WEBVTT - BI Weekend: AI Tech Impact, Private Credit 0:00:00.280 --> 0:00:11.200 Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Intelligence 0:00:11.320 --> 0:00:13.400 with Alex Steel and Paul Sweeney. 0:00:13.520 --> 0:00:16.720 The real AP performance has been in US corporate high yield. 0:00:16.920 --> 0:00:19.280 Are the companies lean enough? Have they trimmed all the fats? 0:00:19.320 --> 0:00:22.959 The semiconductor business is a really cyclical business. 0:00:22.600 --> 0:00:26.320 Breaking market headlines and corporate news from across the globe. 0:00:26.360 --> 0:00:28.800 Do investors like the M and A that we've seen? 0:00:29.000 --> 0:00:31.960 These are two big time blue chip companies. 0:00:32.240 --> 0:00:35.640 Window between the peak and cunt changing super fast. 0:00:35.880 --> 0:00:40.920 Bloomberg Intelligence with Alex Steele and Paul Sweeney on Bloomberg Radio. 0:00:42.920 --> 0:00:45.480 Today's Bloomberg Intelligence Show, we dig inside the big business 0:00:45.520 --> 0:00:47.600 stories impacting Wall Street and the global markets. 0:00:47.680 --> 0:00:49.880 Each and every week we provide dep research and data 0:00:49.880 --> 0:00:51.680 on some of the two thousand companies and one hundred 0:00:51.680 --> 0:00:54.080 and thirty industries our analysts cover worldwide. 0:00:54.200 --> 0:00:56.600 Today, we'll look at the growing dominance of private credit 0:00:56.600 --> 0:00:58.920 as traditional banks face stricter regulations. 0:00:58.960 --> 0:01:01.800 Plus we'll discuss the ball role of quantitative finance and 0:01:01.920 --> 0:01:04.120 artificial intelligence and asset management. 0:01:04.440 --> 0:01:06.440 And we begin with some of the best interviews from 0:01:06.440 --> 0:01:09.280 our live broadcast this week at Bloomberg invest There, we 0:01:09.360 --> 0:01:12.520 talked with leaders in asset management, banking, wealth and private 0:01:12.520 --> 0:01:14.760 markets in the heart of New York's Financial district. 0:01:14.920 --> 0:01:17.200 For our first conversation, we are joined by Mark Mahaney, 0:01:17.240 --> 0:01:20.479 Senior Managing director at Evercore ISI. We discussed the state 0:01:20.480 --> 0:01:23.280 of the tech sector and how artificial intelligence is reshaping 0:01:23.319 --> 0:01:26.679 the industry. We first asked Mark about how AI compares 0:01:26.840 --> 0:01:28.080 to the launch of the Internet. 0:01:28.520 --> 0:01:31.720 I don't know if it will be that transformative, but 0:01:32.720 --> 0:01:37.360 the amount of money that's going into them, paid by companies, 0:01:37.440 --> 0:01:41.479 put in by companies that have plenty of cash is 0:01:41.520 --> 0:01:43.640 something of a tell. And then we've seen a lot 0:01:43.680 --> 0:01:46.399 of examples of what I call OURAI, you know ROI 0:01:46.520 --> 0:01:50.240 return on investment ROAI. So you know, we're staring at 0:01:50.280 --> 0:01:52.480 it right now. Look at what's happened to Meta in 0:01:52.520 --> 0:01:54.760 the last two and a half years. How they've turned 0:01:54.760 --> 0:02:00.360 around their business both and they've dramatically improved their services 0:02:00.400 --> 0:02:02.880 for customers that's you and me as consumers. Our news 0:02:02.880 --> 0:02:05.280 feed has gotten to become more relevant because they've used 0:02:05.280 --> 0:02:09.600 AI to do better targeting, better recommendations. But also for advertisers, 0:02:09.639 --> 0:02:12.960 their return on ads ben ROAs has risen because the 0:02:13.000 --> 0:02:16.640 campaigns have become better targeted, better management, better managed. So 0:02:16.840 --> 0:02:20.840 I've seen a couple of really great ROAI examples and 0:02:20.880 --> 0:02:23.919 so I'm not sure it's transformative, but it's definitely improving 0:02:23.960 --> 0:02:25.959 the performance of these companies, and it shows up in 0:02:26.000 --> 0:02:26.480 the P and L. 0:02:26.520 --> 0:02:26.720 Two. 0:02:26.880 --> 0:02:28.639 I think you can also look at Google, twenty five 0:02:28.639 --> 0:02:31.280 percent of their code is now written by AI. Imagine 0:02:31.320 --> 0:02:34.079 the productivity improvement associated with that. And then Amazon is 0:02:34.120 --> 0:02:37.280 talking about twenty five percent lower cost to serve in 0:02:37.320 --> 0:02:40.120 its most advanced distribution centers. I mean, that's why their 0:02:40.120 --> 0:02:41.600 margins are going to continue to go up. So you're 0:02:41.600 --> 0:02:43.280 seeing it in a P and L. So I think 0:02:43.280 --> 0:02:45.920 it's actually a major productivity improvement, and I think this 0:02:45.960 --> 0:02:47.120 is going to play out for years. 