact, we had a very strong 0:16:27.360 --> 0:16:31.840 we had a record quarter for a third quarter last quarter. 0:16:31.920 --> 0:16:34.360 And you know, to the extent that you know, we 0:16:34.400 --> 0:16:40.360 do get some clarity regarding the dynamics in and around 0:16:40.560 --> 0:16:44.480 interest rates, and maybe a bit more certainty regarding potential 0:16:44.760 --> 0:16:48.360 increases and interest rates and inflation. You know, I think 0:16:48.400 --> 0:16:52.120 we could very well find ourselves in a relatively soft landing. 0:16:52.160 --> 0:16:54.480 And if we do, you know, I think we'll see 0:16:54.560 --> 0:16:57.560 M and A activity and transaction activity pick up, right 0:16:57.600 --> 0:17:00.360 because I mean it's really you know, the markets really 0:17:00.400 --> 0:17:03.680 waiting for some stability regarding rate. So there's a lot 0:17:03.720 --> 0:17:09.240 of liquidity in private credit. Institutional investors are allocating significantly 0:17:09.280 --> 0:17:13.880 to the space yields. Obviously, conditions are quite attractive right now, 0:17:14.520 --> 0:17:15.879 and we're busy. 0:17:16.160 --> 0:17:19.160 So I do wonder where you are seeing any cracks, 0:17:19.200 --> 0:17:22.239 because I do wonder in this higher rate environment, and 0:17:22.280 --> 0:17:24.600 we are going to be higher for longer, there's gone 0:17:24.720 --> 0:17:26.399 there's going to be some problems. We know that. 0:17:26.640 --> 0:17:30.919 We're absolutely absolutely and I would say that, you know, 0:17:30.960 --> 0:17:33.200 in many respects, this is the kind of period where 0:17:33.640 --> 0:17:36.960 you know, the lenders that maybe we're a bit more 0:17:36.960 --> 0:17:41.960 aggressive and looked really good, you know, and getting higher returns, 0:17:41.960 --> 0:17:44.720 but maybe taking on more risk. I think, are those 0:17:44.800 --> 0:17:47.240 dynamics are coming home to roost? But I would say 0:17:47.320 --> 0:17:53.920 overall yes, And I would say that where we see cracks, 0:17:53.960 --> 0:17:57.160 if you will, and they're you know, certainly in our portfolio. 0:17:57.119 --> 0:17:59.880 There are not many, but where we see them, they're 0:18:00.119 --> 0:18:05.239 very episodic and they're not tied to a broad you know, 0:18:06.560 --> 0:18:10.600 pullback in in economic condition. So for example, you know 0:18:11.240 --> 0:18:15.399 a deal that was done a year ago where you 0:18:15.440 --> 0:18:19.160 know they embarked upon an acquisition strategy in those acquisitions 0:18:19.200 --> 0:18:22.080 did not play out as expected, or where there was 0:18:22.119 --> 0:18:26.840 a fundamental premise regarding healthcare reimbursement rates and some shifts 0:18:26.840 --> 0:18:29.160 in the way that they oriented the business that maybe 0:18:29.160 --> 0:18:33.040 didn't play out as well. So there are certainly situations 0:18:33.320 --> 0:18:37.320 that have not gone as well as planned, but not 0:18:38.000 --> 0:18:40.880 a fundamental pullback of the type that we would have seen, 0:18:40.920 --> 0:18:43.800 for example, in the GFC, in any way, shape or form. 0:18:43.880 --> 0:18:46.679 So can I ask. 0:18:46.560 --> 0:18:48.119 One last question, because we're run out of time. I 0:18:48.160 --> 0:18:49.800 wish you know, when I speak with you, I always 0:18:49.800 --> 0:18:53.240 want like an hour. They're thirty seconds quick because we 0:18:53.359 --> 0:18:57.120 keep talking about you know, treasury levels. Pick your duration 0:18:57.400 --> 0:18:59.320 back to levels of two thousand and seven, two thousand 0:18:59.320 --> 0:19:01.520 and eight. I think today reminds you of the Great 0:19:01.560 --> 0:19:04.600 Financial Crisis very quickly, like thirty seconds. 0:19:05.080 --> 0:19:05.399 Yeah. 0:19:05.440 --> 0:19:07.840 So I would say the pullback in the syndicated loan 0:19:07.880 --> 0:19:11.680 markets in many respects as a carbon copy in that sense. Right, 0:19:11.760 --> 0:19:15.720 So colo markets go dormant, liquid loan markets go dormant. 0:19:15.920 --> 0:19:19.359 The difference this time direct lending is there lots of 0:19:19.400 --> 0:19:23.920 liquidity lending capital to really go and support private equity. 0:19:24.040 --> 0:19:27.240 So similar in the liquid markets, but different in the 0:19:27.280 --> 0:19:29.240 sense that there are direct lenders there now to provide 0:19:29.240 --> 0:19:29.800 that capital. 0:19:29.960 --> 0:19:33.360 That was Ken Kensel, president and CEO of Churchill Asset Management, 0:19:33.640 --> 0:19:36.240 along with Carol and Simone Foxman earlier this week. 0:19:36.359 --> 0:19:39.639