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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.

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Speaker 2: I'm Tracy Alloway.

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Speaker 3: And I'm Joe Wisenthal.

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Speaker 2: Joe, I keep thinking about that Sam Altman hype cycle

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Speaker 2: kind of phrase, the whole it's over and then we're

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Speaker 2: so back back thing. And obviously he was talking about

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Speaker 2: AI and how people you know, feel about AI, but

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Speaker 2: I think you could apply it to a bunch of

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Speaker 2: different markets at the moment. So AI obviously, but also

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Speaker 2: private credit totally. Think back to the end of last year, right,

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Speaker 2: we had all the JP Morgan Jamie Diamond's proverbial cockroaches

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Speaker 2: emerging from private credit, and people started to get really worried.

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Speaker 2: Fast forward to January twenty twenty six, and a lot

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Speaker 2: of those concerns seem to have faded into the background.

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Speaker 3: Right, you wrote the thing, right, spreads everywhere are super tight,

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Speaker 3: and already we know that the stock market is up

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Speaker 3: for the year, but credit market is off to a

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Speaker 3: very strong start of all flavors.

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Speaker 2: From what I understand, right, stock markets stealing all the spotlight.

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Speaker 2: But if you look at the corporate bond market, now

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Speaker 2: this is the public bond market not private, but spreads

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Speaker 2: are at basically historic tights. I think the high Yield

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Speaker 2: Index is starting at its tightest level ever in the

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Speaker 2: history of the index for the year. This is crazy,

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Speaker 2: but it also highlights an important point, which is that

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Speaker 2: spreads and returns are all relative. Yeah, right, And so

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Speaker 2: if the public market is absolutely booming, that could be

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Speaker 2: a good thing for private credit. But also private credit

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Speaker 2: competes with the public market, right, so if you're getting

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Speaker 2: pretty good returns in public credit, leverage loans, something like that,

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Speaker 2: maybe you're not going into private credit as much as

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Speaker 2: you used to.

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Speaker 3: What if you found a house that just had one

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Speaker 3: cockroach that could you imagine.

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Speaker 2: There's never one cockroach? That's the point.

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Speaker 3: There had to have been a first cockroach that enters

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Speaker 3: the house. You get it really quickly in your and

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Speaker 3: then you don't have a cockroach problem.

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Speaker 2: Did I ever tell you I hate cockroaches so much?

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Speaker 2: The first of all, the first Japanese word I ever

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Speaker 2: relearned when I moved back to Japan as like a

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Speaker 2: fourteen year old was go ki bori hoihoi because I

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Speaker 2: had to go down to the local compini, the convenience

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Speaker 2: store and buy cockroach hotels because the entire apartment was infested.

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Speaker 2: And secondly, I hate cockroach is so much. I once

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Speaker 2: read an entire book about cockroaches just to know my enemy. Wow,

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Speaker 2: it was like three hundred pages on cockroache.

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Speaker 3: Do we get the author on the podcast?

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Speaker 2: It was actually a really good book. It was a

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Speaker 2: sort of like cultural and scientific study of the history

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Speaker 2: of cockroaches. But anyway, we are getting massively off topic.

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Speaker 2: Shall I introduce our guest. We do, in fact have

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Speaker 2: the perfect guest. All right, So we're going to be

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Speaker 2: talking all things private credit, including how private credit is

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Speaker 2: relating to the AI space. At the moment, we're speaking

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Speaker 2: with Michael Zowatsky, also known as Ze. He is the

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Speaker 2: global Chief Investment Officer for Blackstone Credit and Insurance. So Z,

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Speaker 2: thank you so much for coming on the podcast.

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Speaker 4: Wonderful to be here, Thanks for having me.

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Speaker 2: So I am told by your lovely Blackstone representatives that

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Speaker 2: over the last twenty years you have grown Blackstone's credit

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Speaker 2: franchise into the largest business by assets at Blackstone. How

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Speaker 2: hard was that? Were you just sort of like riding

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Speaker 2: a wave of corporate issuance.

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Speaker 4: Well, let's talk about a few things that have happened here.

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Speaker 4: You know, I often get asked about this growth of

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Speaker 4: private credit, and I think there's a misconception that that

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Speaker 4: growth was driven by excess risk taking. But when you

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Speaker 4: actually step back and think about what's happened in the market,

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Speaker 4: you basically had a innovative breakthrough that changed the way

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Speaker 4: business was done that was better for all market participants.

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Speaker 4: The way I like to analogize it to is what

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Speaker 4: happened with Amazon in the retail space. Right before Amazon,

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Speaker 4: if you want to go buy something, you had to

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Speaker 4: go to the store. But Amazon kind of took out

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Speaker 4: that middleman and brought you the consumer directly in the

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Speaker 4: manufacture and in the process created something that was simpler,

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Speaker 4: more efficient, better for the economy, more transparent. What's private

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Speaker 4: credit done. It's done the same thing. It's brought the

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Speaker 4: borrower right up directly to our investor's capital least. Sometimes

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Speaker 4: call it this farm to table model. Right, what have

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Speaker 4: you done in that process? You've cut out all the middlemen,

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Speaker 4: all the syndication, all the trading desks, all the stuff

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Speaker 4: that led to leakage along the way, and in the

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Speaker 4: process you built something that was better for all market participants.

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Speaker 4: If you're a borrower, you get to speak directly to

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Speaker 4: your lender. You get a customized solution, you get speed,

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Speaker 4: certainty of execution. If you're an investor, you capture all

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Speaker 4: of that excess leakage in the form of higher returns.

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Speaker 4: And that's been the case for the last twenty years.

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Speaker 4: And by the way, if you're the financial markets, you

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Speaker 4: have an ecosystem that is less levered. More asset liability

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Speaker 4: management brings more financial stability to the overall ecosystem. When

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Speaker 4: you have something that's really good for all market participants,

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Speaker 4: it tends to grow a lot. And that's what's happened

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Speaker 4: in private credit.

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Speaker 3: What is the equivalent of like in this analogy, which

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Speaker 3: I really like, what is the equivalent of the web?

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Speaker 4: Right?

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Speaker 3: So, the reason Amazon could cut out the physical bookstore

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Speaker 3: or the various other retailers, et cetera, is because the

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Speaker 3: Internet exists and that creates solves some information problems, et cetera.

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Speaker 3: How would you described the sort of like the thing

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Speaker 3: that exists now such that so many different middleman and

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Speaker 3: so forth can be cut out? Scale okay, scale?

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Speaker 4: Right. The reason we couldn't do what we do today

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Speaker 4: twenty years ago, Yeah, is because we didn't have the

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Speaker 4: capital base, We couldn't write a billion dollar plus deal.

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Speaker 4: Here's an interesting fact. Before twenty twenty one, there were

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Speaker 4: only five billion dollar plus private credit deals done. Ever

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Speaker 4: since twenty twenty one, one hundred plus, and we have

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Speaker 4: Blackstone have done most of them. So what does that mean.

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Speaker 4: We have the scale of capital to actually solve the

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Speaker 4: problems for our clients. We have the breadth of team

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Speaker 4: to go out and cover the market and bring these

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Speaker 4: solutions direct to our bart worst. And then the other

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Speaker 4: thing that's happened is the expansion of private credit beyond

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Speaker 4: what a lot of people think of it as, which

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Speaker 4: is middle market sponsored back back lending, into what we

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Speaker 4: call the real economy. Right, taking what is a two

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Speaker 4: trillion dollar market today and thinking about a thirty plus

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Speaker 4: trillion dollar addressable market when you think about areas like

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Speaker 4: private investment, grade real assets, asset back finans, and so

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Speaker 4: the other big piece of this is just the massive

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Speaker 4: expansion in the addressable market that's come about.

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Speaker 2: So I take the point about you know, customized financing

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Speaker 2: solutions and bringing investors closer to capital and all of that,

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Speaker 2: but at the same time, like the concern is that

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Speaker 2: as the space grows, competition for deals increases, and that's

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Speaker 2: when you start to see not just potentially lower spreads,

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Speaker 2: but also more leverage. And we have seen, you know,

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Speaker 2: some first leans that are now UNI tranches and things

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Speaker 2: that would normally spark a little bit of worry. Is

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Speaker 2: that something that you're seeing in the market.

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Speaker 4: It's funny. Look, I've been doing private credit for two decades.

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Speaker 4: I think to the deals that we were first doing

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Speaker 4: in private credit twenty years ago, and I would tell

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Speaker 4: you I don't know that a single one of them

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Speaker 4: would pass our investment committee today. They were small, they

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Speaker 4: were cyclical, they were basically the stuff the banks wouldn't do.

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Speaker 4: Fast forward to today. Think about the average direct lending

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Speaker 4: deal we do. It's a two hundred million dollar EBITDAV business.

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Speaker 4: It's forty percent loan to value. Pre GFC loan to

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Speaker 4: values on deals were sixty five percent plus. And so

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Speaker 4: when I think about the risk posture of a senior

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Speaker 4: secured loan today, it feels pretty good relative to history.

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Speaker 4: And then that needs to be combined with the fact

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Speaker 4: that this opportunity in investment grade private credit, I would say,

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Speaker 4: is the fastest growing opportunity we see in credit at Blackstone.

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Speaker 2: Right, So this is the other new thing that's happening

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Speaker 2: is ig private credit. So you know, private credit extended

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Speaker 2: to companies with very good balance sheets, not junk graded,

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Speaker 2: has become more of a thing. It's going mainstream, and

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Speaker 2: a lot of that is driven by AI is ands

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Speaker 2: and tech related issuance. Talk more about what you're seeing

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Speaker 2: in that space.

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Speaker 4: Well, I think that's a big part of it. Right.

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Speaker 4: Anytime you see a significant need for capital, which we

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Speaker 4: obviously see in the data center build out, and then

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Speaker 4: connected to that all the energy, power and infrastructure that

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Speaker 4: needs to accompany that, you see huge capital needs and

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Speaker 4: markets that need that much capital need to access all

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Speaker 4: available options, and that includes public credit, but that also

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Speaker 4: includes private credit. Morgan Stanley put out a piece late

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Speaker 4: last year that estimated that eight hundred billion dollars of

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Speaker 4: private credit alone is needed to finance the digital infrastructure

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Speaker 4: build out over the next five years. Okay, so that's

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Speaker 4: a massive number. I think what gets missed when people

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Speaker 4: think about the financing element of financing a data center,

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Speaker 4: for example, is we're financing fifteen to twenty year take

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Speaker 4: er pay contracts with some take pay contract meaning think

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Speaker 4: about a triple net lease contract, matter what your usage is,

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Speaker 4: no matter what your operating costs are, you're getting a

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Speaker 4: fixed sum every single month from your tenement. And they

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Speaker 4: can't get out of that contract. Okay, okay. And you're

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Speaker 4: getting that from some of the highest quality credit counter

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Speaker 4: parties in the world, right, Hyperscalers are the tenants in

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Speaker 4: most of the data centers today. And so as I

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Speaker 4: sit with my credit hat on, if I can lend

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Speaker 4: against some of the best counter parties in the world

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Speaker 4: against a known, defined stream of cash flows, and I

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Speaker 4: can do that with one hundred and fifty to two

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Speaker 4: hundred basis points of excess spread versus like rated public credit.

