Speaker 1: Hello, and welcome to the Credit Edge, a weekly markets podcast.
Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg.
Speaker 1: This week, we're very pleased to welcome Jimmy Levin, CEO
Speaker 1: and Chief investment officer of Sculptor Capital. How are you, Jimmy,
Speaker 1: I am great, Thanks for having me. Thank you so
Speaker 1: much for joining us today. We're very excited to get
Speaker 1: your credit market views, and we're also delighted to have
Speaker 1: back on the show Stefan Koba, chef from Bloomberg Intelligence. Hello, Stefan. Hi, James,
Speaker 1: and from Bloomberg News, Renne Garthia Perez, who covers distressed
Speaker 1: debt and of course football from London. How are you Rene?
Speaker 2: Hello, I am freezing in our studio in London.
Speaker 1: Okay, Well, I hope it warms up with there. But
Speaker 1: just to set the scene a bit here from New York.
Speaker 1: Credit markets are rallying after taking a bit of a
Speaker 1: hit at the start of August. Investors are bracing for
Speaker 1: volatility in the run up to FED easing, which is
Speaker 1: expected to start this month. Lower rates will take some
Speaker 1: of the pressure off weak companies that were struggling with
Speaker 1: high borrowing costs. Over the last few years, and there's
Speaker 1: a lot more debt issuance. Companies are taking advantage of
Speaker 1: very strong investor demand for corporate bonds and loans, with
Speaker 1: yields at historically high levels, and September is typically a
Speaker 1: heavy month for bond isshuents. We are off to a
Speaker 1: record start today, but there's still a lot more demand
Speaker 1: than net supply of corporate debt, which is a technical boost.
Speaker 1: Credit markets are supported by resilience in the economy and
Speaker 1: investors are betting on a soft blanding. However, there is
Speaker 1: a lot to worry about in debt markets. We're seeing
Speaker 1: more creditor on creditor violence, aggressive liability management exercises, and
Speaker 1: cooperation agreements, as well as defaults and bankruptcies. Then there's
Speaker 1: commercial real estate stress war, the US election, global geopolitics
Speaker 1: plus recession risk hasn't really gone away. So Jimmy, what's
Speaker 1: your take? Are you bullet for the rest of twenty
Speaker 1: twenty four?
Speaker 3: Well, maybe we have to zoom out a little bit
Speaker 3: from that. You listed a handful of great sounding things
Speaker 3: for the economy and markets. In a handful of items
Speaker 3: that could be a problem for economies and markets, I'd
Speaker 3: start by saying there's usually that list on both sides,
Speaker 3: and today's no different. There are some tailwinds, there are
Speaker 3: some headwinds, but I think to set the stage for
Speaker 3: credit investing more broadly, you've heard, whether it's from US
Speaker 3: firms like ours, you've heard talk over the last couple
Speaker 3: of years that it's a great time to be a
Speaker 3: credit investor. You've probably heard that over and over again,
Speaker 3: and it always has a different phrase. Sometimes it's equity
Speaker 3: like returns for credit like risk or some derivative of
Speaker 3: that sort of concept. Golden age, Yeah, golden age. You know,
Speaker 3: we've heard them all. So let's start with what is
Speaker 3: that backdrop and why is everybody saying that? And from
Speaker 3: our perspective, we try to frame it as the perspective,
Speaker 3: returns on offering credit come from the risk free rate,
Speaker 3: the i'll call it generic non investment grade credit spread,
Speaker 3: and then the complexity premium, and people call that last bucket.
Speaker 3: Sometimes that's called alpha, sometimes that's called excess return, excess spread.
Speaker 3: But it's those three pieces. And so if you take
Speaker 3: those three pieces today, and this has kind of been
Speaker 3: true for the last couple of years, moving around up
Speaker 3: and down for each of the three, but the risk
Speaker 3: free part, depending on your rate view, it's in the
Speaker 3: four or five range. The non investment grade credit spread
Speaker 3: it's in the three four five range, and that complexity
Speaker 3: premium is also in the three four five range. So
Speaker 3: depending on which where we pick in these different ranges,
Speaker 3: you're getting to a load to mid teens gross on
Speaker 3: levered rate of return to generally take pretty reasonable credit risk.
Speaker 3: So before we talk about anything else, we kind of
Speaker 3: pause there if returns on offer are in the low
Speaker 3: amid double digits to take reasonable credit risk. And we're
Speaker 3: on radio, so you can't say you can't see the
Speaker 3: reasonable in air quotes, right, Everyone's got their own version
Speaker 3: of reasonable. But to take pretty reasonable credit risk and
Speaker 3: make that kind of return, that generally counts as a
Speaker 3: good time to be investing. Right, even at the simplest level,
Speaker 3: Compare that to a few years ago. Risk free was
Speaker 3: zero or one, and the credit spread component was two
Speaker 3: or three or four, and that complexity premium was one
Speaker 3: or two or three. And so the Old World's six, seven,
Speaker 3: eight became the New World's eleven, twelve, thirteen, fourteen, fifteen.
Speaker 3: And I think that generically is what have what has
Speaker 3: credit market investors excited before we even talk about what's
Speaker 3: what and what are the categories?
Speaker 4: Hi, Jimmy, very interesting complexity premium view. I would agree.
Speaker 4: I was curious to hear your views on interest rate
Speaker 4: cuts from the Fed or across the globe more generally
Speaker 4: as well. Do you see a risk rates remaining elevated
Speaker 4: for longer to fight inflation or do you think the
Speaker 4: central banks will do a good job at supporting growth
Speaker 4: by steadily cutting rates in the next twelve months.
Speaker 3: Well, I'll start with a disclaimer, which is that we're
Speaker 3: generally not in the business of predicting the path of rates.
Speaker 3: It matters a lot. We have to have review We
Speaker 3: from time to time have a view, but trying to
Speaker 3: figure out if the next meeting ought to be priced
Speaker 3: at one or two or one point three, that's not
Speaker 3: our exact skill set. I think what we try to
Speaker 3: do as as investors, and I think this applies today.