0:02:47.840 --> 0:02:51.320 When do you think we're going to really understand how 0:02:51.560 --> 0:02:55.359 inferencing is going to impact us and companies? And like, 0:02:55.400 --> 0:02:57.000 when are you going to get me to buy in 0:02:57.000 --> 0:02:58.040 to an AI story? 0:02:59.040 --> 0:03:01.320 Well, I tried to lay out couple of examples already 0:03:01.480 --> 0:03:03.960 of where these companies are deploying AI and machine learning, 0:03:03.960 --> 0:03:06.000 and they have been for quite some time. We've just 0:03:06.080 --> 0:03:09.800 had a step up, like a hockey stick improvement. You 0:03:09.880 --> 0:03:14.080 just mentioned Kenda hockey stick inflection up in productivity gains 0:03:14.120 --> 0:03:16.600 because with these companies. So I'm sorry, I think we're 0:03:16.600 --> 0:03:18.400 already starting to see it, and I think we're seeing 0:03:18.400 --> 0:03:18.639 it in it. 0:03:18.880 --> 0:03:20.760 Why I see it, I mean maybe my news feed, 0:03:20.840 --> 0:03:23.600 but well I pay for it. 0:03:24.360 --> 0:03:27.160 Well, you want some really specific product examples, I got 0:03:27.160 --> 0:03:28.079 a really fun one for you. 0:03:28.200 --> 0:03:29.079 Okay, into it. 0:03:29.240 --> 0:03:31.720 You want to learn languages, There's this wonderful app called 0:03:31.800 --> 0:03:34.040 dual Lingo. You want to really learn a language, pay 0:03:34.120 --> 0:03:36.360 up for dual Lingo Max, where you can use an 0:03:36.400 --> 0:03:39.520 AI generated bot to actually practice your French, your Spanish, 0:03:39.600 --> 0:03:42.680 your German, your Russian, whatever we need to learn these days. Anyway, 0:03:43.400 --> 0:03:44.640 and I think you're going to see more of these 0:03:44.680 --> 0:03:47.080 kind of little one off examples. But you know, from 0:03:47.120 --> 0:03:51.840 a company's perspective, anything that produces internal productivity, improves relations 0:03:51.840 --> 0:03:54.480 with suppliers or customers. I mean, all of that's I 0:03:54.520 --> 0:03:57.400 don't think there's one. I don't think there's one AI 0:03:57.480 --> 0:03:59.240 revenue build. But you'll see a couple of products that 0:03:59.280 --> 0:04:02.080 wouldn't exist, And they do a Lingle example as one 0:04:02.200 --> 0:04:04.840 that wouldn't simply wouldn't exist if you didn't have AI. 0:04:05.280 --> 0:04:09.200 How about for Google and a traditional search business is 0:04:09.280 --> 0:04:11.720 AI a threat to Google or not. 0:04:12.360 --> 0:04:15.320 Google just put out a blog that said that because 0:04:15.400 --> 0:04:23.279 of AI overviews that they're actually seeing more commercial search queries. Really, 0:04:23.560 --> 0:04:27.159 that's that should raise all of our eyes. So, and 0:04:27.200 --> 0:04:28.640 I guess I'm not at the end of the day, 0:04:28.720 --> 0:04:32.039 not surprise. Google is a company that just consistently improved 0:04:32.040 --> 0:04:34.560 the product, made the search results faster and faster and 0:04:34.600 --> 0:04:37.920 more relevant. This just took that up a notch. And so, yeah, 0:04:37.960 --> 0:04:40.760 if they can get you the result you want more quickly, 0:04:41.360 --> 0:04:44.240 especially if it's leading to more commercial searches, Google is 0:04:44.240 --> 0:04:45.919 the one company in the world that knows how to 0:04:45.960 --> 0:04:47.240 monetize commercial searches. 0:04:47.520 --> 0:04:51.159 What do you think is the biggest misconception about AI, 0:04:51.400 --> 0:04:54.880 Whether it's like what investors thing, what's priced into the stock, 0:04:55.000 --> 0:04:55.960 or justconceptually. 