WEBVTT - Pemberton Builds NAV Loans, CLOs for Private Debt Edge 0:00:17.920 --> 0:00:20.439 Hello, and welcome to The Credit Edge, a weekly markets podcast. 0:00:20.600 --> 0:00:23.120 My name is James Crombie. I'm a senior editor at Bloomberg. 0:00:23.520 --> 0:00:26.200 This week, we're very pleased to welcome Simon Drake Brockman, 0:00:26.280 --> 0:00:29.200 co founder and managing partner of Pemberton, a London based 0:00:29.200 --> 0:00:30.240 private credit manager. 0:00:30.240 --> 0:00:32.160 How are you, Simon, I'm great, Thanks, James. 0:00:32.400 --> 0:00:33.800 Great to have you on the show. We're very excited 0:00:33.800 --> 0:00:36.479 to hear your credit market views. Also delighted to welcome 0:00:36.479 --> 0:00:39.800 back co host Juruon Julius from Bloomberg Intelligence. Hello are 0:00:39.800 --> 0:00:42.479 you run? Hi James, and join us from Bloomberg News. 0:00:42.479 --> 0:00:44.920 Silas Brown, our private debt expert in London. Great to 0:00:44.920 --> 0:00:46.280 see you again, Silas. How's it going. 0:00:46.720 --> 0:00:48.200 I'm doing very well, Thanks James. 0:00:48.320 --> 0:00:48.560 Great. 0:00:48.720 --> 0:00:50.360 Okay, So, just to set the scene at the top pier, 0:00:50.400 --> 0:00:53.480 credit markets are hot. Borrows a globally art taking advantage. 0:00:53.600 --> 0:00:55.680 This month could set a record for debt issuance by 0:00:55.760 --> 0:00:58.880 US companies and banks. Most of it is for refinancing. 0:00:58.880 --> 0:01:01.400 There's a lot of debt coming that means more cash 0:01:01.440 --> 0:01:03.720 returning to investors who have already received a ton of 0:01:03.720 --> 0:01:06.280 inflow over the past year and are very keen to 0:01:06.319 --> 0:01:08.680 buy Given how high all in yields are. You can 0:01:08.720 --> 0:01:10.840 get almost five and a half percent right now on 0:01:11.040 --> 0:01:14.280 US high grade publicly traded corporate bonds with a very 0:01:14.319 --> 0:01:16.560 low chance of default. That's the highest in six months, 0:01:16.600 --> 0:01:18.720 and it makes you wonder why you need to venture 0:01:18.720 --> 0:01:21.160 into private markets or leave the US at all to 0:01:21.160 --> 0:01:24.040 get good returns in credit. But there's not enough supply, 0:01:24.160 --> 0:01:27.080 so investors are having to look elsewhere. Structured finance and 0:01:27.120 --> 0:01:29.760 private debt are very popular and spreads are higher outside 0:01:29.760 --> 0:01:33.119 of the US. Some people fear that the demand supply 0:01:33.160 --> 0:01:35.960 and balance is also leading to complacency and mispricing of 0:01:36.080 --> 0:01:38.600 risk throughout credit markets, which is only expected to get 0:01:38.640 --> 0:01:42.320 worse in twenty twenty five. Is more money piles in. Meanwhile, 0:01:42.319 --> 0:01:44.560 everyone's loaded up on assets in the US, which is 0:01:44.600 --> 0:01:47.120 growing faster than other parts of the world and expected 0:01:47.160 --> 0:01:50.639 to get a boost from a new market friendly administration. Europe, 0:01:50.640 --> 0:01:54.400 by contrast, faces multiple economic and political challenges which make 0:01:54.480 --> 0:01:59.720 global debt investors very nervous. In some private debt is hot, Europe. 0:01:59.360 --> 0:02:00.000 Not so much. 0:02:00.640 --> 0:02:02.760 But what's your view, sigmon, Are we being too negative 0:02:02.800 --> 0:02:05.080 on Europe? What's the opportunity as you see it? 0:02:05.280 --> 0:02:07.800 Yeah, I think James. You know, most people look at 0:02:07.800 --> 0:02:11.400 the headline numbers in Europe and question, you know, the 0:02:11.400 --> 0:02:14.800 growth and sometimes the politics in that space. But I 0:02:14.840 --> 0:02:17.680 think if you actually get down into the numbers of 0:02:17.680 --> 0:02:21.480 what's going on inside of Europe, it's quite an exciting story. 