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Speaker 3: Yeah, well, so explain that. So we the most credit

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Speaker 3: worthy companies in the world are these cash flow gushers,

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Speaker 3: the big tech companies, et cetera. What is the I

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Speaker 3: still don't quite get what is the advantage for them

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Speaker 3: of the private credit market spreads as you mentioned, are wider.

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Speaker 3: They can access the bond market. They do it all

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Speaker 3: the time, or they certainly can. So what is what

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Speaker 3: is private credit solve for the metas of the world

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Speaker 3: and the apples of the world, such that they can't

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Speaker 3: borrow versus the public credit market.

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Speaker 4: Customization, speed, certainty, flexibility, bringing that solution direct to the borrower.

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Speaker 4: Sometimes there's certain elements in terms of the timing or

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Speaker 4: whatever the case may be that requires a private solution.

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Speaker 3: Confidentially, you just explain that a little further, Like what

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Speaker 3: is it about these projects specifically when you say like customization.

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Speaker 2: If people say customization all the time, give us a specific.

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Speaker 4: Exam Yeah, okay, Well, sometimes there's a construction element. Okay,

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Speaker 4: So you need to fund over time as opposed to

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Speaker 4: funding all of your capital day one. That's a good example, right.

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Speaker 4: Sometimes you need to structure in a certain way in

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Speaker 4: terms of the timing of the cash flows. That's another example.

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Speaker 4: So there are things that are needed that don't necessarily

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Speaker 4: increase credit risk, but they don't fit the cookie cutter

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Speaker 4: mold of a straight away investment grade public on.

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Speaker 2: So this might be a difficult question to answer. But

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Speaker 2: when you look at your own portfolio, your own very

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Speaker 2: large portfolio, can you give like a rough estimate of

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Speaker 2: how much AI exposure has increased over the years.

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Speaker 4: Well, that's a fascinating question, right, because I tend to

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Speaker 4: think about AI exposure pretty broadly, Right, because I think

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Speaker 4: AI will impact not just data centers and the direct right,

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Speaker 4: you know, first derivative impact, but the second derivative impact,

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Speaker 4: the third derivative impact.

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Speaker 2: So you're looking at companies that could be disrupted as.

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Speaker 4: We're looking at it all and we have been looking

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Speaker 4: at all and this is this is part of working

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Speaker 4: at Blackstone right, Like, we have unbelievable insights into what's

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Speaker 4: going on all around the globe in all of these markets,

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Speaker 4: not just within our credit business that has five thousand

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Speaker 4: plus barwords, but our private equity business, our infrastructure business,

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Speaker 4: our real estate business. We happen to own a couple

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Speaker 4: of the largest data center developers in the world. We

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Speaker 4: have a huge operating team that helps companies implement AI capabilities,

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Speaker 4: help them play offense and defense when needed. And so

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Speaker 4: we leverage all of these resources. And I think about

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Speaker 4: AI impact across almost every business in our portfolio, the

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Speaker 4: varying degrees, But I think you have to be front

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Speaker 4: footed in thinking about that as an investor.

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Speaker 2: What about direct exposures, I forget about I take the point,

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Speaker 2: but like, the reason I'm asking is because there are

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Speaker 2: some concerns around concentration limits at places like insurers.

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Speaker 4: Yeah, Look, we have over five hundred billion dollars of

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Speaker 4: assets and credit at Blackstone, and I would tell you,

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Speaker 4: like the amount of direct data center exposure is a

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Speaker 4: small minority that it would not rise to the level

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Speaker 4: of something where any of our clients would feel like

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Speaker 4: they have concentration.

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Speaker 3: What about in terms of I guess said like formal

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Speaker 3: concentration limits. Just in terms of like on a day

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Speaker 3: to day business right now or over the last year,

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Speaker 3: how much of new new activity would you say is

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Speaker 3: related to either sort of data centers or maybe some

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Speaker 3: of the power the power financing that is also needed

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Speaker 3: for data centers.

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Speaker 4: Look, I would tell you it's a material portion of

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Speaker 4: what we're doing because it is such a capital intensive,

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Speaker 4: credit intensive part of the market. But when I think

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Speaker 4: about everything we're doing across our business and credit, it

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Speaker 4: doesn't it doesn't screen as something that's you know, significantly overweight.

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Speaker 4: Like if I think about what we're doing in our

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Speaker 4: private investment grade business, that's a real asset strategy broadly

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Speaker 4: defined right that includes obviously digital infrastructure and includes energy

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Speaker 4: and power, but it includes residential mortgages, which is a

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Speaker 4: massive asset class. It includes equipment, finance. We just announced

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Speaker 4: a deal recently to do an aircraft engine partnership, and frankly,

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Speaker 4: I'd say the single biggest thing that it includes is

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Speaker 4: what we call corporate solutions, and these are large scale,

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Speaker 4: customized private credit partnerships with public investment grade companies. And

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Speaker 4: so recently we did a deal with Rogers up in

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Speaker 4: Canada where we did a five billion dollar financing for

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Speaker 4: them against their network infrastructure back haul. We then did

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Speaker 4: a deal late last year with Cempra Infrastructure to help

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Speaker 4: them build out an LENNG project. And we're seeing that

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Speaker 4: not just in the US, we're seeing that globally. We

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Speaker 4: announced the deal yesterday in fact, with Ahold, the European

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Speaker 4: supermarket company, to help expand their logistics footprint. And so

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Speaker 4: I would tell you the biggest theme I see across

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Speaker 4: our private investment grade business is this notion of what

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Speaker 4: we call corporate solutions.

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Speaker 2: What's it like sourcing deals at the moment? So Blackstone

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Speaker 2: obviously very big, So I imagine people are coming to you constantly.

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Speaker 2: But at the same time, I'm one of the things

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Speaker 2: we heard when the private credit market was very, very hot,

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Speaker 2: was there's a lot of competition for deals, right, and

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Speaker 2: everyone wants in on certain financing transactions. So what's it like?

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Speaker 4: You got to ticket market by market, right, we were

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Speaker 4: just talking about private investment, great corporate solutions, some of

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Speaker 4: these big infrastructure credit areas. I would tell you in

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Speaker 4: that market there is more demand for capital. Then there

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Speaker 4: are players like Black Zone with the scale to actually

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Speaker 4: meet those needs. And so that is a market where

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Speaker 4: I would tell you we have robust deal activity, and

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Speaker 4: that is a market where I see a lot of

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Speaker 4: excess spread. I know you mentioned earlier that spreads are tight.

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Speaker 4: That's an area where I would say spreads are actually

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Speaker 4: quite attractive. Right. If you think about public IG spreads

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Speaker 4: today are eighty basis points, if you can make two

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Speaker 4: hundred and fifty basis points it like for like credit

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Speaker 4: rated risk like, that's a lot of relative excess spread.

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Speaker 4: And that's happening because the demand for capital relative to

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Speaker 4: the supply of capital is quite attractive, and that's showing

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Speaker 4: up for us as lenders. I'd say in the direct

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Speaker 4: line market, that's a market where spreads have tighten in

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Speaker 4: sympathy with the liquid subinvestment grade markets, but the excess

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Speaker 4: spread remains. Right, that excess spread of a couple hundred

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Speaker 4: basis points persists. I think what is helping is you

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Speaker 4: are seeing this increase in deal activity. We saw very

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Speaker 4: strong M and A activity in the back half of

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Speaker 4: last year. If I look at our Q four pipeline,

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Speaker 4: it's actually up twenty five percent versus what it was

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Speaker 4: at this time last year, and so I think we

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Speaker 4: are optimistic about a strong recovery and deal activity that

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Speaker 4: will help on your point in terms of sourcing deals

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Speaker 4: in that market specifically, I think the other thing that's

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Speaker 4: really important, and you asked this question around how do

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Speaker 4: we scale a business. Part of it is not just

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Speaker 4: waiting and sitting for the phone touring. A huge part

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Speaker 4: of what we do is think about the thematic areas

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Speaker 4: within all of Blackstone, not just credit that we want

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Speaker 4: to deploy capital in and digital, infra, energy and power.

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Speaker 4: Those are good examples in the investment grade space, but

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Speaker 4: there are also examples in the subinvestment grade space life sciences,

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Speaker 4: utility services. And what our team does is we proactively

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Speaker 4: identify these companies and pitch them customized solutions. And because

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Speaker 4: we have the scale of capital to actually solve that problem,

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Speaker 4: we can do that. We did a deal late last

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Speaker 4: year with a company called Signant Health in a life

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Speaker 4: sciences space. The billion dollar plus transaction that we led.

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Speaker 4: How did we do that? Well, we had financed their

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Speaker 4: number one competitor. We had followed this loan because we

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Speaker 4: had held it in our liquid book, and so we

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Speaker 4: had the idea, Hey, let's call this company and say

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Speaker 4: you should do a private loan. And that's where the idea,

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Speaker 4: aation comes, and that's where the differentiation in the market comes.

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Speaker 4: A lot of people can pick up the phone, not

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Speaker 4: a lot of people can create their own ideas and

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Speaker 4: actually effectuate them. And I think that's something we're uniquely

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Speaker 4: good at.

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Speaker 3: Everything is just sort of like scale empower laws and

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Speaker 3: compounding return from having grown and having that network the

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Speaker 3: big get bigger. It's really such an extraordinary thing and

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Speaker 3: we see in tech, but we also clearly see it

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Speaker 3: in finance. I think with like you know, the percentage

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Speaker 3: of market share, that a cruise to the biggest players

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Speaker 3: clearly an advantage. Obviously, want to talk more about the

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Speaker 3: industry overall, going back to you know, Tracy mentioned, we're

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Speaker 3: so it's so over we're so back, we're so so cycleed.

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Speaker 3: So at the end of last year, there were two

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Speaker 3: things there were like two like kind of blow ups

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Speaker 3: in but both were both related to auto. So tree clore,

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Speaker 3: I don't know if I'm pronouncing it.

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Speaker 2: Try That's one of those words where I feel like

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Speaker 2: very stupid pronouncing it the right way.

