1 00:00:05,909 --> 00:00:08,739 Speaker 1: Hello, this is COI Time podcast series on markets and 2 00:00:08,739 --> 00:00:12,658 Speaker 1: economies from DBS Group Research. I'm Tere, chief economist, welcoming 3 00:00:12,659 --> 00:00:18,329 Speaker 1: you to our 148th episode. Today, we'll discuss an asset 4 00:00:18,329 --> 00:00:20,860 Speaker 1: class that has never been covered in the history of 5 00:00:20,860 --> 00:00:23,860 Speaker 1: this podcast series. We'll delve into the world of private 6 00:00:23,860 --> 00:00:27,180 Speaker 1: debt away from bank loans and corporate debt, and we 7 00:00:27,180 --> 00:00:31,579 Speaker 1: will discuss this world with Megan Neenan, managing director and 8 00:00:31,579 --> 00:00:34,779 Speaker 1: the North American head of non-bank financial institutions at Fitch. 9 00:00:35,279 --> 00:00:41,040 Speaker 1: Her coverage includes investment managers, business development companies, consumer and 10 00:00:41,040 --> 00:00:46,560 Speaker 1: finance companies, leasing companies, securities firms, and financial market infrastructure companies. 11 00:00:46,680 --> 00:00:48,479 Speaker 1: Megan Ninan, welcome to COI time. 12 00:00:49,340 --> 00:00:51,220 Speaker 2: Thanks very much for having me. It's 13 00:00:51,220 --> 00:00:54,659 Speaker 1: great to have you. We will start with the basics, uh, Megan, 14 00:00:55,020 --> 00:00:58,770 Speaker 1: how is private credit different from bank loans and corporate bonds? 15 00:01:00,159 --> 00:01:04,440 Speaker 2: Sure, yeah, private credit basically removes the banks entirely as 16 00:01:04,440 --> 00:01:06,720 Speaker 2: part of the process. So the private credit provider will 17 00:01:06,720 --> 00:01:09,559 Speaker 2: interface directly with the company or the sponsor that's seeking 18 00:01:09,559 --> 00:01:11,879 Speaker 2: the loan. You know, when banks are involved, they tend 19 00:01:11,879 --> 00:01:14,199 Speaker 2: to originate the loan and then they syndicate it or 20 00:01:14,199 --> 00:01:16,599 Speaker 2: sell it to investors. Uh, and if there's a credit 21 00:01:16,599 --> 00:01:18,679 Speaker 2: issue with the borrower, you know, fixing the problem can 22 00:01:18,680 --> 00:01:20,369 Speaker 2: be difficult because you have a lot of people. 23 00:01:20,430 --> 00:01:22,050 Speaker 2: That you need to kind of heard to kind of 24 00:01:22,419 --> 00:01:24,620 Speaker 2: get on board with any kind of restructuring. So in 25 00:01:24,620 --> 00:01:27,179 Speaker 2: the private credit world, you're often dealing with a single 26 00:01:27,180 --> 00:01:30,099 Speaker 2: lender or a small group of lenders who are tend 27 00:01:30,099 --> 00:01:33,179 Speaker 2: to be very like-minded individuals and so it tends to 28 00:01:33,180 --> 00:01:34,738 Speaker 2: be a little bit easier to kind of work with 29 00:01:34,739 --> 00:01:36,860 Speaker 2: the borrower to restructure the loan if there's any kind 30 00:01:36,860 --> 00:01:40,019 Speaker 2: of issue. So banks completely not involved in the private 31 00:01:40,019 --> 00:01:40,690 Speaker 2: credit space. 32 00:01:41,510 --> 00:01:47,959 Speaker 1: And the process of underwriting credit risk assessment, actual disbursement, intermediaries, 33 00:01:48,040 --> 00:01:51,029 Speaker 1: are those things fundamentally different or not that different than 34 00:01:51,029 --> 00:01:52,089 Speaker 1: say a bank loan? 35 00:01:52,599 --> 00:01:54,279 Speaker 2: No, I don't think it's different really much at all. 36 00:01:54,319 --> 00:01:56,480 Speaker 2: I mean, they still have their own underwriting criteria. Look, 37 00:01:56,519 --> 00:01:58,870 Speaker 2: a lot of people that are in private credit space, um, 38 00:01:58,879 --> 00:02:01,830 Speaker 2: have got their start in a bank kind of uh 39 00:02:01,919 --> 00:02:03,709 Speaker 2: uh for a long period of time and so you 40 00:02:03,720 --> 00:02:06,160 Speaker 2: you certainly see that in a lot of the managers 41 00:02:06,160 --> 00:02:08,389 Speaker 2: in the business development company. So it is very much 42 00:02:08,389 --> 00:02:09,199 Speaker 2: a credit and. 43 00:02:09,288 --> 00:02:13,199 Speaker 2: Mindset, they have an underwriting, you know, philosophy and policy 44 00:02:13,199 --> 00:02:15,080 Speaker 2: that they kind of operate with, and they have the 45 00:02:15,080 --> 00:02:18,720 Speaker 2: infrastructure that they need in order to distribute, to monitor 46 00:02:18,720 --> 00:02:21,000 Speaker 2: the loan performance, to work out the loan performance if 47 00:02:21,000 --> 00:02:23,389 Speaker 2: there's any kind of issue. So it really is a full, 48 00:02:23,550 --> 00:02:26,000 Speaker 2: full-fledged credit shop that they're that they're dealing with. 49 00:02:26,839 --> 00:02:32,149 Speaker 1: And from the Fed's perspective, is the data around private 50 00:02:32,149 --> 00:02:36,389 Speaker 1: credit um ample? Uh is it reported with some degree 51 00:02:36,389 --> 00:02:39,509 Speaker 1: of frequency? Are there certain regulatory requirements for reporting? 52 00:02:40,690 --> 00:02:44,179 Speaker 2: So it depends on um the sector that you're talking about. 53 00:02:44,258 --> 00:02:46,750 Speaker 2: Business development companies, which is one of the sectors we cover, 54 00:02:46,758 --> 00:02:48,750 Speaker 2: it's actually the biggest sector we cover. We have 30 55 00:02:48,750 --> 00:02:51,508 Speaker 2: BDCs that we read publicly. They are a little unique. 56 00:02:51,589 --> 00:02:54,109 Speaker 2: They're just a US construct. They've been around since the 57 00:02:54,110 --> 00:02:57,020 Speaker 2: 1980s actually, um, but they have to file with the 58 00:02:57,020 --> 00:02:59,589 Speaker 2: SEC and so they have to just, you know, 59 00:03:00,119 --> 00:03:02,649 Speaker 2: They file K's and Q's, you know, everything and, and, 60 00:03:02,720 --> 00:03:04,399 Speaker 2: and a lot of them are public, some are private, 61 00:03:04,440 --> 00:03:06,359 Speaker 2: but still they have to file with the SEC, and 62 00:03:06,360 --> 00:03:08,800 Speaker 2: they actually have a decent amount of data in their filing. 63 00:03:08,839 --> 00:03:11,320 Speaker 2: So they have to list every company that they're invested in, 64 00:03:11,520 --> 00:03:14,119 Speaker 2: where they're lending in the capital structure. So first lead, 65 00:03:14,199 --> 00:03:15,279 Speaker 2: second lead, sub debt equity. 66 00:03:15,395 --> 00:03:18,225 Speaker 2: Whatever that is, um, they, they say what the maturity 67 00:03:18,225 --> 00:03:20,735 Speaker 2: of the loan is, what the spread is that they're earning, 68 00:03:20,904 --> 00:03:23,225 Speaker 2: they have the cost basis, um, and they also have 69 00:03:23,225 --> 00:03:25,585 Speaker 2: the fair value. So they're required to mark their portfolio 70 00:03:25,585 --> 00:03:28,375 Speaker 2: to fair value on a quarterly basis. So BDCs have 71 00:03:28,585 --> 00:03:30,664 Speaker 2: ample information in their filings. 72 00:03:31,050 --> 00:03:33,119 Speaker 2: Beyond that, you know, a lot of those strategies that 73 00:03:33,119 --> 00:03:36,619 Speaker 2: the BDCs do can be replicated elsewhere or an alternative 74 00:03:36,619 --> 00:03:39,820 Speaker 2: investment manager, for example. So a Blackstone has a BDC, 75 00:03:39,850 --> 00:03:42,889 Speaker 2: but they also have direct lending funds and SMAs, severally 76 00:03:42,889 --> 00:03:46,149 Speaker 2: managed accounts. So the direct lending funds and the SMAs, 77 00:03:46,289 --> 00:03:48,740 Speaker 2: there's not gonna be any transparency around what's in there, 78 00:03:48,750 --> 00:03:51,850 Speaker 2: except that if a BDC is investing in something, typically 79 00:03:51,850 --> 00:03:52,690 Speaker 2: they will internally. 80 00:03:52,830 --> 00:03:57,020 Speaker 2: Indicate the deal amongst different funds, you know, in, in-house, um, 81 00:03:57,179 --> 00:03:58,699 Speaker 2: but there is not a lot of detail. And so 82 00:03:58,699 --> 00:04:00,940 Speaker 2: I think that's why there's a lot of, uh, talk 83 00:04:00,940 --> 00:04:02,899 Speaker 2: about private credit because, uh, in a, in a lot 84 00:04:02,899 --> 00:04:05,660 Speaker 2: of instances, you know, there's not a lot of information 85 00:04:05,660 --> 00:04:07,490 Speaker 2: about what's going on. And so we're seeing a lot 86 00:04:07,490 --> 00:04:10,580 Speaker 2: more push from regulators where they can on the insurance 87 00:04:10,580 --> 00:04:12,779 Speaker 2: side and on the bank side where insurance companies and 88 00:04:12,779 --> 00:04:16,019 Speaker 2: banks have exposure to private credit, they're pushing for more 89 00:04:16,019 --> 00:04:18,839 Speaker 2: disclosure around what those exposures are, so everyone can kind 90 00:04:18,839 --> 00:04:20,579 Speaker 2: of get their head wrapped around what's going on in 91 00:04:20,579 --> 00:04:21,070 Speaker 2: the sector. 