WEBVTT - Soft Landing, EVs, and Private Credit 0:00:00.120 --> 0:00:04.360 Bloomberg is now on your dashboard with Apple CarPlay and 0:00:04.360 --> 0:00:08.160 Android Auto. It gives you access to every Bloomberg podcast, 0:00:08.280 --> 0:00:11.560 live audio feeds from Bloomberg Radio, print stories from Bloomberg 0:00:11.640 --> 0:00:14.920 News in audio form, and the latest headlines of the 0:00:14.920 --> 0:00:18.600 click of a button with Bloomberg News. Now it's free 0:00:18.680 --> 0:00:21.439 with the latest version of the Bloomberg Business App. That's 0:00:21.680 --> 0:00:24.400 the Bloomberg Business App. Get it on your phone in 0:00:24.440 --> 0:00:27.760 the Apple App Store or on Google Play. Just download 0:00:27.800 --> 0:00:30.560 the app, connect your phone to your car and get started. 0:00:30.960 --> 0:00:34.400 And it's all presented by our sponsor, Interactive Brokers. 0:00:35.400 --> 0:00:38.600 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:38.640 --> 0:00:39.800 my co host Matt Miller. 0:00:40.200 --> 0:00:44.279 Every business day we bring you interviews from CEOs, market pros, 0:00:44.320 --> 0:00:48.160 and Bloomberg experts, along with essential market movin news. 0:00:48.720 --> 0:00:51.839 I'm the Bloomberg Markets podcast called Apple Podcasts or wherever 0:00:51.960 --> 0:00:55.640 you listen to podcasts, and at Bloomberg dot Com slash podcast. 0:00:55.760 --> 0:00:58.400 Today we had the jolts come in a little lower 0:00:58.400 --> 0:01:01.480 than expect it, So if you were job openings, ism 0:01:01.560 --> 0:01:03.480 services jess as we were talking before, came in a 0:01:03.520 --> 0:01:06.440 little bit better than forecast, better than last month. That's good, 0:01:06.560 --> 0:01:09.360 maybe fed friendly, But I don't know how to put 0:01:09.400 --> 0:01:13.880 all this together. Fortunately we have people do that for us. 0:01:14.240 --> 0:01:15.960 One of them is Jennifer Lee. She's a senior e 0:01:16.000 --> 0:01:18.679 conmist and managing director BEIMO Capital Markets. 0:01:18.959 --> 0:01:21.680 And for the folks the kids that don't know, that's Bank. 0:01:21.560 --> 0:01:25.080 Of Montreal back in the day, BEMO Capital Market's a 0:01:25.120 --> 0:01:29.399 great firmat there in Canada. So, Jennifer, looking at the 0:01:29.480 --> 0:01:32.440 US economy, what's your take here? I mean, is it 0:01:32.480 --> 0:01:35.119 a soft landing and hard landing and no landing? What's 0:01:35.160 --> 0:01:35.920 going on out there? 0:01:37.040 --> 0:01:38.760 Good morning, and thank you very much, Cheviell, thank you 0:01:38.760 --> 0:01:39.399 for having me on. 0:01:39.480 --> 0:01:41.400 You know, I'm going to stick to what we have 0:01:41.480 --> 0:01:43.000 been saying for a long time now, which is that 0:01:43.080 --> 0:01:45.759 soft landing narrative. At least it is up until now 0:01:45.800 --> 0:01:49.120 like this morning's as you're pointing out this morning's to reports, 0:01:49.160 --> 0:01:52.160 you know, the ism was up and the jolts were down, Joppa, 0:01:52.200 --> 0:01:54.640 bricks were down. So it's it's it's but it's not 0:01:54.960 --> 0:01:57.840 down enough. We still have over one point four jobs 0:01:57.920 --> 0:02:00.480 available for every unemployed American out there. That's it's a 0:02:00.520 --> 0:02:03.240 pretty decent jaw market overall. It's not we're not seeing 0:02:03.360 --> 0:02:05.400 you know, two jobs for every one person like we did, 0:02:05.560 --> 0:02:08.400 you know, last year. But it's still a tight labor 0:02:08.440 --> 0:02:11.440 market and it's still fairly healthy. I some services you 0:02:11.480 --> 0:02:13.720 know showing the activity is picking up the most of 0:02:13.760 --> 0:02:15.160 a couple of months. I mean, this is only the 0:02:15.160 --> 0:02:17.360 first increase in a few months, but still it shows 0:02:17.400 --> 0:02:21.400 that again, this whole soft landing narrative is still playing out, 0:02:21.400 --> 0:02:22.160 at least for now. 0:02:22.320 --> 0:02:26.359 Looking at the ECFC function in the terminal pull up, 0:02:26.520 --> 0:02:30.880 looking at where the consensus among economists that are pulled 0:02:30.919 --> 0:02:34.320 in the terminal. You can look at annually, also quarterly. 