1 00:00:18,280 --> 00:00:20,800 Speaker 1: Hello, Welcome to the Credit Edge of Wiki Markets podcast. 2 00:00:20,920 --> 00:00:22,960 Speaker 1: My name is James Crumbie. I'm a senior edge at 3 00:00:22,960 --> 00:00:24,320 Speaker 1: Bloomberg and. 4 00:00:24,160 --> 00:00:27,400 Speaker 2: I'm David Haven's, a senior analyst of Bloomberg Intelligence covering 5 00:00:27,440 --> 00:00:31,160 Speaker 2: non bank financial thing imagigs, including private credit. This week, 6 00:00:31,160 --> 00:00:35,080 Speaker 2: we're very pleased to welcome Sonali Wilson, lead investment director 7 00:00:35,120 --> 00:00:38,400 Speaker 2: for private credit at Wellington Management with one point three 8 00:00:38,440 --> 00:00:41,760 Speaker 2: trillion dollars of assets under management. That's Wellington, not the 9 00:00:41,800 --> 00:00:44,600 Speaker 2: private credit at Wellington necessarily, Sonali, how are you. 10 00:00:44,880 --> 00:00:47,600 Speaker 3: I'm doing great? Thank you both for having me excellent. 11 00:00:47,680 --> 00:00:50,200 Speaker 2: It's great to have you here. Just before we get 12 00:00:50,200 --> 00:00:54,000 Speaker 2: into it, Sonali leads the firm's product and commercial strategy 13 00:00:54,040 --> 00:00:57,800 Speaker 2: for private credit, overseeing the development, structuring, and distribution of 14 00:00:57,840 --> 00:01:01,480 Speaker 2: Wellington's strategies in this area. She has a fantastic career, 15 00:01:01,520 --> 00:01:05,360 Speaker 2: having also spent time at PIMCO, Blue Mountain Capital, Ox, ZIF, 16 00:01:05,360 --> 00:01:07,840 Speaker 2: and Goldman Sachs. And James, I can tell you you're 17 00:01:07,880 --> 00:01:09,480 Speaker 2: already itching to ask a question. 18 00:01:09,680 --> 00:01:12,160 Speaker 1: Thanks David. Great to see you, Snalie. Private credit is 19 00:01:12,200 --> 00:01:15,360 Speaker 1: going through a shakeout after years of stellar growth. Fears 20 00:01:15,360 --> 00:01:18,399 Speaker 1: of software debt defaults, redemptions, from retail funds and bad 21 00:01:18,440 --> 00:01:20,399 Speaker 1: loan marks are just some of the concerns about an 22 00:01:20,400 --> 00:01:23,280 Speaker 1: asset class that expanded very quickly into a multi trillion 23 00:01:23,319 --> 00:01:26,840 Speaker 1: dollar market. Wellington is well known for its participation in 24 00:01:26,880 --> 00:01:30,560 Speaker 1: liquid public credit. You're now pushing into private markets. Why now, 25 00:01:30,600 --> 00:01:31,200 Speaker 1: what's the pitch? 26 00:01:31,360 --> 00:01:34,560 Speaker 3: That is a loaded question, James, So, I guess you're 27 00:01:34,640 --> 00:01:36,559 Speaker 3: starting off and the gloves are already coming. 28 00:01:36,400 --> 00:01:37,479 Speaker 2: Off to James does. 29 00:01:38,640 --> 00:01:41,720 Speaker 3: I often like to say my partner in this business, 30 00:01:41,760 --> 00:01:44,920 Speaker 3: Emily Banister, and I probably have one of the best 31 00:01:45,240 --> 00:01:48,480 Speaker 3: and hardest jobs in private credit today, you know, standing 32 00:01:48,520 --> 00:01:52,920 Speaker 3: up a newer platform and launching products. Quite frankly, it's 33 00:01:52,960 --> 00:01:56,800 Speaker 3: not without its challenges. It does require a firm like 34 00:01:56,880 --> 00:02:00,240 Speaker 3: Wellington to be really deliberate and be really thought full. 35 00:02:00,680 --> 00:02:02,560 Speaker 3: And I think you've alluded to this right. There's been 36 00:02:02,560 --> 00:02:06,320 Speaker 3: a lot of sensationalization in the headlines, but if you 37 00:02:06,360 --> 00:02:10,800 Speaker 3: take a step back, we're actually really excited because private 38 00:02:10,840 --> 00:02:14,640 Speaker 3: credit is not this monolith that everyone reduces down to 39 00:02:14,720 --> 00:02:17,800 Speaker 3: corporate direct lending or where the headlines are. You know, 40 00:02:18,560 --> 00:02:20,520 Speaker 3: from our view, a lot of the baby is getting 41 00:02:20,520 --> 00:02:24,680 Speaker 3: thrown out with the bathwater, and if you can opportunistically 42 00:02:24,760 --> 00:02:26,880 Speaker 3: lean in and we can. We don't have the overhang 43 00:02:26,919 --> 00:02:30,280 Speaker 3: of of kind of priors that many of our peers do. 44 00:02:31,280 --> 00:02:34,480 Speaker 3: We think it's a really interesting time to get into 45 00:02:34,520 --> 00:02:38,320 Speaker 3: these markets and find niches and happy to talk about 46 00:02:39,080 --> 00:02:41,560 Speaker 3: sort of how we're thinking about the build. But I 47 00:02:41,600 --> 00:02:46,240 Speaker 3: think the philosophy, the ethos for Wellington is very much 48 00:02:46,280 --> 00:02:49,160 Speaker 3: anchored in the same way that we've built many businesses 49 00:02:49,520 --> 00:02:50,040 Speaker 3: at the firm. 50 00:02:50,280 --> 00:02:52,960 Speaker 2: Well, why don't we level set just so you know, 51 00:02:53,000 --> 00:02:55,959 Speaker 2: because I think private credit means different things to different people. 52 00:02:55,960 --> 00:02:58,760 Speaker 2: There's direct lending, and there's there's all. You know, it's 53 00:02:58,840 --> 00:03:01,440 Speaker 2: just an enormous ego system. It's much larger than the 54 00:03:01,440 --> 00:03:04,799 Speaker 2: two trillion dollar plus direct lending business. It extends into 55 00:03:05,639 --> 00:03:10,880 Speaker 2: into asset based funding, high grade private credit. So level 56 00:03:10,919 --> 00:03:14,239 Speaker 2: setting from the Wellington perspective, kind of what does your 57 00:03:14,400 --> 00:03:17,320 Speaker 2: universe a private credit entail? And where are you seeing 58 00:03:17,480 --> 00:03:20,840 Speaker 2: sort of the most interesting areas of growth or opportunity. 59 00:03:20,840 --> 00:03:25,000 Speaker 3: I mean that is the question, right, David, You're exactly right. 60 00:03:25,200 --> 00:03:28,480 Speaker 3: Private credit today is what we view as a forty 61 00:03:28,480 --> 00:03:32,679 Speaker 3: trillion plus ecosystem, right, and the headlines are often very 62 00:03:32,680 --> 00:03:35,960 Speaker 3: focused on the corporate segment, which is about two trillion 63 00:03:36,040 --> 00:03:38,560 Speaker 3: dollars of that overall forty trillion dollars. 64 00:03:38,360 --> 00:03:41,320 Speaker 2: And then even more focused on private BDCs. 65 00:03:40,840 --> 00:03:43,960 Speaker 3: Right now, correct, right, which is about a quarter right 66 00:03:44,040 --> 00:03:46,880 Speaker 3: of the of the overall exposure in that universe. And 67 00:03:46,960 --> 00:03:50,520 Speaker 3: so you really do need to peel back the layers 68 00:03:50,560 --> 00:03:52,280 Speaker 3: of that onion and say, Okay, what is it that 69 00:03:52,320 --> 00:03:56,880 Speaker 3: we're talking about. And so for for Wellington, our build 70 00:03:57,320 --> 00:04:00,720 Speaker 3: has really been focused, I'll say, in areas that check 71 00:04:00,720 --> 00:04:03,520 Speaker 3: four boxes for us, and I'm happy to talk about 72 00:04:03,520 --> 00:04:05,839 Speaker 3: the areas that are that are most interesting, but those 73 00:04:05,880 --> 00:04:09,960 Speaker 3: four boxes have and will continue to be first and foremost, 74 00:04:10,400 --> 00:04:11,720 Speaker 3: what do our clients need? 75 00:04:11,920 --> 00:04:12,080 Speaker 1: Right? 76 00:04:12,120 --> 00:04:13,720 Speaker 3: We are a client driven business at the end of 77 00:04:13,800 --> 00:04:15,760 Speaker 3: the day, and so we need to be able to 78 00:04:15,800 --> 00:04:20,359 Speaker 3: provide solutions that are more integrated across public and private markets. 79 00:04:20,400 --> 00:04:22,640 Speaker 3: That is what the market is demanding. But we need 80 00:04:22,680 --> 00:04:25,320 Speaker 3: to be selective about where we build, and so that 81 00:04:25,440 --> 00:04:30,080 Speaker 3: build for us really looks at I'll say two big 82 00:04:30,120 --> 00:04:33,960 Speaker 3: picture items. One where is the market going? And I 83 00:04:34,040 --> 00:04:38,279 Speaker 3: think what's critical for private credit investors to understand today 84 00:04:38,839 --> 00:04:44,200 Speaker 3: is yesterday's returns or not tomorrow's returns. And really looking 85 00:04:44,240 --> 00:04:49,880 Speaker 3: for pockets of the market where the opportunity for private 86 00:04:49,920 --> 00:04:53,720 Speaker 3: capital is opening up and not shrinking in. And that 87 00:04:53,839 --> 00:04:56,760 Speaker 3: might be structural reasons, such as you know, the banks 88 00:04:56,839 --> 00:05:00,679 Speaker 3: continue to rebalance and reallocate in areas like commer real estate. 