0:04:57.040 --> 0:04:59.920 I think the biggest mistake misconception probably occurred when Deep 0:05:00.320 --> 0:05:02.760 came out and there was concern that this would be 0:05:02.800 --> 0:05:06.680 highly disruptive for the hyperscalers. I actually took the exact 0:05:06.760 --> 0:05:10.520 opposite view, especially if you're at the application layer, and 0:05:10.880 --> 0:05:15.040 because the infrastructure potentially just got a lot cheaper, So 0:05:15.080 --> 0:05:17.279 you're going to all that money that you've spent on Capex, 0:05:17.279 --> 0:05:19.479 You're going to get a better return. That money wasn't wasted, 0:05:19.520 --> 0:05:21.760 You're going to get a better return than you would 0:05:21.760 --> 0:05:24.239 have had in the past. So I think that's probably 0:05:24.240 --> 0:05:26.239 the biggest recent misconception I've seen. 0:05:26.520 --> 0:05:29.839 For Meta It's had a great turnaround. As you talked 0:05:29.839 --> 0:05:34.120 about what percentage of that turnaround is simply cost cutting 0:05:34.640 --> 0:05:38.200 versus maybe just stepping away from the metaverse discussion somewhat. 0:05:39.080 --> 0:05:41.520 I think it's two or three things. Stepping away from metaverse, 0:05:41.800 --> 0:05:45.159 focusing on the year of efficiency that Zuckerberg talked about 0:05:45.200 --> 0:05:47.080 the beginning of twenty three and now it's become the 0:05:47.160 --> 0:05:50.520 years of efficiency. There has been a mind shift at 0:05:50.520 --> 0:05:53.719 Silicon Valley. It's not growth at all costs is much 0:05:53.760 --> 0:05:55.880 more of a focus on So there's a cultural shift 0:05:55.920 --> 0:05:58.160 I think is probably good. These companies are going through 0:05:58.160 --> 0:06:02.159 their middle life stage is not crisis, but stages, and 0:06:02.200 --> 0:06:04.120 as they do that, they shouldn't be They should be 0:06:04.120 --> 0:06:06.840 spending much less aggressively on growth. They should be focused 0:06:06.839 --> 0:06:08.960 more and profitability than they are. But then the tie 0:06:08.960 --> 0:06:14.000 into AI is their developers can produce more code with 0:06:14.120 --> 0:06:16.400 fewer developers. It's not like they need to cut people 0:06:16.440 --> 0:06:19.520 from this point on, but they can grow, They can 0:06:19.520 --> 0:06:22.560 sustain growth with less need to add headcount than they 0:06:22.560 --> 0:06:23.239 did in the past. 0:06:23.680 --> 0:06:26.760 Our thanks to Mark Mahaney, Senior managing director at Evercore, I. 0:06:26.920 --> 0:06:28.920 S I saying with Bloomberg and Bez Paul and I 0:06:28.920 --> 0:06:31.480 also spoke with Katie Fogerty, chief financial officer at the 0:06:31.480 --> 0:06:34.839 Burger chain Shake Shack, and we discussed the company's growth strategy, 0:06:34.880 --> 0:06:36.840 pricing dynamics, and expansion plans. 0:06:37.000 --> 0:06:39.440 We're first to ask Katie about the company's strategy and 0:06:39.480 --> 0:06:42.080 who the consumer is at shay Check these days. 0:06:42.400 --> 0:06:44.800 We have this amazing real estate strategy, and what we've 0:06:44.800 --> 0:06:49.360 done is we've put these great community gathering places in 0:06:49.440 --> 0:06:52.400 a lot of these you know, great communities, and where 0:06:52.440 --> 0:06:54.600 we have attracted is just really kind of more of 0:06:54.640 --> 0:06:57.880 a I would say, you know, more a middle income 0:06:57.960 --> 0:07:00.640 to higher income guests. And we've seen that guest be 0:07:00.720 --> 0:07:03.680 able to weather a lot more of the economic headwinds 0:07:03.720 --> 0:07:06.440 than other, you know, than the low income consumer has 0:07:06.960 --> 0:07:09.680 been facing. And you know, what we continue to see 0:07:09.720 --> 0:07:12.520 is by leaning into our strength, which is delivering a 0:07:12.560 --> 0:07:15.559 fine casual experience. So we think about kind of bringing 0:07:15.600 --> 0:07:20.280 all those great guts of fine dining elevated food, premium ingredients, 