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Speaker 1: Hello, and welcome to The Credit Edge, a Wiki Mucket's podcast.

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Speaker 1: My name is James Crumbie. I'm a senior editor at

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Speaker 1: Bloomberg and I'm.

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Speaker 2: Arnold Kakuta, senior analysts covering banks at Bloomberg Intelligence. So

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Speaker 2: this week we're very pleased to welcome Michael Gross, co

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Speaker 2: founder of SLR Capital Partners.

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Speaker 3: How are you, Michael, I'm great today. Thank you for

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Speaker 3: having me great.

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Speaker 2: So a little bit about Michael, So, he comes from

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Speaker 2: the vaunted credit lineage that includes working at the junk

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Speaker 2: bond king Michael Milkins Drexel Burnham Lambert in the late

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Speaker 2: eighties and then he helped co found what is now

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Speaker 2: the credit juggernaut Apollo with his colleagues from Drexel, and

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Speaker 2: then in two thousand and six he co founded his

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Speaker 2: current SLR Capital Partners, which is a private credit investment

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Speaker 2: manager with the multi strategy approach that has I think

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Speaker 2: last I checked is thirteen billion of investable capital and

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Speaker 2: it's public BDC. SLR Investment Corp ticker SLRC has two

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Speaker 2: billion of investments which currently have I checked zero nonocrals zero,

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Speaker 2: So we'll definitely have to ask them about that later

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Speaker 2: in the show. But Before we do that, I'll turn

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Speaker 2: it back to Dams.

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Speaker 3: Thanks Nad.

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Speaker 1: Great to have you on the show. Michael, some of

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Speaker 1: with your perspective of your history, but I do want

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Speaker 1: to start with the BDCs. You have one, As Donold says,

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Speaker 1: they've become the ground zero for growing concerns about credit markets,

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Speaker 1: the latest three letter acronym that people think will blow

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Speaker 1: up the financial system. We are talking about business development companies.

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Speaker 1: That's the type of investment firm that lends to small

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Speaker 1: and mid sized to private companies. Sounds pretty boring. But

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Speaker 1: while all the drama, Michael, have they made a lot

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Speaker 1: of bad loans? Have they taken on a ton of leverage?

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Speaker 1: How worried she would we really be about BDCs?

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Speaker 3: Thank you, and again thank you for having me on

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Speaker 3: your show today. Just to put in perspective, we have

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Speaker 3: had a public BDC since twenty ten, so that's well

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Speaker 3: before most BDCs have been in existent. So we're going

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Speaker 3: on our sixteenth anniversary, you know, having invested through multiple

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Speaker 3: credit cycles. You know, one of my philosophies, which ultimately

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Speaker 3: becomes true, is that things are never as good as

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Speaker 3: a seem, nor as as bad as a seem or

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Speaker 3: a peer, and you know, things when things were going

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Speaker 3: great in private credit, when things are on the way up,

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Speaker 3: you know, you could argue about what the opportunity was

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Speaker 3: as good as everyone marketed out to be. But today,

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Speaker 3: you know, I do not think things are as bad

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Speaker 3: as they've been played up. The media has had a

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Speaker 3: field day with Pylon, and it comes from really several

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Speaker 3: different circumstances. Began with the few blow ups of First

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Speaker 3: Brands and Tricolor, and then MFS we can talk about those.

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Speaker 3: Those are each fraud situation, so not systemic to private

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Speaker 3: credit in general. And then the latest fee two fears

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Speaker 3: was software and the impact on people's portfolios because some

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Speaker 3: twenty to twenty five percent of public BDCs as well

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Speaker 3: as private BDCs and private credit funds exposure is two

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Speaker 3: software and then that fueled a big degree of fear

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Speaker 3: by retail investors, which fed into redemptions on the non

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Speaker 3: listed BDCs in many in many cases ended up being

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Speaker 3: more than the required five percent. That said, if you

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Speaker 3: look through people's portfolios that they reported on in Q four,

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Speaker 3: there were very few defaults incremental defaults, and so no,

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Speaker 3: I do not think things are as bad as they seem,

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Speaker 3: nor do I think it's creating potential systemic risk because

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Speaker 3: by statute, BDCs cannot be levered more than two to one,

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Speaker 3: and generally they're levered one to one and a quarter

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Speaker 3: to one, So there's not much financial risk in the system.

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Speaker 3: Even though the commercial banks are provided that leverage, they're

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Speaker 3: not really at risk from my perspective.

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Speaker 2: Got it. So, I think a lot of the concerns

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Speaker 2: you know you've mentioned. I think you've talked about some

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Speaker 2: of this in liquidity premium right that private credit does provide.

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Speaker 2: But is that suitable you think for for the retail

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Speaker 2: clients who are really worried about all this this gated

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Speaker 2: redemptions going on right now.

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Speaker 3: Well, I answered a couple of ways. One is, you know,

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Speaker 3: private credit was built on the expectation that you would

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Speaker 3: get a reasonable illoquity premium for giving up liquidity, and

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Speaker 3: that iloquity premium used to come in the form of

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Speaker 3: two to three in two basis points above beyond what

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Speaker 3: the public markets offered in leverage credit. With the explosion

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Speaker 3: of our assa class and some two hundred billion dollars

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Speaker 3: now in the non listed BDCs, which has created intense

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Speaker 3: competition for loans by the lenders that illoquity premium has shrunk,

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Speaker 3: probably arguable to one hundred basis points, and that causes

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Speaker 3: some concern. Investors in these non listed BDCs have known

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Speaker 3: from the very beginning, or should have because it's very prolific.

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Speaker 3: It's in the documentar up front that you are limited

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Speaker 3: to five percent liquidity per quarter, so that should not

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Speaker 3: be a surprise. And you know, arguably, you know, the

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Speaker 3: fas who put their clients to do this should not

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Speaker 3: have put their clients into it if there was a

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Speaker 3: real desire for real liquidity, because these never were meant

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Speaker 3: to offer that.

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Speaker 1: Do you think there was a miss selling?

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Speaker 3: Then you know this it comes down to incentives, as

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Speaker 3: do most things. You know, fas generally get paid based

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Speaker 3: on how much capitals put into these vehicles, and their

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Speaker 3: clients may not necessarily be well aware of what they're

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Speaker 3: putting into them.

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Speaker 1: Okay, And on the illiquidity premium, we've had a little

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Speaker 1: discussion around that, and you're saying one hundred base points,

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Speaker 1: what's that for? Is that for a kind of standard

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Speaker 1: leveraged loan in private versus BSL, boardies anddicated loans. Is

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Speaker 1: that the sort of.

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Speaker 3: Yeah, so I'm glad you brought that up, because we're

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Speaker 3: kind of talking private credit in one big general category,

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Speaker 3: and you know, the vast majority, some ninety percent of

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Speaker 3: the capital's been raised in these non listed BDCs, if

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Speaker 3: not more, are four really one strategy, which is lending

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Speaker 3: money to private equity backed LBOs, and that's what's competing

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Speaker 3: with the leverage loan market. If you move to other

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Speaker 3: more esoteric areas of private credit, like act based lending,

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Speaker 3: you're still getting significant liquity premium. And I would argue

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Speaker 3: that it's more than an ill liquity or it's complexity premium.

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Speaker 3: Strategies that carry complexity that therefore encourage less competition and

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Speaker 3: have allowed investors like ourselves to get excess returns even

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Speaker 3: in this compressed environment that we're seeing seeing.

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Speaker 2: So and I think that's that's you know when you

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Speaker 2: talked about on the call, that's right. You've seen all

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Speaker 2: this crowding within this private equity backed cash flow lending,

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Speaker 2: and you know, I think you guys have pulled away

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Speaker 2: for that, moving towards this a bl lending which still

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Speaker 2: has us. I think you call it the complexity premium.

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Speaker 2: But what are some of the positive and negatives. I

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Speaker 2: guess of maybe not having a private equity affiliate.

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Speaker 3: Great question. One of the positives is you're dealing with

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Speaker 3: counter parties that don't have the luxury of having a

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Speaker 3: capital markets person that can go out to the marketplace

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Speaker 3: and say, fill in the blanks this term sheet you

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Speaker 3: five or ten different credit providers and fill in the

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Speaker 3: lowest rate, the least amount of covenants, and that's what

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Speaker 3: we're going to take. That doesn't happen in asset based lending.

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Speaker 3: The asset based loans are so complex and one off

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Speaker 3: that you have to directly originate it, directly negotiate it.

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Speaker 3: Then you have to monitor it. And so we're lending

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Speaker 3: in these situations against hard assets like receibles, inventory. We

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Speaker 3: become their working capital facility, and so it's very much

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Speaker 3: a relationship driven loan, but it's one where the borrower

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Speaker 3: doesn't have fifteen or twenty different opportunities to go reprice

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Speaker 3: your every quarter if they wanted to. The negative one

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Speaker 3: would argue is you don't have the backing of a

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Speaker 3: deep pocketed private equity firm that will bail you out

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Speaker 3: if and when there's trouble. That sometimes happened, doesn't always happen.

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Speaker 3: But the flip side is when you're lending against inventory

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Speaker 3: and receivables on a barrowing base and you have very

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Speaker 3: tight documentation, you can protect yourself without relying on other

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Speaker 3: people's capital to do so. And you can protect yourself

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Speaker 3: by exercising your rights as a lender, and if worse

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Speaker 3: comes to worse, you can liquidate the collateral and pay

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Speaker 3: yourself back.

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Speaker 1: To be clear, is that what your fund overall does

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Speaker 1: or is that what the BDC does in terms of

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Speaker 1: this asset base.

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Speaker 3: That's what our funds overall do today. About if they

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Speaker 3: look at our public BDC, about seventy five percent of

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Speaker 3: our assets are in especially finance aid based on these strategies.

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Speaker 3: It's less less high a percentage in our private funds,

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Speaker 3: but it's still our dominant strategy. Okay.

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Speaker 1: And there is a complexity to it, as you say,

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Speaker 1: and that is already worrying some people that you know,

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Speaker 1: all these comparisons to the previous financial crisis, that there

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Speaker 1: was this complexity, There were stretches that you didn't re understand,

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Speaker 1: and they were levied up and they were kind of

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Speaker 1: blowing up, and we didn't know what was what was

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Speaker 1: in these stretches.