0:02:34.720 --> 0:02:36.839 If you look over quarterly, though on a basis, there's 0:02:37.200 --> 0:02:40.839 there no longer is a quarter over quarter contraction coming 0:02:40.880 --> 0:02:43.760 into this year. Originally there was a call for the 0:02:43.800 --> 0:02:46.000 second and third quarter to see contraction. We aren't seeing 0:02:46.000 --> 0:02:48.760 that anymore. We're still seeing growth. So I'm curious your 0:02:48.800 --> 0:02:52.600 thoughts on when there still is this concern because looking 0:02:52.680 --> 0:02:56.120 at how the consensus among economists, the probability of a 0:02:56.120 --> 0:02:59.360 recession is still around fifty percent. That's pretty elevated compared 0:02:59.360 --> 0:03:01.120 to if you're looking at say other firms like Golden 0:03:01.200 --> 0:03:04.679 Snacks that have lowered their calls in recent months. Why 0:03:04.680 --> 0:03:07.360 do you think there is still so much skepticism in 0:03:07.520 --> 0:03:10.200 gluiness out there about the trajectory of the economy when 0:03:10.240 --> 0:03:13.720 you have this chextaposed against a lot of really strong 0:03:13.840 --> 0:03:15.200 consumer spending data. 0:03:16.360 --> 0:03:18.480 I think it's it's a great question, and I'm thinking that, 0:03:18.560 --> 0:03:21.000 you know, we've never been in this sort of environment 0:03:21.080 --> 0:03:22.880 where you know, we have a central bank like the 0:03:22.919 --> 0:03:24.880 FAT that has been tightening so much in such a 0:03:24.919 --> 0:03:26.400 short amount of time. This is like a reck of 0:03:26.440 --> 0:03:29.120 the amount, and yet we're still seeing you know, a 0:03:29.120 --> 0:03:31.120 business investment. You know, it's it's has us ups and 0:03:31.200 --> 0:03:33.280 downs of course, but it's still supported by a by 0:03:33.280 --> 0:03:36.440 physical spending. And it all goes back to the US 0:03:36.480 --> 0:03:39.120 consumer staying resilient. You know, they're not going to be 0:03:39.160 --> 0:03:42.680 spending like crazy, you know, for for you know, in 0:03:43.000 --> 0:03:45.440 twenty months, I think things have already started to dial down. 0:03:45.760 --> 0:03:47.880 But again it's that it's that job market. I think 0:03:47.920 --> 0:03:49.920 it's all goes back to having a strong job market, 0:03:49.920 --> 0:03:52.640 and that goes back to demographics, It goes back to 0:03:52.680 --> 0:03:54.760 the pandemic. What I was a little bit worried about, 0:03:54.800 --> 0:03:56.640 I will say, was when I saw the personal income 0:03:56.640 --> 0:03:59.440 of spending data last week. With that mind that very 0:03:59.440 --> 0:04:02.600 small point one percent, which is a salary increased, and 0:04:02.640 --> 0:04:04.240 I was like, oh, that's not great, but you know, 0:04:04.240 --> 0:04:06.560 it's good in terms for the FED. It's not great 0:04:06.560 --> 0:04:08.040 for the consumer. But as long as you know, we 0:04:08.080 --> 0:04:10.800 continue to see steady job growth, continue to see steady 0:04:10.840 --> 0:04:13.080 wage gains, you know, either point one or point five 0:04:13.160 --> 0:04:14.720 or whatever, you know, I think that will be a 0:04:14.720 --> 0:04:17.880 good support system overall for the US economy. Now, we 0:04:17.920 --> 0:04:21.080 actually pulled, by the way, our negative growth rate quite 0:04:21.080 --> 0:04:22.640 a while ago, and I'm losing track of time here 0:04:22.680 --> 0:04:23.400 in my old age, but. 0:04:23.920 --> 0:04:25.520 You know, we have, we have pulled it. And again 0:04:25.560 --> 0:04:26.719 we're sticking to that soft planning. 