0:07:20.840 --> 0:07:23.239 doing the things that you know, other you know, fast 0:07:23.240 --> 0:07:26.200 casual and QSR just are not willing to do. Putting 0:07:26.200 --> 0:07:30.600 that an amazing hospital or hospitable environment and getting great 0:07:30.680 --> 0:07:33.600 guest service. That together has been a winning formula to 0:07:33.640 --> 0:07:37.480 help us outpunch what has been you know, some consumer 0:07:37.520 --> 0:07:40.520 headwinds that has been facing the industry, and we are 0:07:40.560 --> 0:07:43.119 going to continue to lean into that. It's it's helping 0:07:43.200 --> 0:07:46.360 us to differentiate and kind of pull apart from the pack. 0:07:47.400 --> 0:07:50.680 And it's it's been our strength. Where are our samples? 0:07:50.960 --> 0:07:53.400 I know, I mean what is this about? 0:07:53.840 --> 0:07:54.720 So who are. 0:07:54.720 --> 0:07:56.800 Your competitors then? So if you're a middle and high 0:07:56.880 --> 0:07:59.320 end consumer, who would you say as a competitor, Yeah, 0:07:59.360 --> 0:08:02.640 I mean we sell burgers, shakes, fries, I think the 0:08:02.640 --> 0:08:05.520 best chicken sandwich out there in the business. We view 0:08:05.560 --> 0:08:08.800 our competitors as being you know, anybody who you know 0:08:08.880 --> 0:08:11.840 you might consider having lunch at or dinner at. So 0:08:11.920 --> 0:08:15.080 that is a pretty wide array and it also can 0:08:15.120 --> 0:08:17.040 be you know, food at home. I mean that can 0:08:17.120 --> 0:08:19.680 also be in you know, in an area where you 0:08:19.680 --> 0:08:22.520 would have some share of stomach. So you know, for 0:08:22.640 --> 0:08:26.440 the vast amount of you know, of our restaurants out there. 0:08:26.480 --> 0:08:28.880 We are competing with a lot of people. Now we 0:08:29.000 --> 0:08:31.760 are differentiated and we are kind of in that category 0:08:31.800 --> 0:08:35.240 of one in the fine casual sector. But at the 0:08:35.280 --> 0:08:37.480 same time, we know that, you know, people have lots 0:08:37.480 --> 0:08:39.720 of different options where they can go out to eat, Katy. 0:08:39.800 --> 0:08:42.080 There's a lot of concern out there about inflation. If 0:08:42.080 --> 0:08:44.600 inflation were to come into your business, where would you 0:08:44.600 --> 0:08:45.920 see it and how do you plan for that? 0:08:46.200 --> 0:08:48.920 So we actually have been navigating through inflationary pressures for 0:08:48.960 --> 0:08:52.199 a number of years here and doing so quite successfully. 0:08:52.240 --> 0:08:55.720 I'll say, you know, we've had wage inflationary pressures in COVID. 0:08:55.800 --> 0:08:59.240 It was actually very hard to get restaurant talent in 0:08:59.320 --> 0:09:02.760 our restaurants to staff and to deliver our food. It 0:09:02.840 --> 0:09:04.880 was not a desirable job at the time. And we 0:09:04.960 --> 0:09:08.040 had we raised wages and had a very competitive and 0:09:08.040 --> 0:09:11.800 compelling opportunity for our team members. We also introduced tips 0:09:11.840 --> 0:09:14.920 as a way to compensate our team members as well 0:09:14.920 --> 0:09:18.640 and give them added benefit. And then last year with 0:09:18.720 --> 0:09:20.840 you know, with California Fast Food Wage Act, you know, 0:09:20.840 --> 0:09:23.840 we faced through that as well. We've also had on 0:09:23.880 --> 0:09:26.760 the food side, you know, inflationary pressures that have been. 0:09:27.000 --> 0:09:29.640 We've been navigating for a number of years as well. 0:09:30.440 --> 0:09:33.600 But through all of this, through leaning in on our strength, 0:09:33.640 --> 0:09:36.560 which is, you know, again delivering that elevated you know, 0:09:36.679 --> 0:09:39.160 experience to guests, giving them that you know, twenty five 0:09:39.240 --> 0:09:42.600 dollars uh, you know black truffle Burger that we were 0:09:42.600 --> 0:09:45.360 actually selling for ten dollars and giving them that great value. 