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Speaker 3: Yeah, I M yeah, And I'm like, should I just

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Speaker 3: say try color?

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Speaker 2: Yeah?

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Speaker 3: So there was a pre color and then first brands,

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Speaker 3: which I'm pretty sure pronouncing correctly, and then there was

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Speaker 3: like so that was like in the auto space, and

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Speaker 3: then there was all this stuff that went viral for

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Speaker 3: about five minutes, something about the chips and maybe they're

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Speaker 3: going to depreciate faster than people expected. Bunch of people

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Speaker 3: are going to be holding the bag and I want

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Speaker 3: to back get that out aside, you get those blow

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Speaker 3: ups in the auto area. Jamie Diamond comes out with

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Speaker 3: the cockroaches. What was your read on that moment? Was

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Speaker 3: there reason to think that there are more Creek colors?

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Speaker 3: I just want to say that, I like saying you

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Speaker 3: do well, thank you, more three colors out there.

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Speaker 4: I would tell you when all of that was going down,

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Speaker 4: we were scratching our heads. And the biggest reason we

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Speaker 4: were scratching our heads were all of those examples were

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Speaker 4: bank led BEG syndicated bag underwritten deals that somehow got

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Speaker 4: confused with private credit. And this is the biggest frustration

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Speaker 4: for us, because we looked at those deals and we said, hey,

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Speaker 4: one of the advantages of private credit is you can

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Speaker 4: actually do private level due diligence, you can get access

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Speaker 4: to management team, you can do weeks of work, you

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Speaker 4: can get private access to information. And so one of

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Speaker 4: our observations there was there was this misconception, and that's

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Speaker 4: why we think it's so important to continue to educate

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Speaker 4: on the distinctions between public credit and private credit, and

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Speaker 4: those situations were public credit. I think the other thing

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Speaker 4: that I think people maybe don't appreciate is while private

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Speaker 4: credit has gotten a lot of attention recently, private credit

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Speaker 4: has been around for a long time. You can look

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Speaker 4: at twenty year returns in private credit and you can

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Speaker 4: see that they've outperformed liquid credit by several hundred basis

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Speaker 4: points over twenty years through cycles. Also, you can look

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Speaker 4: at the fact that realize losses over that twenty year

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Speaker 4: period for the industry have been one percent. And so

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Speaker 4: I think we look to the data, we look to

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Speaker 4: the clarification, But then I think the last thing That's

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Speaker 4: also important to highlight here is defaults happen in some

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Speaker 4: the best bit great credit. And I think this is

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Speaker 4: the other thing that I think gets missed. People see

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Speaker 4: a headline about a credit issue. We have thousands of

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Speaker 4: credit in our portfolios. Some of them are going to

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Speaker 4: have issues. That is normal. If you look at the

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Speaker 4: long term default rate in the leverage loan market, in

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Speaker 4: the public high yield market, it's three percent. These things happen.

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Speaker 4: We account for them in our underwriting, we account for

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Speaker 4: them in how we mark our portfolio, and most importantly,

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Speaker 4: we have the resources to deal with those situations. We

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Speaker 4: have operating people, We've got a big workout team, and

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Speaker 4: if we do have challenges in our book, I think

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Speaker 4: to your point on scale, Joe, having the strength of Blackstone,

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Speaker 4: the resource and intellectual capital of Blackstone to actually support

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Speaker 4: those companies and drive good outcomes for our investors overturn,

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Speaker 4: that's what matters.

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Speaker 3: I take your point about the twenty year returns, but

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Speaker 3: you know, twenty years ago the private credit industry barely existed, right,

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Speaker 3: and then we've basically had a seventeen year bullmarket except

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Speaker 3: for five minutes and twenty twenty eight a seventeen year

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Speaker 3: bull market in risk assets. So I don't think it's

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Speaker 3: crazy to say, like, yes, the returns the real they deliver,

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Speaker 3: the faults are low. Defaults happen, but I don't think

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Speaker 3: it's totally crazy to wonder if you're at turning points,

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Speaker 3: because there's to some extent you can only take a

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Speaker 3: twenty year track record so far if seventeen years of

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Speaker 3: them were in more or less a NonStop bull market.

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Speaker 4: So here's what I see. First off, what I think

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Speaker 4: will happen in the market is that you will continue

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Speaker 4: to see private credit grow, and you will continue to

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Speaker 4: see strong private credit performance. That said, you're right, if

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Speaker 4: I look forward versus looking back, I think it's reasonable

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Speaker 4: to believe that you will see more dispersion in the

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Speaker 4: asset class. You will see some players underperform, you will

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Speaker 4: see some players have higher losses. I don't think that

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Speaker 4: means the entire asset class will face challenges because the model,

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Speaker 4: like we started with that Amazon analogy that still persists,

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Speaker 4: the excess spread versus liquid markets, that is durable, the

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Speaker 4: way our clients access private credit, and all of these

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Speaker 4: new areas beyond direct lending. We're at the very very

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Speaker 4: beginning of that very, very long road, and so I

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Speaker 4: think the long term thesis for private credit is intact.

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Speaker 4: By the way, you don't see massive ways of defaults

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Speaker 4: outside of recessions, and it doesn't feel like to me

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Speaker 4: we're headed into a recession. When I look at corporate

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Speaker 4: earnings growth, when I look at where consumers are, when

435
00:23:02,320 --> 00:23:04,879
Speaker 4: I look at fiscal and monetary stimulus, none of that

436
00:23:04,960 --> 00:23:07,800
Speaker 4: points to recession to me. And so when I look forward,

437
00:23:08,200 --> 00:23:11,520
Speaker 4: I don't see I don't see this big turning point

438
00:23:11,560 --> 00:23:14,240
Speaker 4: for the industry. I see continued growth in the industry.

439
00:23:14,280 --> 00:23:18,280
Speaker 4: But what I do see is more dispersion, which is

440
00:23:18,320 --> 00:23:22,360
Speaker 4: a good thing. If you think about all established asset classes,

441
00:23:22,359 --> 00:23:24,480
Speaker 4: you have top growd tile managers and you have bottom

442
00:23:24,560 --> 00:23:27,160
Speaker 4: quartile managers, And so I think the asset class will

443
00:23:27,160 --> 00:23:30,679
Speaker 4: be a lot more about who is better at originating deals,

444
00:23:30,960 --> 00:23:34,920
Speaker 4: who is better at managing challenges in their portfolio, Who

445
00:23:35,000 --> 00:23:39,280
Speaker 4: has the broadest aperture to identify areas within credit broadly

446
00:23:39,320 --> 00:23:42,600
Speaker 4: defined where clients can deploy, where there is excess spread,

447
00:23:42,600 --> 00:23:46,200
Speaker 4: where there is better risk adjusted returns. I think that's

448
00:23:46,240 --> 00:23:48,080
Speaker 4: the era we're heading into, and I would say we

449
00:23:48,119 --> 00:23:49,200
Speaker 4: strongly embrace that era.

450
00:23:49,920 --> 00:23:52,800
Speaker 2: Okay, so you don't see lots of defaults coming up,

451
00:23:52,880 --> 00:23:57,080
Speaker 2: But what about liability management exercises or just restructuring debt,

452
00:23:57,119 --> 00:23:59,600
Speaker 2: because this is something that comes up occasionally. If you

453
00:23:59,680 --> 00:24:02,840
Speaker 2: look at default rate for private credit, I think officially

454
00:24:02,880 --> 00:24:06,080
Speaker 2: it's below two percent something like that, But if you

455
00:24:06,280 --> 00:24:10,160
Speaker 2: add back in the liability management exercises that we've seen

456
00:24:10,200 --> 00:24:14,199
Speaker 2: at places like First Brands, it goes higher. I think

457
00:24:14,240 --> 00:24:16,280
Speaker 2: it goes to like five percent or something like that.

458
00:24:16,480 --> 00:24:19,600
Speaker 2: Would you expect more companies to be restructuring debt as

459
00:24:19,920 --> 00:24:22,639
Speaker 2: this dispersion effect maybe feeds through well.

460
00:24:22,640 --> 00:24:25,520
Speaker 4: I think there's two pieces I want to unpack there. One,

461
00:24:25,960 --> 00:24:29,119
Speaker 4: this whole notion of liability management. It really is a

462
00:24:29,119 --> 00:24:32,520
Speaker 4: public market phenomenon, and it exists in the public markets

463
00:24:32,640 --> 00:24:36,520
Speaker 4: because public credit documents are really weak, right. They don't

464
00:24:36,560 --> 00:24:39,200
Speaker 4: have the same covenant protections that you have in private credit,

465
00:24:39,240 --> 00:24:42,080
Speaker 4: and so you can have debt layered in front of you,

466
00:24:42,080 --> 00:24:44,679
Speaker 4: you can have collateral strip That's what's happened in a

467
00:24:44,680 --> 00:24:47,320
Speaker 4: lot of these situations in the public markets. Fortunately, in

468
00:24:47,320 --> 00:24:49,760
Speaker 4: private credit, the documents are more protective, and so I

469
00:24:49,800 --> 00:24:52,480
Speaker 4: think you will see less of that aggressive behavior in

470
00:24:52,520 --> 00:24:55,600
Speaker 4: the private credit markets certainly versus the public credit markets.

471
00:24:55,880 --> 00:24:59,080
Speaker 4: The second thing I would say, Tracy, is the default

472
00:24:59,119 --> 00:25:03,440
Speaker 4: is just the beginning. What really matters to clients are losses,

473
00:25:03,760 --> 00:25:07,200
Speaker 4: right because the strength of a private credit document allows

474
00:25:07,200 --> 00:25:09,639
Speaker 4: you to get to a table and negotiate with the

475
00:25:09,680 --> 00:25:12,560
Speaker 4: owner for maybe more equity. Sometimes we have to take

476
00:25:12,600 --> 00:25:14,919
Speaker 4: control of the company and we can use all of

477
00:25:14,920 --> 00:25:18,240
Speaker 4: the resources of Blackstone to improve that company and actually

478
00:25:18,240 --> 00:25:21,359
Speaker 4: deliver a strong outcome for our clients. And so I

479
00:25:21,400 --> 00:25:23,920
Speaker 4: think those are the two points I would focus on. Yes,

480
00:25:23,960 --> 00:25:27,280
Speaker 4: you will see defaults, but the question is over time,

481
00:25:27,960 --> 00:25:30,680
Speaker 4: what is the loss experience for investors? And that's something

482
00:25:30,720 --> 00:25:31,879
Speaker 4: I think we have a lot of conviction in.