89 00:05:01,560 --> 00:05:04,919 Speaker 3: It may be reasons that there's just not enough financing 90 00:05:05,080 --> 00:05:08,880 Speaker 3: in traditional markets for the complexity that issuers are looking for. 91 00:05:09,760 --> 00:05:13,240 Speaker 3: So that's critical. I'll say that the other piece that's 92 00:05:13,279 --> 00:05:17,120 Speaker 3: critical for us is where do we have a right 93 00:05:17,160 --> 00:05:21,320 Speaker 3: to win. I don't think as a manager standing up 94 00:05:21,360 --> 00:05:23,760 Speaker 3: a business in twenty twenty six, you can be all 95 00:05:23,760 --> 00:05:27,560 Speaker 3: things to all people, and so we really think long 96 00:05:27,600 --> 00:05:30,920 Speaker 3: and hard about where that intersection between public and private 97 00:05:31,000 --> 00:05:36,560 Speaker 3: markets can create some sort of edge or mote for 98 00:05:36,720 --> 00:05:39,960 Speaker 3: our clients in what we deliver and where we can 99 00:05:40,040 --> 00:05:43,080 Speaker 3: supplement that expertise with At the end of the day, 100 00:05:43,560 --> 00:05:46,520 Speaker 3: individuals that we bring in from the outside, that are 101 00:05:46,520 --> 00:05:50,680 Speaker 3: cycle tested, that know what it is to originate and 102 00:05:50,839 --> 00:05:54,560 Speaker 3: underwrite in private markets. We cannot forget that investing in 103 00:05:54,560 --> 00:05:58,839 Speaker 3: private markets is not the same as investing in public markets, certainly, 104 00:05:59,720 --> 00:06:03,279 Speaker 3: but when you can combine those two things, I think 105 00:06:03,360 --> 00:06:06,480 Speaker 3: you can view the world from a more relative value 106 00:06:06,520 --> 00:06:10,280 Speaker 3: perspective and maybe not fall into some of the fallacies 107 00:06:10,640 --> 00:06:13,640 Speaker 3: of following the herd into what looks like the newest 108 00:06:13,640 --> 00:06:14,480 Speaker 3: and shiniest toy. 109 00:06:14,960 --> 00:06:17,239 Speaker 2: And when you talk about your clients and your client needs, 110 00:06:17,800 --> 00:06:22,880 Speaker 2: just what you know obviously without naming names. Who are 111 00:06:22,960 --> 00:06:26,200 Speaker 2: your clients? You know? And something that sort of comes 112 00:06:26,600 --> 00:06:28,440 Speaker 2: is very important as part of this sort of build 113 00:06:28,440 --> 00:06:31,919 Speaker 2: out of private credit is the liquidity expectations that your 114 00:06:31,960 --> 00:06:32,480 Speaker 2: clients have. 115 00:06:32,920 --> 00:06:35,960 Speaker 3: For sure, I think at Wellington overall our clients are 116 00:06:36,000 --> 00:06:40,360 Speaker 3: pretty much mixed fifty to fifty between institutional clients, so 117 00:06:40,480 --> 00:06:45,960 Speaker 3: think pension funds, sovereign wealth funds, nonprofit type investors, as 118 00:06:46,000 --> 00:06:49,040 Speaker 3: well as the retail side of the business, the individual 119 00:06:49,080 --> 00:06:51,640 Speaker 3: investor right, whether that be through some of the largest 120 00:06:51,760 --> 00:06:56,760 Speaker 3: bank intermediaries or registered investment advisors. And David, I think 121 00:06:56,760 --> 00:06:59,000 Speaker 3: you're hitting the nail on the head right when it 122 00:06:59,040 --> 00:07:03,320 Speaker 3: comes to product developlopment and the mechanisms by which private 123 00:07:03,360 --> 00:07:07,359 Speaker 3: credit will be transcribed into markets and buyers, which is 124 00:07:08,200 --> 00:07:11,480 Speaker 3: the product development that I certainly and my team work 125 00:07:11,520 --> 00:07:18,400 Speaker 3: on for institutional investors is a slightly different delivery than 126 00:07:18,400 --> 00:07:21,720 Speaker 3: maybe with the wealth audience is seeking. Both are focused 127 00:07:21,720 --> 00:07:25,880 Speaker 3: on yield. Both obviously care a lot about fundamental credit underwriting, 128 00:07:25,880 --> 00:07:28,160 Speaker 3: and we can talk about that in terms of where 129 00:07:28,160 --> 00:07:33,160 Speaker 3: the market is going, but how you deliver those and 130 00:07:33,200 --> 00:07:39,280 Speaker 3: the expectation management of liquidity is of paramount importance. And 131 00:07:39,320 --> 00:07:43,280 Speaker 3: I think two things can be true, right, the demand 132 00:07:43,760 --> 00:07:49,240 Speaker 3: for wealth products for alternatives, right, This democratization of alts 133 00:07:49,240 --> 00:07:54,640 Speaker 3: that everyone keeps talking about can and will continue. And 134 00:07:54,800 --> 00:07:59,760 Speaker 3: at the same time, how we manage credit risk and 135 00:07:59,800 --> 00:08:04,320 Speaker 3: liquidity risk still likely needs to evolve visa via the 136 00:08:04,440 --> 00:08:06,800 Speaker 3: expectations of that market, which is what I think you're 137 00:08:06,880 --> 00:08:10,280 Speaker 3: ultimately getting at. And that doesn't come down to the 138 00:08:10,280 --> 00:08:15,480 Speaker 3: fact that these structures are bad. Right. The business development 139 00:08:15,480 --> 00:08:18,720 Speaker 3: company is the interval funds, right that have these liquidity 140 00:08:18,760 --> 00:08:24,080 Speaker 3: gates in place. That's not necessarily a negative. I think 141 00:08:24,120 --> 00:08:27,280 Speaker 3: a big part of this equation is the education that's 142 00:08:27,280 --> 00:08:31,160 Speaker 3: going to be needed and managing expectations and also recognizing 143 00:08:31,200 --> 00:08:34,800 Speaker 3: that portfolio management the people you hire to manage these things. 144 00:08:35,160 --> 00:08:37,880 Speaker 3: It's not just about underwriting credit risk. You have to 145 00:08:37,920 --> 00:08:41,360 Speaker 3: be able to manage liquidity and have that skill set. 146 00:08:41,720 --> 00:08:43,520 Speaker 1: I'm interested in digging a bit more into what you 147 00:08:43,600 --> 00:08:47,000 Speaker 1: describe as the full areas of most interests right now 148 00:08:47,400 --> 00:08:51,079 Speaker 1: that comes from your clients needs your clients' demands in 149 00:08:51,120 --> 00:08:53,360 Speaker 1: terms of what they want to get into. But investment 150 00:08:53,360 --> 00:08:58,640 Speaker 1: grade private, commercial, real estate, structured, and growth lending. Those 151 00:08:58,679 --> 00:09:03,719 Speaker 1: are four start with investment grade private. And you know, 152 00:09:03,760 --> 00:09:06,800 Speaker 1: a question that often comes up when we look at 153 00:09:06,960 --> 00:09:09,559 Speaker 1: public against private in that context is that there is 154 00:09:09,600 --> 00:09:13,160 Speaker 1: an incredibly efficient investment grade bond market that is doing 155 00:09:13,240 --> 00:09:16,120 Speaker 1: very well at funding you know, very large size, very 156 00:09:16,480 --> 00:09:19,480 Speaker 1: very tight spreads. So if you're coming to an issue 157 00:09:19,720 --> 00:09:23,320 Speaker 1: a borrower with a private option, then how is that 158 00:09:23,360 --> 00:09:25,680 Speaker 1: better than just going to the you know, investment grade 159 00:09:25,720 --> 00:09:26,240 Speaker 1: bond market. 160 00:09:26,320 --> 00:09:29,520 Speaker 3: Well, I think James, you're hitting on maybe one of 161 00:09:29,080 --> 00:09:31,960 Speaker 3: the fallacies that we need to break down today. Right, 162 00:09:32,040 --> 00:09:34,840 Speaker 3: It's I don't think the market is any longer about 163 00:09:34,920 --> 00:09:41,480 Speaker 3: private credit competing with public markets, Right. It's one interconnected ecosystem, 164 00:09:41,600 --> 00:09:44,160 Speaker 3: and so I don't think that's what the future is. Right. 165 00:09:44,320 --> 00:09:50,120 Speaker 3: It's borrowers are increasingly able to choose a variety of financing, Right, 166 00:09:50,120 --> 00:09:53,800 Speaker 3: They're able to choose between banks, the public bond market, 167 00:09:54,160 --> 00:09:57,480 Speaker 3: private credit markets all at the same time, Right, And 168 00:09:58,040 --> 00:10:01,240 Speaker 3: having that perspective across those markets think is really valuable, 169 00:10:02,320 --> 00:10:05,800 Speaker 3: and ultimately the choice of which market you want to 170 00:10:05,920 --> 00:10:10,080 Speaker 3: use to finance a project or your company is going 171 00:10:10,120 --> 00:10:12,920 Speaker 3: to be based on I think more factors than just 172 00:10:13,280 --> 00:10:18,240 Speaker 3: pricing right where historically right banks public credit markets might 173 00:10:18,280 --> 00:10:23,199 Speaker 3: have the tightest spreads or the most attractive pricing. Borrowers 174 00:10:23,200 --> 00:10:29,400 Speaker 3: care about flexibility, borrows care about structuring. Oftentimes, investment grade 175 00:10:29,440 --> 00:10:34,280 Speaker 3: private credit borrowers, large multinational corporations might be pursuing an 176 00:10:34,360 --> 00:10:37,280 Speaker 3: m and a transaction that they do not want the 177 00:10:37,320 --> 00:10:41,160 Speaker 3: public to know about, right, they want to finance it quietly, 178 00:10:41,559 --> 00:10:44,400 Speaker 3: and so they'll use the investment grade private credit markets 179 00:10:44,480 --> 00:10:48,000 Speaker 3: to do so. You're seeing more and more project finance 180 00:10:48,400 --> 00:10:52,280 Speaker 3: get done through the investment grade private market, right, these 181 00:10:52,400 --> 00:10:55,640 Speaker 3: these private placements or for a two type of deals. 182 00:10:56,520 --> 00:10:59,960 Speaker 3: And I think that is both a recognition that borrowers 183 00:11:00,280 --> 00:11:03,600 Speaker 3: have had that the ways in which they finance their 184 00:11:03,640 --> 00:11:07,240 Speaker 3: businesses in the past, whether for liquidity reasons or broader 185 00:11:07,320 --> 00:11:11,120 Speaker 3: macro reasons like post COVID World is a great example 186 00:11:11,200 --> 00:11:14,640 Speaker 3: of that those markets may not always be open to them. 187 00:11:14,800 --> 00:11:18,280 Speaker 3: There's just talking to a portfolio manager earlier today who's 188 00:11:18,320 --> 00:11:23,800 Speaker 3: been investing in securitizations of auto loans and some of 189 00:11:23,840 --> 00:11:27,800 Speaker 3: these issuers who have very limited balance sheet, so therefore 190 00:11:27,960 --> 00:11:31,000 Speaker 3: need to sell their loans into the market historically use 191 00:11:31,040 --> 00:11:37,600 Speaker 3: the structured products markets. In COVID, that liquidity wasn't there, right, 192 00:11:37,640 --> 00:11:39,880 Speaker 3: but they still needed to move that risk off their 193 00:11:39,920 --> 00:11:42,320 Speaker 3: balance sheet. They don't have the depth of balance sheet 194 00:11:42,360 --> 00:11:44,760 Speaker 3: to hold on to that type of risk, and so 195 00:11:44,840 --> 00:11:49,360 Speaker 3: they're increasingly looking to the investment grade private debt market. 