WEBVTT - North Wall Sees 25% Returns in Litigation Finance 0:00:18.320 --> 0:00:20.720 Hello, and welcome to the Credit Edge, a weekly markets podcast. 0:00:20.800 --> 0:00:23.200 My name is James Crumby. I'm a senior editor at Bloomberg. 0:00:23.480 --> 0:00:26.280 This week, we're very pleased to welcome Fabian Crowbog, chief 0:00:26.280 --> 0:00:29.440 investment officer and founder of north Wall Capital, a London 0:00:29.480 --> 0:00:32.480 based credit investment firm. How are you, Fabian, I'm great. 0:00:32.520 --> 0:00:32.839 Thank you. 0:00:32.920 --> 0:00:34.400 Nice to see you, James, Thank you so much for 0:00:34.440 --> 0:00:36.280 joining us today. We're very excited to get your credit 0:00:36.320 --> 0:00:38.720 market views, and we're also delighted to have back on 0:00:38.760 --> 0:00:41.800 the show Tollu Alamutu with Bloomberg Intelligence. 0:00:41.840 --> 0:00:44.520 Hello, Tollu, Hello James. Great to be here again. 0:00:45.000 --> 0:00:46.720 Thank you so Just to set the scene of it here, 0:00:46.840 --> 0:00:49.199 credit markets have bounced back after taking a bit of 0:00:49.200 --> 0:00:51.240 a hit earlier in August when stock Market's tanked and 0:00:51.280 --> 0:00:54.760 the Vick Spear gauge sword. Global markets are generally calmer, 0:00:54.760 --> 0:00:57.360 but there's still some lingering anxiety given the wild price 0:00:57.360 --> 0:00:59.920 swings of the last few weeks. Liquidity is thin and 0:01:00.040 --> 0:01:01.560 there's a lot of risk out there. It doesn't take 0:01:01.600 --> 0:01:04.200 too much to spook markets. That said, we've had some 0:01:04.240 --> 0:01:06.600 good news on the economy. Inflation appears to be cooling 0:01:06.640 --> 0:01:09.920 and there's growing expectation of FED cuts coming in September, 0:01:09.920 --> 0:01:11.920 which would ease pressure on the weak companies that have 0:01:11.959 --> 0:01:15.200 been struggling with high borrowing costs for a while. Meanwhile, 0:01:15.240 --> 0:01:17.840 there's more debt issuance. Companies are taking advantage of very 0:01:17.880 --> 0:01:20.640 strong investor demand for corporate bonds and loans, with the 0:01:20.680 --> 0:01:23.880 yields still at historically high levels. In general, there's more 0:01:23.920 --> 0:01:26.920 demand than supply of corporate bonds and loans, which is 0:01:27.600 --> 0:01:31.039 technical boost. Credit markets are supported by resilience in the 0:01:31.080 --> 0:01:34.800 economy and investors are getting their hopes up about a 0:01:34.800 --> 0:01:38.679 soft landing. But there are still things to worry about 0:01:38.880 --> 0:01:42.800 debt defaults, bankruptcies, commercial real estate stress, war, the US election, 0:01:43.000 --> 0:01:46.880 global geopolitics, recession risks haven't really gone away either, and 0:01:46.920 --> 0:01:50.560 everyone's very overweight US assets compared to other regions. So 0:01:50.720 --> 0:01:52.680 what's your take, Fabian? Where do we go from here? 0:01:53.640 --> 0:01:56.800 Where do we go from here? Well, look, I think 0:01:56.840 --> 0:02:01.480 that it certainly looks more stable today than it did 0:02:01.600 --> 0:02:03.480 only about, you know, a year and a half ago, 0:02:03.600 --> 0:02:07.120 when we were worried about energy security. You know, my 0:02:07.360 --> 0:02:10.800 parents anecdotally are you know, live in Germany and there 0:02:11.000 --> 0:02:14.000 was talk of turning off street lights and saving gas 0:02:14.000 --> 0:02:17.040 by restricting warm showers. You know, we're certainly not in 0:02:17.080 --> 0:02:18.040 that position anymore. 0:02:18.960 --> 0:02:23.480 But in terms of credit markets, are we all clear now? 0:02:23.520 --> 0:02:26.360 Because you know, as rates come down, that eases the 0:02:26.360 --> 0:02:30.320 stress on on weak borrowers. That should clear everything up, right, 0:02:30.360 --> 0:02:32.480 I mean, we're all a happy happy now. 0:02:32.639 --> 0:02:35.679 Well, I'm not. I'm not entirely sure I would quite 0:02:35.760 --> 0:02:36.600 go go that far. 0:02:36.680 --> 0:02:36.840 Right. 