1 00:00:18,079 --> 00:00:20,560 Speaker 1: Hello, Welcome to the Credit Edge, a weekly markets podcast. 2 00:00:20,640 --> 00:00:23,800 Speaker 1: My name is James Crombie. I'm a senior editsor at Bloomberg. 3 00:00:23,880 --> 00:00:27,360 Speaker 2: And I'm Jy Coopin, senior analyst at Boomberg Intelligence. This 4 00:00:27,440 --> 00:00:30,640 Speaker 2: week we have very pleased to welcome Greg Sizewski, Managing 5 00:00:30,680 --> 00:00:33,680 Speaker 2: director and head of the firm's credit secondary teams at 6 00:00:33,720 --> 00:00:36,680 Speaker 2: Harbor West. How are you, Greg, I'm doing really well. 7 00:00:36,880 --> 00:00:39,200 Speaker 2: Craig joined Harbor Vest in two thousand and seven after 8 00:00:39,240 --> 00:00:42,120 Speaker 2: being an investment banker at bear Stearns and focuses on 9 00:00:42,159 --> 00:00:45,680 Speaker 2: trading and investing in secondary loans across industries and geographies. 10 00:00:46,280 --> 00:00:48,280 Speaker 2: We is close to one hundred and fifty billion in 11 00:00:48,320 --> 00:00:51,000 Speaker 2: asset under management. Harbor West is a key player in 12 00:00:51,040 --> 00:00:54,160 Speaker 2: the secondary private loan market, with main offices in Boston, 13 00:00:54,280 --> 00:00:57,160 Speaker 2: various European and Asian countries as well. Greg, is such 14 00:00:57,160 --> 00:00:59,440 Speaker 2: a pleasure to have you today under Credit Age podcast. 15 00:00:59,680 --> 00:00:59,920 Speaker 2: Thank you. 16 00:01:00,240 --> 00:01:03,240 Speaker 3: I'm an avid fan and listener and I had a 17 00:01:03,320 --> 00:01:06,360 Speaker 3: massive wave of nostalgia walk into the Bloomberg building today. 18 00:01:06,360 --> 00:01:09,560 Speaker 3: Whist timous hero was as an investment banking analyst. I 19 00:01:09,640 --> 00:01:12,280 Speaker 3: took Holm, Enough Rahmen and Ritz Handy Snacks to last 20 00:01:12,319 --> 00:01:14,560 Speaker 3: me a month, which has in general a great amount 21 00:01:14,560 --> 00:01:15,720 Speaker 3: of good will towards Bloomberg. 22 00:01:16,040 --> 00:01:18,880 Speaker 1: Great ever since. Great to have you, Greg, So to 23 00:01:18,880 --> 00:01:20,800 Speaker 1: set the same. Private credit is facing a bit of 24 00:01:20,800 --> 00:01:24,440 Speaker 1: a shakeout right now, defaults arising, the market's very exposed 25 00:01:24,480 --> 00:01:27,760 Speaker 1: to software companies which are getting displaced by AI. Returns 26 00:01:27,760 --> 00:01:30,160 Speaker 1: are falling, and retail investors are learning the hard way 27 00:01:30,160 --> 00:01:33,320 Speaker 1: that there's very little, if any liquidity when they want out. 28 00:01:33,800 --> 00:01:36,280 Speaker 1: There are also lots of questions about valuation, how much 29 00:01:36,319 --> 00:01:39,279 Speaker 1: of those loans really worth, how accurate are the marks. 30 00:01:39,280 --> 00:01:41,400 Speaker 1: It's really hard to see when they don't really trade. 31 00:01:41,800 --> 00:01:43,959 Speaker 1: Which is why we are so excited to have you here, Greg, 32 00:01:44,040 --> 00:01:47,720 Speaker 1: because you do buy the existing credit exposure loans or 33 00:01:47,760 --> 00:01:51,920 Speaker 1: fun stakes, and you know you facilitate that transaction. You 34 00:01:52,240 --> 00:01:56,680 Speaker 1: provide liquidity. But talk us through how that actually works 35 00:01:57,280 --> 00:01:59,680 Speaker 1: and why is it such a growing business right now? 36 00:02:00,120 --> 00:02:01,080 Speaker 4: Yeah, happy to do so. 37 00:02:01,160 --> 00:02:03,240 Speaker 3: First, I think maybe giving you a bit of background 38 00:02:03,320 --> 00:02:05,720 Speaker 3: on the secondary industries that's come up. It's something I've 39 00:02:05,760 --> 00:02:09,000 Speaker 3: been doing for going on twenty years now, started before 40 00:02:09,040 --> 00:02:13,200 Speaker 3: the GFC, and that's in the private equity secondary market, 41 00:02:13,320 --> 00:02:16,760 Speaker 3: and there were really two inflection points in that market. 42 00:02:16,919 --> 00:02:21,520 Speaker 3: One was the GFC itself, where limited partner positions or 43 00:02:22,040 --> 00:02:25,840 Speaker 3: people's interests in funds became freely traded as a result 44 00:02:25,919 --> 00:02:28,720 Speaker 3: at first of a need for liquidity, but then a 45 00:02:28,760 --> 00:02:31,440 Speaker 3: growing realization by investors that they could manage just like 46 00:02:31,480 --> 00:02:34,920 Speaker 3: any other asset class they have. And then the second one, 47 00:02:35,200 --> 00:02:38,079 Speaker 3: which also came out of the GFC was the continuation 48 00:02:38,280 --> 00:02:43,280 Speaker 3: vehicle boom or the gp LED transaction. That technology, which 49 00:02:43,320 --> 00:02:45,760 Speaker 3: is to buy out essentially the entire fund or the 50 00:02:45,919 --> 00:02:49,000 Speaker 3: entire limited partner base of a fund and roll that 51 00:02:49,040 --> 00:02:52,639 Speaker 3: into a new vehicle, was initially developed. We like to 52 00:02:52,680 --> 00:02:54,440 Speaker 3: think we invented it. I think other people make that 53 00:02:54,440 --> 00:02:57,440 Speaker 3: claim as well, but was initially invented to solve the 54 00:02:57,480 --> 00:03:02,000 Speaker 3: GFC issue of unaligned tas on that side, and it 55 00:03:02,040 --> 00:03:04,440 Speaker 3: did grow up in Europe after that, but it really 56 00:03:04,480 --> 00:03:09,280 Speaker 3: found its footing in post COVID when there was similar 57 00:03:09,280 --> 00:03:13,400 Speaker 3: to now a liquidity delay in the market and people 58 00:03:13,440 --> 00:03:15,960 Speaker 3: found that another exit route would be to use these 59 00:03:15,960 --> 00:03:19,120 Speaker 3: continuation vehicles on the equity side for one, two, three, 60 00:03:19,280 --> 00:03:24,520 Speaker 3: four assets that same technology, the lp LAD and the 61 00:03:24,560 --> 00:03:28,359 Speaker 3: GPU LED continuation vehicle are both there and they're now 62 00:03:28,360 --> 00:03:31,440 Speaker 3: being used in the private credit market. So this really 63 00:03:31,480 --> 00:03:34,320 Speaker 3: started to spring up over the last couple three years. 64 00:03:35,040 --> 00:03:37,960 Speaker 3: There were more credit secondaries for senior direct lending done 65 00:03:38,000 --> 00:03:40,160 Speaker 3: in twenty twenty five than probably in the history of 66 00:03:40,160 --> 00:03:43,240 Speaker 3: the market combined. And it was the use of that 67 00:03:43,360 --> 00:03:47,400 Speaker 3: technology to solve a slightly different problem. Instead of taking 68 00:03:47,520 --> 00:03:50,320 Speaker 3: one or two assets out of a ten or fifteen 69 00:03:50,360 --> 00:03:53,920 Speaker 3: asset fund as an alternative to an IPO or an 70 00:03:54,040 --> 00:03:58,160 Speaker 3: m and A, it's being used largely to liquidate entire funds. 71 00:03:58,280 --> 00:04:00,760 Speaker 3: So you're seeing these deals where people are buying an 72 00:04:00,880 --> 00:04:05,200 Speaker 3: entire existing fund usually in years five, six, seventy eight 73 00:04:05,240 --> 00:04:08,040 Speaker 3: of that fund's life, move it into a new vehicle, 74 00:04:08,520 --> 00:04:12,040 Speaker 3: give investors the option to roll into that vehicle, and 75 00:04:12,040 --> 00:04:14,600 Speaker 3: and and giving liquidity to the other investors. So that 76 00:04:14,760 --> 00:04:17,880 Speaker 3: that's how this h the two large ways that we're 77 00:04:17,920 --> 00:04:21,560 Speaker 3: seeing liquidity provided in the private credit market. 78 00:04:23,440 --> 00:04:25,520 Speaker 2: So may maybe if you take just to step back 79 00:04:25,560 --> 00:04:28,640 Speaker 2: and look at the macro picture right now for investing 80 00:04:28,680 --> 00:04:32,080 Speaker 2: in loans, you know, we're at a point where there's 81 00:04:32,160 --> 00:04:34,560 Speaker 2: some uncertainty I think in terms of where interest rates 82 00:04:34,640 --> 00:04:38,120 Speaker 2: are going with the energy crisis, So what doesn't mean 83 00:04:38,120 --> 00:04:41,279 Speaker 2: for crezy quality. Bearing in mind that a number of 84 00:04:42,000 --> 00:04:47,480 Speaker 2: borers are using you know, variable interest rates with the loans. Yeah. 85 00:04:47,520 --> 00:04:50,760 Speaker 3: So I think what you're seeing in some of the 86 00:04:50,800 --> 00:04:54,800 Speaker 3: loan challenges in the portfolio is a twofold issue. And 87 00:04:55,000 --> 00:04:56,400 Speaker 3: and and where I think the tip of the spear 88 00:04:56,520 --> 00:04:59,279 Speaker 3: is here is is that there was you know, a 89 00:04:59,360 --> 00:05:02,640 Speaker 3: high valuation environment in a low rate environment a few 90 00:05:02,720 --> 00:05:04,919 Speaker 3: years ago. So you're seeing quite a few deals that 91 00:05:04,960 --> 00:05:08,080 Speaker 3: were struck at relatively high valuations compared to where they 92 00:05:08,080 --> 00:05:10,200 Speaker 3: are today in a lower rate environment. 93 00:05:10,600 --> 00:05:12,320 Speaker 4: So that step up in. 94 00:05:12,360 --> 00:05:16,440 Speaker 3: The rate has placed pressure on those companies in terms 95 00:05:16,480 --> 00:05:20,360 Speaker 3: of their leverage multiple, which is then balanced with liquidity 96 00:05:20,400 --> 00:05:23,080 Speaker 3: and other events within in the portfolio. So I think 97 00:05:23,120 --> 00:05:25,279 Speaker 3: we're certainly seeing an uplift on that side. 98 00:05:26,600 --> 00:05:30,640 Speaker 1: So when you're talking about buying existing exposure in terms 99 00:05:30,680 --> 00:05:35,960 Speaker 1: of like basic transactions, you buying from LPs that need liquidity, 100 00:05:36,440 --> 00:05:39,320 Speaker 1: You're buying from gps also that need liquidity for redemptions. 101 00:05:40,520 --> 00:05:43,720 Speaker 1: What are the other scenarios in which you might see opportunities? 102 00:05:44,360 --> 00:05:47,080 Speaker 3: Yeah, So in general, I think if you really think 103 00:05:47,080 --> 00:05:50,840 Speaker 3: about when private equity private credit volumes really started to ramp, 104 00:05:50,880 --> 00:05:53,080 Speaker 3: it was in the twenty eighteen time frame. A lot 105 00:05:53,120 --> 00:05:57,279 Speaker 3: of those were raised in enclosed ended institutional funds. Typically 106 00:05:57,279 --> 00:05:59,760 Speaker 3: those funds would have something like an eight year investment 107 00:05:59,839 --> 00:06:03,120 Speaker 3: life life, which would be three years to invest, three 108 00:06:03,200 --> 00:06:06,400 Speaker 3: years to harvest, and then maybe two to one year 109 00:06:06,440 --> 00:06:09,920 Speaker 3: extensions following that. What you've actually seen if you go 110 00:06:10,000 --> 00:06:14,240 Speaker 3: look at the private credit the media and DPI for 111 00:06:14,480 --> 00:06:16,560 Speaker 3: funds to cross one x. So the point at which 112 00:06:16,640 --> 00:06:20,120 Speaker 3: investors get their capital back from their fund is occurring 113 00:06:20,120 --> 00:06:23,440 Speaker 3: in about year ten of these vehicles on a medium basis. 114 00:06:23,520 --> 00:06:27,240 Speaker 3: So the fundamental issue here is that the duration of 115 00:06:27,279 --> 00:06:30,200 Speaker 3: these assets and the return of capital to investors has 116 00:06:30,240 --> 00:06:32,360 Speaker 3: been longer than they were initially projected. 