1 00:00:02,400 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,080 --> 00:00:10,799 Speaker 2: The Bloomberg invest Summit currently underway in New York City. 3 00:00:10,960 --> 00:00:15,360 Speaker 2: Earlier Bloomberg Shanali Bask sat down with Areas Management co founder, 4 00:00:15,680 --> 00:00:20,240 Speaker 2: CEO and president Michael Aarraghetti. Here is some of their conversation. 5 00:00:21,160 --> 00:00:25,040 Speaker 3: How exciting is for you the private equity versus private 6 00:00:25,200 --> 00:00:26,920 Speaker 3: credit opportunity these days? 7 00:00:27,040 --> 00:00:29,000 Speaker 1: I don't It's fine. 8 00:00:29,040 --> 00:00:30,680 Speaker 4: I view it all as one spectrum, and I think 9 00:00:30,720 --> 00:00:32,760 Speaker 4: this is why maybe private credit is. 10 00:00:32,800 --> 00:00:35,760 Speaker 1: Growing and getting the attention that it is. 11 00:00:36,960 --> 00:00:39,400 Speaker 4: Any asset that we invest in, whether it's a company 12 00:00:39,520 --> 00:00:42,280 Speaker 4: or a piece of real estate, has an unlevered free 13 00:00:42,280 --> 00:00:45,440 Speaker 4: cash flow associated with it. And as the markets evolve 14 00:00:45,560 --> 00:00:47,920 Speaker 4: and we innovate, it's really just a question of where 15 00:00:47,920 --> 00:00:50,839 Speaker 4: do you want to attach to that asset. And in 16 00:00:50,920 --> 00:00:53,800 Speaker 4: most markets, at the very early stage, sports being one, 17 00:00:53,840 --> 00:00:55,480 Speaker 4: as Josh Jason, we're just talking. 18 00:00:55,320 --> 00:00:56,880 Speaker 1: About capital structures. 19 00:00:57,000 --> 00:01:01,320 Speaker 4: Capital structures are pretty simplistic, right banks equity or banks 20 00:01:01,360 --> 00:01:04,480 Speaker 4: high net worth individuals. And as the markets grow and evolve, 21 00:01:04,520 --> 00:01:06,959 Speaker 4: we all get quite creative and innovative of trying to 22 00:01:07,000 --> 00:01:09,959 Speaker 4: figure out where where we want to attach. And so, 23 00:01:10,920 --> 00:01:13,600 Speaker 4: you know, private credit growth in private credit is in 24 00:01:13,640 --> 00:01:17,280 Speaker 4: fact an extension of people's positive experience in private equity. 25 00:01:17,720 --> 00:01:20,080 Speaker 4: We're able to go deeper into some of these assets 26 00:01:20,080 --> 00:01:23,880 Speaker 4: at higher rates of return with more creative structures. But 27 00:01:24,040 --> 00:01:26,080 Speaker 4: we have capped upside in a lot of these right, 28 00:01:26,160 --> 00:01:29,360 Speaker 4: So in some of our opportunity to credit mandates, we're 29 00:01:29,360 --> 00:01:33,200 Speaker 4: actually creating debt like instruments that have equity upside. But 30 00:01:33,319 --> 00:01:36,760 Speaker 4: private equity is critically important for the investor community because 31 00:01:36,760 --> 00:01:39,319 Speaker 4: it is the only place where you can go get 32 00:01:39,360 --> 00:01:42,680 Speaker 4: two to three times your money. So private credit durable, 33 00:01:43,000 --> 00:01:46,480 Speaker 4: high current yield, performs through most market cycles, but at 34 00:01:46,520 --> 00:01:48,200 Speaker 4: the end of the day, your return is going to 35 00:01:48,200 --> 00:01:49,280 Speaker 4: be pretty range bound if. 36 00:01:49,280 --> 00:01:52,040 Speaker 3: Not camp Now, it was interesting a day ago we 37 00:01:52,200 --> 00:01:56,400 Speaker 3: had a boatload of debate on this stage about private credity, 38 00:01:56,560 --> 00:01:59,120 Speaker 3: credit risks, opportunities, cracks in the market. 