483
00:25:32,520 --> 00:25:35,679
Speaker 3: Okay, So the other thing, besides the first brand and

484
00:25:36,080 --> 00:25:39,040
Speaker 3: first brands and three color blow ups you just want

485
00:25:39,040 --> 00:25:44,560
Speaker 3: to keep saying more times, was this anxiety about you know,

486
00:25:44,600 --> 00:25:46,840
Speaker 3: the quality of some of these data sunderfining, like, oh,

487
00:25:46,920 --> 00:25:49,440
Speaker 3: the chip's going to be as valuable as people think,

488
00:25:49,480 --> 00:25:51,439
Speaker 3: and you know, actually it was just looking up, like

489
00:25:52,160 --> 00:25:57,080
Speaker 3: from the credit default swabs on Oracle actually basically continuing

490
00:25:57,080 --> 00:25:59,480
Speaker 3: to hit new highs. Core Weave, which is another one

491
00:25:59,480 --> 00:26:01,760
Speaker 3: that people are watching a lot that's actually come in

492
00:26:01,800 --> 00:26:04,399
Speaker 3: a bit, So maybe I don't know, people are chilled

493
00:26:04,440 --> 00:26:09,240
Speaker 3: out a little bit. But from the capital provider the lenders,

494
00:26:09,680 --> 00:26:14,240
Speaker 3: what is the appetite right now for AI or related

495
00:26:14,320 --> 00:26:17,720
Speaker 3: infrastructure financing in the wave of some of these hiccups,

496
00:26:17,720 --> 00:26:19,679
Speaker 3: and what we see in the CDs market for what

497
00:26:19,800 --> 00:26:21,720
Speaker 3: might be some proxies for this kind of stuff.

498
00:26:21,760 --> 00:26:25,680
Speaker 4: Look, I think the nature of the risk matters, right.

499
00:26:25,720 --> 00:26:27,359
Speaker 4: I don't want to paint it with a broad brush,

500
00:26:27,359 --> 00:26:29,199
Speaker 4: because you hit it. The type of collateral matters, who

501
00:26:29,240 --> 00:26:33,400
Speaker 4: your counterparty matters. For us, whether we're financing chips, we're

502
00:26:33,400 --> 00:26:35,840
Speaker 4: financing a data center, we don't want to take residual

503
00:26:35,920 --> 00:26:37,960
Speaker 4: value risk, right, I don't view that as credit risk.

504
00:26:38,040 --> 00:26:41,239
Speaker 4: So if I can invest in chips, if I can

505
00:26:41,240 --> 00:26:46,160
Speaker 4: invest in a data center that has investment grade counterparty risk,

506
00:26:46,920 --> 00:26:50,760
Speaker 4: and my debt will fully be repaid inside of that

507
00:26:50,920 --> 00:26:55,399
Speaker 4: contractual agreement, whether it's triple net or whatever, and I

508
00:26:55,400 --> 00:26:57,440
Speaker 4: don't have to take residual value risk. I don't care

509
00:26:57,440 --> 00:26:59,639
Speaker 4: what that data center's worth in year twenty five. I

510
00:26:59,640 --> 00:27:01,760
Speaker 4: don't care with those chips are worth in year seven.

511
00:27:02,320 --> 00:27:04,480
Speaker 4: That's really good risk. I think when you confine it

512
00:27:04,520 --> 00:27:07,119
Speaker 4: to that which is what we are doing. I think

513
00:27:07,160 --> 00:27:11,600
Speaker 4: that's quite attractive. Will folks take that next layer of risk?

514
00:27:12,119 --> 00:27:13,560
Speaker 4: They might, but you need to make it.

515
00:27:13,640 --> 00:27:17,000
Speaker 3: See any pullback like some of the you know, the

516
00:27:17,200 --> 00:27:21,959
Speaker 3: less triple net whatever they like, could say okay January

517
00:27:22,000 --> 00:27:26,520
Speaker 3: twenty twenty six versut January twenty twenty five, any anxiety

518
00:27:26,560 --> 00:27:30,159
Speaker 3: because we know that there is still incredible demand for

519
00:27:30,200 --> 00:27:33,040
Speaker 3: the buildout. Right it's this multi year, multi trillion dollar thing.

520
00:27:33,280 --> 00:27:38,240
Speaker 3: From your perspective right now, how strong is the capital

521
00:27:38,359 --> 00:27:41,400
Speaker 3: base for that buildout? Has it changed at all?

522
00:27:41,480 --> 00:27:44,480
Speaker 4: I think when you have the contractual protections that I'm highlighting,

523
00:27:44,560 --> 00:27:46,040
Speaker 4: I think the demand is there now.

524
00:27:46,320 --> 00:27:48,240
Speaker 3: Might there been some change to twenty twenty five?

525
00:27:48,400 --> 00:27:51,440
Speaker 4: I would tell you that because the demand for capital

526
00:27:51,520 --> 00:27:54,639
Speaker 4: is so significant, okay, and bigger than the supply of

527
00:27:54,680 --> 00:27:57,960
Speaker 4: available capital. When you see that happen, you see spread

528
00:27:58,000 --> 00:28:00,280
Speaker 4: sent to widen. That's a healthy thing. That's a good

529
00:28:00,280 --> 00:28:02,800
Speaker 4: thing for the markets. And I think some of those

530
00:28:02,800 --> 00:28:05,479
Speaker 4: deals that don't have the protections that I highlight, they

531
00:28:05,480 --> 00:28:07,240
Speaker 4: have a harder time getting done in the credit markets,

532
00:28:07,280 --> 00:28:09,080
Speaker 4: and you see them get funded in the equity markets.

533
00:28:09,080 --> 00:28:11,960
Speaker 4: I think both of those things are healthy. I think

534
00:28:11,960 --> 00:28:15,040
Speaker 4: when I take a big step back. There is a

535
00:28:15,080 --> 00:28:17,520
Speaker 4: lot of chatter about this market, but we are firm

536
00:28:17,600 --> 00:28:20,920
Speaker 4: believers in the impact of AI SURE, and I think

537
00:28:20,920 --> 00:28:24,040
Speaker 4: the bigger risk is underestimating the impact of it on

538
00:28:24,080 --> 00:28:27,800
Speaker 4: your broader portfolio. Like I was alluding to before, what.

539
00:28:27,680 --> 00:28:29,919
Speaker 2: Was the fourth quarter actually like for you? And what

540
00:28:29,960 --> 00:28:32,399
Speaker 2: sort of questions were you getting from investors? Because we

541
00:28:32,440 --> 00:28:35,920
Speaker 2: know some other private credit players like Blue Oul got

542
00:28:36,000 --> 00:28:39,480
Speaker 2: a bunch of redemptions, did you see similar pressures?

543
00:28:39,920 --> 00:28:44,640
Speaker 4: Look, anytime you tend to see some of the press

544
00:28:44,680 --> 00:28:47,480
Speaker 4: that you highlighted, it's natural to get questions, and we

545
00:28:47,520 --> 00:28:49,840
Speaker 4: embrace those questions and we address them with the facts

546
00:28:49,840 --> 00:28:52,360
Speaker 4: that I just highlighted. I think for us, we continue

547
00:28:52,400 --> 00:28:56,800
Speaker 4: to see very strong demand for credit. I was around

548
00:28:56,840 --> 00:28:59,080
Speaker 4: the world I think twice in the fourth quarter, meeting

549
00:28:59,120 --> 00:29:02,360
Speaker 4: with our clients around the world, and I would tell you,

550
00:29:02,480 --> 00:29:07,360
Speaker 4: in aggregate, they want more private credit right our institutional clients,

551
00:29:08,000 --> 00:29:11,000
Speaker 4: I think year to day through nine thirty, inflows were

552
00:29:11,040 --> 00:29:13,880
Speaker 4: up over fifty percent versus where they were a year prior.

553
00:29:14,240 --> 00:29:18,120
Speaker 4: We held a forum with many of our big clients

554
00:29:18,800 --> 00:29:21,680
Speaker 4: late last year to discuss relative value and risks in

555
00:29:21,720 --> 00:29:23,840
Speaker 4: the credit market, and Actually it was great for me

556
00:29:23,880 --> 00:29:25,640
Speaker 4: because it was a way I could actually survey our

557
00:29:25,680 --> 00:29:27,880
Speaker 4: clients on their views, and I would tell you they

558
00:29:27,880 --> 00:29:30,440
Speaker 4: continue to be very bullish on private credit. If anything,

559
00:29:30,440 --> 00:29:33,600
Speaker 4: they feel under allocated to private credits and asset class

560
00:29:33,600 --> 00:29:49,400
Speaker 4: and so I think the momentum will continue.

561
00:29:50,920 --> 00:29:53,760
Speaker 3: This sort of touches on one of my favorite things

562
00:29:53,760 --> 00:29:56,040
Speaker 3: to talk about, like sort of portfolio construction. But for

563
00:29:56,200 --> 00:29:59,480
Speaker 3: these mega clients, yeah, they say, okay, we're under allocated

564
00:30:00,080 --> 00:30:02,920
Speaker 3: more of this. What is it that in their broad

565
00:30:03,040 --> 00:30:07,440
Speaker 3: portfolio allocation, the characteristics of private credit are solving for

566
00:30:07,480 --> 00:30:08,000
Speaker 3: them right now?

567
00:30:08,120 --> 00:30:10,680
Speaker 4: Yeah, well, look yield.

568
00:30:10,360 --> 00:30:13,120
Speaker 3: Okay, especially everyone loves yield.

569
00:30:12,960 --> 00:30:15,920
Speaker 4: Right, everybody loves yield. And I think even with spreads

570
00:30:15,960 --> 00:30:18,720
Speaker 4: tighter and with rates coming off a little bit, even

571
00:30:18,760 --> 00:30:21,840
Speaker 4: with that, the yield and credit relative to the earnings

572
00:30:21,920 --> 00:30:24,840
Speaker 4: yield of the S and P is as attractive has

573
00:30:24,880 --> 00:30:27,000
Speaker 4: been over a very long period of time. So credit

574
00:30:27,160 --> 00:30:30,959
Speaker 4: remains attractive. I think when valuations are expensive like they

575
00:30:31,000 --> 00:30:34,320
Speaker 4: are across the world today in most asset classes, being

576
00:30:34,440 --> 00:30:39,160
Speaker 4: defensive at the top of the capital structure really matters diversification, right,

577
00:30:39,520 --> 00:30:41,920
Speaker 4: most of our clients have a lot of credit risk.