117 00:06:32,440 --> 00:06:34,120 Speaker 4: So you'll see just to. 118 00:06:34,160 --> 00:06:37,280 Speaker 3: Imagine a scenario where a private credit manager is potentially 119 00:06:37,320 --> 00:06:39,919 Speaker 3: out raising fund ten and their investors in fund eight 120 00:06:40,040 --> 00:06:42,520 Speaker 3: might say, well, you've delivered me the return you said 121 00:06:42,520 --> 00:06:45,960 Speaker 3: you were going to deliver, the yield, the multiple, but 122 00:06:46,200 --> 00:06:47,680 Speaker 3: you haven't returned that NAB. 123 00:06:47,760 --> 00:06:49,560 Speaker 4: You haven't returned all that capital back to me. 124 00:06:50,000 --> 00:06:54,120 Speaker 3: So at that point there's a transaction window where they're 125 00:06:54,120 --> 00:06:57,039 Speaker 3: open to getting that liquidity. A new investor could step 126 00:06:57,080 --> 00:06:58,920 Speaker 3: in assume that and then as I said, you could 127 00:06:58,960 --> 00:07:02,440 Speaker 3: roll into that vehicle on that side. So that's the 128 00:07:02,480 --> 00:07:05,120 Speaker 3: GPU outside of the market, and those deals are initiated 129 00:07:05,560 --> 00:07:10,480 Speaker 3: by the general partner generally through an intermediary, with secondaries 130 00:07:10,520 --> 00:07:14,680 Speaker 3: being the person who is a third party underwriter of 131 00:07:14,720 --> 00:07:19,800 Speaker 3: that providing the price from a genuine fiduciary perspective totally 132 00:07:19,840 --> 00:07:21,320 Speaker 3: unrelated to the party there. 133 00:07:21,600 --> 00:07:24,480 Speaker 1: So that's the GPU out side. And so you say 134 00:07:24,560 --> 00:07:26,160 Speaker 1: DPI in that context, what do you mean by the 135 00:07:26,560 --> 00:07:29,080 Speaker 1: distributed to paid in capital? Can you explain what that is? 136 00:07:29,200 --> 00:07:32,440 Speaker 3: So you put a dollar into the fund and you 137 00:07:32,520 --> 00:07:35,000 Speaker 3: expect to get over a period of eight years, a 138 00:07:35,040 --> 00:07:37,720 Speaker 3: dollar three, a dollar four back. It's the point at 139 00:07:37,760 --> 00:07:40,680 Speaker 3: which you get your one dollar back. So think of 140 00:07:40,680 --> 00:07:44,320 Speaker 3: it as being made whole on your original investment before 141 00:07:44,360 --> 00:07:45,600 Speaker 3: getting the access return. 142 00:07:45,760 --> 00:07:47,600 Speaker 1: And why is it taking so long for that to happen. 143 00:07:48,040 --> 00:07:52,320 Speaker 3: Yeah, there's several reasons for that. One of them obviously 144 00:07:52,720 --> 00:07:56,200 Speaker 3: has been the headlines. The duration of private equity has extended, 145 00:07:56,600 --> 00:07:59,080 Speaker 3: so there's a couple of aspects to that. There's the 146 00:07:59,120 --> 00:08:03,560 Speaker 3: exit environment. There's also a trend within that industry of 147 00:08:04,160 --> 00:08:07,200 Speaker 3: managers like to hold the assets they like for longer. 148 00:08:07,760 --> 00:08:10,040 Speaker 3: So one way to do this is through a continuation vehicle. 149 00:08:10,120 --> 00:08:11,840 Speaker 3: To think about as a manager, if you have an 150 00:08:11,880 --> 00:08:15,240 Speaker 3: asset that has been a great asset for you, and 151 00:08:15,280 --> 00:08:17,960 Speaker 3: particularly if it's a compounding asset, so if there's another 152 00:08:18,000 --> 00:08:20,120 Speaker 3: wave of growth or you can see that as a 153 00:08:20,160 --> 00:08:22,600 Speaker 3: continued growth trajectory along its side, think of a buy 154 00:08:22,640 --> 00:08:25,320 Speaker 3: and build or something of that nature, they're happy to 155 00:08:25,320 --> 00:08:27,440 Speaker 3: take their exposure to that as opposed to selling it 156 00:08:27,480 --> 00:08:30,000 Speaker 3: to a competing manager, which is a likely exit path 157 00:08:30,240 --> 00:08:32,600 Speaker 3: and having them harvest that value. So that's been a 158 00:08:32,600 --> 00:08:37,120 Speaker 3: trend in private equity on that side. And then there's 159 00:08:37,160 --> 00:08:39,960 Speaker 3: more fundamental fund reasons. A lot of these funds tend 160 00:08:40,000 --> 00:08:42,320 Speaker 3: to use leverage in their vehicles that could give them 161 00:08:42,400 --> 00:08:44,920 Speaker 3: larger one. So there's a period of time where they're 162 00:08:45,080 --> 00:08:47,400 Speaker 3: paying out distributions to LPs and a period. 163 00:08:47,080 --> 00:08:49,479 Speaker 4: Of time where they're paying back that leverage. 164 00:08:49,720 --> 00:08:51,280 Speaker 3: And then in addition to that, a lot of them 165 00:08:51,360 --> 00:08:54,679 Speaker 3: utilized recycling, so they would have been making some loan 166 00:08:54,720 --> 00:08:57,200 Speaker 3: investments very late in the fund's life that would then 167 00:08:57,240 --> 00:09:00,760 Speaker 3: have a duration that would extend beyond it. It's several 168 00:09:00,800 --> 00:09:03,240 Speaker 3: factors coming together to extend the duration. 169 00:09:03,280 --> 00:09:04,840 Speaker 1: Because then I cut you off for you and explain 170 00:09:04,840 --> 00:09:07,840 Speaker 1: the LP side, that's some pension funds, sovereign wealth, those 171 00:09:07,840 --> 00:09:10,920 Speaker 1: sorts of investors, institution investors who also need liquidity, and 172 00:09:10,920 --> 00:09:11,600 Speaker 1: they're coming to you. 173 00:09:11,679 --> 00:09:12,440 Speaker 4: One hundred percent. 174 00:09:12,640 --> 00:09:16,640 Speaker 3: So think of that a very typical There's two very 175 00:09:16,640 --> 00:09:20,520 Speaker 3: typical use cases. One is a manager will say I 176 00:09:20,559 --> 00:09:24,560 Speaker 3: need liquidity. They'll bring five billion of assets to market, 177 00:09:24,559 --> 00:09:26,679 Speaker 3: for instance, and they'll go to one of the secondary 178 00:09:26,679 --> 00:09:29,640 Speaker 3: intermediaries and say, can you find me three billion of 179 00:09:30,559 --> 00:09:34,040 Speaker 3: proceeds amongst this. They'll go out to the secondary community, 180 00:09:34,200 --> 00:09:36,120 Speaker 3: people will price that, the bids will come in, and 181 00:09:36,160 --> 00:09:39,640 Speaker 3: they'll give that liquidity as one side. Another very typical 182 00:09:39,720 --> 00:09:42,520 Speaker 3: use case would be as someone was ramping their private 183 00:09:42,559 --> 00:09:46,800 Speaker 3: credit program, they probably committed to let's say six seven managers. 184 00:09:46,840 --> 00:09:50,040 Speaker 3: They can get into an extended duration there and they 185 00:09:50,040 --> 00:09:51,920 Speaker 3: say we want to pair that back to three. When 186 00:09:51,960 --> 00:09:55,040 Speaker 3: they do that, just to consolidate their time and relationships, 187 00:09:55,200 --> 00:09:58,120 Speaker 3: they'll tend to sell off the other managers and their 188 00:09:58,280 --> 00:10:01,320 Speaker 3: entire backbook in a single trend action. So those are 189 00:10:01,360 --> 00:10:04,200 Speaker 3: a couple use cases where you see lpis come in. 190 00:10:04,559 --> 00:10:09,240 Speaker 3: As you said, it's majority institutional in this wave because 191 00:10:09,240 --> 00:10:12,800 Speaker 3: of Evergreen and some of the challenges they're having with redemption. 192 00:10:12,880 --> 00:10:16,200 Speaker 3: As you highlighted before. They would also seek to get 193 00:10:16,240 --> 00:10:18,520 Speaker 3: liquidity through the secondary market, so you could see an 194 00:10:18,520 --> 00:10:22,840 Speaker 3: evergreen vehicle. One way to raise liquidity in THEIRS would 195 00:10:22,840 --> 00:10:24,640 Speaker 3: also to be sell assets into the market. 196 00:10:24,840 --> 00:10:26,520 Speaker 1: But the reason why a pension fund, for example, might 197 00:10:26,559 --> 00:10:28,319 Speaker 1: be selling right now is not that they have a 198 00:10:28,400 --> 00:10:30,680 Speaker 1: loan that's blowing up because it's in bad shape and 199 00:10:30,720 --> 00:10:32,840 Speaker 1: the company's going bust. It's more that they are more 200 00:10:32,880 --> 00:10:35,360 Speaker 1: actively managing that portfolio. Is that correct. 201 00:10:36,000 --> 00:10:38,319 Speaker 3: I think in my entire career I've seen a genuine 202 00:10:38,360 --> 00:10:42,760 Speaker 3: liquidity crisis once or twice. The vast majority these sales 203 00:10:42,800 --> 00:10:44,319 Speaker 3: that make up this you know, two hundred and twenty 204 00:10:44,320 --> 00:10:48,480 Speaker 3: five billion plus market are examples of a pension saying 205 00:10:48,520 --> 00:10:51,520 Speaker 3: we're changing our allocation to private credit from ten percent 206 00:10:51,559 --> 00:10:54,600 Speaker 3: to eight percent. Go make that move in the market. 207 00:10:54,880 --> 00:10:57,160 Speaker 3: And then, yes, as you said, people will take views 208 00:10:57,160 --> 00:11:00,720 Speaker 3: on underlying fund positions and we'll sell those when they 209 00:11:00,720 --> 00:11:03,920 Speaker 3: think there might be an arbitrage. But that's not really 210 00:11:03,920 --> 00:11:05,920 Speaker 3: the bulk of the market. But that's one hundred percent 211 00:11:06,000 --> 00:11:07,160 Speaker 3: something that happens. 212 00:11:07,200 --> 00:11:10,120 Speaker 2: When you have the opportunity to buy you a large 213 00:11:10,160 --> 00:11:12,880 Speaker 2: check of assets. Could you maybe just describe a little 214 00:11:12,880 --> 00:11:16,000 Speaker 2: bit the process. How do you look at those loans 215 00:11:16,520 --> 00:11:21,240 Speaker 2: easier like any internal or not internal comes trends in 216 00:11:21,320 --> 00:11:24,439 Speaker 2: terms of concentration, I mean, are you looking across industries, 217 00:11:24,480 --> 00:11:25,480 Speaker 2: across geographies. 218 00:11:25,559 --> 00:11:27,400 Speaker 3: Yeah, so think of as I said to draw the 219 00:11:27,440 --> 00:11:29,559 Speaker 3: parallel to equity, there could be one or two companies 220 00:11:29,600 --> 00:11:33,160 Speaker 3: you have concentration in that market. In the credit market, 221 00:11:33,360 --> 00:11:36,720 Speaker 3: there are dozens of companies in a minimum in a GPIDE, 222 00:11:36,760 --> 00:11:41,240 Speaker 3: and probably hundreds of underlying positions in an LPIDE, So 223 00:11:41,760 --> 00:11:44,240 Speaker 3: people do have concentration limits, but you don't really touch 224 00:11:44,240 --> 00:11:47,160 Speaker 3: those concentration limits as your normal secondary fund would have 225 00:11:47,240 --> 00:11:53,200 Speaker 3: thousands of underlying positions and essentially a hyper diversification, which 226 00:11:53,200 --> 00:11:55,120 Speaker 3: is a great way to eliminate some of the esoteric 227 00:11:55,200 --> 00:11:58,200 Speaker 3: risk of it. So your question on how do we 228 00:11:58,240 --> 00:12:02,240 Speaker 3: approach the underwriting a bottoms up underwriting. 229 00:12:02,520 --> 00:12:05,239 Speaker 4: So we as harbor vests. 230 00:12:05,040 --> 00:12:07,880 Speaker 3: Have a benefit of you know, we're one of the 231 00:12:08,040 --> 00:12:10,959 Speaker 3: larger private equity managers in the world, so we sit 232 00:12:11,000 --> 00:12:15,199 Speaker 3: on thousands of advisory boards. So for most of these credits, 233 00:12:15,240 --> 00:12:18,160 Speaker 3: which are senior direct lending to private equity firms, we 234 00:12:18,280 --> 00:12:21,199 Speaker 3: have overlap through to the equity position. So when we're 235 00:12:21,240 --> 00:12:24,600 Speaker 3: evaluating a portfolio we tend to have somewhere between sixty 236 00:12:24,600 --> 00:12:28,199 Speaker 3: and eighty percent overlap to the equity side of it. 237 00:12:28,240 --> 00:12:29,439 Speaker 4: And then we also have a. 238 00:12:29,440 --> 00:12:32,840 Speaker 3: Large credit investing business which invests in the syndicate of 239 00:12:32,840 --> 00:12:36,400 Speaker 3: these deals, So we invest alongside these private credit managers. 