196 00:11:49,600 --> 00:11:53,600 Speaker 3: They're increasingly looking to private credit managers to take on 197 00:11:53,760 --> 00:11:57,199 Speaker 3: some of that whole loan origination, right, So they want 198 00:11:57,400 --> 00:12:01,240 Speaker 3: to work with folks or work across lender through the 199 00:12:01,280 --> 00:12:05,439 Speaker 3: liquidity spectrum and then from everything from private to public. 200 00:12:05,920 --> 00:12:08,360 Speaker 3: And I think James, you and I have talked in 201 00:12:08,400 --> 00:12:13,040 Speaker 3: the past about AI right as a big theme and 202 00:12:13,400 --> 00:12:16,959 Speaker 3: data centers. Ten years ago, you probably would have just 203 00:12:17,000 --> 00:12:20,920 Speaker 3: gone to a bank and done that deal by yourself, 204 00:12:21,040 --> 00:12:26,840 Speaker 3: right with a banking institution. Today the banks are financing 205 00:12:26,960 --> 00:12:31,240 Speaker 3: data centers. Investment grade is financing data centers, Infra managers 206 00:12:31,320 --> 00:12:34,840 Speaker 3: or financing data centers. Our commercial real estate guys are 207 00:12:34,880 --> 00:12:38,840 Speaker 3: seeing the construction loans come up. So there's many ways 208 00:12:38,880 --> 00:12:41,400 Speaker 3: in which you're going to finance that ecosystem. 209 00:12:41,960 --> 00:12:44,360 Speaker 2: When you get involved in one of the financings for 210 00:12:44,760 --> 00:12:47,880 Speaker 2: one of these large you know, sort of investment grade 211 00:12:48,200 --> 00:12:53,480 Speaker 2: type issues. How exactly does it work for you? Are 212 00:12:53,520 --> 00:12:56,240 Speaker 2: you originating it or are you part of a syndicate, 213 00:12:56,400 --> 00:13:02,880 Speaker 2: you know, sort of purchasing the club, purchasing the asset. 214 00:13:03,600 --> 00:13:09,839 Speaker 3: So it really depends on what project or asset we're financing. 215 00:13:10,000 --> 00:13:12,720 Speaker 3: So our commercial real estate debt teams as an example, 216 00:13:13,040 --> 00:13:15,600 Speaker 3: which play across sort of on an un levered basis 217 00:13:15,600 --> 00:13:17,480 Speaker 3: what i'll call investment grade like risk, and on a 218 00:13:17,520 --> 00:13:20,440 Speaker 3: levered basis some of that higher yielding risk that's more 219 00:13:20,480 --> 00:13:24,319 Speaker 3: traditional and private credit markets. If they're seeing a data 220 00:13:24,360 --> 00:13:29,360 Speaker 3: center construction loan as an example, oftentimes they are either 221 00:13:29,480 --> 00:13:32,920 Speaker 3: a sole lender or in a very very small group 222 00:13:33,320 --> 00:13:37,720 Speaker 3: of lenders. But having control in those situations is really important, 223 00:13:37,720 --> 00:13:40,000 Speaker 3: So you want to have a significant piece of that 224 00:13:40,720 --> 00:13:44,400 Speaker 3: in some of the more broadly I'll say broadly syndicated 225 00:13:44,440 --> 00:13:47,840 Speaker 3: is the wrong word. But in some of those deals 226 00:13:47,880 --> 00:13:51,599 Speaker 3: that are negotiated off market, where you have multiple players, 227 00:13:51,440 --> 00:13:56,040 Speaker 3: as our IG team often will see, they might be 228 00:13:56,280 --> 00:13:59,160 Speaker 3: not a controlling investor, but a significant investor. And what 229 00:13:59,200 --> 00:14:02,439 Speaker 3: we like about the private investment grade markets is whether 230 00:14:02,440 --> 00:14:04,760 Speaker 3: you're one of the first to show up or you 231 00:14:04,840 --> 00:14:07,160 Speaker 3: come in later on as the syndicate is being formed. 232 00:14:07,640 --> 00:14:11,960 Speaker 3: In those markets, you still have influence your respective of 233 00:14:12,000 --> 00:14:15,240 Speaker 3: your size of structure. And I think when it comes 234 00:14:15,280 --> 00:14:21,040 Speaker 3: to private credit, some of the best protection that you 235 00:14:21,160 --> 00:14:25,800 Speaker 3: get as an investor is in structuring right and really 236 00:14:25,840 --> 00:14:30,640 Speaker 3: getting the deal mechanics and the underwriting right that saves 237 00:14:30,680 --> 00:14:33,360 Speaker 3: you ninety percent of the time in the future when 238 00:14:33,360 --> 00:14:38,600 Speaker 3: things go awry, which inevitably they will, structure and underwrite 239 00:14:38,880 --> 00:14:42,560 Speaker 3: is always first. David and I think whether we're investing 240 00:14:42,560 --> 00:14:45,360 Speaker 3: in investment grade markets, or we're in commercial real estate markets, 241 00:14:46,040 --> 00:14:48,720 Speaker 3: or we're in the COLO markets, we spend a lot 242 00:14:48,760 --> 00:14:55,040 Speaker 3: of time understanding the idiosyncratic risk and then ensuring that 243 00:14:55,120 --> 00:14:58,160 Speaker 3: the structures that we've put in place have the proper 244 00:14:58,200 --> 00:15:02,200 Speaker 3: covenants and protections in place so that if things go sideways, 245 00:15:03,400 --> 00:15:05,640 Speaker 3: we have remedy and we have an ability to work 246 00:15:05,680 --> 00:15:06,040 Speaker 3: through it. 247 00:15:06,800 --> 00:15:09,560 Speaker 1: How does that relate to the current AI data centers 248 00:15:09,720 --> 00:15:10,280 Speaker 1: you're seeing. 249 00:15:10,640 --> 00:15:14,480 Speaker 3: Yeah, I think this is probably one of the areas 250 00:15:14,520 --> 00:15:18,120 Speaker 3: where we will generally agree with the market that this 251 00:15:18,280 --> 00:15:23,280 Speaker 3: is a multi year secular theme, but probably an area 252 00:15:23,520 --> 00:15:26,920 Speaker 3: from a real estate lens as an example, where we're 253 00:15:27,360 --> 00:15:31,120 Speaker 3: less excited maybe relative to other parts of the market 254 00:15:31,160 --> 00:15:37,440 Speaker 3: where that AI theme is continuing to make its way through. 255 00:15:37,520 --> 00:15:42,360 Speaker 3: So in data centers specifically, our real estate team sees 256 00:15:42,400 --> 00:15:46,800 Speaker 3: a lot of the construction lending type opportunities and they 257 00:15:46,800 --> 00:15:49,800 Speaker 3: were an early investor in that space four or five 258 00:15:49,880 --> 00:15:53,840 Speaker 3: years ago, and at that time, spreads were kind of 259 00:15:53,880 --> 00:15:57,760 Speaker 3: in the four hundred plus basis point range. Financing levels 260 00:15:57,800 --> 00:16:01,600 Speaker 3: were very moderate, right, so these were modest levered, know, 261 00:16:01,920 --> 00:16:08,680 Speaker 3: sixty seventy percent loan to value type opportunities. Today, when 262 00:16:08,680 --> 00:16:11,840 Speaker 3: we look at that space, advance rates have gone up, right, 263 00:16:11,920 --> 00:16:15,560 Speaker 3: so there's a lot more leverage ninety percent in some cases, 264 00:16:16,440 --> 00:16:19,760 Speaker 3: and spreads have compressed about two hundred basis points, and 265 00:16:19,800 --> 00:16:23,280 Speaker 3: so when we think about that risk that we're taking 266 00:16:24,400 --> 00:16:27,840 Speaker 3: relative to their return, it's a little less exciting today. 267 00:16:28,120 --> 00:16:31,680 Speaker 3: That doesn't mean all data center construction is off the table. 268 00:16:32,400 --> 00:16:35,160 Speaker 3: What that means for us is that the team, as 269 00:16:35,200 --> 00:16:38,600 Speaker 3: they always have, thinks a lot about the location of 270 00:16:38,640 --> 00:16:43,160 Speaker 3: the data center, access to power. We think a lot 271 00:16:43,200 --> 00:16:46,520 Speaker 3: about sort of the less ye and what the terms 272 00:16:46,560 --> 00:16:51,160 Speaker 3: of those leases are and how long that lease term 273 00:16:51,240 --> 00:16:54,760 Speaker 3: is visa vis the loan, and then importantly, what our 274 00:16:54,800 --> 00:17:00,360 Speaker 3: team has been very focused on lately, is terminal value exit? 275 00:17:00,920 --> 00:17:06,560 Speaker 3: Right if the existing lessee or the tenant that's supposed 276 00:17:06,600 --> 00:17:10,480 Speaker 3: to come in up in leaves, which they can, and 277 00:17:10,680 --> 00:17:14,919 Speaker 3: and we're seeing that in structure, is what is the 278 00:17:15,040 --> 00:17:18,560 Speaker 3: value of that real estate? Is it easy for somebody 279 00:17:18,600 --> 00:17:21,199 Speaker 3: else to come in and take that over or is 280 00:17:21,240 --> 00:17:23,800 Speaker 3: it going to be really difficult because that data center 281 00:17:23,920 --> 00:17:27,600 Speaker 3: was built in a remote area where there's not a 282 00:17:27,640 --> 00:17:30,760 Speaker 3: tremendous amount of demand. So we think a lot about 283 00:17:30,760 --> 00:17:35,320 Speaker 3: that replacement value when evaluating data centers in today. I'll 284 00:17:35,320 --> 00:17:41,159 Speaker 3: say not every situation, but by and large it's a pass. 285 00:17:41,400 --> 00:17:45,040 Speaker 3: We would rather play that AI theme and I'll stick 286 00:17:45,080 --> 00:17:48,879 Speaker 3: to the real estate analogy, like the way we work, 287 00:17:49,119 --> 00:17:51,640 Speaker 3: the way we live, the way we travel, the way 288 00:17:51,640 --> 00:17:57,800 Speaker 3: we consume right, is all being upended by AI and 289 00:17:57,800 --> 00:18:00,760 Speaker 3: by the transformation that's that's here to come from our 290 00:18:00,800 --> 00:18:03,159 Speaker 3: seat that means real estate's going to have to be redesigned, 291 00:18:03,400 --> 00:18:07,840 Speaker 3: it's going to be reimagined. We would rather invest and 292 00:18:07,880 --> 00:18:11,399 Speaker 3: play the quote unquote AI theme through some of that 293 00:18:11,440 --> 00:18:14,720 Speaker 3: transition that's about to take place and lean into where 294 00:18:14,760 --> 00:18:17,800 Speaker 3: we see a lot of alignment between our borrowers and 295 00:18:17,840 --> 00:18:21,439 Speaker 3: ourselves versus maybe getting the top of the iceberg. That 296 00:18:21,520 --> 00:18:25,560 Speaker 3: being said, James, there is a place for data center 297 00:18:25,600 --> 00:18:29,880 Speaker 3: credit in client portfolios, particularly if you're viewing it as 298 00:18:29,880 --> 00:18:33,520 Speaker 3: a replacement to buying the corporate issuer as an example, right, 299 00:18:33,760 --> 00:18:37,080 Speaker 3: and you're getting paid some incremental spread to take on 300 00:18:37,480 --> 00:18:42,760 Speaker 3: Microsoft risk or Meta risk, and there is that relative 301 00:18:42,840 --> 00:18:45,400 Speaker 3: value in fixing come portfolios. We've seen it, We're investing 302 00:18:45,400 --> 00:18:48,720 Speaker 3: in it, but from a private credit lens, not our 303 00:18:48,800 --> 00:18:52,200 Speaker 3: highest conviction opportunity. We like beds and sheds instead. 