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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Hello and welcome to

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Speaker 1: the Money Stuff Podcast. I'm Matt Levine. I'm here with

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Speaker 1: Kitty Greifeld and our guest is Paus Weinstein of Sappa

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Speaker 1: Capital Management. I feel like we've thought since the beginning

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Speaker 1: of this podcast but having you on to talk about

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Speaker 1: closed unfund activism, but man, closed unfund activism has in

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Speaker 1: a new form gotten really hot. I want to talk about,

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Speaker 1: like what your trade is. You're out with a tender

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Speaker 1: to buy what five ten percent of OBDC two five

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Speaker 1: percent of OBDC to the Blue Owl private BDC ive

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Speaker 1: had a thirty five ish percent discount to marked Navy,

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Speaker 1: So like, what's the trade here? Like, are you like

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Speaker 1: going in the book and like doing detailed credit work

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Speaker 1: and being like, we think this stuff is worth seventy

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Speaker 1: five cents on the dollar, so we'll pay sixty five?

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Speaker 1: Are you hedging the credit? Are you trolling? Are you

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Speaker 1: what's the sort of basic trade here?

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Speaker 2: Why? Matt, do you assume it's not all the above?

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Speaker 1: It's just a lot. I'm going to start. I'm going

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Speaker 1: to start with trolling. The reason to assume it's trolling

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Speaker 1: and not all of the above is because I think

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Speaker 1: I think you mentioned before we started, people's first natural

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Speaker 1: question is do you think you'll get.

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Speaker 3: Any Okay, so I've read some people suggest, oh, this

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Speaker 3: is some sort of pr blitz, like like to get

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Speaker 3: myself in the story.

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Speaker 2: We actually had the tenders. It worked well.

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Speaker 3: We actually had the tenders ready before the Blue Oul

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Speaker 3: story became a huge.

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Speaker 1: Said the tenders like for OBDC two or like do

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Speaker 1: you have fifteen of these ready?

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Speaker 3: Togain, We have a few ready to go. We started

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Speaker 3: with two, so there was you mentioned one of them.

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Speaker 3: The other is Starwood s Reid. Starwood when b Reid

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Speaker 3: had its problems and be Read being an interval fun

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Speaker 3: that a few years ago had very high redemptions and

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Speaker 3: was able to actually cure this problem because it was

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Speaker 3: somewhat in isolation. It was b read and s Read

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Speaker 3: in part because of the rise and interest rates and

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Speaker 3: the real estate portfolio is suffering.

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Speaker 2: They were able to cure it. They did a special

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Speaker 2: transaction with Calsters and the problem.

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Speaker 1: Basically Calters bought shares at nav and they use that

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Speaker 1: to cast your blood.

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Speaker 3: Or is that they got to earn a very attractive

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Speaker 3: yield for I think supplying liquidity as needed and sort

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Speaker 3: of just that there wouldn't be a kind of run

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Speaker 3: on the fund, calm things down, and actually redemptions went

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Speaker 3: below that five percent cap. But s Reat Starwood, this forady,

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Speaker 3: almost four years ago is still gated and they at

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Speaker 3: some point suspended and now they led out a certain

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Speaker 3: amount of a month and that amount was increased, and so

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Speaker 3: four years later it's still gated. And so the way

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Speaker 3: this all happened, sorry that it's not trolling, Okay. The

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Speaker 3: way it happened was we learned from some rias, some

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Speaker 3: private wealth advisors that there was a block of twenty

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Speaker 3: to thirty million from a single group of advisors of

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Speaker 3: s REET that just wanted to sell. They wanted out,

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Speaker 3: they didn't want to wait potentially multiple years. And s

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Speaker 3: Read actually we felt like, you know, the nav's actually

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Speaker 3: probably pretty good. It doesn't have the private credit problems.

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Speaker 3: It's real estate. B Read has seen their NAV go up,

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Speaker 3: and we felt like people need liquidity. They've waited now

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Speaker 3: four years, they only gotten partial and so and the

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Speaker 3: percentage that's you know, in the queue to redeem is

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Speaker 3: very high. And so as that was happening, we also.

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Speaker 1: Did you get the call because like you do close

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Speaker 1: on fund activism.

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Speaker 3: Like, yes, so they are. They are not close cousins,

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Speaker 3: they're literally like brother and sister. You might even say

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Speaker 3: they're like identical twins, but like there's one thing different

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Speaker 3: about them, you know, the redemption rights. This kind of

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Speaker 3: like history we have in closed in funds is not

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Speaker 3: just like tangentially helpful. It is front and center the

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Speaker 3: more or less the same. There were forty act products

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Speaker 3: that manager is the sec to deal with if they

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Speaker 3: don't treat their investors properly, we can avail ourselves of

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Speaker 3: the courts as we have in closed end funds. And

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Speaker 3: so I had tenders ready for Starwood and for Blue

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Speaker 3: Owl because I was aware of outflows. Then the Blue

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Speaker 3: Houl story took like three legs worse and we went.

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Speaker 1: Right in Blue Ouse. So you were like aware of

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Speaker 1: out those in particular. Yes, so were like I'm ready

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Speaker 1: for the private credit industry generally or like Blue out particularly.

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Speaker 1: I heard of some arias who went out.

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Speaker 3: It was both because it was more like where do

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Speaker 3: you start, you know, and prove the concept. And my colleague,

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Speaker 3: my partner, Kieran Goodwin, has been ranting on Twitter in

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Speaker 3: a good way for two and a half years, three years,

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Speaker 3: about how the BDCs and interval funds have over promised

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Speaker 3: liquidit either investors, you know, you have fire insurance in

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Speaker 3: a sell off that you can get out, but it

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Speaker 3: doesn't work if there's actually a fire.

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Speaker 1: What is overpromise me? Because like I think a lot

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Speaker 1: of them would say, we promised five percent tenders and

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Speaker 1: we're doing five percent tenders.

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Speaker 3: Yes, here's what I think over promised is. And maybe

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Speaker 3: the docs even say this, But to say in a

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Speaker 3: large sell off or in some scenarios where there's a

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Speaker 3: lot of fear, it's going to take you potentially years

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Speaker 3: to get your money back, you know, like where we say,

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Speaker 3: you know you have those long disclaimers and then you

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Speaker 3: actually say no assurance can be made that an entire

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Speaker 3: investment won't be lost, and you're like, really, like we're

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Speaker 3: going to lose one hundred do we have really to

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Speaker 3: say that?

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Speaker 2: I mean, maybe they did.

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Speaker 3: I don't have a dog in the fight of like

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Speaker 3: how good were their disclosures. I might need to remodel

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Speaker 3: my house, I might need to I might need the money,

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Speaker 3: And they say, well, look for the last twenty quarters,

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Speaker 3: you would have been able to get out of all

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Speaker 3: of it, because as long as it's under five, you're good.

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Speaker 3: If it's ten, and that's a lot, you can get

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Speaker 3: out of half five out of ten. But what happens

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Speaker 3: if it's forty. You know what happens, You're getting out

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Speaker 3: of an eighth of it. And then of course the

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Speaker 3: you know, I was going to bring my George Sorows

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Speaker 3: Reflexivity book because what about the reflexivity? You know, a

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Speaker 3: term that was overused in finance very long ago, but

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Speaker 3: I think it's very apropos here the reflexivity of falling

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Speaker 3: naves leading to larger outflows, leading to fores selling, leading

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Speaker 3: to falling naves and then you're out in three or

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Speaker 3: four years. I don't believe that the retail investor understood that,

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Speaker 3: And I wonder if it's even disclosed.

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Speaker 1: Because I assume that like roughly none of these redemptions

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Speaker 1: are people trying to remodel their houses, and like roughly

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Speaker 1: all of it is like people worried about knaves.

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Speaker 3: No, no, no, for sure, there's just the general people. Some

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Speaker 3: people have cash needs, right, and yes, do they have

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Speaker 3: cash needs? And they're like, how should I satisfy it? Okay,

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Speaker 3: there's this thing I'm a little worried about, you know.

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Speaker 3: I mean some like I don't want to answer all

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Speaker 3: of the above to a lot of the either ords

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Speaker 3: that you ask me so, but I do think in

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Speaker 3: this case there's a percentage of people that want their

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Speaker 3: money back because they need the money. I think when

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Speaker 3: you go to like cliff Water, the shocking number of

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Speaker 3: fourteen percent, which was only four percent, let's say, the

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Speaker 3: quarter before, you can easily argue that extra ten or

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Speaker 3: people worried about their naves or worried that the gate's

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Speaker 3: going to shut. That an interval fund can't actually suspend

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Speaker 3: a BDC can. So the products are not the same,

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Speaker 3: but for sure they feed into each other. And the

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Speaker 3: retail investor, I don't believe, understood that the liquidity of

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Speaker 3: the underlying does not at all match the liquidity of

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Speaker 3: their investment.

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Speaker 4: Well, you mentioned brokers and something that I've been wondering

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Speaker 4: about in all of this. I mean, Matt and I

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Speaker 4: were discussing on a recent pod that, like, we live

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Speaker 4: in a disclosure based society, and I'm sure that these

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Speaker 4: disclaimers were laid out in the perspectuses, et cetera. But

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Speaker 4: I wonder where the failure of communication was, whether it

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Speaker 4: was on the brokers, on the salespeople putting their clients

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Speaker 4: in this. And because it does feel like there's some

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Speaker 4: structural mismatch of liquidity expectations here when it comes to

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Speaker 4: retail investors in these products.

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Speaker 3: Yeah, so one thing is and it's kind of why

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Speaker 3: I have such a hard time getting the manager sometimes

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Speaker 3: of closed in funds to do what I think is

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Speaker 3: to do the right thing. It's like, and if I

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Speaker 3: say to them, hey, you should turn this closed in

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Speaker 3: fund into an open ended fund.

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Speaker 2: And if you're am ninety five.

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Speaker 3: Percent of it or open ended products and five or

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Speaker 3: ten or are these closed ended products, whether they be

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Speaker 3: BDCs or actual closed in funds, why do they fight

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Speaker 3: me so hard? The C suite will fight me because

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Speaker 3: the value the stock market will ascribe to an ETF

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Speaker 3: where in theory you can get your money back tomorrow,

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Speaker 3: and a closed in fund where in theory you're locked

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Speaker 3: in forever. You know, other than my activism is so different,

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Speaker 3: and so the lure, the kind of the drug of

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Speaker 3: permanent capital. It sounds so good not even have to

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Speaker 3: deal with investors. I mean, Bill Lackman, you know, benefited

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Speaker 3: so greatly by this structure where he moved his hedge

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Speaker 3: fund to be a closed in fund, because when he

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Speaker 3: went through his draw down and he did great, you know,

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Speaker 3: since eighteen people couldn't leave, and they left the by

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Speaker 3: way of a twenty five to thirty five percent discount,

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Speaker 3: which he also stopped up by buying back a quarter

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Speaker 3: of the shares, something you don't see fs doing with FSK.

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Speaker 3: So the thing is the reason you ask about the disclosures.

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Speaker 3: It's kind of on the one hand, the sales commissions

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Speaker 3: were so large to draw people to want to sell

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Speaker 3: it the private wealth, and that, you know, that I

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Speaker 3: think is a scandal. I think it'd be nice if

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Speaker 3: the clients know, expost, what their trusted advisor was paid

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Speaker 3: for putting them into this thing. My grandmother used to

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Speaker 3: call drek. I don't know if that is a technical term,

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Speaker 3: but if anyone understands Yiddish, they know what I mean.

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Speaker 3: And so there are gonna be those questions how much

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Speaker 3: were you paid? What were you paid?

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Speaker 1: Oh?

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Speaker 3: You know, and so that's interesting. And then the second

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Speaker 3: part of it, you know, is that maybe there was

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Speaker 3: some like benign you know, ignorance, but really the seeds

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Speaker 3: of the destruction of these products are really rooted in

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Speaker 3: the desire for the manager to raise retail money, but

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Speaker 3: having to do it in this way where retail says,

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Speaker 3: am I gonna be able to get my money back?

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Speaker 3: And you offer these clauses in these terms to bring

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Speaker 3: them in because you want that permanent capital. Turns out

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Speaker 3: it's not so permanent. And by the way, it's not

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Speaker 3: so permanent because because it's a forty C product, the

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Speaker 3: board could be replaced and they could fire the manager,

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Speaker 3: just like just as we've done in closed infunds.