Speaker 3: Everything in the real world moves a little slower than
Speaker 3: the market wants it to be. So again, if we
Speaker 3: think about the last couple of years where interest rates
Speaker 3: have been topics number one, two, three, four, and five
Speaker 3: on everyone's list. For every conversation, there have been moments
Speaker 3: in time where the market moves to and I'm exaggerating,
Speaker 3: you know, one hundred percent probability of rates staying high forever,
Speaker 3: and then it moves to a one hundred percent probability
Speaker 3: of rates being dramatically cut instantly, and it oscillates back
Speaker 3: and forth between those. I think what's realistic is rates
Speaker 3: are pretty high right now. They're generically in the restrictive zone,
Speaker 3: and they're going to go from that to something more
Speaker 3: normal over a couple of years. And I know that's
Speaker 3: a cop out answer, but I think it's not really
Speaker 3: possible to predict. And I also think it doesn't hugely
Speaker 3: matter for being a credit investor, Meaning if one is
Speaker 3: doing a type of fundamental credit investing today, that works
Speaker 3: out fabulously if there's six cuts, but it's a disaster.
Speaker 3: If there's three cuts and it's the greatest thing of
Speaker 3: all time. If it's the opposite, something's gone wrong already.
Speaker 3: We shouldn't be that sensitive to that level of granularity.
Speaker 3: But inflation is largely gotten under control and rates are
Speaker 3: likely to come down over time. There is always a
Speaker 3: risk of a reacceleration of inflation. Do we have an
Speaker 3: ability to predict that better than the market, probably.
Speaker 4: Not very clear. And on the back of normalizing rates
Speaker 4: and inflation, just to follow up on the recession risks,
Speaker 4: if you have a view on that, And the last
Speaker 4: time I checked, the probability of the United States entering
Speaker 4: recession the next twelve months stands at about thirty percent
Speaker 4: according to Bluebird Sensus, and this is still relatively high,
Speaker 4: but I believe this time last year the probability was
Speaker 4: maybe about fifty to sixty percent. So I was wondering,
Speaker 4: what's your take on these normalizing rates? Will they help
Speaker 4: us avoid our recession in the US?
Speaker 3: In your view, it's all circular, but inflation remaining under control,
Speaker 3: are coming down further, rates beginning to normalize from being restrictive,
Speaker 3: and all of that happening kind of slowly and smoothly
Speaker 3: and under control helps avoid a recession. And so similar
Speaker 3: to that rate comment that I made, where the market
Speaker 3: flip flops between one hundred percent probability of one thing
Speaker 3: and a one hundred percent probability of the other thing,
Speaker 3: we see that with recession talk as well. And I
Speaker 3: found last month the beginning of August during that selloff,
Speaker 3: to be a bit of a head scratcher. Essentially, there
Speaker 3: was a technical event in the Japanese market overnight and
Speaker 3: by I don't know, five or six or seven am
Speaker 3: New York time, there was there were calls for an
Speaker 3: emergency FED meeting to make a cut to avoid this
Speaker 3: impending recession. That seemed a little extreme. So I don't
Speaker 3: think the probability moves as quickly like rates. It's this
Speaker 3: is a slower moving machine. The economy has been growing
Speaker 3: really well, both nominally and real. The rate of that
Speaker 3: growth is slowing, which is what the FED and other
Speaker 3: central banks have been trying to achieve for the last
Speaker 3: couple of years. So it's not a surprise that the
Speaker 3: rate of growth is slowing down. That's been the goal,
Speaker 3: that's the point of the restrictive monetary policy. So we
Speaker 3: are getting that slowing in growth so far, and again
Speaker 3: this is not incredibly insightful. It's backward looking. So far,
Speaker 3: so good. It's worked, inflation is kind of moderating. The
Speaker 3: economy remains fairly strong, albeit slightly less strong. So we
Speaker 3: are definitively on the soft landing path. Can we be derailed? Absolutely,
Speaker 3: And again it could sound like a cop out, but
Speaker 3: this is the beauty of being a credit investor, Especially
Speaker 3: if you're a credit investor at a time where low
Speaker 3: double digit or low to mid teens rates of return
Speaker 3: are on offer. Credit investments shouldn't be that sensitive to this.
Speaker 3: So obviously certain credit investments are. And I'm speaking very
Speaker 3: generically now, if if one is investing in a zero
Speaker 3: to fifty percent LTV loan, whether the economy grows at
Speaker 3: three or shrinks at one, sure it's going to feel
Speaker 3: better growing at three than shrinking at one. But that
Speaker 3: loan ought to be protected. So as credit investors, we
Speaker 3: don't have to be as precise.
Speaker 2: Jimmy, for the soft lending that you were describing, is
Speaker 2: it impacting the opportunity set of what you were saying?
Speaker 3: Not really, so it has. So if I took that
Speaker 3: generic rate plus spread plus premium, and I just said
Speaker 3: four plus four plus four equals twelve. If we looked
Speaker 3: a year ago at this time, we would have said
Speaker 3: five plus five plus five, and so fifteen was the
Speaker 3: number on offer, again wildly genericizing across asset based finance
Speaker 3: and corporate credit and real estate finance and so on.
Speaker 3: So why did fifteen go to twelve? Because every day
Speaker 3: the soft landing remains in effect. Is a data landing
Speaker 3: remains in effect. So the smoother the landing, the better
Speaker 3: the narrative, and the longer it persists for allows the
Speaker 3: market to take some return out of the market. So
Speaker 3: would credit investors rather be investing against fifteen than against twelve? Sure,
Speaker 3: but twelve works works nicely as well.
Speaker 1: So you see return staying in the double digits range
Speaker 1: for the foreseeable that say year or more.
Speaker 3: Yeah, I think as long as the base rate is high,
Speaker 3: there's some correlation between all this, right. Some people quote yield,
Speaker 3: some people quote spread. There's always been correlation between those
Speaker 3: three components of return. Yeah, But while base rates are
Speaker 3: in the zone of where they are now, again, forget
Speaker 3: if they're twenty five high or lower, fifty high or lower.
Speaker 3: As long as they're in the zone of where they
Speaker 3: are now, we ought to stay in the type of
Speaker 3: return environment that we're in. But to your point, if
Speaker 3: it's a quarter and then a year and then two
Speaker 3: years where it turns out the economy grew really nicely
Speaker 3: and earnings have growth has been strong, and inflation got
Speaker 3: back to target, then yeah, the returns on offer to
Speaker 3: be a credit investor probably won't be as good then
Speaker 3: as they are.
Speaker 4: Today, right, Indeed, good times to be in credit. But
Speaker 4: then similarly, I want to ask about the state of
Speaker 4: the US consumer. I cover container shipping, which is very
Speaker 4: much driven by consumer demand and by the number of
Speaker 4: containers filled with goods bit clothing, shoes, furniture shipped from
Speaker 4: Asia to the US personally, with interest rates going from
Speaker 4: zero to five percent, I'm rather surprised that the consumer
Speaker 4: demand seems to be holding on at least for now,
Speaker 4: and this is what container shipping companies that I cover
Speaker 4: tail investors. But I was curious to hear your views
Speaker 4: on the state of the UNS consumer going into Q
Speaker 4: four and next year as well.