0:04:26.720 --> 0:04:30.360 So we've got, you know, growth slowing from that sustainable 0:04:30.400 --> 0:04:32.560 I think five point two percent growth rate in Q 0:04:32.760 --> 0:04:35.360 three down to about one percent in Q four and 0:04:35.400 --> 0:04:37.000 then flattening out a little bit around you know, the 0:04:37.040 --> 0:04:39.159 point two is or so over the next first half 0:04:39.200 --> 0:04:40.080 of next year. 0:04:41.000 --> 0:04:42.000 Jennifer talking about. 0:04:42.320 --> 0:04:44.920 Jennifer talked to us about inflation here. I don't know. 0:04:45.000 --> 0:04:47.080 I mean, for John Tucker and I it's all about 0:04:47.120 --> 0:04:50.560 filling up our cars with gasoline down at the Jersey Shore. 0:04:50.560 --> 0:04:52.240 And I just filled up for three dollars and ten 0:04:52.320 --> 0:04:55.560 cents a gallon. I feel like inflation's coming down, but 0:04:56.200 --> 0:04:58.680 I'm guessing the Fed does engage it on my gasoline 0:04:59.000 --> 0:05:01.479 intake here. But so, how do you think the FED 0:05:01.520 --> 0:05:04.039 is viewing inflation and the fight against inflation. 0:05:05.360 --> 0:05:08.000 I think it's viewing it with a very cautious outlook. 0:05:08.200 --> 0:05:10.680 And even though you know, for example, like last week, 0:05:10.680 --> 0:05:13.520 when Governor Waller introduced the whole cost of rape cuts 0:05:13.560 --> 0:05:16.480 into the whole conversation, which everyone like got super excited about, 0:05:16.640 --> 0:05:18.120 you know, he didn't, you know, he just said that 0:05:18.240 --> 0:05:20.039 was like a he was encouraged by that number, and 0:05:20.080 --> 0:05:21.960 in needs. I think he said like three four or 0:05:22.000 --> 0:05:24.240 five months before they can start. 0:05:24.000 --> 0:05:24.880 Talking about rapecuts. 0:05:24.880 --> 0:05:27.760 So he didn't mention that they're going to start cutting race. 0:05:28.000 --> 0:05:29.839 He says, we need to see a few more months 0:05:29.839 --> 0:05:33.279 worth of of better inflation data before we do anything. 0:05:33.560 --> 0:05:35.719 So I think they're really with a very cautious outlook. 0:05:35.960 --> 0:05:38.200 But again, you know, we when we have longer term 0:05:38.360 --> 0:05:40.839 inflationary pressures out there, like from the labor market, you know, 0:05:40.920 --> 0:05:44.400 like we have the working age population globally has already 0:05:44.400 --> 0:05:46.359 basically peaked, right, so we're seeing a. 0:05:46.360 --> 0:05:48.359 Lot of people retiring, a lot of people. 0:05:48.279 --> 0:05:51.200 Shifting industries, so there's still that tightness. 0:05:50.760 --> 0:05:51.440 In the labor market. 0:05:51.520 --> 0:05:53.760 And this is like again a global phenomenon, and certainly 0:05:54.080 --> 0:05:55.960 that in the US. I think Bloomberg ran a story 0:05:55.960 --> 0:05:58.560 this morning about meurses being you know, a short supply 0:05:58.680 --> 0:06:01.680 as another example of a of an industry that needs workers. 0:06:01.880 --> 0:06:03.640 So that's going to cause out for pressure on wages 0:06:04.240 --> 0:06:06.479 and the labor market. And then I'm going to go, 0:06:06.600 --> 0:06:08.760 I'm going to point to mother Nature again and climate 0:06:08.920 --> 0:06:11.839 that's been causing so much havoc all over the world 0:06:11.839 --> 0:06:14.680 in terms of like floods and droughts, and I think 0:06:14.680 --> 0:06:16.919 that's going to have you know, some still upward pressure 0:06:16.920 --> 0:06:18.840 on food prices and all that. And of course all 0:06:18.839 --> 0:06:21.359 the wars are having upper pressure on energy prices, so 0:06:21.400 --> 0:06:24.479 all that I think still has I'm a bit worried 0:06:24.480 --> 0:06:26.280 still about inflation. Not going to call it an all 0:06:26.279 --> 0:06:29.000 clear just yet, and I think the FED would probably agree. 