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Speaker 1: Yeah, this is what I was going to say. Like

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Speaker 1: when I first started writing about your Tilted Blue al,

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Speaker 1: I got emails being like, he's gonna take over of

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Speaker 1: the fund, replace the manager, get the fees. I feel

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Speaker 1: like with a five percent tender, that's not like top

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Speaker 1: of mind. But are you is that like a possibility

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Speaker 1: for some.

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Speaker 3: Of these drawing from the lessons of closed in funds

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Speaker 3: in the same way that retail was in some cases

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Speaker 3: sheepish enough to buy what was sold to them. You know,

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Speaker 3: they didn't call their broker. As I've already said in

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Speaker 3: a prior podcast, a famous president of a very large

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Speaker 3: fund said these products are sold, not bought. They didn't

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Speaker 3: call their broker to say, get me the latest interval fund,

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Speaker 3: as if they even know what that nomenclature means. They

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Speaker 3: were told this, you know you want yield, you're seventy

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Speaker 3: three years old. This is going to give you a

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Speaker 3: nice yeld, great manager. So they often will will even

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Speaker 3: vote in a way that harms themselves, as bpr E

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Speaker 3: just did in December. It just became a stock and

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Speaker 3: they went from being able to get at NAV to

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Speaker 3: now nursing a live thirty percent loss extra loss. So

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Speaker 3: in order to actually take one of these over, you're

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Speaker 3: going to have the manager tell the clients you shouldn't

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Speaker 3: listen to them, and a lot of them are actually

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Speaker 3: going to not listen to the activist. But imagine this, Matt. Okay,

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Speaker 3: we say we're going to do no fees for a year. Okay,

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Speaker 3: how do you like that? Client? And then as long

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Speaker 3: as the fund is below a thirty percent disc out

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Speaker 3: all cash flow, we will buy it back in the

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Speaker 3: open market.

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Speaker 1: You really want to talk about publicly listed close unfund activisms,

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Speaker 1: but I want to talk about OBDC too.

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Speaker 3: Okay, I'm talking about I'll stick with that I was

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Speaker 3: not even talking about closed in funds.

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Speaker 2: I was talking about.

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Speaker 3: Public b dcs. Okay, find that stateless state, right, I

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Speaker 3: might be buying some of them. Okay, fine, so let's

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Speaker 3: stick You're right the thing we did yeah, so okay,

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Speaker 3: So if we tendered and got more and more and

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Speaker 3: more and more, the same thing at the same point

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Speaker 3: would be made.

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Speaker 2: I think in order.

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Speaker 1: Make sure if you can think of a private yeah.

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Speaker 3: I haven't really looked into it. So this all started

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Speaker 3: with let me dip my toe in a space where

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Speaker 3: people want to get out and they don't have a

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Speaker 3: way of getting out in the pace they want to

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Speaker 3: And we'll learn as we go and learn from the

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Speaker 3: lessons of closed in funds. So yes, we had two

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Speaker 3: of them ready before Blue Owl became a thing. We

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Speaker 3: have others ready, and we in the market are super curious,

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Speaker 3: are we.

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Speaker 2: Actually going to get hit?

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Speaker 1: Then you don't know if you're going to be hit.

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Speaker 3: It's too early because first it's like this clunky process

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Speaker 3: that makes it hard to get it. They have to

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Speaker 3: get it mailed to them, and there's a long form

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Speaker 3: to fill out, and the thing that arrives in the

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Speaker 3: mail is accompanied. It's sent by the manager, and it's

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Speaker 3: accompanied by letter from the manager saying don't do we

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Speaker 3: don't recommend you do this.

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Speaker 1: I thought you had said somewhere that Blue Awl was

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Speaker 1: supportive of here, but like, is there some level of

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Speaker 1: supportive between like saying you should do this in the

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Speaker 1: letter and saying you shouldn't do that? Okay?

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Speaker 3: So I'll look, I'm I'm on your podcast. I'm all

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Speaker 3: about radical honesty or possible. So when I when I

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Speaker 3: say that, so first s Reet has already said to

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Speaker 3: their investors, we don't we recommend against okay, And so

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Speaker 3: the letter of ours will be accompanied by theirs from

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Speaker 3: them saying don't you know we don't think you should

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Speaker 3: do this?

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Speaker 2: What did I mean with Blue Owl?

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Speaker 3: I know two of the founders pretty well, and and

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Speaker 3: so when I did this, I happen to have written

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Speaker 3: to them to say hate. By the way, as I

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Speaker 3: go into this, I don't have an activist angle. I'm

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Speaker 3: just here to provide a bid, and they wrote me

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Speaker 3: you know I'm not giving away states herecause I'm only

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Speaker 3: singing back saying, you know, let's continue to have a dialogue.

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Speaker 3: You know, we like each other this and that, and

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Speaker 3: so like I didn't get any hate or any anger

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Speaker 3: or anything like that, and so that was that was

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Speaker 3: my take. Now, as far as I know, they have

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Speaker 3: not commented on whether.

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Speaker 1: They can't really recommend, so they could stay silent live

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Speaker 1: if they're marking it at one hundred right.

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Speaker 3: Well, I think someone could say, while we think the

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Speaker 3: portfolio is really attractive, we understand the liquidity needs of

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Speaker 3: the clients may require for them to find a way

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Speaker 3: to sell. You know, I think there's many ways to

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Speaker 3: say you like something or you don't like something, and

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Speaker 3: I think there is a world where they could be

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Speaker 3: more neutral than Star War was.

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Speaker 2: But we'll see what they say.

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Speaker 1: I don't know.

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Speaker 4: I am curious what you make of the marks when

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Speaker 4: it comes to some of these blue offhons that you're

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Speaker 4: tendering for, because the fact that you're going through with

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Speaker 4: this trader you would like to execute it. I mean,

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Speaker 4: does that imply that you know, you think that the

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Speaker 4: naves are accurate or to just maybe there's somewhere between,

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Speaker 4: you know, a sixty five percent discount and one hundred percent.

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Speaker 3: I actually don't think we bid conservatively. I was was

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Speaker 3: somewhere in New York last few year.

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Speaker 1: You were initially announced it was twenty to thirty five,

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Speaker 1: and then you're bid down thirty five.

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Speaker 3: Well twenty little yeah, well I was capturing Starwood in

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Speaker 3: there too, but because Starwd, I think we bid twenty seven.

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Speaker 1: Yeah.

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Speaker 2: So I ran into somebody who said you're gonna get

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Speaker 2: hit on all of it.

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Speaker 3: You didn't bid low enough because and he's like, you're

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Speaker 3: focused on NEV, but you should be focused on GAV

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Speaker 3: And you know it's really looking at like the gross assets.

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Speaker 1: Yeah, you were saying this before. I think we were

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Speaker 1: filming that a thirty five discount is not what it

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Speaker 1: sounds like because these are levered funtons, right, you want

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Speaker 1: to just sure.

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Speaker 3: So some funds are very levered. Some areo point seventy

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Speaker 3: five leverage, some are one point five levered. That means

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Speaker 3: leverage on top of you know, a dollar of stuff

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Speaker 3: for the dollar that was given. So let's just say

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Speaker 3: it was, you know, a turn of leverage. If you

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Speaker 3: buy saying a minus thirty, it's like you're buying each

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Speaker 3: loan fifteen points below, not thirty points below. But then

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Speaker 3: to your question, you have the fees, and some of

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Speaker 3: them earn fees on like what's distributed so they could

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Speaker 3: somehow even with all these price declines, still earn still

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Speaker 3: earn fees. Some of them have high water marks that

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Speaker 3: don't have catchups, some do, but there's the management fee

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Speaker 3: that comes out of it. I think it's safe to

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Speaker 3: say that we don't think that there's a lot of

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Speaker 3: manager alpha these days in that space. So like those

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Speaker 3: fees are going to be eaten away. Those are not

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Speaker 3: like for their brilliance. And then you have on top

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Speaker 3: of it, you have a knave that everyone knows is

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Speaker 3: too high. Okay, so let's leave aside. Where does Blue

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Speaker 3: Oil rank in that continuum? But I think I think

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Speaker 3: I Apollo is the firm that I follow, and Blackstone

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Speaker 3: the firms that I have incredible respect for. Blackstone also

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Speaker 3: recently for how they treated their redeeming shareholders, and I

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Speaker 3: have some a bunch of new counter examples, and Apollo,

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Speaker 3: I think is considered the most conservative on the marks.

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Speaker 3: But the marks are falling as we speak.

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Speaker 2: So if you have.

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Speaker 3: Naves that are too high across the board, even if

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Speaker 3: they're more than too high at certain places, you also

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Speaker 3: have to take that out of the discount. So what

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Speaker 3: is appeeling? Okay, So now that I've like said, what's

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Speaker 3: really bad about it? You know, okay, you start with

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Speaker 3: you have fifteen, and then it's after fees thirteen and

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Speaker 3: then you have the markdown is that at least those

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Speaker 3: funds do have the ability to get back five percent

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Speaker 3: per quarter. So if they if they have only fifteen

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Speaker 3: redeem you're going to get back a thirty your money

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Speaker 3: in a quarter. But the way it's going, it was one,

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Speaker 3: then it was four. Now Cliff order is fourteen. Boy,

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Speaker 3: you know, someone should set up a poly market for

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Speaker 3: what Cliffworter redemptions are going to be next quarter. And

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Speaker 3: we are aware, I'm not sure how much detail it's

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Speaker 3: worthwhile going into in this podcast, but we're aware for

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Speaker 3: some managers of marks on chunky positions of second lean

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Speaker 3: or you know, other things that are not first lean

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Speaker 3: that are off by compared not to our model, but

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Speaker 3: compared to other funds, how they mark as much as

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Speaker 3: twenty five points between the way Jamie Diamond now has

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Speaker 3: remarked the portfolio as well as fargo far behind. That

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Speaker 3: constrains the manager on their leverage, their ability to leverage

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Speaker 3: because of you know, the mark to market for the

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Speaker 3: leverage facility. I really think this could be a systemic

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Speaker 3: nightmare and in a.

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Speaker 1: Sense of how cal constrainting the markdowns are for the

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Speaker 1: leverage facilities, Like I gather these places are run at

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Speaker 1: like less leverage than they could be and like have

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Speaker 1: some headroom there, but maybe that's not true.

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Speaker 3: Yeah, I think most of them are not near their

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Speaker 3: leverage caps, so you would need a decent decline. But

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Speaker 3: also just you can see the banks even just pulling back,

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Speaker 3: and you know, why should they continue to land at

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Speaker 3: the same levels or the same terms, you know, just

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Speaker 3: like you saw in Wait where prime brokers pulled back.

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Speaker 3: So you're probably right about that. But at the end

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Speaker 3: of all that, so then why did we did because

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Speaker 3: it was a place to start. We are short at

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Speaker 3: you know, public debt at what I terms really optimistic levels,

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Speaker 3: so buying it at down thirty five, even with these adjustments,

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Speaker 3: it's probably going to be an okay investment.

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Speaker 1: You say you're short public debt, like what like like

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Speaker 1: like a match like how you'll debt against getting along

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Speaker 1: this stuff? Or like is it I'm missing something like?

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Speaker 3: Yeah, A huge part of our capital is to provide

401
00:18:02,800 --> 00:18:06,760
Speaker 3: investors tail protection, and so we our domain expertise is

402
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Speaker 3: credit derivatives, and so the liquidity in higheld credit ratives

403
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Speaker 3: as such where you can put on tens of billions,

404
00:18:12,640 --> 00:18:14,639
Speaker 3: and and so I have that as a short. In

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Speaker 3: some sense, this a discount fits as a long because

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Speaker 3: if we're right, and if these buys at minus twenty

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Speaker 3: seven or minus thirty five are bad buys, you know,

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Speaker 3: look out below, and I point you to when the

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Speaker 3: cliff Water news came out. Since that minute, say, high

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Speaker 3: yield has been suffering compared.

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Speaker 1: To Yeah, as you say, you said, look out below,

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Speaker 1: Like is there like a scenario where like the stuff

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Speaker 1: you can be short in high yield totally diverges from

414
00:18:37,800 --> 00:18:39,480
Speaker 1: like PDC software loans.