Speaker 3: So the consumer started all this in a really good place.
Speaker 3: And by the way that's circular, maybe part of the
Speaker 3: reason that we were in this inflationary environment and that
Speaker 3: such restrictive monetary policy rates were required is because the
Speaker 3: consumer was so strong, meaning there was this accumulation of
Speaker 3: savings post COVID, both from stimulus and from lack of
Speaker 3: the opportunity to spend as much. Employment stayed really good,
Speaker 3: and so the consumer came into this period of time
Speaker 3: with a better financial position than it had had in
Speaker 3: a really long time. And again on this the real
Speaker 3: world moves more slowly than the Bloomberg screen we all
Speaker 3: stare at all day. Takes a while for that to
Speaker 3: burn off. But you see it in particularly in consumer credit,
Speaker 3: within asset based finance, you see that that excess has
Speaker 3: started to burn off, and like it does historically, it
Speaker 3: starts at the most challenged consumer at the lowest end
Speaker 3: and then kind of slowly works its way up. But
Speaker 3: you've seen that in consumer lending delinquencies, You've seen that
Speaker 3: in subprime audo versus prime auto. So yeah, some of
Speaker 3: the air is coming out of the ball, and again
Speaker 3: that shouldn't be a surprise because that's how this all
Speaker 3: was designed. It was designed to take air out of
Speaker 3: the ball. And there was a period time at the
Speaker 3: beginning of the inflation rate period that we're in where
Speaker 3: inflation was in excess of wage growth, and now you're
Speaker 3: kind of seeing that catchup. So you're getting the wage
Speaker 3: growth in excess of the now moderating inflation. And again
Speaker 3: maybe that's just kind kind of getting back to new.
Speaker 2: Going into specifics, how does sculpture trade this macro rates view?
Speaker 2: Where do you see opportunities.
Speaker 3: So to be clear, we don't intentionally trade the macro
Speaker 3: rates view. If anything, Our funds generally run duration neutral,
Speaker 3: or we try to have them be duration neutral, meaning
Speaker 3: we try not to take the interest rate risk. What
Speaker 3: we try to take is well selected credit risk, and
Speaker 3: we try to harvest that complexity premium or that excess
Speaker 3: spread or that alpha where whether it comes from process
Speaker 3: or from sourcing, or from complexity or from illiquidity, that's
Speaker 3: what we're trying to take out of the market, so
Speaker 3: to speak. And maybe it's worth for a second just
Speaker 3: laying out the three categories of the credit world that
Speaker 3: we try to invest in, or the way we define it.
Speaker 3: There's the corporate credit market. I'll say everyone knows that one.
Speaker 3: It's when companies are money more or less. There's the
Speaker 3: real estate credit market, which is think of that as
Speaker 3: loans on a building or loans on a real estate asset.
Speaker 3: It's conceptually similar to corporate credit in that it's a
Speaker 3: single name underwriting. And then there's asset based finance, which
Speaker 3: is the hardest to define. It's probably the most topical
Speaker 3: today and maybe the easiest way to start with the
Speaker 3: definition is asset based finance is everything else so it's
Speaker 3: all types of credit risk that aren't corporate credit and
Speaker 3: aren't single name real estate credit. So that includes generally
Speaker 3: pooled assets or pooled cash flows, or pooled loans of
Speaker 3: residential real estate, commercial real estate, consumer credit, auto loans,
Speaker 3: credit card loans, student loans, transportation, aviation, infrastructure. Those are
Speaker 3: all the underlying feedstock for this asset based finance market.
Speaker 3: And it includes taking that feedstock or those pools of
Speaker 3: assets and turning them into securitized products, or turning them
Speaker 3: into SRTs or CRTs or even unlevered asset pools. So
Speaker 3: there's the type of risk, which is all those categories
Speaker 3: I laid out, and then there's the structure of that risk,
Speaker 3: which can be varied again cash synthetic, thicknches, thin tronches,
Speaker 3: safe trunches, risky tranches. But it's pooling all those underlying
Speaker 3: risks into pools that can then be analyzed and assessed.
Speaker 3: That's what we call asset based finance. I'd say the
Speaker 3: words it used to be called would include securitized products,
Speaker 3: structured credit, principal finance, specialty finance, acid based finance reg CAP.
Speaker 3: All that today we'll put into that ABF bucket.
Speaker 2: In that acid in that broad universe of acid basin
Speaker 2: an sid you were just describing wearing partique or do
Speaker 2: you see the opportunities like are there any specific areas
Speaker 2: or products that you like more than others? And are
Speaker 2: there any corners or pockets of that market that you avoid?
Speaker 3: So it's the common question, and I wish I had
Speaker 3: a fancier answer to it, which is you know a
Speaker 3: kind of sector with a bow on it that looks
Speaker 3: perfectly dislocated. I guess the spoiler alert is that there's
Speaker 3: not one. And really the inefficiency is in the asset
Speaker 3: class itself. Well, I'll start with this anything that takes
Speaker 3: like two or three minutes to even start to describe
Speaker 3: at a high level, the asset class we're talking about
Speaker 3: is probably not the world's most efficient asset class. So
Speaker 3: because there's so much different collateral and so much different structure,
Speaker 3: and so many different forms of origination, it's an imperfect market.
Speaker 3: It's a market that's nowhere near as mature as the
Speaker 3: corporate credit market, and so the opera ortunity comes by
Speaker 3: waiting for what falls through the cracks. Now, at different
Speaker 3: points within the last couple of years, has there have
Speaker 3: there been more distinct themes. Yes, you know, at the
Speaker 3: beginning of the rate rise, it was, well, home prices
Speaker 3: must be going down, so you know, anything residential real
Speaker 3: estate related could be an opportunity. And then at some
Speaker 3: point it was, you know, commercial real estate is crashing
Speaker 3: and there's a regional bank crisis, and so anything related
Speaker 3: to commercial real estate must be the opportunity. And I
Speaker 3: could kind of keep going with each one, but there
Speaker 3: isn't a specific dislocation that The prevailing principle across the
Speaker 3: board in all of asset based finance is that it's
Speaker 3: generally a wholesale funded market. So when rates go from
Speaker 3: low to high and spreads go from tight to wide,
Speaker 3: it's disruptive to a wholesale funded market. And so it
Speaker 3: doesn't matter if the underlying asset classes a non QM
Speaker 3: loan or a single family rental pool, or a portfolio
Speaker 3: of aircraft, whatever it is at that moment in time.