578
00:30:42,040 --> 00:30:45,840
Speaker 4: Corporate credit risk. Excuse me, corporate risk in their portfolio,

579
00:30:45,920 --> 00:30:48,240
Speaker 4: whether it's private equity or on the credit side. What

580
00:30:48,360 --> 00:30:51,600
Speaker 4: about real assets. That's why asset back finance, That's why

581
00:30:51,720 --> 00:30:56,040
Speaker 4: investment grade have been so convincing for you know, so

582
00:30:56,200 --> 00:30:59,760
Speaker 4: high conviction for our clients, because it offers that diversification,

583
00:31:00,400 --> 00:31:03,640
Speaker 4: It offers that access to real hard assets that are

584
00:31:03,640 --> 00:31:06,880
Speaker 4: downside protected versus corporate risk. And then I would say,

585
00:31:06,880 --> 00:31:09,600
Speaker 4: the other big theme for our clients around the world

586
00:31:09,680 --> 00:31:12,360
Speaker 4: is something we call multi asset credit. It is this

587
00:31:12,560 --> 00:31:16,080
Speaker 4: notion that credit as a whole is a place I

588
00:31:16,120 --> 00:31:21,000
Speaker 4: want to be deployed into. However, I'm also recognizing the

589
00:31:21,040 --> 00:31:24,760
Speaker 4: fact that markets EBB and flow. Where one market within

590
00:31:24,800 --> 00:31:28,040
Speaker 4: credit is attractive, one might be less attractive. How do

591
00:31:28,120 --> 00:31:31,280
Speaker 4: I partner with someone like Blackstone across everything we do

592
00:31:31,640 --> 00:31:34,760
Speaker 4: over a dozen different asset classes within credit to build

593
00:31:34,800 --> 00:31:39,960
Speaker 4: a diversified, resilient, higher yielding portfolio that allows me to

594
00:31:40,000 --> 00:31:43,120
Speaker 4: pivot to the best opportunities in the market wherever they

595
00:31:43,160 --> 00:31:43,480
Speaker 4: may be.

596
00:31:44,840 --> 00:31:48,520
Speaker 2: Setting aside some of the cockroach phenomenon of late twenty

597
00:31:48,600 --> 00:31:51,000
Speaker 2: twenty five, there was another thing that happened that was

598
00:31:51,000 --> 00:31:52,840
Speaker 2: pretty big for the credit market, and that was the

599
00:31:52,840 --> 00:31:58,440
Speaker 2: withdrawal of the leverage lending guidelines for banks, basically making

600
00:31:58,480 --> 00:32:02,280
Speaker 2: it easier for them to do broadly syndicated loans. Would

601
00:32:02,360 --> 00:32:06,280
Speaker 2: you expect that to increase competition between the banks and

602
00:32:06,360 --> 00:32:08,520
Speaker 2: the you know, BDCs so to speak.

603
00:32:08,760 --> 00:32:11,000
Speaker 4: Look, that one's gotten a lot of attention. I've spoken

604
00:32:11,040 --> 00:32:12,880
Speaker 4: to a lot of my friends at the banks recently.

605
00:32:13,080 --> 00:32:17,200
Speaker 4: I think the reality is on new direct lending deals

606
00:32:18,160 --> 00:32:20,040
Speaker 4: the market, and by the market I mean the private

607
00:32:20,040 --> 00:32:25,120
Speaker 4: equity sponsors. They've largely spoken right like speed, certainty, flexibility, customization,

608
00:32:25,160 --> 00:32:28,000
Speaker 4: all the stuff I hit on. That's a really good

609
00:32:28,040 --> 00:32:30,400
Speaker 4: thing for them, especially when they're buying a company and

610
00:32:30,440 --> 00:32:34,720
Speaker 4: they're in a competitive auction process. Even deals that met

611
00:32:35,000 --> 00:32:38,480
Speaker 4: the leverage loan lending guidelines that were in place over

612
00:32:38,480 --> 00:32:40,400
Speaker 4: the last two years, eighty five percent of them were

613
00:32:40,400 --> 00:32:43,680
Speaker 4: financed privately, right, So even when you had complying deals,

614
00:32:43,800 --> 00:32:48,840
Speaker 4: they were borrowers were still choosing private credit. I'd say today,

615
00:32:49,320 --> 00:32:53,120
Speaker 4: our partnership opportunities with the banks, particularly on the investment

616
00:32:53,200 --> 00:32:57,719
Speaker 4: grade side of what we do, it is more. It

617
00:32:57,760 --> 00:33:00,320
Speaker 4: is bigger than anything I would say that we've seen

618
00:33:00,640 --> 00:33:03,360
Speaker 4: over the last several years. The banks desire to partner

619
00:33:03,400 --> 00:33:06,280
Speaker 4: with us where they keep the client arrangement, they keep

620
00:33:06,280 --> 00:33:09,200
Speaker 4: the servicing, we keep the asset. We are seeing that

621
00:33:09,360 --> 00:33:12,520
Speaker 4: as a global dynamic, especially around some of these longer

622
00:33:12,600 --> 00:33:16,080
Speaker 4: duration asset classes, these hard asset asset classes, and those

623
00:33:16,120 --> 00:33:19,239
Speaker 4: are the exact things that our investors want, and so

624
00:33:19,280 --> 00:33:22,400
Speaker 4: I think that partnership opportunity will continue to grow.

625
00:33:22,880 --> 00:33:25,240
Speaker 2: This is the front of me dynamic that we've spoken

626
00:33:25,240 --> 00:33:28,600
Speaker 2: about before, right, So private lenders are in competition with

627
00:33:28,680 --> 00:33:31,080
Speaker 2: the public lenders, the banks, but at the same time

628
00:33:31,080 --> 00:33:32,400
Speaker 2: we're seeing more partnerships.

629
00:33:32,720 --> 00:33:36,520
Speaker 3: No, and there's a lot of into something intuitive there

630
00:33:36,600 --> 00:33:39,320
Speaker 3: about you know, wanting to keep that relationship, but also

631
00:33:39,480 --> 00:33:42,400
Speaker 3: this element of like okay, the speed and customization and

632
00:33:42,400 --> 00:33:45,760
Speaker 3: the financing. I have a question actually about management, internal

633
00:33:45,800 --> 00:33:49,520
Speaker 3: management and the art of growing a business. You mentioned

634
00:33:50,000 --> 00:33:52,360
Speaker 3: being proactive, so you're gonna have people on the phone

635
00:33:52,800 --> 00:33:54,520
Speaker 3: and they're like, we did this thing, would you be

636
00:33:54,560 --> 00:33:58,320
Speaker 3: interested in this solution and so forth? If this big

637
00:33:58,360 --> 00:34:01,880
Speaker 3: company you're building it over time, I'm curious, like, how

638
00:34:01,920 --> 00:34:05,080
Speaker 3: do you design a system such that you have lots

639
00:34:05,120 --> 00:34:09,080
Speaker 3: of people working the phones but wanted to grow their

640
00:34:09,120 --> 00:34:12,840
Speaker 3: own books but not lower standards and led garbage into it,

641
00:34:12,880 --> 00:34:14,360
Speaker 3: and how do you think, like, how do you build

642
00:34:14,400 --> 00:34:16,360
Speaker 3: those systems into it so that the person on the

643
00:34:16,360 --> 00:34:20,279
Speaker 3: phone isn't, you know, yeah, bringing in a bunch of

644
00:34:20,320 --> 00:34:21,560
Speaker 3: garbage just to grow volume.

645
00:34:21,680 --> 00:34:25,399
Speaker 4: I love this question. So as I think back at

646
00:34:25,400 --> 00:34:28,879
Speaker 4: the history of our business at Blaspheming Credit, obviously we've

647
00:34:28,880 --> 00:34:32,760
Speaker 4: seen tremendous growth. We've seen tremendous success. A big turning

648
00:34:32,800 --> 00:34:36,279
Speaker 4: point for me personally was COVID, because up until that

649
00:34:36,400 --> 00:34:39,480
Speaker 4: point in time, we ran each of our businesses almost

650
00:34:39,520 --> 00:34:42,880
Speaker 4: as verticals, right we whether it was direct lending or

651
00:34:42,920 --> 00:34:45,320
Speaker 4: asset back finance or liquid credit. We had pms and

652
00:34:45,360 --> 00:34:47,759
Speaker 4: each of those businesses and they ran each of their

653
00:34:47,800 --> 00:34:50,719
Speaker 4: businesses from raising the capital to investing the capital, to

654
00:34:50,760 --> 00:34:53,960
Speaker 4: manage the team almost as a vertical entity. We had

655
00:34:54,000 --> 00:34:56,640
Speaker 4: no horizontal layer. But what COVID taught us when we

656
00:34:56,640 --> 00:34:59,040
Speaker 4: were all at home and our pajamas and the markets

657
00:34:59,080 --> 00:35:01,919
Speaker 4: were going walky, that we needed that connectivity. It would

658
00:35:01,960 --> 00:35:04,560
Speaker 4: be really valuable if one piece of our business was

659
00:35:04,600 --> 00:35:07,080
Speaker 4: really connected with the other piece of our business. And

660
00:35:07,160 --> 00:35:10,439
Speaker 4: so we started building out our CIO office, which I lead,

661
00:35:10,560 --> 00:35:13,640
Speaker 4: as a horizontal layer to connect all of the dots

662
00:35:13,680 --> 00:35:18,799
Speaker 4: and bring tremendous consistency across our teams. And five years on,

663
00:35:19,480 --> 00:35:21,920
Speaker 4: that team is now one hundred and twenty plus people.

664
00:35:22,400 --> 00:35:25,880
Speaker 4: And what that team does day in, day out is

665
00:35:26,040 --> 00:35:30,040
Speaker 4: unifying the fabric of every single one of our investment businesses.

666
00:35:30,040 --> 00:35:33,200
Speaker 4: And so we have a single investment committee that whether

667
00:35:33,239 --> 00:35:35,160
Speaker 4: you are a direct lending deal or an asset back

668
00:35:35,200 --> 00:35:37,400
Speaker 4: dealer or a liquid deal, you go to that same

669
00:35:37,520 --> 00:35:42,000
Speaker 4: investment committee, same underwriting standards, same memo, but most probably

670
00:35:42,040 --> 00:35:44,640
Speaker 4: the same people hearing the deals from all the different

671
00:35:44,680 --> 00:35:48,239
Speaker 4: parts of the Blackstone credit ecosystem to know where are

672
00:35:48,280 --> 00:35:51,240
Speaker 4: the best opportunities. By the way, that investment committee also

673
00:35:51,640 --> 00:35:55,680
Speaker 4: includes Senior represented as a Blackstone outside of credit. What

674
00:35:55,719 --> 00:35:57,480
Speaker 4: are we learning in private equity? What are we learning

675
00:35:57,480 --> 00:36:00,440
Speaker 4: an infrastructure that might influence this decision? The way we

676
00:36:00,480 --> 00:36:04,200
Speaker 4: aggregate and monitor data. We now have one centralized portfolio

677
00:36:04,360 --> 00:36:07,960
Speaker 4: company reporting system, and so at any time we see

678
00:36:08,040 --> 00:36:11,880
Speaker 4: weaknesses in an area, instantly the entire team knows them

679
00:36:11,880 --> 00:36:14,720
Speaker 4: and say, okay, let's pull back origination in this sector

680
00:36:15,000 --> 00:36:17,520
Speaker 4: and let's lean into origination in this other sector. And

681
00:36:17,560 --> 00:36:23,080
Speaker 4: so systemaizing our data, centralizing our processes, being even more

682
00:36:23,120 --> 00:36:26,200
Speaker 4: plugged into the themes we see more broadly at Blackstone.