0:06:29.400 --> 0:06:32.240 On Friday's jobs report, we'll also get a reading on 0:06:32.320 --> 0:06:34.960 average hourly earnings. What are you seeing when it comes 0:06:35.000 --> 0:06:37.640 to wage growth, because that is something that we know 0:06:37.720 --> 0:06:40.080 FED Chair Jero Pal is watching really closely. 0:06:41.880 --> 0:06:44.279 So we're looking for about a three times increase, which 0:06:44.279 --> 0:06:46.520 is in line with consensus, you know, about four percent 0:06:46.600 --> 0:06:50.640 year over year. Still steady, but coming down maybe because 0:06:51.440 --> 0:06:53.440 we already know that the economy is slowing. It's not 0:06:53.760 --> 0:06:55.640 five point two percent anymore. You know, it's probably closer 0:06:55.640 --> 0:06:59.520 to one percent this quarter. Demand is starting to slow. 0:06:59.560 --> 0:07:01.800 We're not seeing you know, three hundred thousand jobs job 0:07:01.839 --> 0:07:04.800 increases anymore. So I think wage demands and the fact 0:07:04.800 --> 0:07:07.120 that inflation, as we just said, is coming down, I 0:07:07.120 --> 0:07:10.200 think it's going to temperate demand for earnings. 0:07:10.320 --> 0:07:10.480 Now. 0:07:10.480 --> 0:07:12.160 Having said that, you know, I'm also a bit concerned 0:07:12.200 --> 0:07:14.440 just given all the strikes that we've seen over the 0:07:14.480 --> 0:07:16.360 past year, and I don't remember have a time where 0:07:16.400 --> 0:07:18.760 we saw so many and demands were being met. So 0:07:18.800 --> 0:07:20.560 that again is sort of like that, you know, on 0:07:20.560 --> 0:07:22.040 the one hand, on the other hand, thing with which 0:07:22.040 --> 0:07:24.200 I shouldn't be doing, but I'm doing it anyway, you know, 0:07:24.320 --> 0:07:29.640 overall slowing demand for labor, but still you know, there's 0:07:29.640 --> 0:07:31.560 still that that big source overall, So I think it's 0:07:31.560 --> 0:07:34.640 still gonna be steadyish, but slower wage growth overall. 0:07:35.040 --> 0:07:38.040 Jennifer, Outside of the US, where you kind of focusing 0:07:38.040 --> 0:07:39.880 on where's the next where's the big delta? 0:07:39.960 --> 0:07:43.000 Is it Europe? Is it Asia? Outside the US? Where 0:07:43.000 --> 0:07:43.640 are you focusing? 0:07:44.480 --> 0:07:47.000 I'm kind of worried about Europe, frankly, but although this 0:07:47.080 --> 0:07:50.080 morning I will say that was a little bit more relieved. 0:07:50.080 --> 0:07:52.040 You know, it was like some and we normally don't 0:07:52.040 --> 0:07:55.239 look at revisions too much for services and composite. 0:07:54.760 --> 0:07:56.480 Pmis because they usually don't change that much. 0:07:56.520 --> 0:07:59.600 But the fact that they all realized higher, particularly in 0:07:59.800 --> 0:08:02.120 the UK as well, back over fifty was a little 0:08:02.120 --> 0:08:04.800 bit gratifying. And the fact that you know that last 0:08:04.840 --> 0:08:07.200 week's inflation rate for the for the for the euro 0:08:07.320 --> 0:08:10.440 Area the lowest in almost in over two years actually, 0:08:10.760 --> 0:08:13.280 And the fact that one of the big uber hawks herself, 0:08:13.320 --> 0:08:16.560 you know, is a belish novel of the vice executive 0:08:16.720 --> 0:08:19.080 board member of the ECB, actually said that you know, 0:08:19.120 --> 0:08:21.400 when things change, she changes her mind. And that's something 0:08:21.560 --> 0:08:24.600 huge coming from her, you know, some of the other hawks, 0:08:24.640 --> 0:08:26.320 you know from the bundes Bank, and we haven't heard 0:08:26.320 --> 0:08:28.520 from Austria recently, but you know, I think there's still 0:08:28.640 --> 0:08:30.840 very more cautious on the outlook. But I'm still again 0:08:30.880 --> 0:08:34.280 worried about when when the ECB will finally drop its 0:08:34.400 --> 0:08:37.640 hawkish talents, and of course they still are surrounded by 0:08:37.640 --> 0:08:39.480 wars over there as well, so that's a little bit worrying. 