92 00:04:22,169 --> 00:04:26,648 Speaker 1: OK. And um normally the investor side, I mean, I 93 00:04:26,648 --> 00:04:28,498 Speaker 1: want to talk to you more about the types of investors, 94 00:04:28,528 --> 00:04:32,648 Speaker 1: but just in the context of here, the, the reporting side, uh, 95 00:04:33,009 --> 00:04:35,928 Speaker 1: do the regulators also know who the lenders are or 96 00:04:35,928 --> 00:04:38,009 Speaker 1: they are only sort of focused on who are the borrowers? 97 00:04:39,079 --> 00:04:41,589 Speaker 2: No, I think they're definitely focused on the lenders as well, 98 00:04:41,600 --> 00:04:45,410 Speaker 2: because you've seen so much growth on the lender side 99 00:04:45,410 --> 00:04:47,720 Speaker 2: outside of the banking system, and so there is certainly 100 00:04:47,720 --> 00:04:50,799 Speaker 2: some questions about what is the durability of that capital 101 00:04:50,799 --> 00:04:53,679 Speaker 2: to the extent that there's disruptions, right? So can the 102 00:04:53,678 --> 00:04:57,929 Speaker 2: corporate credit world keep functioning if there's a big market dislocation. 103 00:04:57,984 --> 00:05:00,415 Speaker 2: And some of these credit providers, you know, aren't willing 104 00:05:00,415 --> 00:05:02,375 Speaker 2: to kind of extend credit. So what happens just to 105 00:05:02,375 --> 00:05:05,975 Speaker 2: the functioning of the general marketplace and economy. So it 106 00:05:05,975 --> 00:05:08,975 Speaker 2: really is, I mean, the, the biggest alternative investment managers 107 00:05:08,975 --> 00:05:14,894 Speaker 2: are the biggest players certainly in private credit. So your Blackstones, um, KKR, Apollo, all, 108 00:05:14,954 --> 00:05:16,375 Speaker 2: all the big names that you kind of would have 109 00:05:16,375 --> 00:05:16,854 Speaker 2: heard of. 110 00:05:17,119 --> 00:05:19,369 Speaker 2: And so if you go back in time, you know, 111 00:05:19,450 --> 00:05:24,339 Speaker 2: I think pre GFC kind of 2007, 2008, like a Blackstone, 112 00:05:24,369 --> 00:05:26,769 Speaker 2: for instance, would have had less than $30 billion in 113 00:05:26,769 --> 00:05:31,410 Speaker 2: their credit segment. Now it's over $250 billion. So that 114 00:05:31,410 --> 00:05:34,250 Speaker 2: is a pattern that is, you see, you know, replicated 115 00:05:34,250 --> 00:05:37,369 Speaker 2: across all of the big players. So they have expanded significantly. 116 00:05:37,790 --> 00:05:40,410 Speaker 2: A lot of them manage BDCs like I talked about, 117 00:05:40,619 --> 00:05:42,850 Speaker 2: but they also have direct lending funds. They, they have 118 00:05:42,850 --> 00:05:47,670 Speaker 2: a myriad of credit strategies, right? Opportunistic, mezzanine, distressed, um, 119 00:05:47,738 --> 00:05:49,899 Speaker 2: and now you're talking about in terms of private credit, 120 00:05:50,059 --> 00:05:52,219 Speaker 2: where the real growth engine we think now is going 121 00:05:52,220 --> 00:05:54,459 Speaker 2: to be an asset-based finance. So that's something that they're 122 00:05:54,459 --> 00:05:56,809 Speaker 2: certainly focused on as well. So those are the biggest 123 00:05:56,809 --> 00:05:58,380 Speaker 2: kind of providers of private credit. 124 00:05:58,970 --> 00:06:02,000 Speaker 1: OK, so you talked about the business developing companies. Let's 125 00:06:02,000 --> 00:06:05,000 Speaker 1: talk on the broader spectrum. So what are the types 126 00:06:05,000 --> 00:06:08,678 Speaker 1: of borrowers there are in the private rates race, so 127 00:06:08,678 --> 00:06:11,760 Speaker 1: sectors and geographies and maybe, you know, if you can 128 00:06:11,760 --> 00:06:14,920 Speaker 1: even shed some light beyond the states, it'll be great too. 129 00:06:15,940 --> 00:06:19,299 Speaker 2: Sure, uh, sore, which is a data provider, has some 130 00:06:19,299 --> 00:06:21,419 Speaker 2: estimates that they put that are just out in terms 131 00:06:21,420 --> 00:06:23,579 Speaker 2: of the size of the private credit space. So they're 132 00:06:23,579 --> 00:06:26,220 Speaker 2: talking about $1.6 trillion or so at the end of 133 00:06:26,220 --> 00:06:28,980 Speaker 2: 2024 is private credit. That's what they kind of capture, 134 00:06:29,220 --> 00:06:31,820 Speaker 2: and they have that going to about 2.7 or so 135 00:06:31,820 --> 00:06:33,820 Speaker 2: in the next five years. So lots of growth coming 136 00:06:33,820 --> 00:06:37,500 Speaker 2: from it. In terms of 2024, about 50% of AUM 137 00:06:37,500 --> 00:06:38,500 Speaker 2: is direct lending. 138 00:06:38,595 --> 00:06:43,224 Speaker 2: So the majority of that is sponsor-based corporate loans. So 139 00:06:43,505 --> 00:06:46,665 Speaker 2: a private equity firm buys a company, they need financing 140 00:06:46,665 --> 00:06:49,255 Speaker 2: to do that, and they need, you know, for the company, 141 00:06:49,345 --> 00:06:51,984 Speaker 2: and that's a big portion of what's happening in direct lending. 142 00:06:52,105 --> 00:06:54,584 Speaker 2: Frequent talks about some of the, the rest of that, 143 00:06:54,625 --> 00:06:58,815 Speaker 2: the other 50% is things like fund of funds, um, mezzanine, 144 00:06:58,945 --> 00:07:01,344 Speaker 2: special situations. We think that the. 145 00:07:01,410 --> 00:07:04,910 Speaker 2: 1.6 probably understates what's really happening in private credit because 146 00:07:04,910 --> 00:07:08,109 Speaker 2: it excludes things like asset-based finance, which is going on. 147 00:07:08,190 --> 00:07:12,309 Speaker 2: You have subscription facilities, nav facilities, lots of, lots of 148 00:07:12,309 --> 00:07:15,019 Speaker 2: things that could be bucketed within the private credit world. 149 00:07:15,350 --> 00:07:17,799 Speaker 2: But within direct lending, that's kind of been around the longest. 150 00:07:17,839 --> 00:07:20,209 Speaker 2: It's probably the easiest to understand because it really is 151 00:07:20,209 --> 00:07:24,029 Speaker 2: just lending to come to corporations, to companies of all sizes. 152 00:07:24,214 --> 00:07:27,274 Speaker 2: Um, and that's something that because it's been around the 153 00:07:27,274 --> 00:07:30,475 Speaker 2: longest is the strategy that's been replicated the most meaningfully, 154 00:07:30,515 --> 00:07:33,195 Speaker 2: I would say in other geography. So it is typical 155 00:07:33,195 --> 00:07:36,075 Speaker 2: that something happens in the US then especially with the 156 00:07:36,075 --> 00:07:39,035 Speaker 2: alt managers, then they move that strategy to Europe and 157 00:07:39,035 --> 00:07:40,904 Speaker 2: so you see a lot of that happening in Europe 158 00:07:40,904 --> 00:07:43,545 Speaker 2: and APEC as well. And I think within APEC Australia 159 00:07:43,545 --> 00:07:47,744 Speaker 2: in particular has been a pretty good growth market for them. Um, 160 00:07:47,755 --> 00:07:51,035 Speaker 2: and so like the business development companies, for example, Blackstone 161 00:07:51,035 --> 00:07:53,274 Speaker 2: has something called Blackstone Private Credit Fund. 162 00:07:53,929 --> 00:07:57,660 Speaker 2: Bred, they have eCred, which is the European version of it, right? 163 00:07:57,709 --> 00:08:00,339 Speaker 2: So they replicate those strategies in different markets, you know, 164 00:08:00,380 --> 00:08:03,619 Speaker 2: in terms of the the underlying sectors, it's, it runs 165 00:08:03,619 --> 00:08:06,140 Speaker 2: the gamut really. If you look at BDCs, which we 166 00:08:06,140 --> 00:08:08,179 Speaker 2: think is kind of representative of the direct lending space 167 00:08:08,179 --> 00:08:10,739 Speaker 2: in a lot of ways, the biggest um exposures are 168 00:08:10,739 --> 00:08:16,260 Speaker 2: business services, software, and healthcare. So those kind of are, I, 169 00:08:16,299 --> 00:08:18,600 Speaker 2: I think emblematic of what's happening in other direct lending 170 00:08:18,600 --> 00:08:20,700 Speaker 2: strategies as well. I mean, I think they tend not 171 00:08:20,700 --> 00:08:23,459 Speaker 2: to be looking at things that are very capital intensive. 172 00:08:23,540 --> 00:08:25,529 Speaker 2: So like manufacturing and things you don't see a lot 173 00:08:25,529 --> 00:08:28,010 Speaker 2: of retail has obviously had issues in the past, you 174 00:08:28,010 --> 00:08:31,489 Speaker 2: don't see a lot of exposure there. Um, energy, they 175 00:08:31,489 --> 00:08:33,330 Speaker 2: used to be more invested in energy then you had 176 00:08:33,330 --> 00:08:36,640 Speaker 2: the dislocation in 2015, 2016, they pulled back there. So 177 00:08:36,849 --> 00:08:41,598 Speaker 2: they tend to look for non-cyclical businesses, cash flowing businesses, um, 178 00:08:41,609 --> 00:08:44,130 Speaker 2: without a lot of capital intensity. And so we get 179 00:08:44,130 --> 00:08:46,239 Speaker 2: a lot of questions about, you know, tariffs and things 180 00:08:46,239 --> 00:08:48,729 Speaker 2: like that. And so far what we're hearing from earnings 181 00:08:48,729 --> 00:08:51,369 Speaker 2: reports is, you know, not expecting to have a big 182 00:08:51,369 --> 00:08:53,210 Speaker 2: impact on on those portfolios. 