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Speaker 3: Why is this different an asset based lending. Yeah, I

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Speaker 3: talked about being complex, but it's also simple. We're lending

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Speaker 3: against hard assets on a unilateral, bilateral agreement, directly against

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Speaker 3: the bar where we're not buying portfolios. They're not levered portfolios.

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Speaker 3: We're able to go in and say this is the inventory,

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Speaker 3: this is the recivables, We're going to verify its existence,

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Speaker 3: and then we're going to apply a bar and based

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Speaker 3: against it. We then once the loan is made and

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Speaker 3: this is back to complexity. But we have he mentioned earlier,

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Speaker 3: you mentioned we have thirteen bill of capitalis management. We

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Speaker 3: have three hundred and thirty people. Two hundred and sixty

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Speaker 3: of those people are focused on asset based lending, and

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Speaker 3: most of those are focused on monitoring our collateral on

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Speaker 3: an ongoing basis, which allows us to be very close

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Speaker 3: to it. So there isn't this you know, opaque environment

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Speaker 3: where we don't know we're lending against. So there's leverage

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Speaker 3: upung leverage. These are direct loans that we know exactly

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Speaker 3: what we're lending against and what's the cholesterol inventory reciables.

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Speaker 3: For the most part, we focus on collateral that we

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Speaker 3: think we can turn into cash in thirty to ninety days.

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Speaker 3: We won't lend. We don't lend against you know, oil

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Speaker 3: rigs or airplanes or ships. We won't lend against commodities,

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Speaker 3: commodities whose value could fall up the cliff or go

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Speaker 3: way up like oil today.

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Speaker 1: But what kinds of companies were talking about? In tons

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Speaker 1: of receivables.

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Speaker 3: So generally these are these are smaller companies. But what's

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Speaker 3: very interesting is if you peel the onion in these companies,

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Speaker 3: most of their receivables are investment grade receivables. So the

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Speaker 3: receivals from people like Amazon or Google or Microsoft, and

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Speaker 3: so we get to lend to companies that would otherwise

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Speaker 3: be rated maybe B minus V from triple C. But

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Speaker 3: the collateral lending against is investment grade collateral. But we're

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Speaker 3: still getting eleveneen to thirteen percent returns.

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Speaker 1: And it's business services. It sounds like, I mean, it's

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Speaker 1: not a retail business. It's not a I don't know

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Speaker 1: what what kind of sectors are we talking about?

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Speaker 3: It could be almost anything. It's really our focus really

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Speaker 3: is who the receiver, the counterpart of the receivbles are,

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Speaker 3: So it could be someone who sells goods through Amazon.

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Speaker 3: It could be someone who is providing services, uh to

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Speaker 3: a to a Google or a Microsoft.

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Speaker 1: And why is then the long standing relationship bank that's

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Speaker 1: not not doing this? Why does it take a you know,

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Speaker 1: non bank Lendilight yourself to step in.

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Speaker 3: So, you know, one of the benefits for us of

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Speaker 3: the regional banking crisis that took place a couple of

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Speaker 3: years ago is that banks were forced to kind of

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Speaker 3: exit some of those businesses because of the regulatory complexity

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Speaker 3: and because of the capital charge associated with these smaller companies.

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Speaker 3: These companies would otherwise be criticize assets by the FED

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Speaker 3: because they're too small, they don't have great financials, they

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Speaker 3: may be operated at a loss. That's where we can

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Speaker 3: step in. We're not regulated, so we're not we're not

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Speaker 3: burdened by those requirements that the FED puts on the banks,

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Speaker 3: and so we can step in and provide these facilities.

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Speaker 3: Whereas historically our competition was the commercial banks, but they're

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Speaker 3: not as much a competition anymore.

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Speaker 2: Got it? And then, uh, you know, obviously it's been

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Speaker 2: a few years, I guess over three years now since

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Speaker 2: SVV has failed, so regionals are back. And then you know,

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Speaker 2: with the Trump appointed FED. We're moving more towards right

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Speaker 2: regulatory easing. Bank capital requirements are coming down. We'll have

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Speaker 2: some big news tomorrow, and I think the goal is

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Speaker 2: to try to put more more loan goes coming from banks.

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Speaker 2: So do you see that as a potential you know,

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Speaker 2: I guess reincoursion, I guess of of of banks back

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Speaker 2: into some of the stuff that you're doing, or or

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Speaker 2: has kind of the horse already left the barn and

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Speaker 2: it's it's it's sort of kind of too late.

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Speaker 3: So I think from many of these regional banks, the

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Speaker 3: horses left the barn because they stopped doing it, or

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Speaker 3: they got rid of their teams, or they sold the

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Speaker 3: business off. I think the biggest beneficiar the FED easing

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Speaker 3: is the big money center banks. This will allow them

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Speaker 3: to be more aggressive in leverage lending, which will benefit

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Speaker 3: ultimately the you know, the private equity community, and will

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Speaker 3: provide more direct competition to traditional private credit.

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Speaker 2: Got it? And then you talked about you know, the

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Speaker 2: receivables and you know collateral financing. You know, some of

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Speaker 2: the fraud cases that you mentioned actually I think were

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Speaker 2: based on kind of the receivable goals and and and

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Speaker 2: and I e. The the double pledging of collateral. So

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Speaker 2: how do you avoid that kind of situation? I mean,

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Speaker 2: I think we've seen this double pledging of collateral come

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Speaker 2: up in multiple cases with like you know, first Friends

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Speaker 2: and and uh even even the more recent MFS. So

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Speaker 2: what are some of the checks, checks and balances? And

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Speaker 2: it seems like most of this right is within the

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Speaker 2: banking space, right, and.

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Speaker 3: And and at the end of the day, from our perspective,

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Speaker 3: it was all avoidable. I'd start off by saying that

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Speaker 3: when we think about our asset based lending, and we

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Speaker 3: lend against stables inventory, we are typically the sole lender

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Speaker 3: to these companies, so we we have all their collateral

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Speaker 3: and we cannot allow We don't allow that double It

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Speaker 3: can't happen because we're the only lender to it. The

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Speaker 3: other thing I would add is the biggest risk and

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Speaker 3: ASCID based lending we're hitting the nail on the head

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Speaker 3: is fraud. And you know how do you avoid fraud.

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Speaker 3: You avoid fraud by doing tremendous amount of due diligence

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Speaker 3: going into the transaction. The thing is, when we look

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Speaker 3: at a new perspective lender from ours, we typically get

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Speaker 3: a deposit for due diligence from the counterparty. The first

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Speaker 3: dollars we spend of that deposit is a deep, deep,

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Speaker 3: deep background check of the owners, the management, the founders,

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Speaker 3: And in each of those situations, try colin first Brands,

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Speaker 3: you would have found a history that would lead you

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Speaker 3: to conclude you shouldn't lend to these people. And for us,

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Speaker 3: it's black and white. It doesn't matter that something happened

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Speaker 3: twenty years ago, that someone did some kind of financial

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Speaker 3: Shenanigans were credit investors. So our upside is getting our

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Speaker 3: coupon back. Our downside is we can lose a lot

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Speaker 3: of money. We say no if anything appears gray. So

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Speaker 3: both those situations were completely avoidable.

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Speaker 1: How often have you said no recently such that we

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Speaker 1: could shine a light on the potential for more of

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Speaker 1: these things to to.

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Speaker 3: We have said no recently. Probably It probably happens to

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Speaker 3: us three times a year. And it's not just fraud,

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Speaker 3: it's it's other illicit things that someone made in their past.

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Speaker 1: But in these good times that we've had, you know,

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Speaker 1: for many years up till maybe a few months ago,

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Speaker 1: surely someone ended up lending to them.

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Speaker 3: Yeah. Look, I think one of the negatives of the

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Speaker 3: explosure we've had in credit is that you know, underwriting

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Speaker 3: standards were compromised, People were sloppy, there was a real

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Speaker 3: need to put capital work quickly, and things were ignored

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Speaker 3: because they thought, you know, it's not gonna happen to us,

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Speaker 3: It's not gonna happen again. And the other thing I

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Speaker 3: would add also is a lot of these situations were

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Speaker 3: were underwritten and syndicated loans where the underwriter you know,

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Speaker 3: wasn't going to hold the loans that the day on

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Speaker 3: their own balance sheet, and so their incentive was to

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Speaker 3: package it and sell it off as quickly as possible.

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Speaker 3: And the level of diligence that takes place on those

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Speaker 3: types of situations versus by someone who's actually a principal

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Speaker 3: investor is dramatically different.

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Speaker 1: How bad was it though, in terms of history, because

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Speaker 1: you've been in these markets for quite a long time,

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Speaker 1: is it just you know, as bad as it was

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Speaker 1: pre financial crisis? Or is it way dip.

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Speaker 3: Into that in terms of finding fraud or in terms.

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Speaker 1: Of the lacks underwriting that was going on.

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Speaker 3: I think it's I mean, look again, I don't want

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Speaker 3: to say it's lacks underwriting, but in terms of willingness

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Speaker 3: to accept higher leverage, lesser covenants, and lower yield. It's

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Speaker 3: it's definitely increased, and you can point to the explosion

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Speaker 3: of you know, the NOI list of BDCs having grown

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Speaker 3: to twenty billion dollars in the last five years. Those

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Speaker 3: structures demand that you put the capital work in the

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Speaker 3: month that's taken in, and so the investment decision that

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Speaker 3: used to be by a private credit manager would be

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Speaker 3: do I want to draw down capital because it's great

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Speaker 3: opportunity versus I just receive capital and maybe it's a

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Speaker 3: decent opportunity. Has changed the dynamic.

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Speaker 2: So I guess before some of these issues had popped

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Speaker 2: up a couple of months ago, there's talk about putting

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Speaker 2: you know, private equity into four one ks and stuff

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Speaker 2: like that. So do you think that kind of still

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Speaker 2: progresses or you know, have we kind of approached an

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Speaker 2: area of like, okay, now we're more of in a

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Speaker 2: net redemptions versus money coming into the space.