0:08:39.760 --> 0:08:42.880 And of course the UK is actually interesting. The data 0:08:42.960 --> 0:08:44.800 keep changing. You know a lot of revisions out there 0:08:44.800 --> 0:08:46.240 that you know, and we're seeing a lot of change 0:08:46.480 --> 0:08:48.880 signs changing on growth rates, which is kind of interesting. 0:08:49.200 --> 0:08:51.360 But the UK is not looking as bad. 0:08:51.160 --> 0:08:53.520 As I would have expected a year ago, so a 0:08:53.520 --> 0:08:54.920 bit more encouraged on that front. 0:08:55.600 --> 0:08:57.560 We only have about a minute left. But if you 0:08:57.559 --> 0:09:00.160 were able to ask FED Chair Jerome Pala question is 0:09:00.200 --> 0:09:03.679 press conference next week following the Federal Reserve's decision, what 0:09:03.679 --> 0:09:05.080 would you ask him? 0:09:05.440 --> 0:09:08.800 I would say, sir, with all due respect, if assuming 0:09:08.840 --> 0:09:11.160 no one's in the room, just tell me what exactly 0:09:11.200 --> 0:09:13.160 is it going to take before you're going to start 0:09:13.200 --> 0:09:16.160 talking about great cuts? What will it taken? Tell me 0:09:16.200 --> 0:09:17.920 all the factors. I can put them on my little 0:09:17.960 --> 0:09:19.000 checklist and check them off. 0:09:19.760 --> 0:09:21.280 What do you think should be on top of that list? 0:09:23.280 --> 0:09:26.120 How many months of CPI do you need to you know, 0:09:26.400 --> 0:09:28.640 and how much does it need to go down for 0:09:29.000 --> 0:09:30.920 the three months and the six month annualized rate before 0:09:30.960 --> 0:09:33.400 you can start saying Okay, forget it, We're done. We 0:09:33.480 --> 0:09:36.240 are completely you know, I'll complete at this point, and 0:09:36.240 --> 0:09:38.200 I want to see what he thinks about for wages 0:09:38.240 --> 0:09:43.320 as well on the demographic front, and you know unemployment generally, 0:09:43.360 --> 0:09:45.079 you know, how how much how much do you want 0:09:45.080 --> 0:09:48.600 the unemployment rate to rise by in order to say 0:09:48.600 --> 0:09:49.640 that you are finally finished? 0:09:50.120 --> 0:09:52.280 Jennifer, thanks so much for joining us. Always appreciate getting 0:09:52.320 --> 0:09:55.120 a few minutes of your time, Jennifer Lee. She is 0:09:55.160 --> 0:09:59.200 a senior economist and the managing director at ABMO Capital 0:09:59.240 --> 0:10:02.520 Markets up there in Canada. Always appreciate getting a few 0:10:02.520 --> 0:10:03.800 minutes of Jennifer's time. 0:10:03.840 --> 0:10:04.160 Here. 0:10:05.600 --> 0:10:08.360 You're listening to the team. Ken's a our live program, 0:10:08.480 --> 0:10:12.440 Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, 0:10:12.520 --> 0:10:15.679 the iHeartRadio app, and the Bloomberg Business App, or listen 0:10:15.720 --> 0:10:17.840 on demand wherever you get your podcasts. 0:10:19.880 --> 0:10:23.000 Let's talk about private credit certainly a big, big issue 0:10:24.120 --> 0:10:26.120 for us here. We like talking about it because we 0:10:26.160 --> 0:10:29.600 see the growth in private equity is just so extraordinary. 0:10:30.480 --> 0:10:33.920 I guess we'll credits around one half trill. 0:10:34.960 --> 0:10:37.720 Yeah, and it really took off after the Great Financial 0:10:37.760 --> 0:10:40.400 Crisis when the bank started pulling back here. So, uh, 0:10:40.480 --> 0:10:42.640 let's talk to somebody who plays in this part of 0:10:42.640 --> 0:10:46.320 the sandbox. Hugh van steinas vice chair and partnered Oliver Wyman. 0:10:46.600 --> 0:10:48.680 He joins us, Hugh, can you give us kind of 0:10:48.800 --> 0:10:52.920 your view of where we are on the private credit 0:10:53.120 --> 0:10:54.160 boom out there? 0:10:54.360 --> 0:10:56.960 Is it overdone? Is at a healthy market? 0:10:56.960 --> 0:10:59.280 How do you think about the evolution and the growth 0:10:59.280 --> 0:10:59.920 of private credit? 