Insurance Asset Management roundtable | June 2021
3 months ago
In a world of low rates and periodic lockdowns, what are the prospects for private credit? On the panel discussing are:
Parts of this discussion:
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Yeah. Hello and welcome to asset tv's masterclass with me, Mark Colgate in a world of low rates and periodic lockdowns. What are the prospects for private credit discuss that? I'm joined down the line by ready schwimmer Co head of senior lending at Churchill asset management arm, inclination, head of performing credit at Oak Tree James, keenan Ceo and co head of global credit at Black Rock, alternative investors and Charles de la Sabliere Principal at mercy. Well, those are our panelists. Let's start by finding out a little bit more about them, Charles. Let's come to you first. Could you tell us a little bit about your role at Mercer and as you're out there talking with clients, what are some key topics that you're discussing with them when it comes to private credit? Absolutely, that's Mark. And uh, so at Mercer really works with clients across the spectrum of private market. So private equity, private debt, infrastructure and real estate helping those clients um ramp up their allegations in that space with, you know, the potential challenges and opportunities that presents within that context. But death has been very big area of expansion. We've seen interest, both from investors who traditionally were, may be allocated to private equity, but then they're looking for something slightly lower down the spectrum and very familiar with private debt because it's, it's links to the sponsored end of the business. On the other hand, we're seeing a lot of new investors who maybe haven't invested at all in private markets. And we're actually, private debt makes a lot of sense because it's, you know, lower end on the, on the, on the depth of risk return spectrum also has a quicker payback cycle, um, and maybe has more similarities of what they used to dealing with on the, on the, on the, on the liquid end of the spectrum. So definitely with private debt has been one of the fast growing areas in um in private markets. Thank you James, uh C. I. O. And Co. Head of global Credit A Blackrock alternatives. How much of your time is spent thinking about private credit? What are some of the key changes that you've seen developing in that market? I think Charles touch on this too, It's really just been an evolution. I mean this is a marketplace that I would say used to be dominated by the banking system just from a lending perspective. And as credit has continued to grow and evolve, you've seen the demands from our clients who are just looking for that type of risk, right? That risk return that is attractive as a composition of their aggregate portfolios. But all of our other clients, whether it's sponsors or corporate, are just looking for a variety of different solutions to finance their balance sheet and it's a general extension off of our business. And so I think you've really seen this evolved into kind of more of a holistic market and the ability for the lenders and borrowers has really grown in. That marketplace is fairly competitive right now. And uh but that being said, there's a lot of opportunities and we see this from the opportunities that for our clients to invest in is only continuing to grow and providing good solutions for sponsors and corporate to figure out how to finance their businesses. Thank you. I'm in private credit. It covers a pretty broad waterfront. Which particular part of the market are you interested in? A tree? Yeah. I mean at oak tree um we we do provide loans to sponsor back cos uh we also specialize in non sponsor or more bespoke financings in those situations that are not uh easily underwritten, using more traditional cash flow based underwriting methodologies. These might include loans to troubled companies, loans to companies who are experiencing significant growth but are zero or negative in terms of cash flow. And um so we spend a lot of time on the non sponsor area and agree that the the attractiveness of private credit overall um is overwhelming or compelling. Um And there has been a significant amount of growth as a result in assets under management in the private credit space. Overall, they hear randy to Churchill, which part of the market are you focused on? Is is this a similar area to Oak Tree or a little bit different? Um Well, unlike our arm and we focus really on the sponsored space. So Churchill is the private capital affiliate, if you will, of Nuveen Levin is a global asset manager with I think depending on where the dow is today, 1.3 trillion or so of assets under management, Churchill is about 32 billion. So it seems like a big number unless you look at it relative to a trillion. But our focus a little bit like Charles and Jim is on the sponsored side of the equation, both for issuers and for investors. So Jim said, you know, there is that interest, that keen interest by investors for yield, but there's also an equal and um, I think probably even more enthusiastic interest on behalf of issuers to tap the markets, particularly private