1 00:00:17,920 --> 00:00:20,400 Speaker 1: Hello, and welcome to the Credit Edge, a Wiki markets podcast. 2 00:00:20,520 --> 00:00:23,720 Speaker 1: My name is James Crumbie. I'm a senior editor at Bloomberg. 3 00:00:23,560 --> 00:00:24,040 Speaker 2: And I'm MATC. 4 00:00:24,079 --> 00:00:27,640 Speaker 3: Woyner, a credit analyst covering industrials with Bloomberg Intelligence. This week, 5 00:00:27,680 --> 00:00:30,560 Speaker 3: we're very pleased to welcome Gregory Peters, co, Chief Investment 6 00:00:30,600 --> 00:00:32,280 Speaker 3: Officer of PGM Fixed Income. 7 00:00:32,760 --> 00:00:35,159 Speaker 2: Are you Greg, I'm great, Thanks for having me. PGM 8 00:00:35,200 --> 00:00:35,440 Speaker 2: is one. 9 00:00:35,400 --> 00:00:38,239 Speaker 3: Of the world's largest investment managers, with one point fortullion 10 00:00:38,240 --> 00:00:41,199 Speaker 3: in asset center management, of which fixed income AUM totals 11 00:00:41,240 --> 00:00:43,599 Speaker 3: over inn billion, and so Greg is one of the 12 00:00:43,640 --> 00:00:47,320 Speaker 3: co heads of the multisector team. Before joining PGM in 13 00:00:47,440 --> 00:00:50,000 Speaker 3: twenty fourteen, he was Morgan Stanley's Global Director of Fixed 14 00:00:50,040 --> 00:00:54,080 Speaker 3: Income and Economic Research and chief Global cross Asset Strategist, 15 00:00:54,680 --> 00:00:58,160 Speaker 3: responsible for the firm's macro research and asset allocation strategies. 16 00:00:58,400 --> 00:01:01,480 Speaker 3: And before that he was at Solomon as well as 17 00:01:01,520 --> 00:01:03,520 Speaker 3: the US Treasury. So I think that's sort of a 18 00:01:03,560 --> 00:01:05,640 Speaker 3: long way of saying I think when Greg speaks, we 19 00:01:05,680 --> 00:01:07,840 Speaker 3: should all listen. So do you want to kick us off? 20 00:01:07,880 --> 00:01:10,120 Speaker 1: James, Yeah, we have tons of questions for Greg, but 21 00:01:10,280 --> 00:01:13,000 Speaker 1: first we will set the scene. Markets have rallied on 22 00:01:13,120 --> 00:01:15,560 Speaker 1: hopes of trade deals, but there's still a huge amount 23 00:01:15,560 --> 00:01:18,440 Speaker 1: of worry, not least about tariffs, but also about the 24 00:01:18,440 --> 00:01:23,520 Speaker 1: budget deficit, the FED, riots in la and global geopolitical concerns. 25 00:01:23,880 --> 00:01:26,840 Speaker 1: Despite this wall of angst and uncertainty, credit markets are 26 00:01:26,840 --> 00:01:29,880 Speaker 1: projecting an air of complacency, with debt sbreads back below 27 00:01:29,880 --> 00:01:32,360 Speaker 1: long term averages and likely to go tighter as demand 28 00:01:32,400 --> 00:01:35,080 Speaker 1: for yield rises and net new supply of corporate bonds 29 00:01:35,120 --> 00:01:37,840 Speaker 1: and loans remains muted, unless, of course, there's a big 30 00:01:37,959 --> 00:01:41,000 Speaker 1: m and a comeback. Public credit markets are performing well, 31 00:01:41,080 --> 00:01:43,959 Speaker 1: leading some to question the value proposition of private markets, 32 00:01:44,000 --> 00:01:46,720 Speaker 1: and most people seem confident about the strength of corporate 33 00:01:46,760 --> 00:01:50,520 Speaker 1: balance sheets. The end of American exceptionalism is another big theme. 34 00:01:50,680 --> 00:01:52,920 Speaker 1: Global investors say they're looking more at Europe and at 35 00:01:52,920 --> 00:01:56,360 Speaker 1: Asia as alternatives, but there are clear limitations when it 36 00:01:56,360 --> 00:01:59,160 Speaker 1: comes to scale and liquidity there. So, Greg, what's your 37 00:01:59,200 --> 00:02:00,960 Speaker 1: take our credit mark? It's fairly valued. 38 00:02:00,960 --> 00:02:02,520 Speaker 2: Where do we go from here? Boy? 39 00:02:02,560 --> 00:02:05,440 Speaker 4: That was a great intro. I found myself nodding to 40 00:02:06,040 --> 00:02:11,280 Speaker 4: everything that you said. I think it is a valuation story. 41 00:02:11,800 --> 00:02:15,440 Speaker 4: Heading into this year, we had a more optimistic view 42 00:02:15,760 --> 00:02:18,880 Speaker 4: of the global economy of the US economy, and we. 43 00:02:18,840 --> 00:02:20,000 Speaker 2: Were still cautious. 44 00:02:20,560 --> 00:02:23,239 Speaker 4: And the reason why we were simply cautious is because 45 00:02:23,639 --> 00:02:24,600 Speaker 4: risk reward. 46 00:02:24,480 --> 00:02:25,160 Speaker 2: Was quite poor. 47 00:02:26,560 --> 00:02:29,880 Speaker 4: You know, spreads are top kind of richest death style 48 00:02:29,919 --> 00:02:32,840 Speaker 4: that we've seen over the past just call it thirty years. 49 00:02:34,040 --> 00:02:39,040 Speaker 4: If you just oversimplify, spreads are you know, well below 50 00:02:39,120 --> 00:02:41,520 Speaker 4: the average. And it feels to me, just based on 51 00:02:41,560 --> 00:02:46,840 Speaker 4: your intro, that we have above average type of risk environment. 52 00:02:47,040 --> 00:02:53,200 Speaker 4: So I do think credit spreads are too tight. I 53 00:02:53,200 --> 00:02:56,880 Speaker 4: think this is a market where you're induced to take 54 00:02:57,000 --> 00:03:02,320 Speaker 4: less risk. Button down your risk profile, roll and carry, 55 00:03:02,720 --> 00:03:06,120 Speaker 4: don't go out the curve, don't necessarily go down the 56 00:03:06,120 --> 00:03:08,600 Speaker 4: credit curve. But we can talk more about it because 57 00:03:08,600 --> 00:03:13,799 Speaker 4: that's where the kind of the idiosyncratic opportunities lie. But yeah, 58 00:03:13,800 --> 00:03:16,000 Speaker 4: I think you have to be cautious in here. 59 00:03:16,360 --> 00:03:17,720 Speaker 2: Talking about the risk profile. 60 00:03:17,760 --> 00:03:19,400 Speaker 3: So what sort of the house of you at PGM 61 00:03:19,440 --> 00:03:21,800 Speaker 3: in terms of the big beautiful bill. Is it going 62 00:03:21,840 --> 00:03:23,919 Speaker 3: to trigger a sort of net reduction to the deficit? 63 00:03:24,560 --> 00:03:27,280 Speaker 3: I think President Trump has called out one point four 64 00:03:27,320 --> 00:03:30,280 Speaker 3: one point five trillion lower or do you think it's 65 00:03:30,280 --> 00:03:32,679 Speaker 3: going to push us further into the red to the 66 00:03:32,720 --> 00:03:34,920 Speaker 3: tune of two and a half million. I wouldn't exactly 67 00:03:34,920 --> 00:03:38,240 Speaker 3: call a four trillion dollar delta a small figure. So 68 00:03:38,600 --> 00:03:40,200 Speaker 3: how do you see that playing out. What's the impact 69 00:03:40,240 --> 00:03:42,080 Speaker 3: on demand for treasuries. 70 00:03:42,840 --> 00:03:44,600 Speaker 2: Well, I have yet to see. 71 00:03:45,800 --> 00:03:51,160 Speaker 4: Any think tank or independent study to suggest that this 72 00:03:51,200 --> 00:03:53,840 Speaker 4: is a deficit reducer, so I'd be curious to see 73 00:03:53,840 --> 00:03:58,160 Speaker 4: the math on that. So all roads lead to a 74 00:03:58,200 --> 00:04:02,520 Speaker 4: greater amount of debt, a larger deficit, and I think 75 00:04:02,560 --> 00:04:06,880 Speaker 4: the markets care a lot about it. This is one 76 00:04:06,880 --> 00:04:10,880 Speaker 4: of these things. As we entered this year, tax reform, 77 00:04:10,960 --> 00:04:11,640 Speaker 4: let's just call it. 78 00:04:11,680 --> 00:04:12,680 Speaker 2: I'm doing air quotes. 79 00:04:12,760 --> 00:04:17,320 Speaker 4: A tax reform was viewed as a market positive, you know, 80 00:04:17,400 --> 00:04:22,200 Speaker 4: balancing out immigration and tariffs. But I think what you're 81 00:04:22,560 --> 00:04:25,400 Speaker 4: realizing is that this comes out of cost, and the 82 00:04:25,440 --> 00:04:29,000 Speaker 4: markets are the bond market is increasingly worried about that 83 00:04:29,120 --> 00:04:32,640 Speaker 4: cost and the payback. And I think this is a 84 00:04:32,680 --> 00:04:36,240 Speaker 4: situation where this bill will get passed in one way, 85 00:04:36,279 --> 00:04:40,480 Speaker 4: shape or form, and I think the bond market is 86 00:04:40,520 --> 00:04:42,719 Speaker 4: going to dislike it. 87 00:04:42,839 --> 00:04:45,400 Speaker 1: So it means high yields at the long end, But 88 00:04:45,680 --> 00:04:49,960 Speaker 1: it presumably doesn't make or it makes a recession less likely, 89 00:04:50,040 --> 00:04:51,799 Speaker 1: does it? Because it's very supportive. 90 00:04:52,360 --> 00:04:52,680 Speaker 2: It does. 91 00:04:52,720 --> 00:04:55,360 Speaker 4: There's a decent amount of fiscal stimulus coming in now. 92 00:04:56,160 --> 00:04:59,440 Speaker 4: I think that's lost on a lot of folks. So 93 00:04:59,480 --> 00:05:03,600 Speaker 4: this will can continue to push the fiscal that I 94 00:05:03,680 --> 00:05:09,240 Speaker 4: believe averts a recession. It's hard to it's hard to 95 00:05:09,279 --> 00:05:11,760 Speaker 4: forecast the course because there's you know, so much in 96 00:05:11,800 --> 00:05:15,520 Speaker 4: the way of unknowns and uncertainties. We have yet to 97 00:05:15,560 --> 00:05:20,440 Speaker 4: see the impact of the tariffing strategy or shall I say, 98 00:05:20,880 --> 00:05:24,160 Speaker 4: the change in the strategy that makes it really difficult 99 00:05:24,240 --> 00:05:28,680 Speaker 4: for companies to plan. So the truth is we don't know. 100 00:05:28,800 --> 00:05:32,240 Speaker 4: But the fiscal side, you know, does help. But the 101 00:05:32,279 --> 00:05:36,040 Speaker 4: flip side of that is it's an ultimate curve steepener. 102 00:05:37,080 --> 00:05:39,960 Speaker 4: Borrowing costs are going to go up. I think it 103 00:05:40,040 --> 00:05:44,800 Speaker 4: keeps the FED on hold as well, and that puts 104 00:05:44,839 --> 00:05:49,080 Speaker 4: more pressure on you know, a lot of these cap stacks. 