240 00:12:36,600 --> 00:12:40,120 Speaker 3: We're co investors in the transactions, and we also commit 241 00:12:40,200 --> 00:12:42,800 Speaker 3: fund of funds or primary dollars to credit managers, so 242 00:12:42,880 --> 00:12:45,240 Speaker 3: we have a view on the managers, we have a 243 00:12:45,320 --> 00:12:50,079 Speaker 3: view on the underlying investments as an investor, and then 244 00:12:50,080 --> 00:12:52,760 Speaker 3: we know how the credit managers tend to behave. So 245 00:12:53,240 --> 00:12:55,520 Speaker 3: to answer your question, what we do is we run 246 00:12:55,559 --> 00:12:59,200 Speaker 3: screening across the portfolio across several metrics. You look at 247 00:12:59,200 --> 00:13:03,679 Speaker 3: for instance, revenue new growth EBADAG growth, interest coverage ratios, 248 00:13:04,720 --> 00:13:08,400 Speaker 3: leverage ratios. Obviously, another market thing we look at that's 249 00:13:08,400 --> 00:13:11,240 Speaker 3: interesting is the trend of the equity mark and the 250 00:13:11,280 --> 00:13:15,680 Speaker 3: absolute equity mark of the portfolio. We're finding in the 251 00:13:15,679 --> 00:13:18,520 Speaker 3: current environment, we're actually getting a better signal through our 252 00:13:18,559 --> 00:13:22,280 Speaker 3: equity side. GPS general partners don't like to surprise their 253 00:13:22,320 --> 00:13:25,760 Speaker 3: limited partners, so they're actually providing them more information than 254 00:13:25,760 --> 00:13:29,160 Speaker 3: they're probably providing their creditors. So in some instances we 255 00:13:29,240 --> 00:13:32,000 Speaker 3: know it well, we look at those metrics, we create 256 00:13:32,040 --> 00:13:35,640 Speaker 3: a heat map that usually throws off on an average book, 257 00:13:35,679 --> 00:13:38,760 Speaker 3: maybe twenty to thirty percent of the names or ones 258 00:13:38,800 --> 00:13:41,240 Speaker 3: we want to look at further, I mean seventy percent 259 00:13:41,240 --> 00:13:43,439 Speaker 3: of them or kind of complete green light. Maybe it's 260 00:13:43,480 --> 00:13:46,800 Speaker 3: down to two times leverage. It's getting a soon exit 261 00:13:46,880 --> 00:13:50,280 Speaker 3: on that side. And we focus in on that portfolio, 262 00:13:50,360 --> 00:13:52,400 Speaker 3: and then we kind of do bottoms up work and 263 00:13:52,559 --> 00:13:55,760 Speaker 3: underwriting of the credit case and the equity case as we. 264 00:13:55,679 --> 00:13:57,320 Speaker 4: Look through it on the transaction and. 265 00:13:57,240 --> 00:13:59,439 Speaker 2: As you look at that bottom part of the portfolio, 266 00:13:59,640 --> 00:14:02,560 Speaker 2: is there saying well, we don't want to include those 267 00:14:02,559 --> 00:14:05,559 Speaker 2: assets into them the bunch of assets we're I'm buying, 268 00:14:05,640 --> 00:14:08,240 Speaker 2: or is it just well it's just a question of price. 269 00:14:09,640 --> 00:14:14,560 Speaker 3: I would say both. I have a large one of 270 00:14:14,559 --> 00:14:17,280 Speaker 3: my relationships with an insurance private equity investor, and they 271 00:14:17,280 --> 00:14:19,760 Speaker 3: say they'll ensure house on fire. So I think there's 272 00:14:20,360 --> 00:14:22,560 Speaker 3: an aspect of it. At the right price, you'll buy anything. 273 00:14:22,600 --> 00:14:26,040 Speaker 3: But in general, we're looking at portfolios where the quality 274 00:14:26,080 --> 00:14:30,360 Speaker 3: is very high on that side with managers, so we 275 00:14:30,480 --> 00:14:32,960 Speaker 3: tend to exclude. If you think about what we're seeking 276 00:14:32,960 --> 00:14:34,280 Speaker 3: to do we want to be maybe five to ten 277 00:14:34,320 --> 00:14:36,080 Speaker 3: percent of the market, So you kind of exclude eighty 278 00:14:36,120 --> 00:14:38,880 Speaker 3: percent of deals out of hand, say that's not in 279 00:14:38,880 --> 00:14:40,560 Speaker 3: the space you want to look at. That's not the 280 00:14:40,640 --> 00:14:43,360 Speaker 3: quality we want to look at on that side, And 281 00:14:43,400 --> 00:14:45,840 Speaker 3: then I would say this is different from the equity side. 282 00:14:46,280 --> 00:14:47,680 Speaker 3: The best you can do in credit is get your 283 00:14:47,680 --> 00:14:50,720 Speaker 3: money back, so you know the best quality assets, really 284 00:14:50,720 --> 00:14:52,680 Speaker 3: you don't spend much time on, and where you're going 285 00:14:52,720 --> 00:14:55,720 Speaker 3: to spend almost one hundred percent of your underwriting is 286 00:14:55,760 --> 00:14:58,800 Speaker 3: trying to figure out the more challenged names which could 287 00:14:58,920 --> 00:15:02,400 Speaker 3: either be challenged or in many cases already converted to 288 00:15:02,480 --> 00:15:05,360 Speaker 3: equity for instance, on that side. So that's that's where 289 00:15:05,400 --> 00:15:07,600 Speaker 3: you really want to dig in and spend the vast 290 00:15:07,640 --> 00:15:11,200 Speaker 3: majority of your underwright because that's the dynamic of credit. 291 00:15:12,200 --> 00:15:15,160 Speaker 2: I have two questions. I think one would be you 292 00:15:15,200 --> 00:15:20,080 Speaker 2: mentioned indicators sometimes coming from the equity side. What indicators 293 00:15:20,120 --> 00:15:22,320 Speaker 2: are you seeing right now when you look at different 294 00:15:22,440 --> 00:15:26,640 Speaker 2: the different industries, exposure to macroeconomic factors, you know, what 295 00:15:26,760 --> 00:15:28,840 Speaker 2: kind of signals are you Are you gating now that 296 00:15:28,920 --> 00:15:30,600 Speaker 2: you were maybe not gating six months ago. 297 00:15:31,080 --> 00:15:31,560 Speaker 4: Yeah, So. 298 00:15:33,360 --> 00:15:37,160 Speaker 3: You ride the waves of kind of sentiment and marks 299 00:15:37,200 --> 00:15:40,360 Speaker 3: on that side and the more general but in times 300 00:15:40,400 --> 00:15:43,320 Speaker 3: of shock, which which I would say there was a 301 00:15:43,360 --> 00:15:45,840 Speaker 3: dislocation here, we tend to step back and I think 302 00:15:45,880 --> 00:15:48,400 Speaker 3: something like this, which will happen in software and AI, 303 00:15:49,200 --> 00:15:52,400 Speaker 3: you need to re underwrite your positions. So the last 304 00:15:52,400 --> 00:15:55,640 Speaker 3: one of these was was really there's been other you know, 305 00:15:55,640 --> 00:15:57,360 Speaker 3: there's been the Ukraine crisis and all that, but I 306 00:15:57,360 --> 00:16:01,160 Speaker 3: think the last kind of fundamental everything's changed was COVID. 307 00:16:01,760 --> 00:16:04,600 Speaker 3: And what you do within your portfolio is you run 308 00:16:04,680 --> 00:16:08,240 Speaker 3: a stop white analysis and you say, you know, a 309 00:16:08,240 --> 00:16:10,840 Speaker 3: big chunk of the companies are yellow, nothing's happened to them. 310 00:16:11,000 --> 00:16:13,240 Speaker 3: Some portion of them are red, and you need to 311 00:16:13,280 --> 00:16:15,800 Speaker 3: focus on that, and out of the analysis also some 312 00:16:15,880 --> 00:16:19,000 Speaker 3: portion or green right like they're in that beneficiary of that. 313 00:16:19,560 --> 00:16:23,720 Speaker 3: And so when this software issue came along, we you know, 314 00:16:23,720 --> 00:16:26,520 Speaker 3: we've been thinking about before, but we run the same analysis, 315 00:16:26,520 --> 00:16:28,320 Speaker 3: this time much faster because we did it with AI, 316 00:16:28,640 --> 00:16:30,840 Speaker 3: so that that was very helpful in terms of doing 317 00:16:31,080 --> 00:16:34,200 Speaker 3: a lot of the heavy lifting there. And you start 318 00:16:34,200 --> 00:16:35,960 Speaker 3: to work your way through it, and then what you 319 00:16:36,000 --> 00:16:38,200 Speaker 3: start to see is I think very initially, I think 320 00:16:38,240 --> 00:16:40,520 Speaker 3: people came out and I think if you were saying you. 321 00:16:40,520 --> 00:16:41,360 Speaker 4: Knew what was going on. 322 00:16:41,480 --> 00:16:43,560 Speaker 3: It was probably came across as a bit dishonest, To 323 00:16:43,600 --> 00:16:46,040 Speaker 3: be honest, I don't think people would say it. And 324 00:16:46,080 --> 00:16:48,520 Speaker 3: then over time it kind of became clear that all 325 00:16:48,640 --> 00:16:51,960 Speaker 3: software is not going to zero and that you know, 326 00:16:52,000 --> 00:16:53,800 Speaker 3: there's winners and losers. So I think you heard that 327 00:16:53,840 --> 00:16:58,240 Speaker 3: winners and losers narrative, and then now you're starting to 328 00:16:58,240 --> 00:17:00,920 Speaker 3: see probably what the percentages of those are and where 329 00:17:00,920 --> 00:17:03,280 Speaker 3: those are being mixed, and and who's going to win 330 00:17:03,480 --> 00:17:09,320 Speaker 3: on that side. So that's within software. My wife's a 331 00:17:09,320 --> 00:17:11,480 Speaker 3: growth equity investor and she likes to say that the 332 00:17:11,520 --> 00:17:13,480 Speaker 3: world's probably going to change more in the next five 333 00:17:13,560 --> 00:17:15,520 Speaker 3: years in the last seventy five years. 334 00:17:16,400 --> 00:17:18,320 Speaker 4: I tend to agree with that. So you know this 335 00:17:18,400 --> 00:17:18,880 Speaker 4: isn't going. 336 00:17:18,800 --> 00:17:21,280 Speaker 3: To stop there, So you have to see where where 337 00:17:21,320 --> 00:17:23,520 Speaker 3: that spreads out to, and then you layer onto that. 338 00:17:23,920 --> 00:17:25,679 Speaker 3: You know, things are probably more familiar with We've been 339 00:17:25,720 --> 00:17:28,840 Speaker 3: through the European energy crisis. We know what a commodity 340 00:17:28,840 --> 00:17:31,880 Speaker 3: shock looks like, we know what inflation within these are. 341 00:17:31,960 --> 00:17:33,320 Speaker 3: So I think you just have to start to think 342 00:17:33,359 --> 00:17:36,720 Speaker 3: through on a micro basis by talking to the managers 343 00:17:36,720 --> 00:17:40,560 Speaker 3: how these are impacting individual businesses on on that side. 344 00:17:41,600 --> 00:17:43,960 Speaker 2: Yeah, And to my second question, I think you just 345 00:17:44,000 --> 00:17:47,640 Speaker 2: pointed to that to that clearly there are some upcoming 346 00:17:47,760 --> 00:17:51,719 Speaker 2: changes in terms of dislocation in terms of you know, 347 00:17:52,160 --> 00:17:55,400 Speaker 2: current players, and that could happen very quickly which could 348 00:17:55,440 --> 00:17:59,959 Speaker 2: lead from you know, for credit investors to a higher 349 00:18:00,280 --> 00:18:04,840 Speaker 2: defaults or higher risk of default. What do you what's 350 00:18:04,880 --> 00:18:08,080 Speaker 2: your views on default risk? I know there is a 351 00:18:08,119 --> 00:18:11,040 Speaker 2: lot of you know, various esteamage when it comes to 352 00:18:11,080 --> 00:18:13,159 Speaker 2: private credit. I think Moody's in twenty twenty five was 353 00:18:13,200 --> 00:18:16,199 Speaker 2: talking something between one point six to four point seven percent. 354 00:18:16,640 --> 00:18:20,359 Speaker 2: Some banks are acording for potentially you much higher a 355 00:18:20,359 --> 00:18:24,320 Speaker 2: single digit default trade going forward. I mean, where where 356 00:18:24,359 --> 00:18:26,719 Speaker 2: do you see in how you prepare yourself for potentially 357 00:18:26,760 --> 00:18:30,960 Speaker 2: increase in default resulting also from those you know, industry dynamics. 358 00:18:31,280 --> 00:18:31,480 Speaker 4: Yeah. 359 00:18:31,480 --> 00:18:35,880 Speaker 3: I think throughout my career, probably my guiding light has 360 00:18:35,920 --> 00:18:38,760 Speaker 3: been that our guiding theme has been that things are 361 00:18:38,840 --> 00:18:41,720 Speaker 3: usually never as good or as bad as people say 362 00:18:41,720 --> 00:18:44,600 Speaker 3: they are. So I think not that long ago it 363 00:18:44,640 --> 00:18:48,120 Speaker 3: was the golden age of private credit and that probably 364 00:18:48,200 --> 00:18:51,040 Speaker 3: wasn't true. And now I think we're in the death 365 00:18:51,040 --> 00:18:53,479 Speaker 3: of private credit, and I think, you know, there's been 366 00:18:53,480 --> 00:18:55,840 Speaker 3: a big exploration of that over the last ninety days, 367 00:18:55,840 --> 00:18:57,000 Speaker 3: and I think we're getting to a point where we 368 00:18:57,040 --> 00:19:00,159 Speaker 3: could start to say categorically that's probably not truly there. 369 00:19:00,160 --> 00:19:03,080 Speaker 3: And I think we're sorting through some of the systemic risks. 