equity sponsors, who have a tremendous amount of dry powder, You know, depending on who you ask anywhere from 500 billion to a trillion dollars of, of unused committed capital to put into deals. Um, and they're a little behind the eight ball because last year was a bit of a chappie year. So they're out aggressively spending were there to help them. They wanted to start by picking up on that James. The mood of the market seems to be pretty optimistic around private credit. Um I think one point goldman's saying they thought the US economy is going to go 7% this year. There's as uh as Randy's mentioned, there's huge amounts of money out there stacking up. Is it right to be optimistic or should investors be a little more cautious at this stage? So I think you should certainly be optimistic. I mean if you just touch on the economy in the short term, we're still, we have a significant amount of tail winds just based off obviously the vaccines that have allowed for the restart of the global economy but add on the significant amount of both monetary and fiscal stimulus and the U. S. Alone. This into roughly about 20% of GDP from a stimulus standpoint. So that was really to bridge the economy. But you know, the impact of what that has had is it's really continue to improve the consumer de leverage the consumer. Uh it's allowed for Corporates to have a significant amount of capacity to invest in the future. And so those tail winds I think are going to continue to lead the market and you still have to deal with the bottleneck. So I think you'll continue to see the sport and those bottlenecks are are largely driven by the supply chain. The global supply chain. As you've seen, the evolution of the vaccines of the deployment of the vaccines. That rollout is varied by country but also the labor markets are going to take a bit of time to come back and all of that is that allows for the supply demand picture to have some significant amount of tailings. I do think that you will see that environment Continue to grow into 2,024 and that's a very healthy environmental corporate earnings, I think post that you'll probably have to deal with some fiscal drag. And so I think the question from, from a client perspective, and you think about that balance of the portfolio of liquid versus uh illiquid, is that liquid market? You can capture that. Yeah, the volatility of dispersion as an alpha stream. The private market, you're looking a bit more long dated and Charles Touch on this private credit is more short dated than uh, with an average life would call 3-4 years relative to private equity. But at the same time, you know, that that is a very healthy corporate backdrop in a world that hasn't uh, there there's really the fixed income assets globally from cash out into, you know, 30 years of treasury curves or japanese yen. All of that is really is about $18 trillion of negative yielding fixed income. So the ability to get 678% from quality first lien lending or as our men talked about dealing with companies that are bridging some form of complexity or transition of the business um as very attractive as a price point or risk point relative to the equity markets today. Okay, Thanks. I think there's a lot, there's a lot in there James. I'd like to unpack a lot of that in a bit more detail as we get through today's session. But I mean one thing we talked about the economic rebound in the round that's raised a few fears among some people about inflation. If inflation one, do you think inflation is like to pick up significantly? Not just in the short term, and if it does, what sort of impact does that have roundly speaking on on private creditors as an asset class? It's a great question mark. It's it's a hard one to answer with any sort of certainty, but we certainly are seeing inflation in the markets today. It's a combination of supply chain disruptions as well as some increase in demand as a result of government stimulus um in the longer I think inflation can become systemic if it makes its way into the labor markets, but the data would suggest that it's not happening just yet. Um and it is frankly unlikely that uh the markets or economies within the US at least that are experiencing the most labor cost inflation of service oriented businesses, uh in hospitality and restaurants, higher wage earning jobs are not seeing that type of inflationary or wage inflationary impact. And therefore I I just don't. I think this might be a little bit of an inflationary bubble that's transitory in nature rather than sustained. Obviously, my esteem panels may have different or somewhat similar views as it pertains to inflation is just a very hard measure to predict. But if we do see inflation that we should expect an increase in rates which will impact borrowers in the cost of their in the cost of their debt. It may also impact those borrowers that have challenges and passing through the cost increases to their customers. So those borrowers that are in very competitive industries and are unable to pass through cost increases may have a tough time with both borrowing costs going up as well as their profitability before interest expense decline. Thank you. And really, just in terms