0:09:45.360 --> 0:09:48.959 On that side, we've been able to both grow sales 0:09:49.000 --> 0:09:52.199 and grow margins at a faster pace. Just even last year, 0:09:52.240 --> 0:09:55.000 we expanded our margins in the fourth quarter by three 0:09:55.080 --> 0:09:57.880 hundred basis points. So I've never had Shakeshack, but it 0:09:57.960 --> 0:09:59.520 looked I know, I know, but it looks like I 0:09:59.559 --> 0:10:01.400 may be ab to now in Delta. Yes. 0:10:01.559 --> 0:10:04.440 So, and this really also goes to your expansion plans. 0:10:04.440 --> 0:10:07.280 So Delta is going to offer Shakeshack Burgers on additional 0:10:07.280 --> 0:10:10.600 domestic routs this year, and that could expand international flights 0:10:10.840 --> 0:10:12.840 next year. Talk about these expansion kind of plans. 0:10:12.880 --> 0:10:15.040 Yeah, I mean, if you look at Delta at its 0:10:15.040 --> 0:10:17.719 core and what this does, you know, this is an 0:10:17.760 --> 0:10:21.559 opportunity where we're able to surprise and delight our guests, 0:10:21.640 --> 0:10:24.040 give them that thing that they weren't really expecting. You know, 0:10:24.080 --> 0:10:26.760 you have your expectation for what airline food is like, 0:10:27.400 --> 0:10:30.440 and you know, this this opportunity to get a shake 0:10:30.480 --> 0:10:33.920 Shack Burger and are great. We have a special brownie 0:10:34.000 --> 0:10:37.640 that we've made for for Delta as well. Through this program. 0:10:38.200 --> 0:10:41.080 People are just absolutely elated at the opportunity to have 0:10:41.160 --> 0:10:43.640 that on their flights, and so much so that it's 0:10:43.679 --> 0:10:47.200 exceeded our internal expectations. We're rolling it out to more airports. 0:10:47.240 --> 0:10:49.800 You're gonna be able to get it, you know, New York, Atlanta, 0:10:50.200 --> 0:10:52.600 a number of airports, and that will just you know, 0:10:52.679 --> 0:10:55.800 probably continue to grow. And you know, if you look 0:10:55.840 --> 0:10:58.720 at that opportunity and I can make so many different 0:10:58.760 --> 0:11:03.400 parallels to how we've gone into an area where the 0:11:03.440 --> 0:11:07.280 consumer had a certain expectation and we just really raised 0:11:07.280 --> 0:11:09.800 the bar on it and out punched above our weight 0:11:10.679 --> 0:11:14.079 and transformed what people were expecting from you know, it's 0:11:14.120 --> 0:11:18.880 airline food, if it's roadside food, and across the board. 0:11:19.520 --> 0:11:21.880 Katie, in terms of growth, how many locations do you 0:11:21.920 --> 0:11:24.360 have today and what's your outlook for the next year 0:11:24.400 --> 0:11:24.680 or two. 0:11:24.880 --> 0:11:27.679 Yeah, we have, you know, across both our company operated 0:11:28.120 --> 0:11:32.120 and our license business. We're you know, about five hundred 0:11:32.160 --> 0:11:35.000 and fifty five hundred and seventy locations, but we are 0:11:35.040 --> 0:11:38.760 growing very fast. We're going to add another forty five 0:11:39.000 --> 0:11:42.880 domestic company operated shacks this year, and we're going to 0:11:42.920 --> 0:11:46.280 open about thirty five to forty licensed shacks as well. 0:11:46.840 --> 0:11:50.160 Those license shacks are ones that we operate, that our 0:11:50.160 --> 0:11:54.600 partners operate. We have locations in the US, but most 0:11:54.640 --> 0:11:57.160 of that is kind of outside of the US and Asia, 0:11:57.360 --> 0:12:01.920 and we have UK, the Middle East, Mexico, and most 0:12:01.960 --> 0:12:03.439 recently we opened up in Canada. 0:12:03.800 --> 0:12:06.800 Our thanks to Katie Fogerty, chief financial officer at Shakeshack. 0:12:07.040 --> 0:12:09.120 Coming up, we'll break down how private credit is being 0:12:09.160 --> 0:12:11.319 impacted as banks face stricter regulations. 0:12:11.520 --> 0:12:14.079 You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 0:12:14.160 --> 0:12:16.240 depth research and data on two thousand companies and one 0:12:16.280 --> 0:12:19.240 hundred and thirty industries. You can access Bloomberg Intelligence through 0:12:19.320 --> 0:12:20.600 Bigo on the terminal. 0:12:20.600 --> 0:12:22.440 I'm Alex Steele to Paul Sweeney. 