WEBVTT - Private Lender Arcmont Says High Returns Here to Stay 0:00:18.200 --> 0:00:20.880 Hello, and welcome to The Credit Edge, a weekly markets podcast. 0:00:21.120 --> 0:00:23.599 My name is James Crombie. I'm a senior editor at Bloomberg. 0:00:24.000 --> 0:00:27.080 This week, we're very pleased to welcome Mattis Potter, co 0:00:27.200 --> 0:00:29.760 Chief investment Officer at Artmont Asset Management. How are you, 0:00:29.800 --> 0:00:31.000 Mattis very good? 0:00:31.080 --> 0:00:32.800 Thanks James, thanks for having me on the show. 0:00:33.080 --> 0:00:34.600 Thank you so much for joining us today. We're very 0:00:34.600 --> 0:00:38.000 excited to dig into your credit market views. Also delighted 0:00:38.000 --> 0:00:41.000 to see Cat Hidalgo with Bloomberg News. Welcome Cat, Thanks 0:00:41.040 --> 0:00:43.519 so much for having me. James and Rob Schiffman with 0:00:43.560 --> 0:00:45.120 Bloomberg Intelligence. Great to see you again. 0:00:45.200 --> 0:00:46.320 Rob stoked to be here. 0:00:46.720 --> 0:00:49.320 So we're here to talk about private credit, the hottest 0:00:49.320 --> 0:00:51.960 trade on Wall Street. We've seen staggering growth over the 0:00:52.040 --> 0:00:54.800 last few years, and private credits now a one point 0:00:54.920 --> 0:00:59.840 seven trillion dollar market, biggest deal, biggest fundraising, titus pricing 0:00:59.840 --> 0:01:02.480 among some of the superlatives we racked up over the 0:01:02.560 --> 0:01:05.720 last few years, and every day we see more exciting headlines. 0:01:06.120 --> 0:01:09.039 At the same time, though, there's growing concern about private 0:01:09.040 --> 0:01:12.600 credit risk as interest rates stay high for longer and 0:01:12.640 --> 0:01:15.479 the economy slows, putting pressure on companies with a lot 0:01:15.520 --> 0:01:19.119 of debt. We're seeing more borrowers having to pay in kind, 0:01:19.520 --> 0:01:21.760 which means that they are using more debt instead of 0:01:21.800 --> 0:01:25.039 cash to cover interest payments. We're also seeing more amendments 0:01:25.080 --> 0:01:29.480 and extensions to existing deals. That's often a sign of stress. Meanwhile, 0:01:29.520 --> 0:01:33.920 tighter spreads imply lower returns. Fundraising is getting tougher. There's 0:01:33.920 --> 0:01:35.839 not enough deals for all the funds that have already 0:01:35.840 --> 0:01:38.000 been raised, and investors are having to reach for a 0:01:38.000 --> 0:01:41.560 bit of yield. Plus, there are signs of creditor on 0:01:41.640 --> 0:01:46.280 creditor violence and fears that new, less experienced money so 0:01:46.400 --> 0:01:49.240 called private debt tourists, could be running into trouble here. 0:01:49.560 --> 0:01:52.000 Red flags being raised by the likes of Jamie Diamond, 0:01:52.200 --> 0:01:55.840 the IMF, and PIMCO. Some say the Golden Ages over 0:01:56.040 --> 0:01:59.200 not very long after it started. What's your take, mattis 0:01:59.360 --> 0:02:02.080 is it the beginning, the end or people worrying too much? 0:02:02.320 --> 0:02:04.440 Yeah, Look, it's a very interesting topic. It's a very 0:02:04.440 --> 0:02:08.959 interesting debate. Looking at private credit and recent growth, I 0:02:09.000 --> 0:02:13.320 would say private credit in Europe has been growing consistently 0:02:13.840 --> 0:02:16.440 for a decade plus. We were fortunate to be one 0:02:16.480 --> 0:02:19.239 of the first ones to start the industry after the GFC. 0:02:19.960 --> 0:02:22.800 We started with a one billion fund more than twelve 0:02:22.919 --> 0:02:26.559 years ago and we are now ten times plus that size. 0:02:26.880 --> 0:02:31.040 I how I view the private credit growth as consistent 0:02:31.120 --> 0:02:37.519 growth over many many years. Fundraising. Industry growth was very 0:02:37.639 --> 0:02:40.360 very strong, I'd say more in terms of twenty twenty one, 0:02:40.520 --> 0:02:44.760 early twenty two and frankly over the last eighteen twenty 0:02:44.800 --> 0:02:47.680 four months it was very bifurcated. Were the likes of 0:02:47.720 --> 0:02:51.040 the