0:02:22.120 --> 0:02:26.359 Europe is going through sector consolidation in the mid market, 0:02:26.440 --> 0:02:30.120 which is probably twenty maybe thirty years behind the United States, 0:02:30.720 --> 0:02:33.480 and what it's doing is it's starting to bring together 0:02:33.840 --> 0:02:36.440 a group of companies in different parts of the market 0:02:36.880 --> 0:02:41.200 to build large pan European champions And if you look 0:02:41.200 --> 0:02:45.080 at the opportunity set that creates, there's growth through both 0:02:45.240 --> 0:02:48.440 synergies are bringing these companies together, and there's growth through 0:02:48.639 --> 0:02:53.000 client acquisition. So these companies in five maybe ten years 0:02:53.080 --> 0:02:55.160 time are going to look very very similar to the 0:02:55.320 --> 0:02:59.359 US companies with billion to three billion turnover in that space. 0:03:00.080 --> 0:03:03.600 Do that you need to bringing them together and building 0:03:03.760 --> 0:03:07.440 an interesting Pan European platform, and I think that's where 0:03:07.480 --> 0:03:10.680 private equity sees a great opportunity. They're bringing a lot 0:03:10.680 --> 0:03:12.680 of money in and I think if you then look 0:03:12.720 --> 0:03:15.160 at the returns that we can offer inside of Europe, 0:03:15.520 --> 0:03:18.280 you're getting you know, as you touch on at the beginning, 0:03:18.560 --> 0:03:23.520 wider margins, better documentation and covenance inside the deals, and 0:03:24.000 --> 0:03:27.760 larger upfront fees. And that's driven by the fact that 0:03:27.800 --> 0:03:31.720 the demand for financing is greater than the actual capital 0:03:31.760 --> 0:03:34.560 available today because of the changes that are going on 0:03:34.639 --> 0:03:39.720 in the banking industry. So I think super positive tailwinds 0:03:39.720 --> 0:03:42.080 for the industry inside of Europe, and I think a 0:03:42.200 --> 0:03:46.119 very very attractive investment environment for investors. 0:03:46.240 --> 0:03:52.240 For direct lending, fund managers, people who haven't yet launched 0:03:52.400 --> 0:03:53.920 private debt strategies in Europe. 0:03:54.000 --> 0:03:55.480 Is it too late for them now? 0:03:56.840 --> 0:04:01.320 Are the incumbents too far ahead, too scaled, two staffed 0:04:01.400 --> 0:04:06.280 up already, those fledgling firms too far behind. 0:04:07.280 --> 0:04:09.800 It's good questions, Elis. You know, certainly if you want 0:04:09.800 --> 0:04:12.360 to be a very niche, niche player, you know, I 0:04:12.360 --> 0:04:16.599 think the opportunity set still there. But I think Europe 0:04:16.640 --> 0:04:19.080 has already got a number, you know, probably ten of 0:04:19.160 --> 0:04:21.960 us who have large scale platforms. You know, we have 0:04:22.080 --> 0:04:26.400 ten offices across Europe, two hundred people focused on originating 0:04:26.640 --> 0:04:30.520 and investing in these opportunities. And I think that scale 0:04:30.920 --> 0:04:35.240 servicing two hundred plus private equity firms really creates a 0:04:35.279 --> 0:04:38.839 massive competitive advantage, and Europe is a different market to 0:04:38.839 --> 0:04:41.320 the US. You know, it's important to be in Germany, 0:04:41.320 --> 0:04:44.360 it's important to be in France, Italy, explain etc. Where 0:04:44.400 --> 0:04:47.919 we are, and I think having local nationals on the 0:04:48.000 --> 0:04:52.320 ground really is a competitive advantage to sourcing transactions and 0:04:52.360 --> 0:04:55.279 building that deal flow and in credit, the most important 0:04:55.279 --> 0:04:56.960 thing is you've got to have a big pipeline of 0:04:57.000 --> 0:04:59.520 opportunities so you can pick the ones that you really 0:04:59.560 --> 0:05:03.440 want to do. And I think most people starting from scratch, 0:05:03.880 --> 0:05:05.839 that's an awful lot of infrastructure you've got to put 0:05:05.839 --> 0:05:07.720 in place to try to catch up with a group 0:05:07.760 --> 0:05:08.160 of us. 0:05:08.320 --> 0:05:10.000 So if you were, if you were kind enough to 0:05:10.040 --> 0:05:14.000 offer advice to appear, would you say it's too late 0:05:14.040 --> 0:05:14.919 to join the party? 