105 00:05:48,960 --> 00:05:50,719 Speaker 1: That most of the companies have shown that they can 106 00:05:50,880 --> 00:05:52,960 Speaker 1: live with these high rates for quite a long time 107 00:05:53,000 --> 00:05:55,839 Speaker 1: and they've done okay. And then on the other side, 108 00:05:55,960 --> 00:05:57,720 Speaker 1: you know, there isn't a lot of supply, there's a 109 00:05:57,760 --> 00:06:01,720 Speaker 1: lot of demand. So the sets up the credit, I mean, 110 00:06:01,720 --> 00:06:04,920 Speaker 1: at least the consensus shows is pretty bullish, pretty optimistic. 111 00:06:05,160 --> 00:06:08,640 Speaker 1: You're you're somewhat against that in terms of your well 112 00:06:08,680 --> 00:06:11,720 Speaker 1: courtious view, but you know you're fighting against some pretty 113 00:06:11,720 --> 00:06:13,320 Speaker 1: strong technicals there. How do you play that? 114 00:06:13,800 --> 00:06:19,280 Speaker 4: I think technicals are ephemeral there, they'll they'll switch when 115 00:06:19,480 --> 00:06:21,560 Speaker 4: you know, as soon as you count on technicals to 116 00:06:21,760 --> 00:06:25,159 Speaker 4: save the day, a bad trade is not going to 117 00:06:25,200 --> 00:06:30,360 Speaker 4: be rescued by bad technicals. I just don't think that 118 00:06:30,640 --> 00:06:35,520 Speaker 4: as a fundamental analysis, and as an analyst, I'm just 119 00:06:35,760 --> 00:06:38,360 Speaker 4: not sure that's a real part of the calculus. I'm 120 00:06:38,400 --> 00:06:41,760 Speaker 4: not a trading desk, right, we are investors. That's different. 121 00:06:43,080 --> 00:06:48,479 Speaker 4: I mean it helps on the margin, But you know 122 00:06:48,560 --> 00:06:51,880 Speaker 4: what's different you talked about Obviously companies have. 123 00:06:51,880 --> 00:06:52,640 Speaker 2: Been through a lot. 124 00:06:52,760 --> 00:06:57,320 Speaker 4: There's a lot more resiliency in corporate America than I 125 00:06:57,360 --> 00:07:04,080 Speaker 4: think initially perceived. But keep in mind revenues, cash flows, 126 00:07:04,120 --> 00:07:07,600 Speaker 4: however you want to define it, we're pretty good, right. So, yeah, 127 00:07:07,680 --> 00:07:11,040 Speaker 4: the cost of capital really jumped up. That cost of 128 00:07:11,120 --> 00:07:14,560 Speaker 4: capital is not going down, So the delta the operating 129 00:07:14,640 --> 00:07:18,920 Speaker 4: leverage around future cash flows is really quite high. And 130 00:07:19,080 --> 00:07:23,000 Speaker 4: what we're seeing in the market is just tremendous differentiation 131 00:07:23,160 --> 00:07:28,360 Speaker 4: based on that. So these highly levered capital structures haven't 132 00:07:28,400 --> 00:07:31,160 Speaker 4: really been put to the test. Yet, if you see 133 00:07:31,520 --> 00:07:34,240 Speaker 4: just economic activities slow, it doesn't even have to be 134 00:07:34,360 --> 00:07:37,240 Speaker 4: zero or negative. That puts a lot of pressure on 135 00:07:37,320 --> 00:07:40,160 Speaker 4: these companies, and I don't think that story has yet 136 00:07:40,160 --> 00:07:40,760 Speaker 4: to unfold. 137 00:07:41,200 --> 00:07:43,720 Speaker 3: I think going back to sort of maybe a little 138 00:07:43,720 --> 00:07:46,000 Speaker 3: bit higher levels. So I think when the FED d 139 00:07:46,040 --> 00:07:49,040 Speaker 3: first institute a QE back in two thousand and eight, 140 00:07:49,360 --> 00:07:51,800 Speaker 3: if I pull up the HI function on the terminal 141 00:07:51,840 --> 00:07:54,600 Speaker 3: and sort of regress the Fed's expanding balance, sheeversus returns 142 00:07:54,600 --> 00:07:57,600 Speaker 3: for the SMP. It's almost a perfect corollary, which I 143 00:07:57,600 --> 00:08:00,920 Speaker 3: think gave rise to the cloqualism don't fight the FED. Right, So, 144 00:08:01,200 --> 00:08:03,440 Speaker 3: Treasury Secretary Prestident has said that he wants a ten 145 00:08:03,480 --> 00:08:05,920 Speaker 3: year at four percent. He says he has tools available 146 00:08:05,920 --> 00:08:07,680 Speaker 3: to him. We're at four and a half percent right 147 00:08:07,680 --> 00:08:09,640 Speaker 3: now in the ten year. Do you think that that's 148 00:08:09,760 --> 00:08:12,840 Speaker 3: possible to get there? Can he limit the auction size 149 00:08:12,880 --> 00:08:15,400 Speaker 3: for the ten year or cut spending somewhere? Do you 150 00:08:15,480 --> 00:08:18,360 Speaker 3: regulate or do we get there? You know, basically for 151 00:08:18,400 --> 00:08:21,960 Speaker 3: the wrong reason, being that we're moving into an economic recession. 152 00:08:22,280 --> 00:08:26,000 Speaker 4: There's a lot to kind of unpack there. You know, 153 00:08:26,080 --> 00:08:28,560 Speaker 4: each of those are really quite different. I think it's 154 00:08:28,680 --> 00:08:33,319 Speaker 4: very difficult for the US Treasury Department to have influence 155 00:08:33,520 --> 00:08:37,440 Speaker 4: on kind of rate levels. I think rates are driven 156 00:08:37,520 --> 00:08:41,840 Speaker 4: by fundamentals economic activity. You know, obviously growth and inflation. 157 00:08:43,559 --> 00:08:49,240 Speaker 4: So one can kind of tweak the auction sizes schedule, 158 00:08:49,520 --> 00:08:52,160 Speaker 4: but that doesn't change the fundamental fact that there's a 159 00:08:52,200 --> 00:08:56,560 Speaker 4: tremendous amount of debt that needs to be refinanced, particularly 160 00:08:56,600 --> 00:09:00,440 Speaker 4: as we enter twenty twenty six, that really are still 161 00:09:00,520 --> 00:09:05,040 Speaker 4: ramp So I think it's really hard to do anything 162 00:09:05,080 --> 00:09:10,160 Speaker 4: about that necessarily, And what you're also fighting is just 163 00:09:10,160 --> 00:09:13,319 Speaker 4: an increase in term slash risk premium. I think it's 164 00:09:13,360 --> 00:09:15,880 Speaker 4: a really hard task. I think the only way you 165 00:09:15,920 --> 00:09:21,760 Speaker 4: really get base rates lower is through a recession, unfortunately, 166 00:09:22,920 --> 00:09:26,840 Speaker 4: or fiscal prudence. If the markets had a better feeling 167 00:09:27,000 --> 00:09:32,440 Speaker 4: around the fiscal sustainability, then I think rates would move lower. 168 00:09:32,920 --> 00:09:37,280 Speaker 4: But we're seeing the opposite, and this bill isn't allaying 169 00:09:37,360 --> 00:09:39,239 Speaker 4: any of those fiscal concerns. 170 00:09:39,559 --> 00:09:41,240 Speaker 1: Can we talk a bit more about the dispersion you 171 00:09:41,280 --> 00:09:44,880 Speaker 1: mentioned in terms of things all over the mat when 172 00:09:44,920 --> 00:09:47,079 Speaker 1: you look at the problems you mentioned with high rates 173 00:09:47,120 --> 00:09:50,040 Speaker 1: and the companies with worse economy, doesn't have to go 174 00:09:50,080 --> 00:09:53,120 Speaker 1: into recession, but just the earnings start to suffer. I 175 00:09:53,160 --> 00:09:56,120 Speaker 1: think the assumption broadly is that there is this liver 176 00:09:56,400 --> 00:09:58,840 Speaker 1: small piece of the market like triple c's, which we 177 00:09:58,920 --> 00:10:01,000 Speaker 1: all kind of know about. It's been this dumpsify that's 178 00:10:01,000 --> 00:10:04,240 Speaker 1: been going on forever, and those things will blow up potentially, 179 00:10:04,320 --> 00:10:07,199 Speaker 1: or they'll do Lem's, or they'll be some kind of restructuring, 180 00:10:07,960 --> 00:10:10,600 Speaker 1: whereas the rest of the market will be fine. Is 181 00:10:10,640 --> 00:10:12,920 Speaker 1: that too simplistic assumption? 182 00:10:13,760 --> 00:10:16,760 Speaker 4: A little too simplistic if you throw in single bees, 183 00:10:16,800 --> 00:10:19,240 Speaker 4: which is kind of the catch all right, you know 184 00:10:19,280 --> 00:10:22,240 Speaker 4: a single bee can be two times levered and fourteen 185 00:10:22,280 --> 00:10:24,800 Speaker 4: times levered, so you know there's a lot there's not 186 00:10:24,840 --> 00:10:27,200 Speaker 4: a lot of informational content by just looking at kind 187 00:10:27,200 --> 00:10:27,880 Speaker 4: of the credit rating. 188 00:10:27,880 --> 00:10:29,400 Speaker 1: Then that's a big chunk of the market, right it 189 00:10:29,480 --> 00:10:31,480 Speaker 1: is single bee It is what twenty thirty percent or 190 00:10:31,480 --> 00:10:32,000 Speaker 1: something like that. 191 00:10:31,840 --> 00:10:34,200 Speaker 4: That's the point. So yeah, so it's a big chunk. 192 00:10:34,920 --> 00:10:38,160 Speaker 4: I think it's fascinating what's going on. So at the 193 00:10:38,200 --> 00:10:43,160 Speaker 4: top line level, credit spreads are exceedingly tight, but underneath 194 00:10:43,160 --> 00:10:47,520 Speaker 4: the surface, you're seeing dispersion in the triple C double 195 00:10:48,240 --> 00:10:49,320 Speaker 4: single bee space. 196 00:10:49,960 --> 00:10:51,240 Speaker 2: The widest in decades. 197 00:10:51,679 --> 00:10:54,400 Speaker 4: So I use this analogy that always goes over poorly, 198 00:10:54,480 --> 00:10:57,640 Speaker 4: but I'm going to use it anyway. Which is the 199 00:10:57,679 --> 00:11:00,640 Speaker 4: high your market is like, or the levered finance market 200 00:11:00,800 --> 00:11:04,199 Speaker 4: is like a duck. Right on top, it's very placid, 201 00:11:04,600 --> 00:11:07,680 Speaker 4: but underneath the surface there's a tremendous amount of churn 202 00:11:07,760 --> 00:11:11,360 Speaker 4: in activity. So what you're seeing on the high YULD 203 00:11:11,440 --> 00:11:16,280 Speaker 4: side and dispersion front is this manifestation of companies with 204 00:11:17,040 --> 00:11:22,000 Speaker 4: overlevered or levered cap structures that are very sensitive to 205 00:11:22,120 --> 00:11:26,280 Speaker 4: changes in the revenue or cashlow profile that are getting 206 00:11:26,520 --> 00:11:28,120 Speaker 4: really penalized. 207 00:11:27,480 --> 00:11:28,479 Speaker 2: By the marketplace. 