largest asset managers in the space, with a special 0:02:51.320 --> 0:02:54.600 focus on what they do with a clear differentiation, had 0:02:54.639 --> 0:02:57.720 an easy time fundraising because we're generating very high yet 0:02:57.800 --> 0:03:00.520 for firstly in credit, but a lot of the rest 0:03:00.520 --> 0:03:03.360 of the market frankly did not, So I would actually 0:03:03.440 --> 0:03:05.919 not say that in the last twelve of eighteen twenty 0:03:06.000 --> 0:03:09.560 four months was the fastest growth for the industry in 0:03:09.639 --> 0:03:13.600 terms of fund raising, But the US picture may be 0:03:13.639 --> 0:03:16.560 slightly different. There's different sources that you can raise from 0:03:16.560 --> 0:03:19.920 in terms of wealth bdcsent the likes. Europe is an 0:03:20.200 --> 0:03:24.480 almost fully institutional backed market where investors allocate to private 0:03:24.520 --> 0:03:28.320 debt consistently and they increasing their allocations as right, and 0:03:28.360 --> 0:03:30.959 we're growing very well, but it is not that they're 0:03:31.040 --> 0:03:34.600 jumping into private debt and then straight back out. I wouldn't. 0:03:34.639 --> 0:03:36.760 I wouldn't call the last eighteen to twenty four months 0:03:36.760 --> 0:03:41.760 a huge growth in our European private credit space. 0:03:41.920 --> 0:03:45.640 Hey Madison, I've got some big picture macro questions for you, 0:03:45.720 --> 0:03:48.880 But just in terms of background, I'm Robie Schiffman. I'm 0:03:48.880 --> 0:03:52.800 a team leader and a technology credit analyst for Bloomberg Intelligence, 0:03:52.880 --> 0:03:56.680 which is Bloomberg's research department, and we've got a ton 0:03:56.680 --> 0:03:59.320 of analysts, five hundred analysts and strategists for covering all 0:03:59.360 --> 0:04:04.080 major markets, over two thousand equities and credits across ninety industry. 0:04:04.080 --> 0:04:06.440 So having a chance to talk to you about credit 0:04:06.560 --> 0:04:10.920 risks and rewards is really a true pleasure if we 0:04:11.000 --> 0:04:14.000 could just start off, maybe with your big picture and 0:04:14.120 --> 0:04:17.280 dig deeper into your bottoms before we dig deeper into 0:04:17.320 --> 0:04:19.640 the bottoms of value. View, this is a credit world 0:04:19.680 --> 0:04:22.400 that feels like a little bit of a Goldilocks story. 0:04:23.080 --> 0:04:25.760 So I'm wondering where you are in terms of the 0:04:25.760 --> 0:04:30.919 investment cycle, direction of rates and opportunities across geographic areas. 0:04:31.160 --> 0:04:33.800 Look, I think James and I talked about it last 0:04:33.800 --> 0:04:35.960 week in terms of how we're wired, what we do 0:04:36.440 --> 0:04:40.039 and how we invest. I must say we are very 0:04:40.839 --> 0:04:43.159 you want to call it boring or consistent shop that 0:04:43.200 --> 0:04:46.960 has been investing in private credit in Western Europe sponsor 0:04:47.040 --> 0:04:50.800 backed with a very similar strategy for far more than 0:04:50.839 --> 0:04:53.920 a decade. That has served us very well. I think 0:04:53.960 --> 0:04:58.520 it is very important in credit whether you talk about 0:04:58.600 --> 0:05:02.680 risk and reward. The reward is your contractual return. That's it, right, 0:05:02.720 --> 0:05:05.920 they have no upset. It's very important to be steady, consistent, 0:05:06.400 --> 0:05:10.920 have underwriting discipline over all the deals you do, all 0:05:10.960 --> 0:05:14.880 the years you invest in, and we shy away from 0:05:15.000 --> 0:05:19.560 binary risk, cyclic risks, regulatory risk, which is why, frankly, 0:05:19.600 --> 0:05:22.760 of course we debate a lot. The perfect micro picture 0:05:23.760 --> 0:05:27.000 is youre going to into recession, which country, which market, 0:05:27.040 --> 0:05:30.479 which industries We are set up, and we model for 0:05:30.560 --> 0:05:33.320 every deal we do that we're going into recession and 0:05:33.360 --> 0:05:36.600 that our companies can withstand that. I think that's how 0:05:36.600 --> 0:05:39.400 we are wired, that's how we invest, and frankly, that 0:05:39.480 --> 0:05:42.400 has changed very little over the last ten years. 