0:05:16.480 --> 0:05:19.479 You know, you can never say it's too late, but 0:05:19.760 --> 0:05:21.679 you know, and you know, we've seen in the banking 0:05:21.680 --> 0:05:24.719 industry people come in and build platforms. But what I 0:05:24.720 --> 0:05:27.000 would say is, if you're going to do it, you 0:05:27.120 --> 0:05:31.440 need to really have the investment capital to put boots 0:05:31.440 --> 0:05:35.000 on the ground and have a scalable platform. I don't 0:05:35.000 --> 0:05:37.920 think you can come into this industry today with half 0:05:37.920 --> 0:05:40.440 a dozen people and say I'm going to build a 0:05:40.480 --> 0:05:44.280 platform because I think you're competing with true scale with 0:05:44.520 --> 0:05:45.000 the rest. 0:05:44.839 --> 0:05:48.240 Of us, and you touch on the dispersion in terms 0:05:48.279 --> 0:05:51.800 of scale. Are we also starting to see dispersion in 0:05:51.880 --> 0:05:52.839 terms of performance? 0:05:53.640 --> 0:05:57.680 We've been through COVID, We've been through are we're going through. 0:05:57.600 --> 0:06:01.479 A prolonged period of high interest rates and people's portfolios 0:06:01.720 --> 0:06:04.760 have been tested arguably for the first time in European 0:06:04.960 --> 0:06:08.040 direct lending kind of writ large, are you going to 0:06:08.080 --> 0:06:12.240 see a dispersion in performance? And also attached to that, 0:06:13.320 --> 0:06:16.680 how flight are your investors? Do they move from fund 0:06:16.720 --> 0:06:19.520 manager to fund manager depending on performance? 0:06:19.680 --> 0:06:21.680 Yeah? I mean the industry has now been going for 0:06:22.000 --> 0:06:24.320 ten plus years inside of Europe, so people have an 0:06:24.360 --> 0:06:27.080 ability to really look back over a period of time 0:06:27.320 --> 0:06:30.760 and look at the type of businesses, the performance of 0:06:30.800 --> 0:06:35.760 those businesses, how the managers have managed with a fairly 0:06:35.839 --> 0:06:40.600 volatile environment since twenty twenty with COVID and inflation and 0:06:40.800 --> 0:06:44.120 price increases and all of that. So there is definitely, 0:06:44.560 --> 0:06:49.440 you know, a reordering of in people's minds of who 0:06:49.440 --> 0:06:51.480 are the ones the managers they want to work with. 0:06:51.960 --> 0:06:53.960 And you know, I think there's been a number of 0:06:54.360 --> 0:06:57.480 managers inside of Europe whose businesses haven't gone as well 0:06:57.480 --> 0:07:00.000 as they would like over the last three or four years. 0:07:01.560 --> 0:07:04.000 But I think if you look at it fundamentally as 0:07:04.040 --> 0:07:08.000 an asset class, I think it's been incredibly robust. And 0:07:08.040 --> 0:07:10.440 I think if you talk to LPs, even the managers 0:07:10.480 --> 0:07:14.640 that they feel haven't done as well, the returns are 0:07:14.680 --> 0:07:17.920 still positive, maybe not as positive as they want, but 0:07:18.120 --> 0:07:21.280 still significant and certainly still probably better than fixed income. 0:07:21.920 --> 0:07:24.680 So you know, I think we've gone through a fascinating 0:07:24.720 --> 0:07:28.640 period of really validating an asset class. And people often 0:07:28.680 --> 0:07:31.360 say to me, has it been tested? And you know, 0:07:32.320 --> 0:07:34.400 if you go back, I mean, when was the last 0:07:34.400 --> 0:07:37.360 time you had inflation at ten percent? Interest rates go 0:07:37.520 --> 0:07:42.680 up four hundred basis points, and you know, salaries and 0:07:42.720 --> 0:07:46.040 other inflationary products going through as well as a energy 0:07:46.080 --> 0:07:49.440 crisis all hit at the same time. And you know 0:07:49.520 --> 0:07:52.280 that happened a couple of years ago now and the 0:07:52.320 --> 0:07:55.040 companies have got through that. So I think it's a 0:07:55.160 --> 0:07:58.080 very different underwriting environment to what we saw in two 0:07:58.160 --> 0:08:02.040 thousand and five six where Euphorio you know, got to 0:08:02.080 --> 0:08:04.000 a point where we had a lot of problems in 0:08:04.240 --> 0:08:04.840 eight nine. 0:08:05.440 --> 0:08:09.760 So for the sort of super cynics he