683
00:36:26,480 --> 00:36:29,960
Speaker 4: That has been a critical part of our journey and

684
00:36:30,040 --> 00:36:32,600
Speaker 4: I think a huge competitive advantage for us going forward.

685
00:36:33,160 --> 00:36:35,040
Speaker 2: I just want to go back to where we started

686
00:36:35,040 --> 00:36:38,160
Speaker 2: the conversation, and I mean really the beginning of the conversation.

687
00:36:38,239 --> 00:36:42,640
Speaker 2: Your job title so CIO for Blackstone Credit and Insurance.

688
00:36:43,520 --> 00:36:46,959
Speaker 2: I think this is really important and underappreciated in many ways.

689
00:36:47,040 --> 00:36:53,160
Speaker 2: But the partnership between insurers and private credit has been phenomenal.

690
00:36:53,320 --> 00:36:55,600
Speaker 2: Like a lot of the private credit growth that we

691
00:36:55,640 --> 00:37:00,600
Speaker 2: are seeing is coming directly from insurers. How important is too,

692
00:37:00,680 --> 00:37:04,000
Speaker 2: I guess be an insurance company if you're in the

693
00:37:04,000 --> 00:37:06,760
Speaker 2: private credit space or have access to that pool of capital.

694
00:37:07,000 --> 00:37:09,719
Speaker 4: Sure. Well, a couple points I want to really hit here.

695
00:37:10,760 --> 00:37:14,120
Speaker 4: One is our business model an insurance because it is

696
00:37:14,160 --> 00:37:16,560
Speaker 4: different than some others. Right, we don't have a captive

697
00:37:16,640 --> 00:37:21,719
Speaker 4: insurance balance sheet. We don't originate insurance liabilities directly at Blackstone.

698
00:37:21,760 --> 00:37:24,640
Speaker 4: All we do is act as a third party asset

699
00:37:24,719 --> 00:37:28,319
Speaker 4: manager on behalf of insurance clients. That's what we do best,

700
00:37:28,400 --> 00:37:30,440
Speaker 4: That's all we want to do. Brick bry Brick. We

701
00:37:30,560 --> 00:37:34,200
Speaker 4: built our client base. It's a fully open architecture model.

702
00:37:34,280 --> 00:37:37,279
Speaker 4: All of our clients sit shoulder to shoulder, and so

703
00:37:37,360 --> 00:37:39,879
Speaker 4: I think that business model is critical. Right. We don't

704
00:37:39,880 --> 00:37:42,239
Speaker 4: want to compete with our clients, and we want to

705
00:37:42,280 --> 00:37:43,960
Speaker 4: make sure that every single one of them gets a

706
00:37:43,960 --> 00:37:47,240
Speaker 4: great experience with us. I think that's a business model question,

707
00:37:47,640 --> 00:37:49,120
Speaker 4: and I think that's an important part of how we

708
00:37:49,160 --> 00:37:51,480
Speaker 4: set up that franchise. The second piece is of the

709
00:37:51,520 --> 00:37:56,279
Speaker 4: why why are insurance companies seeking private credit capital. Well,

710
00:37:56,880 --> 00:37:59,520
Speaker 4: in the case of a life insured, you're writing a

711
00:37:59,600 --> 00:38:03,160
Speaker 4: forty life insurance policy. In case of writing an annuity,

712
00:38:03,440 --> 00:38:09,160
Speaker 4: you're writing a set contract. The best way to manage

713
00:38:09,200 --> 00:38:15,840
Speaker 4: assets against those liabilities are safe, cash paying contractual assets.

714
00:38:16,480 --> 00:38:20,240
Speaker 4: Those assets are exactly what we originate in private credit

715
00:38:20,560 --> 00:38:23,080
Speaker 4: and that excess spread that we've been talking about throughout

716
00:38:23,080 --> 00:38:25,920
Speaker 4: this discussion one hundred and fifty to two hundred basis

717
00:38:25,960 --> 00:38:28,920
Speaker 4: points for investment grade life for light credit that is

718
00:38:29,000 --> 00:38:35,400
Speaker 4: extraordinarily valuable for insurance companies versus just buying traditional liquids

719
00:38:35,400 --> 00:38:39,640
Speaker 4: on the screen. And we've seen US insurance companies adopt

720
00:38:39,680 --> 00:38:42,600
Speaker 4: that in scale with a ton of success. And one

721
00:38:42,600 --> 00:38:45,640
Speaker 4: of the big themes I see going forward is that

722
00:38:45,800 --> 00:38:49,480
Speaker 4: same idea expanding to Europe, expanding to Asia because it

723
00:38:49,560 --> 00:38:53,440
Speaker 4: is such a strong fit for insurance company balance sheets,

724
00:38:53,600 --> 00:38:57,800
Speaker 4: high quality, safe contractual, LNG duration, investment grade assets.

725
00:38:58,080 --> 00:39:01,120
Speaker 3: So I've never worked in insurance private credit, but I've

726
00:39:01,160 --> 00:39:04,320
Speaker 3: worked in the media industry and the digital media industry.

727
00:39:04,360 --> 00:39:07,720
Speaker 3: And one of the phenomenons that you see is company

728
00:39:07,760 --> 00:39:11,719
Speaker 3: starts and they buy various third party solutions off the shelf, like, Oh,

729
00:39:11,760 --> 00:39:13,799
Speaker 3: I'm going to buy a piece of software to run

730
00:39:14,000 --> 00:39:17,279
Speaker 3: my content management system for the website. Then you grow

731
00:39:17,360 --> 00:39:18,879
Speaker 3: and then you grow and you're like, you know what,

732
00:39:19,040 --> 00:39:21,560
Speaker 3: this third party solution doesn't work. I need to build

733
00:39:21,560 --> 00:39:25,279
Speaker 3: my own software for managing my content, et cetera. Does

734
00:39:25,440 --> 00:39:28,759
Speaker 3: what happens, Like, do insurance companies hit a point where

735
00:39:28,760 --> 00:39:32,200
Speaker 3: it's like, you know what, We've enjoyed doing business with you,

736
00:39:32,600 --> 00:39:34,640
Speaker 3: but we actually want to launch our own private credit

737
00:39:34,680 --> 00:39:36,560
Speaker 3: arm and we know that there are some of course,

738
00:39:37,320 --> 00:39:39,640
Speaker 3: there are insurers who are joined at they do all.

739
00:39:40,960 --> 00:39:43,160
Speaker 3: Is there a point where it just makes sense for

740
00:39:43,200 --> 00:39:45,759
Speaker 3: them to have their own private credit shop or is

741
00:39:45,760 --> 00:39:49,200
Speaker 3: it sort of case by case whether that makes sense

742
00:39:49,200 --> 00:39:49,520
Speaker 3: for them?

743
00:39:49,920 --> 00:39:53,360
Speaker 4: Well, I think the direction of travel broadly is the

744
00:39:53,400 --> 00:39:55,680
Speaker 4: other way, right. The reason why our business has grown

745
00:39:55,719 --> 00:39:58,400
Speaker 4: so much is because insurance companies have said, hey, lack So,

746
00:39:58,760 --> 00:40:01,160
Speaker 4: you're really good at this. You've got huge, dedicated team,

747
00:40:01,200 --> 00:40:04,319
Speaker 4: You've got tons of expertise. We can't replicate it. But

748
00:40:04,440 --> 00:40:06,840
Speaker 4: that is company by company, and some continue to do

749
00:40:06,920 --> 00:40:09,560
Speaker 4: some things in house. Some have certain strategies where they

750
00:40:09,560 --> 00:40:11,600
Speaker 4: have that expertise and they'll continue to do that in house.

751
00:40:11,640 --> 00:40:14,040
Speaker 4: And we're happy to complement in the areas where we

752
00:40:14,080 --> 00:40:16,800
Speaker 4: can be additive. But I would say the overall direction

753
00:40:16,880 --> 00:40:20,560
Speaker 4: of travel is a realization that we have built out

754
00:40:20,600 --> 00:40:26,279
Speaker 4: this infrastructure, this origination team, this CIO portfolio management franchise,

755
00:40:26,400 --> 00:40:30,560
Speaker 4: this asset allocation framework, and clients want to benefit from that.

756
00:40:31,840 --> 00:40:35,359
Speaker 2: You've mentioned excess spreads throughout this conversation, and I take

757
00:40:35,400 --> 00:40:37,560
Speaker 2: the point that everything is relative. I think I mentioned

758
00:40:37,600 --> 00:40:40,520
Speaker 2: that in the intro. But it is also true that

759
00:40:40,560 --> 00:40:44,479
Speaker 2: spreads on direct lending have fallen over the past years.

760
00:40:44,560 --> 00:40:47,800
Speaker 2: I think we went below ten percent for the first

761
00:40:47,800 --> 00:40:50,080
Speaker 2: time in three years something like that. They used to

762
00:40:50,120 --> 00:40:53,799
Speaker 2: be in the mid to low teens. What do you

763
00:40:53,840 --> 00:40:57,400
Speaker 2: see happening to spreads next year or this year? I

764
00:40:57,400 --> 00:41:00,920
Speaker 2: should say, because it seems kind of concerning to me

765
00:41:01,400 --> 00:41:04,600
Speaker 2: if we're getting more supply but spreads are grinding tighter.