208 00:11:29,600 --> 00:11:33,480 Speaker 4: What you're also seeing you mentioned the LME side, is 209 00:11:33,800 --> 00:11:37,040 Speaker 4: a security price hits eighty and it just is in 210 00:11:37,080 --> 00:11:39,960 Speaker 4: a vacuum. It just falls because the structure of the 211 00:11:39,960 --> 00:11:43,079 Speaker 4: market is such where there's not a lot of players 212 00:11:43,720 --> 00:11:44,880 Speaker 4: who are willing. 213 00:11:44,600 --> 00:11:46,439 Speaker 2: To go through that process. Right. 214 00:11:46,440 --> 00:11:51,240 Speaker 4: It's a long, arduous, costly process, legal fees, time, you know, 215 00:11:51,280 --> 00:11:54,640 Speaker 4: you name it. So there's not a lot of willingness 216 00:11:55,360 --> 00:11:57,880 Speaker 4: or appetite to kind of go through that process. 217 00:11:57,960 --> 00:12:00,520 Speaker 2: So are you winning to go through that? Yeah? 218 00:12:00,880 --> 00:12:04,240 Speaker 4: I mean we're we're a very big player, but in 219 00:12:04,280 --> 00:12:07,040 Speaker 4: that space, you know, we think we have a competitive 220 00:12:07,040 --> 00:12:11,720 Speaker 4: advantage in that space. It's something that we've been very 221 00:12:11,760 --> 00:12:12,439 Speaker 4: involved in. 222 00:12:12,800 --> 00:12:15,560 Speaker 1: What's the advantage of though, is at scale scale you need. 223 00:12:15,480 --> 00:12:16,440 Speaker 2: Size and scale. Yep. 224 00:12:16,800 --> 00:12:19,000 Speaker 4: You know, a lot of the distress players have been 225 00:12:19,000 --> 00:12:23,199 Speaker 4: taken out kind of early and they've folded just because 226 00:12:24,000 --> 00:12:26,079 Speaker 4: you know, the investments didn't go well. 227 00:12:26,120 --> 00:12:27,480 Speaker 2: So there's not a lot of players. 228 00:12:27,480 --> 00:12:30,640 Speaker 4: But you need size and scale, and we have size 229 00:12:30,640 --> 00:12:34,240 Speaker 4: and scale at PGM. We have one hundred and fifty 230 00:12:34,240 --> 00:12:39,480 Speaker 4: six credit analysts, which is enormous. We have the distress 231 00:12:39,520 --> 00:12:42,439 Speaker 4: capabilities illegal all this stuff. But there's not a lot 232 00:12:42,480 --> 00:12:45,160 Speaker 4: of players that do it. But if you can do it, 233 00:12:45,720 --> 00:12:47,720 Speaker 4: the potential is really quite good. 234 00:12:47,880 --> 00:12:51,640 Speaker 1: But the problem with these transactions, according to some analysis 235 00:12:51,640 --> 00:12:53,800 Speaker 1: that we've seen, is that half these deals don't work out. 236 00:12:53,840 --> 00:12:56,440 Speaker 1: You know, they end up going bankrupt anyway. So you know, 237 00:12:56,480 --> 00:12:58,600 Speaker 1: how do you kind of look ahead, particularly in these 238 00:12:58,640 --> 00:13:01,840 Speaker 1: times of very uncertain macro markets, you know, how do 239 00:13:01,880 --> 00:13:04,320 Speaker 1: you look ahead and see this one's going to make it, 240 00:13:04,360 --> 00:13:06,360 Speaker 1: this one isn't, and position yourself a quidity. 241 00:13:06,440 --> 00:13:07,360 Speaker 2: Yeah, no, that's a good quote. 242 00:13:07,360 --> 00:13:10,040 Speaker 4: We were just quoting that yesterday actually, So it's been 243 00:13:10,080 --> 00:13:13,280 Speaker 4: a coin flip. Yes, you know, whether it works out, 244 00:13:14,040 --> 00:13:19,000 Speaker 4: but I think it goes to asset value and looking 245 00:13:19,040 --> 00:13:23,400 Speaker 4: at businesses that are good businesses, good assets that are 246 00:13:23,440 --> 00:13:27,400 Speaker 4: over levered. So it's not a one hundred percent opportunity 247 00:13:27,400 --> 00:13:31,160 Speaker 4: obviously based on your fifty percent hit rate quote, but 248 00:13:31,840 --> 00:13:36,240 Speaker 4: if you're focused on certain elements of a business, namely 249 00:13:36,760 --> 00:13:42,040 Speaker 4: asset rich, solid, you know, operating kind of environment that 250 00:13:42,200 --> 00:13:44,839 Speaker 4: just has too much leverage, then those are the names 251 00:13:44,840 --> 00:13:46,240 Speaker 4: that we like to play in. 252 00:13:46,440 --> 00:13:49,079 Speaker 1: You don't be hunded the keys, So how do you 253 00:13:49,160 --> 00:13:51,760 Speaker 1: avoid that situation? I mean, being the owner, you don't 254 00:13:51,720 --> 00:13:52,480 Speaker 1: have to run a company. 255 00:13:53,080 --> 00:13:56,760 Speaker 4: Well, you know it's about the exit, right, So no, 256 00:13:56,840 --> 00:13:58,880 Speaker 4: we don't want to run the company. We tried that 257 00:13:58,920 --> 00:14:02,440 Speaker 4: at Morgan Sally and didn't go so well. No, it's 258 00:14:02,480 --> 00:14:06,600 Speaker 4: about refitting the capital structure to put this company in 259 00:14:06,640 --> 00:14:10,800 Speaker 4: a better position to succeed, not taking the keys and 260 00:14:10,880 --> 00:14:14,360 Speaker 4: running it right. So it's just kind of working through 261 00:14:14,679 --> 00:14:15,800 Speaker 4: just from a pure. 262 00:14:15,600 --> 00:14:17,040 Speaker 2: Capital structure standpoint. 263 00:14:17,200 --> 00:14:20,200 Speaker 3: We've retraced back to pre tariff levels on both the 264 00:14:20,240 --> 00:14:22,200 Speaker 3: IG and High Yield Corporates index, so I think we're 265 00:14:22,720 --> 00:14:25,400 Speaker 3: eighty five over right now for IG and about three 266 00:14:25,480 --> 00:14:27,760 Speaker 3: hundred over for high yield which to your point, is 267 00:14:28,200 --> 00:14:32,640 Speaker 3: very tight historically. So are you guys embedding any quote 268 00:14:32,680 --> 00:14:34,840 Speaker 3: sort of you know, potential left tail risk into your 269 00:14:34,840 --> 00:14:37,280 Speaker 3: guys base case for twenty twenty five because we're in 270 00:14:37,280 --> 00:14:40,120 Speaker 3: this nice window here where we have a moratorium on 271 00:14:40,640 --> 00:14:43,560 Speaker 3: ninety day tariffs here, so you know what happens when 272 00:14:43,560 --> 00:14:45,360 Speaker 3: this stuff potentially rolls out, or do we get a 273 00:14:45,400 --> 00:14:48,040 Speaker 3: bunch of bilateral deals and having is going to be 274 00:14:48,040 --> 00:14:49,840 Speaker 3: okay in two h Yeah. 275 00:14:50,480 --> 00:14:54,320 Speaker 4: I've been surprised at how comfortable the market's been on 276 00:14:54,400 --> 00:15:00,360 Speaker 4: the idea of a deal, right, A true trade deal 277 00:15:00,840 --> 00:15:04,760 Speaker 4: is not a kind of a memoranda of understanding. So 278 00:15:04,880 --> 00:15:07,040 Speaker 4: I've I've been shocked that the markets have just been 279 00:15:07,240 --> 00:15:10,280 Speaker 4: this is great, We'll take it and move on. So 280 00:15:10,440 --> 00:15:14,640 Speaker 4: I don't think this story has ended yet. The devil's 281 00:15:14,640 --> 00:15:18,920 Speaker 4: into details. I think the market has been too swift 282 00:15:18,920 --> 00:15:21,600 Speaker 4: and quick to just declare victory. 283 00:15:22,160 --> 00:15:23,360 Speaker 2: And then you know, who knows. 284 00:15:23,480 --> 00:15:25,720 Speaker 4: You know, maybe the whole point of April second was 285 00:15:25,800 --> 00:15:29,479 Speaker 4: to make anything after that point, you know, completely consumable 286 00:15:29,520 --> 00:15:33,720 Speaker 4: and digestible and acceptable. Right, So I don't know, but 287 00:15:34,160 --> 00:15:37,640 Speaker 4: you have to follow the numbers, and you know, we 288 00:15:37,640 --> 00:15:39,920 Speaker 4: don't have enough data yet to follow those numbers. But 289 00:15:40,240 --> 00:15:43,800 Speaker 4: I've been, you know, surprised that the the the acceptance. 290 00:15:44,240 --> 00:15:48,080 Speaker 4: But I think the tail risk is still quite quite pronounced. 291 00:15:48,720 --> 00:15:51,600 Speaker 4: Our base case is one of muddling through, but the. 292 00:15:51,600 --> 00:15:53,200 Speaker 2: Tails are as fat as. 293 00:15:53,000 --> 00:15:56,720 Speaker 4: We've ever seen them. It just makes it really, really difficult. 294 00:15:56,800 --> 00:15:58,920 Speaker 4: So I don't think you are getting paid for those 295 00:15:58,960 --> 00:16:03,640 Speaker 4: tail risks. If you look at the pricing of credit 296 00:16:03,800 --> 00:16:07,320 Speaker 4: just broadly defined, I think it's pricing in a model 297 00:16:07,400 --> 00:16:10,720 Speaker 4: throw and mortal throw is great for credit, right, that's 298 00:16:10,760 --> 00:16:14,360 Speaker 4: what you want. But you know, I would submit that 299 00:16:14,440 --> 00:16:18,240 Speaker 4: the tail risk is higher than normal, and I want 300 00:16:18,280 --> 00:16:19,400 Speaker 4: to get paid for that too. 301 00:16:19,560 --> 00:16:21,280 Speaker 1: Credit also seems to be pricing in the idea that 302 00:16:21,320 --> 00:16:26,080 Speaker 1: the Trump administration will be more pragmatic ultimately than comforted confrontational, 303 00:16:26,120 --> 00:16:28,440 Speaker 1: and that you know, things do get very choppy, then 304 00:16:28,440 --> 00:16:31,640 Speaker 1: that they will be this put taco trade. Ye, things 305 00:16:31,640 --> 00:16:33,840 Speaker 1: will reverse and you know people are even putting levels 306 00:16:33,880 --> 00:16:36,200 Speaker 1: on it, let's say one thirty for the IG spread. 307 00:16:36,440 --> 00:16:38,840 Speaker 1: In terms of that, that's where you you know, stop 308 00:16:39,000 --> 00:16:42,040 Speaker 1: because the administration does something differently to reverse that. So 309 00:16:42,440 --> 00:16:45,480 Speaker 1: do you believe that you know there is limited downside 310 00:16:45,480 --> 00:16:47,800 Speaker 1: in this market because of the way that the administration 311 00:16:47,920 --> 00:16:48,960 Speaker 1: is watching the bond market. 