304 00:18:52,600 --> 00:18:55,359 Speaker 1: There's no pressure to deploy just because it's Microsoft and 305 00:18:55,400 --> 00:18:57,000 Speaker 1: you need to get in on all the other deals 306 00:18:57,040 --> 00:18:59,200 Speaker 1: that are coming down from that. You don't feel that price. 307 00:18:59,520 --> 00:19:02,719 Speaker 3: We don't feel that pressure. I think as a private 308 00:19:02,760 --> 00:19:09,360 Speaker 3: credit investor, what we really pride ourselves on is in situations, right, 309 00:19:09,760 --> 00:19:12,439 Speaker 3: these are relationship businesses, as many of these things are. 310 00:19:12,520 --> 00:19:16,920 Speaker 3: Right when you're getting access to deals you're underwriting, being 311 00:19:16,960 --> 00:19:21,840 Speaker 3: able to say no is actually a superpower, and I 312 00:19:21,840 --> 00:19:28,360 Speaker 3: think people forget that. Our teams are quick to say 313 00:19:28,400 --> 00:19:31,119 Speaker 3: this makes sense for the type of capital that we're running, 314 00:19:31,200 --> 00:19:34,160 Speaker 3: or for the portfolio that we're building, and I think 315 00:19:34,280 --> 00:19:38,439 Speaker 3: for many sponsors in this business, a quick not is 316 00:19:38,560 --> 00:19:43,600 Speaker 3: actually as valuable as a yes, because you're building relationships 317 00:19:43,600 --> 00:19:46,160 Speaker 3: for the long term. So not everything that a certain 318 00:19:46,200 --> 00:19:48,399 Speaker 3: sponsor is going to originate is going to work for 319 00:19:48,520 --> 00:19:52,280 Speaker 3: our pool of capital, and that's okay. They want to 320 00:19:52,320 --> 00:19:55,400 Speaker 3: know that when you are there and you show up, 321 00:19:55,920 --> 00:19:59,520 Speaker 3: that there is the ability to execute. There's the flexibility 322 00:19:59,520 --> 00:20:01,800 Speaker 3: in the struct suring to work with the barrower to 323 00:20:01,840 --> 00:20:05,080 Speaker 3: kind of meet the needs that they have and to 324 00:20:05,200 --> 00:20:10,119 Speaker 3: do it quickly and to be there when when the 325 00:20:10,160 --> 00:20:13,200 Speaker 3: opportunity arises and there is alignment. And so I think 326 00:20:14,760 --> 00:20:16,960 Speaker 3: quick nos are just as good as quick yesses. 327 00:20:17,000 --> 00:20:19,639 Speaker 1: But just on the AI theme, you know, it is 328 00:20:19,680 --> 00:20:22,879 Speaker 1: a massive, multi trillion dollar funding effort that's going to 329 00:20:22,880 --> 00:20:25,920 Speaker 1: go on for several years. We're already seeing pushback in 330 00:20:25,960 --> 00:20:30,200 Speaker 1: the public markets always already some you know, bad trading 331 00:20:30,240 --> 00:20:32,760 Speaker 1: in names like SpaceX, and that's worrying some people. But 332 00:20:33,160 --> 00:20:35,480 Speaker 1: is there any sign of indigestion on the private side 333 00:20:35,520 --> 00:20:38,600 Speaker 1: for all this AI funding that's going on. 334 00:20:40,119 --> 00:20:42,520 Speaker 3: I think it depends on the pool of capital right 335 00:20:44,359 --> 00:20:47,360 Speaker 3: there still seems to be you know, every time I'm 336 00:20:47,359 --> 00:20:52,760 Speaker 3: out talking to various clients, there's certainly an eye towards 337 00:20:53,200 --> 00:20:56,720 Speaker 3: I'll say, we've seen a lot more infrastructure allocations from 338 00:20:56,760 --> 00:21:00,000 Speaker 3: the client side this year to buy into the long 339 00:21:00,119 --> 00:21:04,800 Speaker 3: term theme. Ultimately, James like it, and I don't mean 340 00:21:04,800 --> 00:21:07,200 Speaker 3: for this to be a cop out, right, but it's 341 00:21:07,240 --> 00:21:10,919 Speaker 3: about aligning your expectations and your time horizon with the 342 00:21:11,000 --> 00:21:14,400 Speaker 3: return right. And so I think for those that view 343 00:21:14,440 --> 00:21:17,600 Speaker 3: this as sort of that core opportunity where you're going 344 00:21:17,680 --> 00:21:23,679 Speaker 3: to get kind of mid single digit type returns, there's 345 00:21:23,720 --> 00:21:25,760 Speaker 3: a lot of opportunity. And I don't think that you've 346 00:21:25,760 --> 00:21:28,840 Speaker 3: seen the tissue rejection, but it's just recognizing it for 347 00:21:28,880 --> 00:21:32,480 Speaker 3: what it is. Right, if you, as an allocator or 348 00:21:32,520 --> 00:21:36,320 Speaker 3: an investor, say, look, I'm looking for my fifteen plus 349 00:21:36,359 --> 00:21:41,160 Speaker 3: percent return, I'm not sure that you're going to get 350 00:21:41,160 --> 00:21:45,879 Speaker 3: that from a data center loan today, given where the 351 00:21:45,920 --> 00:21:48,560 Speaker 3: market is, and if you are or that is what 352 00:21:48,920 --> 00:21:53,720 Speaker 3: one is promised, there's probably some other risk that's permeating 353 00:21:53,760 --> 00:21:55,520 Speaker 3: in the system. So I don't think there's been any 354 00:21:55,880 --> 00:21:59,720 Speaker 3: sort of oversaturation of the market. I think you're just 355 00:21:59,720 --> 00:22:04,360 Speaker 3: seeing more segmented pools of capital for the various opportunities 356 00:22:04,440 --> 00:22:06,440 Speaker 3: that are out there, and that's where we as investors 357 00:22:06,480 --> 00:22:09,560 Speaker 3: need to be really disserting of am I getting compensated 358 00:22:09,560 --> 00:22:11,560 Speaker 3: for the risks that I'm taking and for the time 359 00:22:11,600 --> 00:22:13,160 Speaker 3: horizon upon which I'm investing. 360 00:22:13,480 --> 00:22:15,879 Speaker 2: Yeah, I was going to ask what you've seen just 361 00:22:16,040 --> 00:22:19,440 Speaker 2: from trend to wise on a year to date basis 362 00:22:19,480 --> 00:22:26,000 Speaker 2: for spread premiums between private financings and public financings for 363 00:22:26,440 --> 00:22:27,920 Speaker 2: high grade assets. 364 00:22:28,040 --> 00:22:31,159 Speaker 3: For high grade assets, I think it certainly ebbs and flows. 365 00:22:31,200 --> 00:22:35,040 Speaker 3: In the more syndicated parts of the market. I'm certainly 366 00:22:35,040 --> 00:22:39,160 Speaker 3: still at a premium relative to history, but you can 367 00:22:39,200 --> 00:22:43,399 Speaker 3: see things in the one hundred to two hundred basis 368 00:22:43,440 --> 00:22:47,600 Speaker 3: point range. I think as you get out on the 369 00:22:48,440 --> 00:22:52,080 Speaker 3: more risky, the heavier transitional side of the world in 370 00:22:52,119 --> 00:22:56,840 Speaker 3: areas like real estate, that premium today is probably somewhere 371 00:22:56,840 --> 00:23:00,760 Speaker 3: between two to four hundred basis points, depending on what 372 00:23:00,840 --> 00:23:04,159 Speaker 3: part of the spectrum that you're playing on, and what. 373 00:23:04,359 --> 00:23:07,960 Speaker 2: What is the risk premium compensating you for it. Is 374 00:23:07,960 --> 00:23:11,879 Speaker 2: it all liquidity or is it complexity? Is it you know, 375 00:23:12,040 --> 00:23:14,520 Speaker 2: like if I were an insurance life insurance company with 376 00:23:14,560 --> 00:23:18,760 Speaker 2: sticky liabilities and you know, a pretty good actuarial level 377 00:23:18,760 --> 00:23:21,040 Speaker 2: of certainty around how long they're going to stick around for, 378 00:23:21,720 --> 00:23:24,320 Speaker 2: I should be waiving this in every. 379 00:23:24,200 --> 00:23:29,040 Speaker 3: Day and some are, and they are right because I 380 00:23:29,400 --> 00:23:32,119 Speaker 3: think they certainly see the opportunity and they have the 381 00:23:32,200 --> 00:23:35,400 Speaker 3: duration of the capital didd To answer your question directly, 382 00:23:36,440 --> 00:23:40,480 Speaker 3: it's all of the above, yeah, right, And and that's 383 00:23:40,480 --> 00:23:42,359 Speaker 3: why I say there's an illiquidity premium and there's a 384 00:23:42,400 --> 00:23:46,120 Speaker 3: complexity premia. I think we often think about them and aggregate, right, 385 00:23:46,160 --> 00:23:49,639 Speaker 3: And many of our clients in this space when they 386 00:23:49,680 --> 00:23:52,840 Speaker 3: think about private credit really are looking at what is 387 00:23:52,880 --> 00:23:56,000 Speaker 3: the premium relative to public markets that I'm getting right. 388 00:23:56,040 --> 00:23:59,199 Speaker 3: So oftentimes the quote unquote benchmark will be, you know, 389 00:23:59,359 --> 00:24:03,280 Speaker 3: high yield or levered bank loans plus some spread of 390 00:24:03,800 --> 00:24:07,200 Speaker 3: two three hundred basis points, and that's how you assess, 391 00:24:07,320 --> 00:24:12,879 Speaker 3: am I getting compensated for that premia. Certainly the duration 392 00:24:13,320 --> 00:24:16,720 Speaker 3: of these loans sort of on the short end can 393 00:24:16,760 --> 00:24:20,520 Speaker 3: be three to five years. On the longer end, there's 394 00:24:20,680 --> 00:24:24,119 Speaker 3: ten to twenty year paper out there as well, and 395 00:24:24,200 --> 00:24:27,200 Speaker 3: so in the longer dated paper it might be more 396 00:24:27,240 --> 00:24:29,760 Speaker 3: investment grade like in terms of the issuer, So your 397 00:24:30,119 --> 00:24:33,399 Speaker 3: aggregate spread is not going to be huge. But in 398 00:24:33,440 --> 00:24:36,360 Speaker 3: those instances, that's where you may see the premia actually 399 00:24:36,440 --> 00:24:40,439 Speaker 3: be wider to the public market because you're taking on 400 00:24:40,480 --> 00:24:43,800 Speaker 3: that additional illiquidity, and then on the complexity of the deal. 401 00:24:45,040 --> 00:24:48,920 Speaker 3: There's multiple dimensions of that. There's the structuring. There's where 402 00:24:48,920 --> 00:24:52,400 Speaker 3: in the capital stack, am I playing right, am I senior? 