0:12:22.559 --> 0:12:23.600 This is Bloomberg. 0:12:28.559 --> 0:12:32.280 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:12:32.360 --> 0:12:35.439 weekdays at ten am Eastern on Apple, Cocklay and Android 0:12:35.440 --> 0:12:38.760 Auto with the Bloomberg Business app. Listen on demand wherever 0:12:38.800 --> 0:12:43.040 you get your podcasts or watch us live on YouTube. 0:12:43.080 --> 0:12:45.400 We continue with some of our best interviews from our 0:12:45.440 --> 0:12:48.000 live broadcast at Bloomberg invest We talk with leaders and 0:12:48.000 --> 0:12:50.720 asset management, banking, wealth and private markets in the heart 0:12:50.760 --> 0:12:52.120 of New York's financial district. 0:12:52.360 --> 0:12:55.720 In this conversation, we spoke with Mark Lipschultz, co CEO 0:12:55.840 --> 0:12:58.599 at Blue Out Capital. We discussed the growing dominance of 0:12:58.600 --> 0:13:02.280 private credit as traditional banks face stricter regulations and reduced 0:13:02.360 --> 0:13:03.239 lending capacity. 0:13:03.360 --> 0:13:05.160 We first asked Mark to talk to us about Blue 0:13:05.200 --> 0:13:07.560 Owl and how they fit into the private credit business. 0:13:08.120 --> 0:13:10.679 Well, we've been very fortunate to be part of an 0:13:10.679 --> 0:13:13.280 asset class and you know, I play our role in 0:13:13.360 --> 0:13:16.160 helping evolve it. Look, private credit, to set the stage 0:13:16.240 --> 0:13:19.760 right is about taking long term capital from investors, and 0:13:19.800 --> 0:13:22.040 we've tried to broaden the range of people that have 0:13:22.120 --> 0:13:24.400 access to it and to be able to provide that 0:13:24.480 --> 0:13:28.720 capital to corporate users to support their growth with a 0:13:28.760 --> 0:13:30.559 view to the long term. And to be here on 0:13:30.640 --> 0:13:33.640 a day when you know the public market is so volatile, 0:13:34.080 --> 0:13:37.240 you know, in some ways very much a reminder of 0:13:37.240 --> 0:13:41.080 why private credit works for investors, but also why it's 0:13:41.120 --> 0:13:45.199 important because look, we're doing business today. We're making loans today, 0:13:45.280 --> 0:13:47.520 just like we were yesterday, just like we will tomorrow. 0:13:47.880 --> 0:13:52.240 You know, screen rater screen blue screen green, prefer green. 0:13:52.800 --> 0:13:55.400 I should disclose that to my money manager. I do 0:13:55.480 --> 0:13:58.319 own shares in blue Owl private credit. Finally, I do 0:13:58.400 --> 0:13:59.800 have some of that feel like I need to say that, 0:13:59.840 --> 0:14:03.120 but not through me. It's through my money guy. So 0:14:03.600 --> 0:14:06.920 help me understand the competitive landscape though, because it feels 0:14:06.920 --> 0:14:09.280 like banks now want to get a slice of the 0:14:09.280 --> 0:14:11.280 private credit market that they had to give up, and 0:14:11.280 --> 0:14:14.560 now we're seeing some partnerships with private credit shops. How 0:14:14.559 --> 0:14:15.160 do you look at it? 0:14:15.280 --> 0:14:18.160 Yeah, the evolving landscape with the banks is pretty interesting. 0:14:18.240 --> 0:14:22.120 Let's make a couple observations. The word like referencing the 0:14:22.240 --> 0:14:25.560 bank market. I think it's worth unpacking a little bit because, 0:14:25.600 --> 0:14:28.480 as obviously you will know, when we go back to 0:14:28.720 --> 0:14:31.400 thirty years ago, I started in the private markets. The 0:14:31.440 --> 0:14:34.320 alternative market wasn't called that at the time, and we 0:14:34.360 --> 0:14:37.520 actually borrowed money from the banks when we were doing 0:14:37.600 --> 0:14:40.880 an LBO as it was called then, literally from their 0:14:41.080 --> 0:14:44.760 balance sheets. That over the last thirty years has been 0:14:44.800 --> 0:14:49.080 on a long trajectory changing from being a lender to now, 0:14:49.280 --> 0:14:51.720 the banks don't lend to these companies at all, and 0:14:51.760 --> 0:14:55.080 that's been true for a while. They intermediate, right, They'll 0:14:55.080 --> 