370 00:19:03,119 --> 00:19:05,600 Speaker 3: So then I think the question has become what you said, 371 00:19:05,600 --> 00:19:08,399 Speaker 3: what are the default rates and all of those And 372 00:19:08,440 --> 00:19:12,840 Speaker 3: I think, you know, the narrative here has has been 373 00:19:13,040 --> 00:19:16,520 Speaker 3: very strong and very strongly felt it. The sentiment has 374 00:19:16,560 --> 00:19:20,119 Speaker 3: been on that side for good reasons and things that 375 00:19:20,160 --> 00:19:22,640 Speaker 3: we've seen. I think, you know, whatever we're in now, 376 00:19:22,680 --> 00:19:24,800 Speaker 3: you know, ninety days, one hundred days in, we're starting 377 00:19:24,840 --> 00:19:26,680 Speaker 3: to see it's probably not going to be as bad 378 00:19:26,720 --> 00:19:30,040 Speaker 3: as those initial estimates. But I think what we can 379 00:19:30,119 --> 00:19:33,240 Speaker 3: categorically say is there are going to be further defaults, right, 380 00:19:33,320 --> 00:19:35,200 Speaker 3: you know, these last ones that are in the press 381 00:19:35,280 --> 00:19:38,440 Speaker 3: last week are not there. This is an asset class 382 00:19:38,480 --> 00:19:42,040 Speaker 3: that was coming out of an incredibly benign credit environment 383 00:19:42,160 --> 00:19:45,359 Speaker 3: and entering into a more volatile area, and you're going 384 00:19:45,440 --> 00:19:49,040 Speaker 3: to see defaults within there. What's probably fascinating to Harbor 385 00:19:49,119 --> 00:19:52,800 Speaker 3: Best is that, you know, on the equity side, we've 386 00:19:52,800 --> 00:19:55,440 Speaker 3: been doing it for over over forty years in the 387 00:19:55,480 --> 00:19:57,199 Speaker 3: primary and twenty years in credit. 388 00:19:58,880 --> 00:20:01,639 Speaker 4: What you saw is that we. 389 00:20:01,400 --> 00:20:03,280 Speaker 3: You know, we have a team of like actual rocket 390 00:20:03,320 --> 00:20:05,639 Speaker 3: scientists that the kind of parts of this data, and 391 00:20:05,680 --> 00:20:09,119 Speaker 3: we're able to on on the equity side, really know 392 00:20:09,160 --> 00:20:10,440 Speaker 3: what managers are good at. 393 00:20:10,400 --> 00:20:11,560 Speaker 4: Almost better than they are. 394 00:20:11,640 --> 00:20:14,000 Speaker 3: We can see through their sector, we can see their alpha. 395 00:20:14,960 --> 00:20:16,880 Speaker 3: They actually come to us to do the reports on 396 00:20:16,880 --> 00:20:19,919 Speaker 3: on them. On on that side, we with all that 397 00:20:19,920 --> 00:20:23,399 Speaker 3: same technology and information have not really been able to 398 00:20:23,480 --> 00:20:23,880 Speaker 3: do that. 399 00:20:24,200 --> 00:20:24,840 Speaker 4: In credit. 400 00:20:24,920 --> 00:20:27,920 Speaker 3: There just hasn't been enough dispersion. 401 00:20:28,400 --> 00:20:28,680 Speaker 4: Two. 402 00:20:28,800 --> 00:20:30,879 Speaker 3: I mean you could have you can have indicators, you 403 00:20:30,880 --> 00:20:32,960 Speaker 3: can have you you know, your your your analysis of. 404 00:20:32,880 --> 00:20:34,080 Speaker 4: The team and those factors. 405 00:20:34,080 --> 00:20:37,560 Speaker 3: But for a hard data one, there hasn't been that dispersion. 406 00:20:38,160 --> 00:20:39,720 Speaker 3: And the reality is now there is going to be 407 00:20:39,760 --> 00:20:42,280 Speaker 3: that dispersion, right you know there there are there are 408 00:20:42,320 --> 00:20:44,800 Speaker 3: credit managers who just do not do software. There are 409 00:20:44,840 --> 00:20:46,280 Speaker 3: other ones who do, and and so you have those 410 00:20:46,320 --> 00:20:49,480 Speaker 3: sector ones, you have different mixes of that. And I 411 00:20:49,520 --> 00:20:53,119 Speaker 3: think that dispersion is is going to come to this 412 00:20:53,240 --> 00:20:55,280 Speaker 3: market and and there will be a shakeout as a 413 00:20:55,320 --> 00:20:57,119 Speaker 3: result of that because you will be able to clearly 414 00:20:57,200 --> 00:20:59,840 Speaker 3: see what the bottom quartel Is, and I think we 415 00:21:00,119 --> 00:21:02,600 Speaker 3: see that cycle on the equity side that's going to 416 00:21:02,640 --> 00:21:05,000 Speaker 3: start to come through, So I think there will be 417 00:21:05,720 --> 00:21:09,040 Speaker 3: a dispersion there in style, and then, as always, there 418 00:21:09,040 --> 00:21:11,480 Speaker 3: are going to be lessons learned with I think we've 419 00:21:11,480 --> 00:21:14,919 Speaker 3: seen some very specific types of loans and arrangements that 420 00:21:15,200 --> 00:21:18,439 Speaker 3: have led to some challenges here that will be revisited 421 00:21:18,480 --> 00:21:20,440 Speaker 3: and probably not used going forward. 422 00:21:20,480 --> 00:21:22,960 Speaker 1: On that side. Given all that negativity and that fear 423 00:21:23,000 --> 00:21:25,800 Speaker 1: and that circled death of private credit you're describing, how 424 00:21:25,880 --> 00:21:30,600 Speaker 1: low did the price get on the secondary side. 425 00:21:29,920 --> 00:21:35,160 Speaker 3: The volatility never got that wide. You just the volatility 426 00:21:35,160 --> 00:21:38,719 Speaker 3: curve of private credit just inherently sits withinside the volatility 427 00:21:38,760 --> 00:21:42,960 Speaker 3: curve of the equity, so you don't gap out that much. 428 00:21:43,040 --> 00:21:45,080 Speaker 4: As I said, there aren't. 429 00:21:45,040 --> 00:21:49,160 Speaker 3: Really forced liquidity sellers in this market, and I think 430 00:21:49,160 --> 00:21:51,720 Speaker 3: a very interesting thing has happened. I've been on the 431 00:21:51,800 --> 00:21:53,840 Speaker 3: road i think maybe ten of the last twelve weeks, 432 00:21:53,880 --> 00:21:57,399 Speaker 3: talking to our institutional investors all around the world, and 433 00:21:58,359 --> 00:22:00,479 Speaker 3: I think there was a generalized sense that, you know, 434 00:22:01,680 --> 00:22:04,760 Speaker 3: with some of the capital coming into this, that things 435 00:22:04,760 --> 00:22:08,439 Speaker 3: have loosened over the last few years, and now that 436 00:22:08,480 --> 00:22:13,880 Speaker 3: you've seen a pullback in that there's actually institutional excitement 437 00:22:14,160 --> 00:22:16,159 Speaker 3: about the asset class. So I think when we do 438 00:22:16,280 --> 00:22:19,840 Speaker 3: our pulling, and I've seen other general partners pulling up 439 00:22:19,840 --> 00:22:22,600 Speaker 3: their LPs, you're getting to numbers of ninety percent of 440 00:22:22,680 --> 00:22:26,120 Speaker 3: institutions are staying with private credit or growing into it. 441 00:22:26,520 --> 00:22:29,680 Speaker 3: So you're seeing that move back into it, and then 442 00:22:29,920 --> 00:22:32,280 Speaker 3: the reporting cycles just come out. You're also seeing the 443 00:22:32,280 --> 00:22:35,520 Speaker 3: inflows that are coming into some of the large listed managers, 444 00:22:35,560 --> 00:22:40,679 Speaker 3: so you can witness that there's probably it's still growing 445 00:22:40,720 --> 00:22:43,560 Speaker 3: asset class even through this period of kind of a 446 00:22:43,760 --> 00:22:48,560 Speaker 3: maximum fear and self exploration, which we expect to compound 447 00:22:48,600 --> 00:22:50,879 Speaker 3: over that. That's the opposite of talking to me on 448 00:22:50,920 --> 00:22:54,000 Speaker 3: books as a secondary manager, like more chaos is probably 449 00:22:54,400 --> 00:22:57,480 Speaker 3: a better in buying environment. But the reality is, I 450 00:22:57,520 --> 00:23:00,440 Speaker 3: think for institutional investors in particular, who, by the way 451 00:23:00,520 --> 00:23:03,680 Speaker 3: or eighty percent plus of this market, they've been much 452 00:23:03,720 --> 00:23:07,720 Speaker 3: more steady in how they manage it and they're. 453 00:23:07,600 --> 00:23:09,400 Speaker 1: Thinking of but you in the in the middle, you're 454 00:23:09,480 --> 00:23:11,639 Speaker 1: taking these positions of someone who needs to liquid is 455 00:23:11,720 --> 00:23:15,120 Speaker 1: you'll taking that risk that you know this this asset 456 00:23:15,359 --> 00:23:19,280 Speaker 1: deteriorates in value, so you need to get some extra payment, right, 457 00:23:19,280 --> 00:23:20,320 Speaker 1: and it's got a market for that. 458 00:23:20,760 --> 00:23:21,040 Speaker 4: Yeah. 459 00:23:21,080 --> 00:23:23,480 Speaker 3: So to put a number on it, I would say 460 00:23:23,480 --> 00:23:28,320 Speaker 3: that our market dipped probably three hundred to five hundred 461 00:23:28,320 --> 00:23:32,320 Speaker 3: basis points on on the lp led side is what 462 00:23:32,320 --> 00:23:35,280 Speaker 3: we're seeing. Again, this is a slow moving thing. A 463 00:23:35,359 --> 00:23:38,959 Speaker 3: secondary process takes many, many weeks on that side. So 464 00:23:39,000 --> 00:23:42,400 Speaker 3: that's probably the gap that that we've seen, which would 465 00:23:42,400 --> 00:23:45,440 Speaker 3: be inside of the gap that we've seen on on 466 00:23:45,440 --> 00:23:46,760 Speaker 3: on on the equity side. 467 00:23:46,880 --> 00:23:49,200 Speaker 1: And it has been but it's recovering now. You don't 468 00:23:49,200 --> 00:23:50,440 Speaker 1: think it's going further lose. 469 00:23:50,880 --> 00:23:54,440 Speaker 3: The reality I think you know of this market coming 470 00:23:54,480 --> 00:23:57,159 Speaker 3: together is before there was dedicated pools of capital that 471 00:23:57,200 --> 00:23:59,680 Speaker 3: did private credit secondaries. Why didn't it happen is because 472 00:23:59,720 --> 00:24:01,600 Speaker 3: people are trying to buy these in equity pools and 473 00:24:01,600 --> 00:24:04,439 Speaker 3: they were buying them at eighty cents to make the 474 00:24:04,480 --> 00:24:07,200 Speaker 3: returns work in the context of an equity pool. And 475 00:24:07,280 --> 00:24:10,600 Speaker 3: the reality is people don't sell their senior credit position 476 00:24:11,119 --> 00:24:14,560 Speaker 3: or eighty cents on the dollar. That's not really a sensical. 477 00:24:14,280 --> 00:24:16,480 Speaker 1: Right thing to do. Generally, when you buypstitions, do you 478 00:24:16,480 --> 00:24:19,600 Speaker 1: have a you have another bud lined up? 479 00:24:20,080 --> 00:24:20,119 Speaker 2: No? 480 00:24:20,359 --> 00:24:23,439 Speaker 4: So we're not traders. We we we. 481 00:24:24,160 --> 00:24:28,399 Speaker 3: Are liquidity providers, and then we manage that uh for 482 00:24:28,400 --> 00:24:32,680 Speaker 3: for about ninety percent of its value. And then and 483 00:24:32,720 --> 00:24:35,439 Speaker 3: then you know, interestingly, there are there's another set of 484 00:24:35,480 --> 00:24:38,080 Speaker 3: secondary buyers in this industry that tend to buy very 485 00:24:38,119 --> 00:24:41,000 Speaker 3: tail end positions, so they'll buy things that are that 486 00:24:41,040 --> 00:24:43,040 Speaker 3: are very late in their life and they kind of 487 00:24:43,080 --> 00:24:45,639 Speaker 3: harvest that that discount at the end. Then that's a 488 00:24:45,680 --> 00:24:49,080 Speaker 3: separate pool of buyers who offer liquidity advisors. So we're 489 00:24:49,080 --> 00:24:52,160 Speaker 3: actually one of the largest sellers of private market assets. 490 00:24:52,200 --> 00:24:54,840 Speaker 3: But but but that's not on trading basis. We hold 491 00:24:54,840 --> 00:24:57,240 Speaker 3: them for the duration of maturing about you know, ninety 492 00:24:57,240 --> 00:24:58,840 Speaker 3: percent plus the value in our funds. 