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Speaker 3: I think it's still progresses. It may slow down, and

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Speaker 3: I actually still think you know, retail, whether it's four

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Speaker 3: one k's or high net worth investing in private credit

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Speaker 3: private equity is still a good idea. If it's done

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Speaker 3: the right way and with the right manager. The interesting

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Speaker 3: thing is, you know, up until the last six months,

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Speaker 3: you know, we had been in a benign credit environment

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Speaker 3: since the GFC, and we went through a period of

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Speaker 3: you know, eleven twelve years where virtually no defaults and

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Speaker 3: literally everybody within private credit did well. You know, a

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Speaker 3: rising tide lifted all boats. That's all changed, and for

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Speaker 3: the first time in a long time, we're in an

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Speaker 3: environment where, you know, two additional things are incredibly relevant.

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Speaker 3: One is manager selection and the other is asset selection

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Speaker 3: by the manager. And that's really changed. You know, the

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Speaker 3: underwriting that people need to do when they decide whether

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Speaker 3: they want to be in private credit and who they

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Speaker 3: want to be in it with.

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Speaker 2: Got it. And I think this is a good segue too.

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Speaker 2: You were in a Boomberg article saying, hey, you know,

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Speaker 2: your your public BDC only has about I think two

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Speaker 2: percent exposure to software, So that could potentially be right,

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Speaker 2: more of a safe haven within the space if people

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Speaker 2: are concerned. So is that kind of really the big

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Speaker 2: thing to worry about right now? And BDC private credit

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Speaker 2: kind of the software exposure is or is it something

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Speaker 2: else that other you know, that that people should be

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Speaker 2: worried about.

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Speaker 3: Look, I think when when when talking about private credit

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Speaker 3: within cash ful lending or lending to you know, private

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Speaker 3: crede back companies, I think there's two things to be

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Speaker 3: concerned about. Want software is definitely a concern. You know,

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Speaker 3: with twenty percent plus exposure, there's there's definitely gonna be

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Speaker 3: some downside and some pain. I can't tell you how

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Speaker 3: much it's going to be, but we we all know

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Speaker 3: that AI will have an impact on many of these companies.

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Speaker 3: I think what people aren't talking about as much because

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Speaker 3: it's not as retail oriented yet is you know, if

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Speaker 3: that's the case for private credit, then you know what's

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Speaker 3: the case for private equity. Whether you know, the largest

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Speaker 3: percentage of deals done in twenty one twenty two we're

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Speaker 3: software deals. And if if people are concerned about you know,

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Speaker 3: private credit taking hits, then the impact of private equity

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Speaker 3: is exponential from that. The other thing I think people

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Speaker 3: should be concerned about within traditional private credit is just

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Speaker 3: the sheer amount of volume that took place over the

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Speaker 3: last few years and the potential relaxed underwriting standards took

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Speaker 3: to do that, and the acceptance of you know, lower

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Speaker 3: yields and lesser structures, less covenants, and you know, with

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Speaker 3: in general, people's portfolios are healthy. So I don't see,

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Speaker 3: you know, a whole swath of you know, defaults coming

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Speaker 3: down the pike. But what I do believe is that

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Speaker 3: the loss given to faults will be higher than I've

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Speaker 3: historically seen. And what I mean by that is if

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Speaker 3: you look back at data from Moody's, for example, they

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Speaker 3: typically publish that when there's first lean bank loan default,

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Speaker 3: else the average re cover rate is seventy percent. Well,

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Speaker 3: the issue with that is most that data was from

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Speaker 3: loans made when there were covenants, which allow of Leonard

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Speaker 3: to get the table before us too late. Given that

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Speaker 3: the vast majority of loans being done today and within

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Speaker 3: private credit to private equity firms, has virtually no covenants,

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Speaker 3: my concern is that the loss given to fault will

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Speaker 3: be much higher and the recovery instead of being fifty percent,

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Speaker 3: could be forty to fifty percent. Got it?

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Speaker 2: And then you know, I have to ask you about

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Speaker 2: the zero not accrules, And I think your fund has

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Speaker 2: the BDC has done typically lower right not a corules,

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Speaker 2: But how can that be when you have right one

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Speaker 2: hundreds so I think maybe close to one thousand positions.

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Speaker 2: So is it a definitional thing or is it, you know,

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Speaker 2: better investment picking or can you could have dub into

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Speaker 2: that little bit please?

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Speaker 3: Sure? I think it's for a number of reasons. First, is,

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Speaker 3: you know, philosophically, we still view private credit as an

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Speaker 3: investment business and not an asset accumulation business. So what

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Speaker 3: that translates into is myself and all my partners and

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Speaker 3: literally everyone in my firm, our investors, in all of

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Speaker 3: our funds, and we take a significant everyone's comp every

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Speaker 3: year and roll it back to the funds. So everyone

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Speaker 3: views themself as principles. That creates a different discipline. People

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Speaker 3: have to ask themselves do I like this loan so

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Speaker 3: much that I want to own it myself? And if

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Speaker 3: the answer is no, we just don't do it. And

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Speaker 3: so by not being focused on growth for growth's sake

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Speaker 3: and still being focused on investing for investment stake, it

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Speaker 3: brings a different discipline. But that's also what's led us

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Speaker 3: to kind of pull back from casual lending and treat

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Speaker 3: that as an opportunistic business and focus more on asset

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Speaker 3: based lending, which can be more of a day to

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Speaker 3: day business from an opportunity perspective, where our downside is

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Speaker 3: much more protected. And so when we look at our

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Speaker 3: casual lending portfolio, to your point, we have you know,

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Speaker 3: we have a total of two percent of cross the

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Speaker 3: entire firm and software. We're concentrating things like healthcare that

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Speaker 3: we're very good at, but we're staying away from, you know,

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Speaker 3: all those other volatile industries. And certainly we don't have

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Speaker 3: to get our diversification by being a lender to every sector.

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Speaker 3: Within casual lending, we get a diversification from everything else

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Speaker 3: so that we can be really focused on what we're

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Speaker 3: willing to lend to. And that's created a different discipline.

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Speaker 3: And in general we're good at what we do. We're

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Speaker 3: very good we do. But in general, asset based lending,

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Speaker 3: if done the right way and again financing current assets,

434
00:22:24,800 --> 00:22:27,080
Speaker 3: has a very low historical default rate and a very

435
00:22:27,240 --> 00:22:28,359
Speaker 3: high recovery rate.

436
00:22:28,960 --> 00:22:32,120
Speaker 1: How exposed are you though, to the US consumers under

437
00:22:32,160 --> 00:22:36,720
Speaker 1: pressure from inflation now and other parts of the economy

438
00:22:36,880 --> 00:22:39,720
Speaker 1: kind of cracking, I mean consumer discretionary particularly that is

439
00:22:39,720 --> 00:22:42,000
Speaker 1: a big part of the leverage Learning index. I'm assuming

440
00:22:42,000 --> 00:22:44,120
Speaker 1: there's a similar proportion in private credit help.

441
00:22:44,480 --> 00:22:48,520
Speaker 3: So again, you know, if we look at our casual

442
00:22:48,560 --> 00:22:53,600
Speaker 3: lending portfolio, we have literally very little exposure to consumer discression.

443
00:22:53,760 --> 00:22:55,440
Speaker 3: We do not we don't do any consumer discressure. We

444
00:22:55,440 --> 00:23:00,480
Speaker 3: don't do cyclicals, we don't do commodities, energy, retail, rests, tourants.

445
00:23:00,880 --> 00:23:03,360
Speaker 3: We'll lend to those types of companies like retail and restaurants.

446
00:23:03,400 --> 00:23:05,200
Speaker 3: If it's an asset based lending, then we can grab

447
00:23:05,280 --> 00:23:08,600
Speaker 3: that collateral. But because of your exact point, where you

448
00:23:08,640 --> 00:23:11,520
Speaker 3: know consumer spending can create volatility, we stay away from

449
00:23:11,560 --> 00:23:12,800
Speaker 3: the industries in cashual lending.

450
00:23:13,040 --> 00:23:14,600
Speaker 1: And how much how much leverage do you have at

451
00:23:14,640 --> 00:23:15,120
Speaker 1: the moment.

452
00:23:15,480 --> 00:23:18,160
Speaker 3: Against our portfolio? Yeah, about one point.

453
00:23:18,040 --> 00:23:21,480
Speaker 1: Two times, okay, And so in terms of the loans

454
00:23:21,560 --> 00:23:24,160
Speaker 1: underlying it, we are seeing a lot of concern about

455
00:23:24,200 --> 00:23:28,000
Speaker 1: markdowns and marks in general and transparency, But how how

456
00:23:28,119 --> 00:23:30,800
Speaker 1: often are you having to mark down these loans every quarter?

457
00:23:31,920 --> 00:23:34,000
Speaker 3: So we we we have to mark our loans every

458
00:23:34,040 --> 00:23:38,520
Speaker 3: quarter by statue. But as you you can see kind

459
00:23:38,520 --> 00:23:41,040
Speaker 3: of from our performance in the fact that we have

460
00:23:41,160 --> 00:23:43,680
Speaker 3: known non accruls, we've had very little markdowns over the

461
00:23:43,720 --> 00:23:44,360
Speaker 3: last few years.

462
00:23:44,920 --> 00:23:45,879
Speaker 1: What about redemptions?

463
00:23:46,640 --> 00:23:49,000
Speaker 3: So our public BDC doesn't have the ability to redeem

464
00:23:49,040 --> 00:23:50,800
Speaker 3: to this public and we don't have ani list of

465
00:23:50,840 --> 00:23:51,560
Speaker 3: BDC today.

466
00:23:51,720 --> 00:23:55,840
Speaker 1: Okay, so do you see that as an issue generally?

467
00:23:55,960 --> 00:23:57,920
Speaker 1: I mean back to Arnold's point, You know that that

468
00:23:58,040 --> 00:24:01,040
Speaker 1: there are lots of concerns in on the Resaal side.

469
00:24:01,440 --> 00:24:04,359
Speaker 1: Maybe they should have read the paperwork more thoroughly. Maybe

470
00:24:04,359 --> 00:24:06,880
Speaker 1: their financial advisors should have you know, set and down

471
00:24:07,080 --> 00:24:09,000
Speaker 1: explained what they were actually getting into for that extra

472
00:24:09,080 --> 00:24:12,680
Speaker 1: pickup and yield. But you know, there is kind of

473
00:24:12,800 --> 00:24:17,680
Speaker 1: an outflow sorry, feeding on itself, maybe not your BDC,

474
00:24:17,800 --> 00:24:19,760
Speaker 1: at other BDCs. What impact is that having.