0:02:36.840 --> 0:02:40.120 We still have a very substantial amount of maturities coming 0:02:40.200 --> 0:02:43.320 up in the next two to three years with capital 0:02:43.360 --> 0:02:46.720 structures that are over leveraged, and I think a simple 0:02:46.760 --> 0:02:51.040 reduction in base rates, you know, doesn't necessarily address the 0:02:51.080 --> 0:02:55.400 problem of too much leverage in in companies that you know, 0:02:55.480 --> 0:02:59.160 potentially you know, don't have that much equity value remaining. 0:03:00.160 --> 0:03:02.480 Fabian, you mentioned a very important point that I think 0:03:02.520 --> 0:03:05.160 a lot of people have been monitoring, which is the 0:03:05.240 --> 0:03:07.480 sort of maturity war that we have coming up over 0:03:07.520 --> 0:03:12.400 the next few years. What's your view then, on how 0:03:12.560 --> 0:03:14.600 some of this gets worked out. Do you think that 0:03:15.080 --> 0:03:19.639 we are bound to see many more restructurings and renegotiations 0:03:19.760 --> 0:03:22.560 or do you think that some of those issues will 0:03:22.680 --> 0:03:26.360 just bite the bullet and you know, issue debt wherever 0:03:26.440 --> 0:03:29.520 they can, however they can, whether in public or private market. 0:03:29.639 --> 0:03:31.840 How do you think this works out? Well? 0:03:31.919 --> 0:03:35.440 I think, you know, I think the concept of a 0:03:35.480 --> 0:03:39.640 maturity wall is something that you know, I you know, 0:03:39.720 --> 0:03:44.920 it doesn't necessarily immediately lead to increased systematic risks. The 0:03:45.000 --> 0:03:48.680 reason is that, you know, we are all aware of 0:03:48.960 --> 0:03:53.240 you know, this, this refinancing need that's out there, and 0:03:53.320 --> 0:03:57.280 that awareness then inevitably leads to the market trying to 0:03:57.320 --> 0:04:01.280 find a solution and to you know, trying to address 0:04:01.440 --> 0:04:06.360 address these issues. So you know, borrower sponsors will preemptively 0:04:06.400 --> 0:04:08.800 try and think about having conversations with their lenders. You 0:04:08.840 --> 0:04:12.000 will have more dislocation funds raised. You know, private credit 0:04:12.040 --> 0:04:15.320 will will try and lean in with with some capital solutions, 0:04:15.320 --> 0:04:18.560 et cetera. But you know what such a maturity wall, 0:04:18.920 --> 0:04:22.640 you know, does lead to is a series of idiots 0:04:22.680 --> 0:04:26.960 and creatic refinancing events. And that's exactly something that we 0:04:27.040 --> 0:04:31.640 at north Wall are particularly experienced in in helping address 0:04:31.760 --> 0:04:35.800 and resolve by offering our counter parties, you know, very 0:04:35.920 --> 0:04:41.480 creative private credit capital solutions to to help reduce leverage, 0:04:42.120 --> 0:04:45.440 to help address some of those those potential maturities and 0:04:45.560 --> 0:04:49.640 potentially refinance. You know some or all of the lenders 0:04:49.400 --> 0:04:52.279 in syndicates that that would like to get refinanced. 0:04:52.600 --> 0:04:54.600 Yeah, so you talked a little bit about those sort 0:04:54.600 --> 0:04:58.000 of idiosyncratic cases, and I think we'll sort of dive 0:04:58.040 --> 0:05:00.000 into that a little bit later when we talk about 0:05:00.120 --> 0:05:03.320 some of the sectors that maybe that you've been looking at. 0:05:04.160 --> 0:05:08.719 But one of the broader issues with idiosyncratic solutions or 0:05:08.760 --> 0:05:14.240 with tailor made solutions is creditor preference and changes in 0:05:14.320 --> 0:05:18.240 creditor preference or priming or credit on creditor violence and 0:05:18.279 --> 0:05:21.160 so on and all of that. What's your view on 0:05:21.960 --> 0:05:24.920 how that plays out in a market where we are 0:05:24.960 --> 0:05:27.680 dealing with this maturity wall. Even though yes, we are 0:05:27.760 --> 0:05:30.440 aware or everybody should be aware that the maturity will 0:05:30.480 --> 0:05:33.279 is coming up, some creditors may be more prepared to 0:05:33.400 --> 0:05:39.320 provide financing than others. So how do creditors manage through 0:05:39.360 --> 0:05:44.960 that situation without causing credit on creditor violence basically that 0:05:45.040 --> 0:05:46.159 people have been talking about. 