493 00:24:58,960 --> 00:25:01,440 Speaker 1: Just one more on this point. I'm wondering how far 494 00:25:01,520 --> 00:25:04,400 Speaker 1: away or how close you are to the manager's own 495 00:25:04,480 --> 00:25:07,600 Speaker 1: valuations because there is a lot of uncertainty around, you know, 496 00:25:07,600 --> 00:25:09,880 Speaker 1: how these deals being marked. When we look at BBC earnings, 497 00:25:09,960 --> 00:25:11,639 Speaker 1: you know, there have been deals at the market at 498 00:25:11,720 --> 00:25:15,000 Speaker 1: par on one lender and then sixty from another lender 499 00:25:15,080 --> 00:25:17,439 Speaker 1: of a very similar if not the same deal in 500 00:25:17,440 --> 00:25:19,720 Speaker 1: some cases, which you know, implies that there is a 501 00:25:19,800 --> 00:25:23,240 Speaker 1: huge difference in valuation when you're looking at these deals, 502 00:25:23,359 --> 00:25:25,920 Speaker 1: and you know, resuming the cellar once par but you 503 00:25:25,920 --> 00:25:28,600 Speaker 1: you're saying less. I mean, how much of a tussle 504 00:25:28,680 --> 00:25:29,960 Speaker 1: is it between the two sides. 505 00:25:30,960 --> 00:25:31,840 Speaker 4: Yeah, one hundred percent. 506 00:25:31,880 --> 00:25:38,200 Speaker 3: There is a pricing dispersion amongst managers. What I will 507 00:25:38,240 --> 00:25:41,840 Speaker 3: say on that fronts as private markets are kind of 508 00:25:41,880 --> 00:25:46,840 Speaker 3: eating public markets, more of that's coming back into private markets, 509 00:25:46,840 --> 00:25:48,520 Speaker 3: So that is getting I think a lot that it's 510 00:25:48,560 --> 00:25:52,520 Speaker 3: been attributed to malice, whereas genuinely the each of these 511 00:25:52,720 --> 00:25:56,520 Speaker 3: managers in isolation does have to evaluate where they think 512 00:25:56,560 --> 00:26:00,359 Speaker 3: the mark of this loan is. I expect with third 513 00:26:00,400 --> 00:26:03,320 Speaker 3: party valuations providers, with other aspects, over the next two 514 00:26:03,480 --> 00:26:06,400 Speaker 3: or three years, you're not going to see these fifteen 515 00:26:06,480 --> 00:26:09,360 Speaker 3: point differences and where loan is. I think there's gonna 516 00:26:09,359 --> 00:26:11,359 Speaker 3: be a convergence because it is held by a syndicate. 517 00:26:11,720 --> 00:26:14,480 Speaker 3: So I think that dynamic is changing. But you're you're 518 00:26:14,560 --> 00:26:18,440 Speaker 3: completely correct. There are manager styles where you can you 519 00:26:18,440 --> 00:26:20,440 Speaker 3: can look at it and see statistically some people tend 520 00:26:20,520 --> 00:26:23,480 Speaker 3: to mark theres higher than other ones, and and having 521 00:26:23,520 --> 00:26:25,520 Speaker 3: that knowledge of the market is a key part of 522 00:26:25,520 --> 00:26:27,359 Speaker 3: what we do because we're doing a fundamental underwright. But 523 00:26:27,400 --> 00:26:30,399 Speaker 3: if we know that, you know someone's holding their their 524 00:26:30,440 --> 00:26:33,520 Speaker 3: their position fifteen points higher than it should be marked. 525 00:26:33,720 --> 00:26:35,159 Speaker 3: That's probably not one we're going to be able to 526 00:26:35,160 --> 00:26:37,040 Speaker 3: buy because we're going to come at it with a discount. 527 00:26:37,080 --> 00:26:39,000 Speaker 3: On that side, that that's not going not going to 528 00:26:39,080 --> 00:26:40,720 Speaker 3: work for us on that side. 529 00:26:41,560 --> 00:26:44,600 Speaker 2: Since we're talking about, you know, evaluations and the opacity 530 00:26:44,640 --> 00:26:48,400 Speaker 2: maybe of valuations, what sort of I are are are 531 00:26:48,440 --> 00:26:51,680 Speaker 2: you looking at for investors asking for for these type 532 00:26:51,720 --> 00:26:52,199 Speaker 2: of deals. 533 00:26:53,040 --> 00:26:58,119 Speaker 3: Yeah, I can't quote on specific returns unfortunately, but I 534 00:26:58,160 --> 00:27:04,040 Speaker 3: will say that in this secondary market, uh, you tend 535 00:27:04,040 --> 00:27:06,760 Speaker 3: to see, uh, it's a it's a faster round tripping 536 00:27:06,960 --> 00:27:09,560 Speaker 3: of capital, so so on, and I are our basis, 537 00:27:09,600 --> 00:27:11,280 Speaker 3: it tends to be our our kind of our our 538 00:27:11,320 --> 00:27:15,240 Speaker 3: liquidity profile is just a shorter window than theirs. So 539 00:27:15,320 --> 00:27:18,760 Speaker 3: a lot of as you said, why do investors like secondaries. 540 00:27:19,280 --> 00:27:21,800 Speaker 3: One of them is the hyper diversification. Two of them 541 00:27:21,880 --> 00:27:25,320 Speaker 3: is the the risk of I think in the history 542 00:27:25,320 --> 00:27:27,040 Speaker 3: of the secondary market, of the fore under funds have 543 00:27:27,119 --> 00:27:29,240 Speaker 3: been raised, like two have ever gone below one x, 544 00:27:29,280 --> 00:27:31,560 Speaker 3: because you have that visibility on what you're buying. 545 00:27:32,000 --> 00:27:36,159 Speaker 4: But another one is the quick return of that of 546 00:27:36,200 --> 00:27:36,880 Speaker 4: that capital. 547 00:27:37,000 --> 00:27:39,840 Speaker 3: So so there's often a trade in the multiple upside 548 00:27:39,840 --> 00:27:42,840 Speaker 3: that that could be made for for a faster UH, 549 00:27:42,880 --> 00:27:45,520 Speaker 3: a faster distribution A. 550 00:27:45,520 --> 00:27:47,879 Speaker 1: One of the favor of getting great around private credit 551 00:27:47,960 --> 00:27:52,360 Speaker 1: is the belief that these loans essentially junk and the 552 00:27:52,440 --> 00:27:55,679 Speaker 1: you know, couldn't access public markets for whatever reason, so 553 00:27:55,720 --> 00:27:58,080 Speaker 1: therefore them more risky and that's why the returns are bigger. 554 00:27:58,440 --> 00:28:02,520 Speaker 1: But the big growth area seems to me in the 555 00:28:02,520 --> 00:28:06,720 Speaker 1: investment grade universe, and Apollo CEO Mark Rowen said in 556 00:28:06,720 --> 00:28:10,040 Speaker 1: December he expects see more market makers in investment grade 557 00:28:10,040 --> 00:28:13,560 Speaker 1: private credit as the firm seeks to ramp up trading 558 00:28:13,640 --> 00:28:16,159 Speaker 1: the assets, and they claim to have traded close to 559 00:28:16,320 --> 00:28:20,080 Speaker 1: seven billion last year of high grade. I'm wondering what's 560 00:28:20,080 --> 00:28:22,600 Speaker 1: the mix in your business high grade versus leveraged. 561 00:28:24,359 --> 00:28:25,439 Speaker 4: It's much more skewed on. 562 00:28:25,520 --> 00:28:28,160 Speaker 3: On the leverage side, and I think you're pointing out 563 00:28:28,440 --> 00:28:30,639 Speaker 3: the way that liquidity could be rising these markets. I 564 00:28:30,640 --> 00:28:33,639 Speaker 3: think within within the investment grade side, I think you 565 00:28:33,720 --> 00:28:37,600 Speaker 3: could see a trading of securities within there, and and 566 00:28:37,760 --> 00:28:41,040 Speaker 3: a secondary market on a loan basis being developed, which 567 00:28:41,080 --> 00:28:43,360 Speaker 3: which is what I imagine those those comments are pointing to. 568 00:28:44,000 --> 00:28:46,640 Speaker 3: I think when you get down to more leverage lending 569 00:28:46,920 --> 00:28:50,240 Speaker 3: in private equity on that side that the general partners 570 00:28:50,280 --> 00:28:52,600 Speaker 3: have have rights to who can buy into that credit, 571 00:28:52,680 --> 00:28:55,840 Speaker 3: the transfer of that. I think there are public credit 572 00:28:55,880 --> 00:28:59,480 Speaker 3: markets that exist. I don't see that loan to loan 573 00:28:59,560 --> 00:29:02,960 Speaker 3: liquid coming down to that portion of the market, but 574 00:29:04,240 --> 00:29:06,840 Speaker 3: I agree, I think an investment grade in other areas 575 00:29:06,880 --> 00:29:09,800 Speaker 3: of private credit, you could certainly see that coming into effect. 576 00:29:10,360 --> 00:29:14,280 Speaker 3: So how big is the market compared to what's outstanding? 577 00:29:15,000 --> 00:29:17,320 Speaker 3: You know, and if you could break it down by region, 578 00:29:17,320 --> 00:29:18,840 Speaker 3: I'd be interested. I'm just trying to figure out where 579 00:29:18,840 --> 00:29:21,600 Speaker 3: the growth it's going to come from. Yeah, so this 580 00:29:21,680 --> 00:29:25,160 Speaker 3: is a market that has gone from just on rough 581 00:29:25,240 --> 00:29:29,240 Speaker 3: numbers five billion to ten billion to twenty billion in 582 00:29:29,320 --> 00:29:30,320 Speaker 3: twenty twenty five. 583 00:29:30,800 --> 00:29:32,480 Speaker 1: When did it starts at five? What was that? 584 00:29:32,720 --> 00:29:36,080 Speaker 3: Yeah, twenty three, So it is five billion twenty three. 585 00:29:36,160 --> 00:29:38,720 Speaker 3: It doubled in twenty four, It doubled again in twenty five. 586 00:29:38,960 --> 00:29:39,720 Speaker 1: Does it double again? 587 00:29:39,760 --> 00:29:40,120 Speaker 2: This year? 588 00:29:40,160 --> 00:29:43,640 Speaker 3: We were projecting thirty five to forty billion, and I 589 00:29:43,680 --> 00:29:46,600 Speaker 3: would call that the structural growth of the market. The 590 00:29:46,640 --> 00:29:49,840 Speaker 3: overlay of these dynamics to the first quarter were run 591 00:29:49,960 --> 00:29:54,120 Speaker 3: rating above fifty billion this year, so you could see 592 00:29:54,160 --> 00:29:58,320 Speaker 3: a path to that to more than double this year, 593 00:29:58,360 --> 00:30:00,640 Speaker 3: which is a structural preuss probably side. 594 00:30:00,480 --> 00:30:02,200 Speaker 1: Of it that's just your business, or is it the 595 00:30:02,200 --> 00:30:03,080 Speaker 1: whole market. 596 00:30:02,800 --> 00:30:07,920 Speaker 3: That's the credit secondaries market of deals closed here that 597 00:30:07,960 --> 00:30:11,640 Speaker 3: you're projecting, and for context, that's still less than one 598 00:30:11,680 --> 00:30:14,800 Speaker 3: percent of private credit. Yeah, if you and that's the 599 00:30:14,840 --> 00:30:16,680 Speaker 3: equity side, it's about two to three percent of that 600 00:30:16,680 --> 00:30:18,560 Speaker 3: market trades in the secondary market, and I think there's 601 00:30:18,640 --> 00:30:20,280 Speaker 3: views that could go up to five percent. So it's 602 00:30:20,360 --> 00:30:24,360 Speaker 3: kind of the inherent growth trajectory you could see in 603 00:30:24,360 --> 00:30:24,800 Speaker 3: the market. 604 00:30:24,840 --> 00:30:26,520 Speaker 1: But where does it come from? Is it by product, 605 00:30:26,560 --> 00:30:28,920 Speaker 1: is it by region? Is it a whole new area 606 00:30:28,920 --> 00:30:29,960 Speaker 1: that you're going to open up. 607 00:30:30,360 --> 00:30:33,080 Speaker 3: I've heard the if you build it, they will come analogy. 608 00:30:33,120 --> 00:30:34,720 Speaker 3: I don't know if that's getting too dated for people 609 00:30:34,760 --> 00:30:36,840 Speaker 3: to know the field of Dreams reference, But I think 610 00:30:37,960 --> 00:30:41,360 Speaker 3: one of the largest constraints to the secondary market is 611 00:30:41,520 --> 00:30:44,880 Speaker 3: the it's a habitually under it's been under capitalized market 612 00:30:44,880 --> 00:30:47,320 Speaker 3: for the entire time I've been in it, and the 613 00:30:47,360 --> 00:30:50,400 Speaker 3: growth of secondary investors with the right cost of capital 614 00:30:50,480 --> 00:30:53,920 Speaker 3: targeting that market has been, in my mind, the primary 615 00:30:54,600 --> 00:30:57,080 Speaker 3: driver of the growth of that market, and that formation 616 00:30:57,240 --> 00:31:00,960 Speaker 3: is happening very quickly in the credit Secondari's market, and 617 00:31:00,960 --> 00:31:04,760 Speaker 3: I think that's kind of unleashing. You know, these technologies, 618 00:31:04,800 --> 00:31:06,520 Speaker 3: as I said, the LPID and the GPU wide that 619 00:31:06,520 --> 00:31:08,760 Speaker 3: have been already invented and are just being applied to 620 00:31:08,840 --> 00:31:11,800 Speaker 3: another market, has allowed us to come together very very 621 00:31:11,880 --> 00:31:12,440 Speaker 3: quick right. 622 00:31:12,720 --> 00:31:15,000 Speaker 1: Although one might say that the reason why it's not 623 00:31:15,120 --> 00:31:17,920 Speaker 1: liquid is because there are better returns in a in 624 00:31:18,240 --> 00:31:21,360 Speaker 1: a liquid and you know, a product doesn't have any transparency. 