403 00:24:52,840 --> 00:24:54,800 Speaker 3: Am I? In the mezzanine stack, am I in something 404 00:24:54,840 --> 00:24:57,720 Speaker 3: that's cuspy that looks a little bit more like equity. 405 00:24:57,800 --> 00:25:00,640 Speaker 3: The lower you go, the more you should, as extensibly 406 00:25:00,680 --> 00:25:05,560 Speaker 3: get paid. But the interesting piece about capital flows is 407 00:25:06,160 --> 00:25:10,040 Speaker 3: it doesn't always follow the logic. And some part of that. 408 00:25:10,760 --> 00:25:14,080 Speaker 3: We've talked a lot about real estate. Our team invests 409 00:25:14,200 --> 00:25:16,520 Speaker 3: in what we call transitional real estate, right, so real 410 00:25:16,600 --> 00:25:20,680 Speaker 3: estate that is undergoing some sort of capital plan or 411 00:25:20,800 --> 00:25:25,640 Speaker 3: leasing strategy, right, that's being quote unquote transitioned over time. 412 00:25:26,080 --> 00:25:29,200 Speaker 3: And there's those things that are light, a lighter lift effectively, 413 00:25:29,240 --> 00:25:31,720 Speaker 3: and then those things that are heavy. If you look 414 00:25:31,760 --> 00:25:35,720 Speaker 3: at where spreads have come in, ironically, you should be 415 00:25:35,800 --> 00:25:39,360 Speaker 3: compensated more for taking that heavier transitional risk. You're taking 416 00:25:39,920 --> 00:25:44,320 Speaker 3: more operational risk, execution risk of the sponsor. That's where 417 00:25:44,359 --> 00:25:48,840 Speaker 3: you've actually seen spreads compress a bit more today historically 418 00:25:48,920 --> 00:25:51,879 Speaker 3: than even the lighter side, which again not that these 419 00:25:52,560 --> 00:25:54,520 Speaker 3: things always equate to risk. It's more about how are 420 00:25:54,520 --> 00:25:58,080 Speaker 3: you being compensated for the execution plan you're taking, And 421 00:25:58,119 --> 00:26:01,800 Speaker 3: so in those markets today, we actually think you're being 422 00:26:01,840 --> 00:26:05,120 Speaker 3: better financed from a leverage perspective as well as better 423 00:26:05,200 --> 00:26:08,400 Speaker 3: compensated from a spread perspective to take the lighter transition. 424 00:26:08,480 --> 00:26:11,159 Speaker 3: So that's where we would rather lean in, and I 425 00:26:11,200 --> 00:26:13,920 Speaker 3: think that is purely a function of just capital flows. 426 00:26:14,760 --> 00:26:19,240 Speaker 2: You've also written a fair amount about commercial real estate 427 00:26:19,600 --> 00:26:22,919 Speaker 2: real estate assets at insurance companies. Maybe gain span on 428 00:26:22,960 --> 00:26:25,520 Speaker 2: that a little bit. Why that match is so magical. 429 00:26:25,960 --> 00:26:29,439 Speaker 3: Yes, So we do as a business work with a 430 00:26:29,480 --> 00:26:33,320 Speaker 3: lot of different insurance companies and types of insurance companies. 431 00:26:33,680 --> 00:26:37,280 Speaker 3: I think you know real estate as an asset class 432 00:26:37,320 --> 00:26:41,520 Speaker 3: from their regulatory perspective, and the frameworks in which many 433 00:26:41,600 --> 00:26:47,920 Speaker 3: of the US insurers operate often has positive capital treatment. 434 00:26:49,720 --> 00:26:53,520 Speaker 3: It's an area where insurance companies themselves have been large investors, 435 00:26:53,680 --> 00:26:55,960 Speaker 3: both on the equity side and on the debt side. 436 00:26:56,080 --> 00:27:00,359 Speaker 3: They call CML commercial mortgage loan investing portfolios and so 437 00:27:02,320 --> 00:27:06,720 Speaker 3: visa the other parts of private markets where you don't 438 00:27:06,720 --> 00:27:09,959 Speaker 3: get the benefit of looking through to the underlying asset, 439 00:27:10,080 --> 00:27:12,480 Speaker 3: and they often think of insurance companies often think about 440 00:27:12,480 --> 00:27:16,160 Speaker 3: the risk in real estate very similar to the way 441 00:27:16,160 --> 00:27:19,320 Speaker 3: that we're thinking about the risk, right, are you underwriting 442 00:27:19,520 --> 00:27:23,360 Speaker 3: a core asset profile, a value add profile, and opportunistic profile, 443 00:27:23,800 --> 00:27:26,600 Speaker 3: and their risk ratings actually scale up based on that 444 00:27:27,119 --> 00:27:31,200 Speaker 3: underlying type. And so there's tremendous alignment both from a 445 00:27:31,359 --> 00:27:34,520 Speaker 3: liability matching perspective as we think about the duration of 446 00:27:34,880 --> 00:27:38,240 Speaker 3: many of these insurance companies' liabilities. I think there's a 447 00:27:38,280 --> 00:27:43,800 Speaker 3: familiarity and there's a long standing financing history. Right when 448 00:27:43,840 --> 00:27:45,600 Speaker 3: we look at the real estate markets here in the 449 00:27:45,680 --> 00:27:50,480 Speaker 3: US six trillion dollar market, financing market actually bigger than 450 00:27:50,560 --> 00:27:54,399 Speaker 3: corporate direct lending. Right, half of that has historically been 451 00:27:54,400 --> 00:27:58,320 Speaker 3: financed by the banking sector. Insurance is the second largest 452 00:27:58,680 --> 00:28:03,000 Speaker 3: sort of financier of commercial mortgage loans. So this is 453 00:28:03,040 --> 00:28:06,120 Speaker 3: a business that they've been in for thirty plus years, right. 454 00:28:06,480 --> 00:28:10,600 Speaker 3: They understand the risk, they understand the role it plays, 455 00:28:11,000 --> 00:28:14,520 Speaker 3: and so relative to other parts of private markets for 456 00:28:14,640 --> 00:28:18,280 Speaker 3: insurance companies, this is an area where I think they 457 00:28:18,320 --> 00:28:22,720 Speaker 3: see the compensation for the illiquidity premia. It's capital efficient 458 00:28:23,440 --> 00:28:28,800 Speaker 3: relative to parts of corporate credit, like high yield or 459 00:28:28,880 --> 00:28:32,760 Speaker 3: bank loans that offer similar spreads or even lower spreads 460 00:28:33,040 --> 00:28:35,960 Speaker 3: than what some of these loans are providing. It's senior 461 00:28:36,000 --> 00:28:39,240 Speaker 3: in the capital structure. Right, So you're a first mortgage lender. 462 00:28:39,280 --> 00:28:42,560 Speaker 3: It's like having the bank over the mortgage on your house. Right, 463 00:28:42,600 --> 00:28:44,800 Speaker 3: that's the same thing that we're doing here on the 464 00:28:45,160 --> 00:28:48,640 Speaker 3: commercial real estate side. And so it provides and it's 465 00:28:48,680 --> 00:28:52,360 Speaker 3: a hard asset. Right, So when all is said and done, 466 00:28:53,160 --> 00:28:57,920 Speaker 3: if things go sideways, there's a hard asset backing that loan. 467 00:28:58,640 --> 00:29:03,800 Speaker 3: And I think in insurance companies think in those in 468 00:29:03,800 --> 00:29:07,120 Speaker 3: those frameworks, and so this is a very efficient way. 469 00:29:07,760 --> 00:29:11,560 Speaker 3: And oftentimes in the in the private fund structures, they 470 00:29:11,600 --> 00:29:13,880 Speaker 3: do have the ability to look through to the underlying asset, 471 00:29:13,920 --> 00:29:16,160 Speaker 3: which isn't always the case across all parts of private 472 00:29:16,160 --> 00:29:16,680 Speaker 3: credit market. 473 00:29:16,800 --> 00:29:18,840 Speaker 1: Right, is there a danger that some of these hard 474 00:29:18,840 --> 00:29:21,960 Speaker 1: assets become obsolete or in the same way that you 475 00:29:22,000 --> 00:29:25,440 Speaker 1: describe data centers, you know, and you mentioned the big 476 00:29:25,480 --> 00:29:27,760 Speaker 1: shakeup coming from AI that you know, everything is changing 477 00:29:27,840 --> 00:29:30,280 Speaker 1: the way we work and everything else is you know, 478 00:29:30,440 --> 00:29:33,120 Speaker 1: in the world is supposed to be revolutionized by this 479 00:29:33,440 --> 00:29:36,880 Speaker 1: technology that I have yet to see. Uh, But what 480 00:29:37,080 --> 00:29:39,240 Speaker 1: is the long term outcome for commercial real estate? You know, 481 00:29:39,240 --> 00:29:41,880 Speaker 1: if you get into an office that suddenly becomes redundant. 482 00:29:42,120 --> 00:29:45,440 Speaker 3: Yes, I think all of those things, right. It's the 483 00:29:45,520 --> 00:29:49,000 Speaker 3: reason why we've we've written a lot about this. It's 484 00:29:49,040 --> 00:29:52,720 Speaker 3: the reason we like the transitional space. Right. Transition by 485 00:29:52,800 --> 00:29:56,360 Speaker 3: virtue is investing in the thing that is changing. I 486 00:29:56,400 --> 00:30:00,960 Speaker 3: often think the fallacies of those that look at commercial 487 00:30:01,000 --> 00:30:02,840 Speaker 3: real estate markets is when you think of a core 488 00:30:02,920 --> 00:30:05,600 Speaker 3: asset right, probably like this beautiful office that we're sitting 489 00:30:05,640 --> 00:30:10,200 Speaker 3: in today, right, as always being resilient, right, or being 490 00:30:10,240 --> 00:30:12,920 Speaker 3: the safest asset. But in many ways, if we think 491 00:30:12,920 --> 00:30:16,720 Speaker 3: about the real estate life cycle from ground up all 492 00:30:16,760 --> 00:30:20,160 Speaker 3: the way to core, those things that are the most 493 00:30:20,240 --> 00:30:25,080 Speaker 3: what we call stabilized in this space often are the 494 00:30:25,080 --> 00:30:29,560 Speaker 3: ones that are likely to move into obsolescence as their 495 00:30:29,560 --> 00:30:33,120 Speaker 3: next phase if they are not invested in to maintain 496 00:30:33,240 --> 00:30:38,280 Speaker 3: that value. And so absolutely, in real estate, not all 497 00:30:38,320 --> 00:30:41,360 Speaker 3: real estate is created equal. COVID certainly taught us that. 498 00:30:41,320 --> 00:30:44,560 Speaker 2: Now it's all about location. Right now, it's location location 499 00:30:44,720 --> 00:30:46,959 Speaker 2: Like it's a very asset specific. 