415
00:18:39,560 --> 00:18:41,880
Speaker 3: You're bringing up a good point about basis risk, right,

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Speaker 3: This is not a match trade. And the average company

417
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Speaker 3: in the HEILED index is quite a bit bigger and

418
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Speaker 3: even better than a private credit portfolio. So leave it

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Speaker 3: to the ingenuity of Goldman Sachs. Now they're pitching total

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Speaker 3: return swaps on private credit portfolios.

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Speaker 2: People want more of a one to one.

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Speaker 1: Are the pitching to you?

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Speaker 2: No, to everyone, Yeah, but you might need it.

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Speaker 3: But also you know, as I saw in COVID, sometimes

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Speaker 3: people who can't sell the thing they can't sell will

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Speaker 3: sell what they can sell, and and so private credit

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00:19:12,960 --> 00:19:15,159
Speaker 3: can certainly infect public credit. And when I say what

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Speaker 3: I saw on COVID, and I often say, like, my

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00:19:17,560 --> 00:19:20,560
Speaker 3: imagination and the markets is not great enough. First, So

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Speaker 3: I don't think people's imagination here is great enough because

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Speaker 3: so many people think we're going to buy none.

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Speaker 1: I think when you say, like people think you're gonna

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Speaker 1: buy none, like it's really it's like such a classic

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Speaker 1: like market maker adverse election question, like you're either going

435
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Speaker 1: to buy none or you're gonna get filled, and you're

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Speaker 1: gonna probably immediately regret getting.

437
00:19:36,160 --> 00:19:39,920
Speaker 3: Filled, probably if we get filled and oversubscribed or next

438
00:19:39,960 --> 00:19:43,040
Speaker 3: bid is you know, decidedly lower. I've never been in

439
00:19:43,080 --> 00:19:46,680
Speaker 3: a spot where like that information, that alternative data set,

440
00:19:46,680 --> 00:19:48,600
Speaker 3: if you will, is so desired by the market because

441
00:19:48,600 --> 00:19:50,560
Speaker 3: it's actually I'd be curious about a poly market on

442
00:19:50,600 --> 00:19:50,960
Speaker 3: that too.

443
00:19:51,960 --> 00:19:53,520
Speaker 1: Will all learn something if you get filled?

444
00:19:53,600 --> 00:19:55,040
Speaker 2: Yeah, and it's not till April, by the way.

445
00:19:55,400 --> 00:19:58,480
Speaker 3: Yeah, but like if we get filled, I mean there's

446
00:19:58,480 --> 00:20:00,440
Speaker 3: a lot of people that think we're going to get so,

447
00:20:00,480 --> 00:20:02,400
Speaker 3: as you said, so what does it mean, I don't

448
00:20:02,400 --> 00:20:03,560
Speaker 3: even necessarily.

449
00:20:03,040 --> 00:20:05,879
Speaker 1: I think my instinct is you get not because because

450
00:20:05,880 --> 00:20:07,800
Speaker 1: of like the experience, and this is now a long

451
00:20:07,800 --> 00:20:10,159
Speaker 1: time ago, but they traged to convert OBDC two to

452
00:20:10,200 --> 00:20:13,080
Speaker 1: a public BDC, which was like the public BDC was

453
00:20:13,080 --> 00:20:17,640
Speaker 1: trading like down twenty twenty percent something, and the shoulders revolted.

454
00:20:17,720 --> 00:20:21,080
Speaker 1: So I extrapolate from that to like, the shoulders certainly

455
00:20:21,119 --> 00:20:23,199
Speaker 1: don't want to sell to you down thirty five percent.

456
00:20:23,280 --> 00:20:25,160
Speaker 1: But that was months ago, and.

457
00:20:25,280 --> 00:20:27,719
Speaker 3: That was months ago, and I think the difference is

458
00:20:28,280 --> 00:20:31,680
Speaker 3: the collective will of those shareholders versus the individual action,

459
00:20:32,040 --> 00:20:34,240
Speaker 3: because again, you know, you couldn't.

460
00:20:33,920 --> 00:20:35,439
Speaker 1: Get fifty percent to vote for it, but can they

461
00:20:35,480 --> 00:20:36,800
Speaker 1: get ten percent to sell to you?

462
00:20:37,080 --> 00:20:40,080
Speaker 3: Yeah, Like there are gonna be some people that actually

463
00:20:40,119 --> 00:20:42,639
Speaker 3: think our bid is high and will sell to us,

464
00:20:42,680 --> 00:20:44,800
Speaker 3: and there are some people that think that they actually

465
00:20:44,880 --> 00:20:47,160
Speaker 3: really need the money or they're afraid of marks coming

466
00:20:47,200 --> 00:20:51,119
Speaker 3: down or getting gated worse. So I would say, I

467
00:20:51,119 --> 00:20:53,200
Speaker 3: don't know, like I don't know, like you you know, I'm.

468
00:20:53,119 --> 00:20:53,639
Speaker 2: Going to wait.

469
00:20:53,920 --> 00:20:55,679
Speaker 3: Also, the form in which it occurs, it makes it

470
00:20:55,720 --> 00:20:57,920
Speaker 3: hard to get filled. But I'd be surprised we didn't

471
00:20:57,960 --> 00:20:58,119
Speaker 3: get some.

472
00:21:12,720 --> 00:21:14,600
Speaker 4: I'm curious. I mean, this is something that we were

473
00:21:14,640 --> 00:21:17,000
Speaker 4: talking about, and that makes the good point. We're all

474
00:21:17,040 --> 00:21:18,600
Speaker 4: going to learn a lot if you do get filled.

475
00:21:18,880 --> 00:21:21,520
Speaker 4: But is this the cleanest trade that you could have

476
00:21:21,560 --> 00:21:23,960
Speaker 4: put on, because you know, you mentioned that your short

477
00:21:24,000 --> 00:21:27,119
Speaker 4: public credit, You've said elsewhere that you know your long

478
00:21:27,160 --> 00:21:31,280
Speaker 4: blue oul stock. It's a clunky process. It involves mail.

479
00:21:31,400 --> 00:21:34,679
Speaker 4: There's scary letters being tossed about, and this isn't happening

480
00:21:34,800 --> 00:21:37,520
Speaker 4: until April. So would there have been a cleaner, more

481
00:21:37,560 --> 00:21:41,920
Speaker 4: efficient way to sort of go about this trade? Why specifically?

482
00:21:42,000 --> 00:21:42,280
Speaker 4: Like this?

483
00:21:42,640 --> 00:21:42,840
Speaker 2: Right?

484
00:21:43,040 --> 00:21:44,760
Speaker 3: So what you could do is just try to buy

485
00:21:44,800 --> 00:21:48,000
Speaker 3: individual loans that you like because they're for sale. The

486
00:21:48,040 --> 00:21:51,479
Speaker 3: thing is that kind of secondary market for loans. In

487
00:21:51,480 --> 00:21:55,480
Speaker 3: some sense, it's very competitive because the loans that they're

488
00:21:55,520 --> 00:21:57,240
Speaker 3: going to be willing to sell to you at eighty

489
00:21:57,280 --> 00:21:59,639
Speaker 3: eight instead of ninety eight maybe are not the ones

490
00:21:59,720 --> 00:22:02,000
Speaker 3: you know. So first it doesn't play to our strength

491
00:22:02,000 --> 00:22:05,240
Speaker 3: as like we're not a deep distressed shop. And you know,

492
00:22:05,280 --> 00:22:07,639
Speaker 3: it's better than buying a thing at eighty eight that

493
00:22:07,680 --> 00:22:09,639
Speaker 3: someone wants to sell to you at eighty eight and

494
00:22:09,680 --> 00:22:11,679
Speaker 3: out of their whole portfolio is buying the whole thing

495
00:22:11,680 --> 00:22:15,560
Speaker 3: at sixty five and probably so I think it is

496
00:22:16,000 --> 00:22:18,840
Speaker 3: pretty clean if we get it. The mess is in

497
00:22:18,880 --> 00:22:20,720
Speaker 3: doing something new for the first time. This will be

498
00:22:20,760 --> 00:22:23,560
Speaker 3: really the first time this has happened, and operationally it's

499
00:22:23,680 --> 00:22:26,000
Speaker 3: you know, you're writing thousands of tickets. They're pretty some

500
00:22:26,040 --> 00:22:28,359
Speaker 3: of them are really small size. If it happens, so

501
00:22:28,720 --> 00:22:30,879
Speaker 3: I think the danger, as we're early, we're going to

502
00:22:30,960 --> 00:22:32,600
Speaker 3: lose money on this first trade.

503
00:22:32,240 --> 00:22:33,720
Speaker 1: If you get it, Like, how do you get out

504
00:22:33,720 --> 00:22:35,480
Speaker 1: of the trade. Is it like you put in your

505
00:22:35,480 --> 00:22:38,320
Speaker 1: five percent every quarter or is it like you like

506
00:22:39,200 --> 00:22:41,000
Speaker 1: call them up and cut a deal. Or is it

507
00:22:41,080 --> 00:22:43,760
Speaker 1: you just hold it until twenty years or.

508
00:22:44,040 --> 00:22:46,560
Speaker 3: I will be in line like everyone else and I

509
00:22:46,560 --> 00:22:48,560
Speaker 3: will get my five percent a quarter.

510
00:22:49,240 --> 00:22:52,920
Speaker 1: Which do you do that? Because like clearly you think

511
00:22:53,000 --> 00:22:58,760
Speaker 1: value is somewhere between fifty five and one hundred ninety five.

512
00:22:58,880 --> 00:22:59,159
Speaker 2: Yeah. No.

513
00:22:59,200 --> 00:23:01,480
Speaker 3: By the way, one thing I learned my first year

514
00:23:01,520 --> 00:23:04,000
Speaker 3: at Goldman Sachs as a summer intern is because I

515
00:23:04,000 --> 00:23:05,520
Speaker 3: didn't know much, I knew that like, if you have

516
00:23:05,560 --> 00:23:07,800
Speaker 3: a coupon of eight out of par and the price

517
00:23:07,840 --> 00:23:09,560
Speaker 3: goes down, the eight goes up, your yield goes up.

518
00:23:09,640 --> 00:23:11,960
Speaker 3: So now let's think about it in the context of

519
00:23:11,960 --> 00:23:14,680
Speaker 3: this fund. Your yield instead of you know, getting seven

520
00:23:14,760 --> 00:23:18,080
Speaker 3: percent at one hundred, you know, you're getting eleven percent,

521
00:23:18,480 --> 00:23:20,280
Speaker 3: you know, or ten and a half percent at sixty five.

522
00:23:20,359 --> 00:23:23,479
Speaker 3: Your checks from Blue Awl you're getting you Yeah, you're

523
00:23:23,480 --> 00:23:26,639
Speaker 3: getting an enhanced coopon. Let's hope the nabs don't come

524
00:23:26,640 --> 00:23:29,120
Speaker 3: down so quickly that you have, you know, principal losses.

525
00:23:29,480 --> 00:23:31,760
Speaker 1: So there are people. There are dentists who are running

526
00:23:31,800 --> 00:23:33,479
Speaker 1: it out who are very parish on this. There are

527
00:23:33,520 --> 00:23:37,639
Speaker 1: you who are a bitter at sixty five but like

528
00:23:38,080 --> 00:23:41,040
Speaker 1: sound pretty bearish on like broadly speaking, the portfolios of

529
00:23:41,080 --> 00:23:43,280
Speaker 1: private credit. And then there's the people who run these

530
00:23:43,320 --> 00:23:46,920
Speaker 1: funds who say they're pretty bullish and that this is

531
00:23:46,960 --> 00:23:50,320
Speaker 1: all over blown and they're still getting institutional inflos and

532
00:23:50,400 --> 00:23:53,680
Speaker 1: everything's marked at par and whatever I have written. If

533
00:23:53,720 --> 00:23:57,879
Speaker 1: I were running like say Blackstone, and I were putting

534
00:23:57,880 --> 00:24:00,000
Speaker 1: in my own money to cash people out when they're

535
00:24:00,080 --> 00:24:04,000
Speaker 1: asking to redeem, I would be pretty annoyed that I

536
00:24:04,040 --> 00:24:07,399
Speaker 1: was doing it at par and not at eighty or ninety.