625 00:31:21,600 --> 00:31:23,880 Speaker 1: I would make the analogy of the leverage loan market 626 00:31:23,920 --> 00:31:26,520 Speaker 1: twenty years ago when it really was just bilateral club 627 00:31:26,560 --> 00:31:29,040 Speaker 1: deals that you know, they were very lucrative, but they 628 00:31:29,040 --> 00:31:31,160 Speaker 1: were there was no transparency and that was good. And 629 00:31:31,200 --> 00:31:34,680 Speaker 1: then when it became commoditized and transparent and liquid, a 630 00:31:34,760 --> 00:31:37,440 Speaker 1: lot of those returns disappeared. Is that the same thing 631 00:31:37,440 --> 00:31:38,680 Speaker 1: that's going to happen to private credit? 632 00:31:38,720 --> 00:31:42,040 Speaker 3: You think, well, the leverage loan market still exists on 633 00:31:42,080 --> 00:31:47,400 Speaker 3: the public side there. I think that there's persistent advantage 634 00:31:48,000 --> 00:31:50,760 Speaker 3: in this market. I think that that that dynamic of 635 00:31:50,760 --> 00:31:54,480 Speaker 3: of you know, a fundamental believer in private markets. I 636 00:31:54,480 --> 00:31:58,800 Speaker 3: think that ability to have the ill liquidity. I mean, 637 00:31:58,880 --> 00:32:02,520 Speaker 3: people say, what's a liquidity discounpany, Like what it really is, 638 00:32:02,520 --> 00:32:05,800 Speaker 3: is the period of time to affect large change in 639 00:32:05,840 --> 00:32:09,920 Speaker 3: these these businesses, and then the private credit market as 640 00:32:09,920 --> 00:32:14,240 Speaker 3: an analog to that, allows a close dialogue to affect 641 00:32:14,280 --> 00:32:18,000 Speaker 3: that change. So I probably have a slightly different view 642 00:32:18,120 --> 00:32:23,000 Speaker 3: of where that excess return comes from as opposed to say, well, 643 00:32:23,040 --> 00:32:24,960 Speaker 3: it's a liquid, so you get more returns. I don't 644 00:32:24,960 --> 00:32:27,320 Speaker 3: think there's any inherent reason that something that's a liquid 645 00:32:27,320 --> 00:32:29,520 Speaker 3: gives you a higher return, So I think it's the 646 00:32:29,520 --> 00:32:33,160 Speaker 3: other dynamics of the market that will do that. I think, 647 00:32:33,200 --> 00:32:35,440 Speaker 3: certainly with what we're seeing, I would expect on both 648 00:32:35,480 --> 00:32:37,480 Speaker 3: sides of that market more capital to come into these 649 00:32:37,520 --> 00:32:41,440 Speaker 3: They're going to get larger, which probably would have more 650 00:32:41,440 --> 00:32:44,360 Speaker 3: of an impact on where the returns go over time 651 00:32:44,520 --> 00:32:48,720 Speaker 3: than just thinking about it absolutely on a liquid basis. 652 00:32:49,520 --> 00:32:52,000 Speaker 2: You spent a few years in your career in London. 653 00:32:52,320 --> 00:32:54,800 Speaker 2: How do you see the European market versus the US 654 00:32:54,880 --> 00:32:58,520 Speaker 2: market in terms of loans and private credit activity. 655 00:32:59,080 --> 00:33:02,560 Speaker 3: Yeah, I would say we view that as a very 656 00:33:02,840 --> 00:33:07,680 Speaker 3: stable and attractive return environment. One of my colleagues, Alex 657 00:33:07,720 --> 00:33:10,680 Speaker 3: wolf on our primary team, likes to say that Europe's 658 00:33:10,720 --> 00:33:12,800 Speaker 3: number one export is bad news, So. 659 00:33:12,760 --> 00:33:16,200 Speaker 4: I think we found we found over time that. 660 00:33:16,160 --> 00:33:19,120 Speaker 3: You know, I was over there for seventeen years of 661 00:33:19,160 --> 00:33:22,800 Speaker 3: my career, and over time we prove that we could 662 00:33:22,800 --> 00:33:26,440 Speaker 3: make similar excess returns in that market despite the macro 663 00:33:26,800 --> 00:33:30,200 Speaker 3: backdrop on that side. And I think that's what we've 664 00:33:30,240 --> 00:33:32,520 Speaker 3: seen over time. And then if you look drilled down 665 00:33:32,560 --> 00:33:35,640 Speaker 3: specifically to the issues of today, I think, you know, 666 00:33:35,680 --> 00:33:38,080 Speaker 3: with the software exposure, with these other things, there's just 667 00:33:38,200 --> 00:33:41,160 Speaker 3: less of that there, so you have more fundamental So 668 00:33:41,200 --> 00:33:43,120 Speaker 3: I think of it as probably a narrow We're about 669 00:33:43,240 --> 00:33:46,680 Speaker 3: valuation environment and ability to make attractive turns, but just 670 00:33:46,720 --> 00:33:49,560 Speaker 3: a little bit fundamentally different. So we think of our 671 00:33:49,600 --> 00:33:54,160 Speaker 3: diversification as being Western Europe and North American and view 672 00:33:54,160 --> 00:33:57,520 Speaker 3: those both as attractive markets that change in and out 673 00:33:57,560 --> 00:33:59,800 Speaker 3: over time. And I think right now probably Europe's a 674 00:33:59,840 --> 00:34:02,920 Speaker 3: bit more in than out at the moment, and they've 675 00:34:02,960 --> 00:34:07,560 Speaker 3: also navigated an energy crisis more recently on that side, 676 00:34:07,600 --> 00:34:10,160 Speaker 3: so I think we've kind of that's a bit of 677 00:34:10,400 --> 00:34:12,520 Speaker 3: a no known on that side, I think. 678 00:34:13,000 --> 00:34:14,839 Speaker 4: So I think there's there's a lot of interest there. 679 00:34:15,480 --> 00:34:18,239 Speaker 1: And what about Asia is as an opportunity, is that 680 00:34:18,280 --> 00:34:21,160 Speaker 1: another market that you might develop a secondary's business. 681 00:34:20,840 --> 00:34:24,359 Speaker 3: In we have a very active secondary's business on the 682 00:34:24,360 --> 00:34:27,680 Speaker 3: equity side. In Asia, i would say on the credit side, 683 00:34:27,760 --> 00:34:30,480 Speaker 3: it's a little bit less developed to have that depth 684 00:34:30,560 --> 00:34:34,440 Speaker 3: to probably need the liquidity environment we have, so so 685 00:34:34,520 --> 00:34:38,080 Speaker 3: it's it's probably running behind just due to the depth 686 00:34:38,080 --> 00:34:39,960 Speaker 3: of that market Western. 687 00:34:39,520 --> 00:34:42,200 Speaker 4: Europe and in North America. 688 00:34:43,440 --> 00:34:46,319 Speaker 2: And how do you describe the market right now? Is 689 00:34:46,320 --> 00:34:48,719 Speaker 2: it a virus market? Is it more balanced? 690 00:34:49,120 --> 00:34:52,400 Speaker 3: I would say as the pendulum swings, the pendulum is 691 00:34:52,440 --> 00:34:55,920 Speaker 3: swinging back to credit providers in terms of what we're 692 00:34:55,920 --> 00:34:58,800 Speaker 3: seeing on the ground in terms of spreads on that side, 693 00:34:58,840 --> 00:35:02,080 Speaker 3: so it's probably becoming so there's there's more health coming 694 00:35:02,080 --> 00:35:04,080 Speaker 3: back into the market on that side, it's kind of 695 00:35:04,120 --> 00:35:07,719 Speaker 3: pass its points. And then in the secondary side, I'd 696 00:35:07,760 --> 00:35:10,680 Speaker 3: say it's certainly a virus market at the moment, which 697 00:35:10,680 --> 00:35:13,960 Speaker 3: is what you generally see in dislocation is that you know, 698 00:35:14,360 --> 00:35:17,680 Speaker 3: we tend to wait in where others fear to tread. 699 00:35:17,840 --> 00:35:20,520 Speaker 3: It is a market that that during times of distress, 700 00:35:20,560 --> 00:35:21,320 Speaker 3: tends to come alive. 701 00:35:22,040 --> 00:35:25,239 Speaker 1: The other areas of innovation right now like colesterolize fund 702 00:35:25,280 --> 00:35:28,319 Speaker 1: obligations or anything else that you know excised about as 703 00:35:28,320 --> 00:35:29,200 Speaker 1: a new products. 704 00:35:30,200 --> 00:35:33,680 Speaker 3: Yeah, I think there are many different ways of packaging. 705 00:35:34,040 --> 00:35:38,040 Speaker 3: You know, the private markets asset class clouditis fund obligations 706 00:35:38,080 --> 00:35:39,879 Speaker 3: are are one of those, which is a use case 707 00:35:39,920 --> 00:35:43,520 Speaker 3: for certain investors to come in. There's rated feeder products 708 00:35:43,520 --> 00:35:45,719 Speaker 3: you're seeing that are that are a similar one to that. 709 00:35:46,200 --> 00:35:48,440 Speaker 3: And then you know the largest one, which is still 710 00:35:48,520 --> 00:35:51,839 Speaker 3: relatively small of it is the Evergreen product. And I 711 00:35:51,840 --> 00:35:54,560 Speaker 3: think this has been an amazing you might call it 712 00:35:54,600 --> 00:35:58,600 Speaker 3: a baptism through fire, but an amazing opportunity to develop 713 00:35:58,640 --> 00:36:01,600 Speaker 3: and stress test that model as as it continues to 714 00:36:01,640 --> 00:36:04,000 Speaker 3: grow in the market and learn what works and what 715 00:36:04,120 --> 00:36:07,040 Speaker 3: doesn't work within there. And I think we're we as 716 00:36:07,080 --> 00:36:09,200 Speaker 3: an industry are probably taking a lot of a lot 717 00:36:09,200 --> 00:36:10,399 Speaker 3: of a lot of lessons from. 718 00:36:10,320 --> 00:36:11,439 Speaker 4: That in real time. 719 00:36:12,040 --> 00:36:15,279 Speaker 1: You mentioned those earlier, the continuation vehicles as a as 720 00:36:15,320 --> 00:36:18,279 Speaker 1: a you know, interesting area. The institutional limited part of 721 00:36:18,280 --> 00:36:21,120 Speaker 1: the association recently flagged as a potential conflict of interest 722 00:36:21,200 --> 00:36:22,920 Speaker 1: for some policies. Do you think I think that's an 723 00:36:22,960 --> 00:36:23,560 Speaker 1: issue though. 724 00:36:24,760 --> 00:36:28,239 Speaker 3: It's a conflicted transaction right that the general partner is 725 00:36:28,280 --> 00:36:32,400 Speaker 3: on the buy and the sell side of that transaction. 726 00:36:34,000 --> 00:36:37,480 Speaker 3: We think it's establishment as when you think of the 727 00:36:37,520 --> 00:36:39,520 Speaker 3: exit roots for private equity, I think it is emerging 728 00:36:39,560 --> 00:36:42,040 Speaker 3: that there is you could sell to a to an 729 00:36:42,160 --> 00:36:45,000 Speaker 3: m and a buyer a private equity fund, you could 730 00:36:45,000 --> 00:36:47,560 Speaker 3: ipo the business or continuation vehicles. 731 00:36:47,640 --> 00:36:48,960 Speaker 4: Really that third route. 732 00:36:49,080 --> 00:36:51,640 Speaker 3: So I think at you know, one hundred plus billion 733 00:36:51,719 --> 00:36:56,279 Speaker 3: dollar market, it is here, and it's it's mature, but 734 00:36:56,520 --> 00:36:59,000 Speaker 3: the general partners need to be in dialogue with their 735 00:36:59,560 --> 00:37:02,719 Speaker 3: with their piece on that. They need to run fiduciary processes. 736 00:37:02,760 --> 00:37:07,160 Speaker 3: What we find is the best general partners do the 737 00:37:07,719 --> 00:37:09,920 Speaker 3: best jobs of that, and and and you know they 738 00:37:09,960 --> 00:37:12,560 Speaker 3: maintain their their limited partner bases over time and are 739 00:37:12,640 --> 00:37:16,520 Speaker 3: very transparent and clear on what they're doing the strategic 740 00:37:16,600 --> 00:37:18,319 Speaker 3: rationale of why they're doing it. 741 00:37:18,920 --> 00:37:19,960 Speaker 4: I will say. 742 00:37:19,880 --> 00:37:23,640 Speaker 3: I'm on the credit secondary side. Probably the biggest question 743 00:37:23,760 --> 00:37:26,560 Speaker 3: mark when when they're talking about the conflict in the 744 00:37:26,640 --> 00:37:29,600 Speaker 3: equity side, is is that valuation piece. And there's less 745 00:37:29,600 --> 00:37:32,480 Speaker 3: of that in the credit side because the nabs are 746 00:37:32,760 --> 00:37:36,240 Speaker 3: much tighter and clearer. So I think when you apply 747 00:37:36,360 --> 00:37:39,600 Speaker 3: that in the credit secondary space, there's just less of 748 00:37:39,600 --> 00:37:42,239 Speaker 3: an issue around that than than than you see on 749 00:37:42,320 --> 00:37:45,759 Speaker 3: that side. But that's certainly a market that's here to 750 00:37:45,880 --> 00:37:48,359 Speaker 3: stay on that side, And and you need to show 751 00:37:48,400 --> 00:37:51,160 Speaker 3: best practices when you're executing those and be very transparent 752 00:37:51,200 --> 00:37:53,120 Speaker 3: with your limited partner base if you want to continue 753 00:37:53,160 --> 00:37:54,320 Speaker 3: to have a limited partner. 