312 00:16:49,120 --> 00:16:53,440 Speaker 4: The market is in eternal search of free puts, right, 313 00:16:53,880 --> 00:16:56,880 Speaker 4: so you know the Fed put, now the Trump put. 314 00:16:57,640 --> 00:16:59,880 Speaker 4: I just don't know enough. I would not bank on 315 00:16:59,920 --> 00:17:04,000 Speaker 4: that at no point intended. There's definitely this de escalation 316 00:17:04,440 --> 00:17:06,880 Speaker 4: strategy at place, So I do think there's some element 317 00:17:06,960 --> 00:17:10,320 Speaker 4: of it for sure. But you know, we haven't yet 318 00:17:10,359 --> 00:17:16,840 Speaker 4: seen the data around the uncertainty feeding into the economics 319 00:17:16,880 --> 00:17:19,160 Speaker 4: shet right. You know the economy is going to show 320 00:17:19,160 --> 00:17:22,080 Speaker 4: some signs of strength because it pulled forward. I think 321 00:17:22,119 --> 00:17:25,879 Speaker 4: that's more of a mirage than a reality. So I 322 00:17:25,920 --> 00:17:28,040 Speaker 4: think there's going to be some headfakes along the way. 323 00:17:28,280 --> 00:17:32,560 Speaker 4: But I just think that, you know, declaring like I 324 00:17:32,720 --> 00:17:35,920 Speaker 4: changed my mind and swipe of a pen, I don't 325 00:17:35,960 --> 00:17:38,439 Speaker 4: think that's a strategy. 326 00:17:37,920 --> 00:17:39,680 Speaker 2: To allay those fears necessarily. 327 00:17:40,160 --> 00:17:41,879 Speaker 1: So, I mean, this all makes absolute sense on a 328 00:17:41,920 --> 00:17:44,600 Speaker 1: fundamental basis. But I go back to the point about technicals, 329 00:17:45,119 --> 00:17:47,240 Speaker 1: which just every time there is a widening out, it 330 00:17:47,240 --> 00:17:49,960 Speaker 1: snaps right back because there's so much cash out there 331 00:17:50,200 --> 00:17:53,639 Speaker 1: looking to buy, regardless of all the problems that we 332 00:17:53,680 --> 00:17:57,800 Speaker 1: are facing, and I am often puzzled by it. But again, 333 00:17:57,880 --> 00:17:59,639 Speaker 1: it just thinks you can't fight the technicals. 334 00:18:00,119 --> 00:18:02,440 Speaker 2: No, I think that's right for now. Could it go on? 335 00:18:02,480 --> 00:18:04,159 Speaker 1: It's been going on for saving the years. 336 00:18:04,400 --> 00:18:07,960 Speaker 4: Well, I've been a different macro environment too, but there's 337 00:18:08,000 --> 00:18:09,359 Speaker 4: a lot of cash in the system. 338 00:18:09,840 --> 00:18:10,560 Speaker 2: Absolutely. 339 00:18:10,760 --> 00:18:14,679 Speaker 4: But if your thesis, not yours, but kind of like 340 00:18:14,760 --> 00:18:19,320 Speaker 4: the generic you thesis, is that I'll be rescued by 341 00:18:19,320 --> 00:18:21,959 Speaker 4: the technicals, I just have a hard time with that. 342 00:18:22,000 --> 00:18:24,560 Speaker 4: And if I'm wrong, then I'm okay with that. Actually, 343 00:18:24,680 --> 00:18:28,040 Speaker 4: things have a tendency of going on longer than I 344 00:18:28,040 --> 00:18:31,199 Speaker 4: think we you know, anticipate oftentimes. I think this is 345 00:18:31,240 --> 00:18:34,639 Speaker 4: one of those times. But given the TEL risk and 346 00:18:34,680 --> 00:18:39,199 Speaker 4: everything else we mentioned, I'm not sure technicals what I 347 00:18:39,200 --> 00:18:41,840 Speaker 4: would hang my hat on as an investment thesis. If 348 00:18:41,840 --> 00:18:43,800 Speaker 4: I was a trading desk could be a different story. 349 00:18:44,800 --> 00:18:47,000 Speaker 3: So for the PM's listening today, you know, what's your 350 00:18:47,000 --> 00:18:51,240 Speaker 3: guys pre election for portfolio positioning? You guys EU over 351 00:18:51,320 --> 00:18:53,640 Speaker 3: the US, are you short data? There is longer data 352 00:18:53,640 --> 00:18:56,120 Speaker 3: paper to help temper those fiscal risks relating to those 353 00:18:56,160 --> 00:18:58,840 Speaker 3: deficits and structure products? What does that what does that 354 00:18:58,880 --> 00:18:59,960 Speaker 3: bias look like for you guys? 355 00:19:00,400 --> 00:19:04,280 Speaker 4: Yeah, so we've been very button up on the risk side. 356 00:19:05,320 --> 00:19:09,720 Speaker 4: So we love credit, so we have a a natural 357 00:19:09,720 --> 00:19:12,400 Speaker 4: tendency of playing in credit. We think we're very good 358 00:19:12,400 --> 00:19:17,400 Speaker 4: at it. But you think about from a scaling standpoint, 359 00:19:18,440 --> 00:19:21,520 Speaker 4: we have the ability to you know, run one hundred 360 00:19:21,520 --> 00:19:22,920 Speaker 4: percent of our risk threshold. 361 00:19:22,960 --> 00:19:24,080 Speaker 2: E's actually we can go up. 362 00:19:23,960 --> 00:19:26,760 Speaker 4: To one twenty if we really like it, you know, 363 00:19:26,880 --> 00:19:30,680 Speaker 4: kind of spinal tap esque. We're at thirty now, so 364 00:19:30,760 --> 00:19:34,520 Speaker 4: we're at the lower end of the range, and so 365 00:19:34,640 --> 00:19:39,119 Speaker 4: how are we getting there? So it's a short maturity 366 00:19:39,240 --> 00:19:41,920 Speaker 4: roll and carry and high yield fits that built too, 367 00:19:42,000 --> 00:19:44,840 Speaker 4: So this is not an up and quality trade necessarily. 368 00:19:45,920 --> 00:19:47,440 Speaker 2: You know, high yield. 369 00:19:47,280 --> 00:19:50,760 Speaker 4: Carry is attractive carry, so we still like that, and 370 00:19:50,800 --> 00:19:54,960 Speaker 4: then the structure product piece really fits in. So structure 371 00:19:55,000 --> 00:19:58,000 Speaker 4: product is an area where you know, we feel in 372 00:19:58,080 --> 00:20:02,119 Speaker 4: a portfolio construct, but it allows you to move up 373 00:20:02,119 --> 00:20:04,119 Speaker 4: and out the efficient frontier. 374 00:20:04,640 --> 00:20:06,760 Speaker 2: And they're the quintessential carry trades. 375 00:20:06,840 --> 00:20:09,640 Speaker 4: You look at you know, double A, triple A colos, 376 00:20:10,040 --> 00:20:14,760 Speaker 4: it's carry safe carry, and so that's that's what we're doing. 377 00:20:15,480 --> 00:20:18,920 Speaker 4: I mean, Europe has been you know, slightly more cheap 378 00:20:18,960 --> 00:20:20,879 Speaker 4: than the US. You know, a lot of that has 379 00:20:20,920 --> 00:20:23,600 Speaker 4: to do with the proximity to what's going on in 380 00:20:23,720 --> 00:20:27,080 Speaker 4: Ukraine and Russia. But it's it's it's small to this point. 381 00:20:27,080 --> 00:20:29,159 Speaker 4: It was larger this time last year. That kind of 382 00:20:29,200 --> 00:20:31,640 Speaker 4: valuation gap has you know, someone closed. 383 00:20:32,640 --> 00:20:33,359 Speaker 2: But it's a. 384 00:20:34,920 --> 00:20:38,639 Speaker 4: Portfolio that's more defensively positioned, i'd say, And we have 385 00:20:38,760 --> 00:20:42,320 Speaker 4: more US treasuries in our portfolio than we've had in 386 00:20:42,359 --> 00:20:46,120 Speaker 4: a long time as a defensive measure, because I want 387 00:20:46,160 --> 00:20:48,119 Speaker 4: to be front footed, right, so I don't want to 388 00:20:48,119 --> 00:20:51,320 Speaker 4: be locked in my risk if the markets. 389 00:20:50,960 --> 00:20:55,520 Speaker 2: Do blow up, if there's a period of dislocation. 390 00:20:55,080 --> 00:20:56,919 Speaker 4: We want to have the cash and the ability to 391 00:20:57,119 --> 00:20:57,879 Speaker 4: kind of jump in. 392 00:20:58,840 --> 00:21:00,000 Speaker 2: So we're biding our time. 393 00:21:00,080 --> 00:21:03,840 Speaker 4: I'm laying in wait for that, and US kind of treasuries, 394 00:21:04,359 --> 00:21:06,360 Speaker 4: you know, allow for that. What's lost on I think 395 00:21:06,400 --> 00:21:09,840 Speaker 4: a lot of investors on the credit side is the 396 00:21:09,880 --> 00:21:15,480 Speaker 4: swap spread, right. So the cheapness the yield that credit 397 00:21:15,520 --> 00:21:19,000 Speaker 4: folks are so excited about really the byproduct of the 398 00:21:19,040 --> 00:21:22,480 Speaker 4: swap spread more than the credit spread, right, So treasuries 399 00:21:22,520 --> 00:21:24,920 Speaker 4: are cheap more than credit is cheap. 400 00:21:25,040 --> 00:21:26,879 Speaker 1: And treasuries and thank you, by the way for being 401 00:21:26,880 --> 00:21:29,320 Speaker 1: the first credit edge guest to mention spinal tap. I'm 402 00:21:29,520 --> 00:21:33,200 Speaker 1: very happy to hear that reference, you'll get the short 403 00:21:33,280 --> 00:21:35,200 Speaker 1: end of the treasury curve, are you you're not going 404 00:21:35,200 --> 00:21:37,359 Speaker 1: out long on mean, we've told you talk about the 405 00:21:37,359 --> 00:21:39,400 Speaker 1: long end being somewhat more Yeah. 406 00:21:39,600 --> 00:21:43,240 Speaker 4: Yeah, so we want to be closer to FED policy 407 00:21:43,600 --> 00:21:46,040 Speaker 4: than further away. The back end of the curve is 408 00:21:46,119 --> 00:21:50,440 Speaker 4: driven by you know, all these other uncontrollable type of factors, 409 00:21:51,040 --> 00:21:54,080 Speaker 4: and that manifests itself in that risk turm premium. So yeah, 410 00:21:54,160 --> 00:21:56,800 Speaker 4: it's uh, it's more kind of ten years and in 411 00:21:57,520 --> 00:22:00,200 Speaker 4: so it's not taking a duration bet as much much 412 00:22:00,240 --> 00:22:03,720 Speaker 4: as it is taking a liquidity stance. 413 00:22:04,200 --> 00:22:08,120 Speaker 1: I don't see that's you know, leverage loans, repackaged floating rate. 414 00:22:08,440 --> 00:22:10,879 Speaker 1: Does that mean that you don't expect any rate cuts 415 00:22:10,880 --> 00:22:11,280 Speaker 1: this year? 416 00:22:11,800 --> 00:22:14,440 Speaker 4: Well, so we penciled in from you know, god, it's 417 00:22:14,480 --> 00:22:18,600 Speaker 4: been forever now kind of two two, maybe three now 418 00:22:18,720 --> 00:22:21,400 Speaker 4: maybe it's one to two. Uh, you know, our view 419 00:22:21,440 --> 00:22:24,840 Speaker 4: all along has been kind of higher for longer. I 420 00:22:24,880 --> 00:22:29,199 Speaker 4: don't see the same scope and capacity for FED cutting rates. 