39 00:01:59,320 --> 00:02:01,440 Speaker 1: So let's hear it from you. Where do you believe 40 00:02:01,640 --> 00:02:03,600 Speaker 1: cracks are, if there are any. We're not seeing a 41 00:02:03,600 --> 00:02:04,240 Speaker 1: lot of cracks. 42 00:02:04,400 --> 00:02:06,360 Speaker 4: You know, I've been in the private credit market for 43 00:02:06,400 --> 00:02:11,520 Speaker 4: almost thirty years, and there's a constant and consistent narrative 44 00:02:11,560 --> 00:02:14,519 Speaker 4: that there's risk being taken in private credit that somehow 45 00:02:14,600 --> 00:02:17,720 Speaker 4: is going to you know, topple the economy or create 46 00:02:17,800 --> 00:02:20,799 Speaker 4: systemic issues. Back to my earlier comment, people need to 47 00:02:20,800 --> 00:02:25,000 Speaker 4: appreciate most private credit instruments that we're all talking about 48 00:02:25,080 --> 00:02:28,480 Speaker 4: or backed by some form of institutional equity ownership, and 49 00:02:28,639 --> 00:02:32,320 Speaker 4: most private credit instruments are levered fifty to sixty percent 50 00:02:32,440 --> 00:02:36,560 Speaker 4: of enterprise value. So if people are really anxious about 51 00:02:36,840 --> 00:02:41,440 Speaker 4: losses industry wide and private credit, you're blowing through trillions 52 00:02:41,440 --> 00:02:44,920 Speaker 4: of dollars of value in the institutional private equity real 53 00:02:45,040 --> 00:02:48,440 Speaker 4: estate and infrastructure market. So people need to zoom out 54 00:02:48,440 --> 00:02:51,720 Speaker 4: and kind of understand again where these these loans sit, 55 00:02:52,240 --> 00:02:54,760 Speaker 4: who they're supporting, and the types of types of investments. 56 00:02:54,880 --> 00:02:56,040 Speaker 1: That's one. Two. 57 00:02:56,280 --> 00:02:58,919 Speaker 4: You know, we have close to four thousand middle market 58 00:02:58,960 --> 00:03:02,760 Speaker 4: investments at areas and the credit performance has been incredibly strong. 59 00:03:02,880 --> 00:03:05,920 Speaker 4: You know, default rates are low, interest coverage is healthy. 60 00:03:06,160 --> 00:03:11,000 Speaker 4: Ebitdas growing in the you know, low double digit range. 61 00:03:11,320 --> 00:03:13,160 Speaker 4: So yeah, we feel pretty good about it. I think 62 00:03:13,160 --> 00:03:14,760 Speaker 4: it's all a little overblown, to be honest. 63 00:03:15,120 --> 00:03:17,520 Speaker 3: So another part of the market that I did not 64 00:03:17,639 --> 00:03:19,560 Speaker 3: get to ask some of our guests about yesterday that 65 00:03:19,600 --> 00:03:23,160 Speaker 3: you do very much operate and is real estate. How 66 00:03:23,240 --> 00:03:26,880 Speaker 3: much stress is there still in that market right now. 67 00:03:27,240 --> 00:03:28,960 Speaker 4: Well, there's more stress there than there is in the 68 00:03:29,000 --> 00:03:32,720 Speaker 4: corporate market. I think for maybe obvious reasons. One, the 69 00:03:32,760 --> 00:03:35,920 Speaker 4: asset class runs more leveraged, so it's a little bit 70 00:03:35,920 --> 00:03:41,440 Speaker 4: more rate sensitive to the maturity wall issue in real 71 00:03:41,560 --> 00:03:44,960 Speaker 4: estate is probably more acute than in corporate, the reason 72 00:03:45,040 --> 00:03:47,600 Speaker 4: being there are just fewer levers to pull to effectively 73 00:03:47,640 --> 00:03:50,920 Speaker 4: restructure or rehabilitate a piece of real estate. So when 74 00:03:50,920 --> 00:03:56,560 Speaker 4: you think about maturity wall or even modestly underperforming corporate investments, 75 00:03:57,520 --> 00:03:59,720 Speaker 4: you have levers to pull both on the balance sheet 76 00:03:59,800 --> 00:04:01,480 Speaker 4: and the income statement to try. 77 00:04:01,320 --> 00:04:04,920 Speaker 1: To grow through it. You own a building, it's least 78 00:04:05,000 --> 00:04:05,760 Speaker 1: or it's not least. 