Speaker 3: It's more that the market structure has been disrupted, and
Speaker 3: it's disrupted today cyclically, meaning the high rates and the
Speaker 3: inflationary environment and the regional bank consequences over the subsequent
Speaker 3: couple of years, and it's disrupted secularly, which is the
Speaker 3: twenty year trend of more and more regulation on both
Speaker 3: big banks and small banks.
Speaker 1: The stuff that falls through the cracks, as you put it,
Speaker 1: is it falling through the cracks because no one else
Speaker 1: wants it, because it's toxic, it's distressed, it's something you
Speaker 1: should be worried about.
Speaker 3: I would say, falling through the cracks because the market
Speaker 3: is more immature, and so I'll give you maybe some
Speaker 3: numbers that would help. When I started in the business,
Speaker 3: private credit meant direct lending, which meant small to middle
Speaker 3: market lending, and it was tiny. Today, as we all
Speaker 3: know and you all cover probably daily, private credit is
Speaker 3: close to two trillion dollars and direct lending is seventy
Speaker 3: five percent of that round numbers. So it sort of
Speaker 3: goes with logic that that market's now more efficient. When
Speaker 3: a financial sponsor buys a company and they want to
Speaker 3: borrow the first sixty percent of the capital structure, they
Speaker 3: can go to the investment banks that have been doing
Speaker 3: it for eternity. They can now go to the direct
Speaker 3: lending market, which has trillions of dollars and growing by
Speaker 3: the day, with I don't know dozens or hundreds of
Speaker 3: players and so there's going to be some efficiency to
Speaker 3: that market. Well, the private ABF market today is deminimus,
Speaker 3: and so it looks a lot from an efficiency standpoint,
Speaker 3: or from a falling through the crack standpoint, it looks
Speaker 3: a lot like the direct lending market looked fifteen years ago.
Speaker 3: It's niche, it's smaller, there are less players, every deal
Speaker 3: is different, relationships matter, all of that. It's the direct
Speaker 3: lending from fifteen years ago.
Speaker 2: And how much do you expect to see this market
Speaker 2: grow in the next I don't know, five to ten years.
Speaker 3: So I think because the playbook's already been written by
Speaker 3: the direct lending market, it won't take as long as
Speaker 3: that took. Right, So if that took fifteen years to
Speaker 3: get from a number close to zero to a number
Speaker 3: close to a couple a trillion, it won't take fifteen years.
Speaker 3: I don't know if it'll move twice as fast or
Speaker 3: what the coefficient is, but it'll go faster because the
Speaker 3: playbook's been written and the players who wrote the playbook
Speaker 3: are doing it again here. So it's coming to a
Speaker 3: theater near you.
Speaker 2: Do you expect it to be I don't know, like
Speaker 2: five times private credit or seven times the size of
Speaker 2: private credit quote.
Speaker 3: And I think that's probably where maybe some of those
Speaker 3: the numbers you were just thrown out come from. If
Speaker 3: you look at the underlying markets. The underlying credit markets
Speaker 3: upon which ABF are based are five to seven times
Speaker 3: the size of the non investment grade corporate credit market.
Speaker 3: So it's not illogical to think that it would have
Speaker 3: to move in that ratio. Right. And again this is
Speaker 3: these are all widely quoted numbers now. But if you
Speaker 3: take the direct lending market, the high yield market, and
Speaker 3: the bronze syndicated loan market and you get to five
Speaker 3: or six trillion, do that same math on REZI, consumer, commercial, corporate,
Speaker 3: hard asset, infra, etc. And that five or six is
Speaker 3: more like twenty five or thirty trillion. And that's what
Speaker 3: kind of creates some of these eye popping figures as
Speaker 3: far as predictions for the future. But to be clear,
Speaker 3: that's happening with or without us, with any of us.
Speaker 3: It's not a path. What we're focused on is when
Speaker 3: you start with that market that's five or seven times
Speaker 3: the size of the corporate market that doesn't yet really
Speaker 3: have an established private credit market, and you're in an
Speaker 3: environment where the base rates four or five and credit
Speaker 3: spreads are four or five and complexity premiums four or five.
Speaker 3: We think we've got a good few years ahead of
Speaker 3: us to go after that opportunity and create some return.
Speaker 2: Do you have dedicated funds for debt strategy or does
Speaker 2: it come from opportunistic credit or other funds that you
Speaker 2: already have?
Speaker 3: All of the above, all the above, So we do
Speaker 3: it in a few different formats. But you're certainly seeing
Speaker 3: from a again maturation or the very beginnings of maturation,
Speaker 3: the marketplace is now clearly more accepting of the idea
Speaker 3: of an ABF fund. Whereas you know, when we were
Speaker 3: doing this close to twenty years ago, that didn't really exist,
Speaker 3: and so it was very niche and very small, and
Speaker 3: the capital for that had to come from the flexible, tactical,
Speaker 3: opportunistic bucket of an allocator. It wasn't an official allocation
Speaker 3: in the world, It wasn't in a consultant model, it
Speaker 3: wasn't anywhere. What you're seeing today is that it's starting
Speaker 3: to make its way again. It's at the leading edge,
Speaker 3: but it's making its way into the mainstream allocation model.
Speaker 2: Right. Just to clarify, do you already have a dedicated
Speaker 2: fund to this or are you fundraising for this strategy?
Speaker 3: If you can say, I think we can't talk about
Speaker 3: fundraising and I forget exactly how that works, so I'm
Speaker 3: going to avoid it. But suffice it to say, we've
Speaker 3: been doing it for close to twenty years, we are
Speaker 3: actively doing it today, and we are doing it across
Speaker 3: a variety of fund structures in the world. Is moving
Speaker 3: towards ABF as a standalone allocation?
Speaker 2: And are there any tangible examples on that space that
Speaker 2: you could provide? And also if you could see what
Speaker 2: kind of returns to they do they offer?
Speaker 3: Yeah, so, so the returns on offer are consistent with
Speaker 3: that that four plus four plus four you know again
Speaker 3: called that low to mid teens returns in terms of example.