537
00:24:08,400 --> 00:24:10,760
Speaker 1: You are offering it sixty five, and like black Son

538
00:24:10,840 --> 00:24:12,919
Speaker 1: can't really do that because like they have forty eight

539
00:24:13,040 --> 00:24:15,959
Speaker 1: obligations and like it's a marketing disaster. But like I

540
00:24:16,000 --> 00:24:17,840
Speaker 1: was thinking, there should be like a round robin where

541
00:24:17,880 --> 00:24:21,120
Speaker 1: like Black cent is bidding eighty for like hps's loans,

542
00:24:21,119 --> 00:24:23,840
Speaker 1: and HPS is bidding eighty for like Blue Owls loans,

543
00:24:23,840 --> 00:24:26,720
Speaker 1: and everyone's bidding eighty for each other's loans because, like you,

544
00:24:26,880 --> 00:24:29,040
Speaker 1: the publicly traded BDC's really closed one funds, right, which

545
00:24:29,080 --> 00:24:31,040
Speaker 1: is like trading like eighty. You can you can go

546
00:24:31,080 --> 00:24:33,000
Speaker 1: to a tender if you want, right, But like then

547
00:24:33,040 --> 00:24:35,760
Speaker 1: you have these private funds where you could you are

548
00:24:35,760 --> 00:24:37,639
Speaker 1: doing a tender at sixty five and you may get filled.

549
00:24:37,680 --> 00:24:41,920
Speaker 1: Like why aren't the managers trying to buy back their

550
00:24:41,920 --> 00:24:46,119
Speaker 1: own stuff at sixty five when they think it's worth

551
00:24:46,160 --> 00:24:46,679
Speaker 1: one hundred?

552
00:24:46,880 --> 00:24:50,679
Speaker 3: So without trying to flatter the interlocutor, I read what

553
00:24:50,720 --> 00:24:53,040
Speaker 3: you said, and I thought that was so interesting. Why

554
00:24:53,040 --> 00:24:54,960
Speaker 3: don't they just each buy their own stuff at eighty

555
00:24:55,000 --> 00:24:57,199
Speaker 3: if I'm paying sixty five? Here's the problem with it.

556
00:24:57,600 --> 00:25:00,240
Speaker 3: This is the irony of it to pay eighty when

557
00:25:00,280 --> 00:25:03,240
Speaker 3: their own BDCs are at sixty only makes sense if

558
00:25:03,280 --> 00:25:06,120
Speaker 3: they're going to redeem. Why does eighty make sense? Eighty

559
00:25:06,160 --> 00:25:08,360
Speaker 3: makes sense only if you can get back one hundred

560
00:25:08,560 --> 00:25:10,560
Speaker 3: sooner why would you not want to buy more more

561
00:25:10,640 --> 00:25:13,000
Speaker 3: or less the same portfolio at sixty People are selling

562
00:25:13,119 --> 00:25:16,840
Speaker 3: FSK at forty eight percent today, why not buy that back?

563
00:25:17,200 --> 00:25:19,280
Speaker 1: You're saying you should buy its public BDC.

564
00:25:19,480 --> 00:25:21,919
Speaker 3: That's yeah, you don't know, because the public BDC doesn't

565
00:25:21,920 --> 00:25:25,080
Speaker 3: have the five percent a quarter put. So so if

566
00:25:25,080 --> 00:25:27,040
Speaker 3: someone's going to pay eighty, they're going to pay eighty.

567
00:25:27,200 --> 00:25:29,600
Speaker 3: The whole basis of it is so you can redeem.

568
00:25:29,720 --> 00:25:31,919
Speaker 3: Manager A is going to redeem from manager being manager

569
00:25:31,960 --> 00:25:34,639
Speaker 3: be it and redeem from manager A. Well, okay, but

570
00:25:34,840 --> 00:25:37,360
Speaker 3: so maybe that's a good trade in some ways, it's

571
00:25:37,359 --> 00:25:40,439
Speaker 3: almost scary like then, it's just they don't even believe

572
00:25:40,480 --> 00:25:42,359
Speaker 3: in the in the value of it. They believe in

573
00:25:42,800 --> 00:25:45,280
Speaker 3: the structure giving the five percent a quarter, and that

574
00:25:45,280 --> 00:25:47,879
Speaker 3: would be much less bullish signal. But yes, if they

575
00:25:47,880 --> 00:25:49,440
Speaker 3: did that, they would they would have a higher bid

576
00:25:49,480 --> 00:25:52,840
Speaker 3: than me. They also have their their GP stakes to

577
00:25:53,040 --> 00:25:55,680
Speaker 3: justify you know, overpaying if you will. But I think

578
00:25:55,680 --> 00:25:58,879
Speaker 3: when you see all these BDCs at really big discounts

579
00:25:59,040 --> 00:26:02,600
Speaker 3: public BDCs, it's really hard to justify private BDCs at

580
00:26:02,640 --> 00:26:04,719
Speaker 3: much smaller discounts. And that's what you're talking about here.

581
00:26:04,800 --> 00:26:06,040
Speaker 1: Yeah, I thinks that's right.

582
00:26:06,359 --> 00:26:08,600
Speaker 4: When it comes to this show. I also wanted to

583
00:26:08,600 --> 00:26:11,560
Speaker 4: ask in both the example of Blue Al and with Starwood,

584
00:26:11,600 --> 00:26:14,840
Speaker 4: you partnered with Cox. I believe I had never heard

585
00:26:14,880 --> 00:26:17,320
Speaker 4: of them. They're based in Philly, they were founded in

586
00:26:17,359 --> 00:26:21,800
Speaker 4: twenty twenty. Why go the partnership route? How did that

587
00:26:22,040 --> 00:26:22,680
Speaker 4: come together?

588
00:26:22,920 --> 00:26:23,000
Speaker 1: Like?

589
00:26:23,280 --> 00:26:25,800
Speaker 4: Did they approach you? Did you approach them? How did

590
00:26:25,840 --> 00:26:26,280
Speaker 4: it happen?

591
00:26:26,880 --> 00:26:30,560
Speaker 3: From just our activity and closed end funds? We developed

592
00:26:30,680 --> 00:26:34,119
Speaker 3: a following of you know, there's people that appreciate what

593
00:26:34,160 --> 00:26:35,960
Speaker 3: we're doing in closed in funds, and John Cox was

594
00:26:36,000 --> 00:26:38,320
Speaker 3: one of them, and so we developed a relationship. And

595
00:26:38,359 --> 00:26:41,960
Speaker 3: he has his expertise with the private BDC market and

596
00:26:42,000 --> 00:26:44,560
Speaker 3: he'd been doing in small size these kinds of transactions,

597
00:26:44,600 --> 00:26:48,080
Speaker 3: and so it's something where we felt since he was

598
00:26:48,280 --> 00:26:51,760
Speaker 3: aware of the flows in that market better certainly way

599
00:26:51,760 --> 00:26:54,320
Speaker 3: better than us, it would be a very nice partnership.

600
00:26:54,400 --> 00:26:57,520
Speaker 3: And that's one also that was forged through through Twitter.

601
00:26:57,680 --> 00:26:59,600
Speaker 3: Like you know, he replied to a message I wrote

602
00:26:59,600 --> 00:27:02,199
Speaker 3: many years ago, and so I actually have to say, like,

603
00:27:02,600 --> 00:27:04,760
Speaker 3: in these last two weeks, I've learned so much about

604
00:27:04,800 --> 00:27:07,719
Speaker 3: private BDCs thanks to people coming out of the woodwork

605
00:27:07,760 --> 00:27:08,800
Speaker 3: to send us their analysis.

606
00:27:08,880 --> 00:27:10,560
Speaker 1: Do you think of private credit? There's like a big

607
00:27:10,560 --> 00:27:15,080
Speaker 1: institutional drawdown fun SMA business, and then there's like the

608
00:27:15,119 --> 00:27:18,879
Speaker 1: sort of retail ish BDC stuff like do you have

609
00:27:18,920 --> 00:27:22,560
Speaker 1: a sense of what the institutional funds take? You're trying

610
00:27:22,560 --> 00:27:24,720
Speaker 1: to do a trade at like a thirty five percent discount?

611
00:27:24,720 --> 00:27:28,000
Speaker 1: Like is there an equivalent mark in like the institutional market,

612
00:27:28,040 --> 00:27:30,760
Speaker 1: Like is there a are there comps in that market?

613
00:27:31,000 --> 00:27:34,240
Speaker 3: Yeah? You might imagine that. Aside from our phone ringing

614
00:27:34,320 --> 00:27:36,199
Speaker 3: from reporters.

615
00:27:36,119 --> 00:27:38,600
Speaker 1: It's from the institutions who want to stakes.

616
00:27:38,920 --> 00:27:42,600
Speaker 3: Institutions that are very curious because they have these same

617
00:27:42,680 --> 00:27:43,760
Speaker 3: kind of positions marked at.

618
00:27:43,720 --> 00:27:46,200
Speaker 1: Par and you'll ask if you'll buy at sixty five?

619
00:27:46,320 --> 00:27:49,280
Speaker 3: No, no, no, they're they're they're like wondering, are we

620
00:27:49,320 --> 00:27:51,560
Speaker 3: going to get hit at sixty five? And if the

621
00:27:51,560 --> 00:27:54,960
Speaker 3: answer is yes, and you're that institution, do you not

622
00:27:55,400 --> 00:27:57,960
Speaker 3: redeem some at one hundred the way you can and

623
00:27:58,000 --> 00:28:00,639
Speaker 3: then go buy this at sixty five? Because again, I

624
00:28:00,640 --> 00:28:04,199
Speaker 3: think there's a huge reflexivity here that you know, and

625
00:28:04,280 --> 00:28:06,600
Speaker 3: even if even if I can't, okay, even if I can't,

626
00:28:06,600 --> 00:28:09,480
Speaker 3: I may get in on little to none. The existence

627
00:28:09,480 --> 00:28:12,840
Speaker 3: of these portfolio is in public BDCs at sixty cents

628
00:28:12,840 --> 00:28:15,800
Speaker 3: in the dollar. Forget about twenty five cents discounts forty

629
00:28:15,880 --> 00:28:18,440
Speaker 3: fifty cent discounts. You know, maybe those are the more extreme,

630
00:28:18,640 --> 00:28:21,679
Speaker 3: but at least thirty percent discounts for really great names

631
00:28:22,280 --> 00:28:26,480
Speaker 3: is a huge stain on the manager's ability with a

632
00:28:26,520 --> 00:28:29,000
Speaker 3: sophisticated investor to get them to buy new things at

633
00:28:29,000 --> 00:28:31,720
Speaker 3: one hundred. And in fact of anything, not a lot

634
00:28:31,720 --> 00:28:34,760
Speaker 3: of these institutions are not really trader, you know, Joe trader,

635
00:28:34,880 --> 00:28:36,840
Speaker 3: like they're going to sell and buy. They are thinking

636
00:28:36,880 --> 00:28:41,280
Speaker 3: about relationships and also long term movements, but it is

637
00:28:41,320 --> 00:28:46,160
Speaker 3: hard to understand why their clients are not well served

638
00:28:46,320 --> 00:28:49,440
Speaker 3: by redeeming a fund at one hundred and buying that

639
00:28:49,520 --> 00:28:52,480
Speaker 3: same manager's fund at seventy. Even for example, I've said

640
00:28:52,480 --> 00:28:54,840
Speaker 3: some great things about Apollo. I've known Jim Zelter since

641
00:28:54,880 --> 00:28:56,800
Speaker 3: I was a kid. He's such a good guy and

642
00:28:56,840 --> 00:28:58,680
Speaker 3: runs credit there and I've learned so much from him.

643
00:28:58,800 --> 00:29:01,240
Speaker 3: But even like an Apollo beat is at a thirty discount.

644
00:29:01,240 --> 00:29:04,560
Speaker 3: So so like that trade of in the in the

645
00:29:04,680 --> 00:29:07,760
Speaker 3: vehicles that allow NAV redemption, like it like a private BDC,

646
00:29:07,880 --> 00:29:09,920
Speaker 3: but lots of other kinds of things how do you

647
00:29:10,000 --> 00:29:12,720
Speaker 3: not in a sense sell manager A at one hundred

648
00:29:12,800 --> 00:29:13,760
Speaker 3: and buy Manager A.