0:05:46.880 --> 0:05:51.039 Well, I think I think this concept of creditor on 0:05:51.160 --> 0:05:57.039 creditor violence isn't something that should hugely surprise anybody. Let 0:05:57.120 --> 0:06:00.200 me explain. So, you know the reason that you know 0:06:00.240 --> 0:06:03.880 this credit on credit violence can occur is the outcome 0:06:04.120 --> 0:06:08.240 of you know, a vast volume of debtisians over the 0:06:08.279 --> 0:06:12.120 last qulle of five ten years, maybe longer, with relatively 0:06:12.240 --> 0:06:16.280 weak creditor protections. And so that opens the door to 0:06:17.200 --> 0:06:21.040 the investors in these structures, who, let's remember, have a 0:06:21.040 --> 0:06:25.240 fiduciary obligation to maximize returns and to protect certainly the 0:06:25.279 --> 0:06:28.960 investments of their of their stakeholders. That opens the door 0:06:28.960 --> 0:06:33.000 to them trying to find solutions to you know, not 0:06:33.040 --> 0:06:35.800 only protect a position, but also capture potentially some of 0:06:35.839 --> 0:06:39.880 the upside. So you know, I am not particularly surprised 0:06:39.880 --> 0:06:42.920 to see that, you know, we have some slightly more 0:06:43.000 --> 0:06:47.359 aggressive approaches to to these capital restructurings here and in 0:06:47.400 --> 0:06:50.160 the US, and certainly coming to Europe where we are 0:06:50.800 --> 0:06:57.280 most active, relatively relatively soon, So you know, and and interestingly, 0:06:57.880 --> 0:07:01.800 you know, there are you know, freaquent the opportunities to 0:07:02.200 --> 0:07:04.360 you know, play one side of the coin or try 0:07:04.400 --> 0:07:06.560 and take advantage of the other side of the opportunity. 0:07:07.160 --> 0:07:10.640 You mentioned weak creditor protection. I guess it's fair to 0:07:10.680 --> 0:07:14.160 say that that was probably due to the environment, as 0:07:14.160 --> 0:07:18.040 in rates were extraordinarily low. There was a lot of 0:07:18.400 --> 0:07:22.880 money around to be invested, and so maybe people were 0:07:22.920 --> 0:07:28.120 prepared to accept weaker covenants than they ordinarily would have. 0:07:28.320 --> 0:07:30.960 But I have a two pound question given the situation 0:07:31.000 --> 0:07:34.080 that we find ourselves now, one issue is that even 0:07:34.080 --> 0:07:37.160 though rates are obviously still high, coming down but still high, 0:07:37.880 --> 0:07:39.400 there is still a lot of money, at least in 0:07:39.440 --> 0:07:42.440 private credits flushing around. So do you think that creditor 0:07:42.480 --> 0:07:46.200 protections will be stronger this time around when refinancings come up, 0:07:46.320 --> 0:07:50.160 or does the demand to sort of put money to 0:07:50.240 --> 0:07:54.040 work mean that those protections might not be as strong 0:07:54.120 --> 0:07:56.880 as people would like them to be. And a second 0:07:57.360 --> 0:08:01.440 related question on protection and one issue has been that 0:08:01.520 --> 0:08:04.440 even when the docs say X, the way that the 0:08:04.440 --> 0:08:08.520 issuer interprets X may not be the way that the 0:08:08.560 --> 0:08:13.760 bond holder or creditor interprets it. How should we be 0:08:13.840 --> 0:08:17.600 thinking about the togo between the issuer and the creditor 0:08:17.640 --> 0:08:21.080 when it comes to interpreting those protections, right? 0:08:21.120 --> 0:08:22.920 I mean, look, I mean maybe it makes sense to 0:08:23.240 --> 0:08:25.400 take a step back, right. So you know, we at 0:08:25.440 --> 0:08:28.880 Northwall focus on the provision of private credit capital solutions 0:08:29.240 --> 0:08:32.760 to Western European borrowers in the in the middle market 0:08:33.480 --> 0:08:37.760 and even the lower middle market. Right, So we, you know, 0:08:37.880 --> 0:08:42.120 tend to focus on situations where we are very much 0:08:42.160 --> 0:08:46.520 by design the sole lender or at least a pivotal 0:08:46.600 --> 0:08:49.520 lender in the capital structure in the provision of the solution. 