475
00:24:21,200 --> 00:24:25,480
Speaker 3: So right now it's creating concerns, It's creating volatility. Do

476
00:24:25,640 --> 00:24:28,359
Speaker 3: not seeing you know, large sell off of loans by

477
00:24:28,400 --> 00:24:32,159
Speaker 3: these managers. They have liquidity, whether holding liquid loans or

478
00:24:32,440 --> 00:24:35,480
Speaker 3: tapping the revolvers to pay out the redemptions. I think

479
00:24:35,960 --> 00:24:38,359
Speaker 3: I pershal look at as an opportunity. I think the

480
00:24:38,440 --> 00:24:41,520
Speaker 3: fact that there's redemptions and the fact that inflows are

481
00:24:41,560 --> 00:24:44,800
Speaker 3: slowly means that the amount of capital that's available to

482
00:24:45,000 --> 00:24:47,560
Speaker 3: go invest in private credit is it going to come

483
00:24:47,640 --> 00:24:51,280
Speaker 3: under pressure. And the way we approach cashual lending is

484
00:24:51,680 --> 00:24:55,680
Speaker 3: we tend to be aggressive when there's dislocation, and when

485
00:24:55,760 --> 00:24:58,280
Speaker 3: there's just capital flowing in, we stay away because it's

486
00:24:58,320 --> 00:25:01,600
Speaker 3: too competitive. So I personally think that with kind of this,

487
00:25:01,880 --> 00:25:04,080
Speaker 3: with what's going on today, you're going to see the

488
00:25:04,160 --> 00:25:06,680
Speaker 3: leverage loan market pull back a little bit and you're

489
00:25:06,680 --> 00:25:09,159
Speaker 3: going to see private credit spreads increase in, which is

490
00:25:09,160 --> 00:25:11,640
Speaker 3: going to create an opportunity for those of capital available

491
00:25:12,280 --> 00:25:14,520
Speaker 3: to put it more attractive returns. We for example, in

492
00:25:14,800 --> 00:25:18,000
Speaker 3: twenty twenty three, when the leverage loan market closed down,

493
00:25:19,160 --> 00:25:21,560
Speaker 3: everyone talked about that being the golden age of private credit,

494
00:25:21,920 --> 00:25:25,159
Speaker 3: and for about six months it was pretty golden. You

495
00:25:25,240 --> 00:25:29,080
Speaker 3: can invest in well structured LBOs that had already been

496
00:25:29,359 --> 00:25:32,159
Speaker 3: private for two to three years. You could get returns

497
00:25:32,200 --> 00:25:34,720
Speaker 3: of eleven to thirteen percent, you could get covenants, and

498
00:25:34,800 --> 00:25:37,840
Speaker 3: leverage was probably closer to five times, and everyone was

499
00:25:37,920 --> 00:25:41,240
Speaker 3: very grass during that period of time, including us. But

500
00:25:41,400 --> 00:25:44,159
Speaker 3: we viewed it as a trade because we knew that

501
00:25:44,320 --> 00:25:47,639
Speaker 3: the minute the leverage loan market came back, every private

502
00:25:47,760 --> 00:25:50,320
Speaker 3: response will be pounding on our door saying you have

503
00:25:50,440 --> 00:25:54,280
Speaker 3: two choices, SLR. You can either reprice me and hold

504
00:25:54,320 --> 00:25:56,119
Speaker 3: the loan in a lower yield, or we're going to

505
00:25:56,119 --> 00:25:58,399
Speaker 3: go refinance you either to another private credit fund or

506
00:25:58,440 --> 00:26:02,040
Speaker 3: the liquid low market. Our response was simple, we love

507
00:26:02,080 --> 00:26:04,239
Speaker 3: getting as a lending, we love getting repaid. Please can

508
00:26:04,320 --> 00:26:07,760
Speaker 3: be back. We'll take that capital, reallocate it to our

509
00:26:07,760 --> 00:26:10,560
Speaker 3: specially financed strategy, which we're still getting eleventy to thirteen percent.

510
00:26:11,240 --> 00:26:13,680
Speaker 3: Most of our peers given to the We're in one strategy,

511
00:26:13,680 --> 00:26:16,520
Speaker 3: which was castual lending, accepted the repricing, and so you

512
00:26:16,560 --> 00:26:18,600
Speaker 3: could see going back to the end of twenty thirty three,

513
00:26:19,160 --> 00:26:22,400
Speaker 3: yields within the public BDCs have come down about twenty

514
00:26:22,440 --> 00:26:25,320
Speaker 3: five base points a quarter, whereas our yields have not

515
00:26:25,400 --> 00:26:27,480
Speaker 3: come down because we're able to redeploy into those higher

516
00:26:27,520 --> 00:26:28,359
Speaker 3: yielding strategies.

517
00:26:28,680 --> 00:26:30,680
Speaker 1: But as of now, this is the time to buy

518
00:26:30,920 --> 00:26:33,280
Speaker 1: those assets that you've seeing good enough prices, because the

519
00:26:33,640 --> 00:26:35,800
Speaker 1: sense I get is that there is a lot of

520
00:26:35,840 --> 00:26:39,240
Speaker 1: cash out there, but prices have to go down quite

521
00:26:39,240 --> 00:26:41,200
Speaker 1: a bit more. Voyeve and gets excitedy and we've look

522
00:26:41,200 --> 00:26:43,240
Speaker 1: at what Saba did. Boaz, did you know he's offering

523
00:26:43,280 --> 00:26:46,200
Speaker 1: basically sixty five cents for some of those dull portfolios.

524
00:26:46,640 --> 00:26:48,439
Speaker 3: So that's a big drop from where we are now.

525
00:26:48,840 --> 00:26:51,400
Speaker 3: I'd be surprised if investors take that up. That's that's

526
00:26:51,640 --> 00:26:54,320
Speaker 3: a silly discount. That said, you know, public BDCs are

527
00:26:54,359 --> 00:26:57,800
Speaker 3: trading at anywhere from you know, point five or lower

528
00:26:58,600 --> 00:27:01,200
Speaker 3: of nav to you know, point eight five or point nine.

529
00:27:01,800 --> 00:27:04,399
Speaker 3: I personally think that people have thrown the baby out

530
00:27:04,400 --> 00:27:08,680
Speaker 3: with the bathwater. I think selectively within those BDCs there

531
00:27:08,720 --> 00:27:11,800
Speaker 3: are opportunities. I personally, in the last three days have

532
00:27:11,880 --> 00:27:14,640
Speaker 3: bought a significan amount of shares of our BDC. I'm

533
00:27:14,680 --> 00:27:18,440
Speaker 3: a believer, but I think from an investment perspective, for

534
00:27:18,560 --> 00:27:20,920
Speaker 3: us as a manager, I think we need to see

535
00:27:20,960 --> 00:27:23,040
Speaker 3: spreads widen a little more before we get more excited

536
00:27:23,080 --> 00:27:24,640
Speaker 3: about putting more money into cashule lending.

537
00:27:26,240 --> 00:27:29,600
Speaker 2: So you guys had a nice call out from Grand Investors,

538
00:27:29,640 --> 00:27:31,879
Speaker 2: I guess what back back in October, And I think

539
00:27:32,040 --> 00:27:34,919
Speaker 2: some of the story might still be be similar, right

540
00:27:35,040 --> 00:27:40,679
Speaker 2: given you know, low software exposure, lower crules. But how

541
00:27:40,720 --> 00:27:43,360
Speaker 2: about like what concerns you right? Like, I think we've

542
00:27:43,359 --> 00:27:48,240
Speaker 2: seen JP Morgan kind of pulling some potential credit line

543
00:27:48,320 --> 00:27:50,600
Speaker 2: or lowing the credit lines to some private credit firms

544
00:27:50,680 --> 00:27:52,680
Speaker 2: based on kind of their software exposure and stuff like that.

545
00:27:52,880 --> 00:27:55,440
Speaker 2: So is that kind of you know, kind of this

546
00:27:55,640 --> 00:27:58,920
Speaker 2: reversal of some of this, you know, the funding not

547
00:27:59,119 --> 00:28:01,560
Speaker 2: only from the investors, but then from the bank side

548
00:28:01,560 --> 00:28:04,960
Speaker 2: as well. Is that a concern that that may eventually

549
00:28:05,080 --> 00:28:07,000
Speaker 2: kind of creep up or what? You know, what are

550
00:28:07,080 --> 00:28:08,080
Speaker 2: some things that you are looking at.

551
00:28:08,480 --> 00:28:11,040
Speaker 3: It's definitely a concern if you think about the private

552
00:28:11,080 --> 00:28:14,840
Speaker 3: credit you know universe, whether it's the public BDCs, the

553
00:28:14,920 --> 00:28:18,000
Speaker 3: private BDCs, or the private credit funds. We're dependent upon

554
00:28:18,080 --> 00:28:21,840
Speaker 3: two sources of capital equity from our LPs or public

555
00:28:21,880 --> 00:28:26,400
Speaker 3: investors and leverage from our counterparties. And we all borrow money.

556
00:28:26,560 --> 00:28:28,000
Speaker 3: Those of USHO are large up. We borrow from the

557
00:28:28,000 --> 00:28:30,360
Speaker 3: investment grade market, which is driven by the insurance companies,

558
00:28:31,119 --> 00:28:33,520
Speaker 3: and we borrow significant amounts of money from the commercial

559
00:28:33,560 --> 00:28:36,480
Speaker 3: banks who've been very aggressive lending the space because it

560
00:28:36,560 --> 00:28:40,840
Speaker 3: gets very fatble regulatory treatment. But as we know, you know,

561
00:28:40,880 --> 00:28:43,280
Speaker 3: when people get nervous, you know, the pendulum swings, and

562
00:28:43,360 --> 00:28:45,880
Speaker 3: so you're starting to see banks get nervous and start

563
00:28:45,920 --> 00:28:48,480
Speaker 3: to pull back, whether it's JP Morgan reduce their advanced rates,

564
00:28:49,280 --> 00:28:52,160
Speaker 3: or people started to be more select about who they

565
00:28:52,240 --> 00:28:56,280
Speaker 3: borrow to by either not lending people or by raising rates.