754 00:37:54,080 --> 00:37:57,920 Speaker 1: Base on sex. As you mentioned earlier, you know when 755 00:37:57,960 --> 00:37:59,719 Speaker 1: you spoke before that, do you kind of sect to 756 00:37:59,719 --> 00:38:05,960 Speaker 1: agnick but outside software tougher macro environment, you know, with inflation, 757 00:38:06,200 --> 00:38:09,319 Speaker 1: with consumers coming under pressure, are there any sectors that 758 00:38:09,360 --> 00:38:11,439 Speaker 1: you worry about and you kind of stay away from 759 00:38:11,520 --> 00:38:14,520 Speaker 1: in terms of you know what we're facing in all 760 00:38:14,520 --> 00:38:16,640 Speaker 1: of these challenges ahead in the economy. 761 00:38:17,040 --> 00:38:20,279 Speaker 3: Yeah, we're sector agnostic, but there are some risks that 762 00:38:21,680 --> 00:38:24,520 Speaker 3: I think don't sit well within our Within our secondary vehicles. 763 00:38:24,560 --> 00:38:27,959 Speaker 3: For instance, we have a separate infrastructure and real assets team, 764 00:38:28,040 --> 00:38:31,000 Speaker 3: so some of that kind of more direct energy risk 765 00:38:31,040 --> 00:38:33,560 Speaker 3: and things of that nature. We tend to excroup from 766 00:38:33,560 --> 00:38:36,239 Speaker 3: the portfolio, and infrastructure is probably a little bit of 767 00:38:36,239 --> 00:38:39,239 Speaker 3: a one. So these are corporate on that side, but 768 00:38:39,280 --> 00:38:43,160 Speaker 3: I think there are different attractions during different times. I 769 00:38:43,200 --> 00:38:46,160 Speaker 3: also think private equity has learned lessons over time over 770 00:38:46,280 --> 00:38:50,120 Speaker 3: areas that you know are are less likely to be 771 00:38:50,280 --> 00:38:53,120 Speaker 3: within that mold, So I think there are lessons there. 772 00:38:53,200 --> 00:38:56,480 Speaker 3: I think in terms of the world changing. I think 773 00:38:56,480 --> 00:38:59,160 Speaker 3: we are finding that real time. So there are other 774 00:38:59,520 --> 00:39:02,080 Speaker 3: issues that you could start to draw the corollaries of 775 00:39:02,680 --> 00:39:05,640 Speaker 3: what's changing of where those are. So we think about 776 00:39:05,640 --> 00:39:09,160 Speaker 3: that when we do our bottoms up underwriting of the transaction, 777 00:39:09,880 --> 00:39:12,320 Speaker 3: and we have an enormous benefit of secondary investors. 778 00:39:12,400 --> 00:39:13,960 Speaker 4: Right So, I mean people. 779 00:39:13,760 --> 00:39:16,040 Speaker 3: Right now we're talking about are data centers a good 780 00:39:16,040 --> 00:39:20,080 Speaker 3: investment for private credit or not? What I can definite 781 00:39:20,120 --> 00:39:22,520 Speaker 3: if we tell you is that in three years or 782 00:39:22,560 --> 00:39:24,520 Speaker 3: four years, when we're looking to buy it, we'll know 783 00:39:24,600 --> 00:39:27,800 Speaker 3: a lot better whether data centers were a good or 784 00:39:27,840 --> 00:39:29,800 Speaker 3: bad investment or the risks that we're in that sector. 785 00:39:29,960 --> 00:39:34,200 Speaker 3: So within my particular market of secondaries, you get a 786 00:39:34,200 --> 00:39:38,920 Speaker 3: pretty big benefit of you get to see how the 787 00:39:39,000 --> 00:39:41,640 Speaker 3: deal is doing. Usually you kind of know right away. 788 00:39:41,640 --> 00:39:45,280 Speaker 3: I think within credit, the statistic is that two thirds 789 00:39:45,320 --> 00:39:47,960 Speaker 3: of deals of default default within the first three years. 790 00:39:48,160 --> 00:39:52,480 Speaker 3: So getting that diversification benefit and getting that time benefit 791 00:39:53,000 --> 00:39:57,160 Speaker 3: allow you to avoid sectors that have become challenges. I 792 00:39:57,200 --> 00:39:59,439 Speaker 3: think one of the portfolios that was in the news 793 00:39:59,480 --> 00:40:02,359 Speaker 3: of having a big an av drop, A big chunk 794 00:40:02,400 --> 00:40:05,200 Speaker 3: of that was was Amazon aggregators, right, which I think 795 00:40:05,360 --> 00:40:08,600 Speaker 3: people widely known is not a great business model for 796 00:40:08,680 --> 00:40:11,880 Speaker 3: a long period of time. So I think, you know, 797 00:40:12,040 --> 00:40:14,879 Speaker 3: you get a little bit of that benefit and and 798 00:40:15,040 --> 00:40:18,239 Speaker 3: to move with with the knowledge of news currently Given 799 00:40:18,280 --> 00:40:19,000 Speaker 3: that perspectively, you. 800 00:40:18,920 --> 00:40:20,040 Speaker 1: Have though, I mean, what do you make of all 801 00:40:20,080 --> 00:40:23,880 Speaker 1: of this drama and you know, hyperbole really about private 802 00:40:23,880 --> 00:40:28,240 Speaker 1: credit and as you said, the sort of almost narrative 803 00:40:28,280 --> 00:40:30,640 Speaker 1: of death and for private credit, given that you really 804 00:40:30,680 --> 00:40:33,280 Speaker 1: are seeing deals, you know, three years into their life 805 00:40:33,800 --> 00:40:35,920 Speaker 1: or more into their life, that you know doing Okay, 806 00:40:36,280 --> 00:40:38,920 Speaker 1: you're doing all this credit work, is there a bigger 807 00:40:38,920 --> 00:40:40,920 Speaker 1: problem out there in private credit that we should. 808 00:40:40,719 --> 00:40:41,360 Speaker 4: Really be hitting. 809 00:40:43,760 --> 00:40:48,799 Speaker 3: Private credit is private. You don't get to see into it. 810 00:40:49,040 --> 00:40:51,399 Speaker 3: We do, but outsiders don't get to see into it. 811 00:40:51,560 --> 00:40:56,000 Speaker 3: And I am akin that the greatest crisis of our 812 00:40:56,120 --> 00:41:00,600 Speaker 3: lifetimes was a credit driven crisis. So I think the 813 00:41:01,400 --> 00:41:03,880 Speaker 3: one I think there's an argument that, oh, you're always 814 00:41:03,880 --> 00:41:05,880 Speaker 3: fighting the last war, But the flip side of that 815 00:41:06,040 --> 00:41:08,120 Speaker 3: is like it is a huge risk that we know 816 00:41:09,200 --> 00:41:13,399 Speaker 3: can really be destructive. I think we are proving out 817 00:41:13,520 --> 00:41:16,920 Speaker 3: that it's I think the consensus is emerging that clearly 818 00:41:16,920 --> 00:41:19,680 Speaker 3: this isn't systematic. I think you've heard that from Guess 819 00:41:19,680 --> 00:41:22,239 Speaker 3: on this show as well and in other positions of 820 00:41:22,560 --> 00:41:27,480 Speaker 3: the market who have said that. But it seems rational 821 00:41:27,520 --> 00:41:30,120 Speaker 3: to me as a society to explore that and bottom 822 00:41:30,160 --> 00:41:31,880 Speaker 3: that out. And I think it's good that there's some 823 00:41:31,920 --> 00:41:35,120 Speaker 3: of that pressure put on there. So does that sentiment 824 00:41:35,200 --> 00:41:39,440 Speaker 3: skew negative? Yes, But like in my mind just thinking, 825 00:41:40,280 --> 00:41:43,680 Speaker 3: you know, psychologically, animal spirits, kind of you know, a 826 00:41:43,680 --> 00:41:46,080 Speaker 3: bit of fun of watching something blow up for some people. 827 00:41:46,719 --> 00:41:49,719 Speaker 3: I think those all factor into it. And then you know, 828 00:41:49,960 --> 00:41:52,400 Speaker 3: and again you know this word gating, which which is 829 00:41:52,440 --> 00:41:56,080 Speaker 3: a mechanism that's built into that. But when I heard gate, 830 00:41:56,160 --> 00:41:58,000 Speaker 3: I think of a hedge fund right that you know, 831 00:41:58,040 --> 00:42:00,239 Speaker 3: it means it's kind of so I think, so these 832 00:42:00,320 --> 00:42:04,239 Speaker 3: terminologies is the way it's gone. I don't think so. 833 00:42:04,400 --> 00:42:05,840 Speaker 3: I want to be clear to say I think the 834 00:42:05,880 --> 00:42:08,080 Speaker 3: sentiment's overblown. I don't think it was a rational to 835 00:42:08,120 --> 00:42:11,080 Speaker 3: do the exercise to try to sort this out. 836 00:42:10,920 --> 00:42:14,600 Speaker 1: That fundamentally the loans on there isn't this huge impairment 837 00:42:14,600 --> 00:42:15,600 Speaker 1: that we cannot see. 838 00:42:15,960 --> 00:42:20,279 Speaker 3: So I mentioned earlier that you know, day one of 839 00:42:21,160 --> 00:42:24,960 Speaker 3: whatever was claud coming out whenever that was February, right anyways, 840 00:42:24,960 --> 00:42:26,840 Speaker 3: said they knew the future, right then I think. You know, 841 00:42:26,880 --> 00:42:28,839 Speaker 3: people have said, oh, we were looking into it, which 842 00:42:28,880 --> 00:42:31,279 Speaker 3: is true, you're planning out, but like you know, the 843 00:42:31,320 --> 00:42:32,839 Speaker 3: world changed and. 844 00:42:32,800 --> 00:42:34,279 Speaker 4: Then there was that winners and losers. 845 00:42:34,520 --> 00:42:36,440 Speaker 3: And now if I had to put numbers on it, 846 00:42:37,200 --> 00:42:40,960 Speaker 3: what we're seeing is probably eighty plus percent of the 847 00:42:41,000 --> 00:42:44,320 Speaker 3: portfolios within that software area of the companies are fine. 848 00:42:45,239 --> 00:42:48,239 Speaker 3: The last twenty percenters question marks, maybe five to ten 849 00:42:48,280 --> 00:42:51,799 Speaker 3: of those are at risk. Of those, you know you 850 00:42:51,800 --> 00:42:53,680 Speaker 3: have a default, you have a loss half of that. 851 00:42:53,840 --> 00:42:58,120 Speaker 3: So when you run those numbers through on any diversified portfolio, 852 00:42:58,160 --> 00:42:59,319 Speaker 3: and I think if you're going to come into private 853 00:42:59,360 --> 00:43:02,759 Speaker 3: markets should be diversified, it starts to become it's a 854 00:43:02,800 --> 00:43:07,280 Speaker 3: real issue that that will have defaults, as I've said, 855 00:43:08,320 --> 00:43:11,919 Speaker 3: both for that and other reasons. But it's contained within there. 856 00:43:11,960 --> 00:43:14,759 Speaker 3: And then you have this duration and I think has 857 00:43:14,800 --> 00:43:17,640 Speaker 3: been widely reported again not in structures that are ten 858 00:43:17,719 --> 00:43:21,200 Speaker 3: or fifteen times levered, right, that there was a genuine 859 00:43:21,239 --> 00:43:24,400 Speaker 3: regulatory change to move this risk out of that side 860 00:43:24,400 --> 00:43:25,960 Speaker 3: of it, and I think it's worked. 861 00:43:25,960 --> 00:43:27,239 Speaker 4: I think it's in longer. 862 00:43:27,000 --> 00:43:31,280 Speaker 3: Term pools of capital that have that can better absorb 863 00:43:31,600 --> 00:43:34,880 Speaker 3: shocks like this over time. So so I don't think no, 864 00:43:35,080 --> 00:43:39,480 Speaker 3: the specific crisis isn't the kind of the Big Bang. 865 00:43:39,520 --> 00:43:42,719 Speaker 3: But also it's a more durable system that can that 866 00:43:42,719 --> 00:43:45,440 Speaker 3: can manage these these risks what we're seeing and stretch 867 00:43:45,480 --> 00:43:46,160 Speaker 3: them out over time. 868 00:43:46,280 --> 00:43:48,799 Speaker 1: I know you seeing opportunities to biass from BDCs. 869 00:43:50,960 --> 00:43:57,719 Speaker 3: Yes, there's there's public and private BDCs, and both of 870 00:43:57,760 --> 00:44:02,200 Speaker 3: them are seeking liquid in the market for different reasons. 871 00:44:02,200 --> 00:44:05,840 Speaker 3: On that side, there's also I think the BBC markets 872 00:44:05,880 --> 00:44:09,800 Speaker 3: gapped out fifteen percent plus five times in the last 873 00:44:09,840 --> 00:44:13,360 Speaker 3: fifteen years. In general, just the historical data is the 874 00:44:13,400 --> 00:44:17,120 Speaker 3: four quarters after that gap out had been double digit returns. 