649
00:29:13,600 --> 00:29:16,720
Speaker 1: At seventy because you keep getting that they're continue to

650
00:29:16,720 --> 00:29:19,360
Speaker 1: be institutional inflows like the drop off.

651
00:29:19,280 --> 00:29:22,680
Speaker 3: Of not only that, I'm shocked, Like I keep coming

652
00:29:22,680 --> 00:29:26,000
Speaker 3: back to how beautifully Blackstone has handled this and treated

653
00:29:26,040 --> 00:29:29,840
Speaker 3: their investors. We saw, for example, I believe it's HPS

654
00:29:30,200 --> 00:29:33,240
Speaker 3: which kind of top tick to sale to black Rock

655
00:29:33,280 --> 00:29:35,280
Speaker 3: when you look at the GP stakes of all their

656
00:29:35,320 --> 00:29:39,000
Speaker 3: peers and each lend. So one of their funds had

657
00:29:39,400 --> 00:29:41,760
Speaker 3: a lot of inflows and they had more than five

658
00:29:41,800 --> 00:29:44,800
Speaker 3: percent outflows, and they chose to only pay out five percent,

659
00:29:45,200 --> 00:29:47,400
Speaker 3: but they could have paid out more than five and

660
00:29:47,440 --> 00:29:50,480
Speaker 3: they and they had enough coming in that Like unless

661
00:29:50,560 --> 00:29:52,720
Speaker 3: the logic it's like perverse that you say, well, if

662
00:29:52,720 --> 00:29:55,440
Speaker 3: I pay out more than I'm telling people they should

663
00:29:55,440 --> 00:29:58,000
Speaker 3: redeem more. I don't know if it's game theory, but

664
00:29:58,120 --> 00:30:00,239
Speaker 3: like if I got six percent inflows and I six

665
00:30:00,320 --> 00:30:02,600
Speaker 3: percent outflows, you know, I mean I work in a

666
00:30:02,600 --> 00:30:04,840
Speaker 3: hedge fund. We have investors and want their money back quarterly,

667
00:30:04,840 --> 00:30:06,520
Speaker 3: and we just hand it to them. But this idea

668
00:30:06,520 --> 00:30:08,040
Speaker 3: of like no, I'm going to get you, I'm gonna

669
00:30:08,040 --> 00:30:11,520
Speaker 3: suspend you. I really think the managers that do that stuff,

670
00:30:11,520 --> 00:30:13,720
Speaker 3: and especially the ones that convert to a closed in

671
00:30:13,800 --> 00:30:17,760
Speaker 3: fund like Blue Rock did, they are destroying the value

672
00:30:17,800 --> 00:30:20,200
Speaker 3: of their brand. And if they don't think they are

673
00:30:20,280 --> 00:30:23,680
Speaker 3: because their investors are too unsophisticated to understand it, they

674
00:30:23,760 --> 00:30:26,600
Speaker 3: might be right for a little while. But I am

675
00:30:26,680 --> 00:30:30,239
Speaker 3: surprised that more funds are not acting like Blackstone and

676
00:30:30,280 --> 00:30:33,320
Speaker 3: paying out extra redemptions to say, come on, guys, you

677
00:30:33,360 --> 00:30:35,560
Speaker 3: know we're going to actually treat you really well.

678
00:30:35,760 --> 00:30:38,880
Speaker 1: Yeah, Like I'm sympathetic to like what HPS said is,

679
00:30:38,920 --> 00:30:44,520
Speaker 1: you know, we promised rights, but also like spreads are wide,

680
00:30:44,640 --> 00:30:46,680
Speaker 1: so we're gonna put money to work, right, Like we're

681
00:30:46,680 --> 00:30:48,800
Speaker 1: in the businesses making loans, Like we have inflows to

682
00:30:48,800 --> 00:30:50,520
Speaker 1: make loans, and we're gonna make loans of our inflows.

683
00:30:50,600 --> 00:30:54,880
Speaker 1: And there's a reason that there's a reason there's limited

684
00:30:54,920 --> 00:30:57,080
Speaker 1: liquidity here, which is that like the underlying product has

685
00:30:57,080 --> 00:30:59,280
Speaker 1: limited liquidity, and like we're not gonna just like shut

686
00:30:59,280 --> 00:31:00,400
Speaker 1: down our business money.

687
00:31:00,400 --> 00:31:02,040
Speaker 2: But they wouldn't have had to they had more inflows

688
00:31:02,080 --> 00:31:02,600
Speaker 2: than outflows.

689
00:31:02,640 --> 00:31:05,560
Speaker 1: They could have paid what I believe is they had

690
00:31:05,600 --> 00:31:09,640
Speaker 1: like something like nine percent requested outflows and like they

691
00:31:09,640 --> 00:31:12,360
Speaker 1: had more inflows than the five percent paid that not

692
00:31:12,520 --> 00:31:13,320
Speaker 1: more than the nine percent.

693
00:31:13,360 --> 00:31:13,560
Speaker 2: Busy.

694
00:31:13,640 --> 00:31:16,719
Speaker 3: Yeah, right, so I'm used to funds shrinking and rising.

695
00:31:16,760 --> 00:31:18,400
Speaker 3: I you know, I launched in a very hard time

696
00:31:18,400 --> 00:31:21,200
Speaker 3: in nine went up to five point four billion. We

697
00:31:21,840 --> 00:31:23,800
Speaker 3: we then were as low as one and a quarter billion.

698
00:31:23,840 --> 00:31:25,880
Speaker 3: We paid out every outflow and we didn't We were like,

699
00:31:25,880 --> 00:31:27,720
Speaker 3: here's your money. I hope you come back, but this

700
00:31:27,960 --> 00:31:30,600
Speaker 3: like kind of we only owe you five. Yeah, but

701
00:31:30,640 --> 00:31:32,520
Speaker 3: the manager does have an ability to go to seven,

702
00:31:33,000 --> 00:31:36,000
Speaker 3: and so you could. And when Blackstone had more than seven,

703
00:31:36,040 --> 00:31:38,680
Speaker 3: they actually solved it through this like extreme action of

704
00:31:38,800 --> 00:31:40,320
Speaker 3: paying one hundred. As you know, you were saying, why

705
00:31:40,320 --> 00:31:42,880
Speaker 3: didn't they pay eighty? So you're right, HPS is well

706
00:31:42,880 --> 00:31:44,680
Speaker 3: within its rights to do it, and I think really

707
00:31:44,720 --> 00:31:47,120
Speaker 3: well them as a manager, but I think I would

708
00:31:47,120 --> 00:31:49,120
Speaker 3: have done it differently. And I think these BDCs a

709
00:31:49,160 --> 00:31:52,080
Speaker 3: giant discounts. That's these public bdc That's a whole other

710
00:31:52,120 --> 00:31:55,320
Speaker 3: topic that has some interesting nuance that I'd love to.

711
00:31:55,200 --> 00:31:56,120
Speaker 1: Talk a bit more about it.

712
00:31:56,320 --> 00:31:59,640
Speaker 3: Like, yeah, so I'm not only making the news in

713
00:31:59,680 --> 00:32:02,160
Speaker 3: this blue out thing, but I'm also watching the news

714
00:32:02,520 --> 00:32:05,600
Speaker 3: and I watched this conference call, and you know, FSK

715
00:32:05,840 --> 00:32:08,920
Speaker 3: is run in part by somebody that I think very

716
00:32:08,920 --> 00:32:11,320
Speaker 3: well of and worked well with at Deutsche Bank, Dan

717
00:32:11,360 --> 00:32:15,280
Speaker 3: Peter Zach And I really like Dan. And I don't

718
00:32:15,320 --> 00:32:17,600
Speaker 3: know whose voice was on the call. I like saw

719
00:32:17,600 --> 00:32:21,160
Speaker 3: this on Twitter. But basically, this analyst from another fund

720
00:32:21,400 --> 00:32:23,400
Speaker 3: asked so gently a question where I would you know,

721
00:32:23,400 --> 00:32:27,080
Speaker 3: in my sharp be elbows from closing funds. I would

722
00:32:27,080 --> 00:32:28,800
Speaker 3: have been a little bit less, you know, it would

723
00:32:28,800 --> 00:32:31,160
Speaker 3: have been polite, but like he was super polite. He's like,

724
00:32:31,720 --> 00:32:34,760
Speaker 3: so your fund is trading at a fifty percent discount

725
00:32:34,760 --> 00:32:35,080
Speaker 3: to book.

726
00:32:35,320 --> 00:32:36,520
Speaker 2: I'm going to have paraphrase, you have.

727
00:32:36,440 --> 00:32:38,200
Speaker 3: Some loans that came do that, you got paid your

728
00:32:38,200 --> 00:32:40,440
Speaker 3: money back, you got some coupons in Why do you

729
00:32:40,440 --> 00:32:43,680
Speaker 3: continue to make new investments when you can buy back

730
00:32:43,720 --> 00:32:46,400
Speaker 3: your portfolio at a fifty percent discount. Now, I'm going

731
00:32:46,480 --> 00:32:49,840
Speaker 3: to paraphrase, if the nav is right, that's one hundred

732
00:32:49,840 --> 00:32:52,640
Speaker 3: percent guaranteed return. If the nav is wrong and it's not,

733
00:32:52,640 --> 00:32:54,760
Speaker 3: shouldn't be one hundred, it should be an eighty. It's

734
00:32:54,760 --> 00:32:57,960
Speaker 3: a sixty percent guaranteed return. So any kind of like wow,

735
00:32:58,000 --> 00:32:59,960
Speaker 3: I can make a new loan at five hundred over

736
00:33:00,040 --> 00:33:02,400
Speaker 3: and I can make an eleven percent awesome loan or

737
00:33:02,440 --> 00:33:06,239
Speaker 3: it's thirteen percent awesome loan. So what's really going on

738
00:33:06,400 --> 00:33:09,080
Speaker 3: is you don't want your fund which has a NAV

739
00:33:09,440 --> 00:33:11,520
Speaker 3: of five point six billion but is trading a two

740
00:33:11,520 --> 00:33:13,560
Speaker 3: point eight billion. You don't want that five point six

741
00:33:13,600 --> 00:33:15,360
Speaker 3: to shrink because you're paid fees. By the way, they're

742
00:33:15,400 --> 00:33:17,760
Speaker 3: paid fees on NAV. You know, you invest in these

743
00:33:17,760 --> 00:33:21,640
Speaker 3: funds at this discount, they're paid their fee on basically

744
00:33:21,640 --> 00:33:24,120
Speaker 3: twice the price. You don't want to shrink. And so

745
00:33:24,480 --> 00:33:26,920
Speaker 3: when they don't go into the market and buy back

746
00:33:26,960 --> 00:33:29,720
Speaker 3: shares at a fifty percent discount, which is one hundred

747
00:33:29,720 --> 00:33:31,720
Speaker 3: percent to the upside because they want to make a

748
00:33:31,720 --> 00:33:34,680
Speaker 3: new loan at twelve percent, greed is laid bare.

749
00:33:35,080 --> 00:33:37,720
Speaker 1: Yeah, I get that. I feel like the last six

750
00:33:37,760 --> 00:33:40,320
Speaker 1: months until the last two weeks has been a lot

751
00:33:40,320 --> 00:33:43,680
Speaker 1: of talking about like retailizing private credit, and if I

752
00:33:43,760 --> 00:33:47,840
Speaker 1: were a big manager, I might think I want to

753
00:33:47,920 --> 00:33:53,600
Speaker 1: have a big listed retail private credit permanent capital vehicle

754
00:33:54,320 --> 00:33:57,920
Speaker 1: for the long haul to put into four oh one ks,

755
00:33:58,320 --> 00:34:02,680
Speaker 1: to like be my flagship public vehicle and earning one

756
00:34:02,760 --> 00:34:08,160
Speaker 1: hundred percent return by shrinking that down to yeah, is

757
00:34:08,160 --> 00:34:11,360
Speaker 1: short sighted. We're in a we're in a tough optical

758
00:34:11,400 --> 00:34:15,040
Speaker 1: period for retail private credit. But like, if your long

759
00:34:15,120 --> 00:34:17,880
Speaker 1: term vision is you want to have a huge permanent

760
00:34:17,880 --> 00:34:22,080
Speaker 1: retail private credit vehicle, then like buying back shares hand

761
00:34:22,120 --> 00:34:24,120
Speaker 1: over fist is the wrong move. Now I take your

762
00:34:24,120 --> 00:34:25,719
Speaker 1: point that maybe it's the right move because it's like

763
00:34:25,800 --> 00:34:27,600
Speaker 1: cheryld er friendly and well, you know.