421 00:22:30,040 --> 00:22:30,240 Speaker 2: Uh. 422 00:22:30,280 --> 00:22:32,119 Speaker 4: You know, if you look at the market reaction for 423 00:22:32,480 --> 00:22:36,359 Speaker 4: you know, any swoon up until recently, it was the 424 00:22:36,520 --> 00:22:40,080 Speaker 4: instantaneous rate cuts, right, So you look at kind of 425 00:22:40,080 --> 00:22:42,960 Speaker 4: what happened when we had the regional bank situation. I 426 00:22:43,000 --> 00:22:46,919 Speaker 4: think within you know, six hours, eight cuts were priced in. 427 00:22:47,600 --> 00:22:49,840 Speaker 4: You know, this is a time when I think the 428 00:22:49,880 --> 00:22:53,440 Speaker 4: inflation rate was over six percent. You know, I think, 429 00:22:53,640 --> 00:22:57,960 Speaker 4: so this this muscle memory, this this outdated playbook, whatever 430 00:22:57,960 --> 00:23:00,920 Speaker 4: you want to call you know, I think investors are 431 00:23:00,960 --> 00:23:04,439 Speaker 4: not really thinking about what they fed objective function is, 432 00:23:04,640 --> 00:23:08,920 Speaker 4: and that's being an inflation fighter. So I think it's 433 00:23:08,920 --> 00:23:11,399 Speaker 4: hard to be aggressive on the rate cut side or 434 00:23:11,480 --> 00:23:14,760 Speaker 4: at all when inflation is, you know, well above their 435 00:23:14,880 --> 00:23:15,800 Speaker 4: target and mandate. 436 00:23:16,160 --> 00:23:18,400 Speaker 1: You also got the president and Smett said the treasury sector, 437 00:23:18,400 --> 00:23:21,840 Speaker 1: you're talking about pushing rates down somehow. We'll see how 438 00:23:21,840 --> 00:23:22,200 Speaker 1: that goes. 439 00:23:22,240 --> 00:23:25,919 Speaker 3: But so obviously the theme is obviously very defensive. So 440 00:23:26,000 --> 00:23:30,040 Speaker 3: within at least the corporate credit portion of the portfolio, 441 00:23:30,119 --> 00:23:33,960 Speaker 3: are you guys under overweight any particular sectors? And given 442 00:23:34,000 --> 00:23:36,280 Speaker 3: the defensive nature of the posturing, and do you guys 443 00:23:36,440 --> 00:23:40,200 Speaker 3: like single a's like a GI aerospace or defense names 444 00:23:40,280 --> 00:23:42,000 Speaker 3: or are you guys wanting to go down to something 445 00:23:42,040 --> 00:23:44,440 Speaker 3: that looks like a Boeing at a sort of low 446 00:23:44,640 --> 00:23:46,920 Speaker 3: low ig Like how do you guys, how you guys 447 00:23:47,000 --> 00:23:48,320 Speaker 3: positioning that I. 448 00:23:48,880 --> 00:23:52,399 Speaker 2: Love how you snuck in Boeing there very smooth. I 449 00:23:52,520 --> 00:23:52,800 Speaker 2: like that. 450 00:23:53,840 --> 00:23:57,520 Speaker 4: I would say this cycle, if you can call a cycle, 451 00:23:58,000 --> 00:24:03,080 Speaker 4: is less kind of sector sectorial driven than previous cycles. 452 00:24:04,200 --> 00:24:09,080 Speaker 4: What we're seeing is just real differentiation by leverage. I 453 00:24:09,119 --> 00:24:14,200 Speaker 4: think the consumer segment is a fascinating segment to evaluate. 454 00:24:14,440 --> 00:24:18,120 Speaker 4: So what we're seeing is the you know, the larger 455 00:24:18,640 --> 00:24:24,200 Speaker 4: public kind of consumer retailers. They're obviously concerned and talking 456 00:24:24,240 --> 00:24:27,919 Speaker 4: about tariffs, but they are eating that, so to speak, 457 00:24:28,640 --> 00:24:31,879 Speaker 4: in their margin, and margins are quite skinny to begin 458 00:24:31,960 --> 00:24:37,520 Speaker 4: with to build market share. If you look at more 459 00:24:37,520 --> 00:24:42,960 Speaker 4: of the levered operators, namely kind of LBO type of names, 460 00:24:44,200 --> 00:24:48,200 Speaker 4: they're telling us that they're actually passing that through. And 461 00:24:48,240 --> 00:24:51,560 Speaker 4: why are they passing it through because they have no choice, right, 462 00:24:52,160 --> 00:24:56,080 Speaker 4: they have to cover their capital costs, right, which are 463 00:24:56,200 --> 00:24:58,640 Speaker 4: pre substantial. I'm not sure how that's going to play 464 00:24:58,640 --> 00:25:02,400 Speaker 4: out necessarily, but I think the consumer is smart enough 465 00:25:02,440 --> 00:25:05,520 Speaker 4: to realize, you know, I'm going to go here versus there. 466 00:25:06,040 --> 00:25:06,760 Speaker 2: The fact that you. 467 00:25:06,840 --> 00:25:10,280 Speaker 4: Have you know, X amount of leverage more than you 468 00:25:10,320 --> 00:25:14,159 Speaker 4: know this institution. I don't care. I care about the price. 469 00:25:14,320 --> 00:25:19,200 Speaker 4: And so this case shaped type of experience that we're 470 00:25:19,240 --> 00:25:22,320 Speaker 4: seeing on the consumer side. So this is a long 471 00:25:22,320 --> 00:25:25,199 Speaker 4: winded way of saying, I don't know if it's so 472 00:25:26,040 --> 00:25:29,760 Speaker 4: sector specific. Obviously we have biases around you know, you know, 473 00:25:29,840 --> 00:25:33,200 Speaker 4: different sectors, of course, But I just find it fascinating 474 00:25:33,240 --> 00:25:37,600 Speaker 4: that the differentiation across all these different you know, views 475 00:25:37,720 --> 00:25:41,400 Speaker 4: of the credit market is by leverage, not by sector, 476 00:25:41,480 --> 00:25:42,600 Speaker 4: which is very different. 477 00:25:42,720 --> 00:25:42,880 Speaker 2: Right. 478 00:25:42,960 --> 00:25:45,439 Speaker 4: You look at twenty fifteen, it was all about energy. 479 00:25:46,000 --> 00:25:48,080 Speaker 4: You look at kind of late nineties, two thousand, it 480 00:25:48,119 --> 00:25:52,440 Speaker 4: was all about tech and telecom. Now it's really about 481 00:25:52,480 --> 00:25:55,840 Speaker 4: how much leverage do you have, and it's indiscriminate. 482 00:25:56,600 --> 00:25:59,120 Speaker 2: Years and years and years of really. 483 00:25:58,840 --> 00:26:03,480 Speaker 4: Low rates, it just kind of lifted, you know, across 484 00:26:04,000 --> 00:26:06,600 Speaker 4: It was indiscriminate, right, didn't matter what segment of the 485 00:26:06,640 --> 00:26:10,240 Speaker 4: economy you're in. You know, you got cheap costs of capital, 486 00:26:10,320 --> 00:26:12,640 Speaker 4: and you know that's that's wor it's playing out. 487 00:26:12,680 --> 00:26:15,440 Speaker 1: I'd say, so you expect more defaults in the consumers, 488 00:26:15,480 --> 00:26:16,880 Speaker 1: that's to whether it have been LBOs. 489 00:26:17,640 --> 00:26:19,160 Speaker 2: I would expect that to be the case. 490 00:26:19,320 --> 00:26:23,399 Speaker 4: Yeah, I think, you know, retail is kind of fickle 491 00:26:23,720 --> 00:26:27,560 Speaker 4: in the best of times, very exposed to consumer behaviors, 492 00:26:27,600 --> 00:26:31,080 Speaker 4: you know, of course, and so I would expect, you know, 493 00:26:31,160 --> 00:26:32,600 Speaker 4: higher than what we've seen before. 494 00:26:32,840 --> 00:26:34,760 Speaker 1: Any other sectors that stick out in terms of high 495 00:26:34,800 --> 00:26:37,080 Speaker 1: leverage and getting penalized by the market. 496 00:26:37,240 --> 00:26:39,080 Speaker 4: Well, you know, I think the other sector that we're 497 00:26:39,119 --> 00:26:43,920 Speaker 4: focused on, well well too, I guess one is the 498 00:26:44,000 --> 00:26:48,840 Speaker 4: chemical sector. So the chemical sector is you know, under pressure. 499 00:26:50,000 --> 00:26:52,160 Speaker 4: You know, it's been dominated by China. You know over 500 00:26:52,200 --> 00:26:54,960 Speaker 4: the past n number of years. There's lots of chatter 501 00:26:55,920 --> 00:26:59,440 Speaker 4: if it's a structural shift, and you know, will these 502 00:26:59,520 --> 00:27:02,359 Speaker 4: chemical companies suffer through it like they have in the past. 503 00:27:02,960 --> 00:27:05,520 Speaker 4: Our view is you know, much more kind of negative 504 00:27:05,520 --> 00:27:07,960 Speaker 4: around that, you know, just some kind of see the 505 00:27:08,000 --> 00:27:12,439 Speaker 4: same same ability to operate. So that's an area that 506 00:27:12,480 --> 00:27:13,560 Speaker 4: we're concerned about. 507 00:27:14,240 --> 00:27:16,639 Speaker 2: You know. The other is the hospitality space. 508 00:27:16,880 --> 00:27:20,879 Speaker 4: Right if you think about immigration as an example that 509 00:27:21,320 --> 00:27:24,840 Speaker 4: you know, as a very targeted part of the market 510 00:27:24,920 --> 00:27:30,600 Speaker 4: where immigration is quite important and as as that turns, 511 00:27:30,800 --> 00:27:33,440 Speaker 4: not only are they running out of workers, but they 512 00:27:33,440 --> 00:27:36,560 Speaker 4: have to pass those costs along and once again consumers 513 00:27:36,560 --> 00:27:40,280 Speaker 4: are very sensitive. Right, So you know, those are you 514 00:27:40,320 --> 00:27:44,119 Speaker 4: know areas that we're you know, we're quite focused on. 515 00:27:44,359 --> 00:27:46,640 Speaker 4: But there's you know, there's positives too, right, I mean 516 00:27:46,960 --> 00:27:50,480 Speaker 4: there's all this talk around you know, AI investment. You know, 517 00:27:50,520 --> 00:27:52,800 Speaker 4: we're on the bond side, so we you know, don't 518 00:27:52,840 --> 00:27:55,399 Speaker 4: have the same kind of sexy story so to speak, 519 00:27:55,520 --> 00:27:57,680 Speaker 4: you know, but it manifests in a couple of ways. 520 00:27:57,720 --> 00:27:59,679 Speaker 4: The way that I think is really interesting is the 521 00:27:59,720 --> 00:28:03,879 Speaker 4: power you know, the merchant power space is is a 522 00:28:03,920 --> 00:28:07,879 Speaker 4: space that we like a lot. The regulated utilities is 523 00:28:07,880 --> 00:28:09,679 Speaker 4: going to take more time, right because they have to 524 00:28:09,720 --> 00:28:14,760 Speaker 4: go through and pass that along. But the demand for electricity, 525 00:28:15,200 --> 00:28:17,720 Speaker 4: you know is you know, plus one percent for the 526 00:28:17,760 --> 00:28:19,200 Speaker 4: first time in decades. 