0:14:58.040 go in and they'll underwrite a loan and then sell 0:14:58.080 --> 0:15:00.720 it into the market, cut it into pieces, sell it 0:15:01.280 --> 0:15:04.880 and so in that regard, of course, that's an alternative 0:15:04.920 --> 0:15:07.000 way to finance a business. And we could talk about 0:15:07.040 --> 0:15:09.320 the pluses and minuses of both. It's great to have 0:15:09.400 --> 0:15:12.360 both markets. You want to have a good, vibrant bank 0:15:12.480 --> 0:15:15.960 intermediated market. But remember what the bank cares about is 0:15:16.280 --> 0:15:18.200 can I underwrite the loan and sell it in the 0:15:18.200 --> 0:15:21.480 next sixty days. So the red screen is dramatic for 0:15:21.560 --> 0:15:24.360 a decision for a bank to underwrite a loan. On 0:15:24.360 --> 0:15:26.560 the other hand, word at the exact opposite, it doesn't 0:15:26.600 --> 0:15:28.560 really matter to us what's happening in the market today. 0:15:28.560 --> 0:15:31.680 What matters to us is do we get paid back five, six, 0:15:31.760 --> 0:15:34.320 seven years from out. That's our decision, that's what we're 0:15:34.360 --> 0:15:37.280 focused on. So in that sense, we really live in 0:15:37.560 --> 0:15:40.880 kind of with different incentives and serve a different function. However, 0:15:41.040 --> 0:15:43.440 to the good point, the banks are saying, okay, but 0:15:43.800 --> 0:15:46.040 turns out private credit really does work, right. They spent 0:15:46.120 --> 0:15:48.960 a lot of time criticizing the market and trying different 0:15:48.960 --> 0:15:52.240 ways to maybe scare up the boogeyman. But now they 0:15:52.280 --> 0:15:55.840 in fact are actually launching funds to do private credit. 0:15:56.240 --> 0:15:58.680 So I'd start with, look, if you can't beat them, 0:15:58.720 --> 0:16:01.760 join them, and we that's right, We'll take the endorsement 0:16:01.760 --> 0:16:04.880 of the market. It's a big world credit. It's a 0:16:04.960 --> 0:16:08.560 multi trillion dollar asset class, multi trillion dollar marketplace. We 0:16:08.720 --> 0:16:12.800 need vibrant available capital. And having bank launch a fund, 0:16:12.920 --> 0:16:14.600 you know great. There's a lot of funds in the world, 0:16:15.000 --> 0:16:16.960 and some of those will be done in partnerships as 0:16:16.960 --> 0:16:20.000 you noted, and someone just be standalone efforts, and some 0:16:20.080 --> 0:16:22.120 will just continue to stay the course and do their 0:16:22.160 --> 0:16:23.120 traditional underwriting. 0:16:23.360 --> 0:16:26.040 What's a typical deal for blue out these days? 0:16:26.320 --> 0:16:28.720 So a typical deal for us. And this has been 0:16:28.720 --> 0:16:30.960 true for us from the beginning. Now, obviously the attributes 0:16:30.960 --> 0:16:33.640 and the size have changed, but over the last roughly 0:16:33.680 --> 0:16:36.320 ten years that we've built Blue Owl, our reason to 0:16:36.360 --> 0:16:38.280 be was to come in and say, look, we want 0:16:38.320 --> 0:16:41.680 private credit to become the lender of first choice as 0:16:41.680 --> 0:16:44.120 opposed to the lender of last resort, and private credit, 0:16:44.200 --> 0:16:47.280 if you go back before that time was really a 0:16:47.400 --> 0:16:50.200 lender of last resort. It's where you went if you 0:16:50.240 --> 0:16:53.000 couldn't get money from a mainstream source. As I said, 0:16:53.040 --> 0:16:55.840 I was at KKR for twenty one years, and during 0:16:55.880 --> 0:16:59.440 that time I don't recall ever working with a private 0:16:59.520 --> 0:17:01.720 lender that this wasn't what you did if you were 0:17:01.720 --> 0:17:05.679 a mainstream borrower. But the idea for Blualla and today, 0:17:05.760 --> 0:17:08.800 so to answer this question has been to create actually 0:17:08.840 --> 0:17:13.080 a real value proposition in having a partner to really 0:17:13.119 --> 0:17:15.919 work with a long dated capital pool for someone who 0:17:16.000 --> 0:17:19.199 has long dated needs and long dated ambitions with their business. 