566
00:28:56,320 --> 00:28:58,000
Speaker 3: So the net effect is that it's going to increase

567
00:28:58,040 --> 00:29:01,080
Speaker 3: people's cost of capital, which will make it harder for

568
00:29:01,200 --> 00:29:05,120
Speaker 3: people to invest efficiently. But I do think that if

569
00:29:05,320 --> 00:29:07,520
Speaker 3: if you think about the impact of that as well

570
00:29:07,560 --> 00:29:11,000
Speaker 3: as kind of the response of you know, people pulling

571
00:29:11,080 --> 00:29:13,360
Speaker 3: capital out and people's performance, it's going to create for

572
00:29:13,440 --> 00:29:17,880
Speaker 3: the first time, you know, dispersion people's performance in our space,

573
00:29:17,920 --> 00:29:19,400
Speaker 3: which we haven't seen for a long time, which I

574
00:29:19,440 --> 00:29:22,280
Speaker 3: think will eventually create some kind of shakeout, uh in

575
00:29:22,360 --> 00:29:22,920
Speaker 3: our industry.

576
00:29:23,560 --> 00:29:25,840
Speaker 2: Got it? And then I think you talked about some

577
00:29:25,960 --> 00:29:29,400
Speaker 2: of the you know, the the yields in in the

578
00:29:29,640 --> 00:29:32,560
Speaker 2: A B L space being still still pretty high and

579
00:29:32,840 --> 00:29:35,560
Speaker 2: not so rate dependent. So you know what if we

580
00:29:35,640 --> 00:29:37,560
Speaker 2: do I guess now we're kind of in this muddle,

581
00:29:37,680 --> 00:29:41,840
Speaker 2: you know, rate rate area, given given all the inflation concerns.

582
00:29:41,920 --> 00:29:44,640
Speaker 2: But if if is it an advantage for you if

583
00:29:44,840 --> 00:29:47,840
Speaker 2: rates go down or or go up or stay the

584
00:29:47,920 --> 00:29:49,920
Speaker 2: same or does that really not matter?

585
00:29:50,840 --> 00:29:53,520
Speaker 3: It certainly matters, but it doesn't matter as matters much

586
00:29:53,640 --> 00:29:56,160
Speaker 3: to us as it does to people who are just

587
00:29:56,240 --> 00:29:59,320
Speaker 3: in cashual landing. So it's interesting, you know, our our

588
00:29:59,440 --> 00:30:03,120
Speaker 3: average year and our specially lending strategies somewhere between depending

589
00:30:03,120 --> 00:30:06,800
Speaker 3: on the strategy between eleven and fifteen percent. When rates

590
00:30:06,880 --> 00:30:11,240
Speaker 3: spiked up, we really couldn't move our rates much higher

591
00:30:11,320 --> 00:30:15,240
Speaker 3: because it would probably have hurt many of our counterparties.

592
00:30:15,600 --> 00:30:17,640
Speaker 3: So our rates didn't go up nearly as much as

593
00:30:17,680 --> 00:30:19,920
Speaker 3: people in just pure cash flow. By the same token,

594
00:30:20,560 --> 00:30:24,320
Speaker 3: when rates come down, our yields don't go down as

595
00:30:24,400 --> 00:30:29,120
Speaker 3: much either, because our lenders are more consistently accustomed to

596
00:30:29,160 --> 00:30:32,440
Speaker 3: paying kind of a total return as opposed to a spread,

597
00:30:32,640 --> 00:30:35,680
Speaker 3: and so we're obviously cognizant. We watch it. It will

598
00:30:35,760 --> 00:30:38,040
Speaker 3: impact us, but not as much as others. I'd like

599
00:30:38,080 --> 00:30:39,800
Speaker 3: to go back to one other points you made though,

600
00:30:39,920 --> 00:30:44,560
Speaker 3: back to your comment about banks lending to our vehicles

601
00:30:44,720 --> 00:30:46,480
Speaker 3: and our competitors' vehicles. One thing I would say is

602
00:30:46,520 --> 00:30:49,120
Speaker 3: I think there is I don't want to say hysteria,

603
00:30:49,160 --> 00:30:52,120
Speaker 3: but there's kind of overblown concern about this in terms

604
00:30:52,160 --> 00:30:55,840
Speaker 3: of systemic risk. You know, most people are levered one

605
00:30:55,920 --> 00:30:58,840
Speaker 3: to one, one and a half to one, as opposed

606
00:30:58,880 --> 00:31:01,200
Speaker 3: to you know, banks being ever ten to one, or

607
00:31:01,520 --> 00:31:03,560
Speaker 3: you know, looking back at the GFC when all that

608
00:31:03,560 --> 00:31:07,200
Speaker 3: stuff happens, lever twenty or thirty one. There's form my

609
00:31:07,320 --> 00:31:10,400
Speaker 3: pret I have no concern that banks will lose money

610
00:31:10,520 --> 00:31:12,640
Speaker 3: lending to a private credit fund. In fact, if you

611
00:31:12,680 --> 00:31:15,920
Speaker 3: look historically, no bank has ever lost money lending money

612
00:31:15,960 --> 00:31:18,760
Speaker 3: to a private credit fund or a BDC. You'd be

613
00:31:18,840 --> 00:31:21,640
Speaker 3: hard pressed to find someone who's that bad of an

614
00:31:21,680 --> 00:31:25,920
Speaker 3: investor that's going to lose half of their market value

615
00:31:26,000 --> 00:31:29,680
Speaker 3: or of their loans making senior secured loans. So I,

616
00:31:30,200 --> 00:31:34,000
Speaker 3: you know, throw some caution against people being overly concerned

617
00:31:34,000 --> 00:31:35,520
Speaker 3: about the impact on commercial banks.

618
00:31:35,920 --> 00:31:37,520
Speaker 1: We have seen some big write downs. I mean black

619
00:31:37,560 --> 00:31:39,479
Speaker 1: Rock had a loan that went from one twenty five

620
00:31:39,560 --> 00:31:39,920
Speaker 1: to zero.

621
00:31:40,480 --> 00:31:40,640
Speaker 2: You know.

622
00:31:40,920 --> 00:31:42,800
Speaker 3: So, yeah, but that that hit the equity of the fund,

623
00:31:42,880 --> 00:31:45,120
Speaker 3: not the not the lender to the fund.

624
00:31:45,320 --> 00:31:47,160
Speaker 1: Okay, so you don't think that's going to be a

625
00:31:47,200 --> 00:31:50,360
Speaker 1: big setup to fault. But you did use the word

626
00:31:50,440 --> 00:31:52,760
Speaker 1: shakeout in private credit. What does that mean? Is it

627
00:31:52,920 --> 00:31:56,440
Speaker 1: some companies going bus is it consolidation? What's the shakeout?

628
00:31:56,560 --> 00:31:59,200
Speaker 3: I think the shakeout is going to be that you're

629
00:31:59,200 --> 00:32:01,400
Speaker 3: going to see a despair performance. So you see people

630
00:32:01,440 --> 00:32:04,040
Speaker 3: who still can put up nine to eleven percent net returns,

631
00:32:04,720 --> 00:32:07,520
Speaker 3: and then you can see people who have much more

632
00:32:07,560 --> 00:32:10,960
Speaker 3: defaults than others and have returns that are low single

633
00:32:11,040 --> 00:32:14,000
Speaker 3: digit and once that happens those people who perform that,

634
00:32:14,040 --> 00:32:16,240
Speaker 3: we're going to have a very hard time raising capital

635
00:32:16,320 --> 00:32:17,480
Speaker 3: to continue to be in the business.

636
00:32:17,880 --> 00:32:20,280
Speaker 1: And you don't think this most recent shakeout is going

637
00:32:20,360 --> 00:32:23,480
Speaker 1: to stop completely the retail participation.

638
00:32:24,520 --> 00:32:26,680
Speaker 3: I don't think. I think it'll it'll slow it down

639
00:32:27,480 --> 00:32:28,840
Speaker 3: and put a posit, but I don't think it's going

640
00:32:28,880 --> 00:32:29,240
Speaker 3: to stop it.

641
00:32:29,600 --> 00:32:32,600
Speaker 1: And what needs that then happen to sustain it? Is

642
00:32:32,680 --> 00:32:35,400
Speaker 1: it really just explaining to the retail customer what this

643
00:32:35,520 --> 00:32:36,640
Speaker 1: actually does and how it works.

644
00:32:37,720 --> 00:32:41,640
Speaker 3: I think it's that, and then showing people that as

645
00:32:41,680 --> 00:32:44,880
Speaker 3: we work through this cycle or period of time of uncertainty,

646
00:32:44,960 --> 00:32:47,000
Speaker 3: that most people are going to come out just fine.

647
00:32:47,560 --> 00:32:49,920
Speaker 3: Right now, everyone, Right now, everyone's assuming if you look

648
00:32:49,920 --> 00:32:52,680
Speaker 3: at where the public BDCs are trading, everyone's assuming that

649
00:32:52,800 --> 00:32:55,520
Speaker 3: we're all going to have a wave of defaults. That's

650
00:32:55,600 --> 00:32:57,200
Speaker 3: just not true. It's not gonna happen. There will be

651
00:32:57,240 --> 00:33:00,200
Speaker 3: those who have that, But once we get through kind

652
00:33:00,200 --> 00:33:02,880
Speaker 3: of a six to ninth period and see you know,

653
00:33:03,160 --> 00:33:05,960
Speaker 3: more you know, points in the scoreboard or more results

654
00:33:06,120 --> 00:33:07,880
Speaker 3: and the fact that it's not true, and you see

655
00:33:07,960 --> 00:33:10,240
Speaker 3: hopefully BBC is trading back to where they should be,

656
00:33:10,760 --> 00:33:13,120
Speaker 3: You're gonna see dispersion those who are trading well because

657
00:33:13,120 --> 00:33:15,760
Speaker 3: they're performing, and then those who are trading poorly because

658
00:33:15,760 --> 00:33:16,000
Speaker 3: they're not.

659
00:33:18,600 --> 00:33:22,400
Speaker 2: So Michael, we've had some pundits, you know, talk about, oh,

660
00:33:22,520 --> 00:33:25,440
Speaker 2: this feels like a free financial crisis, you know, if

661
00:33:25,440 --> 00:33:28,000
Speaker 2: people are doing dumb things and stuff like that. So

662
00:33:28,720 --> 00:33:29,720
Speaker 2: what do you have to say to that.