0:08:50.080 --> 0:08:54.760 This enables us to stay away from situations where there 0:08:54.800 --> 0:08:59.760 is a tremendous amount of capital chasing any given opportunity 0:09:00.320 --> 0:09:03.000 because of the size of the transactions which tend to 0:09:03.000 --> 0:09:05.360 be a little bit smaller for north Wall, and because 0:09:05.400 --> 0:09:10.440 of the perceived complexity of European credit investing. So what 0:09:10.480 --> 0:09:14.600 that means for us is that we tend to seek 0:09:14.640 --> 0:09:18.120 out situations where, while we might not have been the 0:09:18.160 --> 0:09:21.640 company's first call, you know, we are you know, always 0:09:21.720 --> 0:09:25.400 trying to be the first second call. But in a 0:09:25.440 --> 0:09:29.800 situation where there is a real urgency, a situational complexity, 0:09:29.920 --> 0:09:32.520 such as a refinancing, a you know, a lender that 0:09:32.600 --> 0:09:34.680 is dropped out of a process, a failed asset sale, 0:09:34.920 --> 0:09:37.240 whatever it might be, where there's a real need and 0:09:37.240 --> 0:09:39.319 a real requirement for us to get involved in and 0:09:39.400 --> 0:09:43.520 provide a solution. The benefit of that is that, you know, 0:09:43.559 --> 0:09:47.280 we are never in situations where we are being asked 0:09:47.320 --> 0:09:52.960 to contemplate providing capital without covenance or you know, without 0:09:52.960 --> 0:09:56.760 the appropriate structural protections, which are important and particularly important 0:09:56.800 --> 0:10:00.360 in Europe. So can I tell you what we'll happen 0:10:00.640 --> 0:10:03.559 kind of in the larger transactions private credit market. Quite frankly, 0:10:03.760 --> 0:10:07.280 I don't know. There certainly feels like there's uh, you know, 0:10:07.400 --> 0:10:10.719 more capital chasing again, fewer opportunities. But I can tell 0:10:10.760 --> 0:10:13.199 you about the transactions that that north Ball is involved, 0:10:13.200 --> 0:10:16.320 and you know we most certainly you know, will continue 0:10:16.320 --> 0:10:19.880 to insist on strong credit protections. So that's kind of answering, 0:10:21.760 --> 0:10:24.520 you know, you know, the first question. The second question 0:10:24.760 --> 0:10:30.480 around you know, interpretation of documentation. Again. You know, I 0:10:30.480 --> 0:10:34.720 think it is companies choosing to you know, risk illegal 0:10:34.720 --> 0:10:40.600 battle rather than you know, necessarily imposing losses on equity 0:10:40.640 --> 0:10:43.120 or imposing losses on the different transfer of creditors. And 0:10:43.200 --> 0:10:46.040 that is again a very much a tactical decision that 0:10:46.160 --> 0:10:49.800 we you know, will not be exposed to because you know, 0:10:49.880 --> 0:10:51.720 again we tend to be the sole lender, and we 0:10:51.800 --> 0:10:54.920 tend to have very strong creditor protections and we are 0:10:54.960 --> 0:10:57.200 in this market precisely for that reason. 0:10:58.040 --> 0:11:00.920 But going into those trades, faban and tell you ensure 0:11:00.920 --> 0:11:03.120 that you're not walking into something that is unsustainable and 0:11:03.280 --> 0:11:06.440 you know, potentially doesn't perform well. 0:11:06.440 --> 0:11:09.400 I think there are I mean, certainly, it all starts 0:11:09.400 --> 0:11:13.360 at our origination and underwriting. So we try to enter 0:11:13.400 --> 0:11:16.760 into situations where we have a very substantial amount of 0:11:16.800 --> 0:11:21.080 downsid protection number one on valuation in particular, but number 0:11:21.120 --> 0:11:24.959 two where we also have, due to the less competitive 0:11:25.040 --> 0:11:30.199 nature of these situations, access to you know, more diligence, 0:11:31.040 --> 0:11:34.480 you know, more information, better management time than we might 0:11:34.640 --> 0:11:37.720 ordinarily have if we were competing in a you know, 0:11:37.880 --> 0:11:41.480 and a much more broadly syndicated transactions. So that's kind 0:11:41.480 --> 0:11:45.000 of where it starts now. You can never predict the future, 0:11:45.240 --> 0:11:47.720 and you know, it is not unusual, of course for 0:11:48.640 --> 0:11:51.160 companies in our portfolio to breach you know, what might 0:11:51.200 --> 0:11:54.880 be tight covenant might be perceived as type covenants. And 0:11:54.920 --> 0:11:57.240 at that point in time, it is our internal asset 0:11:57.280 --> 0:12:01.559 management function that works with the investment team on encouraging 0:12:01.600 --> 0:12:05.880 the company towards a path to arrange for refinancing, again, 0:12:06.320 --> 0:12:09.400 you know, dependent on making sure that there's substantial equity 0:12:09.480 --> 0:12:11.640 value and downstair protection em bettered in the position. 