500 00:30:47,360 --> 00:30:52,440 Speaker 3: Market specific, its assets specific. It is also you know 501 00:30:53,320 --> 00:30:56,280 Speaker 3: there is some wreck. You just have to have a 502 00:30:56,360 --> 00:31:00,640 Speaker 3: recognition and I think a healthy understanding the fact that 503 00:31:00,680 --> 00:31:05,160 Speaker 3: things are going to change and so you are really 504 00:31:05,280 --> 00:31:09,400 Speaker 3: underwriting loan by loan, zip code by zip code, asset 505 00:31:09,440 --> 00:31:13,360 Speaker 3: type by asset type. That being said, there's like structural 506 00:31:13,400 --> 00:31:16,320 Speaker 3: themes in the market that we think will transpire over 507 00:31:16,920 --> 00:31:19,680 Speaker 3: the coming years. Right. I think James, you had somebody 508 00:31:19,720 --> 00:31:24,360 Speaker 3: on your podcast recently that talked about the residential lending opportunity. Right. 509 00:31:24,560 --> 00:31:29,520 Speaker 3: Housing in the United States is consistently and undersupply. Right, 510 00:31:29,720 --> 00:31:33,120 Speaker 3: So if you have the ability to finance from our seat, 511 00:31:33,240 --> 00:31:39,120 Speaker 3: like a multifamily a conversion, right. Of I know there's 512 00:31:39,120 --> 00:31:40,920 Speaker 3: been some press around this recently here in New York, 513 00:31:40,960 --> 00:31:45,760 Speaker 3: but of like office to multifamily, right, and you're underwriting 514 00:31:45,800 --> 00:31:48,800 Speaker 3: the business plan well, and the safety measures and all 515 00:31:48,840 --> 00:31:51,640 Speaker 3: of those things. Well, there is there is opportunity. Right. 516 00:31:51,880 --> 00:31:54,360 Speaker 3: The other piece of this is right we say beds, Right, 517 00:31:54,360 --> 00:31:58,360 Speaker 3: Beds continues to be an opportunity. Sheds is also the 518 00:31:58,400 --> 00:32:03,880 Speaker 3: other opportunity with this this AI and digitization and the 519 00:32:03,920 --> 00:32:08,040 Speaker 3: move to more of a digital economy, the need for 520 00:32:08,120 --> 00:32:11,160 Speaker 3: cold storage, the need for I mean we all live 521 00:32:11,240 --> 00:32:15,840 Speaker 3: in the Tristate area, Right, there's probably a time fifteen 522 00:32:15,920 --> 00:32:17,800 Speaker 3: years ago, ten years ago, right, we all went to 523 00:32:17,840 --> 00:32:21,520 Speaker 3: the grocery store, right, fresh Direct was still relatively nascent 524 00:32:23,360 --> 00:32:26,080 Speaker 3: i venture. All of us in this room probably get 525 00:32:26,200 --> 00:32:31,800 Speaker 3: some form of our goods digitally, right, and living in 526 00:32:31,800 --> 00:32:35,000 Speaker 3: and around New York City, we need industrial space to 527 00:32:35,080 --> 00:32:39,360 Speaker 3: house those goods. There's a lot of older industrial space 528 00:32:39,400 --> 00:32:44,120 Speaker 3: that needs to be refit for what's needed today. And 529 00:32:44,200 --> 00:32:48,680 Speaker 3: so in real estate, if you can lean into that innovation, 530 00:32:48,880 --> 00:32:51,360 Speaker 3: you can lean into where the puck is going and 531 00:32:51,480 --> 00:32:55,480 Speaker 3: most importantly, align yourself with the sponsor. Right. The biggest 532 00:32:55,520 --> 00:32:59,880 Speaker 3: piece in lending from our standpoint is we don't want 533 00:32:59,920 --> 00:33:02,760 Speaker 3: to take what our portfolio manager often likes to call 534 00:33:03,160 --> 00:33:06,080 Speaker 3: kind of the pilot error. Right. You want to be 535 00:33:06,280 --> 00:33:10,960 Speaker 3: in situations where the sponsor is putting money into a project, 536 00:33:11,360 --> 00:33:15,200 Speaker 3: not taking money out of a project, and in that 537 00:33:15,280 --> 00:33:18,280 Speaker 3: transitional space that's in the life cycle of real estate, 538 00:33:18,320 --> 00:33:21,920 Speaker 3: that's where you have the optimal alignment. We would rather 539 00:33:22,000 --> 00:33:24,760 Speaker 3: be there all day long than invest in some of 540 00:33:24,800 --> 00:33:29,640 Speaker 3: these like melting ice cubes of assets that likely will 541 00:33:29,680 --> 00:33:33,080 Speaker 3: need more work but may not have the proper alignment 542 00:33:33,520 --> 00:33:35,760 Speaker 3: to ensure that that asset's dealt with properly. 543 00:33:35,920 --> 00:33:37,840 Speaker 1: So you're lending pretty short turned through some kind of 544 00:33:37,880 --> 00:33:38,680 Speaker 1: development cycle. 545 00:33:38,800 --> 00:33:42,480 Speaker 3: Correct, We're lending over three to five five years in 546 00:33:42,520 --> 00:33:44,560 Speaker 3: many of these loans. So we have a line of 547 00:33:44,560 --> 00:33:47,080 Speaker 3: sight it's a specific project that needs to be financed. 548 00:33:47,280 --> 00:33:49,680 Speaker 3: We have a line of sight into what the sponsor 549 00:33:49,760 --> 00:33:51,920 Speaker 3: is doing to get there, and then what the exit 550 00:33:51,960 --> 00:33:57,680 Speaker 3: opportunity looks like versus the ten fifteen year type of lending, 551 00:33:57,720 --> 00:34:00,080 Speaker 3: where I think there's a lot more that can be 552 00:34:00,160 --> 00:34:02,560 Speaker 3: disrupted through what's happening right now. 553 00:34:02,720 --> 00:34:04,480 Speaker 1: How are the returns in that space. 554 00:34:04,760 --> 00:34:07,000 Speaker 3: They tend to be sort of on a I'll talk 555 00:34:07,000 --> 00:34:09,920 Speaker 3: about it on like an unlevered and then a levered basis, 556 00:34:09,960 --> 00:34:14,120 Speaker 3: because it is a levered levered approach. On an unlevered basis, 557 00:34:14,120 --> 00:34:17,279 Speaker 3: you're probably getting compensated anywhere between two hundred and four 558 00:34:17,400 --> 00:34:21,560 Speaker 3: hundred and fifty basis points today over pub over sofur. 559 00:34:22,120 --> 00:34:25,680 Speaker 3: And then on a total return basis, these things tend 560 00:34:25,719 --> 00:34:29,840 Speaker 3: to be I would say through cycle nine to twelve 561 00:34:29,880 --> 00:34:33,520 Speaker 3: percent net. Well, we tend to think of the world 562 00:34:33,560 --> 00:34:37,520 Speaker 3: an IRR terms net IRR. But I think importantly, because 563 00:34:37,560 --> 00:34:40,799 Speaker 3: you're senior in the capital structure and this is an 564 00:34:40,840 --> 00:34:45,360 Speaker 3: income driven strategy, you're getting paid income and interest throughout 565 00:34:45,600 --> 00:34:47,880 Speaker 3: the life of your loan. Right there's none of the 566 00:34:48,480 --> 00:34:51,040 Speaker 3: pick and things that we've seen elsewhere. So you're actually 567 00:34:51,080 --> 00:34:53,680 Speaker 3: getting your interest payments. They're capitalized as part of the 568 00:34:53,760 --> 00:34:58,239 Speaker 3: loan structures themselves, and so you're getting income distributions somewhere 569 00:34:58,360 --> 00:35:01,400 Speaker 3: in that kind of like ten to twelve percent range. 570 00:35:01,160 --> 00:35:03,520 Speaker 1: Something that has been historical. And we'll say, you think 571 00:35:03,520 --> 00:35:05,320 Speaker 1: it will continue in terms if they were telling you'll. 572 00:35:05,200 --> 00:35:08,080 Speaker 3: Get I think, you know, we talked about this before, right, 573 00:35:08,360 --> 00:35:10,719 Speaker 3: I think it's going to EBB and flow. Today we 574 00:35:10,760 --> 00:35:14,040 Speaker 3: are certainly continuing to see value. And then the other 575 00:35:14,120 --> 00:35:17,400 Speaker 3: piece of this is, you know, the financing markets for 576 00:35:17,480 --> 00:35:22,080 Speaker 3: this type of asset have certainly been quite constructive, this. 577 00:35:22,200 --> 00:35:24,760 Speaker 2: Type of asset being a transitional property correct. 578 00:35:25,360 --> 00:35:27,040 Speaker 3: And so you know, this is an area where we 579 00:35:27,120 --> 00:35:31,480 Speaker 3: know we talk about the banks. You know, I think 580 00:35:31,560 --> 00:35:35,000 Speaker 3: so much of the private credit story historically has been 581 00:35:35,440 --> 00:35:40,000 Speaker 3: anchored in this retrenchment of financial institutions and banks. Right 582 00:35:40,040 --> 00:35:43,799 Speaker 3: the banks are retrenching, they're regulatory costs, regulatory costs, et cetera, 583 00:35:43,840 --> 00:35:47,480 Speaker 3: et cetera. Banks are not retrenching from commercial real estate market. 