WEBVTT - Apollo Global Management President Jim Zelter Talks Investment Grade Private Credit

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. I think you'd agree

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<v Speaker 1>that this is the place to be in Europe today.

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<v Speaker 2>My first I've been to Berlin many times, but my

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<v Speaker 2>first time at Super Return and it's wonderful to be here,

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<v Speaker 2>and it is It is ironic how the breadth of

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<v Speaker 2>players here at Super Return. It used to be really

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<v Speaker 2>a private equity conference and now it really is a

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<v Speaker 2>conference of all players in the credit markets and the

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<v Speaker 2>capital markets and in the equity market.

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<v Speaker 1>So thank you, of course, we're thrilled to hear what

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<v Speaker 1>you have to say. Now this is fascinating as well

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<v Speaker 1>because we talk about this from an Astha Coast perspective.

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<v Speaker 1>We'll get to that in a moment. Let's talk about

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<v Speaker 1>the overarching trade. We're based in London, you're based in

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<v Speaker 1>the US as well. We're talking a lot about whether

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<v Speaker 1>or not this kind of exit perhaps or at least

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<v Speaker 1>this moment that Europe has had in the sun actually

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<v Speaker 1>lasts give us the bold case for Europe here.

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<v Speaker 2>Well, we've been in Europe for twenty twenty five years.

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<v Speaker 2>We probably have one hundred billion of our eight hundred

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<v Speaker 2>billion here in Europe today.

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<v Speaker 3>And whether it's a poll.

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<v Speaker 2>Domestically or a push from the current administration, and there's

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<v Speaker 2>certainly a revitalized enthusiasm about investing in Europe. I had

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<v Speaker 2>at dinner last night with twenty financial players, and the

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<v Speaker 2>amount of US investors that are looking to invest in

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<v Speaker 2>Europe is very real and palpable, you know, for us

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<v Speaker 2>with our financing toolbox and our high grade capital solutions.

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<v Speaker 2>In reality, most of our transaction over the last two

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<v Speaker 2>years have been in Europe, Intel in Ireland, Venovia, here

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<v Speaker 2>in Germany and France. So you know, we've seen it

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<v Speaker 2>for the last few years where on the global stage,

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<v Speaker 2>the leaders, the national leaders in industry and energy transition

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<v Speaker 2>and utilities and manufacturing, they want to be competitive globally

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<v Speaker 2>and they're looking for more tools to be able to

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<v Speaker 2>play in a bigger game.

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<v Speaker 1>How much of that, though, is a structural ball case

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<v Speaker 1>for Europe as opposed to a reaction function to perhaps

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<v Speaker 1>the volatility emanating out of the United States.

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<v Speaker 2>We don't spend as much time thinking about whether it's

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<v Speaker 2>a pull or push on the ground when we see

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<v Speaker 2>activity from national champions in industry, and we see it

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<v Speaker 2>with industrial players, and we see it with financial players,

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<v Speaker 2>and we see it with government entities. Certainly in Germany

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<v Speaker 2>you're seeing it right now with this current administration, a

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<v Speaker 2>real pull. But we see palpable signs, lots of green shoots,

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<v Speaker 2>of great enthusiasm, and certainly there's a variety of things

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<v Speaker 2>you'd like to change, but for our perspective right now,

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<v Speaker 2>it's a wonderful place to do business.

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<v Speaker 1>How much of that, though, gets a stamp of approval

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<v Speaker 1>or a little bit of backing because the fiscal spend

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<v Speaker 1>from government and so, I mean it feels like Germany's

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<v Speaker 1>bullcase has been a big piece of that. But is

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<v Speaker 1>it just Germany that's kind of holding europe afloat at

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<v Speaker 1>the moment?

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<v Speaker 2>Well, I think in Germany it's very easy. This is

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<v Speaker 2>a four trillion economy. Their goal is to get to

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<v Speaker 2>be a six trillion economy over the next ten to

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<v Speaker 2>twelve years. We're prepared to put an over one hundred billion.

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<v Speaker 3>Of capital from our financing tools.

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<v Speaker 2>And I really say that in terms of capital, mostly

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<v Speaker 2>investment grade financing and a variety.

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<v Speaker 3>Of dancing tools.

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<v Speaker 2>But in Germany, because of the size and scale and

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<v Speaker 2>their prominence in the European marketplace.

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<v Speaker 3>They are a leader.

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<v Speaker 2>But we're seeing enthusiasm happening right now in the Nordics.

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<v Speaker 2>We're seeing enthusiasm happening in France to a certain degree.

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<v Speaker 2>Obviously different industries, but it's a palpable.

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<v Speaker 3>Change that we want to be part of, and I

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<v Speaker 3>think that for.

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<v Speaker 2>Our perspective, we are a large player here, but in

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<v Speaker 2>the world of private capital and the private credit, it's

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<v Speaker 2>an opportunity that we see as one of the brighter

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<v Speaker 2>ones around the globe. Right now.

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<v Speaker 1>You mentioned private credit. You took me right there. There's

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<v Speaker 1>a lot of concern in this market right now because

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<v Speaker 1>of the optimism and private markets generally, but also the

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<v Speaker 1>financing and the deals that are coming from the credit

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<v Speaker 1>space specifically. So maybe it's gone a little bit too far.

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<v Speaker 1>You've heard warnings echoed from some of the giants of finance.

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<v Speaker 1>Walk us through what a red flag might look like

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<v Speaker 1>in that space.

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<v Speaker 3>Well, we've been fortunate. We've not had a real recession in.

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<v Speaker 2>The US for several years, a very long period of time.