0:05:42.680 --> 0:05:46.360 We jumped a little bit on fundraising in your previous 0:05:46.760 --> 0:05:49.960 answer there, and I think it's fairly well known that 0:05:50.080 --> 0:05:53.320 larger funds like yourself, who raise billions and billions in 0:05:53.600 --> 0:05:56.800 each fund definitely have an easier time of it than 0:05:56.800 --> 0:05:58.200 those smaller funds. 0:05:58.320 --> 0:06:00.000 But I think that it's fair to. 0:06:00.160 --> 0:06:02.720 Say that even you big guys have seen the fundraising 0:06:02.800 --> 0:06:06.680 environment change and become slightly more difficult. How do you 0:06:06.720 --> 0:06:08.800 deal with that? I'm sure there are loads of options 0:06:08.800 --> 0:06:11.359 on the table. What does Art want doing? 0:06:11.720 --> 0:06:13.680 Look, it helps when you have hundreds and hundreds of 0:06:13.680 --> 0:06:16.520 investors that have packed you in the previous fund and 0:06:16.560 --> 0:06:19.720 often the fund prior to that. They've senior returns. They 0:06:19.720 --> 0:06:23.440 see the cashier, they like the current increase year that 0:06:23.480 --> 0:06:26.800 we're generating, but they've also seen how you've behaved with 0:06:26.839 --> 0:06:29.840 troubate assets in the past, how you've restructured them, how 0:06:29.839 --> 0:06:33.760 you've gotten value back to them. It is much easier 0:06:33.760 --> 0:06:36.359 for them to undred us than a new credit manager 0:06:36.480 --> 0:06:38.839 or someone who's just started their business in twenty nineteen 0:06:38.880 --> 0:06:41.960 twenty twenty and ramped it in the probably most difficult 0:06:42.160 --> 0:06:45.760 period for new credit jops twenty one twenty two. It 0:06:45.839 --> 0:06:47.440 is much easier for an established manager to. 0:06:47.480 --> 0:06:51.640 Raise, undoubtedly, but have you found yourself needing to go 0:06:51.720 --> 0:06:54.320 after new investors as well? We've seen a lot of 0:06:54.400 --> 0:06:58.960 pushing into places like insurance companies or for example, in 0:06:59.000 --> 0:07:02.679 the Middle East. Are you kind of following any new lines. 0:07:03.800 --> 0:07:07.680 Look, we always we have a global investor base across Europe, 0:07:07.760 --> 0:07:10.720 Asia and the US, actually North America quite a lot 0:07:10.760 --> 0:07:14.280 as well. But that doesn't mean we're not like there 0:07:14.280 --> 0:07:16.680 are many investors that are not part of ours, and 0:07:16.720 --> 0:07:21.000 we will always go for new investors. We did eighteen 0:07:21.000 --> 0:07:24.320 months ago a partnership with TA and Novenda, obviously being 0:07:24.640 --> 0:07:28.200 one of the largest pension and insurance companies and one 0:07:28.200 --> 0:07:31.200 of the largest allocators to private that globally. That is 0:07:31.440 --> 0:07:34.720 a partnership that hasn't come from nowhere. That is very 0:07:34.760 --> 0:07:38.000 synergistic and that's probably the biggest step change in our 0:07:38.720 --> 0:07:43.640 fund or investor capital raising that we have had in 0:07:43.760 --> 0:07:44.400 quite some time. 0:07:45.040 --> 0:07:46.840 So that facilitates fundraising. 0:07:46.840 --> 0:07:48.840 You're able to kind of use the network that comes 0:07:48.840 --> 0:07:50.560 from your relationship with Uveen. 0:07:50.600 --> 0:07:53.960 Both internal from TA and Novene. Of course, they haven't 0:07:54.360 --> 0:07:56.600 bought us for a reason, they're partnering with us for 0:07:56.640 --> 0:08:00.400 a reason, and they're investing with us. And of course 0:08:01.120 --> 0:08:04.000 having a global platform together with Navegna and Churchill in 0:08:04.000 --> 0:08:07.600 the US provides completely different opportunities on the fund raising 0:08:07.640 --> 0:08:09.480 side than just being our ports stand alone. 