764
00:34:27,800 --> 00:34:30,600
Speaker 3: Agreative handover fist doesn't mean buying back one hundred percent

765
00:34:30,640 --> 00:34:32,879
Speaker 3: of the shares. If you said, I'm going to have

766
00:34:33,400 --> 00:34:35,680
Speaker 3: a fee holiday because I'm we're so sorry that your

767
00:34:35,680 --> 00:34:37,880
Speaker 3: stock's gone from you know X to you know point

768
00:34:37,880 --> 00:34:40,239
Speaker 3: four x, we're not going to charge fees for a year,

769
00:34:40,360 --> 00:34:43,279
Speaker 3: and we're going to take all cash flow and buy

770
00:34:43,280 --> 00:34:45,839
Speaker 3: back stock as long as the stock is at least

771
00:34:45,840 --> 00:34:47,480
Speaker 3: a thirty percent discun or we're going to do that

772
00:34:47,520 --> 00:34:50,480
Speaker 3: for a year and at least up to twenty five percent. Okay,

773
00:34:50,760 --> 00:34:53,320
Speaker 3: then they know they have seventy five percent left, Okay,

774
00:34:53,480 --> 00:34:55,759
Speaker 3: But in doing so, they would be raising the NAV

775
00:34:56,120 --> 00:34:58,520
Speaker 3: point by point by point, which would make the discount

776
00:34:58,520 --> 00:35:00,879
Speaker 3: even bigger if the stock didn't go up, okay, because

777
00:35:00,880 --> 00:35:03,000
Speaker 3: the NAV would be going up and so the discount

778
00:35:03,000 --> 00:35:05,800
Speaker 3: would be so they actually for buying back twenty five percent.

779
00:35:05,800 --> 00:35:09,000
Speaker 3: The shares may only shrink in my view ten percent

780
00:35:09,080 --> 00:35:11,080
Speaker 3: fifteen percent, but they would have been a manager that

781
00:35:11,120 --> 00:35:13,520
Speaker 3: did the right thing. They raised the nave up, which

782
00:35:13,600 --> 00:35:15,319
Speaker 3: had raised the price up. So this is where my

783
00:35:15,480 --> 00:35:18,360
Speaker 3: history with closing funds is so useful. I saw my

784
00:35:18,480 --> 00:35:21,239
Speaker 3: friend who runs Newburger Berman do that for a high

785
00:35:21,280 --> 00:35:24,240
Speaker 3: old fund, and that fund, after they did a tender

786
00:35:24,280 --> 00:35:26,160
Speaker 3: with us, which was very hard to get them to do,

787
00:35:26,760 --> 00:35:30,000
Speaker 3: that fund was able to issue equity and all of

788
00:35:30,040 --> 00:35:31,759
Speaker 3: the buybacks they did, they were able to raise even

789
00:35:31,760 --> 00:35:34,200
Speaker 3: more money in the secondary market, issuing at a premium

790
00:35:34,320 --> 00:35:37,239
Speaker 3: a high old fund. And so I think it is

791
00:35:37,880 --> 00:35:41,680
Speaker 3: it's so behooves managers not to pick one name managers

792
00:35:41,680 --> 00:35:44,360
Speaker 3: of BDC's trading at a more than thirty percent discount

793
00:35:44,719 --> 00:35:47,200
Speaker 3: to shrink, to grow their nav but to show their

794
00:35:47,239 --> 00:36:01,280
Speaker 3: shareholders that they care about them.

795
00:36:01,440 --> 00:36:03,000
Speaker 1: What do you think they'll do? We're sort of I

796
00:36:03,040 --> 00:36:06,200
Speaker 1: don't know. Halfway through this quarter is like BBC private

797
00:36:06,200 --> 00:36:09,279
Speaker 1: BDC redemption requests. We have all these stories about public

798
00:36:09,320 --> 00:36:11,520
Speaker 1: BDC's trading at discounts. There's going to be next quarter

799
00:36:11,680 --> 00:36:13,600
Speaker 1: you know who knows, right, Like, how's this going to

800
00:36:13,640 --> 00:36:15,560
Speaker 1: shake out? Is it all going to be you tendering

801
00:36:15,600 --> 00:36:17,920
Speaker 1: for stuff? Or is like someone going to find.

802
00:36:17,719 --> 00:36:20,320
Speaker 3: All me this whole space is like seven hundred billion.

803
00:36:20,880 --> 00:36:24,239
Speaker 3: I think that there isn't uniform everyone on the same

804
00:36:24,320 --> 00:36:27,520
Speaker 3: day votes. So Blackstone maybe because they were the best

805
00:36:27,520 --> 00:36:29,960
Speaker 3: manager were able to give or one of the best managers,

806
00:36:30,000 --> 00:36:32,000
Speaker 3: were able to give their investors the least amount of time,

807
00:36:32,280 --> 00:36:34,680
Speaker 3: and so the investors had to notify the Q one

808
00:36:34,719 --> 00:36:36,719
Speaker 3: redemption at the early est date. So Blackstone was the

809
00:36:36,719 --> 00:36:39,920
Speaker 3: first to announce because they have that brand. I think

810
00:36:40,120 --> 00:36:42,640
Speaker 3: if Blackstone had not announced seven point nine, there would

811
00:36:42,640 --> 00:36:44,200
Speaker 3: have been less redemptions with everyone else.

812
00:36:44,960 --> 00:36:47,279
Speaker 1: Yeah and yeah, I think it's clearly like everyone sees

813
00:36:47,320 --> 00:36:47,839
Speaker 1: the last one.

814
00:36:47,760 --> 00:36:49,919
Speaker 3: All right, and now people saw cliff Water and Blue

815
00:36:49,920 --> 00:36:51,239
Speaker 3: I will still open for redemptions.

816
00:36:52,440 --> 00:36:54,160
Speaker 2: We'll see you know. And once you go to like.

817
00:36:54,200 --> 00:36:55,960
Speaker 1: Yeah, and then like what do they do? Like you

818
00:36:56,000 --> 00:36:59,200
Speaker 1: get fifteen? Yeah, like what do you? What do you doing? Well,

819
00:36:59,239 --> 00:37:01,919
Speaker 1: so let me argue again, there's an hpis example which,

820
00:37:01,960 --> 00:37:03,920
Speaker 1: like you lot people in the private credit space were

821
00:37:03,920 --> 00:37:05,440
Speaker 1: like that's they did the right thing for in the

822
00:37:05,480 --> 00:37:07,279
Speaker 1: liquid product I know you disagree.

823
00:37:07,520 --> 00:37:09,520
Speaker 3: Well, look, no one made me the head of these firms,

824
00:37:09,600 --> 00:37:11,920
Speaker 3: So like that's just my opinion. If they're just going

825
00:37:11,920 --> 00:37:15,160
Speaker 3: to pay out five percent a quarter and those redemptions

826
00:37:15,160 --> 00:37:18,440
Speaker 3: are going to keep rising as they did for for example, Starwood,

827
00:37:18,800 --> 00:37:20,399
Speaker 3: they're going to have a multi year problem where it's

828
00:37:20,400 --> 00:37:22,560
Speaker 3: also going to be hard to raise new funds and

829
00:37:22,600 --> 00:37:25,680
Speaker 3: then they're going to be exposed to what's happening in

830
00:37:25,719 --> 00:37:27,560
Speaker 3: private credit. And again, I don't have to be a

831
00:37:27,640 --> 00:37:30,000
Speaker 3: Merlin to know that the navs are too high at

832
00:37:30,040 --> 00:37:32,840
Speaker 3: all of these funds. And they're not only too high

833
00:37:33,200 --> 00:37:35,560
Speaker 3: because it's too hard for them to mark them down.

834
00:37:35,800 --> 00:37:38,040
Speaker 3: They'll mark down what they observe, and then they'll do

835
00:37:38,120 --> 00:37:41,399
Speaker 3: some like matrix pricing. But JP Morgan just marked everything down,

836
00:37:41,400 --> 00:37:44,040
Speaker 3: so doesn't everything then have to come down? So I

837
00:37:44,080 --> 00:37:47,080
Speaker 3: think that really if the idea is just pay out

838
00:37:47,080 --> 00:37:49,839
Speaker 3: the five okay, so there's going to be this huge

839
00:37:49,920 --> 00:37:53,719
Speaker 3: queue and let's hope things stabilize. You know, Blackstone was

840
00:37:53,760 --> 00:37:56,399
Speaker 3: able to stabilize be read beautifully and maybe it maybe

841
00:37:56,440 --> 00:37:58,719
Speaker 3: it doesn't become as bad a thing. But at the

842
00:37:58,719 --> 00:38:01,799
Speaker 3: same time, you see all these horses together from the

843
00:38:01,800 --> 00:38:06,160
Speaker 3: default rate rising to the kind of nav recalibration, it's

844
00:38:06,160 --> 00:38:07,800
Speaker 3: not hard to see it getting really bad, and so

845
00:38:07,920 --> 00:38:10,080
Speaker 3: I wanted to at least say like, on the one hand,

846
00:38:10,160 --> 00:38:13,080
Speaker 3: when finally the bottom comes in, this product will be

847
00:38:13,160 --> 00:38:16,760
Speaker 3: really attractive, just like you know, eight closing funds got destroyed.

848
00:38:16,840 --> 00:38:18,919
Speaker 3: But in O nine when it was time to buy,

849
00:38:19,000 --> 00:38:20,800
Speaker 3: you're like, wait, I get to buy the HIGHLD market

850
00:38:21,000 --> 00:38:23,800
Speaker 3: at the lows and I get another thirty points discount

851
00:38:23,800 --> 00:38:26,319
Speaker 3: on top, Like this will be a great long At

852
00:38:26,320 --> 00:38:28,920
Speaker 3: some point. I think I'm early with this first tender,

853
00:38:29,160 --> 00:38:31,800
Speaker 3: but I think where we priced it will probably do okay.

854
00:38:32,280 --> 00:38:33,799
Speaker 1: They talk about like how is this going to shake out?

855
00:38:33,800 --> 00:38:34,960
Speaker 1: How the managers are going to do it? And you

856
00:38:35,200 --> 00:38:38,880
Speaker 1: mentioned be read as a shining star of what you

857
00:38:38,880 --> 00:38:41,160
Speaker 1: should do, Like is there a play like that here?

858
00:38:41,200 --> 00:38:45,120
Speaker 1: As they're like getting institutions to sign up to do

859
00:38:45,160 --> 00:38:47,640
Speaker 1: something like what you're doing, you know, like to provide

860
00:38:47,680 --> 00:38:50,239
Speaker 1: liquidity again, Like the thing that troubles me is like

861
00:38:50,840 --> 00:38:53,279
Speaker 1: the talk is the institutional market is still pretty good, right,

862
00:38:53,320 --> 00:38:55,759
Speaker 1: and that's it's like a strange disconnect from like the

863
00:38:55,840 --> 00:38:56,760
Speaker 1: dentist's redeeming.

864
00:38:56,960 --> 00:38:59,600
Speaker 3: Yeah, I mean, if only there wasn't that pesky thing

865
00:38:59,640 --> 00:39:02,279
Speaker 3: called pub BDCs, and we could we could wonder about

866
00:39:02,320 --> 00:39:05,359
Speaker 3: the thought experiment of Saba bidding sixty five cents when

867
00:39:05,360 --> 00:39:08,239
Speaker 3: there's the real world examples of tons of stuff at

868
00:39:08,280 --> 00:39:10,200
Speaker 3: sixty fifty five sixty five seventy.

869
00:39:10,560 --> 00:39:12,400
Speaker 2: So like, yes, you can.