0:17:19.240 --> 0:17:22.960 So our typical company today often backed by a private 0:17:22.960 --> 0:17:26.680 equity firm, a sponsor. Sometimes it's just private family owned 0:17:26.680 --> 0:17:30.679 businesses or other corporate enterprises, but typically a private equity 0:17:30.720 --> 0:17:34.199 backed business and they're buying a very large company and 0:17:34.280 --> 0:17:36.719 they're looking for a long term partner to buy it. 0:17:37.000 --> 0:17:40.560 So typically when we do a transaction, we're lending maybe 0:17:41.119 --> 0:17:44.159 forty percent of the purchase price and the buyer is 0:17:44.160 --> 0:17:47.040 putting up sixty percent of the capital. So that's a 0:17:47.160 --> 0:17:50.160 very very low leverage structure compared to what people are 0:17:50.240 --> 0:17:52.440 used to. If you go back again ten years and 0:17:52.600 --> 0:17:56.040 twenty years and the company today Our average company in 0:17:56.080 --> 0:17:59.840 our portfolio has over two hundred million dollars of even 0:18:00.200 --> 0:18:03.000 I mean, these are big companies today, and that's been 0:18:03.000 --> 0:18:05.119 a dramatic shift from ten years ago when it was 0:18:05.160 --> 0:18:07.520 really a market for smaller businesses. 0:18:07.760 --> 0:18:10.040 So let's get to that five to seven year time horizon, 0:18:10.119 --> 0:18:13.320 because ten years ago that's the exact same conversation I'd 0:18:13.320 --> 0:18:15.800 be having with private equity, right, and then we see 0:18:15.800 --> 0:18:18.919 where things get tough and things get stickier, when vintages 0:18:18.960 --> 0:18:21.919 don't work out or there come under different times of 0:18:22.000 --> 0:18:25.959 market stress. How does that apply to the credit space? 0:18:26.320 --> 0:18:28.640 So I think it applies for sure in the sense 0:18:28.680 --> 0:18:32.280 that every market evolves, and every market we'll have it's 0:18:32.400 --> 0:18:35.720 maybe slightly higher and lower moments, But there's an important distinction. Okay, 0:18:36.200 --> 0:18:38.159 at the end of the day, Private equity, if I 0:18:38.320 --> 0:18:40.600 kind of use this metaphor, private equity, which is a 0:18:40.600 --> 0:18:46.119 business I personally participated in for decades, is about mining 0:18:46.160 --> 0:18:48.719 for gold. Right, It's about going out and maybe in 0:18:48.720 --> 0:18:52.119 our simplified parlance, might call and to get rich strategies, 0:18:52.280 --> 0:18:54.520 how do you out there and shoot the moon on 0:18:54.840 --> 0:18:58.520 great returns? So they're mining for gold. Our business in 0:18:58.720 --> 0:19:01.400 private credit is to be the picks and shovels provider 0:19:01.600 --> 0:19:05.119 to those miners. So we're not trying to find a 0:19:05.160 --> 0:19:08.160 big gold vein. We're not betting on the price of gold. 0:19:08.359 --> 0:19:10.399 What we're saying is if the miners are active, and 0:19:10.720 --> 0:19:13.719 miners in this case would be any corporate user of capital, 0:19:13.760 --> 0:19:16.320 so they are always active, we want to supply them 0:19:16.480 --> 0:19:19.159 and we take a less risky position and we expect 0:19:19.160 --> 0:19:23.399 a corollary attractive return. So on the one hand, of course, 0:19:23.400 --> 0:19:25.840 every market evolves, and I want to suggest anybody that 0:19:25.840 --> 0:19:28.760 lives in a vacuum. But the purpose of our strategies 0:19:28.960 --> 0:19:31.520 and the purpose of Crivate credit from an investor's point 0:19:31.560 --> 0:19:33.800 of view, is to have something that's much more about 0:19:33.840 --> 0:19:39.280 downside protection, stability, and income generation through times of uncertainty, 0:19:39.520 --> 0:19:41.439 which is a bit why I say this sort of 0:19:41.480 --> 0:19:43.560 red environment today is actually a good time to have 0:19:43.560 --> 0:19:47.200 the conversation because what we're trying to build our portfolios 0:19:47.240 --> 0:19:50.640 and successfully have down over one hundred billion dollars of loans, 0:19:50.920 --> 0:19:53.760 and our running loss rates have been eleven basis points, 0:19:54.119 --> 0:19:55.639