0:12:12.920 --> 0:12:16.240 I have a follow up question on because because what 0:12:16.280 --> 0:12:19.960 I'm hearing from you is sort of small can be 0:12:19.960 --> 0:12:25.199 beautiful in a way, and that getting the second call 0:12:25.840 --> 0:12:28.640 doesn't mean that you're not offered all the same things 0:12:28.760 --> 0:12:33.000 as whoever got the first call. On small can be beautiful, 0:12:33.400 --> 0:12:37.400 I guess one of the things that we're seeing happen 0:12:38.040 --> 0:12:43.920 in asset management just broadly is consolidation. What is your 0:12:44.480 --> 0:12:48.360 broad picture view on that, and do you think that 0:12:48.480 --> 0:12:52.960 there is still room for medium sized players in the 0:12:53.040 --> 0:12:55.880 industry to continue to function or do you think that 0:12:56.240 --> 0:13:00.280 many asset managers just get hoovered up along the way, 0:13:00.280 --> 0:13:03.080 whether they are specialists or not. Do you think in 0:13:03.120 --> 0:13:06.560 the next few years we will see more consolidation or 0:13:07.440 --> 0:13:09.440 less of it than we've seen in the last few. 0:13:10.280 --> 0:13:12.199 Right, Just to pick up on your first point here, 0:13:12.240 --> 0:13:15.959 which is you know you might be offered more as 0:13:15.960 --> 0:13:18.000 a second call then the first call. Keep in mind 0:13:18.000 --> 0:13:21.480 that many times the situations that we're dealing with don't 0:13:21.520 --> 0:13:25.560 involve underlying the stress of the company, but merely a 0:13:25.760 --> 0:13:29.240 need and urgent need for funding because a more traditional 0:13:29.280 --> 0:13:33.199 source of capital has fallen through. So the misconception being 0:13:33.240 --> 0:13:35.200 that because we'd have to close a deal in a rush, 0:13:35.240 --> 0:13:38.160 we have access to less informations and correct because actually 0:13:38.160 --> 0:13:41.240 what happens is there is a real determination by the company, 0:13:41.440 --> 0:13:44.200 the sponsor, if it may be, to get a deal 0:13:44.240 --> 0:13:47.280 over the line, and so everybody holds hands and says, look, 0:13:47.280 --> 0:13:49.040 we've got to get north Wall over the line to 0:13:49.040 --> 0:13:51.400 get this transaction closed in the next four to eight weeks, 0:13:51.400 --> 0:13:53.640 whatever it might be. Let's get them all of the 0:13:53.720 --> 0:13:56.360 necessary information, let's get the access to management, et cetera. 0:13:56.559 --> 0:13:59.000 And so we actually, you know, very often feel that, 0:13:59.080 --> 0:14:02.080 you know, we understand these companies much better because we're 0:14:02.160 --> 0:14:05.360 part of the process rather than looking from the outside in. 0:14:07.160 --> 0:14:10.560 On your second point around consolidation. Yet, consolidation has been 0:14:11.080 --> 0:14:13.520 a big theme in our industry. We are, you know, 0:14:13.559 --> 0:14:20.480 probably one of the few European self funded, entirely management 0:14:20.560 --> 0:14:25.480 owned private credit players out there, and we very regularly 0:14:25.520 --> 0:14:30.160 do get approached for at least a minority stake. You know, 0:14:30.320 --> 0:14:34.160 we have for now decided to stay independent, you know, 0:14:34.360 --> 0:14:36.920 and you know, some of our peers have chosen to 0:14:36.920 --> 0:14:40.760 become parts of larger structures. You know, we've had no 0:14:40.840 --> 0:14:43.960 impact on our capa raising ability at least for now independently, 0:14:44.600 --> 0:14:47.040 and we've been able to fund the business as necessary. 