527 00:28:19,359 --> 00:28:20,680 Speaker 2: Right, that's not. 528 00:28:20,600 --> 00:28:24,960 Speaker 4: Going to you know, move lower anytime soon. And just 529 00:28:25,040 --> 00:28:26,959 Speaker 4: think that's a real opportunity. 530 00:28:27,960 --> 00:28:30,639 Speaker 3: Does that include like themes about the energy transition. I 531 00:28:30,720 --> 00:28:33,240 Speaker 3: think you've had Caterpillars tilted some pretty bullish views for 532 00:28:33,280 --> 00:28:35,200 Speaker 3: their mining business over the next five to ten years, 533 00:28:35,240 --> 00:28:39,800 Speaker 3: whether it's copper, li theum, all of these important metals 534 00:28:39,840 --> 00:28:43,040 Speaker 3: that are needed to facilitate this huge transition. Is that 535 00:28:43,120 --> 00:28:45,160 Speaker 3: something you guys are expressing in the portfolio or are 536 00:28:45,200 --> 00:28:47,400 Speaker 3: you not necessarily. 537 00:28:46,960 --> 00:28:50,200 Speaker 4: Is not necessarily it's a more complicated story, yeah, right. 538 00:28:50,600 --> 00:28:54,480 Speaker 4: You know, these are high cyclical type of commodities, So 539 00:28:54,560 --> 00:28:57,760 Speaker 4: I think that's a very different story. You know, ultimately 540 00:28:57,800 --> 00:29:01,520 Speaker 4: you're taking cyclical risk there structural things that you mentioned, 541 00:29:02,600 --> 00:29:05,200 Speaker 4: but I think, you know, the sickle aspect is still 542 00:29:05,280 --> 00:29:06,000 Speaker 4: quite pronounced. 543 00:29:06,160 --> 00:29:08,480 Speaker 1: I'm interested in your Vie's also on private credit because 544 00:29:08,480 --> 00:29:10,080 Speaker 1: a lot of people we've had on this show have 545 00:29:10,200 --> 00:29:12,360 Speaker 1: just talked about it endlessly, and you know, it's seemingly 546 00:29:12,400 --> 00:29:16,080 Speaker 1: this great, very safe, very high return product that everybody's 547 00:29:16,120 --> 00:29:18,560 Speaker 1: piling into at the moment. The guests we've had have 548 00:29:18,680 --> 00:29:23,000 Speaker 1: talked about equity like returns, although we kind of saw 549 00:29:23,040 --> 00:29:25,680 Speaker 1: a shift later last year where we had one large 550 00:29:25,680 --> 00:29:29,120 Speaker 1: asset manager on talking about the relative value between public 551 00:29:29,120 --> 00:29:31,520 Speaker 1: and private and talking about, you know, there should be 552 00:29:31,520 --> 00:29:34,040 Speaker 1: about two hundred basis points on the leverage side difference, 553 00:29:34,360 --> 00:29:36,240 Speaker 1: you know, in terms of pick up for the illiquidity 554 00:29:36,760 --> 00:29:38,880 Speaker 1: that seems to be going away. So what's your view 555 00:29:38,880 --> 00:29:41,160 Speaker 1: in terms of, you know, the value between the two markets. 556 00:29:41,280 --> 00:29:44,240 Speaker 4: Yeah, so, I you know, would start out by saying, 557 00:29:44,800 --> 00:29:48,240 Speaker 4: I think over time it's going to be a single market. 558 00:29:48,840 --> 00:29:53,120 Speaker 4: You know, this demarcation between public and private will fade. 559 00:29:53,520 --> 00:29:56,719 Speaker 4: I go back to my experience when I was you know, 560 00:29:56,920 --> 00:30:00,720 Speaker 4: in lever finance high yield at the time and you know, 561 00:30:00,840 --> 00:30:04,720 Speaker 4: loans were the new shiny thing, and why were they 562 00:30:04,720 --> 00:30:07,960 Speaker 4: so popular, Well, they had great sharp ratios because they 563 00:30:08,000 --> 00:30:11,360 Speaker 4: didn't get marked and they were senior in the cap. 564 00:30:11,160 --> 00:30:14,320 Speaker 1: Structure pretty much how private credit is today pretty. 565 00:30:14,080 --> 00:30:17,560 Speaker 4: Much and loans, to be fair, loans aren't even considered 566 00:30:17,600 --> 00:30:22,320 Speaker 4: as security. So it's more complicated, right, just structurally contracts 567 00:30:22,360 --> 00:30:25,520 Speaker 4: right then, yeah, yeah, yeah, so so so I think 568 00:30:25,560 --> 00:30:30,040 Speaker 4: over time that that'll just continue to fade. I'll tell 569 00:30:30,080 --> 00:30:34,560 Speaker 4: you that we get refinanced out of our public deals 570 00:30:34,560 --> 00:30:37,840 Speaker 4: into privates and privates in the public, so it's already 571 00:30:37,840 --> 00:30:38,480 Speaker 4: being blurred. 572 00:30:38,480 --> 00:30:39,720 Speaker 2: So you have to have a view. 573 00:30:40,400 --> 00:30:44,240 Speaker 4: But I think there's been you know, maybe a little 574 00:30:44,240 --> 00:30:48,160 Speaker 4: too much excitement on the private side. You know, I 575 00:30:48,200 --> 00:30:51,320 Speaker 4: think there's real value in pockets, but you know, the 576 00:30:51,400 --> 00:30:55,320 Speaker 4: value that I see is more on the below investment 577 00:30:55,360 --> 00:30:58,560 Speaker 4: grade side it syncratically, of course, and then on the 578 00:30:58,600 --> 00:31:02,040 Speaker 4: ass the asset base an ant side, which is where 579 00:31:02,040 --> 00:31:05,440 Speaker 4: I think there's more opportunities. You know, at this point 580 00:31:05,480 --> 00:31:06,440 Speaker 4: in time on. 581 00:31:06,440 --> 00:31:08,920 Speaker 1: How I mean, you have to wonder that about the 582 00:31:09,160 --> 00:31:13,280 Speaker 1: sustainability of the capital structure when you know, those borrowers 583 00:31:13,320 --> 00:31:14,920 Speaker 1: that are going to that market because they have to 584 00:31:15,680 --> 00:31:18,680 Speaker 1: paying you know, substantially high rates. How much longer can 585 00:31:18,720 --> 00:31:21,240 Speaker 1: they fold? And it's floating as well, So are we 586 00:31:21,360 --> 00:31:23,040 Speaker 1: not instead of setting them up for failure? 587 00:31:23,240 --> 00:31:24,160 Speaker 2: Well, time will tell. 588 00:31:25,040 --> 00:31:28,760 Speaker 4: If you look at leverage in the system, there's a 589 00:31:28,800 --> 00:31:32,680 Speaker 4: lot more leverage, you know, in the levered loan market 590 00:31:32,800 --> 00:31:35,680 Speaker 4: and in the private credit market. I think the trap 591 00:31:35,840 --> 00:31:40,360 Speaker 4: that acid allocators are falling into is that they're looking 592 00:31:40,440 --> 00:31:43,120 Speaker 4: at the empiricals and the empiricals. 593 00:31:43,200 --> 00:31:44,400 Speaker 2: Are way out of date. 594 00:31:44,680 --> 00:31:50,320 Speaker 4: Right, So the history around both lever loans and private 595 00:31:50,360 --> 00:31:53,360 Speaker 4: credit is they have a lower incidence of default and 596 00:31:53,440 --> 00:31:56,680 Speaker 4: higher recoveries. I'm not convinced that's going to be the 597 00:31:56,720 --> 00:32:01,720 Speaker 4: case going forward. If you look at kind of distressed activity, 598 00:32:01,760 --> 00:32:07,480 Speaker 4: default activity, you know, you've been seeing the private space running. 599 00:32:07,240 --> 00:32:10,320 Speaker 2: Higher rate than the public space. You know. 600 00:32:10,360 --> 00:32:13,479 Speaker 4: The issue on the private side is that it's not 601 00:32:13,560 --> 00:32:16,280 Speaker 4: until you experience an impairment. 602 00:32:15,800 --> 00:32:16,960 Speaker 2: That you have to recognize it. 603 00:32:17,000 --> 00:32:21,560 Speaker 4: So it just takes longer kind of inherently to to 604 00:32:21,840 --> 00:32:25,040 Speaker 4: play out. But you know, we're seeing these companies struggle 605 00:32:25,720 --> 00:32:28,560 Speaker 4: just based on you know, their higher costs of capital 606 00:32:29,000 --> 00:32:32,920 Speaker 4: and a little little hit to their cash flows. They 607 00:32:32,920 --> 00:32:36,520 Speaker 4: can't afford that hit. The cash flows, So you know, 608 00:32:36,560 --> 00:32:39,440 Speaker 4: we'll see about the wherewithal of the industry to you know, 609 00:32:39,520 --> 00:32:43,760 Speaker 4: put more money into these you know situations. But you know, 610 00:32:44,040 --> 00:32:47,719 Speaker 4: not all the sponsors of these different private credits have 611 00:32:47,840 --> 00:32:48,640 Speaker 4: that wherewithal. 612 00:32:48,920 --> 00:32:51,200 Speaker 1: Is there enough of a pickup though to justify the 613 00:32:51,280 --> 00:32:53,720 Speaker 1: lack of liquidity, lack of transparency, all of the other 614 00:32:54,080 --> 00:32:55,800 Speaker 1: things you can't see, is that is there enough in 615 00:32:55,880 --> 00:32:57,800 Speaker 1: private when you when you're shown a deal, could you 616 00:32:57,800 --> 00:33:01,160 Speaker 1: don't just get a broady syndicated leverage loan that pays 617 00:33:01,160 --> 00:33:03,520 Speaker 1: you just as much and you know has a transparency. 618 00:33:03,760 --> 00:33:06,760 Speaker 1: Why wouldn't you just say, say, in the public market. 619 00:33:06,960 --> 00:33:11,880 Speaker 4: It depends on your liability and your liquidity needs. So 620 00:33:11,960 --> 00:33:14,760 Speaker 4: if you have just kind of in theory ten years 621 00:33:14,800 --> 00:33:19,400 Speaker 4: locked up capital, then you're less worried about the liquidity 622 00:33:19,400 --> 00:33:20,160 Speaker 4: aspect of it. 623 00:33:21,120 --> 00:33:23,680 Speaker 1: If you had, are you getting the pickup over the 624 00:33:23,720 --> 00:33:25,920 Speaker 1: private even to justify that? 625 00:33:26,640 --> 00:33:29,720 Speaker 4: Well, right, if you're not worried about liquidity, then yes. 626 00:33:30,520 --> 00:33:34,120 Speaker 4: If you are, then maybe not. But you know, there 627 00:33:34,160 --> 00:33:36,920 Speaker 4: is a trade off when you go into private credit. 