766
00:41:04,760 --> 00:41:07,920
Speaker 4: Yeah, Well, look, I think there's a couple of things there. First,

767
00:41:08,080 --> 00:41:12,120
Speaker 4: you mentioned it, right, bowers do have choice, right, and

768
00:41:12,200 --> 00:41:14,359
Speaker 4: so there is going to be some connection to where

769
00:41:14,360 --> 00:41:17,680
Speaker 4: the liquid markets are. And over time, that two hundred

770
00:41:17,680 --> 00:41:20,319
Speaker 4: basis points spread for privates versus liquids has held, and

771
00:41:20,360 --> 00:41:22,960
Speaker 4: it holds today, and so I think that's one thing

772
00:41:23,040 --> 00:41:25,120
Speaker 4: to watch. And I think that relative value point you

773
00:41:25,160 --> 00:41:29,440
Speaker 4: made is the critical point. I think the second thing is, yes,

774
00:41:29,520 --> 00:41:31,560
Speaker 4: you are starting to see more m and a supply,

775
00:41:31,680 --> 00:41:34,560
Speaker 4: but we're still well off where we were five years ago,

776
00:41:34,600 --> 00:41:37,120
Speaker 4: and so I think there's still a lot more room

777
00:41:37,160 --> 00:41:39,719
Speaker 4: to run. And when I kind of step back and

778
00:41:39,760 --> 00:41:42,680
Speaker 4: I look at the simple math of private equity dry

779
00:41:42,760 --> 00:41:46,080
Speaker 4: powder versus private credit dry powder, private equity dry powder

780
00:41:46,080 --> 00:41:49,000
Speaker 4: outstrips it five to one, Okay, And so I think

781
00:41:49,000 --> 00:41:51,319
Speaker 4: there's still a lot more room to run in the

782
00:41:51,360 --> 00:41:54,359
Speaker 4: supply equation. I think spreads today are pretty stable, and

783
00:41:54,400 --> 00:41:58,200
Speaker 4: I think our clients earning that excess spread versus liquids

784
00:41:58,239 --> 00:42:02,239
Speaker 4: earning that absolute return, it still feels quite good, even

785
00:42:02,280 --> 00:42:04,040
Speaker 4: though it's not the same as it was three years

786
00:42:04,040 --> 00:42:07,279
Speaker 4: ago still feels quite good relative to where equities are

787
00:42:07,360 --> 00:42:09,759
Speaker 4: valued today and other things in their portfolio.

788
00:42:10,719 --> 00:42:14,040
Speaker 3: In private assets in general, one of the popular critiques

789
00:42:14,840 --> 00:42:18,839
Speaker 3: is that, you know, people call volatility laundering. It's like, oh, look,

790
00:42:18,880 --> 00:42:21,560
Speaker 3: I had a rough quarter INCK in my stock portfolio

791
00:42:21,760 --> 00:42:25,440
Speaker 3: and my whatever, but my credit portfolio is flat this quarter.

792
00:42:25,480 --> 00:42:27,320
Speaker 3: And because there were no trades, there were no marks,

793
00:42:27,320 --> 00:42:29,560
Speaker 3: and that makes me feel sleep easier at night. And

794
00:42:29,600 --> 00:42:33,200
Speaker 3: the accusation is, as an industry, you build to some

795
00:42:33,320 --> 00:42:36,960
Speaker 3: extent on this notion of like, here's this asset class

796
00:42:36,960 --> 00:42:38,640
Speaker 3: that just like helps me sleep better at night, it

797
00:42:38,719 --> 00:42:42,160
Speaker 3: doesn't doesn't move, et cetera. You what's the response to

798
00:42:42,200 --> 00:42:46,320
Speaker 3: the volatility laundering claim in private assets generally?

799
00:42:46,440 --> 00:42:49,120
Speaker 4: Yeah, A couple of things there. First, I look to

800
00:42:49,160 --> 00:42:52,439
Speaker 4: a twenty year loss ratio, right, like, you can't hide

801
00:42:52,440 --> 00:42:54,720
Speaker 4: that over twenty years, and I think those stats speak

802
00:42:54,760 --> 00:42:58,720
Speaker 4: for themselves. Second, you're right, like this question around valuations

803
00:42:58,760 --> 00:43:01,879
Speaker 4: have have been out there and private assets and blacks

804
00:43:01,920 --> 00:43:04,080
Speaker 4: One's been around for forty years. We use a best

805
00:43:04,120 --> 00:43:07,200
Speaker 4: in class process with third party valuation provider. We mark

806
00:43:07,239 --> 00:43:11,839
Speaker 4: our book every single quarter, and those third parties are

807
00:43:11,840 --> 00:43:13,600
Speaker 4: the ones that are doing it, and we mark that

808
00:43:13,640 --> 00:43:17,640
Speaker 4: to market company fundamentals, market moves. That all shows up.

809
00:43:17,719 --> 00:43:20,040
Speaker 4: What's funny to me is, you know when we do

810
00:43:20,120 --> 00:43:22,799
Speaker 4: see underperformance in an asset and we mark it down,

811
00:43:22,800 --> 00:43:25,760
Speaker 4: which we do on our watchless assets, we get questions

812
00:43:25,800 --> 00:43:28,200
Speaker 4: about that. People are paying attention to that, yet they

813
00:43:28,239 --> 00:43:31,359
Speaker 4: are also asking us out of the same breath, are

814
00:43:31,400 --> 00:43:33,160
Speaker 4: you actually marking your assets? And so I think if

815
00:43:33,160 --> 00:43:36,279
Speaker 4: you actually look at our portfolio, you will see a

816
00:43:36,400 --> 00:43:38,719
Speaker 4: small subset of the book that isn't doing what we

817
00:43:38,800 --> 00:43:40,839
Speaker 4: expected to do when we mark those accordingly. I think

818
00:43:40,880 --> 00:43:43,000
Speaker 4: that's healthy. I think that's good. I think that provides

819
00:43:43,040 --> 00:43:45,520
Speaker 4: some buffer for our clients, and we'll continue to use

820
00:43:45,560 --> 00:43:48,480
Speaker 4: our third party, well established process to continue to do so.

821
00:43:49,960 --> 00:43:53,640
Speaker 2: You mentioned dry powder earlier, and this is a truism

822
00:43:53,719 --> 00:43:56,759
Speaker 2: of markets, which is dry powder always seems to be

823
00:43:56,840 --> 00:43:58,799
Speaker 2: waiting in the wings, Like no matter where we are

824
00:43:58,800 --> 00:44:01,879
Speaker 2: in the credit cycle, one's talking about dry powder. I'm

825
00:44:01,920 --> 00:44:05,239
Speaker 2: sort of surprised to hear that much the number you

826
00:44:05,280 --> 00:44:08,000
Speaker 2: cited in the private credit space because again we have

827
00:44:08,080 --> 00:44:11,920
Speaker 2: seen phenomenal growth and they're still cash lying around that

828
00:44:11,960 --> 00:44:13,040
Speaker 2: needs to be deployed.

829
00:44:13,760 --> 00:44:17,600
Speaker 4: Look, we continue to see strong flows into the market. Right,

830
00:44:17,640 --> 00:44:19,719
Speaker 4: the product is doing what it's supposed to do, which

831
00:44:19,760 --> 00:44:24,080
Speaker 4: is generate strong, consistent outperformance for clients relative to liquids.

832
00:44:24,239 --> 00:44:26,200
Speaker 4: I think as long as you see that continue, you're

833
00:44:26,239 --> 00:44:28,960
Speaker 4: going to continue to see strong flows across all of

834
00:44:29,000 --> 00:44:32,640
Speaker 4: our client types, whether it's insurance institutions, individuals.

835
00:44:34,640 --> 00:44:37,719
Speaker 3: Question I ask a lot of people today in January

836
00:44:37,719 --> 00:44:42,960
Speaker 3: twenty twenty six, within your organization, are you finding productive

837
00:44:43,000 --> 00:44:47,040
Speaker 3: applications of generative AI tools that make your life easier

838
00:44:47,120 --> 00:44:53,200
Speaker 3: and reduce free up working hours from people who to

839
00:44:53,239 --> 00:44:53,879
Speaker 3: do other things.

840
00:44:54,000 --> 00:44:57,319
Speaker 4: Yeah. Look, this is a huge focus for us, and

841
00:44:57,920 --> 00:45:00,040
Speaker 4: I think I would be lying if I say we

842
00:45:00,080 --> 00:45:02,759
Speaker 4: have the golden ticket today, but we have a lot

843
00:45:02,760 --> 00:45:05,319
Speaker 4: of focus on this area. How do we make our

844
00:45:05,880 --> 00:45:09,400
Speaker 4: business more efficient, how do we make it easier on

845
00:45:09,440 --> 00:45:13,279
Speaker 4: our teams, whether it's building models, knowing what questions to

846
00:45:13,320 --> 00:45:17,319
Speaker 4: ask in their due diligence process, data aggregation and analysis.

847
00:45:17,600 --> 00:45:20,320
Speaker 4: All of this stuff is in motion. It's at various

848
00:45:20,320 --> 00:45:23,040
Speaker 4: stages of development, and I think you will continue to

849
00:45:23,080 --> 00:45:26,680
Speaker 4: see us lean into that significantly. It can never replace

850
00:45:27,320 --> 00:45:30,360
Speaker 4: the investment decision, right, That's still going to be central

851
00:45:30,400 --> 00:45:32,959
Speaker 4: to our process. But I think anytime. We can use

852
00:45:33,440 --> 00:45:36,400
Speaker 4: AI to drive efficiency, and like I said, we have

853
00:45:36,520 --> 00:45:39,680
Speaker 4: tools that allow that to create the start of an

854
00:45:39,680 --> 00:45:44,120
Speaker 4: investment companye memo, the start of a model, aggregate data

855
00:45:44,200 --> 00:45:47,879
Speaker 4: so we can help our team see trends earlier. All

856
00:45:47,920 --> 00:45:49,960
Speaker 4: of these things are in process, and I think more

857
00:45:50,000 --> 00:45:51,520
Speaker 4: and more you'll see higher adoption.

858
00:45:51,880 --> 00:45:55,719
Speaker 2: Could you imagine a future where valuation is done more

859
00:45:55,760 --> 00:45:59,120
Speaker 2: by AI? Because I think about the third party valuation services,

860
00:45:59,360 --> 00:46:03,600
Speaker 2: they're doing matrix pricing, which is basically inferring the market

861
00:46:03,680 --> 00:46:08,200
Speaker 2: value from you know, other clues they can get. Inference

862
00:46:08,360 --> 00:46:09,920
Speaker 2: is like you know, that's AI.

863
00:46:10,160 --> 00:46:15,920
Speaker 4: Basically, I think using AI to support that process. You know,

864
00:46:16,200 --> 00:46:19,960
Speaker 4: where have market spreads moved? Okay, this company's performance was x.