would speak 0:08:09.800 --> 0:08:14.160 about private credit blowing up or some you know, big 0:08:14.240 --> 0:08:17.040 catastrophic problem with private credit. I think what you were 0:08:17.080 --> 0:08:21.240 saying is that, Yeah, why are there to be any 0:08:21.680 --> 0:08:25.280 catastrophic stress or whatever. It should be isolated to a 0:08:25.320 --> 0:08:28.440 fund that has done kind of odd underwriting or kind 0:08:28.440 --> 0:08:32.839 of offbeat underwriting that actually the market as a whole. Yeah, 0:08:32.920 --> 0:08:36.120 the mainstream of the market has performed basically quite robustly 0:08:36.120 --> 0:08:36.360 through this. 0:08:36.800 --> 0:08:40.000 Absolutely, you know, is going to be selective funds and 0:08:40.040 --> 0:08:44.160 selective managers who have underperformed. It's not an asset class 0:08:44.200 --> 0:08:47.200 issue like we saw in US mortgages in you know, 0:08:47.280 --> 0:08:50.200 two thousand and seven in that space. And I think 0:08:50.280 --> 0:08:53.160 if you want to just characterize why it's different, if 0:08:53.240 --> 0:08:55.040 I put it that way. You know, if you look 0:08:55.080 --> 0:08:58.839 at what happened in the US residential mortgage market, it 0:08:58.960 --> 0:09:01.640 was an original warehouse and then hand it over to 0:09:01.640 --> 0:09:05.720 Wall Street to distribute, so the actual underwriter didn't really 0:09:05.720 --> 0:09:08.000 hold on to it very long. If you look at 0:09:08.080 --> 0:09:11.400 us today, we own these assets for seven years, and 0:09:11.480 --> 0:09:14.520 we're fully accountable and monitoring these companies on a day 0:09:14.520 --> 0:09:19.680 to day basis. So our business is reliant on the 0:09:19.720 --> 0:09:21.960 performance of those businesses as well. So you have massive 0:09:22.000 --> 0:09:26.079 alignment between the manager and the LP because we need 0:09:26.120 --> 0:09:29.280 to be selecting good companies for our businesses to flourish 0:09:29.360 --> 0:09:29.640 and grow. 0:09:30.080 --> 0:09:34.240 Can I then perhaps ask assignment about risk management? And 0:09:34.280 --> 0:09:38.079 then I suppose credit risk is the biggest risk that 0:09:38.360 --> 0:09:42.640 we focus on. If you compare the risk management function 0:09:43.040 --> 0:09:48.200 within the typical private credit company or Palmton, if you 0:09:48.200 --> 0:09:54.040 compare it to the traditional banking model, do they are 0:09:54.040 --> 0:09:56.439 they broadly similar? Are the key differences? 0:09:57.280 --> 0:10:00.720 It varies quite a bit between managers. We we've followed 0:10:00.760 --> 0:10:04.319 a slightly different model to our peer group. So you know, 0:10:04.400 --> 0:10:08.880 we have dedicated originators talking to the private equity firm, 0:10:09.000 --> 0:10:11.480 so we get to make sure that we know everything 0:10:11.480 --> 0:10:14.120 that they're up to on a day to day basis, 0:10:14.240 --> 0:10:18.320 so that we have a pretty good sign side of 0:10:18.400 --> 0:10:20.920 light of where the deal flow is going to come from. 0:10:21.600 --> 0:10:24.480 We then have a large analytics team credit team inside 0:10:24.520 --> 0:10:27.960 the firm, and you know, we have twenty two analysts 0:10:28.000 --> 0:10:31.720 in that process. Nicole Gates, who runs that, used to 0:10:31.720 --> 0:10:35.480 be the senior credit officer at Dressner responsible for their 0:10:35.520 --> 0:10:40.520 alternatives area, particularly levit finance. She then actually spent nearly 0:10:40.559 --> 0:10:44.480 ten years at GE running their restructuring international Restructuring unit, 0:10:45.000 --> 0:10:48.120 so she's got tremendous depth of experience and looking at 0:10:48.280 --> 0:10:51.800 from a credit underwriting point of view the transactions, both 0:10:51.880 --> 0:10:54.080 primary new ones as well as dealing with some of 0:10:54.120 --> 0:10:56.960 the old problem ones at GE and I think that 0:10:57.080 --> 0:11:00.520 skill set inside the firm gives us a independent function, 0:11:01.240 --> 0:11:04.679 so the portfolio managers