Speaker 3: So this is a classic this this this one sort
Speaker 3: of catches all elements of what's topical today in terms
Speaker 3: of pressures on banks, in terms of uh S, r T,
Speaker 3: c RT, you know, again, using all the buzzwords that
Speaker 3: are out there. We were involved in a transaction where
Speaker 3: a bank had been providing warehouse financing for an aggregation
Speaker 3: of single family rental properties that were meant to be
Speaker 3: aggregated until they got large enough to securitize. And as
Speaker 3: the securitization market became disrupted by rates going up and
Speaker 3: spreads going up and the world becoming less comfortable with
Speaker 3: warehouse financing and banks becoming less comfortable with holding risk
Speaker 3: against that, the bank decided that it would like to
Speaker 3: have less of that risk. And so the bank said, Okay,
Speaker 3: if we're lending the first seventy five percent against the
Speaker 3: value of these homes, let's lay off the bottom ten
Speaker 3: points of that. But that sort of transaction is so
Speaker 3: customized that it can't be done in one of these
Speaker 3: broadly syndicated SRTs or CRTs that again we read about
Speaker 3: we hear covered kind of every day. That's a bespoke transaction,
Speaker 3: and so that means the bank can really only call
Speaker 3: a handful of players because it's just too cumbersome to
Speaker 3: do it broadly. And so step number one be one
Speaker 3: of a handful. Step number two be able to be flexible,
Speaker 3: to structure, to work quickly through that collateral. The punchline
Speaker 3: is that for doing all that, we can create what
Speaker 3: we think is safe risk against a portfolio of homes
Speaker 3: with plenty of enhancement by the way. As it turns out,
Speaker 3: home prices didn't go down, they actually kind of kept
Speaker 3: going up and do that for that kind of load
Speaker 3: to mid teens rate of return.
Speaker 1: So in other than real estate, other opportunities in ABF,
Speaker 1: in consumer infrastructure, transport, that kind of thing. I mean,
Speaker 1: you're looking at those deals.
Speaker 3: Yeah, So we did almost identical to the transaction I
Speaker 3: just described with single family rental pools was one that
Speaker 3: we did in the auto finance space. Again, same idea.
Speaker 3: The you know, people talk about this and we're guilty
Speaker 3: of this sometimes as well, like it's some brand new innovation.
Speaker 3: Structured finance has existed for you know, thirty years in
Speaker 3: modern form, and I think thousands before that. Right, it's
Speaker 3: taken up taking a bunch of risk, pulling it together
Speaker 3: and slicing it. And so they're as a in this
Speaker 3: case a smaller scale auto finance platform. Again, if you're
Speaker 3: a huge auto finance platform, you can do a big, syndicated,
Speaker 3: transparent deal that you know, sort of cookie cutter, and
Speaker 3: you're going to get better execution as an issuer. If
Speaker 3: you're smaller and you have this pool of auto loans,
Speaker 3: and maybe they're kind of unique because you're a lender
Speaker 3: that does something a little different, and you don't have
Speaker 3: the kind of balance sheetter financial wherewithal to access capital
Speaker 3: more cheaply, but you still need to accomplish the same objective.
Speaker 3: What does that mean You're going into that bespoke ABF market.
Speaker 3: You're having a handful of conversations to say, how can
Speaker 3: I get capital relief as an issuer or get liquidity
Speaker 3: as an issuer. We look at that and say, Okay,
Speaker 3: we know where double B auto abs ought to be,
Speaker 3: or we know where triple B auto abs ought to be.
Speaker 3: If we can do something private, bespoke, highly structured, sometimes
Speaker 3: that means less liquid sometimes it doesn't. If we can
Speaker 3: create that same risk, but do it for hundreds of
Speaker 3: basis points wider than what exists in the market, that's
Speaker 3: that last four. I keep talking about the four plus
Speaker 3: four plus four. That last four comes from what I
Speaker 3: just described. And again we've done it in various parts
Speaker 3: of REZI and various parts of auto, and various parts
Speaker 3: of consumer, in various parts of the aviation market. All
Speaker 3: of those are are in play.
Speaker 1: How big can these deals be?
Speaker 4: So?
Speaker 3: Interestingly, the bigger the deal, the more efficient to the pricing.
Speaker 3: So there's a correlation sometimes between size and quality. Right,
Speaker 3: So if you're a European bank and you've been doing
Speaker 3: multiple billion dollar SRT transactions under a standard shelf for
Speaker 3: the last twenty years, you're going to get better execution. Right. So,
Speaker 3: if you're the bank with the five billion portfolio, and
Speaker 3: in order to get capital relief, let's say the bank
Speaker 3: would need to lay off or transform ten percent of
Speaker 3: the risk. So five billion portfolio, five hundred million of
Speaker 3: risk transfer. That's a big deal. And that's going to
Speaker 3: be sort of broadly syndicated or at least broadly reached out.
Speaker 3: It's going to follow a kind of standard form. By
Speaker 3: the way, even with all that still pretty attractive. Meaning
Speaker 3: when we're looking at that, we're not saying, oh my gosh,
Speaker 3: that's such a unattractive risk to take. We're saying that's
Speaker 3: actually pretty good risk too. But then take the financial
Speaker 3: institution that has the five hundred million portfolio that needs
Speaker 3: the ten points of relief, and it's the fifty million.
Speaker 3: There's just less players because the sophistication to do that,
Speaker 3: again correlations means big firm, lots of resources, big capital.
Speaker 3: That group would probably rather work on the five hundred
Speaker 3: million dollar check than the fifty million dollar check. And
Speaker 3: again it doesn't have to be so prescriptive, and the
Speaker 3: truth is kind of somewhere in between. But the bigger,
Speaker 3: more standardized transferences of risk, whether that's the sale of
Speaker 3: loans or an SRT or a CRT or some sort
Speaker 3: of structured financing, the really big tends to be more efficient.
Speaker 1: And they are being held for what five to seven years,
Speaker 1: like a private credit deal, that kind of thing.
Speaker 3: It depends, so you know, the classic version of these
Speaker 3: transactions were really post crisis post financial crisis, were the
Speaker 3: corporate revolvers. Because the bank would, for relationship reasons, or
Speaker 3: for investment banking fee reasons, or for cash management effects
Speaker 3: all the other things banks do to make money with corporates,
Speaker 3: they would also extend these revolvers. Revolvers, it turns out,
Speaker 3: are a tough business to make money on, right, because
Speaker 3: a bank needs to hold the capital in case it
Speaker 3: gets drawn, but they don't get paid much for that risk.
Speaker 3: It's kind of a loss leader. And so the one
Speaker 3: of the classic forms of these transactions, a bank would say, Okay,
Speaker 3: here's a pool of ten or fifty or one hundred
Speaker 3: of these names, they you know, all started off as
Speaker 3: five year but there's some you know, some runoff in there,
Speaker 3: so it's a you know, it's a four year waited
Speaker 3: average life portfolio. When you talk about things like consumer
Speaker 3: or auto, those are much shorter. Weaightter average life that
Speaker 3: could be one, two, three years. When we talk about
Speaker 3: capital relief transactions off of warehouse financings, those can be
Speaker 3: twelve or twenty four month maturity, So depends on the collateral.