183 00:08:53,780 --> 00:08:55,250 Speaker 1: All right, Megan, I was not going to bring in 184 00:08:55,250 --> 00:08:57,570 Speaker 1: current affairs, but since you did, I'm gonna ask you 185 00:08:57,570 --> 00:08:59,890 Speaker 1: a question. I just saw this bid that Elon Musk 186 00:08:59,890 --> 00:09:03,489 Speaker 1: made for OpenAI. Look at the deal, I'm assuming you've 187 00:09:03,489 --> 00:09:05,449 Speaker 1: seen it in the newspapers and stuff. Is it a 188 00:09:05,450 --> 00:09:08,969 Speaker 1: typical thing that the private space would uh structure? 189 00:09:10,559 --> 00:09:12,609 Speaker 2: Um, I, I, I don't know. I mean, I, I, 190 00:09:12,700 --> 00:09:14,530 Speaker 2: I think that they're, they're very big in kind of 191 00:09:14,530 --> 00:09:17,130 Speaker 2: software and the next next technology and things like that, 192 00:09:17,210 --> 00:09:18,890 Speaker 2: but a lot of that stuff, any of those exposures, 193 00:09:18,900 --> 00:09:21,530 Speaker 2: they need to make sure that they have in-house expertise 194 00:09:21,530 --> 00:09:23,559 Speaker 2: in order to get to be able to do that. 195 00:09:23,650 --> 00:09:27,770 Speaker 2: So the bigger shops definitely have sector teams that are focused, um, 196 00:09:27,919 --> 00:09:30,449 Speaker 2: and they have the expertise and the big alt managers 197 00:09:30,450 --> 00:09:32,650 Speaker 2: obviously have a lot of expertise on the private equity 198 00:09:32,650 --> 00:09:35,250 Speaker 2: side as well, so they can leverage that knowledge. 199 00:09:35,380 --> 00:09:38,309 Speaker 2: Um, across into the credit world as well. So you 200 00:09:38,309 --> 00:09:41,520 Speaker 2: having that those internal resources are super helpful. So we 201 00:09:41,520 --> 00:09:44,840 Speaker 2: see this a lot with, for example, like recurring revenue laws, 202 00:09:44,880 --> 00:09:46,729 Speaker 2: which has been something that has been a big kind 203 00:09:46,729 --> 00:09:49,239 Speaker 2: of driver, um, and a big area of focus over 204 00:09:49,239 --> 00:09:50,799 Speaker 2: the last 5 years or so, which is kind of 205 00:09:50,799 --> 00:09:53,239 Speaker 2: in the software bucket. So you see a lot of 206 00:09:53,239 --> 00:09:55,880 Speaker 2: competition there, and then that tends to lead to weaker 207 00:09:55,880 --> 00:09:58,359 Speaker 2: terms and conditions, and then there's questions about how are 208 00:09:58,359 --> 00:10:00,150 Speaker 2: those going to perform over time. So. 209 00:10:00,419 --> 00:10:02,840 Speaker 2: You know, I think that um, yeah, and I think 210 00:10:03,049 --> 00:10:05,760 Speaker 2: those are any of those kind of situations can be 211 00:10:05,760 --> 00:10:08,250 Speaker 2: interesting if they have the in-house expertise um to kind 212 00:10:08,250 --> 00:10:10,500 Speaker 2: of deal with the companies that that they're looking at. 213 00:10:11,409 --> 00:10:15,049 Speaker 1: Right, so you, you talked briefly earlier about the investment 214 00:10:15,049 --> 00:10:18,250 Speaker 1: structure sort of that typify uh private debt. Could you 215 00:10:18,250 --> 00:10:21,479 Speaker 1: elaborate on that a little bit? So typical contract between 216 00:10:21,479 --> 00:10:25,359 Speaker 1: a private debt issuer and the borrower, how does it look? 217 00:10:26,210 --> 00:10:28,380 Speaker 2: It it is very similar to what you would have 218 00:10:28,380 --> 00:10:30,460 Speaker 2: in the bank world as well. So I mean like 219 00:10:30,460 --> 00:10:33,059 Speaker 2: a first lien loan, for example, is typically a 5 220 00:10:33,059 --> 00:10:37,260 Speaker 2: year um structure. There's a, there's, you know, it's sulfur 221 00:10:37,260 --> 00:10:38,289 Speaker 2: plus the spread. 222 00:10:38,599 --> 00:10:41,729 Speaker 2: Um, in the middle market there still would be covenants involved. 223 00:10:42,020 --> 00:10:44,619 Speaker 2: You see the private credit world really kind of starting 224 00:10:44,619 --> 00:10:47,619 Speaker 2: to blur the lines between, you know, syndicated and private 225 00:10:47,619 --> 00:10:49,400 Speaker 2: credit has kind of blurred, and so you see some 226 00:10:49,400 --> 00:10:51,380 Speaker 2: of these big private credit providers who can kind of 227 00:10:51,380 --> 00:10:53,780 Speaker 2: compete head on with the syndicated market. So some of 228 00:10:53,780 --> 00:10:56,419 Speaker 2: those bigger deals have terms that are more similar to 229 00:10:56,419 --> 00:10:59,539 Speaker 2: the syndicated market, meaning they could be covenant like, um, 230 00:10:59,659 --> 00:11:01,460 Speaker 2: so you definitely see a lot of that, but it 231 00:11:01,460 --> 00:11:04,859 Speaker 2: is very still traditional credit, you know, I think that 232 00:11:04,859 --> 00:11:07,059 Speaker 2: they and the private credit space that document. 233 00:11:07,625 --> 00:11:10,424 Speaker 2: I think they believe tends to be tighter. You've seen 234 00:11:10,424 --> 00:11:14,064 Speaker 2: some examples like a plural site where there's there's questions 235 00:11:14,065 --> 00:11:17,064 Speaker 2: about asset leakage, right? And then and the movement of 236 00:11:17,065 --> 00:11:20,304 Speaker 2: collateral to different restricted subs or unrestricted subs. And I 237 00:11:20,304 --> 00:11:22,905 Speaker 2: think the plural site example is one that shows the 238 00:11:22,905 --> 00:11:26,114 Speaker 2: documents perhaps are tighter and then look like look to 239 00:11:26,114 --> 00:11:28,454 Speaker 2: be tighter in the, in the private credit space than 240 00:11:28,455 --> 00:11:30,784 Speaker 2: in the broadly syndicated market because they weren't just able 241 00:11:30,784 --> 00:11:33,723 Speaker 2: to kind of take all these assets out, um, and leave, 242 00:11:33,734 --> 00:11:35,734 Speaker 2: you leave the the lenders with nothing. So. 243 00:11:36,419 --> 00:11:39,079 Speaker 2: The, you know, the philosophy is the same. I think 244 00:11:39,080 --> 00:11:41,900 Speaker 2: the private credit providers would tell you the docs are tighter, 245 00:11:42,020 --> 00:11:45,020 Speaker 2: and there's much more flexibility in terms of negotiating because 246 00:11:45,020 --> 00:11:47,380 Speaker 2: you're not dealing with a broad syndicate, you're perhaps dealing 247 00:11:47,380 --> 00:11:49,570 Speaker 2: with one lender or maybe a handful of lenders. 248 00:11:50,419 --> 00:11:52,570 Speaker 1: OK, so I was kind of nudging you toward asking 249 00:11:52,570 --> 00:11:55,250 Speaker 1: whether there's a regulatory arbitrage there or not. I think 250 00:11:55,250 --> 00:11:57,260 Speaker 1: you're already sort of preempting and telling me that there 251 00:11:57,260 --> 00:11:59,968 Speaker 1: probably isn't, but nonetheless, Megan, I'm going to read you 252 00:11:59,969 --> 00:12:04,729 Speaker 1: something from the Fed's November 2024 Financial stability survey. 253 00:12:05,010 --> 00:12:07,780 Speaker 1: And there's a section on leveraged risks, and it says 254 00:12:07,979 --> 00:12:10,869 Speaker 1: the net issuance of institutional leverage loans, which has been 255 00:12:10,869 --> 00:12:14,500 Speaker 1: particularly weak since 2022, was moderately positive in the third quarter. 256 00:12:14,710 --> 00:12:18,030 Speaker 1: In contrast to traditional forms of business credit, private credit 257 00:12:18,030 --> 00:12:21,589 Speaker 1: has grown quickly recently and constitutes about 7% of total 258 00:12:21,590 --> 00:12:25,549 Speaker 1: outstanding non-financial corporate debt. So I suppose I'm going to 259 00:12:25,549 --> 00:12:27,510 Speaker 1: ask you the same question in a different way. So 260 00:12:27,510 --> 00:12:30,359 Speaker 1: what explains the dynamism in private credit? 261 00:12:31,270 --> 00:12:33,489 Speaker 2: Yeah I mean they're they're certainly are growing faster and 262 00:12:33,489 --> 00:12:35,289 Speaker 2: I and a lot of that is just taking advantage 263 00:12:35,289 --> 00:12:37,830 Speaker 2: of what the banks are doing or not doing. So 264 00:12:37,830 --> 00:12:40,690 Speaker 2: really with the GFC you saw regulation step up on 265 00:12:40,690 --> 00:12:43,169 Speaker 2: the banking world. That was the first real catalyst to 266 00:12:43,169 --> 00:12:46,169 Speaker 2: see significant growth in the private credit space. Then you 267 00:12:46,169 --> 00:12:49,130 Speaker 2: started to see, you know, the rate rising cycle that 268 00:12:49,130 --> 00:12:53,340 Speaker 2: you just had more investor demand, um, for higher yields and, 269 00:12:53,349 --> 00:12:55,849 Speaker 2: and investors were willing to take on a liquidity. 