work with that credit function to 0:11:04.760 --> 0:11:08.680 really understand the companies, to analyze the cash flows, analyze 0:11:08.679 --> 0:11:11.600 the sector position, look at the growth trajectory, look at 0:11:11.600 --> 0:11:14.880 the business plans that they have inside of that. And 0:11:14.920 --> 0:11:17.600 we've done it that way because I think it's very 0:11:17.600 --> 0:11:21.600 difficult for originator to be out scouring the market for deals, 0:11:22.200 --> 0:11:25.040 to be reading thousands of pages of due diligence on 0:11:25.080 --> 0:11:28.480 a deal that they've got, and to do that ongoing origination, 0:11:28.880 --> 0:11:31.920 and we wanted to create a partnership across the business, 0:11:31.920 --> 0:11:34.640 the originators working with their analytics team, working with our 0:11:34.679 --> 0:11:39.120 portfolio management team so that we could really go quite 0:11:39.240 --> 0:11:42.000 in depth into the companies and understand what they're doing. 0:11:43.679 --> 0:11:47.080 But perhaps to follow up on that point, one of 0:11:47.080 --> 0:11:51.440 the key attractions for a borrower to go with a 0:11:51.440 --> 0:11:55.480 private credit provider as opposed to a bank is sometimes 0:11:55.600 --> 0:11:58.640 that's the speed of the loan decision, if you go 0:11:59.120 --> 0:12:01.920 through the banking process, can be more more of an 0:12:01.920 --> 0:12:08.000 administrative nightmare, whereas a credit provider could perhaps act more quickly. 0:12:08.240 --> 0:12:09.160 Would would you agree with that? 0:12:09.440 --> 0:12:09.600 Yeah? 0:12:09.800 --> 0:12:13.240 I think there's two key differences. I think, you know, 0:12:13.360 --> 0:12:17.040 one is we can tailor a transaction much more to 0:12:17.720 --> 0:12:21.080 the client's demands. So sometimes cash flow is a bit 0:12:21.120 --> 0:12:23.000 tighter in the first year or so, we can give 0:12:23.000 --> 0:12:26.480 them flexibility on you know, picking income in the first 0:12:26.520 --> 0:12:29.199 twelve months. You know why they're executing the integration, etc. 0:12:30.080 --> 0:12:32.520 So I think that's a much more difficult thing to 0:12:32.559 --> 0:12:36.079 go out and explain in a syndication transaction. But if 0:12:36.080 --> 0:12:40.080 you're doing a bilateral between us and the borrower, we 0:12:40.160 --> 0:12:42.760 can put it into a structure that really really suits 0:12:42.760 --> 0:12:46.240 the cash flow and the growth of the company. The 0:12:46.280 --> 0:12:49.160 second part is, you know, we ran a huge syndication 0:12:49.240 --> 0:12:53.160 business when I was at the bank. You know, when 0:12:53.200 --> 0:12:55.480 you're underwriting deals on the concept I'm going to sell 0:12:55.520 --> 0:12:58.319 it to sixty different institutions, Lots of people have different 0:12:58.400 --> 0:13:00.600 views about is it sellable? Is it not sallable? As 0:13:00.600 --> 0:13:03.760 the market rights it's not right. So banks obviously decision 0:13:03.760 --> 0:13:07.240 making process can be quite slow at times because you've 0:13:07.240 --> 0:13:08.880 got to get the sales desk view, you've got to 0:13:08.920 --> 0:13:11.520 get the credits view, you've got to get other people's views, 0:13:11.520 --> 0:13:14.680 and you've got to bring that together. That model works, 0:13:14.720 --> 0:13:17.840 it's been successful for decades, but it can be time 0:13:18.559 --> 0:13:21.800 time consuming. And I think that we have an advantage 0:13:21.800 --> 0:13:24.800 because we have accumulated the capital, we know how much 0:13:24.800 --> 0:13:28.400 we're willing to lend, and we can do it relatively 0:13:28.440 --> 0:13:30.559 straightforward with the borrower. 