663
00:33:33,920 --> 00:33:37,640
Speaker 3: I look, having lived through that crisis and others, I

664
00:33:37,680 --> 00:33:40,760
Speaker 3: don't think this is anything like that. We don't have

665
00:33:40,840 --> 00:33:45,720
Speaker 3: systemic risk. We do have, you know, a situation where

666
00:33:46,200 --> 00:33:49,200
Speaker 3: the acid classes exploded, and so people will put out

667
00:33:49,320 --> 00:33:54,120
Speaker 3: a lot of money at lower yields with worse structures,

668
00:33:54,600 --> 00:33:57,480
Speaker 3: and that's going to have an impact, But I don't

669
00:33:57,520 --> 00:34:01,080
Speaker 3: think it's gonna be anywhere near we experienced back then.

670
00:34:02,000 --> 00:34:03,640
Speaker 3: I think you're going to have you know, a few

671
00:34:03,760 --> 00:34:08,000
Speaker 3: funds or BDC's do really poorly, and you gona most

672
00:34:08,000 --> 00:34:10,319
Speaker 3: of them to do just fine, and you're not going

673
00:34:10,400 --> 00:34:13,440
Speaker 3: to see you know, capital structures within these credit funds

674
00:34:13,480 --> 00:34:16,640
Speaker 3: blow up and creating issues for the banks or any

675
00:34:16,880 --> 00:34:18,240
Speaker 3: other lenders to these entities.

676
00:34:18,960 --> 00:34:20,279
Speaker 1: How high does the default rate go?

677
00:34:21,680 --> 00:34:24,640
Speaker 3: You know, it could go you know, five to seven percent. Okay,

678
00:34:24,840 --> 00:34:27,399
Speaker 3: that's that's just a Michael Gross guest, and I think

679
00:34:27,440 --> 00:34:30,040
Speaker 3: it'll vary. I think you'll have all those who will

680
00:34:30,040 --> 00:34:33,000
Speaker 3: be at one or two percent, and you'll you'll have

681
00:34:33,120 --> 00:34:34,520
Speaker 3: those at ten to fifteen percent.

682
00:34:35,200 --> 00:34:40,280
Speaker 1: We've seen forecasts as high as fifteen percent tween software

683
00:34:40,560 --> 00:34:40,920
Speaker 1: doing that.

684
00:34:41,400 --> 00:34:43,560
Speaker 3: I think I think software could be that high, right,

685
00:34:43,880 --> 00:34:46,239
Speaker 3: I think it's definitely possible. Right, Look, I think you

686
00:34:46,320 --> 00:34:48,520
Speaker 3: know we have we I believe we have other two

687
00:34:48,600 --> 00:34:52,719
Speaker 3: percent software have. We have three loans and you know, interestingly,

688
00:34:53,239 --> 00:34:56,959
Speaker 3: one of them approached us and said, you know, would

689
00:34:57,000 --> 00:35:01,520
Speaker 3: you like to you know, amend and extend for a

690
00:35:01,560 --> 00:35:04,480
Speaker 3: few years and they're gonna offer additional pricing. And this

691
00:35:04,560 --> 00:35:07,120
Speaker 3: company is doing just fine. It's doing fine, it has

692
00:35:07,200 --> 00:35:11,080
Speaker 3: cash flows, ebit dot's media's requirements. And my co founder,

693
00:35:11,120 --> 00:35:13,560
Speaker 3: Bruce and I spoke to the investment team. We said,

694
00:35:13,880 --> 00:35:17,279
Speaker 3: we hear it's doing great, but frankly, you couldn't pay

695
00:35:17,360 --> 00:35:20,600
Speaker 3: us enough to stay in Why Because the upside is

696
00:35:21,200 --> 00:35:23,200
Speaker 3: it does fine and we get a coupon back and

697
00:35:23,280 --> 00:35:25,680
Speaker 3: we get called out early because it's doing better. The

698
00:35:25,760 --> 00:35:28,640
Speaker 3: downside is AI hurts it and we're gonna lose a

699
00:35:28,640 --> 00:35:31,840
Speaker 3: lot of money. And so because we're credit investors and

700
00:35:31,920 --> 00:35:34,840
Speaker 3: we don't really get paid to take risk. Our response

701
00:35:35,000 --> 00:35:36,440
Speaker 3: was very easy, which is no.

702
00:35:38,280 --> 00:35:40,680
Speaker 1: The asset based finance that you're talking about, that is

703
00:35:40,760 --> 00:35:42,480
Speaker 1: something that a lot of people have been looking at,

704
00:35:42,560 --> 00:35:47,120
Speaker 1: including your former friends at Apollo, and everyone's talking about

705
00:35:47,120 --> 00:35:50,840
Speaker 1: it as a pertenty of forty trillion dollar opportunity. But

706
00:35:51,239 --> 00:35:53,279
Speaker 1: you're competing against some pretty big guys. I'm wondering how

707
00:35:53,360 --> 00:35:55,800
Speaker 1: you how you come up against them, whether being small

708
00:35:56,160 --> 00:35:59,040
Speaker 1: is an advantage to you, or you know, do you

709
00:35:59,160 --> 00:36:00,600
Speaker 1: need to scale up to to do best.

710
00:36:00,640 --> 00:36:03,560
Speaker 3: So it's a great question, and so we've been doing

711
00:36:03,560 --> 00:36:06,680
Speaker 3: asset based online since two thousand and nine. People have

712
00:36:06,760 --> 00:36:08,680
Speaker 3: been talking about getting it asked bas any for the

713
00:36:08,760 --> 00:36:11,520
Speaker 3: last two or three years, and it's primarily coming from

714
00:36:11,680 --> 00:36:15,879
Speaker 3: the large guys like Apollo and Blackstone and KKR. Why

715
00:36:16,000 --> 00:36:18,799
Speaker 3: because the parts of ABL that they're focused on are

716
00:36:18,880 --> 00:36:22,359
Speaker 3: incredibly scalable. They're not doing what we're doing. What they're

717
00:36:22,440 --> 00:36:27,000
Speaker 3: doing is they're buying abs asset based securities. They're buying

718
00:36:27,040 --> 00:36:31,680
Speaker 3: portfolios of consumer based loans, primarily whether it's credit card recieables,

719
00:36:32,719 --> 00:36:36,760
Speaker 3: student loan receiables, car loans, or mortgages. These are loans

720
00:36:36,800 --> 00:36:39,319
Speaker 3: that are not originated by them. They originally buy third

721
00:36:39,360 --> 00:36:42,520
Speaker 3: parties and repackaged and sold to them, which can be

722
00:36:42,560 --> 00:36:44,920
Speaker 3: a great business, but it's not what we do. We

723
00:36:45,000 --> 00:36:47,880
Speaker 3: don't see any of those guys in our business. So

724
00:36:48,040 --> 00:36:51,920
Speaker 3: this is a situation actually where being smaller and nimble

725
00:36:52,640 --> 00:36:55,440
Speaker 3: is actually highly valuable, valuable. These businesses that we're in

726
00:36:55,680 --> 00:36:59,560
Speaker 3: are incredibly difficult to scale. They take a lot of people.

727
00:37:00,280 --> 00:37:02,759
Speaker 3: But for us at thirteen or fourteen billion, they're very

728
00:37:02,880 --> 00:37:06,000
Speaker 3: meaningful to us. But for an apollo to go after

729
00:37:06,280 --> 00:37:09,320
Speaker 3: a factoring business where we have a billion our portfolio,

730
00:37:09,360 --> 00:37:11,400
Speaker 3: I find a number a portfolio, it's not worth it

731
00:37:11,440 --> 00:37:13,919
Speaker 3: to them. So we don't see them as competition. They're

732
00:37:13,920 --> 00:37:16,920
Speaker 3: not putting pressures on our yields, and we don't really

733
00:37:16,960 --> 00:37:18,440
Speaker 3: see them in all in our businesses.

734
00:37:18,280 --> 00:37:19,759
Speaker 1: And they're not likely to come for you. I mean

735
00:37:19,840 --> 00:37:22,480
Speaker 1: that they when we talk about, you know, what it

736
00:37:22,560 --> 00:37:24,640
Speaker 1: takes to be successful in this business, they always say, well,

737
00:37:24,760 --> 00:37:27,680
Speaker 1: scales number one. You just still think you'll protect it

738
00:37:27,680 --> 00:37:30,160
Speaker 1: because what you're doing is too much of a need.

739
00:37:30,320 --> 00:37:32,360
Speaker 3: Yeah, I think you know. I touched it earlier in

740
00:37:32,400 --> 00:37:36,480
Speaker 3: our conversation about complexity. These are businesses that carry complexity premium,

741
00:37:37,400 --> 00:37:39,839
Speaker 3: and it's not something you can wake up and say,

742
00:37:39,920 --> 00:37:41,400
Speaker 3: I want to be in business today. You have to

743
00:37:41,440 --> 00:37:44,280
Speaker 3: have the infrastructure and teams that can actually go evaluate

744
00:37:44,320 --> 00:37:47,200
Speaker 3: that collateral and protect it. And so no, I don't.

745
00:37:47,200 --> 00:37:49,840
Speaker 3: I'm not concerned about that. I actually think that we

746
00:37:49,960 --> 00:37:54,640
Speaker 3: actually we're in a day and age where there's actually

747
00:37:54,640 --> 00:37:57,440
Speaker 3: some dis economies of scale. Scale is definitely important. You

748
00:37:57,480 --> 00:37:59,799
Speaker 3: need to be able to track the right and best professionals,

749
00:38:00,520 --> 00:38:04,160
Speaker 3: the right cost of capital leverage from your borrowers. But

750
00:38:04,280 --> 00:38:06,680
Speaker 3: scale could also be a detriment. And that detriment is

751
00:38:06,719 --> 00:38:10,040
Speaker 3: if you become too big, you become the market and

752
00:38:10,160 --> 00:38:12,719
Speaker 3: you have to chase opportunities that may not be the

753
00:38:12,760 --> 00:38:14,600
Speaker 3: best investment opportunities.

754
00:38:14,400 --> 00:38:16,719
Speaker 1: When you use the receivables. A lot of people do

755
00:38:16,800 --> 00:38:19,520
Speaker 1: think of trade. Trade has been very difficult because of

756
00:38:20,239 --> 00:38:24,360
Speaker 1: the policy, particularly in this country. How are you navigating that?