628 00:33:38,400 --> 00:33:43,400 Speaker 4: You know, even with less and inappropriate pickup, there's other things 629 00:33:43,440 --> 00:33:48,000 Speaker 4: that go away, like acid allocation or relative value. You 630 00:33:48,480 --> 00:33:51,600 Speaker 4: you're not as front footed, right, You're you're kind of 631 00:33:51,600 --> 00:33:55,959 Speaker 4: stuck in that allocation. Whereas if you're in the public market, 632 00:33:56,080 --> 00:34:01,160 Speaker 4: you know, let's say kind of a single asset barrower 633 00:34:01,280 --> 00:34:04,760 Speaker 4: deal looks cheap to one corporate credit deal that you have, 634 00:34:05,120 --> 00:34:07,480 Speaker 4: you can swap out and take advantage, right, you have 635 00:34:07,640 --> 00:34:11,480 Speaker 4: that ability. But on the private side, you're just stuck. 636 00:34:11,600 --> 00:34:13,719 Speaker 4: You can't take advantage of that. So I think that's 637 00:34:13,719 --> 00:34:18,239 Speaker 4: something that is often lost from an acid allocation standpoint. 638 00:34:18,840 --> 00:34:21,359 Speaker 4: But I also think, you know, a lot of these 639 00:34:21,400 --> 00:34:25,520 Speaker 4: acid allocation models need to change, right, you know, you know, 640 00:34:25,600 --> 00:34:28,959 Speaker 4: everything is a form of a mean variance model, which 641 00:34:29,040 --> 00:34:34,440 Speaker 4: is to say, you know, it's volatility based, right, And 642 00:34:34,480 --> 00:34:37,719 Speaker 4: I mean I've seen private credit presentations, not from USC 643 00:34:37,719 --> 00:34:42,440 Speaker 4: of course, with like sharp ratios of eight x, pretty impressive, 644 00:34:42,680 --> 00:34:45,160 Speaker 4: like come on, like you know, like you know, that's 645 00:34:45,239 --> 00:34:48,399 Speaker 4: obviously not the case. But there's some version of that 646 00:34:48,440 --> 00:34:54,040 Speaker 4: gets placed into these these acid allocation mean variance models 647 00:34:54,480 --> 00:34:57,560 Speaker 4: and they look good, right, And so I think there 648 00:34:57,600 --> 00:35:01,080 Speaker 4: needs to be kind of a future adjustment to adequately 649 00:35:01,560 --> 00:35:04,920 Speaker 4: understand what the asset allocation and thus the spread should be. 650 00:35:05,000 --> 00:35:07,759 Speaker 2: Is two hundred enough? Is it one fifty is it, 651 00:35:08,040 --> 00:35:09,520 Speaker 2: you know, so on and so forth. 652 00:35:09,640 --> 00:35:12,280 Speaker 1: And when you say convergence that the two will converge, 653 00:35:12,480 --> 00:35:13,920 Speaker 1: how long does it take and what does it look like? 654 00:35:13,960 --> 00:35:16,400 Speaker 1: Does it mean that it's just exactly the same as 655 00:35:16,440 --> 00:35:18,600 Speaker 1: leverage loans on now? Ultimately, I just. 656 00:35:18,640 --> 00:35:24,200 Speaker 4: Think they'll they'll there'll be differences, of course, like there's 657 00:35:24,239 --> 00:35:26,920 Speaker 4: a difference between you know, lever loan, HI you bond. 658 00:35:27,480 --> 00:35:31,440 Speaker 4: But players think of that as one big sandbox. Right 659 00:35:31,440 --> 00:35:33,560 Speaker 4: when we look at deals, we look at it versus 660 00:35:33,600 --> 00:35:38,960 Speaker 4: loans and bonds. Companies issue oftentimes and loans and bonds. 661 00:35:39,320 --> 00:35:43,080 Speaker 4: So I just think it's it'll be a single leve 662 00:35:43,160 --> 00:35:48,520 Speaker 4: fin market, not a very separated private credit. 663 00:35:48,960 --> 00:35:51,400 Speaker 1: But will the private credit be more broady, syndicated and 664 00:35:51,440 --> 00:35:54,200 Speaker 1: traded with muks and you know all of that stuff 665 00:35:54,200 --> 00:35:55,520 Speaker 1: that you get in the leverage loan market. 666 00:35:55,800 --> 00:35:59,600 Speaker 4: I think it's going that way. You know, the push 667 00:35:59,680 --> 00:36:04,800 Speaker 4: tour words ETFs in this space is you know, pushing 668 00:36:04,840 --> 00:36:05,320 Speaker 4: it along. 669 00:36:05,960 --> 00:36:06,120 Speaker 2: Now. 670 00:36:06,160 --> 00:36:08,080 Speaker 4: I think this is a good news bad news story 671 00:36:08,120 --> 00:36:13,759 Speaker 4: as well as any time you get retail involved in 672 00:36:13,800 --> 00:36:17,680 Speaker 4: a niche market, you know, the emphasis and onus changes. 673 00:36:17,920 --> 00:36:22,000 Speaker 4: Right when private credit investors are just dealing with institutional 674 00:36:22,120 --> 00:36:27,480 Speaker 4: savvy investors. The hurdle is different. Once you push it 675 00:36:27,520 --> 00:36:32,760 Speaker 4: into the retail space. There's a much closer examination, and 676 00:36:32,800 --> 00:36:35,439 Speaker 4: it'll be curious to see how it holds off upon 677 00:36:35,520 --> 00:36:36,600 Speaker 4: closer examination. 678 00:36:37,160 --> 00:36:39,719 Speaker 1: So all of the stuff you look at, Greg, globally, 679 00:36:40,239 --> 00:36:43,000 Speaker 1: we probably hadn't hits on it all. But I'm interested 680 00:36:43,040 --> 00:36:45,120 Speaker 1: in your idea of relative value right now? 681 00:36:46,160 --> 00:36:47,080 Speaker 2: Where is the value? 682 00:36:47,239 --> 00:36:50,040 Speaker 1: I mean, we've talked about how tight spreads are in 683 00:36:50,160 --> 00:36:52,480 Speaker 1: US credit, We've talked about a bit of the value 684 00:36:52,760 --> 00:36:56,239 Speaker 1: proposition in Europe. It's a big weld out there. There 685 00:36:56,280 --> 00:36:57,960 Speaker 1: are many other products. What do you what do you 686 00:36:57,960 --> 00:36:59,640 Speaker 1: think whe's the value? 687 00:37:00,800 --> 00:37:01,000 Speaker 2: Yeah? 688 00:37:01,080 --> 00:37:05,560 Speaker 4: My caveat is there's not a tremendous amount of value. 689 00:37:05,840 --> 00:37:10,480 Speaker 4: There's no real highly dislocated asset as far as I 690 00:37:10,520 --> 00:37:16,640 Speaker 4: can tell. So it's all on the margin and marginally 691 00:37:16,719 --> 00:37:22,279 Speaker 4: what I see is structure products is being dislocated and attractive. 692 00:37:22,680 --> 00:37:26,280 Speaker 2: Most clos cnbs less. 693 00:37:26,320 --> 00:37:29,719 Speaker 4: So I think you know that's changed unless you go 694 00:37:29,840 --> 00:37:33,600 Speaker 4: into the single assets single barwer space, which is basically 695 00:37:33,680 --> 00:37:39,240 Speaker 4: lending on property. There's some you know, interesting opportunities there, 696 00:37:39,960 --> 00:37:44,160 Speaker 4: but yeah, I would say, you know, clos broadly defined 697 00:37:44,600 --> 00:37:49,440 Speaker 4: anything structured still trades a little more cheaply because of 698 00:37:49,520 --> 00:37:52,759 Speaker 4: the time and effort it takes to explain it to someone, right, 699 00:37:52,880 --> 00:37:57,360 Speaker 4: you know, it's it's true, it's one of these things. 700 00:37:57,760 --> 00:38:00,319 Speaker 1: Then people are still still thinking that cl those are 701 00:38:00,320 --> 00:38:01,760 Speaker 1: the same as CDOs that blew the world. 702 00:38:02,040 --> 00:38:05,320 Speaker 4: Four letter words. Yeah, yeah, you know it was. Obviously 703 00:38:05,360 --> 00:38:07,719 Speaker 4: it's a very different market. And even then, to be fair, 704 00:38:08,320 --> 00:38:11,480 Speaker 4: the COLO space behave exactly as it was supposed to 705 00:38:11,560 --> 00:38:15,080 Speaker 4: in the global financial crisis, and now it is even 706 00:38:15,120 --> 00:38:19,000 Speaker 4: better protected more subordination, and so you know, we think 707 00:38:19,040 --> 00:38:20,120 Speaker 4: these structures are bold. 708 00:38:20,520 --> 00:38:22,440 Speaker 1: But if you're worried about the loans though underlying it, 709 00:38:22,480 --> 00:38:24,520 Speaker 1: I mean, do you think there's enough diversity in the 710 00:38:24,520 --> 00:38:26,319 Speaker 1: basket to protect you against that? 711 00:38:26,719 --> 00:38:27,080 Speaker 2: I do? 712 00:38:27,480 --> 00:38:30,319 Speaker 4: I mean, to put it in perspective, if you own 713 00:38:30,360 --> 00:38:35,160 Speaker 4: a triple a colo you have, I'll just round up 714 00:38:35,200 --> 00:38:39,440 Speaker 4: because it doesn't matter forty percent subordination underneath you. So 715 00:38:39,600 --> 00:38:42,840 Speaker 4: a lot has to go wrong. I mean, the world 716 00:38:42,880 --> 00:38:45,920 Speaker 4: almost effectively has to end for that to be touched 717 00:38:46,000 --> 00:38:49,080 Speaker 4: at the top. I think the structure and the subordination 718 00:38:49,520 --> 00:38:53,120 Speaker 4: is what you're really participating. 719 00:38:52,360 --> 00:38:54,520 Speaker 2: In, not the underlying loans itself. 720 00:38:54,520 --> 00:38:56,080 Speaker 4: I know it sounds kind of funny to say, but 721 00:38:56,120 --> 00:38:58,880 Speaker 4: when you're that senior with that much protection, you know, 722 00:38:58,920 --> 00:39:02,719 Speaker 4: the loan market could really come upon hard times and 723 00:39:02,760 --> 00:39:06,600 Speaker 4: these structures will be fine as you go down less. 724 00:39:06,640 --> 00:39:08,920 Speaker 2: So right, it's just kind of the lost absorption nature 725 00:39:08,960 --> 00:39:09,160 Speaker 2: of it. 726 00:39:09,320 --> 00:39:13,480 Speaker 4: So triple b's not so much, uh, you know, even 727 00:39:13,520 --> 00:39:18,640 Speaker 4: single a's but you know, definitely triple as you're fine. 728 00:39:18,760 --> 00:39:20,400 Speaker 1: Yeah, although we did see a triple A. I think 729 00:39:20,400 --> 00:39:23,760 Speaker 1: the c NBS that didn't make it. That was recently 730 00:39:24,920 --> 00:39:26,320 Speaker 1: so no old triple as. 731 00:39:26,680 --> 00:39:28,719 Speaker 4: That was a savsby deal, right, so that didn't have 732 00:39:28,800 --> 00:39:30,600 Speaker 4: the diversification piece to it. 733 00:39:30,719 --> 00:39:32,520 Speaker 2: Yeah, But point well taken. 