Speaker 3: If you're talking to someone like aviation, those are seven
Speaker 3: year leases.
Speaker 1: What kind of risks are we running into?
Speaker 3: Though?
Speaker 1: You know, you mentioned the crisis, and there was a
Speaker 1: ton of structure finance pre crisis, and there was a
Speaker 1: ton of stuff being done that really no one kind
Speaker 1: of ended up understanding. It got so complex then it
Speaker 1: will blew up. Are we kind of build another big mess?
Speaker 3: No, So in our mind we're we're if that was
Speaker 3: the pendulum swinging to its furthest point left, we're closer
Speaker 3: to the furthest point right, meaning the hangover from the
Speaker 3: financial crisis, which is a wild thing to me, right,
Speaker 3: because financial markets tend to have much shorter memories. Right, somebody,
Speaker 3: somebody gets burned. Give it a day, week, month, year,
Speaker 3: and you know everyone's back in the game. The financial
Speaker 3: crisis had a much more long lasting shadow overhang impact
Speaker 3: on that market, and you see it in tons of stats,
Speaker 3: and there's some of these charts kind of make their
Speaker 3: way around over and over again. But it's bank share
Speaker 3: of securitization, bank's share of origination, it's credit stats around
Speaker 3: what is being securitized or what's being risk transferred in
Speaker 3: some way, and the the moment in time underwriting from
Speaker 3: before the financial crisis, we are at the other end
Speaker 3: of the spectrum. Maybe we're coming back towards the middle now,
Speaker 3: but we are not on that side of the pendulum
Speaker 3: swing at that era.
Speaker 2: Right.
Speaker 3: If you think about how money gets lost in credit,
Speaker 3: an investor either gets it wrong on the asset side
Speaker 3: or the liability side, meaning you think an asset is
Speaker 3: going to recover par that doesn't, or the liability side.
Speaker 3: Too much leverage or the wrong kind of leverage is
Speaker 3: used to take that risk. Pre financial crisis was both right.
Speaker 3: There were loans against houses or against other assets that
Speaker 3: were closer to worthless than being worth par and there
Speaker 3: was leverage upon leverage upon leverage upon leverage. Both of
Speaker 3: those kind of came out of the market and went
Speaker 3: to the other extreme of the pendulum again, maybe now
Speaker 3: working back towards the middle. But today we don't see
Speaker 3: that type of head scratching behavior on the asset or
Speaker 3: the liability side.
Speaker 4: Really, And going back to your point about finding alpha
Speaker 4: in corporate credit markets, do you have a preference when
Speaker 4: it comes to a specific sector or maybe sectors that
Speaker 4: you are avoiding in today's market.
Speaker 3: Not really. We always try to be you know, most
Speaker 3: most of what I'm talking about here is more on
Speaker 3: the private credit side. But to use an old trader's term,
Speaker 3: no such thing as a bad bond, just a bad price.
Speaker 3: There's no there's there doesn't tend to be something we say,
Speaker 3: you know, we always do this or we never do that.
Speaker 3: We're open based on where we see value, where we
Speaker 3: see loan to value, and where we see pricing, I
Speaker 3: would say from a and this can move across industries.
Speaker 3: Where we've been most active in corporate credit again, a
Speaker 3: topic probably well covered by you all, has been on
Speaker 3: the liability management exercise side of the corporate credit market. Right,
Speaker 3: That's one way of saying it. There's a more cynical
Speaker 3: way of saying it, which is the creditor on creditor violence.
Speaker 3: But the provision of new capital, new credit capital to
Speaker 3: an existing capital structure that might not be sustainable. That
Speaker 3: has been the best opportunity in the corporate credit market
Speaker 3: over the last year or two. I'd say at the
Speaker 3: beginning of the high rates, high inflation period, it was
Speaker 3: more classic dislocation, meaning there were hung financings at banks,
Speaker 3: and there was a secondary market that was sort of crashing,
Speaker 3: and there was a primary market that was frozen and shut.
Speaker 3: And so that's more traditional dislocation. So by good bonds
Speaker 3: and loans in the secondary getting thrown out with the market,
Speaker 3: make safe loans to good companies that have to pay
Speaker 3: up for capital because markets are shut. You know, that
Speaker 3: was maybe the parts of twenty two twenty two. That's
Speaker 3: not the case anymore. I think sometimes it still gets
Speaker 3: talked about it like it's the case, but I would
Speaker 3: say that's not really the case today. Where the opportunity
Speaker 3: set really got to from late twenty three into twenty
Speaker 3: four was more of the existing capital structure, typically in
Speaker 3: a you know, a buyout situation, meaning a leverage buyout
Speaker 3: where when rates were zero. Cash Flow was fine when
Speaker 3: rates were five. Cash flow was not fine when the
Speaker 3: economy was sort of growing massively and margins were peak.
Speaker 3: Maybe it was okay. When the economy slowed a little
Speaker 3: and margins came off peak, maybe not okay. So you
Speaker 3: had this accumulation of cash flows not as good as
Speaker 3: everyone had hoped. Interest eating up most of free cash flow,
Speaker 3: if not more than all of free cash flow i e.
Speaker 3: You know, companies becoming free cash flow negative. And instead
Speaker 3: of the old fashioned way to resolve this, which used
Speaker 3: to be some sort of insolvency proceeding for a whole
Speaker 3: host of reasons, the world evolved to a different way
Speaker 3: of resolving that, which is some version of an extension,
Speaker 3: some version of a moving assets around, some version of
Speaker 3: a moving the capital structure around, and so that that
Speaker 3: premium I keep talking about the third the third four,
Speaker 3: if you will. The best place to find that third
Speaker 3: four in the corporate credit market over the last year
Speaker 3: has been from either the complexity structure sourcing alpha sort
Speaker 3: of tech wherewithal on the technology for this to participate
Speaker 3: in that amend and extent market, or that provision of
Speaker 3: new capital to a stressed capital structure.
Speaker 4: It just maybe a quick follow up on corporate credit
Speaker 4: would be curious to hear your views on six industrials,
Speaker 4: at least from the universe of cyclical names that I cover,
Speaker 4: mostly in Europe, some of them are in the US.
Speaker 4: Spreads are tight compared to historical levels, and credit metrics
Speaker 4: seem to be going in the wrong direction, so to speak.