757
00:38:24,400 --> 00:38:25,600
Speaker 1: How does it affect your business?

758
00:38:25,800 --> 00:38:30,040
Speaker 3: So ninety five percent receivables are domestic receivables. Okay, So

759
00:38:30,120 --> 00:38:32,759
Speaker 3: these are again companies that have either produced something domestically

760
00:38:33,000 --> 00:38:36,279
Speaker 3: or provided a service domestically, and the people they're selling

761
00:38:36,320 --> 00:38:37,400
Speaker 3: to our domestic companies.

762
00:38:38,400 --> 00:38:41,759
Speaker 2: So you talked about you know, the the the current

763
00:38:41,880 --> 00:38:44,200
Speaker 2: zero amount of crules. But I guess as a credit guide,

764
00:38:44,280 --> 00:38:46,279
Speaker 2: I don't think. I didn't think I mentioned this today,

765
00:38:46,320 --> 00:38:49,200
Speaker 2: but like are you being too conservative? Like, well, what's

766
00:38:49,239 --> 00:38:50,160
Speaker 2: the right target? Right?

767
00:38:50,200 --> 00:38:50,560
Speaker 3: Like what are you?

768
00:38:50,640 --> 00:38:53,160
Speaker 2: Are you missing some right? Like are you are you

769
00:38:53,360 --> 00:38:54,320
Speaker 2: taking too many balls?

770
00:38:54,400 --> 00:38:54,480
Speaker 3: Right?

771
00:38:54,560 --> 00:38:56,640
Speaker 2: And then you're not, you know, taking enough swings? Are

772
00:38:56,719 --> 00:38:57,919
Speaker 2: you that great?

773
00:38:57,960 --> 00:39:01,279
Speaker 3: Questions? Again, We're definitely not perfect. We have had not

774
00:39:01,360 --> 00:39:04,680
Speaker 3: accruals in the past. We will have them again, as

775
00:39:04,719 --> 00:39:08,600
Speaker 3: painful as they are. But you know, I'm glad to

776
00:39:08,600 --> 00:39:12,080
Speaker 3: ask that question because I actually think in credit, especially

777
00:39:12,120 --> 00:39:15,120
Speaker 3: if you're not focused on growth for growth's sake, there's

778
00:39:15,160 --> 00:39:17,960
Speaker 3: no such thing as being too conservative. One of the

779
00:39:18,040 --> 00:39:20,719
Speaker 3: things I learned when I transitioned from private equity to

780
00:39:20,719 --> 00:39:25,480
Speaker 3: Apollo to private credit Apollo creating their BBC AI and

781
00:39:25,560 --> 00:39:29,560
Speaker 3: v A Paul Investment Corp. Was that when you're private

782
00:39:29,600 --> 00:39:33,520
Speaker 3: equity investor, you can be right three courts of time

783
00:39:34,160 --> 00:39:36,480
Speaker 3: because you're forty percent return deals with offset your losses.

784
00:39:37,200 --> 00:39:39,000
Speaker 3: In credit, what I quickly learned when it made the

785
00:39:39,040 --> 00:39:41,200
Speaker 3: transition is you have to write nine nine point nine

786
00:39:41,200 --> 00:39:44,560
Speaker 3: percent of the time because you don't have any upside

787
00:39:44,560 --> 00:39:47,400
Speaker 3: of equity to offset your losses. And so from our perspective,

788
00:39:47,440 --> 00:39:49,200
Speaker 3: and this has been the culture of SLR from day one.

789
00:39:49,600 --> 00:39:52,799
Speaker 3: As I mentioned earlier, we act as principles, we only

790
00:39:52,960 --> 00:39:55,960
Speaker 3: vessel loans, are willing to own ourselves. And we've realized

791
00:39:56,000 --> 00:39:59,680
Speaker 3: that our return profiles asymmetrical. And what I mean by

792
00:39:59,719 --> 00:40:02,360
Speaker 3: that is is because we have very little call protection.

793
00:40:02,520 --> 00:40:04,879
Speaker 3: The good loans get taken out within two or three

794
00:40:04,920 --> 00:40:07,160
Speaker 3: years because either get repriced or the company gets sold.

795
00:40:07,640 --> 00:40:09,759
Speaker 3: And the bad loans you wish you never made. And

796
00:40:09,840 --> 00:40:12,000
Speaker 3: so in a business where the only thing you get

797
00:40:12,640 --> 00:40:15,920
Speaker 3: is your coupon and maybe a little some fees, we're

798
00:40:16,000 --> 00:40:18,160
Speaker 3: not paid to take risk. And so our culture is

799
00:40:18,280 --> 00:40:22,319
Speaker 3: that when we see hair on anything, we say, now,

800
00:40:22,400 --> 00:40:25,040
Speaker 3: now have we missed out on opportunities, especially in this

801
00:40:25,080 --> 00:40:27,360
Speaker 3: benign credit environment. Could we have grown much faster than

802
00:40:27,400 --> 00:40:31,200
Speaker 3: we have Absolutely, would we have been able to sleep

803
00:40:31,200 --> 00:40:33,360
Speaker 3: at night? Probably not got it.

804
00:40:33,560 --> 00:40:37,840
Speaker 2: And talk about these asymmetric returns, I think this AI

805
00:40:37,960 --> 00:40:40,319
Speaker 2: boom and the funding of that, I think we've heard

806
00:40:40,400 --> 00:40:43,000
Speaker 2: like Kyle Mark's talk about that maybe that's more of

807
00:40:43,040 --> 00:40:45,640
Speaker 2: an equity play versus you know, all the deafinitcy needed

808
00:40:45,719 --> 00:40:48,560
Speaker 2: for that. So what are you guys involved with some

809
00:40:48,640 --> 00:40:52,719
Speaker 2: of the AI CAPECS build out or is that you know,

810
00:40:53,000 --> 00:40:55,080
Speaker 2: an asymmetric return that you talk about.

811
00:40:55,360 --> 00:40:58,040
Speaker 3: Look, we're not involved in that. I think if you

812
00:40:58,080 --> 00:41:00,520
Speaker 3: want to play kind of AI, I think you kind

813
00:41:00,520 --> 00:41:01,680
Speaker 3: of want to play on the equity side.

814
00:41:02,800 --> 00:41:06,000
Speaker 1: Got it mentioned your long history and private credit, you know,

815
00:41:06,080 --> 00:41:08,200
Speaker 1: going back all the way to Apollo two thousand and six.

816
00:41:09,600 --> 00:41:11,799
Speaker 1: You know, it's really taken off over the last few years.

817
00:41:11,840 --> 00:41:13,960
Speaker 1: People are talking about it a lot more. When I

818
00:41:14,000 --> 00:41:15,440
Speaker 1: talked to private credit people that have been doing this

819
00:41:15,440 --> 00:41:17,160
Speaker 1: a long time, there was kind of laughing about how

820
00:41:17,400 --> 00:41:18,759
Speaker 1: used to be the boring guys and no one wants

821
00:41:18,760 --> 00:41:20,600
Speaker 1: to talk to in the back room, and now everyone

822
00:41:20,640 --> 00:41:22,560
Speaker 1: wants to put us on the stage. I'm wondering from

823
00:41:22,560 --> 00:41:25,400
Speaker 1: your perspective that where are we in the evolution of

824
00:41:25,480 --> 00:41:28,120
Speaker 1: private credit and where do we go from here?

825
00:41:29,000 --> 00:41:30,840
Speaker 3: Look, I still think we're you know, to use a

826
00:41:30,880 --> 00:41:34,120
Speaker 3: baseball analogy in the fifth inning, we have a long

827
00:41:34,160 --> 00:41:35,560
Speaker 3: way to go and this could be an extra inning

828
00:41:35,640 --> 00:41:39,359
Speaker 3: game the asset class. To your point, you know, five

829
00:41:39,440 --> 00:41:41,919
Speaker 3: years ago, no one really talked about it wasn't something

830
00:41:42,040 --> 00:41:44,239
Speaker 3: people wanted to do. Now everyone in three, wants to

831
00:41:44,280 --> 00:41:46,359
Speaker 3: do it, wants to invest in it. We still see

832
00:41:46,640 --> 00:41:51,320
Speaker 3: tremendous interest from the institutional community in the acid class

833
00:41:51,440 --> 00:41:53,279
Speaker 3: and the desire to put more capital work and hit

834
00:41:53,320 --> 00:41:57,160
Speaker 3: their allocations, but we are seeing from them is a

835
00:41:57,239 --> 00:42:01,239
Speaker 3: more discerning way to do it. Five years ago, when

836
00:42:01,239 --> 00:42:03,880
Speaker 3: we talked to institution investors, whether it's pension funds or endowments,

837
00:42:04,040 --> 00:42:07,200
Speaker 3: and we talked about our multi strategy approach and asset

838
00:42:07,200 --> 00:42:10,160
Speaker 3: based lending and life science lending and factoring and reciables,

839
00:42:10,600 --> 00:42:13,399
Speaker 3: their eyes would glaze over. Why because they weren't quite

840
00:42:13,480 --> 00:42:16,640
Speaker 3: ready to focus on more esoteric parts of private credit.

841
00:42:16,680 --> 00:42:20,160
Speaker 3: They were going with the plain vanilla cashule lending that

842
00:42:20,280 --> 00:42:21,880
Speaker 3: was available and it was a good time to do it.

843
00:42:22,520 --> 00:42:26,000
Speaker 3: Now we talked investors, it's a much different scenario. They say,

844
00:42:26,120 --> 00:42:29,080
Speaker 3: we have plenty of exposure to traditional private credit. We

845
00:42:29,160 --> 00:42:31,680
Speaker 3: actually have a tremendous amount of overlap amongst our different

846
00:42:32,120 --> 00:42:34,160
Speaker 3: people we invest with because they own the same loans,

847
00:42:34,640 --> 00:42:37,440
Speaker 3: and we need to get smarter about other parts of

848
00:42:37,480 --> 00:42:39,160
Speaker 3: private credit that we can grow into. And so I

849
00:42:39,200 --> 00:42:40,680
Speaker 3: think we're going to see a lot of growth into

850
00:42:40,719 --> 00:42:41,560
Speaker 3: those areas.