734 00:39:33,000 --> 00:39:35,720 Speaker 4: This is why this is why it trades more, chiefly 735 00:39:35,719 --> 00:39:39,560 Speaker 4: because there's always a you know, you know, a story 736 00:39:39,600 --> 00:39:39,960 Speaker 4: about it. 737 00:39:40,080 --> 00:39:43,160 Speaker 1: Yes, yes, yes, and it sounds you'll edge right, you've 738 00:39:43,160 --> 00:39:44,520 Speaker 1: been doing this for a long time. We've had a 739 00:39:44,520 --> 00:39:47,920 Speaker 1: great conversation. You've seen you've seen it all. How do 740 00:39:47,960 --> 00:39:49,360 Speaker 1: you differentiate your self? 741 00:39:49,880 --> 00:39:56,360 Speaker 4: I think there's there's a few ways. One is just discipline. 742 00:39:56,520 --> 00:39:59,040 Speaker 4: I think being longer term focus is. 743 00:39:58,960 --> 00:40:00,000 Speaker 2: A competitive advantage. 744 00:40:00,160 --> 00:40:02,520 Speaker 4: You know, we talked about the technical side, and the 745 00:40:02,600 --> 00:40:06,680 Speaker 4: technical side helps on the margin for sure, But you know, 746 00:40:06,719 --> 00:40:09,320 Speaker 4: when you're running close to nine hundred billion of assets. 747 00:40:09,520 --> 00:40:11,959 Speaker 4: You know, you need to be fundamentally focused, and we're 748 00:40:12,080 --> 00:40:15,840 Speaker 4: very good on the fundamental focus side. So you know, 749 00:40:16,280 --> 00:40:21,440 Speaker 4: whether it's corporate credit, whether structure, products, it all starts, 750 00:40:21,760 --> 00:40:24,600 Speaker 4: you know, with fundamentals, and we have an extremely deep, 751 00:40:24,719 --> 00:40:28,080 Speaker 4: well resourced team to you know, allow us to do 752 00:40:28,120 --> 00:40:30,160 Speaker 4: that and allow us to do it you know pretty well. 753 00:40:30,200 --> 00:40:33,120 Speaker 4: So I think our competitive advantages is, you know, the 754 00:40:33,160 --> 00:40:36,759 Speaker 4: long term nature of it and the deep understanding of 755 00:40:36,880 --> 00:40:41,360 Speaker 4: credit and structure, and you put that together, it's a 756 00:40:41,400 --> 00:40:42,439 Speaker 4: pretty powerful duo. 757 00:40:42,560 --> 00:40:42,919 Speaker 2: I think. 758 00:40:43,160 --> 00:40:45,319 Speaker 1: Give them the new cycle that we have trouble seeing longer 759 00:40:45,320 --> 00:40:46,520 Speaker 1: than the end of the week. So what does long 760 00:40:46,600 --> 00:40:47,400 Speaker 1: term mean to you? 761 00:40:48,960 --> 00:40:54,440 Speaker 4: It's definitely longer than the news cycle, which is I 762 00:40:54,440 --> 00:40:57,600 Speaker 4: don't know, twenty seconds now. I mean we take you know, 763 00:40:57,640 --> 00:41:00,839 Speaker 4: at least a twelve month few And you know that's 764 00:41:00,880 --> 00:41:03,360 Speaker 4: not to say, you know, we're blind to what's happening 765 00:41:03,360 --> 00:41:06,120 Speaker 4: around us, like we modulate and we take advantage, but 766 00:41:06,880 --> 00:41:09,520 Speaker 4: you know, we think about things and you know, longer 767 00:41:09,600 --> 00:41:13,720 Speaker 4: term increments, and that's particularly in the case of credit, 768 00:41:14,560 --> 00:41:17,360 Speaker 4: you know, credit, I try not we try not to 769 00:41:17,880 --> 00:41:21,520 Speaker 4: worry about the vagaries of of you know, the week 770 00:41:21,640 --> 00:41:23,720 Speaker 4: or the month and just you know, take a longer 771 00:41:23,800 --> 00:41:27,000 Speaker 4: term perspective, and that has a tendency of you know, 772 00:41:27,080 --> 00:41:28,080 Speaker 4: proving itself out. 773 00:41:28,280 --> 00:41:31,160 Speaker 1: Do you worry about anything, particularly Greg, We've had people 774 00:41:31,200 --> 00:41:32,560 Speaker 1: worry about all sorts of things on the show, and 775 00:41:32,560 --> 00:41:35,080 Speaker 1: we are credit people, and you know that's over there 776 00:41:35,120 --> 00:41:38,399 Speaker 1: looking very worried. So what what keeps you up at night? 777 00:41:38,880 --> 00:41:41,560 Speaker 4: Well, there's a lot that you know keeps me up. 778 00:41:41,600 --> 00:41:43,920 Speaker 4: But I think what keeps me up on the credit 779 00:41:44,040 --> 00:41:48,920 Speaker 4: side is there's not a lot of history recent history 780 00:41:49,200 --> 00:41:53,239 Speaker 4: of credit issues. Say that differently, you know, it's not 781 00:41:53,280 --> 00:41:57,800 Speaker 4: a well experienced market. There hasn't been a true credit 782 00:41:57,880 --> 00:42:02,200 Speaker 4: cycle since honestly, you know, thirty years. So you know, 783 00:42:02,280 --> 00:42:05,920 Speaker 4: I think there's a tendency for investors to be dismissive 784 00:42:06,480 --> 00:42:11,120 Speaker 4: around the downside of credit, you know, whether it's the 785 00:42:11,160 --> 00:42:13,840 Speaker 4: Taco put or the Fed put, whatever you want to 786 00:42:13,880 --> 00:42:17,800 Speaker 4: call it. You know, rescuing bad capital structures in bad position. 787 00:42:17,920 --> 00:42:20,239 Speaker 1: Even in twenty twenty that barely lasted, it was. 788 00:42:20,680 --> 00:42:23,880 Speaker 4: We have it was, yeah, it was not even three weeks, right, 789 00:42:24,280 --> 00:42:30,799 Speaker 4: so we have not seen a sustained downtrade and what 790 00:42:31,000 --> 00:42:33,840 Speaker 4: words me is when and if that does happen. 791 00:42:34,440 --> 00:42:36,239 Speaker 2: I do think the next credit. 792 00:42:36,000 --> 00:42:39,400 Speaker 4: Cycle will be a more classic one, whatever that means. 793 00:42:39,440 --> 00:42:44,720 Speaker 4: But it's not going to be you know, reinflated instantaneously 794 00:42:45,239 --> 00:42:48,040 Speaker 4: by the FED or by the fiscal. Right you put 795 00:42:48,080 --> 00:42:51,240 Speaker 4: those two things together. You have a FED that's constrained 796 00:42:51,280 --> 00:42:54,799 Speaker 4: by inflation. You have the fiscal constrained by you know, 797 00:42:54,840 --> 00:42:58,000 Speaker 4: the current state of the fiscal which suggests to me 798 00:42:58,160 --> 00:43:01,480 Speaker 4: that credit is you know, going to drift much lower 799 00:43:01,520 --> 00:43:03,160 Speaker 4: than what we've seen and when. 800 00:43:03,320 --> 00:43:04,719 Speaker 2: If we do hit a patch here. 801 00:43:04,840 --> 00:43:08,919 Speaker 4: So I worry about the behaviors of the market in that. 802 00:43:09,120 --> 00:43:12,160 Speaker 4: And you know, you talked about l E and you 803 00:43:12,160 --> 00:43:14,440 Speaker 4: know the knives are going to be much sharper in 804 00:43:14,480 --> 00:43:17,279 Speaker 4: the capacity to absorb the downgrades is going to be 805 00:43:17,360 --> 00:43:20,520 Speaker 4: much less, And so I worry about credit really becoming 806 00:43:20,560 --> 00:43:23,480 Speaker 4: dislocated in a meaningful way. The flip side of that, 807 00:43:23,560 --> 00:43:24,919 Speaker 4: I'm also excited about it. 808 00:43:25,000 --> 00:43:27,520 Speaker 1: Well, plussibly could trigger the end of the cycle. I mean, 809 00:43:27,600 --> 00:43:29,640 Speaker 1: because as we've talked about, it goes on forever and 810 00:43:29,680 --> 00:43:32,080 Speaker 1: we've thrown everything else it and the bad news just 811 00:43:32,120 --> 00:43:34,319 Speaker 1: keeps coming, but spreads just keep getting tights of. 812 00:43:34,719 --> 00:43:38,800 Speaker 4: No the doorability of the economy, and these companies are real. 813 00:43:40,000 --> 00:43:43,200 Speaker 4: But the trap is just because it didn't happen doesn't 814 00:43:43,200 --> 00:43:44,080 Speaker 4: mean it can't happen. 815 00:43:44,600 --> 00:43:46,120 Speaker 2: And you know, we'll see. 816 00:43:46,160 --> 00:43:49,520 Speaker 4: But these things take time, and it's important to remember that, 817 00:43:49,640 --> 00:43:53,080 Speaker 4: you know, these companies are financing themselves at a much 818 00:43:53,160 --> 00:43:55,839 Speaker 4: higher rate than they have in a long time, and 819 00:43:55,840 --> 00:43:57,799 Speaker 4: and it just takes time to play out, and so 820 00:43:57,840 --> 00:44:02,240 Speaker 4: that operating leverage piece, I think is missed. That cushion 821 00:44:02,320 --> 00:44:07,719 Speaker 4: to absorb those cash flows moving lower is not what 822 00:44:07,760 --> 00:44:08,440 Speaker 4: it once was. 823 00:44:08,920 --> 00:44:11,880 Speaker 1: Great stuff. Greg Peters, co, Chief investment Officer at PGM 824 00:44:11,920 --> 00:44:14,160 Speaker 1: Fixed Income. Many thanks for joining us on the credit edge. 825 00:44:14,440 --> 00:44:16,480 Speaker 1: Thank you, and of course we're very grateful to Matt 826 00:44:16,480 --> 00:44:18,959 Speaker 1: Gooyner from Bloomberg Intelligence. Thanks for joining us today. Thanks 827 00:44:18,960 --> 00:44:21,280 Speaker 1: for having me back for more credit and market analysis 828 00:44:21,280 --> 00:44:22,880 Speaker 1: and insight. Read all of Matt's great work on the 829 00:44:22,920 --> 00:44:25,960 Speaker 1: Bloomberg terminal. Bloomberg Intelligence is part of our research department, 830 00:44:25,960 --> 00:44:29,000 Speaker 1: with five hundred analysts and strategists working across all markets. 831 00:44:29,280 --> 00:44:31,880 Speaker 1: Coverage includes over two thousand equities and credits and outlooks 832 00:44:31,880 --> 00:44:35,000 Speaker 1: on more than ninety industries and one hundred market industries. 833 00:44:35,320 --> 00:44:39,200 Speaker 1: Currencies and commodities. Please do subscribe to The Credit Edge 834 00:44:39,200 --> 00:44:41,799 Speaker 1: wherever you get your podcasts. We're on Apple, Spotify, and 835 00:44:41,840 --> 00:44:44,799 Speaker 1: all other good podcast providers, including the Bloomberg Terminal at 836 00:44:44,840 --> 00:44:47,680 Speaker 1: bpod Go. Give us a review, tell your friends, or 837 00:44:47,680 --> 00:44:51,120 Speaker 1: email me directly at Jcrombie eight at Bloomberg dot net. 838 00:44:51,680 --> 00:44:53,919 Speaker 1: I'm James Crombie. It's been a pleasure having you join 839 00:44:54,000 --> 00:45:12,440 Speaker 1: us again next week on the Credit Edge.