870
00:39:12,600 --> 00:39:15,440
Speaker 3: You can have this kind of cognitive dissonance where the

871
00:39:15,480 --> 00:39:17,680
Speaker 3: manager can still raise new money at NAV while their

872
00:39:17,719 --> 00:39:20,879
Speaker 3: old money is at from smart investors while their old

873
00:39:20,880 --> 00:39:23,520
Speaker 3: money is at seventy. Because someone is a bucket to

874
00:39:23,600 --> 00:39:26,319
Speaker 3: make new private credit investments, but they don't have a

875
00:39:26,320 --> 00:39:28,640
Speaker 3: bucket to do BDCs because they don't do tickers, they

876
00:39:28,680 --> 00:39:31,120
Speaker 3: don't do market You know. That gets to another thing,

877
00:39:31,160 --> 00:39:33,520
Speaker 3: back to one of your recent guests, Okay, who I

878
00:39:33,560 --> 00:39:37,040
Speaker 3: have like huge admiration for. Like I think if I

879
00:39:37,080 --> 00:39:39,160
Speaker 3: had to be like on a desert island of somebody,

880
00:39:39,200 --> 00:39:42,879
Speaker 3: I think it's cliff astness. Okay, And not just because

881
00:39:42,920 --> 00:39:45,359
Speaker 3: I get to put you know, sunscreen on his on

882
00:39:45,400 --> 00:39:48,440
Speaker 3: his bald head to protect him, but also we were

883
00:39:48,480 --> 00:39:51,600
Speaker 3: just by the way, coincidentally in Milan during the US

884
00:39:52,000 --> 00:39:53,839
Speaker 3: hockey game. It was just an amazing he's a huge

885
00:39:53,880 --> 00:39:56,600
Speaker 3: hockey fan and I'm aspiring. But when he talked about

886
00:39:56,680 --> 00:40:00,040
Speaker 3: volatility laundering. He's really like the father this whole, like

887
00:40:00,440 --> 00:40:02,879
Speaker 3: the bug becomes the feature. I want to just tell you, really,

888
00:40:02,960 --> 00:40:03,400
Speaker 3: I agree.

889
00:40:03,200 --> 00:40:05,040
Speaker 1: With that all the time, like his point that like

890
00:40:05,800 --> 00:40:10,480
Speaker 1: people want liquidity, and like arguably, yeah, you know, public

891
00:40:10,520 --> 00:40:12,759
Speaker 1: B two c's traded seventy percent traded at thirty percent

892
00:40:12,760 --> 00:40:15,680
Speaker 1: discount because they tell you that, and private credit brought

893
00:40:15,760 --> 00:40:17,399
Speaker 1: on funds and don't trade at discount because they don't

894
00:40:17,400 --> 00:40:17,600
Speaker 1: tell you.

895
00:40:17,600 --> 00:40:19,839
Speaker 3: Then, So there's a moment in April twenty twenty three

896
00:40:19,960 --> 00:40:22,840
Speaker 3: when I kind of howl at the moon because I

897
00:40:22,880 --> 00:40:25,720
Speaker 3: saw one pager from Cliff Water that professed an eleven

898
00:40:25,800 --> 00:40:28,040
Speaker 3: sharp in their fund and you know, we all know

899
00:40:28,080 --> 00:40:30,120
Speaker 3: eleven sharp takes you back to like the land of

900
00:40:30,160 --> 00:40:32,480
Speaker 3: the dinosaurs, when when you would have had a big

901
00:40:32,560 --> 00:40:35,920
Speaker 3: draw down, but this thing where private credit gets marked

902
00:40:35,960 --> 00:40:37,600
Speaker 3: every month the same. So I kind of howld at

903
00:40:37,640 --> 00:40:40,120
Speaker 3: the moon. Kieran Goodwin howld at the moon, and Cliff

904
00:40:40,200 --> 00:40:42,880
Speaker 3: jumped in in that debate, you know, and I was

905
00:40:42,920 --> 00:40:46,839
Speaker 3: thinking about that conversation. We're just howling it into Twitter.

906
00:40:47,800 --> 00:40:48,080
Speaker 2: Twitter.

907
00:40:48,080 --> 00:40:50,120
Speaker 1: First, no one is like, no, that eleven sharp is right?

908
00:40:50,320 --> 00:40:52,440
Speaker 3: Yea, yeah, Oka, Well, obviously Cliff Water put it on

909
00:40:52,480 --> 00:40:52,960
Speaker 3: their page.

910
00:40:53,000 --> 00:40:53,200
Speaker 2: You know.

911
00:40:53,440 --> 00:40:57,640
Speaker 3: So all right, I think I've said enough about them.

912
00:40:57,719 --> 00:40:59,160
Speaker 3: But but but the really story is about it.

913
00:40:59,160 --> 00:41:00,480
Speaker 1: You know how much of this there?

914
00:41:00,680 --> 00:41:02,720
Speaker 3: Oh my god, the story is a year. The story

915
00:41:02,800 --> 00:41:06,480
Speaker 3: actually continues to September. September. I'm sitting in the office

916
00:41:06,760 --> 00:41:12,000
Speaker 3: of the CEO of a really venerable insurance company and

917
00:41:12,239 --> 00:41:14,560
Speaker 3: they want to put my closed in fund product on

918
00:41:14,600 --> 00:41:17,439
Speaker 3: their platform. Could look at the ETF on stock ee change.

919
00:41:17,480 --> 00:41:19,920
Speaker 3: Let's say we made twelve percent or something, okay, And

920
00:41:19,920 --> 00:41:22,640
Speaker 3: he says, you know, here's my problem. You want me

921
00:41:22,680 --> 00:41:24,520
Speaker 3: to pay these fees. By the way, they're not two

922
00:41:24,560 --> 00:41:26,880
Speaker 3: and twenty or whatever, but I want a fee discount.

923
00:41:26,880 --> 00:41:29,719
Speaker 3: And I said, well, we're capacity constrained. And he said, well,

924
00:41:29,800 --> 00:41:34,200
Speaker 3: but Apollo is giving us a fee discount. And I said, well,

925
00:41:34,360 --> 00:41:37,560
Speaker 3: but Apollo is basically unlimited capacity to keep making more

926
00:41:37,640 --> 00:41:40,160
Speaker 3: private credit. And he said, but you don't understand. My

927
00:41:40,239 --> 00:41:43,440
Speaker 3: investors for the last three years have received one percent

928
00:41:43,480 --> 00:41:46,879
Speaker 3: a month, like clockwork, one every single month, twelve a year,

929
00:41:47,080 --> 00:41:48,880
Speaker 3: you know, with leverage minus fees. So now they were

930
00:41:48,880 --> 00:41:52,200
Speaker 3: able to get twelve and literally zero marked market volatility

931
00:41:52,200 --> 00:41:54,319
Speaker 3: back to the cliff order sharp of eleven, you and

932
00:41:54,360 --> 00:41:57,080
Speaker 3: the other end have made twelve, and there's plenty of volatility,

933
00:41:57,640 --> 00:41:59,480
Speaker 3: and how can I justify paying your fees when I

934
00:41:59,480 --> 00:42:02,279
Speaker 3: can get the twelve, you know, really easily. Now, I

935
00:42:02,320 --> 00:42:05,680
Speaker 3: had a call with that investor yesterday. Okay, that investor

936
00:42:05,760 --> 00:42:08,279
Speaker 3: is so curious because there are super long lots of

937
00:42:08,360 --> 00:42:11,680
Speaker 3: private credit funds. They are super curious if I'm going

938
00:42:11,680 --> 00:42:14,680
Speaker 3: to get hit. But they're also in super pain because

939
00:42:14,680 --> 00:42:16,360
Speaker 3: they're seeing what's happening to private credit.

940
00:42:16,640 --> 00:42:17,839
Speaker 2: And so you know what.

941
00:42:17,800 --> 00:42:19,200
Speaker 1: Kind of pain are that Are they still getting one

942
00:42:19,200 --> 00:42:19,759
Speaker 1: percent a month?

943
00:42:19,960 --> 00:42:20,240
Speaker 2: Nope?

944
00:42:20,280 --> 00:42:23,120
Speaker 3: Because you know, SOFA went down because you know, some

945
00:42:23,160 --> 00:42:25,120
Speaker 3: loans made it five hundred or now at three fifty.

946
00:42:25,600 --> 00:42:28,120
Speaker 3: So distributions were cut, by the way, what started the

947
00:42:28,120 --> 00:42:31,960
Speaker 3: ball rolling with outflows where distribution cuts and retail investors

948
00:42:31,960 --> 00:42:33,799
Speaker 3: were like, wait a second, we had a deal. You're

949
00:42:33,840 --> 00:42:35,239
Speaker 3: gonna pay me one percent a month. Now you're only

950
00:42:35,239 --> 00:42:37,839
Speaker 3: paying me eighty four basis points, and so that kind

951
00:42:37,880 --> 00:42:41,880
Speaker 3: of started the quote no snowflake ever believes it started

952
00:42:41,880 --> 00:42:47,400
Speaker 3: the avalanche. And so that investor is now facing you know,

953
00:42:47,480 --> 00:42:50,359
Speaker 3: the first brands default, the Tricolor default, and so there's

954
00:42:50,400 --> 00:42:52,960
Speaker 3: there's the problems of defaults, the problems of mark to

955
00:42:53,000 --> 00:42:55,759
Speaker 3: market write downs, the problems of outflows, the problems of

956
00:42:55,800 --> 00:42:58,920
Speaker 3: lower sofur although so far the interest rate market is

957
00:42:58,960 --> 00:43:02,400
Speaker 3: not pricing much lower rates despite the recent market moves,

958
00:43:02,600 --> 00:43:06,160
Speaker 3: and so that thing of volatility laundering, which is like

959
00:43:06,280 --> 00:43:08,680
Speaker 3: just about the best two word quote for to talk

960
00:43:08,680 --> 00:43:12,280
Speaker 3: about wrong with Wall Street, ever, is like that should

961
00:43:12,280 --> 00:43:14,840
Speaker 3: be the title of what's happening here? Is that for

962
00:43:14,920 --> 00:43:18,400
Speaker 3: too long the problems were masked and now they're the

963
00:43:18,560 --> 00:43:20,400
Speaker 3: you know, the curtain gets pulled back. And Cliff was

964
00:43:20,440 --> 00:43:23,719
Speaker 3: absolutely right, and it took a while. And in the meantime,

965
00:43:24,000 --> 00:43:25,520
Speaker 3: because it took a while, the industry is two and

966
00:43:25,520 --> 00:43:26,080
Speaker 3: a f trillion.

967
00:43:26,760 --> 00:43:31,400
Speaker 4: Something I'm curious about is the path forward for you? Because, okay,

968
00:43:31,560 --> 00:43:33,680
Speaker 4: we'll find out in mid April. If you get hit

969
00:43:33,760 --> 00:43:36,640
Speaker 4: at sixty five, maybe you'll get over subscribed, which would

970
00:43:37,239 --> 00:43:40,560
Speaker 4: certainly be informative. But what happens if you don't really

971
00:43:40,920 --> 00:43:43,680
Speaker 4: get any hits, Like do you then raise your bid?

972
00:43:43,719 --> 00:43:46,479
Speaker 4: What is the path forward from there?

973
00:43:46,880 --> 00:43:48,759
Speaker 3: I don't know. Have you not met me before? Do

974
00:43:49,080 --> 00:43:51,160
Speaker 3: I just go Do I just put my bowling ball

975
00:43:51,200 --> 00:43:53,319
Speaker 3: in the bag and go home? No, let me give

976
00:43:53,360 --> 00:43:55,320
Speaker 3: you the answer the instead of trying to be funny

977
00:43:55,320 --> 00:43:58,280
Speaker 3: about it. When I put that bid in the markets

978
00:43:58,280 --> 00:44:01,000
Speaker 3: are in a certain state. Yeah, quarter later, you know,

979
00:44:01,040 --> 00:44:03,520
Speaker 3: are people going to sell to me when redemptions were

980
00:44:03,960 --> 00:44:04,560
Speaker 3: nine percent?

981
00:44:05,200 --> 00:44:05,880
Speaker 2: Maybe? Maybe not.