0:11:01.240 --> 0:11:02.520 Well, Paul, thanks for having me on. 0:11:02.760 --> 0:11:02.880 Now. 0:11:02.920 --> 0:11:05.480 Look, I think there's a big runway still to come 0:11:05.520 --> 0:11:08.040 in terms of private credit, and I think it's driven 0:11:08.080 --> 0:11:09.720 by a couple of things. I mean, first, as you 0:11:09.840 --> 0:11:12.000 just said Paul, when you laid it out, the banks 0:11:12.040 --> 0:11:13.599 have been obviously on a bit of a diet in 0:11:13.640 --> 0:11:15.719 the last decade, and that's really advantage some of the 0:11:15.760 --> 0:11:18.720 private credit players. But I think there's another diet to come. 0:11:18.960 --> 0:11:21.600 If you look at the FED proposals, the FED may 0:11:21.640 --> 0:11:23.400 be asking the banks to take as much as a 0:11:23.480 --> 0:11:27.640 thirty five percent increasing capital for their investment banking businesses. Now, 0:11:27.720 --> 0:11:29.800 I'm sure it's going to get watered down, but that's 0:11:29.840 --> 0:11:33.040 an enormous squeeze, which means the banks need shared assets. 0:11:33.559 --> 0:11:35.760 And then secondly, you know obviously had mark grown from 0:11:35.760 --> 0:11:39.600 Apollo on earlier today. I think also the regional banks 0:11:39.600 --> 0:11:42.120 in the States have really got some issues and are 0:11:42.160 --> 0:11:45.400 selling assets at quite good good prices too, So there's 0:11:45.440 --> 0:11:48.480 an opportunity set of bank shedding assets and on the 0:11:48.520 --> 0:11:51.560 other hand, clients just desperate for yield. There's biggest source 0:11:51.600 --> 0:11:54.400 of inflos this year is into private credit, you know, 0:11:55.040 --> 0:11:57.600 as Jess was just saying, it's grown wildly, but it 0:11:57.679 --> 0:11:59.520 might double again in the next two to three years. 0:11:59.600 --> 0:12:02.600 So for the moment, I actually think the conditions remain 0:12:02.920 --> 0:12:05.800 very ripe and a really good year for opportunities. 0:12:06.080 --> 0:12:08.800 Do you see any sort of red flags brewing within 0:12:08.880 --> 0:12:11.559 the private credit market at this point? 0:12:12.720 --> 0:12:13.640 No, it's a great question. 0:12:13.720 --> 0:12:16.160 So look, as a long time bank sell list, any 0:12:16.240 --> 0:12:19.720 asset which any market which grows too fast always creates 0:12:19.720 --> 0:12:22.079 at least an amber flag if not read Look, there's 0:12:22.080 --> 0:12:26.360 a bit of frothiness, particularly look around leverage lending prices 0:12:26.360 --> 0:12:27.199 are becoming tighter. 0:12:27.720 --> 0:12:29.240 That area is really heavily bid. 0:12:29.960 --> 0:12:32.880 For the note we put out last week, I work 0:12:32.960 --> 0:12:36.439 through that twenty eight traditional asset managers have either bought 0:12:36.520 --> 0:12:39.360 another private credit firm or set one up themselves, So 0:12:39.400 --> 0:12:42.839 there's clearly a bit of frothiness around the leverage lending area. 0:12:43.120 --> 0:12:44.480 But if I look at the kind of off the 0:12:44.559 --> 0:12:48.240 run deals, whether it's buying bank assets, whether it's more 0:12:48.400 --> 0:12:52.320 esoteric lending, it still looks quite an attractive spread. So 0:12:52.800 --> 0:12:55.160 I think the leverage lending is probably the area to 0:12:55.160 --> 0:12:57.560 look at. And then the second one, of course, is 0:12:59.080 --> 0:13:02.400 who's the right buyers? Are the buyers ones who understand 0:13:02.480 --> 0:13:05.079 this is the long term asset because you're basically getting 0:13:05.080 --> 0:13:07.320 assets which used to be run by a bank but 0:13:07.360 --> 0:13:09.120 are now going to get run by a fun manager. 0:13:09.440 --> 0:13:11.960 You know, do they have the right skills to work out? 0:13:12.280 --> 0:13:15.120 Do they understand this assets can be liquid? And as 0:13:15.120 --> 0:13:17.600 ever in life, you know, we hope that the right 0:13:17.640 --> 0:13:19.680 buyers by the right assets, but that doesn't always happen. 