0:08:10.080 --> 0:08:12.080 I don't know if you're happy to kind of go 0:08:12.160 --> 0:08:15.880 into this already, because you mentioned briefly there that you 0:08:16.080 --> 0:08:18.360 like that your investors like the way that you've been 0:08:18.400 --> 0:08:21.680 able to return money to them. Have you seen much 0:08:21.760 --> 0:08:24.680 distress in the portfolios so far? Have you had to 0:08:24.720 --> 0:08:27.960 take any kind of actions like workouts or do you 0:08:27.960 --> 0:08:30.200 have to do much restructuring so far? 0:08:30.800 --> 0:08:34.319 Look, we have I think by now twelve to thirteen 0:08:34.360 --> 0:08:36.360 years of investing, we've done more than four hundred years. 0:08:36.400 --> 0:08:40.359 Of course, we've had problems, we have restructured, restructured very successfully. 0:08:40.679 --> 0:08:42.920 If you're looking at the very recent period, and this 0:08:43.000 --> 0:08:46.400 is very very different two five, six years ago. We 0:08:46.440 --> 0:08:49.439 have a portfolio of very many companies and I think 0:08:49.440 --> 0:08:53.880 that if you look at the percentage of issues deforce problems, 0:08:54.360 --> 0:08:57.000 it is very very low. I think the good bit 0:08:57.120 --> 0:09:01.320 with private credit is that most of us larger, more 0:09:01.400 --> 0:09:06.319 established managers have focused on industries that are less reliant 0:09:06.440 --> 0:09:12.000 on the macro, and that often hundreds of customers were frankly, also, inflation, 0:09:12.160 --> 0:09:14.280 which we were very worried about two years ago or 0:09:14.520 --> 0:09:17.920 one year ago, can be passed through to customers and 0:09:17.960 --> 0:09:20.240 you keep your margin. So I think portfolio performance is 0:09:20.240 --> 0:09:23.440 probably the one piece that, having gone through the last 0:09:23.440 --> 0:09:26.480 two or three four years, has held up very well. 0:09:27.520 --> 0:09:30.760 So that is you know, I know mandate is somewhat critical. 0:09:30.880 --> 0:09:34.960 But in a changing rate environment, in which part of 0:09:35.000 --> 0:09:38.120 the capital structure are you finding most attractive these days? 0:09:38.120 --> 0:09:40.439 And it has that changed over the past two years. 0:09:40.800 --> 0:09:43.719 We have always been invested in firstly in credit the 0:09:43.840 --> 0:09:47.200 vast majority of what we do. In the last two years, 0:09:47.240 --> 0:09:51.640 I'd say we're staying even truer to that, simply because 0:09:52.240 --> 0:09:56.000 we think in the subordinated piece of the capital structure 0:09:56.080 --> 0:09:59.280 you're taking a lot more risk and especially the loss 0:09:59.280 --> 0:10:02.600 given before it is much higher than in the senior 0:10:02.640 --> 0:10:06.719 piece of it. We don't see we get very we 0:10:06.760 --> 0:10:10.880 get the double digit years these days and getting the 0:10:10.920 --> 0:10:13.360 extra one or two percent from being as Secondly in 0:10:13.400 --> 0:10:16.640 a pig or pref equity we don't see much value in. 0:10:16.800 --> 0:10:18.840 So we have focused much more on just being firstly 0:10:18.840 --> 0:10:20.520 in senior in the current environment. 0:10:20.800 --> 0:10:23.000 And what about in terms of sectors. I know you've 0:10:23.040 --> 0:10:27.440 been recently positive in the tech space, from software to 0:10:27.840 --> 0:10:31.120 it to business services. You can give some of the 0:10:31.200 --> 0:10:35.599 characteristics of these sub sectors that make them more attractive 0:10:35.720 --> 0:10:38.679 than others. And then if you could potentially just highlight 0:10:38.720 --> 0:10:41.360 the next and video for all of us, we'd appreciate it. 0:10:41.480 --> 0:10:44.080 The next time video sure, unfortunately not in the game. 0:10:44.120 --> 0:10:49.720 But the companies we like is five ten, fifteen percent 0:10:49.880 --> 0:10:54.240 like forlycorganic growth goods, healthy margins, twenty five thirty percent, 0:10:54.400 --> 0:10:57.840 high cashlow generation eighty nine percent from ebadats to cash 0:10:57.840 --> 0:11:01.920 flows ideally one of the market leaders in the industries. 