Speaker 4: Do you think that we're past the peak of the cycle,
Speaker 4: and would you just be maybe more defensive in your
Speaker 4: portfolios going twenty twenty five or is it a question
Speaker 4: of being more selective as you said earlier on cyclical
Speaker 4: industrial names.
Speaker 3: I would say selective, and that's kind of always the answer,
Speaker 3: to be honest. It's about selecting the It's about selecting
Speaker 3: the right names. And so I think there's a broader
Speaker 3: phenomenon that you touched on there, which is hey wire
Speaker 3: spread seemingly tight in cyclical names. If half the time
Speaker 3: we're all talking about an impending recession, that doesn't seem
Speaker 3: to make sense. Two answers to that. One, maybe there's
Speaker 3: not an impending recession, but two, a lot of the
Speaker 3: world of credit investors are yield buyers, so spreads might
Speaker 3: be tighter than opportunistic credit investors want them to be,
Speaker 3: whether that's in European industrial names or just in aggregate.
Speaker 3: But a lot of the world needs a total return,
Speaker 3: needs a total yield, and so whether that part of
Speaker 3: the yield is coming from the base rate or the
Speaker 3: credit spread, maybe isn't as important to a lot of
Speaker 3: those buyers, and so the tighter spread then you'll want
Speaker 3: it to be. So to speak, is an output, not
Speaker 3: an input.
Speaker 2: I wanted to ask you on lme's you were mentioning
Speaker 2: how they have provided great opportunity incorporate credit the last
Speaker 2: couple of years. I wanted to ask your views on
Speaker 2: cooperation agreements because here and here we're starting to see
Speaker 2: them in some situations influenced by US accounts, in situations
Speaker 2: where it's either a cross border like LDS or Altis
Speaker 2: Friends or others like Klogner Pentoplease that it's a German
Speaker 2: name but has US debt, and investors here seemed to
Speaker 2: look at those co op agreements with at least skepticism,
Speaker 2: if not concerned. What's your view on those cope agreements
Speaker 2: that we're also seeing them being longer and longer.
Speaker 3: Sure, so I would say here to stay and just
Speaker 3: the next evolution in the marketplace. So again, if I oversimplify,
Speaker 3: the way it used to work was the first lean
Speaker 3: lender got paid back first, and then the second lean
Speaker 3: lender got paid back, and then the unsecured and then
Speaker 3: whoever was below that, and there was really simple priority
Speaker 3: of payment, and it was really hard for that to
Speaker 3: become altered in any way. And then over a period
Speaker 3: of years, documents became much looser, particularly the ability to
Speaker 3: amend a document with majority as opposed to super majority
Speaker 3: or super duper majority. Market participants meaning borrowers, lenders, banks,
Speaker 3: advisors all got smarter on this technology, and all got
Speaker 3: smarter on how to optimize, and so sponsors started doing
Speaker 3: very aggressive maneuvers. Then new lenders started to take advantage
Speaker 3: of that through the provision of new capital, and sponsors
Speaker 3: then sought a different angle, and the response to that
Speaker 3: was the co op. And so it's just it's this
Speaker 3: ping ponging of capitalism. There's old lenders, new perspective lenders,
Speaker 3: and the borrower. Those are three parties in there. Now,
Speaker 3: a typical situation is way more complex because old lenders
Speaker 3: might be five, six, seven different layers of a capital structure.
Speaker 3: But the pingponging of trying to get an edge, get
Speaker 3: an edge, create a response, create a counter response is
Speaker 3: what led to the co op. And on a no
Speaker 3: names basis, we're in our morning meeting this morning on
Speaker 3: credit debating when a co op might break and there's
Speaker 3: going to be a splinter group off a co op
Speaker 3: that's going to create a new co op. And so
Speaker 3: this is just this is just capitalism at work. It's
Speaker 3: neither good nor bad. It just is. And so the
Speaker 3: job of the credit investor is to make sure you
Speaker 3: can see around that corner again, not every single time,
Speaker 3: but hopefully most of the time, to avoid being on
Speaker 3: the wrong side and hopefully be on the right side.
Speaker 2: And when you say they are here to stay, do
Speaker 2: you see them here to stay in Europe as well?
Speaker 2: Or perhaps director duties are stricter than in the US,
Speaker 2: and this kind of that are typically played in enemies
Speaker 2: like upstreaming are not a thing.
Speaker 3: So yes, I do believe that it's going to be
Speaker 3: there in Europe. Every country in Europe is different. Some
Speaker 3: of the director's duties you're referring to are stronger in
Speaker 3: some countries than other countries, and that director duty angle
Speaker 3: is kind of just for a specific line of attack
Speaker 3: on the creative lme front. So if it's if it's
Speaker 3: not that line of attack, someone will think of a
Speaker 3: really clever new line of attack. So co op agreements
Speaker 3: are as I shouldn't say necessary, are going to be
Speaker 3: as part of the process in Europe as they are
Speaker 3: in the US. Notwithstanding the fact that certain avenues to
Speaker 3: create pressure that are used in the US, and you
Speaker 3: alluded to it, there's fancier ways of talking about it,
Speaker 3: but it's basically the moving of assets up and out.
Speaker 3: It can be harder to do that in certain European
Speaker 3: jurisdictions due to director liability that kind of kicks in
Speaker 3: and around this zone of insolvency concept. But someone will
Speaker 3: think of a new angle and the cop agreement will
Speaker 3: address that.
Speaker 2: One and one thing that we've seen in the restructurings
Speaker 2: in the US in particular with these liability management exercises
Speaker 2: was these creater and creator violence. What are the long
Speaker 2: term negative impacts that you foresee with this kind of trend,
Speaker 2: if any.
Speaker 3: Maybe a cop out, but I view that as not
Speaker 3: our job either, right. Our job is to try and
Speaker 3: make smart credit investments. And so again in the case
Speaker 3: of this specific issue of movement of assets that can
Speaker 3: help one creditor and hurt another. Our job is to
Speaker 3: avoid getting and hurt and to hopefully be on the
Speaker 3: side that gets helped. It's not going away, let's put
Speaker 3: it that way. It's not going away. As long as
Speaker 3: there are contracts, and as long as contract law prevails,
Speaker 3: and as long as there is a capitalist interest on
Speaker 3: all sides amongst all constituents, there will be continued innovation
Speaker 3: in this. So I think there are traditional lenders who
Speaker 3: say this is bad for business, and it's going to
Speaker 3: raise the cost of capital for companies, and everything should
Speaker 3: go back to the simple way it used to be,
Speaker 3: which is if you were the first in line lender,
Speaker 3: you got paid before anyone else, and then the second line,
Speaker 3: second in line lender, and then so on down the line.