865
00:46:20,040 --> 00:46:22,640
Speaker 4: How does that translate into a mark? I think you

866
00:46:22,680 --> 00:46:26,200
Speaker 4: will see, just like I highlighted on the investment process,

867
00:46:26,200 --> 00:46:30,040
Speaker 4: I think you will see adoption of support tools, driving efficiency,

868
00:46:30,160 --> 00:46:32,960
Speaker 4: driving accuracy, driving scale. At the end of the day,

869
00:46:33,000 --> 00:46:34,759
Speaker 4: you still need a human at the end of that

870
00:46:34,840 --> 00:46:37,600
Speaker 4: to make the decision, but I do think you'll see

871
00:46:37,600 --> 00:46:39,759
Speaker 4: it incorporating more and more into our workfloaws.

872
00:46:39,840 --> 00:46:42,120
Speaker 3: What skills are you looking for when you think about

873
00:46:42,360 --> 00:46:45,640
Speaker 3: recruiting in twenty twenty six and twenty twenty seven, a

874
00:46:45,680 --> 00:46:47,920
Speaker 3: lot of people anxious about what they should what they

875
00:46:47,920 --> 00:46:50,000
Speaker 3: should know, what they should be studying, et cetera. What

876
00:46:50,040 --> 00:46:53,520
Speaker 3: are the skills that today are still clearly valuable and

877
00:46:53,560 --> 00:46:55,560
Speaker 3: will be valuable that you would want to see in

878
00:46:55,600 --> 00:46:56,320
Speaker 3: a new recruit.

879
00:46:56,400 --> 00:46:59,440
Speaker 4: Well, look, first and foremost, the people we look to

880
00:46:59,480 --> 00:47:06,879
Speaker 4: hire upatone, incredibly hard working, genuinely good people motivated by

881
00:47:07,280 --> 00:47:10,200
Speaker 4: you know, taking on more growing Some of these like

882
00:47:10,280 --> 00:47:13,560
Speaker 4: fundamental traits like yeah, that is universal and I think

883
00:47:13,560 --> 00:47:16,840
Speaker 4: that will never change. I think in an environment where

884
00:47:17,040 --> 00:47:20,759
Speaker 4: you're using more and more productivity tools, how do you

885
00:47:20,920 --> 00:47:24,000
Speaker 4: interact with people? People want to you know, do deals

886
00:47:24,000 --> 00:47:26,120
Speaker 4: with folks that they feel like they can trust, they

887
00:47:26,239 --> 00:47:29,920
Speaker 4: develop good relationships. How do you think forward around corners?

888
00:47:30,040 --> 00:47:33,120
Speaker 4: These are the types of critical thinking and communication skills

889
00:47:33,120 --> 00:47:35,560
Speaker 4: that I think are going to be even more valuable

890
00:47:36,000 --> 00:47:38,400
Speaker 4: to layer on to all like the basic stuff we

891
00:47:38,560 --> 00:47:40,600
Speaker 4: have always looked for and the people we bring into

892
00:47:40,600 --> 00:47:41,080
Speaker 4: the firm.

893
00:47:41,520 --> 00:47:43,279
Speaker 2: All right, we're going to have to leave it there,

894
00:47:43,320 --> 00:47:45,200
Speaker 2: But thank you so much for coming on all thoughts.

895
00:47:45,239 --> 00:47:46,000
Speaker 2: Really appreciate it.

896
00:47:46,000 --> 00:47:47,200
Speaker 4: It was my absolute pleasure.

897
00:47:47,280 --> 00:47:48,839
Speaker 3: Thank you guys so much. It was a lot of fun.

898
00:47:49,040 --> 00:47:50,040
Speaker 3: I learned a lot, Thank.

899
00:47:49,920 --> 00:48:03,760
Speaker 5: You, Joe.

900
00:48:04,840 --> 00:48:08,080
Speaker 2: I'm a journalist or podcast hosts. You know, there's a difference.

901
00:48:08,040 --> 00:48:10,880
Speaker 3: No, there's no no word journalists. People always make parties there,

902
00:48:11,000 --> 00:48:12,600
Speaker 3: What do you do? I say, I'm a journalist, all right.

903
00:48:12,520 --> 00:48:12,839
Speaker 4: All right?

904
00:48:13,120 --> 00:48:13,239
Speaker 5: Uh.

905
00:48:13,640 --> 00:48:17,360
Speaker 2: The natural tendencies of journalists is to be a little

906
00:48:17,360 --> 00:48:19,839
Speaker 2: bit more pessimist than an investor. I mean, if you're

907
00:48:19,840 --> 00:48:22,760
Speaker 2: an investor, almost by definition, you have to be optimist.

908
00:48:22,880 --> 00:48:25,759
Speaker 3: I agree, I'm paranoid optimist, that's right.

909
00:48:26,280 --> 00:48:30,400
Speaker 2: But I do see some signs of worry in the

910
00:48:30,400 --> 00:48:35,000
Speaker 2: private credit market. So beyond the cockroaches that we talked about,

911
00:48:35,120 --> 00:48:38,160
Speaker 2: you know, we have more companies doing liability managements. The

912
00:48:38,200 --> 00:48:42,560
Speaker 2: documentation point I found kind of surprising because in our

913
00:48:42,640 --> 00:48:46,440
Speaker 2: previous conversations, certainly in some of the research that I see,

914
00:48:47,040 --> 00:48:51,279
Speaker 2: people say that documentation is declining, so investor protections are

915
00:48:51,320 --> 00:48:54,080
Speaker 2: basically going down, and there's more convergence with the public

916
00:48:54,080 --> 00:48:57,160
Speaker 2: market and things like that. So I take the point

917
00:48:57,160 --> 00:49:00,200
Speaker 2: that like every private credit investor that we have on

918
00:49:00,280 --> 00:49:02,840
Speaker 2: the show is going to say that they're different and

919
00:49:02,920 --> 00:49:05,440
Speaker 2: they're more selective and things like that, and it may

920
00:49:05,480 --> 00:49:09,640
Speaker 2: be true, but overall, if you're seeing documentation go down

921
00:49:09,719 --> 00:49:14,439
Speaker 2: and leverage go up and supply increasing, that seems kind

922
00:49:14,440 --> 00:49:15,800
Speaker 2: of bad.

923
00:49:16,640 --> 00:49:16,920
Speaker 1: Yeah.

924
00:49:17,080 --> 00:49:20,000
Speaker 3: No, I mean look, I think the thing that I guess,

925
00:49:20,200 --> 00:49:22,640
Speaker 3: I mean, all of that sounds very intuitive to me,

926
00:49:22,680 --> 00:49:25,080
Speaker 3: and the attentions. The other thing that, and it's sort

927
00:49:25,120 --> 00:49:29,840
Speaker 3: of related to this, is like how do you maintain

928
00:49:30,239 --> 00:49:33,560
Speaker 3: Like Okay, you think about the fundamental service, right, you

929
00:49:33,680 --> 00:49:37,320
Speaker 3: think about the fundamental service of like speed and customer

930
00:49:37,600 --> 00:49:42,800
Speaker 3: customizability and so forth. And then the tension that exists

931
00:49:42,800 --> 00:49:44,680
Speaker 3: is like, okay, you want to like turn this around, yeah,

932
00:49:44,760 --> 00:49:48,160
Speaker 3: right away, et cetera. And the tension between that and

933
00:49:48,280 --> 00:49:53,400
Speaker 3: like robust documentations and I mean again, twenty year business

934
00:49:53,520 --> 00:49:56,880
Speaker 3: to some extent speaks for itself. But on the other hand,

935
00:49:56,960 --> 00:49:59,640
Speaker 3: like you could see how these things over time would

936
00:49:59,680 --> 00:50:04,080
Speaker 3: come in to especially come into tens such a competitive

937
00:50:04,440 --> 00:50:07,479
Speaker 3: environment exactly. I want to you know what, you place

938
00:50:07,520 --> 00:50:09,640
Speaker 3: a phone call to me because you need money. I

939
00:50:09,680 --> 00:50:11,879
Speaker 3: want to be able to give you an answer right away.

940
00:50:11,960 --> 00:50:13,279
Speaker 2: I'm going to say yes very quickly.

941
00:50:13,280 --> 00:50:14,759
Speaker 3: I want to be able to say yes to you

942
00:50:14,920 --> 00:50:17,640
Speaker 3: to maintain your business, To maintain that line and the

943
00:50:17,680 --> 00:50:22,080
Speaker 3: tensions that could potentially emerge between like our relationship as

944
00:50:22,160 --> 00:50:25,440
Speaker 3: the lender to the borrower versus you know, my relationship

945
00:50:25,520 --> 00:50:28,480
Speaker 3: to my people who want protections, et cetera. You could

946
00:50:28,480 --> 00:50:30,439
Speaker 3: see how those would emerge, for sure.

947
00:50:30,600 --> 00:50:32,200
Speaker 2: Yeah, all right, shall we leave it there.

948
00:50:32,239 --> 00:50:32,960
Speaker 3: Let's leave it there.

949
00:50:33,000 --> 00:50:35,040
Speaker 2: All right? This has been another episode of the Odd

950
00:50:35,040 --> 00:50:37,799
Speaker 2: Thoughts podcast. I'm Tracy Alloway. You can follow me at

951
00:50:37,880 --> 00:50:38,920
Speaker 2: Tracy Alloway and.

952
00:50:38,880 --> 00:50:41,200
Speaker 3: I'm Jill Wisenthal. You can follow me at the Stalwart.

953
00:50:41,400 --> 00:50:44,400
Speaker 3: Follow our producers Kerman Rodriguez at Kerman Arman, dash O

954
00:50:44,440 --> 00:50:47,719
Speaker 3: Bennett at Dashbot and Kiale Brooks at Kilbrooks. More odd

955
00:50:47,800 --> 00:50:50,600
Speaker 3: Laws content, go to Bloomberg dot com slash odd Lots.

956
00:50:50,600 --> 00:50:52,880
Speaker 3: We have a daily newsletter and all of our episodes,

957
00:50:53,040 --> 00:50:54,919
Speaker 3: and you can shed about all of these topics twenty

958
00:50:54,960 --> 00:50:58,240
Speaker 3: four to seven in our discord Discord dot gg slash

959
00:50:58,320 --> 00:50:58,840
Speaker 3: out lots.

960
00:50:58,880 --> 00:51:01,319
Speaker 2: And if you enjoys, if you like it when we

961
00:51:01,360 --> 00:51:04,160
Speaker 2: talk about private credit, then please leave us a positive

962
00:51:04,200 --> 00:51:07,319
Speaker 2: review on your favorite podcast platform. And remember, if you

963
00:51:07,360 --> 00:51:09,840
Speaker 2: are a Bloomberg subscriber, you can listen to all of

964
00:51:09,880 --> 00:51:12,799
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Speaker 2: is find the Bloomberg channel on Apple Podcasts and follow

966
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Speaker 2: the instructions there. Thanks for listening.