79 00:04:06,000 --> 00:04:08,280 Speaker 4: The rent you know, covers your debt service or a doesn't, 80 00:04:08,320 --> 00:04:10,720 Speaker 4: and that's basically it. So the math of the asset 81 00:04:10,760 --> 00:04:15,840 Speaker 4: class clearly sets up just for more cute stress. That said, 82 00:04:15,840 --> 00:04:19,000 Speaker 4: when you when you put office in certain markets off 83 00:04:19,000 --> 00:04:22,080 Speaker 4: to the side, we are still seeing pockets of strength 84 00:04:22,200 --> 00:04:26,960 Speaker 4: in multifamily and industrial, which is where we're largely invested. 85 00:04:27,040 --> 00:04:29,320 Speaker 4: So I think that story will still play out, but 86 00:04:29,360 --> 00:04:32,400 Speaker 4: I don't think it's going to be a big systemic story. 87 00:04:32,440 --> 00:04:33,680 Speaker 4: I think it's going to be one that kind of 88 00:04:33,720 --> 00:04:35,080 Speaker 4: grinds its way out over time. 89 00:04:35,279 --> 00:04:37,880 Speaker 3: Whether it's the corporate market that might look to refinance 90 00:04:38,000 --> 00:04:40,360 Speaker 3: or really restructure to kind of stave off the higher 91 00:04:40,360 --> 00:04:42,400 Speaker 3: interest rate environment, or if it's real estate where you're 92 00:04:42,400 --> 00:04:45,720 Speaker 3: seeing private market values really start to. 93 00:04:47,360 --> 00:04:47,800 Speaker 1: Bottom. 94 00:04:47,920 --> 00:04:50,839 Speaker 3: In some people's perspective, how much money do you put 95 00:04:50,839 --> 00:04:55,120 Speaker 3: to work? How big of an opportunity. 96 00:04:54,720 --> 00:04:57,279 Speaker 4: As a private market investor, You can't. You can't try 97 00:04:57,279 --> 00:04:59,479 Speaker 4: to perfectly time markets. That's the good news and the 98 00:04:59,480 --> 00:05:02,880 Speaker 4: bad news. You have to be directionally accurate. We get 99 00:05:02,920 --> 00:05:04,880 Speaker 4: the luxury of not having to pay attention to all 100 00:05:04,920 --> 00:05:08,160 Speaker 4: of the headline, you know, and volatility. 101 00:05:07,480 --> 00:05:08,880 Speaker 1: That that can induce. 102 00:05:10,040 --> 00:05:12,920 Speaker 4: But the best time to invest, both corporate and real 103 00:05:12,960 --> 00:05:15,840 Speaker 4: assets is when you're when you think you're coming out 104 00:05:15,839 --> 00:05:19,680 Speaker 4: of a cycle. So in real estate in particular, this 105 00:05:19,760 --> 00:05:23,280 Speaker 4: is a great time to be forming capital, planting seeds 106 00:05:23,320 --> 00:05:25,200 Speaker 4: because you want to get out ahead of it. And 107 00:05:25,240 --> 00:05:28,359 Speaker 4: that's our experience, you know, in multiple cycles. So you know, 108 00:05:28,640 --> 00:05:30,760 Speaker 4: it's a pretty good deployment environment. Like I said, we 109 00:05:30,800 --> 00:05:33,680 Speaker 4: are seeing the pipelines pick up, which is encouraging. 110 00:05:33,800 --> 00:05:36,200 Speaker 3: You know, it's interesting in addition to just deploying for 111 00:05:36,279 --> 00:05:38,799 Speaker 3: your funds, we've reported here at Bloomberg that you're also 112 00:05:38,920 --> 00:05:43,080 Speaker 3: considering one of the largest private asset manager deals of 113 00:05:43,120 --> 00:05:45,720 Speaker 3: all time, or at least you've seen in recent years 114 00:05:45,720 --> 00:05:46,040 Speaker 3: in the. 115 00:05:46,000 --> 00:05:47,320 Speaker 1: Real estate world. 