875 00:44:17,160 --> 00:44:19,600 Speaker 3: So I think a lot of them have seen this 876 00:44:19,680 --> 00:44:23,200 Speaker 3: movie before. But there are some that hit a certain 877 00:44:23,239 --> 00:44:26,680 Speaker 3: scale or size where it becomes uneconomical to continue running 878 00:44:26,680 --> 00:44:29,480 Speaker 3: them or probably have some structural challenges right, and we'll 879 00:44:29,520 --> 00:44:33,200 Speaker 3: need to seek some kind of a solution around them. 880 00:44:33,480 --> 00:44:37,560 Speaker 3: And then for the ward private BDCs, their liquidity mechanism 881 00:44:37,920 --> 00:44:40,160 Speaker 3: is effectively you know, think of it as the LP 882 00:44:40,360 --> 00:44:42,680 Speaker 3: market or you're going out to the secondary market to 883 00:44:42,719 --> 00:44:44,680 Speaker 3: a cheap recudy. Though, so we're seeing both of those 884 00:44:44,719 --> 00:44:45,480 Speaker 3: come into the market. 885 00:44:45,640 --> 00:44:47,840 Speaker 1: On the public side, you could buy loans to provide 886 00:44:47,840 --> 00:44:51,640 Speaker 1: liquidity to a BDC that needs to fund to get 887 00:44:51,640 --> 00:44:52,760 Speaker 1: the quidtitsy correct. 888 00:44:52,760 --> 00:44:55,920 Speaker 3: They could seek to trade loans, they could seek to 889 00:44:55,920 --> 00:44:59,000 Speaker 3: move them into another vehicle, or in an extreme scenario, 890 00:44:59,080 --> 00:45:01,920 Speaker 3: they could seek to wind up the BBC through a 891 00:45:02,000 --> 00:45:06,279 Speaker 3: public deprivate transaction of some some type on that side, 892 00:45:06,320 --> 00:45:09,640 Speaker 3: which happened in the equity secondary market about a decade 893 00:45:09,680 --> 00:45:13,080 Speaker 3: ago we did. I think we've done five public deprivates 894 00:45:13,080 --> 00:45:15,160 Speaker 3: as a firm, and some of some of the best 895 00:45:15,160 --> 00:45:16,960 Speaker 3: re charms we've ever done in those of that that 896 00:45:17,080 --> 00:45:18,360 Speaker 3: arbitrage is in that market. 897 00:45:18,760 --> 00:45:20,600 Speaker 1: As a listener to this show, Greg and thank you 898 00:45:20,680 --> 00:45:22,600 Speaker 1: for listening. I know that you know that I'm going 899 00:45:22,680 --> 00:45:25,000 Speaker 1: to ask you about relative value. Where is the best 900 00:45:25,000 --> 00:45:26,960 Speaker 1: relative value for you in terms of you know, let's 901 00:45:26,960 --> 00:45:30,880 Speaker 1: take a twelve month timeframe, what's the screaming opportunity for you. 902 00:45:32,640 --> 00:45:36,400 Speaker 3: I'm gonna be biased, but I think the emerging credit 903 00:45:36,480 --> 00:45:38,400 Speaker 3: secondaries asset class. 904 00:45:38,480 --> 00:45:40,880 Speaker 4: So I think that's that's probably an obvious statement for me. 905 00:45:41,400 --> 00:45:46,160 Speaker 3: Where within that, oh, with within that, when things dislocate, 906 00:45:46,480 --> 00:45:50,720 Speaker 3: there's I said, the GPUs side and the LPED side LPs. 907 00:45:52,360 --> 00:45:54,879 Speaker 3: Over time, there's a tendency to throw the baby out 908 00:45:54,880 --> 00:45:57,000 Speaker 3: with the bath water. So if you can see the 909 00:45:57,120 --> 00:46:02,040 Speaker 3: signal for the noise, you can buy incredibly well in 910 00:46:02,080 --> 00:46:05,959 Speaker 3: that market. Sometimes there's things like the furrals where youpay 911 00:46:06,000 --> 00:46:07,600 Speaker 3: some of the money now and some of the money later, 912 00:46:08,000 --> 00:46:10,880 Speaker 3: the bridge, which is an interest free loan on a 913 00:46:10,960 --> 00:46:16,480 Speaker 3: yielding portfolio. So so when the LP market in particular dislocates, 914 00:46:16,760 --> 00:46:19,960 Speaker 3: there there tend to be a few very interesting buying 915 00:46:20,000 --> 00:46:22,960 Speaker 3: opportunities and a lot of our limited partners start to 916 00:46:22,960 --> 00:46:24,320 Speaker 3: get excited about that opportunity. 917 00:46:24,360 --> 00:46:26,280 Speaker 1: And that's something you have seen in recent weeks. 918 00:46:27,480 --> 00:46:30,320 Speaker 3: Again, this is a slower duration market than you would 919 00:46:30,360 --> 00:46:32,200 Speaker 3: like it to be, but it is ones that we 920 00:46:32,520 --> 00:46:35,760 Speaker 3: see emerging. So I think, you know, you can see 921 00:46:36,400 --> 00:46:41,160 Speaker 3: it's still relatively narrow under capitalized market. So a few 922 00:46:41,360 --> 00:46:44,480 Speaker 3: very large deals which we have seen some very large 923 00:46:44,520 --> 00:46:46,640 Speaker 3: deals emerging in our space. Some of the biggest we've 924 00:46:46,680 --> 00:46:49,800 Speaker 3: seen can can overwhelm the capital on that side, and 925 00:46:50,120 --> 00:46:53,000 Speaker 3: so you can you can get an interesting buying dynamic, 926 00:46:53,040 --> 00:46:55,799 Speaker 3: and so a lot that's still in process right now, 927 00:46:56,160 --> 00:46:58,320 Speaker 3: so you know, kind of ask us in three or 928 00:46:58,360 --> 00:46:58,880 Speaker 3: six months. 929 00:46:58,960 --> 00:47:02,279 Speaker 1: Yeah, So the there's see the sort of death of 930 00:47:02,440 --> 00:47:04,839 Speaker 1: private credit narrative is not it's not over that things 931 00:47:04,840 --> 00:47:07,520 Speaker 1: are still tough in private credit. Is that the kind 932 00:47:07,560 --> 00:47:08,560 Speaker 1: of I would say. 933 00:47:08,400 --> 00:47:12,640 Speaker 3: We've gone from completely benign credit and vine not completely, 934 00:47:12,760 --> 00:47:16,960 Speaker 3: but a relatively benign credit environment to a less benign 935 00:47:17,000 --> 00:47:20,600 Speaker 3: credit environment with an increased volatility. So I think if 936 00:47:20,640 --> 00:47:22,359 Speaker 3: you if you think of you know, you earn an 937 00:47:22,360 --> 00:47:24,799 Speaker 3: excess return in private credit. And part of that is 938 00:47:24,800 --> 00:47:27,880 Speaker 3: for for for taking on, you know, some of some 939 00:47:28,000 --> 00:47:31,920 Speaker 3: of these risks. So I think that I think everything 940 00:47:31,960 --> 00:47:36,399 Speaker 3: points to volatility continuing and and and and I think 941 00:47:37,080 --> 00:47:42,520 Speaker 3: you know, rates longer for uh longer duration on that side, 942 00:47:42,560 --> 00:47:44,640 Speaker 3: I think you know you'll you'll continue to see that. 943 00:47:44,719 --> 00:47:47,879 Speaker 3: So I I don't think I don't think that's going 944 00:47:47,920 --> 00:47:50,800 Speaker 3: away in the very near term. If that does go away, 945 00:47:50,840 --> 00:47:53,600 Speaker 3: because you know, rate rates of class, that's probably because 946 00:47:53,600 --> 00:47:55,600 Speaker 3: something else really bad has happened as well. So I 947 00:47:55,600 --> 00:47:58,279 Speaker 3: think it's uh, I think there'll be a period here 948 00:47:58,400 --> 00:48:00,520 Speaker 3: that's going to be probably less benign the one that 949 00:48:00,560 --> 00:48:01,120 Speaker 3: predated it. 950 00:48:01,440 --> 00:48:02,960 Speaker 1: What are your clients asking you about it when you 951 00:48:03,040 --> 00:48:05,560 Speaker 1: when you're in this world tour? What are they hoping 952 00:48:05,600 --> 00:48:08,560 Speaker 1: you'll explain to them or very worried about in terms 953 00:48:08,560 --> 00:48:09,920 Speaker 1: of the next six months. 954 00:48:11,000 --> 00:48:17,080 Speaker 3: I've been pretty focused on the private credit side, and 955 00:48:17,160 --> 00:48:21,600 Speaker 3: what I've seen on behalf of the institututional allocators by 956 00:48:21,640 --> 00:48:26,359 Speaker 3: and large is that they think the sentiment is overblown 957 00:48:26,400 --> 00:48:29,359 Speaker 3: and they're excited to come into the space. That's been 958 00:48:29,360 --> 00:48:33,879 Speaker 3: the generalized one. Another I think interesting thing I've heard 959 00:48:33,920 --> 00:48:37,120 Speaker 3: is that I don't know if this was ever true, 960 00:48:37,200 --> 00:48:40,200 Speaker 3: but this idea of what is the risk. 961 00:48:40,040 --> 00:48:41,160 Speaker 4: Free asset right now? 962 00:48:41,239 --> 00:48:42,799 Speaker 3: So I think for a lot of people, I think 963 00:48:42,920 --> 00:48:44,480 Speaker 3: you have this narrative in your head of all I'll 964 00:48:44,520 --> 00:48:46,480 Speaker 3: just sit in I don't even know. 965 00:48:46,400 --> 00:48:47,000 Speaker 4: What right now? 966 00:48:47,160 --> 00:48:50,080 Speaker 3: You know is that the investment grade mask being on 967 00:48:50,160 --> 00:48:54,239 Speaker 3: Microsoft right wherever the genuine risk free as is right now. 968 00:48:54,280 --> 00:48:58,640 Speaker 3: But even amongst those hyperscalers right they have massive capex plans. 969 00:48:58,880 --> 00:49:01,239 Speaker 3: So I think what I hear from institutional investors is, 970 00:49:02,440 --> 00:49:05,000 Speaker 3: you know, if you're an insurance company, if you're a pension, 971 00:49:05,080 --> 00:49:06,960 Speaker 3: you have to go into the market. You don't get 972 00:49:06,960 --> 00:49:09,040 Speaker 3: the benefit of saying I'm gonna sit on your hands, 973 00:49:09,080 --> 00:49:12,160 Speaker 3: and you have to decide what risk you're taking and 974 00:49:12,239 --> 00:49:15,080 Speaker 3: where the relative value of that is. So when I 975 00:49:15,080 --> 00:49:17,600 Speaker 3: talk to these largin social outcres, that's that's how they're 976 00:49:17,600 --> 00:49:19,520 Speaker 3: thinking through the world. They're not thinking through it on 977 00:49:20,040 --> 00:49:22,839 Speaker 3: you know, they don't on that side. So I think 978 00:49:22,880 --> 00:49:25,920 Speaker 3: that's you know, that's what we've been hearing a lot of. 979 00:49:26,080 --> 00:49:28,840 Speaker 1: But no one's in despair, So it's that's good news. 980 00:49:29,440 --> 00:49:33,240 Speaker 3: No, No, No one's in complete despair that I've met. Yeah, certainly, 981 00:49:33,400 --> 00:49:35,719 Speaker 3: at least not over their investment portfolio. Maybe it's over 982 00:49:35,760 --> 00:49:36,440 Speaker 3: some other things. 983 00:49:36,560 --> 00:49:38,920 Speaker 1: It's great stuff. Gregs Zelzie with Have a Vest. It's 984 00:49:38,920 --> 00:49:40,200 Speaker 1: been a pleasure having you on the Credit Edge. 985 00:49:40,200 --> 00:49:40,480 Speaker 2: Monny. 986 00:49:40,480 --> 00:49:42,839 Speaker 1: Thanks, thank you, and of course very grateful to John 987 00:49:42,880 --> 00:49:45,120 Speaker 1: Eve Coupan with Bloomberg Intelligence. Thank you so much for 988 00:49:45,160 --> 00:49:48,480 Speaker 1: joining us today. For more credit market analysis and insight, 989 00:49:48,520 --> 00:49:51,360 Speaker 1: read all of Jy Coupan's great work on the Bloomberg terminal. 990 00:49:51,400 --> 00:49:53,960 Speaker 1: Bloomberg Intelligence is part of our research department, with five 991 00:49:54,040 --> 00:49:57,840 Speaker 1: hundred analysts and strategies working across all markets. Coverage includes 992 00:49:57,840 --> 00:50:00,239 Speaker 1: over two thousand equities and credits and out look on 993 00:50:00,280 --> 00:50:03,640 Speaker 1: more than ninety industries and one hundred market indices, currencies 994 00:50:03,640 --> 00:50:07,120 Speaker 1: and commodities. Please do subscribe to the Credit Edge wherever 995 00:50:07,160 --> 00:50:09,880 Speaker 1: you get your podcasts. We're on Apple, Spotify and all 996 00:50:09,960 --> 00:50:13,520 Speaker 1: other good podcast providers, including the Bloomberg Terminal at bpod Go. 997 00:50:14,280 --> 00:50:16,719 Speaker 1: Give us a review, tell your friends, or email me 998 00:50:16,840 --> 00:50:19,760 Speaker 1: directly at jcrombyeight at Bloomberg dot net. 999 00:50:20,320 --> 00:50:21,160 Speaker 4: I'm James Crombie. 1000 00:50:21,160 --> 00:50:23,279 Speaker 1: It's been a pleasure having you join us again. Next 1001 00:50:23,280 --> 00:50:39,680 Speaker 1: week on the Credit Edge,