270 00:12:55,927 --> 00:12:58,638 Speaker 2: Premium to get that higher yield. And so the private 271 00:12:58,638 --> 00:13:00,918 Speaker 2: credit providers were able to have that much more capital 272 00:13:00,918 --> 00:13:03,278 Speaker 2: to kind of deploy into the space. And then you 273 00:13:03,278 --> 00:13:05,877 Speaker 2: saw some of the bank failures, um, which, and you 274 00:13:05,877 --> 00:13:08,796 Speaker 2: saw banks getting hung like with syndicated deals towards the 275 00:13:08,797 --> 00:13:11,046 Speaker 2: end of 2022. So all of these little things have 276 00:13:11,047 --> 00:13:13,437 Speaker 2: just juiced the engine a little bit in the private 277 00:13:13,437 --> 00:13:15,958 Speaker 2: credit space, right? So they've been able to step in 278 00:13:15,958 --> 00:13:18,668 Speaker 2: and fill the void over and over and over again. 279 00:13:18,947 --> 00:13:20,478 Speaker 2: And that has led to increased. 280 00:13:20,596 --> 00:13:22,786 Speaker 2: Comfort with the private credit space. So if you're a 281 00:13:22,785 --> 00:13:25,866 Speaker 2: PE sponsor now, you don't have, you don't say, oh, 282 00:13:25,945 --> 00:13:27,666 Speaker 2: I'm just gonna go to the syndicated market because the 283 00:13:27,666 --> 00:13:31,616 Speaker 2: syndicated market is open. Now you dual track everything. You say, 284 00:13:31,825 --> 00:13:34,346 Speaker 2: what is my private credit solution? What is my syndicated 285 00:13:34,346 --> 00:13:37,825 Speaker 2: market solution? And then it's not necessarily just a pricing decision. 286 00:13:37,905 --> 00:13:41,325 Speaker 2: It is what's the flexibility, what else, you know, ancillary 287 00:13:41,325 --> 00:13:43,106 Speaker 2: things can I get from the private credit space in 288 00:13:43,106 --> 00:13:45,185 Speaker 2: terms of knowledge of the market, which the banks. 289 00:13:45,273 --> 00:13:48,013 Speaker 2: Can provide to. But if I need flexibility, if I 290 00:13:48,013 --> 00:13:50,843 Speaker 2: want to delay draw term loan, I know the private credit, 291 00:13:50,973 --> 00:13:53,453 Speaker 2: you know, um, lender might grow with me over time 292 00:13:53,453 --> 00:13:55,294 Speaker 2: if I'm looking to do a roll up strategy and 293 00:13:55,294 --> 00:13:57,734 Speaker 2: add on acquisitions over time. I know I could easily 294 00:13:57,734 --> 00:14:01,772 Speaker 2: kind of restructure and and add. Um, and there's privacy here, right? 295 00:14:01,934 --> 00:14:05,453 Speaker 2: So there, there just is more flexibility, and I think 296 00:14:05,453 --> 00:14:08,973 Speaker 2: the private credit space is taking advantage of all of the, 297 00:14:09,013 --> 00:14:09,773 Speaker 2: I don't, I don't say this. 298 00:14:09,932 --> 00:14:12,242 Speaker 2: Steps on the bank side, but the regulatory pressure and 299 00:14:12,242 --> 00:14:15,461 Speaker 2: things like that, they've just, they've been in the capital receipt, right? 300 00:14:15,481 --> 00:14:18,242 Speaker 2: They've had the capital to deploy and so they've been 301 00:14:18,242 --> 00:14:20,041 Speaker 2: able to kind of step in and continue to grow. 302 00:14:20,122 --> 00:14:23,262 Speaker 2: And so now with the, the syndicated market back open 303 00:14:23,262 --> 00:14:25,681 Speaker 2: and the banks you last year in particular, you saw 304 00:14:25,682 --> 00:14:29,202 Speaker 2: some restructuring of private credit deals by the banks and 305 00:14:29,202 --> 00:14:32,322 Speaker 2: vice versa. So they can work, they can kind of 306 00:14:32,322 --> 00:14:34,512 Speaker 2: function in harmony, um. 307 00:14:34,869 --> 00:14:37,599 Speaker 2: But that's why I think certainly there's been more more 308 00:14:37,599 --> 00:14:39,840 Speaker 2: growth in the private credit space. They've just, they've just 309 00:14:39,840 --> 00:14:43,479 Speaker 2: been more durable, um, certainly since since the GFC. 310 00:14:44,400 --> 00:14:46,840 Speaker 1: On the point you made about flexibility. So like on 311 00:14:46,840 --> 00:14:50,510 Speaker 1: private equity, for example, we know there's a minimum lock-in period, 312 00:14:50,559 --> 00:14:53,760 Speaker 1: 57 years. Within that period there isn't a lot of 313 00:14:53,760 --> 00:14:56,320 Speaker 1: market to market or clarity on how the investment is doing, 314 00:14:56,400 --> 00:14:58,880 Speaker 1: but at the very beginning, there is a very strong 315 00:14:58,880 --> 00:15:02,280 Speaker 1: assumption around the IRR and investors sort of keep their 316 00:15:02,280 --> 00:15:04,109 Speaker 1: money in the private equity fund if down the road 317 00:15:04,109 --> 00:15:08,599 Speaker 1: they do deliver on that. So the returns on private 318 00:15:08,599 --> 00:15:11,559 Speaker 1: debt is more of a fixed coupon and not as 319 00:15:11,559 --> 00:15:13,200 Speaker 1: much of a lock-in as private equity. 320 00:15:14,390 --> 00:15:18,020 Speaker 2: Yeah, I mean they're generally speaking it's floating rates, um, so, 321 00:15:18,099 --> 00:15:20,729 Speaker 2: so we saw the the rate rising cycle, for example, 322 00:15:20,940 --> 00:15:24,219 Speaker 2: so this is business development companies are 323 00:15:24,609 --> 00:15:27,770 Speaker 2: You know, I think they're 85% or so first lien 324 00:15:27,770 --> 00:15:30,309 Speaker 2: in their book. So floating rate security. So as we 325 00:15:30,309 --> 00:15:33,789 Speaker 2: saw the interest rate rising cycle, you saw excess earnings 326 00:15:33,789 --> 00:15:37,030 Speaker 2: coming from the BDCs and then starting last year, the 327 00:15:37,030 --> 00:15:40,070 Speaker 2: banks are coming back. There's much more competition. We saw 328 00:15:40,070 --> 00:15:43,299 Speaker 2: spreads compressing now you've seen rates coming down and so now, 329 00:15:43,549 --> 00:15:45,909 Speaker 2: you know, returns are coming down. So that is just 330 00:15:45,909 --> 00:15:47,270 Speaker 2: going to, they're going to kind of 331 00:15:47,322 --> 00:15:50,622 Speaker 2: with the ebbs and flows, but relative to their financing costs, 332 00:15:50,752 --> 00:15:54,353 Speaker 2: you know, they have, they had locked in unsecured funding 333 00:15:54,353 --> 00:15:55,953 Speaker 2: at a fixed rate for a period of time. So 334 00:15:55,953 --> 00:15:57,942 Speaker 2: when rates were going up, they had a nice spread. 335 00:15:58,153 --> 00:15:59,793 Speaker 2: Now the rates are coming down. You're starting to see 336 00:15:59,793 --> 00:16:02,732 Speaker 2: them swap some of their fixed rate debt in order 337 00:16:02,732 --> 00:16:05,353 Speaker 2: to kind of offset that as well to to maintain some, 338 00:16:05,393 --> 00:16:07,872 Speaker 2: some good margins. So there's going to be some variability, 339 00:16:07,913 --> 00:16:09,992 Speaker 2: but I think investors understand kind of what those 340 00:16:10,156 --> 00:16:13,856 Speaker 2: Returns are, but the public BDCs, for example, you know, they, 341 00:16:13,955 --> 00:16:17,276 Speaker 2: they have a distribution requirement. They have had pretty steady 342 00:16:17,276 --> 00:16:21,315 Speaker 2: dividends over time, um, and they changed their distribution framework 343 00:16:21,315 --> 00:16:24,796 Speaker 2: to have some variable component to it, recognizing that their 344 00:16:24,796 --> 00:16:26,676 Speaker 2: earnings are going to move up and down a bit 345 00:16:26,676 --> 00:16:29,156 Speaker 2: with the rate rising cycle, but also just, you know, 346 00:16:29,435 --> 00:16:31,916 Speaker 2: spreading compression or expansion depending on where we are in 347 00:16:31,916 --> 00:16:32,595 Speaker 2: the cycle. 348 00:16:33,780 --> 00:16:39,080 Speaker 1: And on the lending side, we see private wealth, for example, 349 00:16:39,320 --> 00:16:42,919 Speaker 1: play almost as big a role as independent asset managers 350 00:16:42,919 --> 00:16:46,400 Speaker 1: or large development companies that you mentioned. So on the 351 00:16:46,400 --> 00:16:49,280 Speaker 1: private debt side, are we seeing sovereign wealth and private 352 00:16:49,280 --> 00:16:52,320 Speaker 1: wealth becoming bigger and bigger and more consequential players? 