of where we are in the private credit cycle at the moment, I mean, we've just fingers crossed coming out of uh lockdowns in this extraordinary period of economic dislocation. We've certainly had periods of economic dislocation before 2000, Um how did private credit due in coming out of previous crises? And do you think this will be a pattern that repeats? Well, it actually, if you think about what happened post GFC, it was really that was where private credit really began, because the thing Charles mentioned at the top, you know, this is where the banks uh kind of stumbled because they weren't able to hold leveraged loans from a regulatory perspective. Plus, the banks were consolidating over that period. And so Direct lenders kind of started up. I mean, we were, we at church will start up in 2006 a little bit before recession, but we saw we saw what was coming And others did as, as the last decade kind of progress and people started raising funds for private credit. And you started to see the the universe of private credit and private debt kind of growing between say that 2009 period and just prior to Covid, and when the crisis hit last March, there are a number of us who kind of expected, there was gonna be some sort of downturn. It was in a lot of the media in terms of what ending are we in in this recovery? Are we in the 8th and 9th inning? If you follow baseball cricket, it's probably another, it's probably another metaphor, but the idea was kind of late in the game. And sure enough, we had a recession, but it lasted about three minutes. Uh and the bounce back in the after the, I guess it was 30% down in GDP and then back up 30%. Uh didn't last very long. And so what happened was you had this very compressed cycle uh and a rebound that that came back swiftly. And so private credit actually healed uh super fast. And what happened was people started doing deals in the second half of last year, we had our biggest quarter ever in the fourth quarter. Um And that continues today. I think what what we talked about in the beginning when people are looking at now is kind of a coast is clear mentality vaccines are pretty much out. There seems to be, I mean variance, everybody's a little worried about that. But the vaccine seems if you actually do get vaccinated, it will help with the, with the variants. And so the economy seems to be doing well, unemployment has come down or at least people seem to be more comfortable about job availability out there and if anything, as we mentioned with inflation, you have pressures with regard to, are there enough people around to get the stuff goods moving and things done? So it seems like from a credit perspective we're in a very good cycle at the beginning of kind of a boom. Um, and then the question is where in the rate cycle we can tackle that with the panel. Um, uh, if you want to, but that's a whole, another question. Thank you. And jules is uh, somebody who's sifting all of those private credit managers and working. I'm always taking them on trust, thinking about what clients want as well. What's, what's your feeling about how attractive it looks at this point? Is it attractive on an absolute basis on, on a relative to other asset classes? What are your thoughts? I think we, we touched jim touched on this on some of the earlier part, I think definitely the backdrop to the interest for private debt has been the additional spread it can generate over where you can achieve the liquid markets and that's been the primary driver of the flows that we've seen in the asset class. Um, there are other significant advantages. So for example, the fact that, you know, managers don't really have an explicit benchmark, like they wouldn't liquid markets, it can be very selective on the type of deals, the types of industries that they decided to include in the portfolio. Um, and also the fact that if you look at historically recovery rates and beef operates have been significantly better than what you could expect through through liquid markets. So I think all those, the drivers haven't fundamentally changed from that perspective. What we saw during Covid, He was a few things we saw. You know, initially the market shift from being being a Boris market to being heavily in favor of lenders, where lenders could really negotiate very favorable terms for for the equivalent loans to where they were looking at pre covid, I'm sure the panelists will, will provide some details on that. We've seen a bit that we've seen that come come in slightly since, since then, since the middle of the crisis, but I think we're probably still in favor of lenders from that perspective. Um and then fundamentally, I don't think it's changed many of the um progressive shifts that we've seen pre Covid. So if you think of the general trend of, you know, people including more private markets in their portfolios, private debt, becoming more of a core position within the fixed income, uh space for clients. I think that's effectively like many trends that we've seen that were existing pre covid, it's effectively just been slightly accelerated. So from that perspective it hasn't been a huge change. If anything, it's been probably an accelerator