0:13:31.480 --> 0:13:35.640 Simon, you are one of a collection of beautique lenders 0:13:35.800 --> 0:13:39.440 who got in early in European dirret lending. But if 0:13:39.440 --> 0:13:41.920 you look across the landscape of your fears, you see 0:13:41.960 --> 0:13:43.920 quite a lot of them have actually changed hands now 0:13:44.160 --> 0:13:46.240 and a lot of them have attached themselves to broader 0:13:46.320 --> 0:13:49.360 kind of I guess global asset managers, and you do 0:13:49.440 --> 0:13:52.600 have a steak minority stake from L and G. But 0:13:52.960 --> 0:13:56.520 what would be the criteria or the preconditions for a sale? 0:13:57.000 --> 0:13:59.440 Is it tempting to kind of jump on the bandwagon 0:13:59.520 --> 0:14:03.440 and and sell the business? Do you? What are your 0:14:03.480 --> 0:14:05.559 general thoughts about about setting sale? 0:14:05.800 --> 0:14:08.400 I think if I put it correctly, you know, silas 0:14:08.400 --> 0:14:10.680 the world has been going off talking to insurance companies 0:14:10.679 --> 0:14:14.440 and other people to partner with private credit managers, and 0:14:14.640 --> 0:14:16.160 you know, that seems to be a theme at the 0:14:16.200 --> 0:14:19.440 moment inside the industry. I think we made the decision 0:14:19.560 --> 0:14:21.240 very early on when we set up the firm, we 0:14:21.280 --> 0:14:25.400 wanted to be truly European by being in you know, 0:14:25.800 --> 0:14:28.680 every country with our ten officers. We wanted to have 0:14:28.720 --> 0:14:32.480 a significant European partner inside the business who was well 0:14:32.520 --> 0:14:36.080 known and well regarded. So Ellen g became a partner 0:14:36.080 --> 0:14:39.240 inside the firm. They've been a fantastic partner as we've 0:14:39.240 --> 0:14:42.880 built the business, and you know, we wanted to be 0:14:43.360 --> 0:14:47.040 a truly third party manager. So over ninety percent of 0:14:47.040 --> 0:14:51.200 our capital comes from other institutions. And you know, I 0:14:51.240 --> 0:14:54.240 think we've kind of front loaded I can say that way. 0:14:54.600 --> 0:14:56.520 You know, we made all those decisions up front and 0:14:56.520 --> 0:14:59.120 then focused on building the platform. I think a number 0:14:59.120 --> 0:15:01.520 of our piers went out and kind of started to 0:15:01.520 --> 0:15:03.960 build platforms and then decided they needed to go and 0:15:04.040 --> 0:15:07.640 find a partner in that space. So we're very happy 0:15:07.720 --> 0:15:09.560 the way we are. We think we're on a very 0:15:09.640 --> 0:15:13.080 very strong trajectory. More recently, we've opened up the NAB 0:15:13.160 --> 0:15:15.520 lending businesses, which is going very very well with the 0:15:15.520 --> 0:15:19.200 partnership we announced with Addia coming into work with that, 0:15:20.640 --> 0:15:23.880 We've been growing our working capital solutions business. We just 0:15:23.920 --> 0:15:27.480 announced the partnership in December with Santander where we're setting 0:15:27.560 --> 0:15:30.360 up a joint venture company. So we've really feeled that 0:15:30.800 --> 0:15:34.120 across the platform. With the products we've got RSS, our 0:15:34.240 --> 0:15:38.480 risk sharing SRT business, our COLO business, we have a 0:15:38.560 --> 0:15:42.480 pretty broad based platform. We can bring together those products 0:15:42.480 --> 0:15:47.600 into multi strap SMAs for clients. We can build large 0:15:47.680 --> 0:15:50.960 verticals in each one of those strategies. And we have 0:15:51.000 --> 0:15:54.360 a very supportive shareholder inside the firm who's been very 0:15:54.360 --> 0:15:57.320 helpful as we've grown the business. So we think it's exciting. 0:15:58.240 --> 0:16:02.520 Europe's going to be a great opportunity and we're out 0:16:02.760 --> 0:16:04.520 telling people about that opportunity. 0:16:04.720 --> 0:16:07.200 And what do you make generally of the consolidation in 0:16:07.520 --> 0:16:11.680 in among private credit firms Now? I mean, obviously there's 0:16:11.800 --> 0:16:17.560 kind of high profile ones ala Blackrock buying HPS. There's 0:16:17.640 --> 0:16:21.000 kind of more regional ones going on, you know, probably 0:16:21.040 --> 0:16:24.360 as we speak, and yeah, what do you make of it? 0:16:24.560 --> 0:16:26.440 Yeah? But I think it all goes back to the 0:16:26.440 --> 0:16:29.640 same point, you know, if I mean, HBS is a 0:16:29.640 --> 0:16:33.160 different situation. I mean, HBS is a very successful firm. 0:16:33.360 --> 0:16:35.320 You know, it had one hundred and forty billion of 0:16:35.400 --> 0:16:39.960 capital in that space, and you know, it was considering 0:16:40.000 --> 0:16:42.720 going down the IPO route, and black Rock came in 0:16:42.760 --> 0:16:46.240 and made a very very attractive offer in that space. 