Speaker 3: I don't think that's coming back. I think that is
Speaker 3: that is wishful wishful thinking.
Speaker 1: So the year of tit to covenants, that's gone. You can't.
Speaker 3: It'll come and go cyclically. But I don't think that
Speaker 3: we are sort of suddenly all at once going to
Speaker 3: go back to traditional credit document. It's across the board on.
Speaker 1: The structure finance. You launched a platform to invest in
Speaker 1: the riskiest challenges of clos classmized loan obligations earlier this year.
Speaker 1: How's that going? Is that a good business?
Speaker 3: So it's been a great business for a long time.
Speaker 3: It's it doesn't often get discussed this way, but it's
Speaker 3: essentially the arbitrage between the assets spread and the cost
Speaker 3: of liabilities. It's just being a bank, right, That's what
Speaker 3: a bank does. It borrows money in one place and
Speaker 3: lends it in another. And so that's that's what a
Speaker 3: CLO does. It owns a diversified portfolio of loans. Those
Speaker 3: loans pay a spread. That spread is an excess of
Speaker 3: what it costs to finance it on a term non
Speaker 3: mark to market basis. Right, So I'd argue it's it's
Speaker 3: better than the business of banking, because in the business
Speaker 3: of banking, as as people learned over the last couple
Speaker 3: of years, sometimes your funding runs out the door, and
Speaker 3: when your funding can use a mobile phone to do so,
Speaker 3: it runs out even faster. Clos are a term financed
Speaker 3: funding arbitrage. So there are times the arbitrage is wider
Speaker 3: or narrower. There are times where we or others as
Speaker 3: manager do a better or worse job, But fundamentally it's
Speaker 3: a really great tool to extract the assets spread less
Speaker 3: the cost of funds.
Speaker 1: And if you look at all the stuff, you get
Speaker 1: to see, which is quite very broad and global, where
Speaker 1: is the best relative value opportunity right now?
Speaker 3: And why credit broadly? And I just can't get away
Speaker 3: from the four plus four plus four math, especially as
Speaker 3: compared to you know, over almost the last twenty years,
Speaker 3: we haven't had that at all. Right, We've had a
Speaker 3: handful of episodes that are huge dislocations, and that's different, right,
Speaker 3: the GFC and the sovereign debt crisis and the energy crisis,
Speaker 3: the twenty fifteen twenty sixteen period, and the COVID sis.
Speaker 3: That's different if you take just a generic period of time.
Speaker 3: There just hasn't been that much return on offer in credit.
Speaker 3: So where we have dollars that can move between asset classes,
Speaker 3: more of those dollars are deployed in credit. Where we
Speaker 3: have credit funds that can draw down capital, they draw
Speaker 3: it down even faster. Where we have evergreen credit funds,
Speaker 3: they're fully invested. So when we have the chance to
Speaker 3: make these types of returns relative to this type of risk.
Speaker 3: We want to take it.
Speaker 1: The credit people. You know, we live in fear with
Speaker 1: permanently paranoid something's going to happen. I mean, you're not
Speaker 1: thinking it's too good to be true.
Speaker 3: No things, surprises do always happen. They absolutely do happen.
Speaker 3: And so getting back to the point I made earlier,
Speaker 3: at any give point, an investor can mess up on
Speaker 3: the asset side or mess up on the liability side.
Speaker 3: We try to take messing up on the liability side
Speaker 3: out of the equation by using minimal financial leverage and
Speaker 3: in the case of private credit, doing it in funds
Speaker 3: that have multi year time horizons. So if you can
Speaker 3: take the liability side off the table, or you can
Speaker 3: reduce the risk of the liability side, now your risk
Speaker 3: is just on the asset side. And so in generally
Speaker 3: making you know, senior type of loans or taking senior
Speaker 3: type of cash flows, we can do worse than we underwrite.
Speaker 3: But it's hard to to catastrophically get that wrong in aggregate.
Speaker 1: And so nothing at all that worries you about the outlook.
Speaker 3: Now, if there's a recession, put it this way, I'll
Speaker 3: give you I'll give you a scenario again, we're not
Speaker 3: like wildly bullish. Sort of where I'm trying to describe
Speaker 3: is we're not wildly bullish or wildly bearish. We're just
Speaker 3: credit investors. And if we can underwrite low LTVs and
Speaker 3: reasonably say for good assets with good structure, we think
Speaker 3: we're gonna do all right if things are good or
Speaker 3: things are bad in the world. And you know, forgive
Speaker 3: the lack of brilliance there, but those are the two options.
Speaker 3: Things might be kind of good or might be kind
Speaker 3: of bad. And if we think we're okay either way,
Speaker 3: you know that's the goal. Where where could the unexpected
Speaker 3: come from? If inflation were to re accelerate, that would
Speaker 3: be highly disruptive to everything, because if inflation were to
Speaker 3: re accelerate, then the entire framework of don't worry that
Speaker 3: rates are high because they're gonna come down, and that's
Speaker 3: what allows commercial real estate values to stay okay, and
Speaker 3: residential real estate values to stay okay, and corporate multiples
Speaker 3: to stay okay. If that foundational factor were to be challenged,
Speaker 3: that would seriously stir the pot Now for existing investments.
Speaker 3: If you were right that you made a fifty LTV
Speaker 3: loan and the value goes down by fifty percent, You're
Speaker 3: still okay. You're not going to feel great while it's happening,
Speaker 3: but you're still going to be okay. But a reacceleration
Speaker 3: of inflation, that is one of the primary risks. Again,
Speaker 3: we can always make the list of there's geopolitical risk,
Speaker 3: and there's election risk and so on and so on
Speaker 3: and so on, but and those you know, no one
Speaker 3: knew the pandemic a year before the pandemic, right, a
Speaker 3: lot of us knew it the month before, but not
Speaker 3: the year before. That would change everything.
Speaker 1: Great stuff, Jimmy Levin, CEO and chief investment officer of
Speaker 1: Sculpt the Capital. It's been a pleasure having on the
Speaker 1: credit edge, Manny. Thanks thanks for having me, and of
Speaker 1: course we're very grateful to Stefan Kovichef from Bloomberg Intelligence.
Speaker 1: Thank you for joining us today.
Speaker 4: Thanks James, nice to be here.
Speaker 1: And tone Gartia Perez many thanks. Follow her coverage on
Speaker 1: the terminal and at Bloomberg dot com.
Speaker 2: Thank you James.
Speaker 1: For more credit market analysis and insight. Read all of
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