Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: The Bloomberg invest Summit currently underway in New York City.
Speaker 2: Earlier Bloomberg Shanali Bask sat down with Areas Management co founder,
Speaker 2: CEO and president Michael Aarraghetti. Here is some of their conversation.
Speaker 3: How exciting is for you the private equity versus private
Speaker 3: credit opportunity these days?
Speaker 1: I don't It's fine.
Speaker 4: I view it all as one spectrum, and I think
Speaker 4: this is why maybe private credit is.
Speaker 1: Growing and getting the attention that it is.
Speaker 4: Any asset that we invest in, whether it's a company
Speaker 4: or a piece of real estate, has an unlevered free
Speaker 4: cash flow associated with it. And as the markets evolve
Speaker 4: and we innovate, it's really just a question of where
Speaker 4: do you want to attach to that asset. And in
Speaker 4: most markets, at the very early stage, sports being one,
Speaker 4: as Josh Jason, we're just talking.
Speaker 1: About capital structures.
Speaker 4: Capital structures are pretty simplistic, right banks equity or banks
Speaker 4: high net worth individuals. And as the markets grow and evolve,
Speaker 4: we all get quite creative and innovative of trying to
Speaker 4: figure out where where we want to attach. And so,
Speaker 4: you know, private credit growth in private credit is in
Speaker 4: fact an extension of people's positive experience in private equity.
Speaker 4: We're able to go deeper into some of these assets
Speaker 4: at higher rates of return with more creative structures. But
Speaker 4: we have capped upside in a lot of these right,
Speaker 4: So in some of our opportunity to credit mandates, we're
Speaker 4: actually creating debt like instruments that have equity upside. But
Speaker 4: private equity is critically important for the investor community because
Speaker 4: it is the only place where you can go get
Speaker 4: two to three times your money. So private credit durable,
Speaker 4: high current yield, performs through most market cycles, but at
Speaker 4: the end of the day, your return is going to
Speaker 4: be pretty range bound if.
Speaker 3: Not camp Now, it was interesting a day ago we
Speaker 3: had a boatload of debate on this stage about private credity,
Speaker 3: credit risks, opportunities, cracks in the market.
Speaker 1: So let's hear it from you. Where do you believe
Speaker 1: cracks are, if there are any. We're not seeing a
Speaker 1: lot of cracks.
Speaker 4: You know, I've been in the private credit market for
Speaker 4: almost thirty years, and there's a constant and consistent narrative
Speaker 4: that there's risk being taken in private credit that somehow
Speaker 4: is going to you know, topple the economy or create
Speaker 4: systemic issues. Back to my earlier comment, people need to
Speaker 4: appreciate most private credit instruments that we're all talking about
Speaker 4: or backed by some form of institutional equity ownership, and
Speaker 4: most private credit instruments are levered fifty to sixty percent
Speaker 4: of enterprise value. So if people are really anxious about
Speaker 4: losses industry wide and private credit, you're blowing through trillions
Speaker 4: of dollars of value in the institutional private equity real
Speaker 4: estate and infrastructure market. So people need to zoom out
Speaker 4: and kind of understand again where these these loans sit,
Speaker 4: who they're supporting, and the types of types of investments.
Speaker 1: That's one. Two.
Speaker 4: You know, we have close to four thousand middle market
Speaker 4: investments at areas and the credit performance has been incredibly strong.
Speaker 4: You know, default rates are low, interest coverage is healthy.
Speaker 4: Ebitdas growing in the you know, low double digit range.
Speaker 4: So yeah, we feel pretty good about it. I think
Speaker 4: it's all a little overblown, to be honest.
Speaker 3: So another part of the market that I did not
Speaker 3: get to ask some of our guests about yesterday that
Speaker 3: you do very much operate and is real estate. How
Speaker 3: much stress is there still in that market right now.
Speaker 4: Well, there's more stress there than there is in the
Speaker 4: corporate market. I think for maybe obvious reasons. One, the
Speaker 4: asset class runs more leveraged, so it's a little bit
Speaker 4: more rate sensitive to the maturity wall issue in real
Speaker 4: estate is probably more acute than in corporate, the reason
Speaker 4: being there are just fewer levers to pull to effectively
Speaker 4: restructure or rehabilitate a piece of real estate. So when
Speaker 4: you think about maturity wall or even modestly underperforming corporate investments,
Speaker 4: you have levers to pull both on the balance sheet
Speaker 4: and the income statement to try.