0:11:02.600 --> 0:11:05.400 Because then what happens when you get a wage inflation 0:11:05.600 --> 0:11:08.800 shocked like in the last two years, you have many customers, 0:11:08.880 --> 0:11:10.959 you're not reliant on any you can pass it through 0:11:11.000 --> 0:11:13.520 and people actually won't churn. That is the type of 0:11:13.520 --> 0:11:15.880 company we like. That can be business services, that can 0:11:15.880 --> 0:11:19.280 be insurance broking, that can be software. All these these 0:11:19.520 --> 0:11:23.480 these sectors have those characteristics, but characteristics very often it 0:11:23.640 --> 0:11:26.480 does companies that are very tough to break. If grows 0:11:26.520 --> 0:11:29.480 cycles slow, and they certainly have slowed a bit in 0:11:29.520 --> 0:11:31.920 the last one two years and you're not growing sort 0:11:31.920 --> 0:11:35.200 of low double digit but mid single digits not a 0:11:35.280 --> 0:11:38.040 problem for us. It is important for us that give 0:11:38.080 --> 0:11:43.360 you keep a stable and growing top and bottom line 0:11:43.400 --> 0:11:46.440 to pay our interest and keep the CASHWS were running. 0:11:46.920 --> 0:11:49.960 That's the most important. We shy away from anything that 0:11:50.000 --> 0:11:54.800 looks anywhere near nvideo. When something grows fifty percent plus, 0:11:55.160 --> 0:11:58.600 we probably scared and run away because we have a 0:11:58.640 --> 0:12:01.960 fear that the same happen on the downside. So we 0:12:02.040 --> 0:12:05.880 are very focused on stable, consistent, growing companies. 0:12:05.920 --> 0:12:08.000 Do you have the ability to talk about any specific 0:12:08.080 --> 0:12:09.800 investments that have worked out? 0:12:09.840 --> 0:12:14.320 Well, I'm not sure we should talk about specific years. 0:12:14.720 --> 0:12:17.199 If you put you into context what we do day 0:12:17.240 --> 0:12:20.320 to day and year after year, we do forty to 0:12:20.360 --> 0:12:24.360 fifty years a year, and that twenty of those new 0:12:24.400 --> 0:12:27.679 logos new companies we invest in the rest is portfolio. 0:12:27.760 --> 0:12:32.520 So very often we just minor portfolio and reinvest add 0:12:32.600 --> 0:12:35.800 on investing in portfolio companies that we affect for years 0:12:35.840 --> 0:12:39.800 and years, and frankly, almost all of them work out 0:12:39.960 --> 0:12:43.040 and we get our contractual year back. Very little of 0:12:43.080 --> 0:12:45.840 them we get outsized returns, and very little of them 0:12:46.040 --> 0:12:50.160 we get hit with issues and problems. And that is 0:12:50.240 --> 0:12:54.080 what we like. And we see more than a thousand 0:12:54.160 --> 0:12:57.280 deals a year and we pick, and that's important to understand, 0:12:57.280 --> 0:13:01.199 we pick twenty twenty five new companies every year out 0:13:01.240 --> 0:13:05.160 of a huge pool of companies that come to us 0:13:05.160 --> 0:13:08.920 to refinance for a new LB or whatever it is. 0:13:09.720 --> 0:13:14.360 Origination deployment is very very easy if you have been 0:13:14.360 --> 0:13:17.079 doing the same thing for a decade plus, because people 0:13:17.080 --> 0:13:19.760 know exactly what you're doing, they trust you, they've seen 0:13:19.840 --> 0:13:22.640 you how you behave on a good day and frankly 0:13:22.679 --> 0:13:26.280 on a bad day. It is a very very good 0:13:26.320 --> 0:13:28.520 place to be. And then it is all about credits, 0:13:28.559 --> 0:13:33.240 election and underwriting standards, and originating is, frankly at the 0:13:33.960 --> 0:13:36.720 today where we set the easiest bit of our business. 0:13:36.960 --> 0:13:39.920 You know, it's interesting. I think you sort of answered 0:13:40.000 --> 0:13:41.800 what I was going to try to focus on next. 0:13:41.800 --> 0:13:45.480 It seems like there's so much private capital chasing after 0:13:45.600 --> 0:13:48.400 the same companies, but you're saying there's not a lack 0:13:48.520 --> 0:13:52.760 of investment opportunity. Now, why do you think that is? 0:13:51.760 --> 0:13:54.880 Is there a lack of public capital? 