0:16:46.280 --> 0:16:49.280 And I think, you know, that's much more a very 0:16:49.360 --> 0:16:51.480 very mature business, you know, like you see in the 0:16:51.600 --> 0:16:54.520 M and A market. I think the vast majority of 0:16:54.560 --> 0:16:56.520 deals that have been done in the market today if 0:16:56.560 --> 0:16:59.400 I look at it, so you know, have been much 0:16:59.400 --> 0:17:03.120 smaller man probably more around the ten billion mark or 0:17:03.240 --> 0:17:07.800 you know, who are being acquired by insurance groups or 0:17:07.840 --> 0:17:11.199 other investors as a platform for them to bring a 0:17:11.200 --> 0:17:13.440 lot of capital in to try to grow those businesses 0:17:13.480 --> 0:17:17.080 into much bigger businesses. And I think that trend's going 0:17:17.119 --> 0:17:18.719 to happen because I think there is a lot of 0:17:18.760 --> 0:17:22.160 if I can say, subscale managers in the market who 0:17:22.680 --> 0:17:26.399 you know, it's a significant cost to build your institutional 0:17:26.400 --> 0:17:31.840 coverage platform. And so you know, we are now you know, 0:17:31.880 --> 0:17:34.639 twenty six billion. We think we'll grow to probably you know, 0:17:35.840 --> 0:17:38.800 mid thirties over the next twelve months and in that space, 0:17:39.160 --> 0:17:40.600 and I think once you start to get to that 0:17:40.680 --> 0:17:42.600 size and you've got that scale and you've got the 0:17:42.640 --> 0:17:45.920 breadth of products. What we're seeing is people saying, that's 0:17:45.960 --> 0:17:47.879 really interesting. Can I do this with you? And can 0:17:47.920 --> 0:17:50.479 I do that with you? In that space? If you're 0:17:50.520 --> 0:17:54.560 a single product manager just doing you know, unitranch loans, 0:17:55.840 --> 0:17:57.680 I think you need a big brother to really grow 0:17:57.720 --> 0:17:59.680 the business to the next level. And I think that's 0:17:59.720 --> 0:18:01.680 what's driving the M and A activity. 0:18:01.400 --> 0:18:03.920 And the scale numbers you're giving us some simon that's 0:18:03.920 --> 0:18:06.080 in euros, Is it because you were talking a couple 0:18:06.119 --> 0:18:08.080 of years ago about getting to fifty billion by I 0:18:08.080 --> 0:18:11.520 think twenty twenty seven around there in terms of dollars 0:18:11.200 --> 0:18:12.080 dollar amount. 0:18:12.320 --> 0:18:14.680 Yeah, No, that's correct, and you know, I think we're 0:18:14.840 --> 0:18:17.479 still on track for that, James, and working hard with 0:18:17.520 --> 0:18:20.879 our new partnerships that we've announced over the last six months. 0:18:21.160 --> 0:18:23.520 And that's the kind of scale you need to be standalone, 0:18:23.560 --> 0:18:24.360 is it in this business? 0:18:25.160 --> 0:18:29.439 So I know, yeah, I think it's an important piece, 0:18:29.640 --> 0:18:33.840 and I think to me, scale is less of the issue. 0:18:34.200 --> 0:18:36.560 I think you've got to have a range of products 0:18:36.560 --> 0:18:39.920 that people think are relevant and attractive, and I think 0:18:39.960 --> 0:18:42.640 you have to have you know, high performance or high 0:18:42.720 --> 0:18:46.000 quality offerings in those products. I think if you do that, 0:18:46.119 --> 0:18:49.520 then scale comes, you know, naturally, because people are attracted 0:18:49.560 --> 0:18:52.280 to come with you, and you know, I think people, 0:18:52.840 --> 0:18:54.760 you know, if you're a big institution and you want 0:18:54.800 --> 0:18:57.560 to allocate five hundred million, it's hard to go and 0:18:57.600 --> 0:19:00.760 give that to a five billion manager. You know, if 0:19:00.800 --> 0:19:02.800 you're a big institution and you want to allocate five 0:19:02.880 --> 0:19:04.840 hundred million, it's much easier to give that to an 0:19:04.840 --> 0:19:08.239 institution which has got fifty billion. It's got you know, 0:19:08.320 --> 0:19:11.840 three hundred people, it's got the infrastructure, the institutional parts 0:19:11.840 --> 0:19:15.720 of compliance, risk, legal and all of that around it. 0:19:15.800 --> 0:19:17.560 So they kind of go hand in hand. 0:19:18.840 --> 0:19:24.960 Simon. Earlier this week, Donald Trump was inaugurated as the 0:19:25.000 --> 0:19:28.280 forty seventh i think, president of the US. The expectation 0:19:28.400 --> 0:19:31.240 is that the new administration is going to postpone the 0:19:31.720 --> 0:19:34.679 bars of three end game, as it's called for US banks, 0:19:35.480 --> 0:19:40.479 possibly indefinitely. We've already seen a reaction over here in Europe. 0:19:40.680 --> 0:19:44.760 In the UK, the PRA has effectively postponed the introduction 0:19:44.840 --> 0:19:47.840 of BARSA three point one or BARSA four, whichever UK's 0:19:47.880 --> 0:19:50.840 call it, by another year to January twenty twenty seven. 0:19:51.400 --> 0:19:56.800 Is there possibility that the pendulums perhaps swinging back a 0:19:56.840 --> 0:20:01.200 little to bank deregulation, and as a result of that 0:20:02.200 --> 0:20:04.520 is a possibility that banks are going to be able 0:20:04.520 --> 0:20:06.679 to compete more effectively with pride credit. 0:20:07.480 --> 0:20:10.800 I think if you go back, I mean the you know, 0:20:10.840 --> 0:20:14.760 certainly the pendulum of you know, being kinder to banks 0:20:14.800 --> 0:20:17.920 in the United States is definitely happening under the Trump administration. 0:20:18.080 --> 0:20:20.920 But Trump will only be here for four years, and 0:20:21.000 --> 0:20:23.280 if you're a chief executive of bank, you've got to 0:20:23.320 --> 0:20:25.520 make sure the pensulum doesn't swing back the other way, 0:20:26.560 --> 0:20:28.840 you know, in four years time. So it's very difficult 0:20:28.960 --> 0:20:31.840 I think to run your business model by just looking 0:20:31.880 --> 0:20:34.720 at politics. You have to look at the long term trends. 0:20:34.760 --> 0:20:37.600 And I think the long term trends inside of banking is, 0:20:38.320 --> 0:20:41.080 you know, I would say, a movement out of non 0:20:41.119 --> 0:20:47.359 investment grade and asset heavy lending into much more investment 0:20:47.400 --> 0:20:51.920 grade and service providing and distribution and rather than being 0:20:52.359 --> 0:20:56.640 large scale principles. And they'll still have large lending books, 0:20:57.960 --> 0:21:01.680 but you know, I think it's a big shift, and 0:21:01.800 --> 0:21:04.919 that shift isn't going to change in this process. I 0:21:04.920 --> 0:21:06.920 think if you look at Europe and if your ECB. 0:21:07.160 --> 0:21:09.200 ECB has been very vocal that they'd like to see 0:21:09.280 --> 0:21:14.080 much more consolidation in the European marketplace. That seems to 0:21:14.080 --> 0:21:17.640 be taking a long time, and therefore, I think regulation 0:21:17.680 --> 0:21:20.399 will continue to be relatively tight on the European banking 0:21:20.440 --> 0:21:25.520 system around single name, concentration, non investment grade, you know, 0:21:25.600 --> 0:21:29.359 and these type of things. So fundamentally, in a growing 0:21:29.400 --> 0:21:32.760 market where you know, companies need to borrow two hundred 0:21:32.760 --> 0:21:35.880 million first time round, four hundred five hundred million, next 0:21:35.880 --> 0:21:39.119 time round a billion the time round, institutions that can 0:21:39.160 --> 0:21:41.920 bring together large pools of capital are going to be 0:21:42.000 --> 0:21:45.879 very very relevant, very very meaningful for those So you know, 0:21:46.600 --> 0:21:49.280 the banks, as we have with Santander, you know, can 0:21:49.320 --> 0:21:51.280 be great partners and they've you know, there's been other 0:21:51.320 --> 0:21:55.119 bank partnerships announced because I think they see it that 0:21:55.200 --> 0:21:58.679