Speaker 1: To grow through it. You own a building, it's least
Speaker 1: or it's not least.
Speaker 4: The rent you know, covers your debt service or a doesn't,
Speaker 4: and that's basically it. So the math of the asset
Speaker 4: class clearly sets up just for more cute stress. That said,
Speaker 4: when you when you put office in certain markets off
Speaker 4: to the side, we are still seeing pockets of strength
Speaker 4: in multifamily and industrial, which is where we're largely invested.
Speaker 4: So I think that story will still play out, but
Speaker 4: I don't think it's going to be a big systemic story.
Speaker 4: I think it's going to be one that kind of
Speaker 4: grinds its way out over time.
Speaker 3: Whether it's the corporate market that might look to refinance
Speaker 3: or really restructure to kind of stave off the higher
Speaker 3: interest rate environment, or if it's real estate where you're
Speaker 3: seeing private market values really start to.
Speaker 1: Bottom.
Speaker 3: In some people's perspective, how much money do you put
Speaker 3: to work? How big of an opportunity.
Speaker 4: As a private market investor, You can't. You can't try
Speaker 4: to perfectly time markets. That's the good news and the
Speaker 4: bad news. You have to be directionally accurate. We get
Speaker 4: the luxury of not having to pay attention to all
Speaker 4: of the headline, you know, and volatility.
Speaker 1: That that can induce.
Speaker 4: But the best time to invest, both corporate and real
Speaker 4: assets is when you're when you think you're coming out
Speaker 4: of a cycle. So in real estate in particular, this
Speaker 4: is a great time to be forming capital, planting seeds
Speaker 4: because you want to get out ahead of it. And
Speaker 4: that's our experience, you know, in multiple cycles. So you know,
Speaker 4: it's a pretty good deployment environment. Like I said, we
Speaker 4: are seeing the pipelines pick up, which is encouraging.
Speaker 3: You know, it's interesting in addition to just deploying for
Speaker 3: your funds, we've reported here at Bloomberg that you're also
Speaker 3: considering one of the largest private asset manager deals of
Speaker 3: all time, or at least you've seen in recent years
Speaker 3: in the.
Speaker 1: Real estate world.
Speaker 3: What can you say about your M and A ambitions
Speaker 3: of your own, Well.
Speaker 4: Not to speak about rumors specifically. We've been quite acquisitive,
Speaker 4: as you know. So if you look at our growth,
Speaker 4: twenty percent of our growth over time has come from some.
Speaker 1: Kind of M and A.
Speaker 4: I have a very strong view that these markets will
Speaker 4: continue to consolidate.
Speaker 1: And the reason that they're going to consolidate is from.
Speaker 4: The manager's perspective, there's huge benefit to scale. The larger
Speaker 4: we get, the more people we can have, The more
Speaker 4: people we have, the more deals we can do, the
Speaker 4: more deals we do, the more information we get. The
Speaker 4: better information we get, the better our investment performance, and
Speaker 4: then we get more aum and so there's this virtuous
Speaker 4: circle and cycle that scale creates in private markets.
Speaker 1: And people are beginning to see that.
Speaker 4: Investors are putting more of their dollars with fewer managers
Speaker 4: because they see that opportunity for out performance and they
Speaker 4: also see a huge efficiency. So most large institutional investors
Speaker 4: you talk to will tell you that they're shrinking their
Speaker 4: investor roster from call it one hundred to maybe twenty
Speaker 4: managers to try to drive efficiency and deeper partnership. And
Speaker 4: the markets are global and globalizing, so a lot of
Speaker 4: the things that we learned, let's say over our twenty
Speaker 4: five years here, we can now apply into developing markets
Speaker 4: like Europe or Asia that are earlier on in their
Speaker 4: maturity curve. So we will continue to be at the
Speaker 4: forefront on the consolidation. We want to be a consolidate tour,
Speaker 4: not a consolidate tea. I think we have a really
Speaker 4: good track record of buying companies financially accreative, strategically accreative,
Speaker 4: and obviously driving culture, which.
Speaker 1: I think is important.
Speaker 4: But we're not alone, so I would expect to see
Speaker 4: a lot of a lot of activity
Speaker 2: Aeries Management co founder, CEO and President Michael Araghetti speaking
Speaker 2: with Bloomberg Shanali bask from the Bloomberg invest Summit in
Speaker 2: New York City.