0:13:54.960 --> 0:13:55.160 Now? 0:13:55.480 --> 0:13:58.480 Are you? Are you guys offering money that's just simply 0:13:58.600 --> 0:14:01.880 more attractive because you're not charging what you used to 0:14:01.960 --> 0:14:04.960 have to? Like? Why is why are there so many 0:14:04.960 --> 0:14:06.959 more opportunities today than there ever were? 0:14:07.280 --> 0:14:11.280 Look, I think it is also I think a big 0:14:11.280 --> 0:14:14.040 difference between the US and Europe to be honest, it 0:14:14.120 --> 0:14:19.680 is if you're European scaled private debt manager that has 0:14:19.720 --> 0:14:25.240 been dealing with many many private equity funds, management teams 0:14:25.320 --> 0:14:28.720 and borrow us over many many years, they have a 0:14:28.800 --> 0:14:32.080 strong preference to keep partnering bit with you because these 0:14:32.120 --> 0:14:36.680 private equity firms, of course they're interested in economic terms 0:14:36.760 --> 0:14:40.280 as you say, but in reality, how they make their 0:14:40.280 --> 0:14:42.720 money and how they drive their equity stories very often 0:14:42.840 --> 0:14:46.160 is buy and build with a trusted partner then can 0:14:46.200 --> 0:14:49.320 give you the debt capital to do so, and that 0:14:49.560 --> 0:14:53.040 oftentimes they get two hundred million from us they won 0:14:53.120 --> 0:14:56.000 in the first LBO, and they get another two hundred 0:14:56.000 --> 0:14:59.640 million over the next five years of US doing this 0:15:00.480 --> 0:15:04.720 doing add on deals to form those companies together. And 0:15:04.840 --> 0:15:08.160 if they take the money from someone who's just raised 0:15:08.200 --> 0:15:13.440 a huge amount, maybe from Wales or from other source 0:15:13.480 --> 0:15:16.320 of capital in the US and place Europe in twenty 0:15:16.360 --> 0:15:18.440 twenty one, it is gone for twenty two and twenty 0:15:18.440 --> 0:15:22.240 three is back in twenty twenty four. They will think 0:15:22.280 --> 0:15:25.040 twice and oftentimes they give us a last look on 0:15:25.080 --> 0:15:28.160 financings and say, look, you want to do this deal 0:15:28.280 --> 0:15:32.480 because frankly I know the same people, the same funds. 0:15:32.600 --> 0:15:34.680 The same strategy you've done for the last ten years, 0:15:34.720 --> 0:15:36.680 you will be there for the next ten years. It 0:15:36.760 --> 0:15:41.080 is a very differentiated proposition simply because you've built a 0:15:41.160 --> 0:15:44.280 network and you've built a business over a long period 0:15:44.320 --> 0:15:48.680 of time that has done similar things in France, in Italy, 0:15:48.840 --> 0:15:53.560 in Germany, in Sweden. It is very different, I think 0:15:53.640 --> 0:15:56.200 from what people often think that you can just drop 0:15:56.240 --> 0:15:59.960 in and do a deal that is at market terms 0:16:00.320 --> 0:16:02.640 and then drop out of the market again. It just 0:16:02.680 --> 0:16:05.120 doesn't work that way. It is. It is very important 0:16:05.160 --> 0:16:08.560 for our partners. Our prioritically firms that we are in 0:16:08.560 --> 0:16:11.680 the market, we're a scale player, and we will back 0:16:11.720 --> 0:16:14.880 them in the future. That's why origination is easy. If 0:16:15.360 --> 0:16:18.320 if you are in a business that tries to play 0:16:18.320 --> 0:16:23.560 the market opportunistically in a specific year, I think origination 0:16:23.680 --> 0:16:25.560 is very hard and you will need to be very 0:16:25.680 --> 0:16:29.600 very competitive and usually probably you will lose the years 0:16:29.640 --> 0:16:32.720 because you're just not a trustworthy partner for future. 0:16:33.560 --> 0:16:37.400 You have seen margin compression in the market though, that's correct, right, Yeah, 0:16:37.560 --> 0:16:40.520 we've been kind of tracking about one hundred bits over 0:16:40.520 --> 0:16:44.440 the last year. I know it's very difficult to say overall. 