0:14:47.160 --> 0:14:51.440 So you know, consolidation will continue to occur, but you know, 0:14:51.760 --> 0:14:54.080 we are we have no immediate plans to be part 0:14:54.080 --> 0:14:54.280 of that. 0:14:55.080 --> 0:14:57.240 So this all sounds great in theory, but can you 0:14:57.360 --> 0:15:00.400 put some specifics on it in terms of you know, 0:15:00.400 --> 0:15:03.160 walking through an example. And I'm thinking of my my 0:15:03.280 --> 0:15:05.440 aunt who lives in Scotland, who doesn't really know what 0:15:05.440 --> 0:15:07.400 this stuff is all about, but would like to kind of, 0:15:07.760 --> 0:15:10.600 you know, tangibly interact with the concept. What what sort 0:15:10.640 --> 0:15:12.560 of companies, what sort of situations we're talking about. 0:15:13.040 --> 0:15:18.200 Look, I think in the past you know, call it 0:15:18.600 --> 0:15:20.800 one to two years, we have you know, been more 0:15:20.800 --> 0:15:23.280 and more active in sponsor backed situations. I can give 0:15:23.280 --> 0:15:28.400 you an example. We helped a German industrial services business 0:15:29.240 --> 0:15:33.880 that was supported by a very large syndicate or a 0:15:34.080 --> 0:15:38.960 syndicate of many different mostly German and European banks over 0:15:39.000 --> 0:15:43.160 the years. And you know that that position that that 0:15:43.160 --> 0:15:48.760 syndicate came up to a maturity. Uh, the sponsor you know, 0:15:49.280 --> 0:15:53.400 was interested in refinancing this with a with a bond deal. 0:15:54.080 --> 0:15:57.640 This was right around the time that Putin invaded the 0:15:57.760 --> 0:16:02.360 Ukraine and that to the bondie of falling apart. Strong 0:16:02.440 --> 0:16:05.480 relationships with the banks ensure that the banks decided to 0:16:05.480 --> 0:16:08.240 give the company some more time. But there was one 0:16:08.800 --> 0:16:11.520 bank syndicate lender that did not want to participate in 0:16:11.560 --> 0:16:15.240 this transaction. They held a portion of the senior debt 0:16:15.400 --> 0:16:17.160 and they had the portion of a of a second 0:16:17.200 --> 0:16:19.680 lean of they held the entirety of the second lean. 0:16:20.280 --> 0:16:23.240 And we came in and we provided you know, that 0:16:23.320 --> 0:16:27.440 missing piece, right, and that missing piece consisted of you know, 0:16:27.560 --> 0:16:30.120 the missing piece of the of the of the senior, 0:16:31.160 --> 0:16:33.880 the missing piece the entirety of the of the of 0:16:33.920 --> 0:16:37.520 the second lean. Collectively, that was a you know, triple 0:16:37.520 --> 0:16:40.960 digit million euros. It was a sizeable transaction, but it 0:16:41.040 --> 0:16:43.400 required somebody to be able to piece these two pieces 0:16:43.400 --> 0:16:47.280 together and importantly do this in four to four to 0:16:47.400 --> 0:16:50.520 eight weeks. We now have a position that's you know, 0:16:50.640 --> 0:16:54.360 roughly four times levered that you know very much meets 0:16:54.360 --> 0:16:57.600 the return targets of our funds on a blended basis. 0:16:58.040 --> 0:17:03.080 This sounds like a very unusual situation, very rare to see, 0:17:04.680 --> 0:17:07.120 you know, once in a you know, you know, every 0:17:07.200 --> 0:17:10.080 every five years or something, is it. I mean, these 0:17:10.119 --> 0:17:12.920 are these common situations in Europe right now? 0:17:13.359 --> 0:17:16.359 They are they are they are what we're seeing is 0:17:16.400 --> 0:17:20.959 a very much and you know, decrease in the commercial 0:17:21.000 --> 0:17:25.760 banks appetite to lend, and we certainly are able to 0:17:25.760 --> 0:17:28.840 to step into that into those situations. And again it 0:17:28.840 --> 0:17:30.840 comes up to this concept of maturity wall right. The 0:17:30.840 --> 0:17:33.680 more of these events you have, even if a very 0:17:33.680 --> 0:17:38.080 small percentage of them end up becoming problematic, you know, 0:17:38.119 --> 0:17:41.200 we are there to support. We are there to support 0:17:41.720 --> 0:17:44.439 our counter parties in those situations. And remember, you know, 0:17:44.680 --> 0:17:47.840 the sponsor backed call it gap financing, private credit capital 0:17:47.840 --> 0:17:50.680 solutions business. You know, that's one part of what we do. 0:17:51.480 --> 0:17:54.720 You know, we also invest in, you know, asset backed situations. 