353 00:16:53,030 --> 00:16:57,140 Speaker 2: Yes, definitely. I mean, sovereign wealth, pension funds, endowments, definitely 354 00:16:57,140 --> 00:17:00,260 Speaker 2: increasing their exposure to private credit, and that's been happening 355 00:17:00,260 --> 00:17:01,859 Speaker 2: for a while now and that is because of the 356 00:17:01,859 --> 00:17:04,899 Speaker 2: yield premium that they can get there. Retail is kind 357 00:17:04,900 --> 00:17:07,660 Speaker 2: of this untapped frontier that we're starting to see more 358 00:17:07,660 --> 00:17:11,420 Speaker 2: and more products being developed specifically for them. So business 359 00:17:11,420 --> 00:17:14,079 Speaker 2: development companies are a great example and, you know, they're 360 00:17:14,079 --> 00:17:16,260 Speaker 2: public for a long time they were most of them were. 361 00:17:16,448 --> 00:17:21,207 Speaker 2: We traded in 2021, Blackstone launched a perpetual private structure. 362 00:17:21,598 --> 00:17:23,359 Speaker 2: So it is a structure that is never going to 363 00:17:23,359 --> 00:17:27,638 Speaker 2: be listed publicly. Instead, they offer quarterly redemption terms capped 364 00:17:27,638 --> 00:17:30,798 Speaker 2: at 5% in order to give investors liquidity. It's targeted 365 00:17:30,798 --> 00:17:33,538 Speaker 2: to the high net worth retail market, and actually they, 366 00:17:33,718 --> 00:17:36,677 Speaker 2: they had invented in 2015 really a read with the 367 00:17:36,678 --> 00:17:39,667 Speaker 2: same structure, so they replicated that wrapper in the BBC space. 368 00:17:40,050 --> 00:17:42,709 Speaker 2: And so these open end perpetual vehicles now that are 369 00:17:42,709 --> 00:17:46,750 Speaker 2: targeted to retail investors, you see having um first it 370 00:17:46,750 --> 00:17:49,369 Speaker 2: was real estate, then it was um you know, corporate loans, 371 00:17:49,469 --> 00:17:54,150 Speaker 2: it's infrastructure now, it's private equity, it's secondaries, so they 372 00:17:54,150 --> 00:17:57,949 Speaker 2: are looking to create products specifically to target the retail 373 00:17:57,949 --> 00:18:00,859 Speaker 2: investors and so you see these big all managers having 374 00:18:00,859 --> 00:18:04,949 Speaker 2: big private wealth distribution platforms because they want to access 375 00:18:04,949 --> 00:18:07,469 Speaker 2: that and certainly there continues to be talk of this being. 376 00:18:07,614 --> 00:18:10,604 Speaker 2: Be able to access 401k money, for example, you know, 377 00:18:10,685 --> 00:18:13,645 Speaker 2: in the US in the US is retirement funds. Um, 378 00:18:13,765 --> 00:18:16,505 Speaker 2: so how can they get there? Um, and certainly with, 379 00:18:16,525 --> 00:18:19,244 Speaker 2: with all the talk about like what happens with Social Security, 380 00:18:19,295 --> 00:18:21,714 Speaker 2: whether or not it stays fully funded or not, you know, 381 00:18:21,885 --> 00:18:25,005 Speaker 2: are there private credit solutions or or private asset solutions 382 00:18:25,005 --> 00:18:28,125 Speaker 2: more generally that could help, um, and you know, it's, it's, 383 00:18:28,165 --> 00:18:32,755 Speaker 2: it's really called the democratization of credit for retail investors. Um, 384 00:18:32,765 --> 00:18:34,974 Speaker 2: you definitely see that as, as a big focus. 385 00:18:35,510 --> 00:18:39,339 Speaker 1: Right, so Megan, you mentioned rising rates and its implication 386 00:18:39,339 --> 00:18:41,129 Speaker 1: on on on the returns. So I want to go 387 00:18:41,130 --> 00:18:44,729 Speaker 1: back to that November 24th survey. So there is this 388 00:18:44,729 --> 00:18:47,520 Speaker 1: part where it says that the average interest coverage ratio 389 00:18:47,849 --> 00:18:50,938 Speaker 1: at issuance for private credit is below 2, indicating debt 390 00:18:50,939 --> 00:18:55,050 Speaker 1: servicing capacity in the range of below investment rate public firms. 391 00:18:55,250 --> 00:18:55,650 Speaker 1: So 392 00:18:55,910 --> 00:18:58,380 Speaker 1: I mean, the way that sentence is structured, it's supposed 393 00:18:58,380 --> 00:19:01,219 Speaker 1: to give one a sense of discomfort that there is 394 00:19:01,219 --> 00:19:03,650 Speaker 1: not all that is not right there. There is some 395 00:19:03,650 --> 00:19:06,180 Speaker 1: on the margin building up of stress. So what's your 396 00:19:06,180 --> 00:19:08,140 Speaker 1: view to that observation by the Fed? 397 00:19:09,339 --> 00:19:10,900 Speaker 2: Yeah, I mean, we do think that there's a buildup 398 00:19:10,900 --> 00:19:13,750 Speaker 2: of stress for sure. I think that credit performance and 399 00:19:13,750 --> 00:19:16,129 Speaker 2: a lot of these direct lending vehicles have exceeded our 400 00:19:16,130 --> 00:19:18,810 Speaker 2: expectations for a number of years and particularly with the 401 00:19:18,810 --> 00:19:22,170 Speaker 2: rate rising cycle. So I'll just give an example because 402 00:19:22,170 --> 00:19:25,050 Speaker 2: they report the numbers, but A Capital, for example, if 403 00:19:25,050 --> 00:19:28,339 Speaker 2: you go back to 2021, they're one of the biggest BDCs, um, 404 00:19:28,449 --> 00:19:31,129 Speaker 2: their interest, their underlying kind of interest coverage ratio for 405 00:19:31,130 --> 00:19:32,688 Speaker 2: their portfolio was 3 times. 406 00:19:32,814 --> 00:19:35,125 Speaker 2: And that kind of steadily trickled down until it bottomed 407 00:19:35,125 --> 00:19:38,094 Speaker 2: at about 1.6 times, uh, during the rate rising cycle. 408 00:19:38,165 --> 00:19:39,603 Speaker 2: Now you start to see it tick back up a 409 00:19:39,604 --> 00:19:42,004 Speaker 2: little bit. I think it's back up to 1.9%. But 410 00:19:42,005 --> 00:19:44,165 Speaker 2: at the end of the day, I mean, these, these 411 00:19:44,165 --> 00:19:47,844 Speaker 2: direct lenders are lending to sub-investment grade companies for the, 412 00:19:47,925 --> 00:19:49,724 Speaker 2: you know, for the most part. So these are the 413 00:19:49,724 --> 00:19:52,444 Speaker 2: BBC's are single be names are below. Now that you 414 00:19:52,444 --> 00:19:55,084 Speaker 2: see some of these bigger firms kind of expanding and 415 00:19:55,084 --> 00:19:56,204 Speaker 2: the blurring the lines. 416 00:19:56,439 --> 00:19:58,640 Speaker 2: Between the syndicated market and the private credit market, certainly 417 00:19:58,640 --> 00:20:01,228 Speaker 2: you have some double the exposure in there too, potentially. 418 00:20:01,680 --> 00:20:05,520 Speaker 2: But the rate rising cycle has certainly pressured interest coverage ratios. 419 00:20:05,640 --> 00:20:08,280 Speaker 2: We have not seen as much, um, in terms of 420 00:20:08,280 --> 00:20:11,479 Speaker 2: the BDC portfolios, credit losses as we would have expected 421 00:20:11,479 --> 00:20:14,560 Speaker 2: just given that cycle. Now we've seen some rate cuts, 422 00:20:14,579 --> 00:20:16,949 Speaker 2: but now, you know, I think that the picture there 423 00:20:16,949 --> 00:20:19,708 Speaker 2: is is a little bit less optimistic. So rates are going. 424 00:20:19,765 --> 00:20:22,593 Speaker 2: To be higher for longer, and we certainly expect that 425 00:20:22,594 --> 00:20:25,794 Speaker 2: there's going to be pressure and credit defaults, especially for 426 00:20:25,795 --> 00:20:28,334 Speaker 2: those that have the lower interest coverage ratios and have 427 00:20:28,334 --> 00:20:30,194 Speaker 2: been on not a cool or watch list for a 428 00:20:30,194 --> 00:20:33,435 Speaker 2: long period of time. So definitely the ICR is something 429 00:20:33,435 --> 00:20:35,704 Speaker 2: that we, we keep a, keep an eye on, um, 430 00:20:35,834 --> 00:20:38,954 Speaker 2: and it's, it's not really surprising, um, that, that the 431 00:20:38,954 --> 00:20:40,714 Speaker 2: number that the Fed's quoting in terms of where it is. 432 00:20:40,795 --> 00:20:43,104 Speaker 2: That's what we're seeing in the BBC portfolios as well. 433 00:20:43,500 --> 00:20:45,679 Speaker 1: OK, all right, so let me go from the Fed's 434 00:20:45,680 --> 00:20:49,409 Speaker 1: sort of cautious approach to slightly more alarmist approach. This 435 00:20:49,410 --> 00:20:52,488 Speaker 1: is the Wellcome Trust, Nick Moggs. He said, I, I, 436 00:20:52,569 --> 00:20:54,969 Speaker 1: I think I read this in Financial Times that I 437 00:20:54,969 --> 00:20:58,229 Speaker 1: think I quote, private credit accidents are waiting to happen. Uh, 438 00:20:58,410 --> 00:21:00,170 Speaker 1: is that too alarmist a position? 439 00:21:01,599 --> 00:21:04,099 Speaker 2: Um, well, it's a tough question, but it's, it's interesting. 440 00:21:04,130 --> 00:21:05,959 Speaker 2: It's good timing because we just put out a report 441 00:21:05,959 --> 00:21:09,050 Speaker 2: on Monday actually a bit, um, talking about the systemic 442 00:21:09,050 --> 00:21:11,439 Speaker 2: risk of private credit and what, what our verdict is, 443 00:21:11,489 --> 00:21:13,430 Speaker 2: is that we don't think it is a systemic risk yet, 444 00:21:13,530 --> 00:21:15,770 Speaker 2: but there's definitely areas that we want to keep an 445 00:21:15,770 --> 00:21:18,609 Speaker 2: eye on for sure. So I think the good news is, 446 00:21:18,930 --> 00:21:20,129 Speaker 2: you know, you mentioned private equity. 