0:16:43.960 --> 0:16:45.600 But do you think that's how much things have come 0:16:45.600 --> 0:16:46.800 in roughly, I. 0:16:46.800 --> 0:16:48.400 Think it's less than that. I think you have to 0:16:48.440 --> 0:16:50.440 look if you look at margins over time, I think 0:16:50.440 --> 0:16:52.840 you have to look at not just twenty two and 0:16:52.880 --> 0:16:55.800 twenty three. Those were Look, I'm not gonna I'm not 0:16:55.840 --> 0:16:58.200 going to sity and say second half twenty two and 0:16:58.240 --> 0:17:00.360 all of twenty three were great years for us. The 0:17:00.400 --> 0:17:02.640 liquid markets were shot. A lot of the players that 0:17:02.760 --> 0:17:06.480 usually do Europe sometimes they were out of the market 0:17:06.560 --> 0:17:09.760 because they had problems with the macro maybe fund raised, 0:17:09.880 --> 0:17:12.199 and the smaller players in Europe didn't didn't have the 0:17:12.280 --> 0:17:15.639 money to invest as much. So in reality, the last 0:17:15.760 --> 0:17:19.960 eighteen twenty four months were exceptionally good. I think that's right, 0:17:20.000 --> 0:17:23.600 And margins were high. Terms were very good, and that 0:17:23.720 --> 0:17:25.920 is true, and we're off that I would say, probably 0:17:25.960 --> 0:17:29.840 anywhere twenty five to seventy five BIPs ish. But if 0:17:29.880 --> 0:17:32.280 you look a bit further back, I think margins and 0:17:32.320 --> 0:17:35.200 spreads are very much similar to where we did. DearS 0:17:35.200 --> 0:17:40.200 and tranjected in the time prior to sort of exceptionally 0:17:41.040 --> 0:17:43.880 strong spreads and yeah, in terms time. 0:17:43.960 --> 0:17:46.320 Right of course, so we're kind of back to normal, 0:17:46.560 --> 0:17:47.359 is what I think. 0:17:47.400 --> 0:17:49.960 That's right. I think it is. I think if everyone 0:17:50.000 --> 0:17:51.760 says sort of we were in a golden age and 0:17:51.840 --> 0:17:55.159 now it's all over and it's all terrible and extra competitive, 0:17:55.800 --> 0:17:57.680 we add a couple of very good years where we 0:17:57.720 --> 0:18:00.119 could play up and back much larger business than we 0:18:00.200 --> 0:18:02.639 usually do. But the bread and butter of what we 0:18:02.680 --> 0:18:05.160 do fifty two hundred million with our businesses, they're too 0:18:05.160 --> 0:18:08.159 small for the liquor markets, and they're much too large 0:18:08.200 --> 0:18:12.359 for the smaller direct lenders, for the commercial banks, et cetera. 0:18:12.520 --> 0:18:14.640 It's a good space to be in. That's what we're 0:18:14.680 --> 0:18:17.240 currently doing. We're not competing with a BSM market. 0:18:17.359 --> 0:18:19.720 So you mentioned earlier that you're not a big fan 0:18:19.760 --> 0:18:23.800 of pick. What do you do when a company comes 0:18:23.840 --> 0:18:25.720 to you and says that we're having trouble with our 0:18:25.800 --> 0:18:27.800 cash burden? Can we can we turn this into pick? 0:18:28.040 --> 0:18:29.720 How do you typically deal with that? 0:18:30.600 --> 0:18:33.879 I think so those there's two things that pick or 0:18:33.960 --> 0:18:37.960 subordinated capital. I think it's different if if you're first 0:18:38.040 --> 0:18:40.040 lea in cash BA loan with a small element of 0:18:40.080 --> 0:18:45.639 PICK to it, because you control your destiny, your firstly lender. 0:18:46.400 --> 0:18:49.119 If they are trouble, you are the dominant piece in 0:18:49.160 --> 0:18:52.840 the capital structure, and you will force the outcome which 0:18:52.880 --> 0:18:56.800 direction it goes into. If you're a junior pick lender 0:18:57.240 --> 0:18:59.520 and the cup company comes into trouble and the value 0:18:59.520 --> 0:19:03.760 breaks in this you face the risk of losing hunder 0:19:03.760 --> 0:19:06.119 percent of your capital. That has never happened to us, 0:19:06.119 --> 0:19:07.720 and we must avoid it all. Of course, that's why 0:19:07.720 --> 0:19:09.280 we don't like junior picks. 