982
00:44:05,920 --> 00:44:08,439
Speaker 3: If redemptions are twenty percent, it stands to reason they're

983
00:44:08,480 --> 00:44:10,600
Speaker 3: more likely to sell. So I don't give up easily,

984
00:44:10,800 --> 00:44:13,520
Speaker 3: especially if we're doing something you know that we think

985
00:44:13,600 --> 00:44:16,960
Speaker 3: is of value to our clients. But I really think

986
00:44:17,320 --> 00:44:19,360
Speaker 3: if the market gets worse and then our bid probably

987
00:44:19,360 --> 00:44:21,719
Speaker 3: goes lower. But I think it's clear that there's a

988
00:44:21,800 --> 00:44:23,520
Speaker 3: value to provide a bid when people need a bid

989
00:44:23,560 --> 00:44:25,719
Speaker 3: and there isn't one, and if we don't get hit

990
00:44:25,760 --> 00:44:28,080
Speaker 3: on any yes, maybe our bid has to go up.

991
00:44:28,480 --> 00:44:30,000
Speaker 3: Or maybe it's just we were a little early.

992
00:44:30,280 --> 00:44:32,880
Speaker 4: It's interesting that you went to bowling as the example

993
00:44:33,320 --> 00:44:33,960
Speaker 4: of the sport.

994
00:44:34,960 --> 00:44:37,720
Speaker 2: I'm a sub one hundred average bowler.

995
00:44:38,080 --> 00:44:40,040
Speaker 3: My best sport and is not saying much is tennis,

996
00:44:40,080 --> 00:44:42,200
Speaker 3: and I'm like a three and a half usta. So

997
00:44:42,920 --> 00:44:44,920
Speaker 3: it's you know, unless you want to call chess a sport.

998
00:44:45,320 --> 00:44:48,480
Speaker 3: I guess yeah, oh yeah, I put my chess pieces

999
00:44:48,480 --> 00:44:50,319
Speaker 3: in the bag and went home. Yes, you got me.

1000
00:44:54,000 --> 00:44:56,920
Speaker 3: I stunned to you stun silence for the first moment.

1001
00:44:57,520 --> 00:44:59,440
Speaker 4: I do want to ask about dats, but.

1002
00:45:00,280 --> 00:45:02,919
Speaker 1: Yeah, we're running up on times. Let's talk about debts.

1003
00:45:03,280 --> 00:45:05,960
Speaker 4: Okay, oh my god, that's digital assets.

1004
00:45:06,080 --> 00:45:07,680
Speaker 2: I talk about a car crash.

1005
00:45:07,719 --> 00:45:10,000
Speaker 4: Well, let's talk about the car crash. There's a bunch

1006
00:45:10,000 --> 00:45:13,239
Speaker 4: of dbts digital acid treasury companies that are trading at

1007
00:45:13,239 --> 00:45:16,160
Speaker 4: discounts to NAV right now, would.

1008
00:45:16,000 --> 00:45:17,440
Speaker 2: That entice you?

1009
00:45:17,440 --> 00:45:18,520
Speaker 4: You seem like a busy man.

1010
00:45:18,680 --> 00:45:21,239
Speaker 3: But well, look, there are a couple of things that

1011
00:45:21,320 --> 00:45:24,360
Speaker 3: no one would disagree with about the crypto market. One

1012
00:45:24,400 --> 00:45:29,880
Speaker 3: is that various less than white shoe characters are present

1013
00:45:29,960 --> 00:45:31,799
Speaker 3: in it, you know, as evidenced by the number of

1014
00:45:31,840 --> 00:45:34,880
Speaker 3: that have gone to jail to release from jail thanks

1015
00:45:34,880 --> 00:45:38,480
Speaker 3: to some donations or otherwise. And so that world, it

1016
00:45:38,520 --> 00:45:41,000
Speaker 3: has some really ethical, awesome people. And then it and

1017
00:45:41,040 --> 00:45:43,320
Speaker 3: as some others, and I think one of the issues

1018
00:45:43,320 --> 00:45:46,000
Speaker 3: for us with debts which we don't have with closed

1019
00:45:46,040 --> 00:45:48,680
Speaker 3: end funds. And you know, again, if someone can educate

1020
00:45:48,760 --> 00:45:51,880
Speaker 3: us or BDCs. I was going to say, you're always

1021
00:45:51,880 --> 00:45:55,840
Speaker 3: worried about as an activist, if you wanted to actually

1022
00:45:55,840 --> 00:45:58,160
Speaker 3: be an activist, that they're going to do something really deluded,

1023
00:45:58,320 --> 00:46:00,680
Speaker 3: you know, like effectively a poison pill. And I don't

1024
00:46:00,719 --> 00:46:04,320
Speaker 3: believe that it is impossible. It may not be easy.

1025
00:46:04,480 --> 00:46:07,240
Speaker 3: I don't believe it's impossible for a DAT to issue

1026
00:46:07,320 --> 00:46:10,640
Speaker 3: shares way below nav maybe even you know, well below

1027
00:46:10,640 --> 00:46:12,840
Speaker 3: the share the price that's trading at, to a select

1028
00:46:12,840 --> 00:46:14,720
Speaker 3: group of investors. And now if they issued it to everyone,

1029
00:46:14,760 --> 00:46:16,799
Speaker 3: you'd say, okay, I can get my Proada portion, but

1030
00:46:16,840 --> 00:46:18,399
Speaker 3: I would hate to buy something at a thirty five

1031
00:46:18,440 --> 00:46:20,640
Speaker 3: percent discount. TOV find that they issue a lot of

1032
00:46:20,640 --> 00:46:23,520
Speaker 3: shares at fifty to a select group, and now I've

1033
00:46:23,520 --> 00:46:26,600
Speaker 3: been diluted. We saw the threat of a poison pill

1034
00:46:26,960 --> 00:46:28,560
Speaker 3: on a closed in fund that we owned.

1035
00:46:28,920 --> 00:46:29,640
Speaker 2: We went to court.

1036
00:46:29,960 --> 00:46:32,000
Speaker 3: Court sided with us, but the manager did it for

1037
00:46:32,040 --> 00:46:34,600
Speaker 3: four straight quarters, and that was a closed in fund.

1038
00:46:35,160 --> 00:46:36,719
Speaker 1: Is just because like a DAT is not a forty

1039
00:46:37,160 --> 00:46:37,600
Speaker 1: fund line.

1040
00:46:37,600 --> 00:46:40,000
Speaker 3: I don't I'm not sure, but I believe they can.

1041
00:46:40,320 --> 00:46:42,600
Speaker 3: Because it's not a closed in fund close in funds,

1042
00:46:42,600 --> 00:46:45,600
Speaker 3: they cannot do dilutive offerings without offering them to everyone.

1043
00:46:45,920 --> 00:46:48,920
Speaker 3: And then the second thing is like, all right, it's

1044
00:46:48,920 --> 00:46:50,719
Speaker 3: one thing for Elon Musk wanting to pay himself a

1045
00:46:50,719 --> 00:46:53,640
Speaker 3: trillion dollars. But you know, I think a DAT can

1046
00:46:54,560 --> 00:46:57,319
Speaker 3: decide it wants to pay its CEO a lot of money,

1047
00:46:57,320 --> 00:46:59,560
Speaker 3: and I have a handpick board and basically take money

1048
00:46:59,560 --> 00:47:01,640
Speaker 3: out that way. One of the cool things I think

1049
00:47:01,640 --> 00:47:03,560
Speaker 3: about your jobs you can always go to where it's

1050
00:47:03,600 --> 00:47:05,480
Speaker 3: hot and interesting. And I would say that's also one

1051
00:47:05,520 --> 00:47:07,280
Speaker 3: of the cool things about my job is I'm supposed

1052
00:47:07,320 --> 00:47:10,080
Speaker 3: to stay in my sandbox. But my sandbox of RV

1053
00:47:10,440 --> 00:47:13,239
Speaker 3: and mispricings, you know, it doesn't include what was that

1054
00:47:13,280 --> 00:47:17,000
Speaker 3: company called movie pay or movie phone or whatever movie past, like,

1055
00:47:17,080 --> 00:47:18,520
Speaker 3: you know, like that that was a fun one that

1056
00:47:18,560 --> 00:47:21,520
Speaker 3: I just was a reader about, Like, but like, what's

1057
00:47:21,600 --> 00:47:24,440
Speaker 3: I think one neat thing about this space is the

1058
00:47:24,480 --> 00:47:27,360
Speaker 3: ability to break new ground or do something new in

1059
00:47:27,400 --> 00:47:29,759
Speaker 3: a space that's central to a lot of investors, as

1060
00:47:29,760 --> 00:47:31,640
Speaker 3: evidenced by the size of the market. So I am

1061
00:47:31,680 --> 00:47:34,279
Speaker 3: really enjoying, like kind of exploring the creative side of

1062
00:47:34,280 --> 00:47:37,200
Speaker 3: trying something new. I'm hoping that it doesn't lead to nothing,

1063
00:47:37,239 --> 00:47:38,759
Speaker 3: but if it does and we don't get hit, it's

1064
00:47:38,800 --> 00:47:41,560
Speaker 3: not the end of the world. But I'm really enjoying

1065
00:47:42,239 --> 00:47:44,160
Speaker 3: rolling in my sleeves and learning about this space even

1066
00:47:44,200 --> 00:47:44,640
Speaker 3: more deeply.

1067
00:47:45,239 --> 00:47:47,920
Speaker 1: If you do get head, you'll be a little more nervous.

1068
00:47:48,160 --> 00:47:49,680
Speaker 1: It's not that big. Yeah.

1069
00:47:49,719 --> 00:47:52,160
Speaker 3: By the way, if I get hit and things change

1070
00:47:52,160 --> 00:47:54,360
Speaker 3: a lot, I'm happy to come back on or whatever,

1071
00:47:54,520 --> 00:47:56,120
Speaker 3: you know like that. I think what's neat about this

1072
00:47:56,280 --> 00:47:57,960
Speaker 3: is this story will continue to be a story. I

1073
00:47:57,960 --> 00:47:59,919
Speaker 3: don't mean my part of it, but the private credit market.

1074
00:48:00,080 --> 00:48:00,760
Speaker 1: This is the story.

1075
00:48:01,840 --> 00:48:04,760
Speaker 2: You're going to keep rowling, keep playing chess.

1076
00:48:05,239 --> 00:48:07,919
Speaker 4: My big takeaway I want to launch a shop called

1077
00:48:07,960 --> 00:48:11,520
Speaker 4: black Owl. I feel like that's the only iteration.

1078
00:48:11,440 --> 00:48:18,640
Speaker 1: Only Whita, only blue space. That was the Money Stuff Podcast.

1079
00:48:18,920 --> 00:48:20,920
Speaker 1: Thanks to pous Winston for coming up.

1080
00:48:21,120 --> 00:48:23,520
Speaker 2: Thanks to both here all right, rock and roll?

1081
00:48:23,800 --> 00:48:24,640
Speaker 4: Did you enjoy that?

1082
00:48:25,000 --> 00:48:26,759
Speaker 2: I talk about this in my house when no one's there.

1083
00:48:26,800 --> 00:48:27,640
Speaker 2: I just talk to the law.

1084
00:48:27,760 --> 00:48:29,080
Speaker 4: I talk to the mirror.

1085
00:48:29,239 --> 00:48:39,080
Speaker 1: Yeah, And that was the Money Stuff Podcast.

1086
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Speaker 4: I'm Matt Levine and I'm Katie Greifeld.

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Speaker 1: You can find my work by subscribing to the Money

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Speaker 1: Stuff newsletter on Bloomberg.

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Speaker 4: Dot com, and you can find me on Bloomberg TV

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Speaker 4: every day on the Clothes between three and five pm Eastern.

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Speaker 1: We'd love to hear from you. You can send an

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Speaker 1: email to Money pod at Bloomberg dot net. Ask us

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Speaker 1: a question and we might answer it on the air.

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Speaker 4: You can also subscribe to our show wherever you're listening

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Speaker 4: right now and leave us a review. It helps more

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Speaker 4: people find the show.

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Speaker 1: The Money Stuff Podcast is produced by Moses Onam and

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Speaker 1: Alexis hatt.

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Speaker 4: Our theme music was composed by Blake Maples.

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Speaker 1: Amy Keen is our executive producer. Thanks for listening to

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Speaker 1: The Money Stuff Podcast. We'll be back next week with

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Speaker 1: more stuff.