0:17:55.359 --> 0:17:59.600 We also acquire portfolios, you know, and we have a 0:17:59.760 --> 0:18:03.199 a small but thriving legal assets funding business. 0:18:03.720 --> 0:18:07.440 I have a question on returns. So I primarily cover 0:18:07.520 --> 0:18:10.520 real estate, right, and after the factor lost like a 0:18:10.560 --> 0:18:13.520 fifth or so of its value I'm talking euro ig 0:18:13.880 --> 0:18:16.200 real estate lost the fifth of its value in twenty 0:18:16.240 --> 0:18:19.159 twenty two. We were up double digits last year, but 0:18:19.200 --> 0:18:22.240 this year we're only up single digits, right, So what 0:18:22.320 --> 0:18:26.679 sort of returns are you looking at now in those 0:18:27.320 --> 0:18:31.920 private credits stroke special situations that you have been talking about, 0:18:31.960 --> 0:18:34.920 And how have those returns changed over the last couple 0:18:34.960 --> 0:18:36.199 of years. 0:18:36.480 --> 0:18:40.600 Look, we you know, you know, can get drawn into 0:18:41.080 --> 0:18:45.320 you know, returns in this forum, but you know, suffice 0:18:45.320 --> 0:18:49.800 it to say, we're targeting throughout our kind of funds 0:18:49.520 --> 0:18:52.040 a return target that's you know, in the mid teens 0:18:52.080 --> 0:18:55.640 at least net to our investors, and so that requires 0:18:55.720 --> 0:18:59.160 us obviously to be extremely opportunistic. So there's a time 0:18:59.200 --> 0:19:01.400 where you know, we found a lot of deal flow 0:19:01.400 --> 0:19:05.280 in the sponsor backed space, you know, within real estate specifically, 0:19:05.840 --> 0:19:09.359 you know, we have struggled to find situations where we 0:19:09.359 --> 0:19:11.520 can generate those types of returns while still having a 0:19:11.520 --> 0:19:15.360 sufficient amount of downside protection. That being set, we recently 0:19:15.400 --> 0:19:18.600 closed a you know, led a deal you know that 0:19:18.720 --> 0:19:22.600 was fairly substantial and where we're able to meet our 0:19:22.600 --> 0:19:25.760 return objectives, albeit through a secondly in that situation. 0:19:26.400 --> 0:19:29.280 So I was just asking, when you say the mid teens, 0:19:29.280 --> 0:19:33.880 are we talking pre or post fees? And then maybe 0:19:33.920 --> 0:19:35.399 we can go on to talk a little bit more 0:19:35.440 --> 0:19:36.400 about real estate. 0:19:36.200 --> 0:19:38.399 After so I was talking netal fees. 0:19:38.920 --> 0:19:42.119 Okay, that's good to know. So on real estate again, 0:19:42.240 --> 0:19:46.960 you know, sector very close to my heart. One of 0:19:47.000 --> 0:19:53.880 the issues has just been the amount and speed at 0:19:53.920 --> 0:19:57.840 which valuations of the portfolios have had to be written down. 0:19:58.680 --> 0:20:01.080 And one of the because this has been clearly on 0:20:01.160 --> 0:20:04.919 the office sector, not just here in Europe, but also 0:20:04.960 --> 0:20:07.800 obviously in the US as well and probably all around 0:20:07.840 --> 0:20:11.200 the world or in many places around the world within 0:20:11.280 --> 0:20:13.840 real estate, are there sub sectors that you say that 0:20:13.880 --> 0:20:16.200 you would say look better than others, or are there 0:20:16.200 --> 0:20:19.040 countries that you would rather focus on than some others, 0:20:19.040 --> 0:20:20.960 Like are you looking at Germany the Nordics? Where are 0:20:21.000 --> 0:20:22.359 you looking at at the moment? 0:20:22.760 --> 0:20:25.720 So I can tell you what we've spent some time. 0:20:26.320 --> 0:20:28.280 We've looked at a lot of deal flow in Germany 0:20:28.359 --> 0:20:31.359 and we haven't been able to get to get comfortable there. 