0:19:09.280 --> 0:19:11.879 Right, okay, But you never come into a situation, you 0:19:11.920 --> 0:19:15.159 know where that's looking to kind of it's coming to 0:19:15.240 --> 0:19:17.760 maturity and it's looking to refinance, and they say to you, 0:19:17.760 --> 0:19:19.760 you know, are you capable of giving pick? 0:19:19.800 --> 0:19:20.920 Would you like to give pick? 0:19:20.960 --> 0:19:23.560 I mean, I guess my question is would you be 0:19:23.600 --> 0:19:26.600 happy to lose that deal instead of offering a pick? 0:19:27.200 --> 0:19:31.120 We are okay to give a pick or component to 0:19:31.160 --> 0:19:34.280 borrow us private equity firms when they say, look we 0:19:34.320 --> 0:19:37.959 want to level this company six times, Really the lever 0:19:38.080 --> 0:19:39.439 should have been five and a half times. On a 0:19:39.480 --> 0:19:43.320 cash pay basis, can we structure alone that you have 0:19:43.840 --> 0:19:46.600 a component of the margin to be picked, and we're 0:19:46.640 --> 0:19:48.960 open to that. There's obviously a different risk profile for 0:19:49.000 --> 0:19:52.520 the pick versus cash pay because it's not quarterly accruing 0:19:52.600 --> 0:19:56.320 cash yield, so that is also priced a littleit of 0:19:56.320 --> 0:20:01.040 a premium, but we will offer a l of pick indias. 0:20:01.200 --> 0:20:03.320 Okay, cool, that's that's helpful tonight. Thank you. 0:20:03.560 --> 0:20:05.680 I know I'm not as nice as Roberts, so I'm 0:20:05.680 --> 0:20:09.720 going to keep pushing on you. Are you seeing more 0:20:09.800 --> 0:20:13.400 requests for this type of pick, because we certainly are. 0:20:14.920 --> 0:20:17.600 Is that something that you're seeing across the market or 0:20:17.600 --> 0:20:18.520 in your portfolio? 0:20:19.000 --> 0:20:21.600 So I think I think it is correct that private 0:20:21.720 --> 0:20:26.440 credit and our funds it is much easier to allow 0:20:26.480 --> 0:20:29.280 for an element of pick than the liquid loan markets. 0:20:29.600 --> 0:20:33.240 There are ten times leveled clos that need cash pay 0:20:33.280 --> 0:20:36.879 and they must get the cash pay in full in 0:20:37.000 --> 0:20:40.879 order to pay the liability sec Most of our money 0:20:40.920 --> 0:20:43.199 is unlevered, some is one to one leveled at the 0:20:43.200 --> 0:20:46.480 peak that it is very different So we can be 0:20:46.520 --> 0:20:49.760 a bit more flexible and we do that, and and 0:20:49.800 --> 0:20:51.560 then we offer an element of pick. I think that 0:20:51.680 --> 0:20:53.520 is a differentiator. And then the buy and build I 0:20:53.520 --> 0:20:56.879 talked about earlier, where you have committed and uncommitted lines 0:20:56.880 --> 0:20:59.840 that people can tap. Those are the two differentiators we 0:20:59.880 --> 0:21:04.560 have versus these very level structures that are very boxed 0:21:04.560 --> 0:21:06.600 in a certain way that they need to behave all 0:21:06.640 --> 0:21:07.680 funds that very flexible. 0:21:08.359 --> 0:21:10.199 I'd love to go a little deeper into this because 0:21:10.680 --> 0:21:12.480 you know, it seems like so many pieces of the 0:21:12.480 --> 0:21:15.359 market are priced to perfection right now. And I know 0:21:15.440 --> 0:21:19.520 that capital solutions is a key strategy of your firms. 0:21:19.880 --> 0:21:25.199 Know what sort of dislocation are you seeing today in 0:21:25.320 --> 0:21:30.040 terms of size and sectors that are in most need 0:21:30.119 --> 0:21:34.440 for liquidity or rescue financing, and how do you best 0:21:34.440 --> 0:21:35.400 take advantage of that? 0:21:35.760 --> 0:21:38.000 Yeah, that's a good question. So our business, we have 0:21:38.119 --> 0:21:41.520 a capital solutions business as part of our private credit offering, 0:21:42.359 --> 0:21:45.760 and that sort of joined the private credit offering I 0:21:45.840 --> 0:21:49.040 want to say five years ago roughly, and it's had 0:21:49.040 --> 0:21:53.199 a very good time. And the reason is that I 0:21:53.240 --> 0:21:57.040 talked about earlier what we focus on direct lending or 0:21:57.119 --> 0:22:01.720 direct lending funds, and it's quite narrow. If I talked 0:22:01.760 --> 0:22:05.520 about the industries the type of businesses we like, we 0:22:05.640 --> 0:22:09.920