447 00:21:20,800 --> 00:21:23,829 Speaker 2: um before and a lot of what's happening so far 448 00:21:24,040 --> 00:21:27,119 Speaker 2: in private credit is in PE style draw down funds, 449 00:21:27,199 --> 00:21:29,399 Speaker 2: so there's no redemption terms there. They're locked in for 450 00:21:29,400 --> 00:21:32,319 Speaker 2: a period of time. Public vehicles like BDCs that are 451 00:21:32,319 --> 00:21:36,000 Speaker 2: publicly traded, there's no redemptions there, or these new open-end 452 00:21:36,000 --> 00:21:38,959 Speaker 2: funds which have redemption caps. So 453 00:21:39,239 --> 00:21:40,729 Speaker 2: The a lot of the open end ones in the 454 00:21:40,729 --> 00:21:43,969 Speaker 2: in the corporate market, in particular the commercial loan market, 455 00:21:44,069 --> 00:21:47,050 Speaker 2: they're capped at 5% a quarter. So we shouldn't see 456 00:21:47,050 --> 00:21:50,050 Speaker 2: widespread need to kind of force sell assets to meet 457 00:21:50,050 --> 00:21:53,170 Speaker 2: any kind of redemption requirements and the BBCs in particular 458 00:21:53,170 --> 00:21:55,250 Speaker 2: that are open end. They have the ability to gate, 459 00:21:55,329 --> 00:21:56,849 Speaker 2: so they could put the gates down if there was 460 00:21:56,849 --> 00:21:58,889 Speaker 2: really a lot of pressure there. So I think that's 461 00:21:58,890 --> 00:22:00,459 Speaker 2: the good news in terms of the structure. 462 00:22:00,753 --> 00:22:03,743 Speaker 2: But there's certainly an evolution that is happening, right? We're 463 00:22:03,743 --> 00:22:05,463 Speaker 2: in the midst of that. So there's going to be 464 00:22:05,463 --> 00:22:08,203 Speaker 2: continued evolution in terms of the structures. You have a 465 00:22:08,203 --> 00:22:11,833 Speaker 2: lot more retail investors, um, that they're focused on. Retail 466 00:22:11,833 --> 00:22:13,942 Speaker 2: investors need the ability to kind of get in and 467 00:22:13,942 --> 00:22:17,042 Speaker 2: out of things. And now you see the asset asset-based finance, 468 00:22:17,103 --> 00:22:19,542 Speaker 2: which is also kind of, um, expanding. And so that 469 00:22:19,542 --> 00:22:22,182 Speaker 2: will be new structures that we don't even know yet, right? So. 470 00:22:22,416 --> 00:22:25,036 Speaker 2: So all of this stuff is, is evolving. There's also 471 00:22:25,036 --> 00:22:29,515 Speaker 2: a lot of interconnectedness now between the big players. So 472 00:22:29,515 --> 00:22:32,875 Speaker 2: Blackstone might be financing a deal that Carlisle is doing 473 00:22:32,875 --> 00:22:35,715 Speaker 2: and vice versa, right? So there is a lot more 474 00:22:35,715 --> 00:22:39,105 Speaker 2: of that. I think within the Blackstone universe, so, for example, 475 00:22:39,135 --> 00:22:41,875 Speaker 2: we get the question sometimes is Blackstone financing its own 476 00:22:41,875 --> 00:22:43,775 Speaker 2: deals and the the 477 00:22:44,229 --> 00:22:47,500 Speaker 2: The answer is a little, so they could be doing 478 00:22:47,500 --> 00:22:49,550 Speaker 2: a little bit of it. It's not that they have none, 479 00:22:49,800 --> 00:22:52,189 Speaker 2: but they would limit it, but they could never control 480 00:22:52,189 --> 00:22:54,550 Speaker 2: a tranche on the dead side, so they couldn't drive 481 00:22:54,550 --> 00:22:57,589 Speaker 2: any kind of restructuring if there was an issue because 482 00:22:57,589 --> 00:22:59,469 Speaker 2: that would be a conflict of interest. So it's always 483 00:22:59,469 --> 00:23:01,510 Speaker 2: below a certain threshold, so they're not doing that. 484 00:23:02,000 --> 00:23:05,270 Speaker 2: The other issue too in terms of interconnectedness is a 485 00:23:05,270 --> 00:23:07,829 Speaker 2: lot of the alt managers, some of them own insurance 486 00:23:07,829 --> 00:23:10,930 Speaker 2: companies out right now. So Apollo owns a theme, KKR 487 00:23:10,930 --> 00:23:14,109 Speaker 2: owns Global Atlantic, for example. Athene has now a lot 488 00:23:14,109 --> 00:23:18,900 Speaker 2: of exposure to private credit assets of that Apollo manages, so. 489 00:23:19,349 --> 00:23:22,438 Speaker 2: You know, the insurance regulators are certainly focused on that, 490 00:23:22,560 --> 00:23:24,640 Speaker 2: you know, are there conflicts of interest there? Is there 491 00:23:24,640 --> 00:23:28,800 Speaker 2: single manager concentration? Are they getting too exposed to illiquid investments? 492 00:23:29,079 --> 00:23:31,119 Speaker 2: So Fitch had put out a report, um not too 493 00:23:31,119 --> 00:23:32,020 Speaker 2: long ago that 494 00:23:32,300 --> 00:23:35,089 Speaker 2: An insurance, a life insurance company that's affiliated with an 495 00:23:35,089 --> 00:23:38,819 Speaker 2: alternative investment manager has 4 times as much level 3 496 00:23:38,819 --> 00:23:41,680 Speaker 2: investments in their portfolio than one that's not. So level 497 00:23:41,680 --> 00:23:44,640 Speaker 2: 3 just means there's no market quote available. It's marked 498 00:23:44,640 --> 00:23:48,040 Speaker 2: to model it's probably more liquid, right? So insurance companies 499 00:23:48,040 --> 00:23:51,359 Speaker 2: definitely looking for exposures there. And then finally the bank 500 00:23:51,359 --> 00:23:54,159 Speaker 2: exposures to the private credit space. So they're providing, you know, 501 00:23:54,280 --> 00:23:56,189 Speaker 2: warehouse lines, maybe finance, uh. 502 00:23:56,750 --> 00:24:02,109 Speaker 2: lines for private equity um funds, um, now facilities for funds, 503 00:24:02,189 --> 00:24:04,920 Speaker 2: things like that. So what are, what are bank exposures? 504 00:24:05,189 --> 00:24:08,938 Speaker 2: And interestingly, in the US, just in the last quarter, the, um, 505 00:24:08,949 --> 00:24:11,609 Speaker 2: in the, in call reports, regulatory call reports, the banks 506 00:24:11,609 --> 00:24:13,969 Speaker 2: had to kind of start breaking out some of their 507 00:24:13,969 --> 00:24:16,790 Speaker 2: disclosures and more granularity. Now it's like 5 lines that 508 00:24:16,790 --> 00:24:18,718 Speaker 2: they have to kind of disclose. We just got a 509 00:24:18,729 --> 00:24:23,219 Speaker 2: a a report on that yesterday, just talking about that exposure, um, 510 00:24:23,229 --> 00:24:25,550 Speaker 2: from banks to private credit intermediaries. So. 511 00:24:26,140 --> 00:24:29,399 Speaker 2: Regulator definitely just looking for more and more information, more 512 00:24:29,400 --> 00:24:31,469 Speaker 2: granularity on what those exposures are. 513 00:24:32,280 --> 00:24:36,550 Speaker 1: Right, so this is definitely a tough question to answer, 514 00:24:36,560 --> 00:24:38,409 Speaker 1: but I, I want to hear your thinking process on it, 515 00:24:38,430 --> 00:24:41,420 Speaker 1: which is on the balance of risk, what would affect 516 00:24:41,420 --> 00:24:44,270 Speaker 1: private credit more, a prolonged period of high interest rates 517 00:24:44,270 --> 00:24:45,550 Speaker 1: or an outright recession? 518 00:24:46,410 --> 00:24:49,079 Speaker 2: Yeah, that's a tough question. Um, I mean, we, we've 519 00:24:49,079 --> 00:24:51,520 Speaker 2: just gone through like a period of higher interest rates, right? 520 00:24:51,560 --> 00:24:54,880 Speaker 2: And I would say it's, but it's been kind of 521 00:24:54,880 --> 00:24:58,319 Speaker 2: with the backdrop of a pretty strong economy, right? So 522 00:24:58,319 --> 00:25:01,430 Speaker 2: as I said before, that rates going up, there's pressure 523 00:25:01,430 --> 00:25:04,310 Speaker 2: on interest coverage ratios, but from a credit perspective, most 524 00:25:04,310 --> 00:25:07,040 Speaker 2: have outperformed our expectations. We still think there's gonna be pressure, 525 00:25:07,119 --> 00:25:08,680 Speaker 2: there's gonna be higher losses as. 526 00:25:09,084 --> 00:25:12,784 Speaker 2: We looked at this, this whole kind of year 2025. Um, 527 00:25:12,805 --> 00:25:15,045 Speaker 2: so I think probably like a recession is something that 528 00:25:15,045 --> 00:25:17,563 Speaker 2: the private credit space really has not dealt with yet, right? 529 00:25:17,665 --> 00:25:19,964 Speaker 2: We haven't really had a true recession since the GFC 530 00:25:19,964 --> 00:25:22,833 Speaker 2: and private credit today is completely different than it was 531 00:25:22,834 --> 00:25:25,885 Speaker 2: in 2007, 2008. So that's a little bit of a 532 00:25:25,885 --> 00:25:27,084 Speaker 2: tougher question. I think. 