0:13:19.679 --> 0:13:21.480 So that's another area that I'm very watchful for. 0:13:22.480 --> 0:13:25.480 Hugh, Why do you think the banks are allowing this 0:13:25.559 --> 0:13:27.080 to happen? I mean, when I was at the Chaseman 0:13:27.120 --> 0:13:29.640 Hand Bank, we made a lot of money in our 0:13:29.720 --> 0:13:32.280 leverage lending business. I'm not going to let that business 0:13:32.480 --> 0:13:34.839 go to the private market. What's happening on the other 0:13:34.880 --> 0:13:35.560 side of the street. 0:13:36.400 --> 0:13:38.840 Yeah, you know, it's a great question, and it's It 0:13:38.920 --> 0:13:41.920 is extraordinary that you're getting even some of the US's 0:13:42.040 --> 0:13:45.320 largest banks setting up new private credit units. It's really 0:13:45.400 --> 0:13:48.800 a consequence of regulation, you know, the FARED or in 0:13:48.800 --> 0:13:52.040 Europe the ECB are trying to jack up the capital 0:13:52.200 --> 0:13:55.560 charges to hold leverage loans on the balance sheet. But 0:13:55.600 --> 0:13:58.240 it's not also even just holding them, it's also the 0:13:58.280 --> 0:14:00.720 trading of them. Now, you know, as you know, and 0:14:00.760 --> 0:14:03.520 you've spoken about in the last few months, you know, 0:14:03.520 --> 0:14:06.680 there's an intense battle and negotia oh sorry, a discussion 0:14:06.720 --> 0:14:08.679 going on between the banks and the FED about what 0:14:08.760 --> 0:14:11.320 is the right level of capital for the risks they're running. 0:14:11.520 --> 0:14:14.040 And the large banks clearly think that they've got sufficient capital. 0:14:14.920 --> 0:14:16.720 But if the FED were to apply the rules as 0:14:16.760 --> 0:14:20.480 they're currently proposed, as I said, it's a thirty five 0:14:20.480 --> 0:14:24.400 percent increase that's so ginormous, the banks will clearly need 0:14:24.440 --> 0:14:28.080 to trim their sheets, shed some assets, be more thoughtful 0:14:28.080 --> 0:14:29.320 about the marginal loan they make. 0:14:29.480 --> 0:14:32.400 So I think you're right, Paul. It's been a great business. 0:14:32.680 --> 0:14:35.000 It should be a great business, but it depends it's 0:14:35.040 --> 0:14:37.000 kind of in the gift now of what the FED 0:14:37.040 --> 0:14:37.320 will do. 0:14:37.840 --> 0:14:40.320 Talk to us about the market for private corporate loans, 0:14:40.360 --> 0:14:43.760 because right now they're facing obviously a very high rate 0:14:43.920 --> 0:14:47.200 environment for the first time since they really boomed in popularity. 0:14:47.320 --> 0:14:49.320 What do you think this means next year? Because even 0:14:49.360 --> 0:14:52.280 if the Federal Reserve holds off on raising interest rates, 0:14:52.440 --> 0:14:55.160 rates are still very elevated. How does that impact that 0:14:55.200 --> 0:14:56.560 particular quarter of the market. 0:14:57.640 --> 0:15:00.520 No, Look, I think that is a really good question because, look, 0:15:00.720 --> 0:15:03.800 because the debt is mostly floating rate notes, so in 0:15:03.840 --> 0:15:07.840 other words, it's been passed on to the corporate directly. Look, 0:15:07.880 --> 0:15:11.160 as financing costs normalize, some of the weaker balance sheets 0:15:11.160 --> 0:15:13.320 can be exposed. And you've started to see that even 0:15:13.320 --> 0:15:15.240 in public markets in the last three or four months. 0:15:15.640 --> 0:15:18.760 The trade between the stronger sheets and weaker sheets, even 0:15:18.800 --> 0:15:21.360 in the in the SMP has been quite pronounced, i'd 0:15:21.400 --> 0:15:24.720 say since since June. But you're starting to see that 0:15:25.000 --> 0:15:27.960 move through the private credit market. You know, is it possible, 0:15:28.640 --> 0:15:31.840 It would be surprising if there won't be some challenges 0:15:31.880 --> 0:15:33.680 for a couple of the some of the borrowers. 0:15:34.360 --> 0:15:35.720 And I think that's also you. 0:15:35.680 --> 0:15:39.600 Know why the larger players will need to know can 0:15:39.640 --> 0:15:41.880 they work out the asset, can they rearrange the debts? 