0:20:32.680 --> 0:20:36.679 You know, what we've found, generally speaking is that, you know, 0:20:36.720 --> 0:20:39.919 a lot of the retail opportunities that we've seen, you 0:20:40.240 --> 0:20:44.040 don't offer kind of that that certainty of downside protection 0:20:44.359 --> 0:20:48.200 that we're looking for. Where we did get comfortable recently 0:20:48.520 --> 0:20:53.399 is in supporting the refinancing of a large portfolio of 0:20:53.800 --> 0:20:58.240 let's call it semi serviced offices with flexible working space 0:20:58.359 --> 0:21:02.160 in the Nordics, where there was a very large private 0:21:02.200 --> 0:21:05.040 equity sponsor who had, you know, real skin in the 0:21:05.080 --> 0:21:09.480 game was putting in a substantial incremental ticket of equity 0:21:09.880 --> 0:21:14.280 in the transaction, putting in place a long term sustainable 0:21:14.560 --> 0:21:19.480 capital structure, cash paying interest where we detached at a 0:21:19.880 --> 0:21:24.320 you know, comfortable double digit yield in a market that 0:21:24.600 --> 0:21:29.160 even pre COVID had a very large proportion of homeworking, 0:21:30.400 --> 0:21:34.119 you know, already kind of embedded within kind of societal norms. 0:21:34.119 --> 0:21:37.520 So you know, again, you know, we found one of 0:21:37.560 --> 0:21:41.199 those transactions, and we probably looked at one hundred generally 0:21:41.200 --> 0:21:43.600 speaking of the last years, but we did not get comfortable. 0:21:43.680 --> 0:21:46.720 Wait, so you're saying you looked at one hundred, so 0:21:46.720 --> 0:21:48.000 it's very generalizable. 0:21:48.600 --> 0:21:51.600 But what I can tell you is that the on 0:21:51.640 --> 0:21:55.360 a relative basis compared to some of the large liquid 0:21:55.520 --> 0:22:00.679 publicly traded structures where you are generating put potentially a 0:22:00.800 --> 0:22:06.760 lower return to be in a subordinated unsecured position and 0:22:06.880 --> 0:22:09.840 are subject to credit or on credit of violence, those 0:22:09.880 --> 0:22:13.439 types of situations you know, we think offer much worse 0:22:14.240 --> 0:22:15.600 compelling risk award. 0:22:16.920 --> 0:22:20.040 You mentioned something very interesting there. You said you had 0:22:20.080 --> 0:22:24.880 looked at one hundred deals and chosen just one. That's 0:22:24.920 --> 0:22:29.719 obviously a very i'd say low hit ratio or low's 0:22:29.960 --> 0:22:37.240 success ratio when you then consider the opportunities in real estate, 0:22:37.240 --> 0:22:41.320 would you say that the opportunities then are not really 0:22:41.359 --> 0:22:43.640 there given that it's just one in one hundred, or 0:22:44.480 --> 0:22:46.719 would you say that this is a similar thing when 0:22:46.760 --> 0:22:49.680 you're looking at other sectors as well. And also maybe 0:22:49.680 --> 0:22:53.359 you could talk a little bit about the time frames 0:22:53.359 --> 0:22:56.840 and holding periods that you have in your mind when 0:22:56.880 --> 0:22:59.359 you're considering some of these investments. 0:22:59.600 --> 0:23:03.760 Yeah, So, generally speaking, our hit rate, you know, in transactions, 0:23:04.119 --> 0:23:07.080 tends to be we end up closing somewhere between you know, 0:23:07.280 --> 0:23:10.320 two and four percent of the total number of deals 0:23:10.920 --> 0:23:13.479 that we that we see. And you know, obviously, when 0:23:13.480 --> 0:23:15.679 you're as opportunistic as we are, you know, you have 0:23:15.720 --> 0:23:17.800 a lot of deals across your desk that you really 0:23:17.840 --> 0:23:21.280 don't warrant your very detailed attention. So, yes, that's a 0:23:23.240 --> 0:23:25.920 low hit rate, but it's something that makes sense. Sorry totally. 0:23:25.920 --> 0:23:29.160 What was the second part of your question. So, we 0:23:29.240 --> 0:23:33.200 tend to lend in these types of situations on a 0:23:33.400 --> 0:23:35.879 you know, normal private credit basis, so it can be 0:23:35.920 --> 0:23:40.399 anywhere between four and six years. It's very rare that 0:23:40.440 --> 0:23:44.840 we have less than two years of call protection, and 0:23:45.080 --> 0:23:48.720 most of the time our counter parties do seek to 0:23:48.760 --> 0:23:53.119 refinance us somewhere around the first call date. So you know, 0:23:53.200 --> 0:23:56.280