533 00:25:27,430 --> 00:25:32,160 Speaker 2: Um, a recession, it would be tough certainly because, um, here, 534 00:25:32,359 --> 00:25:35,000 Speaker 2: especially with, with rates going up, you still have strong 535 00:25:35,000 --> 00:25:37,239 Speaker 2: even of growth at the underlying portfolio companies. So that's 536 00:25:37,239 --> 00:25:40,030 Speaker 2: offsetting some of the pressure. If you have a recession, 537 00:25:40,119 --> 00:25:41,800 Speaker 2: even a growth, the revenue growth is not going to 538 00:25:41,800 --> 00:25:44,040 Speaker 2: be there. And so there's just that much more pressure 539 00:25:44,040 --> 00:25:46,479 Speaker 2: on performance and and asset quality and things like that. 540 00:25:46,560 --> 00:25:47,478 Speaker 2: So I would say generally speaking, 541 00:25:47,713 --> 00:25:50,352 Speaker 2: Get a recession would be harder to deal with. But 542 00:25:50,353 --> 00:25:52,671 Speaker 2: hopefully in a recession too, rates are coming down, and 543 00:25:52,672 --> 00:25:55,123 Speaker 2: that helps, you know, mitigate some of that, some of that. 544 00:25:55,152 --> 00:25:58,311 Speaker 2: But it really is gonna depend as any, in any recession, 545 00:25:58,321 --> 00:26:00,873 Speaker 2: you know, what are your exposures to different sectors that 546 00:26:00,873 --> 00:26:03,993 Speaker 2: are more challenged than others, um, and, and how are 547 00:26:03,993 --> 00:26:07,311 Speaker 2: you making through that. Um, so, but it's, it's a 548 00:26:07,311 --> 00:26:07,672 Speaker 2: good question. 549 00:26:07,796 --> 00:26:10,786 Speaker 2: And it's one we haven't seen really play out yet, right. 550 00:26:10,946 --> 00:26:13,026 Speaker 1: But Megan, personally, I will take high interest rates over 551 00:26:13,026 --> 00:26:15,826 Speaker 1: recession any day because I think, you know, because high 552 00:26:15,826 --> 00:26:17,946 Speaker 1: interest is either there because there's high return on capital 553 00:26:17,946 --> 00:26:20,855 Speaker 1: or because there is high inflation, so nominal expansion itself 554 00:26:20,855 --> 00:26:23,865 Speaker 1: has a, you know, like a denominator effect on various 555 00:26:23,865 --> 00:26:27,865 Speaker 1: ratios and even if some people's ICRs are down. 556 00:26:28,449 --> 00:26:30,709 Speaker 1: There is stuff happening on the revenue side, on the 557 00:26:30,959 --> 00:26:33,520 Speaker 1: market side, whereas when there's recession, and I think the 558 00:26:33,520 --> 00:26:38,238 Speaker 1: default risk is likely to rise much more expeditiously than 559 00:26:38,239 --> 00:26:41,188 Speaker 1: it would be in the high risk environment. So I, 560 00:26:41,280 --> 00:26:48,560 Speaker 1: I sort of totally am with you on that that argument. 561 00:26:48,589 --> 00:26:50,000 Speaker 1: I answered it correctly. We have no idea where these 562 00:26:50,000 --> 00:26:52,399 Speaker 1: things are going, um, the, and then of course, you know, 563 00:26:52,439 --> 00:26:55,400 Speaker 1: there's the third scenario which is a staglation scenario. God 564 00:26:55,400 --> 00:26:56,959 Speaker 1: help us, you know, that is something that we have 565 00:26:56,959 --> 00:26:57,589 Speaker 1: to deal with. 566 00:26:58,170 --> 00:27:02,689 Speaker 1: high rates and a recession. Um, so, uh, Megan, we've talked, 567 00:27:02,930 --> 00:27:05,760 Speaker 1: you know, tangentially a couple of times about private equity. 568 00:27:06,250 --> 00:27:09,929 Speaker 1: I've seen some questions raised over the fact that there 569 00:27:09,930 --> 00:27:13,010 Speaker 1: is a degree of circularity between private debt and private equity, 570 00:27:13,050 --> 00:27:16,510 Speaker 1: that there are large alternative asset managers out there who 571 00:27:16,510 --> 00:27:19,089 Speaker 1: have both wings and then they sort of scratch each 572 00:27:19,089 --> 00:27:22,369 Speaker 1: other's back, and that could be a source of sort of, 573 00:27:22,380 --> 00:27:24,770 Speaker 1: you know, unknown if you will, as to what the 574 00:27:24,770 --> 00:27:27,479 Speaker 1: systemic implications could be. You have any view on this? 575 00:27:28,949 --> 00:27:31,179 Speaker 2: Yeah, I mean it's interesting because we call them alternative 576 00:27:31,180 --> 00:27:34,219 Speaker 2: investment managers now they used to be called private equity firms, right? 577 00:27:34,400 --> 00:27:36,780 Speaker 2: They're they're not that anymore because private equity, a lot 578 00:27:36,780 --> 00:27:39,890 Speaker 2: of cases is one of their smaller segments now, so 579 00:27:40,180 --> 00:27:43,099 Speaker 2: it really is private credit um in in real estate 580 00:27:43,099 --> 00:27:44,379 Speaker 2: in for in some cases that. 581 00:27:44,479 --> 00:27:47,229 Speaker 2: That, uh, that have overtaken that. But yeah, I mean, there, 582 00:27:47,310 --> 00:27:50,750 Speaker 2: there is, look, I think all managers, any asset manager 583 00:27:50,750 --> 00:27:54,989 Speaker 2: reputation is key. Assets, their real assets are their people 584 00:27:54,989 --> 00:27:57,140 Speaker 2: and their reputation. And so that's something that they need 585 00:27:57,140 --> 00:28:00,630 Speaker 2: to protect. And so there are a lot of there's 586 00:28:00,630 --> 00:28:02,829 Speaker 2: a lot of focus on how do we manage conflicts 587 00:28:02,829 --> 00:28:05,270 Speaker 2: of interest or even the perception of conflicts of interest. 588 00:28:05,349 --> 00:28:08,310 Speaker 2: So I do think that they are like ultra focussed 589 00:28:08,310 --> 00:28:13,409 Speaker 2: on that. You know, I mentioned before, definitely, there is, um, some. 590 00:28:14,140 --> 00:28:18,550 Speaker 2: You know, internally kind of financing of some deals potentially, um, 591 00:28:18,560 --> 00:28:21,599 Speaker 2: but there is more like pro in terms of like 592 00:28:21,599 --> 00:28:24,599 Speaker 2: a Blackstone financing a Carlisle deal and vice versa. So 593 00:28:24,599 --> 00:28:28,079 Speaker 2: there is it is its own kind of ecosystem in 594 00:28:28,079 --> 00:28:30,079 Speaker 2: a way, right? They're kind of financing their other their 595 00:28:30,079 --> 00:28:32,239 Speaker 2: own deals and it's really the bigger guys that are 596 00:28:32,239 --> 00:28:32,869 Speaker 2: doing it. 597 00:28:33,339 --> 00:28:35,500 Speaker 2: Um, because most, a lot of these private equity deals 598 00:28:35,500 --> 00:28:38,739 Speaker 2: that get done are require very big financing checks, and 599 00:28:38,739 --> 00:28:40,540 Speaker 2: so they need the big guys to be able to 600 00:28:40,540 --> 00:28:43,099 Speaker 2: do that, especially if the syndicated market isn't gonna be 601 00:28:43,099 --> 00:28:45,890 Speaker 2: there for you. So there is a lot of circularity, 602 00:28:45,939 --> 00:28:48,939 Speaker 2: and it's and it's becoming more so with the interconnectedness 603 00:28:48,939 --> 00:28:50,780 Speaker 2: that's growing and it's the big guys get. 604 00:28:50,854 --> 00:28:53,765 Speaker 2: Bigger. Um, and so that is something that, that we're 605 00:28:53,765 --> 00:28:56,484 Speaker 2: certainly focused on. But I think the big guys are 606 00:28:56,484 --> 00:28:59,114 Speaker 2: also very, very much aware and focused on the fact 607 00:28:59,114 --> 00:29:02,685 Speaker 2: that the reputation is, is, you know, the most important 608 00:29:02,685 --> 00:29:04,925 Speaker 2: thing to them. And so I think they do what 609 00:29:04,925 --> 00:29:06,964 Speaker 2: they can to try to avoid, um, any kind of 610 00:29:06,964 --> 00:29:08,364 Speaker 2: perception of conflicts. 611 00:29:09,140 --> 00:29:11,579 Speaker 1: All right, we've done quite a deep dive on the 612 00:29:11,579 --> 00:29:14,900 Speaker 1: risks to private credit. I want to sort of switch 613 00:29:14,900 --> 00:29:18,400 Speaker 1: it to the potential of the promised part of the discussion. 614 00:29:19,209 --> 00:29:20,619 Speaker 1: There was a report from KCR, I think it was 615 00:29:20,619 --> 00:29:22,859 Speaker 1: in Bloomberg. I may have shared this with you when 616 00:29:22,859 --> 00:29:25,810 Speaker 1: we were having a back and forth on our preparation. 617 00:29:26,030 --> 00:29:29,050 Speaker 1: KKR said something that is like an iPhone moment for credit, 618 00:29:29,339 --> 00:29:33,260 Speaker 1: that solutions blending public and private credit, that's what's in 619 00:29:33,260 --> 00:29:36,010 Speaker 1: demand and whether it is AI or green transition. 