0:15:41.960 --> 0:15:44.080 You know, do they want to how do they bail 0:15:44.120 --> 0:15:47.280 inequity if they need to? And I think that restructuring 0:15:47.320 --> 0:15:50.120 element is going to become probably into the second half 0:15:50.120 --> 0:15:53.000 of next year and beyond start to become more notable. 0:15:53.400 --> 0:15:56.560 But you know, the current credit dynamics that we're seeing 0:15:56.560 --> 0:15:59.120 in these portfolios, and admittedly the data could be better, 0:15:59.160 --> 0:16:00.560 but from what we can see at the moment, they're 0:16:00.600 --> 0:16:02.480 still performing quite well. Q. 0:16:02.760 --> 0:16:05.520 I mean, I guess my experience is looking at this 0:16:05.680 --> 0:16:09.360 marketplace that it's been very successful, but it's been focused 0:16:09.360 --> 0:16:11.320 primarily on the middle market lending. 0:16:11.520 --> 0:16:13.040 Do you expect to see these. 0:16:12.880 --> 0:16:16.880 Private credit funds right, bigger and bigger checks going forward? 0:16:18.120 --> 0:16:21.920 Yeah, so definitely we're seeing larger checks. 0:16:21.920 --> 0:16:23.760 So, look, you've seen a four point eight dollars deal, 0:16:23.760 --> 0:16:25.840 You've seen a four point nine billion dollar deal this year, 0:16:25.960 --> 0:16:28.120 I mean, which would be unthinkable even. 0:16:27.920 --> 0:16:31.080 Five years ago alone, let alone beyond that. 0:16:31.640 --> 0:16:34.400 So you're definitely seeing Look, you know, in what I 0:16:34.400 --> 0:16:36.600 think one of the most interesting features of finance is 0:16:36.640 --> 0:16:40.160 how the winner takes. Most dynamic that you see in 0:16:40.280 --> 0:16:43.800 tech and other parts is coming into finance too. You've 0:16:43.800 --> 0:16:46.680 seen it in the big banks, You've seen it in 0:16:47.160 --> 0:16:49.680 also some of the big asset managers, and that kind 0:16:49.720 --> 0:16:51.960 of winner takes most dynamic is coming. 0:16:51.840 --> 0:16:52.760 To private credit too. 0:16:53.120 --> 0:16:56.320 So look, the top ten private credit players represent about 0:16:56.320 --> 0:16:58.480 forty percent of the fundraising of the last twenty four 0:16:58.520 --> 0:17:01.320 months and if anything, it looks like it's going higher now. 0:17:01.360 --> 0:17:05.080 That means they can take on bigger loans, as you said, Paul, 0:17:05.359 --> 0:17:08.240 but also it means that if you've got a you know, 0:17:08.280 --> 0:17:11.000 a mid cap bank who maybe you know has got 0:17:11.080 --> 0:17:14.200 some of the lending facilities from the from the FED 0:17:14.520 --> 0:17:16.360 that they introduced around the you know, the regional bank 0:17:16.440 --> 0:17:19.159 termoil earlier this year, if they need to shed a 0:17:19.160 --> 0:17:23.160 few assets to you know, deleverage their balance sheet, they're 0:17:23.160 --> 0:17:24.600 going to go to one of these top ten, top 0:17:24.640 --> 0:17:27.440 fifteen firms. So it's not just mid market lending, it's 0:17:27.520 --> 0:17:31.440 it's the larger firms are doing much more taking opportunities 0:17:31.560 --> 0:17:35.040 or quirky off the run portfolios from banks. And as 0:17:35.080 --> 0:17:37.040 you saw that with with with with Credit Suite some 0:17:37.119 --> 0:17:39.119 earlier in the year or last year, I think this 0:17:39.200 --> 0:17:41.800 is actually a really interesting seam for some of the 0:17:41.840 --> 0:17:42.879 more skillful players. 0:17:43.119 --> 0:17:47.439 Private debt was supposed to struggle when borring casts were rising, 0:17:47.440 --> 0:17:49.920 but that didn't happen. What was the catalyst to make 0:17:49.960 --> 0:17:53.240 it as successful as it has become in recent years. 0:17:54.920 --> 0:17:56.720 Losh, that's a good question, Jess, because I suppose in 0:17:56.760 --> 0:17:59.600 a way we've only look, this is the sharpest rate 0:17:59.640 --> 0:18:02.920