851
00:42:41,600 --> 00:42:44,560
Speaker 1: In terms of hard asset yeah credit yeah, and there's

852
00:42:44,600 --> 00:42:47,120
Speaker 1: not a sort of contagion across from direct lending right

853
00:42:47,160 --> 00:42:49,120
Speaker 1: now when you go and talk to potential investors about,

854
00:42:49,520 --> 00:42:51,759
Speaker 1: oh no, these headlines, all this stuff I'm seeing and

855
00:42:52,160 --> 00:42:53,960
Speaker 1: so you took a swipe at the media earlier.

856
00:42:54,000 --> 00:42:54,920
Speaker 3: But that's fine.

857
00:42:56,040 --> 00:42:58,960
Speaker 1: But the jellyfish that cut credit is all this stuff

858
00:42:59,080 --> 00:43:01,839
Speaker 1: that is freaking everybody out. Do they not just say, well,

859
00:43:01,920 --> 00:43:03,440
Speaker 1: you know, forget about I just want to say in

860
00:43:03,880 --> 00:43:05,680
Speaker 1: you know, four and a half percent t bill, which

861
00:43:05,719 --> 00:43:06,160
Speaker 1: is you know.

862
00:43:06,520 --> 00:43:09,920
Speaker 3: They don't say that, But they're also a lot more careful.

863
00:43:10,760 --> 00:43:14,200
Speaker 3: The amount of scrutiny that we've seen because of things

864
00:43:14,239 --> 00:43:16,640
Speaker 3: like First Brands and Tricolor. The amount of we have

865
00:43:16,719 --> 00:43:19,560
Speaker 3: to spend with existing bestors have bidows for a long time,

866
00:43:19,680 --> 00:43:21,640
Speaker 3: kind of re educating them that this is not what

867
00:43:21,760 --> 00:43:23,839
Speaker 3: we do and therefore you don't need to worry about

868
00:43:23,880 --> 00:43:26,920
Speaker 3: it with us is a lot. But that's time well

869
00:43:26,920 --> 00:43:29,080
Speaker 3: invested on our behalf, because we need to show people

870
00:43:29,160 --> 00:43:31,600
Speaker 3: that we are different and that there's a different way

871
00:43:31,640 --> 00:43:33,880
Speaker 3: to play private credit than people have historically.

872
00:43:33,680 --> 00:43:35,880
Speaker 1: Which is kind of a good thing, right, I mean,

873
00:43:35,920 --> 00:43:38,480
Speaker 1: it's a you know, sign that this market is growing up.

874
00:43:38,800 --> 00:43:41,200
Speaker 3: Yeah, it is I mean, you've you've come through a

875
00:43:41,239 --> 00:43:44,440
Speaker 3: period of astronomical growth, and as an Indian industry, you know,

876
00:43:44,480 --> 00:43:48,239
Speaker 3: that becomes growing pains for potentially growing too fast, and

877
00:43:48,360 --> 00:43:51,000
Speaker 3: then there're typically is a shakeout that takes place where

878
00:43:51,360 --> 00:43:54,440
Speaker 3: you know, certain people who were too aggressive and did,

879
00:43:54,680 --> 00:43:57,239
Speaker 3: to your earlier comment, dumb things during that period of time.

880
00:43:57,760 --> 00:43:58,719
Speaker 3: Well we'll pay the price.

881
00:43:59,320 --> 00:44:01,480
Speaker 1: Michael. What what else is on your radiar to worry about?

882
00:44:01,480 --> 00:44:02,840
Speaker 1: I mean, there is there is a lot going on,

883
00:44:04,000 --> 00:44:06,160
Speaker 1: but you seem pretty pretty chilled out. So what's the

884
00:44:06,640 --> 00:44:07,440
Speaker 1: what's the outlet for you?

885
00:44:07,840 --> 00:44:11,640
Speaker 3: Look? I think you know, as credit investors, we always worry.

886
00:44:12,600 --> 00:44:14,600
Speaker 3: You know, while we don't have a many things that

887
00:44:14,640 --> 00:44:20,279
Speaker 3: are watched list, we watch our portfolio extremely carefully. You know.

888
00:44:20,360 --> 00:44:23,360
Speaker 3: I I share your concerns about, you know, the banks.

889
00:44:23,400 --> 00:44:26,680
Speaker 3: I think we are going to see them pull back,

890
00:44:27,360 --> 00:44:31,080
Speaker 3: not just from a pricing perspective, but in terms of

891
00:44:31,360 --> 00:44:35,080
Speaker 3: access to capital for you know, people like ourselves. That's

892
00:44:35,120 --> 00:44:37,960
Speaker 3: how the pendulum swings. And so I think, unfortunately, you know,

893
00:44:38,040 --> 00:44:41,239
Speaker 3: we're going to see the impact of other people's you know,

894
00:44:41,640 --> 00:44:45,440
Speaker 3: bad performance on those who actually perform well, and that

895
00:44:45,560 --> 00:44:50,200
Speaker 3: will you know, cause some slow down in in being

896
00:44:50,200 --> 00:44:52,839
Speaker 3: able to deploy capital. The other thing, just to echo

897
00:44:52,920 --> 00:44:55,080
Speaker 3: on your your comments earlier too, is I think you know,

898
00:44:55,160 --> 00:44:57,160
Speaker 3: this was also supposed to be a big year for

899
00:44:57,320 --> 00:45:00,960
Speaker 3: PE exits. You know, if if the if the leverage

900
00:45:00,960 --> 00:45:03,760
Speaker 3: loan market in the private credit market, you know around

901
00:45:03,880 --> 00:45:09,120
Speaker 3: pause and spreads widen, that's gonna slow down. And there's

902
00:45:09,200 --> 00:45:12,799
Speaker 3: been you know, real concerns amongst the investors because there's

903
00:45:12,840 --> 00:45:15,760
Speaker 3: been a real lack of liquidity for them for several

904
00:45:15,840 --> 00:45:18,360
Speaker 3: years now. And that will also have an impact on

905
00:45:18,560 --> 00:45:21,040
Speaker 3: private credit because those same people who are investing in

906
00:45:21,080 --> 00:45:24,000
Speaker 3: private equity are investing in private credit, so that it's

907
00:45:24,000 --> 00:45:25,719
Speaker 3: all it's all related, and.

908
00:45:25,760 --> 00:45:27,879
Speaker 1: We could see more frauds potentially. When you talked about

909
00:45:27,920 --> 00:45:30,799
Speaker 1: treacy lore and some first gramds, you.

910
00:45:30,840 --> 00:45:33,920
Speaker 3: Know, look, I don't think that's necessarily a pattern. I

911
00:45:33,960 --> 00:45:37,600
Speaker 3: think those are all isolated incidents and they're gonna you're

912
00:45:37,600 --> 00:45:39,319
Speaker 3: gonna see you one or two year here and there.

913
00:45:39,600 --> 00:45:43,759
Speaker 1: Yeah, Okay, to close it up. Then it's looking like

914
00:45:44,239 --> 00:45:47,000
Speaker 1: you're going to ride through this latest storm and we're

915
00:45:47,040 --> 00:45:48,560
Speaker 1: gonna see the light on the other side.

916
00:45:48,960 --> 00:45:51,799
Speaker 3: Yeah. Look, I think we're fortunate we have a lot

917
00:45:51,840 --> 00:45:54,040
Speaker 3: of liquidity in our across all our balance sheets. We

918
00:45:54,120 --> 00:45:56,320
Speaker 3: have a lot of capital to invest. We're not dependent

919
00:45:56,440 --> 00:46:00,919
Speaker 3: upon raising third party capital or barring much more additional money.

920
00:46:01,400 --> 00:46:02,880
Speaker 3: So we kind of look at this is as long

921
00:46:02,920 --> 00:46:05,279
Speaker 3: as our portfolio is healthy, which it is to warts

922
00:46:05,320 --> 00:46:10,920
Speaker 3: its investment opportunity. This volatility creates more opportunity for ourselves,

923
00:46:11,680 --> 00:46:15,239
Speaker 3: and we'll deploy our capital on a very efficient and

924
00:46:15,400 --> 00:46:17,080
Speaker 3: conservative basis as we see opportunity.

925
00:46:17,440 --> 00:46:19,040
Speaker 1: And I think, as we said earlier, sort of pitch

926
00:46:19,120 --> 00:46:24,040
Speaker 1: yourself as a software light BBC. How's that pitch going.

927
00:46:24,080 --> 00:46:25,080
Speaker 1: Are you getting a lot of calls?

928
00:46:25,840 --> 00:46:27,319
Speaker 3: Yeah, were getting a fair amount of calls. I think

929
00:46:27,320 --> 00:46:30,680
Speaker 3: people kind of appreciate that we were discerning going into this,

930
00:46:33,280 --> 00:46:37,400
Speaker 3: but you know, everyone, everyone's concerned about it. Great stuff.

931
00:46:37,440 --> 00:46:40,080
Speaker 1: Michael Gross, co founder of WESLR Capital Partners, It's been

932
00:46:40,120 --> 00:46:41,759
Speaker 1: a real pleasure having you on the Credit Edge Money.

933
00:46:41,760 --> 00:46:43,200
Speaker 3: Thanks thanks for having me appreciate it.

934
00:46:43,480 --> 00:46:45,560
Speaker 1: And to annal Cocuda with Bloomberg Intelligence, thank you so

935
00:46:45,680 --> 00:46:46,600
Speaker 1: much for joining us today.

936
00:46:47,280 --> 00:46:49,920
Speaker 2: Always happy to join for more analysis.

937
00:46:49,960 --> 00:46:52,120
Speaker 1: Read all of Ernold's great work on the Bloomberg terminal.

938
00:46:52,160 --> 00:46:54,960
Speaker 1: Bloomberg Intelligence is part of our research department with five

939
00:46:55,080 --> 00:46:58,440
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940
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941
00:47:00,760 --> 00:47:04,799
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942
00:47:05,320 --> 00:47:07,520
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943
00:47:07,560 --> 00:47:10,480
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944
00:47:10,520 --> 00:47:14,359
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945
00:47:14,440 --> 00:47:17,480
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946
00:47:17,560 --> 00:47:21,279
Speaker 1: at jcrombieight at Bloomberg dot net. I'm James Crombie. It's

947
00:47:21,280 --> 00:47:22,719
Speaker 1: been a pleasure. Haven't you joined us again?

948
00:47:22,920 --> 00:47:24,399
Speaker 3: Next week on Credit Edge