620 00:29:36,329 --> 00:29:39,189 Speaker 1: The huge fundings that we need, we need both sides 621 00:29:39,189 --> 00:29:42,989 Speaker 1: coming in together and these blended structures are the things 622 00:29:42,989 --> 00:29:45,949 Speaker 1: of the future. Uh, you know, you know, so weigh 623 00:29:45,949 --> 00:29:46,540 Speaker 1: in on that. 624 00:29:47,410 --> 00:29:49,449 Speaker 2: It does feel like it's a moment in the sun, 625 00:29:49,489 --> 00:29:52,369 Speaker 2: for sure. I mean, it's interesting because I mentioned BBCs 626 00:29:52,369 --> 00:29:55,250 Speaker 2: have been around since the 1980s. We've been covering BBCs 627 00:29:55,250 --> 00:29:58,930 Speaker 2: here at Fitch since 2005. I joined in 2006. So 628 00:29:58,930 --> 00:30:01,839 Speaker 2: in some ways I've been kind of waiting around for, for, 629 00:30:02,209 --> 00:30:03,569 Speaker 2: you know, to be able to talk about this a 630 00:30:03,569 --> 00:30:06,459 Speaker 2: little bit more. Um, so in some ways it's great 631 00:30:06,459 --> 00:30:08,250 Speaker 2: because we can't point to the fact that a lot 632 00:30:08,250 --> 00:30:11,040 Speaker 2: of these products have had some history, right? And even, 633 00:30:11,099 --> 00:30:13,569 Speaker 2: even asset-based finance, it's not, it's not a 634 00:30:13,614 --> 00:30:15,885 Speaker 2: New product per se. It's just that it's moving from 635 00:30:15,885 --> 00:30:19,525 Speaker 2: the banking sector into the non-bank sector. But you have 636 00:30:19,525 --> 00:30:22,984 Speaker 2: great credit lines in both places, right? But it really is, 637 00:30:23,125 --> 00:30:26,285 Speaker 2: you know, it is transforming just access to credit in 638 00:30:26,285 --> 00:30:28,885 Speaker 2: a lot of ways and for investors in particular, which 639 00:30:28,885 --> 00:30:32,405 Speaker 2: I think is really the iPhone moment, right? So the 640 00:30:32,405 --> 00:30:35,363 Speaker 2: democratization of credit is a real thing and not just 641 00:30:35,364 --> 00:30:38,834 Speaker 2: a credit, but of private assets in general. So getting people, 642 00:30:39,005 --> 00:30:39,844 Speaker 2: you know, my parents. 643 00:30:40,160 --> 00:30:43,479 Speaker 2: Right, Mom, mom and pops access to these types of 644 00:30:43,479 --> 00:30:46,579 Speaker 2: assets in a way that they can understand and that 645 00:30:46,579 --> 00:30:49,680 Speaker 2: provides them still liquidity the same way that, you know, 646 00:30:50,119 --> 00:30:52,680 Speaker 2: an ETF would for with, with, you know, the stock 647 00:30:52,680 --> 00:30:57,229 Speaker 2: market connection. So it really is this transformational period where, 648 00:30:57,319 --> 00:30:59,959 Speaker 2: you know, we're we're seeing, um, a lot of growth and, 649 00:31:00,000 --> 00:31:01,989 Speaker 2: and I think that there's a long tail to this. 650 00:31:02,000 --> 00:31:04,119 Speaker 2: So I still think we're kind of in early days 651 00:31:04,119 --> 00:31:06,199 Speaker 2: because there's there's still a lot of untapped. 652 00:31:06,324 --> 00:31:09,074 Speaker 2: Opportunities for sure. Um, and you just see it with 653 00:31:09,074 --> 00:31:11,625 Speaker 2: the growth and a lot of these, you know, the, 654 00:31:11,685 --> 00:31:14,094 Speaker 2: the investor days that some of these all managers have 655 00:31:14,094 --> 00:31:16,194 Speaker 2: and the targets that they're putting out in terms of 656 00:31:16,194 --> 00:31:18,844 Speaker 2: doubling AUM kind of in the next 5 years, it's 657 00:31:18,844 --> 00:31:22,194 Speaker 2: really kind of staggering numbers. You, you see AUM and 658 00:31:22,194 --> 00:31:25,074 Speaker 2: some of these all managers over $1 trillion now, which 659 00:31:25,074 --> 00:31:27,604 Speaker 2: used to be just the black rocks, right, on the, 660 00:31:27,635 --> 00:31:30,594 Speaker 2: on the traditional investment manager side of the Fidelities, you know, 661 00:31:30,645 --> 00:31:32,584 Speaker 2: those guys. And now you have. 662 00:31:32,859 --> 00:31:35,089 Speaker 2: You know, these, these uh old managers that are of 663 00:31:35,089 --> 00:31:37,199 Speaker 2: a similar size and they're not going to be alone. 664 00:31:37,329 --> 00:31:39,250 Speaker 2: The other guys are all all growing kind of at 665 00:31:39,250 --> 00:31:41,849 Speaker 2: a similar pace and, and that's gonna continue. So it 666 00:31:41,849 --> 00:31:43,650 Speaker 2: is an exciting time to be part of it, but 667 00:31:43,650 --> 00:31:45,930 Speaker 2: it is a time to make sure, you know, you're 668 00:31:45,930 --> 00:31:48,250 Speaker 2: digging in and really understanding everything that's under. 669 00:31:48,369 --> 00:31:50,760 Speaker 2: The hood, which can be challenging with the lack of 670 00:31:50,760 --> 00:31:53,920 Speaker 2: transparency in certain parts, but we're in a great position 671 00:31:53,920 --> 00:31:55,949 Speaker 2: at Fitch as a rating agency to really be able 672 00:31:55,949 --> 00:31:57,989 Speaker 2: to kind of get in there and dig around, um, 673 00:31:58,069 --> 00:32:00,280 Speaker 2: and have access to the, to the management teams and 674 00:32:00,280 --> 00:32:02,839 Speaker 2: that information to help, help the market kind of digest 675 00:32:02,839 --> 00:32:03,790 Speaker 2: what's going on. 676 00:32:04,319 --> 00:32:07,479 Speaker 1: It's absolutely fascinating. You mentioned mom and pop. Are we 677 00:32:07,479 --> 00:32:10,319 Speaker 1: seeing private credit products manifest at the retail level? 678 00:32:11,199 --> 00:32:14,000 Speaker 2: Definitely, yes. I mean, BDCs are a lot of them 679 00:32:14,000 --> 00:32:17,079 Speaker 2: are publicly traded, so those any anybody can kind of 680 00:32:17,079 --> 00:32:19,119 Speaker 2: buy and sell those on the market, and then the 681 00:32:19,119 --> 00:32:22,920 Speaker 2: perpetual structures um are getting distributed through the warehouses to 682 00:32:22,920 --> 00:32:25,560 Speaker 2: retail investors. I mean, for the most part, they tend 683 00:32:25,560 --> 00:32:26,689 Speaker 2: to be a little bit more focused on. 684 00:32:26,880 --> 00:32:29,640 Speaker 2: High net worth, um, but I think that's gonna continue 685 00:32:29,640 --> 00:32:32,199 Speaker 2: to come down and, and be, you know, a lot 686 00:32:32,199 --> 00:32:34,280 Speaker 2: of people are gonna have eligibility for those and you're 687 00:32:34,280 --> 00:32:38,670 Speaker 2: already seeing it really. So, um, you, you, there's, um, um, 688 00:32:38,680 --> 00:32:41,339 Speaker 2: the announcement from Apollo kind of working with State Street 689 00:32:41,339 --> 00:32:42,319 Speaker 2: about an ETF. 690 00:32:42,849 --> 00:32:44,880 Speaker 2: You know they're looking to get some approval from um 691 00:32:44,880 --> 00:32:47,839 Speaker 2: regulators to launch an ETF that would be backed by 692 00:32:47,839 --> 00:32:51,640 Speaker 2: private assets. So that's an interesting structure would would require 693 00:32:51,640 --> 00:32:53,920 Speaker 2: probably some more liquidity on the back end for some 694 00:32:53,920 --> 00:32:55,920 Speaker 2: of those assets that are backing that up, but I, 695 00:32:55,959 --> 00:32:57,719 Speaker 2: but that's something that a lot of them are are 696 00:32:57,719 --> 00:32:58,119 Speaker 2: pushing it. 697 00:32:58,270 --> 00:33:01,589 Speaker 2: Can there be, you know, a trading platform to provide 698 00:33:01,589 --> 00:33:03,979 Speaker 2: liquidity for some of these private credit assets? And I, 699 00:33:04,030 --> 00:33:06,430 Speaker 2: and I certainly think with the, the minds that are 700 00:33:06,430 --> 00:33:09,510 Speaker 2: behind it, that's gonna be something that continues to, to 701 00:33:09,510 --> 00:33:12,150 Speaker 2: develop and be in focus. So it's a really a 702 00:33:12,150 --> 00:33:13,310 Speaker 2: transformational time. 703 00:33:14,189 --> 00:33:16,670 Speaker 1: ETF was gonna be my last follow-up question, but you 704 00:33:16,670 --> 00:33:19,189 Speaker 1: preempted it, Megan. Well done. Sorry about 705 00:33:19,189 --> 00:33:19,530 Speaker 2: that. 706 00:33:20,390 --> 00:33:22,719 Speaker 1: Hey, uh, thank you so much for your time and insights. 707 00:33:22,790 --> 00:33:24,310 Speaker 1: It was an absolutely fascinating discussion. 708 00:33:25,150 --> 00:33:27,250 Speaker 2: No, thanks for having us. Really appreciate it. 709 00:33:27,739 --> 00:33:30,099 Speaker 1: Great to have you and thanks to our listeners and 710 00:33:30,099 --> 00:33:32,780 Speaker 1: viewers as well. Copy Time was produced by Ken Delbridge 711 00:33:32,780 --> 00:33:36,609 Speaker 1: at Spice Studios. Violet Li and Daisy Sharma provided additional assistance. 712 00:33:36,900 --> 00:33:39,790 Speaker 1: It is for information only and does not represent any 713 00:33:39,790 --> 00:33:43,459 Speaker 1: trade recommendations. All 148 episodes of Copy Time are available 714 00:33:43,459 --> 00:33:47,410 Speaker 1: on YouTube and on all major podcast platforms, including Apple, Google, 715 00:33:47,420 --> 00:33:50,660 Speaker 1: and Spotify. As for our research publications, webinars, and live streams, 716 00:33:50,699 --> 00:33:53,369 Speaker 1: you can find them all by Googling DBS Research Library. 717 00:33:53,670 --> 00:33:54,699 Speaker 1: Have a great day.