584 00:35:47,960 --> 00:35:51,480 Speaker 3: They're becoming more selective about where they want to lend 585 00:35:51,640 --> 00:35:55,440 Speaker 3: directly into projects and then where they want to finance 586 00:35:55,760 --> 00:35:59,840 Speaker 3: managers like ourselves in these markets, and so. 587 00:36:00,040 --> 00:36:02,720 Speaker 2: They're not going to be providing the long term. 588 00:36:03,280 --> 00:36:08,399 Speaker 3: Capital and I don't know. And in certain projects, yes, right, 589 00:36:08,800 --> 00:36:12,399 Speaker 3: And you've certainly seen them be active in areas like 590 00:36:12,960 --> 00:36:16,480 Speaker 3: data centers and some of that infrastructure built. So I 591 00:36:16,560 --> 00:36:18,279 Speaker 3: think they're going to be part of the long term 592 00:36:18,320 --> 00:36:23,400 Speaker 3: capital solution. But in certain areas like transitional lending space, 593 00:36:23,560 --> 00:36:26,480 Speaker 3: it's not very efficient. It's not an efficient use of 594 00:36:26,520 --> 00:36:29,880 Speaker 3: their capital. The more efficient use of their capital, or 595 00:36:29,880 --> 00:36:33,960 Speaker 3: they're the higher roe of that capital, is to be 596 00:36:34,040 --> 00:36:39,840 Speaker 3: a back leverage provider, as an example to private credit managers, 597 00:36:40,200 --> 00:36:42,759 Speaker 3: and so they would prefer to take that risk in 598 00:36:42,800 --> 00:36:44,600 Speaker 3: this part of the asset type and then put those 599 00:36:44,600 --> 00:36:47,160 Speaker 3: dollars elsewhere. So we often like to say banks are 600 00:36:47,600 --> 00:36:52,000 Speaker 3: rebalancing and reallocating their balance sheet. They're not retrenching from 601 00:36:52,000 --> 00:36:56,200 Speaker 3: the market. And that's a dynamic that's going to continue, 602 00:36:57,000 --> 00:37:01,400 Speaker 3: we think for certainly for the secular horizon. And so 603 00:37:01,840 --> 00:37:05,799 Speaker 3: when you have a more favorable financing environment and you 604 00:37:05,920 --> 00:37:08,320 Speaker 3: have assets that we think are a bit more resilient, 605 00:37:09,040 --> 00:37:14,760 Speaker 3: that combination I think today is creating a stable return profile. 606 00:37:15,400 --> 00:37:19,120 Speaker 3: But subsectors of the market will continue to EBB and 607 00:37:19,120 --> 00:37:25,160 Speaker 3: flow heavy transitional versus light office, multifamily, you know, industrial, 608 00:37:25,239 --> 00:37:28,120 Speaker 3: so on and so forth, Like we would tell you 609 00:37:28,600 --> 00:37:32,560 Speaker 3: office is troughed a lot. Yeah, Does that mean we're 610 00:37:32,680 --> 00:37:36,799 Speaker 3: running back to be lenders into to office. Absolutely not. 611 00:37:37,280 --> 00:37:41,480 Speaker 3: We joke around the desk that for us to finance 612 00:37:41,480 --> 00:37:44,640 Speaker 3: an office deal today, it needs to check seven out 613 00:37:44,640 --> 00:37:48,759 Speaker 3: of four boxes, right. And that comes back to your 614 00:37:48,840 --> 00:37:52,759 Speaker 3: question on the illiquidity premium, right, which means for one 615 00:37:52,800 --> 00:37:55,800 Speaker 3: hundred basis points of incremental spread, that's probably not a 616 00:37:55,920 --> 00:37:58,720 Speaker 3: risk that's worth taking given all the disruption that's happening 617 00:37:58,760 --> 00:38:02,840 Speaker 3: in the market. But if being compensated and you're in 618 00:38:02,920 --> 00:38:08,640 Speaker 3: a class A location you have inelastic tenant demand, those 619 00:38:08,800 --> 00:38:12,000 Speaker 3: might be interesting on a selective basis, but it's not 620 00:38:12,200 --> 00:38:12,600 Speaker 3: an all. 621 00:38:13,480 --> 00:38:16,840 Speaker 2: It's such that the office is such an asset specific industry. 622 00:38:16,960 --> 00:38:20,960 Speaker 2: Like we're sitting here speaking right now on Lexington Avenue, 623 00:38:21,000 --> 00:38:24,239 Speaker 2: and if you go west from here towards Park and 624 00:38:24,360 --> 00:38:30,800 Speaker 2: Fifth Avenue, that's a vibrant, high quality market from a 625 00:38:30,880 --> 00:38:36,239 Speaker 2: tenant perspective, from a property perspective, And when you go 626 00:38:36,360 --> 00:38:39,439 Speaker 2: east of here, some of those properties exist, but they're 627 00:38:39,560 --> 00:38:43,040 Speaker 2: fewer and further between and some of those properties are 628 00:38:43,600 --> 00:38:46,320 Speaker 2: absolutely positively have to be transitional properties. 629 00:38:46,440 --> 00:38:50,360 Speaker 3: Correct, And that comes back to like what's going to 630 00:38:50,480 --> 00:38:55,160 Speaker 3: do well right, it's if you have well amenditized offerings, 631 00:38:55,280 --> 00:38:58,279 Speaker 3: you have modern buildings. Our offices are just outside of 632 00:38:58,400 --> 00:39:02,719 Speaker 3: Union Square, were between kind of n y U and 633 00:39:03,520 --> 00:39:08,319 Speaker 3: Union Square in a really fantastic building. There's a lot 634 00:39:08,400 --> 00:39:12,839 Speaker 3: of vibrancy, are more and more innovation coming through right 635 00:39:12,920 --> 00:39:17,120 Speaker 3: with like the Google rests shop, good everything, great way 636 00:39:17,160 --> 00:39:19,440 Speaker 3: to recruit right up and coming talent. 637 00:39:19,680 --> 00:39:19,919 Speaker 2: Jazz. 638 00:39:20,600 --> 00:39:25,680 Speaker 3: It's fantastic. So it's like you said, location, location, location, 639 00:39:26,320 --> 00:39:31,480 Speaker 3: you have to really understand, right. We were never big 640 00:39:31,560 --> 00:39:33,880 Speaker 3: investors or our team was never big investors in like 641 00:39:33,960 --> 00:39:36,879 Speaker 3: Class B office and you know these big office park 642 00:39:37,280 --> 00:39:42,080 Speaker 3: type locations, and so real estate is super interesting. We 643 00:39:42,200 --> 00:39:45,840 Speaker 3: probably spend the whole time talking about it, but it 644 00:39:46,280 --> 00:39:51,000 Speaker 3: ultimately comes down to the right property at the right 645 00:39:51,080 --> 00:39:56,200 Speaker 3: financing costs and with what we hope is optimal alignment 646 00:39:56,840 --> 00:40:01,360 Speaker 3: with the borrower. And in those scenarios you end up 647 00:40:01,400 --> 00:40:05,080 Speaker 3: creating we call bend not break profiles. So you need 648 00:40:05,120 --> 00:40:08,840 Speaker 3: structures that bend but that don't break. And importantly, what 649 00:40:08,920 --> 00:40:11,880 Speaker 3: we don't want to take is that pilot air mechanical 650 00:40:12,000 --> 00:40:14,160 Speaker 3: error is going to happen, COVID's going to happen, rates 651 00:40:14,160 --> 00:40:17,200 Speaker 3: are going to go up. You can't plan for those things, 652 00:40:18,120 --> 00:40:20,640 Speaker 3: so you want structures that can be resilient to those things. 653 00:40:21,840 --> 00:40:26,080 Speaker 3: But what you don't want to take is that individual 654 00:40:26,640 --> 00:40:27,479 Speaker 3: pilot risk. 655 00:40:28,480 --> 00:40:30,560 Speaker 1: So for the year ahead, Sonati, when you look at everything, 656 00:40:30,600 --> 00:40:33,560 Speaker 1: you get the privilege to be surveying around the world, 657 00:40:33,600 --> 00:40:36,160 Speaker 1: this forty trillion dollar market, what are you most excited 658 00:40:36,160 --> 00:40:37,480 Speaker 1: about in terms of relative value? 659 00:40:37,920 --> 00:40:40,600 Speaker 3: So we talked about a lot of it. We are 660 00:40:41,160 --> 00:40:47,440 Speaker 3: most excited about that continued convergence across public and private 661 00:40:47,520 --> 00:40:50,359 Speaker 3: markets and being able to play at that intersection, whether 662 00:40:50,440 --> 00:40:52,920 Speaker 3: that's in the investment grade market or the commercial real 663 00:40:53,000 --> 00:40:55,560 Speaker 3: estate markets that we've talked at length about, even in 664 00:40:55,680 --> 00:40:58,279 Speaker 3: pockets of the structured products market, which I think are 665 00:40:58,320 --> 00:41:02,399 Speaker 3: sort of the hallmark of that convergence. I think there's 666 00:41:02,480 --> 00:41:09,680 Speaker 3: going to be continued opportunity there. The themes of AI 667 00:41:10,239 --> 00:41:14,439 Speaker 3: and disruption are going to be investable for multiple years 668 00:41:14,520 --> 00:41:19,520 Speaker 3: to come. And this is an exciting time because I 669 00:41:19,560 --> 00:41:21,800 Speaker 3: think you can still pick and choose what parts of 670 00:41:21,920 --> 00:41:24,960 Speaker 3: the market you want to lean into that theme In 671 00:41:25,800 --> 00:41:29,000 Speaker 3: and we've talked a ton about commercial real estate. I 672 00:41:29,040 --> 00:41:31,960 Speaker 3: think that is probably one of the most exciting and 673 00:41:32,040 --> 00:41:34,280 Speaker 3: compelling parts of the market today. 674 00:41:34,560 --> 00:41:35,960 Speaker 1: Bets and sheds, beds and. 675 00:41:35,960 --> 00:41:40,960 Speaker 3: Sheds continue to like it. I also think over time 676 00:41:41,800 --> 00:41:46,400 Speaker 3: right asset based finance markets are have and continue to 677 00:41:46,520 --> 00:41:50,759 Speaker 3: be interesting. Those with hard assets, I think are from 678 00:41:50,840 --> 00:41:53,400 Speaker 3: the seats that we sit in. I think can be 679 00:41:53,560 --> 00:41:56,800 Speaker 3: underwritten in a more holistic way and I think provide 680 00:41:56,840 --> 00:42:01,640 Speaker 3: a bit more a bit more resilience. And then I 681 00:42:01,840 --> 00:42:07,279 Speaker 3: also like the benefit of patients at moments like these, 682 00:42:07,440 --> 00:42:10,359 Speaker 3: where you're at sort of crossroads and there's a lot 683 00:42:10,440 --> 00:42:12,719 Speaker 3: of noise, if you can just take a step back 684 00:42:13,600 --> 00:42:16,359 Speaker 3: and say, Okay, how are we going to go back 685 00:42:16,360 --> 00:42:19,800 Speaker 3: to basics? Right, like what do we do best underwrite 686 00:42:19,840 --> 00:42:22,400 Speaker 3: fundamental credit? If you can kind of stick to that 687 00:42:22,520 --> 00:42:26,920 Speaker 3: true north, if you can stick to sort of as 688 00:42:26,960 --> 00:42:30,279 Speaker 3: a wellington for us, where is our greatest value? Our 689 00:42:30,360 --> 00:42:34,120 Speaker 3: greatest value is being able to evaluate that full picture, 690 00:42:35,080 --> 00:42:38,400 Speaker 3: knowing what's happening in public markets, understanding what's happening in 691 00:42:38,480 --> 00:42:43,520 Speaker 3: private markets, and being patient in terms of where we 692 00:42:43,719 --> 00:42:47,560 Speaker 3: lean in and really building conviction on the market opportunity. 