116 00:05:47,520 --> 00:05:49,480 Speaker 3: What can you say about your M and A ambitions 117 00:05:49,480 --> 00:05:52,279 Speaker 3: of your own, Well. 118 00:05:52,120 --> 00:05:55,120 Speaker 4: Not to speak about rumors specifically. We've been quite acquisitive, 119 00:05:55,120 --> 00:05:57,040 Speaker 4: as you know. So if you look at our growth, 120 00:05:57,680 --> 00:06:01,000 Speaker 4: twenty percent of our growth over time has come from some. 121 00:06:02,520 --> 00:06:03,159 Speaker 1: Kind of M and A. 122 00:06:04,720 --> 00:06:07,640 Speaker 4: I have a very strong view that these markets will 123 00:06:07,680 --> 00:06:09,000 Speaker 4: continue to consolidate. 124 00:06:09,120 --> 00:06:11,800 Speaker 1: And the reason that they're going to consolidate is from. 125 00:06:11,640 --> 00:06:15,760 Speaker 4: The manager's perspective, there's huge benefit to scale. The larger 126 00:06:15,800 --> 00:06:17,720 Speaker 4: we get, the more people we can have, The more 127 00:06:17,760 --> 00:06:20,160 Speaker 4: people we have, the more deals we can do, the 128 00:06:20,160 --> 00:06:23,040 Speaker 4: more deals we do, the more information we get. The 129 00:06:23,080 --> 00:06:25,839 Speaker 4: better information we get, the better our investment performance, and 130 00:06:25,839 --> 00:06:28,560 Speaker 4: then we get more aum and so there's this virtuous 131 00:06:28,600 --> 00:06:33,200 Speaker 4: circle and cycle that scale creates in private markets. 132 00:06:33,240 --> 00:06:34,719 Speaker 1: And people are beginning to see that. 133 00:06:35,279 --> 00:06:38,919 Speaker 4: Investors are putting more of their dollars with fewer managers 134 00:06:39,000 --> 00:06:42,640 Speaker 4: because they see that opportunity for out performance and they 135 00:06:42,680 --> 00:06:46,280 Speaker 4: also see a huge efficiency. So most large institutional investors 136 00:06:46,279 --> 00:06:48,720 Speaker 4: you talk to will tell you that they're shrinking their 137 00:06:49,480 --> 00:06:52,159 Speaker 4: investor roster from call it one hundred to maybe twenty 138 00:06:52,200 --> 00:06:58,560 Speaker 4: managers to try to drive efficiency and deeper partnership. And 139 00:06:58,720 --> 00:07:02,320 Speaker 4: the markets are global and globalizing, so a lot of 140 00:07:02,320 --> 00:07:04,640 Speaker 4: the things that we learned, let's say over our twenty 141 00:07:04,720 --> 00:07:08,279 Speaker 4: five years here, we can now apply into developing markets 142 00:07:08,360 --> 00:07:11,360 Speaker 4: like Europe or Asia that are earlier on in their 143 00:07:11,440 --> 00:07:15,320 Speaker 4: maturity curve. So we will continue to be at the 144 00:07:15,360 --> 00:07:18,480 Speaker 4: forefront on the consolidation. We want to be a consolidate tour, 145 00:07:18,600 --> 00:07:20,920 Speaker 4: not a consolidate tea. I think we have a really 146 00:07:20,960 --> 00:07:25,680 Speaker 4: good track record of buying companies financially accreative, strategically accreative, 147 00:07:25,840 --> 00:07:28,760 Speaker 4: and obviously driving culture, which. 148 00:07:28,600 --> 00:07:29,520 Speaker 1: I think is important. 149 00:07:30,360 --> 00:07:32,520 Speaker 4: But we're not alone, so I would expect to see 150 00:07:32,520 --> 00:07:34,560 Speaker 4: a lot of a lot of activity 151 00:07:34,680 --> 00:07:39,440 Speaker 2: Aeries Management co founder, CEO and President Michael Araghetti speaking 152 00:07:39,480 --> 00:07:43,640 Speaker 2: with Bloomberg Shanali bask from the Bloomberg invest Summit in 153 00:07:43,800 --> 00:07:44,640 Speaker 2: New York City.