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<v Speaker 2>I will point out out that you know, a place

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<v Speaker 2>like Australia really hasn't had a recession since the early nineties,

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<v Speaker 2>but certainly there's been a tremendous growth of a variety

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<v Speaker 2>of credit markets, whether it's investment grade, high yield, direct lending.

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<v Speaker 2>And I think we have to differentiate between a credit

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<v Speaker 2>cycle and industries where there may be an overabundance or

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<v Speaker 2>an over enthusiasm. So certainly what's going on right now

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<v Speaker 2>with in DC with reimbursement, the whole area of healthcare

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<v Speaker 2>and medical reimbursement, you want to make sure that you

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<v Speaker 2>don't are not overly concentrated to anyone player or anyone

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<v Speaker 2>provider in the in the enterprise software business, a lot

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<v Speaker 2>of concern about technology change and technology innovation and light

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<v Speaker 2>of AI, and certainly also you want to make sure you.

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<v Speaker 3>Don't have a concentrated business.

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<v Speaker 2>So those are really red flags that would be the

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<v Speaker 2>case in any credit cycle, but certainly as we are

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<v Speaker 2>a bit long in the tooth in the cycle, you

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<v Speaker 2>have to be more focused on at this point in time.

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<v Speaker 1>You mentioned the risk out of Washington, DC specific connect

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<v Speaker 1>the dots force in terms of those deficit concerns out

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<v Speaker 1>of DC to the private credit space. How quickly do

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<v Speaker 1>you see an.

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<v Speaker 2>Effect, Well, you know, right now, while the tariffs and

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<v Speaker 2>Liberation Day got a lot of the headlines, the market forces,

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<v Speaker 2>the so called Bob Benje Lantis have woken up those

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<v Speaker 2>to the concern about the growing deficit in the United States.

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<v Speaker 2>So in the marketplace right now, with a little bit

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<v Speaker 2>slower growth and some concern a lot of hand ringing,

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<v Speaker 2>the deficit issue is taken the main stage versus the

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<v Speaker 2>impact of the tariffs. Now this administration, we can't get

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<v Speaker 2>too comfortable.

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<v Speaker 3>There can be a headline in the next few minutes.

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<v Speaker 2>It changed that, But right now the big focuses on

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<v Speaker 2>rates and the deficit obviously is the current administration is

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<v Speaker 2>focusing on their big, beautiful bill.

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<v Speaker 1>When it comes to kind of the folks you're speaking

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<v Speaker 1>to here in Berlin or around the world, how does

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<v Speaker 1>that sentiment you just laid out affect perhaps the nervousness

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<v Speaker 1>in terms of credit lending, but also kind of in

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<v Speaker 1>the equity space as well. Are you seeing some of

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<v Speaker 1>that nervousness rise.

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<v Speaker 3>To the top? I think there.

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<v Speaker 2>You know, we've been very clear about the role that

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<v Speaker 2>we play as a broad based capital provider, and I

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<v Speaker 2>think that when you see the macro headlines right now,

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<v Speaker 2>your calibration of risk on levered equity needs to be

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<v Speaker 2>a bit higher.

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<v Speaker 3>But at the same token, you have real rates.

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<v Speaker 2>You know, for four percent plus on nominal rates in

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<v Speaker 2>the US right now, and for our perspective as a

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<v Speaker 2>credit lender, you're getting paid for the first time in

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<v Speaker 2>the last fifteen years. So it's a wonderful time to

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<v Speaker 2>be a player on credit. But at the same time,

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<v Speaker 2>I do think there's appropriate caution with buying equity at

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<v Speaker 2>the bottom of a levered capital structure.

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<v Speaker 1>So in the public market, there's a conversation here about

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<v Speaker 1>holding onto cash, holding onto capital, being on the front

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<v Speaker 1>end of the curve to kind of have that liquidity.

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<v Speaker 1>Private markets offer the opposite.

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<v Speaker 3>It's fairly a.

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<v Speaker 1>Liquid it's not as easily tradable. It's a more long

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<v Speaker 1>duration asset with the depths of concerns. A lot of

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<v Speaker 1>folks are pulling out of that. Are you telling me

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<v Speaker 1>that that's not bubbling to the surface.

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<v Speaker 2>Well, I think again, private credit is is a much

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<v Speaker 2>broader ocean of opportunities where a lot of the things,

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<v Speaker 2>a lot of the issues you mentioned, they're really focused

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<v Speaker 2>on the non investment grade side, which is a one

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<v Speaker 2>point five trillion dollar marketplace of direct lending. The larger

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<v Speaker 2>opportunity when we're more focused as a firm and three

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<v Speaker 2>quarters of our assets are on the investment grade side,

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<v Speaker 2>so a different setup with regard to the underlying credit metrics,

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<v Speaker 2>mostly investment grade, mostly top of the capital structure, and

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<v Speaker 2>with rates are where they are right now. Again, people

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<v Speaker 2>don't tep typically buy spreads, but they buy yields and

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<v Speaker 2>reels yields are quite strong right now, so appropriate commentary

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<v Speaker 2>and concern about the non investment grade marketplace, and certainly

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<v Speaker 2>a lot of concern about levered capital structures, subordinated paper

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<v Speaker 2>pick payments and things of that nature which we've avoided.

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<v Speaker 2>We're clearly leading massively into the investment grade side of

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<v Speaker 2>the world of private capital. And I would say also

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<v Speaker 2>in the past a lot a lot of the issues

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<v Speaker 2>you brought up in the past, Historically private has been

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<v Speaker 2>risky and in liquid and public has been safe and liquid.

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<v Speaker 3>We would really challenge that

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<v Speaker 2>Convention, and we're seeing it more and more on these

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<v Speaker 2>investment great opportunities that we've been a leader and owner

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<v Speaker 2>of