693 00:42:48,080 --> 00:42:51,759 Speaker 3: I think we'll serve us and our clients well over 694 00:42:51,840 --> 00:42:52,319 Speaker 3: the long term. 695 00:42:52,640 --> 00:42:53,439 Speaker 2: Is it just US? 696 00:42:56,000 --> 00:42:56,040 Speaker 3: No? 697 00:42:56,680 --> 00:42:58,600 Speaker 1: Where do you think outside the US is a good 698 00:42:58,640 --> 00:42:59,919 Speaker 1: opportunity for private credit? 699 00:43:00,440 --> 00:43:04,719 Speaker 3: So I would say our business primarily has focused on 700 00:43:05,120 --> 00:43:09,719 Speaker 3: the US, certainly because of the deepest markets. Certainly there's 701 00:43:09,760 --> 00:43:12,440 Speaker 3: going to be more to be done in places like Europe, 702 00:43:13,640 --> 00:43:16,279 Speaker 3: and I think you're seeing that pan out in terms 703 00:43:16,320 --> 00:43:20,880 Speaker 3: of both capital flows and where managers are continuing to 704 00:43:20,960 --> 00:43:23,960 Speaker 3: build capabilities. That infrastructure need I think is going to 705 00:43:24,040 --> 00:43:26,799 Speaker 3: be just as significant over there as it is here. 706 00:43:27,920 --> 00:43:33,800 Speaker 3: I think the Asian markets are interesting, but have historically 707 00:43:33,920 --> 00:43:38,400 Speaker 3: been very dominated in many countries by the banks and 708 00:43:38,440 --> 00:43:43,320 Speaker 3: by traditional lenders, and so I think we have to 709 00:43:43,480 --> 00:43:46,279 Speaker 3: wait and see a little bit more. And by the way, 710 00:43:46,280 --> 00:43:47,840 Speaker 3: I think that's where we really need boots on the 711 00:43:47,880 --> 00:43:53,560 Speaker 3: ground to understand local markets, regional nuances. But it's a 712 00:43:53,640 --> 00:43:57,200 Speaker 3: market to continue watching because there's so much growth coming 713 00:43:57,280 --> 00:44:01,840 Speaker 3: out of some of those countries and infrastructure need infrastructure 714 00:44:01,880 --> 00:44:05,439 Speaker 3: build that will happen over time. So this is both 715 00:44:05,600 --> 00:44:10,480 Speaker 3: a global phenomenon as well as i'll say a broader 716 00:44:10,520 --> 00:44:15,400 Speaker 3: asset class one and I think sitting inside of a 717 00:44:15,480 --> 00:44:17,920 Speaker 3: one point three trillion dollar organization. Is that there's no 718 00:44:18,040 --> 00:44:22,680 Speaker 3: shortage of research or data that comes through on a 719 00:44:22,800 --> 00:44:26,440 Speaker 3: day to day basis for us to make what I 720 00:44:26,560 --> 00:44:29,680 Speaker 3: hope are informed decisions. Not always going to get it right, 721 00:44:29,800 --> 00:44:33,840 Speaker 3: It's not always going to be perfect, but what I 722 00:44:33,960 --> 00:44:37,279 Speaker 3: do hope it allows us to do is put that 723 00:44:37,400 --> 00:44:39,359 Speaker 3: keen eye on relative value. 724 00:44:40,239 --> 00:44:42,000 Speaker 1: What do you worry about? Though? I mean, there's so much. 725 00:44:42,239 --> 00:44:44,799 Speaker 1: As we started the conversation, you call it a loaded question, 726 00:44:44,960 --> 00:44:47,400 Speaker 1: but there are lots of things, as credit people that 727 00:44:47,440 --> 00:44:49,839 Speaker 1: we worry about. You know, when you mentioned convergence, people 728 00:44:50,120 --> 00:44:53,279 Speaker 1: immediately assume that just means worse returns. But what do 729 00:44:53,360 --> 00:44:56,680 Speaker 1: you think about in terms of the credit risks in 730 00:44:56,840 --> 00:44:58,520 Speaker 1: terms of the IG private credit market. 731 00:44:58,840 --> 00:45:03,560 Speaker 3: Yeah, well, I look, I think the risks are As 732 00:45:03,920 --> 00:45:06,960 Speaker 3: credit investors, you're always thinking about the idiosyncratic risks, Right, 733 00:45:07,000 --> 00:45:09,640 Speaker 3: what did I miss? What are we what are we 734 00:45:09,680 --> 00:45:12,359 Speaker 3: going to get wrong? Then that's true for the IG 735 00:45:12,560 --> 00:45:18,120 Speaker 3: markets or or the higher yielding markets. I think at 736 00:45:18,640 --> 00:45:23,400 Speaker 3: this point in the cycle, I do worry about just 737 00:45:24,840 --> 00:45:28,360 Speaker 3: the broad I'll say of a few things, one is 738 00:45:28,480 --> 00:45:33,239 Speaker 3: the YEP. There's been a tremendous amount of headlines and 739 00:45:33,320 --> 00:45:36,440 Speaker 3: those don't seem to be abating. I would say what 740 00:45:36,520 --> 00:45:39,920 Speaker 3: that's translated into and the BDC market is right a 741 00:45:40,040 --> 00:45:44,200 Speaker 3: liquidity driven issue. There can be moments in time where 742 00:45:44,239 --> 00:45:47,600 Speaker 3: liquidity issues become credit issues, and I think we have 743 00:45:47,719 --> 00:45:52,120 Speaker 3: to watch that very closely. We don't have direct exposure 744 00:45:52,200 --> 00:45:54,080 Speaker 3: to it, but certainly we invest in and around the 745 00:45:54,120 --> 00:45:56,840 Speaker 3: ecosystem of these companies. So I think that's something that 746 00:45:56,920 --> 00:46:02,080 Speaker 3: we're continuing to watch. I think that is a lot 747 00:46:02,160 --> 00:46:06,240 Speaker 3: of capital that has been formed around this broad private 748 00:46:06,320 --> 00:46:12,239 Speaker 3: credit opportunity, and we want to ensure that we're level 749 00:46:12,320 --> 00:46:15,920 Speaker 3: setting our expectations in terms of what these markets can 750 00:46:16,080 --> 00:46:19,759 Speaker 3: deliver when there is so much capital in these ecosystems. 751 00:46:19,800 --> 00:46:23,480 Speaker 3: And so I think we consistently have honest conversations around 752 00:46:23,920 --> 00:46:27,120 Speaker 3: where is that iliquidity premia? Right? Are we being compensated 753 00:46:27,160 --> 00:46:29,960 Speaker 3: and have return expectations changed for the short term or 754 00:46:30,200 --> 00:46:34,279 Speaker 3: really structurally are going to be different over the long term. 755 00:46:34,760 --> 00:46:38,520 Speaker 3: And so that's certainly something that again we're just continuing 756 00:46:39,360 --> 00:46:44,319 Speaker 3: to watch. And then I think it's it's the fundamentals. 757 00:46:44,440 --> 00:46:44,520 Speaker 2: Right. 758 00:46:44,600 --> 00:46:48,160 Speaker 3: If I ask any of our pms, like what's keeping 759 00:46:48,200 --> 00:46:51,320 Speaker 3: you up up at night? Right, it's the deals themselves 760 00:46:51,400 --> 00:46:54,359 Speaker 3: and making sure that you've turned over every rock, you've 761 00:46:54,400 --> 00:46:57,160 Speaker 3: assessed the risks. And then we're in the risk taking 762 00:46:57,239 --> 00:46:59,680 Speaker 3: business right at the end of the day, and you 763 00:46:59,760 --> 00:47:03,800 Speaker 3: want to take calculated risks and those that are that 764 00:47:03,920 --> 00:47:07,600 Speaker 3: are well thought out. So that's certainly something we think 765 00:47:07,600 --> 00:47:09,920 Speaker 3: a lot about. And then in my seat, I think 766 00:47:09,920 --> 00:47:12,640 Speaker 3: about what am I missing, Like, what haven't I what 767 00:47:12,760 --> 00:47:14,960 Speaker 3: are what are the what are the things I haven't 768 00:47:15,200 --> 00:47:20,120 Speaker 3: thought about as this market continues to grow and evolve, 769 00:47:21,239 --> 00:47:24,320 Speaker 3: and are there places we should be thinking about building 770 00:47:24,800 --> 00:47:27,560 Speaker 3: or leaning in? And so that leads me to just 771 00:47:28,080 --> 00:47:30,799 Speaker 3: ensure that I'm having as many conversations as I can, 772 00:47:31,400 --> 00:47:35,359 Speaker 3: asking questions like maintaining that growth mindset to ensure we're 773 00:47:35,400 --> 00:47:38,520 Speaker 3: bringing good information back to the organization. 774 00:47:39,160 --> 00:47:41,759 Speaker 1: Great stuff, it's Nightlie Wilson with Wellington Management. Thank you 775 00:47:41,760 --> 00:47:43,200 Speaker 1: so much for joining us on the credit edge. 776 00:47:43,280 --> 00:47:45,160 Speaker 3: Thank you so much for having me, and of course. 777 00:47:45,120 --> 00:47:47,040 Speaker 1: Very grateful to David Havens the Bloombok Intelligence. 778 00:47:47,080 --> 00:47:49,000 Speaker 2: Thank you very much, Absolutely my pleasure for. 779 00:47:49,040 --> 00:47:51,479 Speaker 1: More credit market analysis and insight. Read all of David 780 00:47:51,480 --> 00:47:54,759 Speaker 1: Haven's great work on the Bloomberg terminal. Bloomberg Intelligence is 781 00:47:54,800 --> 00:47:57,080 Speaker 1: part of our research department with five hundred analysts and 782 00:47:57,120 --> 00:48:00,480 Speaker 1: strategists working across all markets. Coverage includes over two thousand 783 00:48:00,520 --> 00:48:03,040 Speaker 1: equities and credits and outlooks on more than ninety industries 784 00:48:03,280 --> 00:48:07,120 Speaker 1: and one hundred market indices, currencies and commodities. Please do 785 00:48:07,239 --> 00:48:09,800 Speaker 1: subscribe to the Credit Edge wherever you get your podcasts. 786 00:48:10,080 --> 00:48:13,160 Speaker 1: We're on Apple, Spotify, and all other good podcast providers, 787 00:48:13,200 --> 00:48:16,319 Speaker 1: including the Bloomberg Terminal at b pod Go. Give us 788 00:48:16,320 --> 00:48:18,759 Speaker 1: a review, tell your friends, or email me directly at 789 00:48:18,840 --> 00:48:22,920 Speaker 1: Jcrombeight at Bloomberg dot net. I'm James Cromby. It's been 790 00:48:22,920 --> 00:48:24,880 Speaker 1: a pleasure having you join us again next week on 791 00:48:25,000 --> 00:48:25,759 Speaker 1: the Credit Edge