to what we see in the past. Yeah. Mm. Thank you. But that, that did actually raise the question I did want to ask all of you and Charles to. We'll take that as your answer. The question I've yet to ask, which is, you know, to what extent has locked down been transformational for private credit as a sector um, randy, what's, what's your take on it? Is it Uh if it's actually accelerate, how many, how many years did uh did the industry accelerate in the course of 2020? That's a good question because we're still in it in a way, we're still evolving. I mean, one of my friends said it was very easy to get people to get, get out of work and stopped coming to work last March. It's a lot more challenging to get them to come back. And I think therein lies the dilemma that we have in businesses generally. I mean, it's not just bankers And, and finance people getting back to work. It's, you know, there's an article in the journal today about trying to get restaurant workers back to work. You know, they're basically saying, I'm done with the sector and that's kind of what we saw over the last 16 months as you have haves and have nots, you have businesses and sectors that did find these are business to business, distribution companies, specialty manufacturing, obviously, delivery of goods to homes Really did well over the last 16 months. Uh, you know, restaurants, retail, bowling, at least, things like that. Not so not so well. And so I think you had this bifurcation of businesses which has sorted out a little bit more as I think the path becomes clear, but it's not entirely certain which of these businesses will be transformed completely and which will not business travel. I mean to be interesting to pull the panelists to see who's going to be traveling, jumping on planes and doing the kind of travel that we used to do pre covid when zoom calls like this are so much easier and more efficient. Well, I'll come to that well. In that case I'll give you give you all of the fund manager on the panel, a bit of a what if if an airline wanted some some financing, would you look at it and say, yeah, we could, you know, we can bridge it to the new world that you know, or we can bridge it because the world will go back to normal at some point. Or would you say, my God, that's yesterday's industry. I'm I'm not touching that with a barge pulp randy. What would be some of the calculations you think about that would definitely be taking a flyer, so to speak right now because the airlines have adapted amazingly. I mean they've actually shrunk the number of flights. Um You go on the flight now Chicago couple weeks ago and flights were packed. But if there's fewer planes obviously and schedule different, um we were typically not lenders to more cyclical businesses. We tend to be more defensive in nature. So I'd have to say it would be tough for us to to lend to airlines per se right now. Okay, thank you. And what about What about you? And if if not airlines, could you give us give us a couple of war stories from, you know, how you've been getting involved in the market in the course of particularly 20, Sure. So we we will look at almost any industry. Um We do factor in SD considerations obviously that within our underwriting that heightened the bar for certain industries to become um um eligible for our portfolios. But we have looked at airlines, we have looked at cruise lines, we have looked at those industries that have been most impacted by covid at the end of the day, it's really the valuation that will govern. We want to make sure that our dollars that are advanced against these businesses are well covered by the hard assets as well as our enterprise value. We do want to We do have to believe that they are going concern uh and in an industry that deserves to exist in the long run, we focus very much on the cash flow profile of these businesses, making sure that they have a liquidity to withstand several years of disruption rather than six months or 12 months or 18 months. And if they are able to withstand that prolonged level of disruption of their businesses, and we do believe that they deserve to exist. And if we can craft legal protections around our loans that are that are tight and really defensive in nature, such that our downside is fairly limited, then we will consider alone to some of those industries going through periods of stress, stress and oak tree just as an institution and its history is very deeply rooted in stress distress or opportunistic investing, both public and private. Um, and so we, you know, we've made, uh, we kind of built our business overall around providing uh, solutions to complex situations and what we've seen during covid is not okay James. How about you? What thoughts around? And you know, I'll see other thoughts on airlines, but we've all mentioned this extraordinary period of economic dislocation. We're not quite sure how it ends. How many years out are you prepared to to wait for normality? However, that however you define that to return? Yeah, I agree with our men here on this. I think, you know, every business is going to be different than normal as you come out of this is kind of vary in different businesses going to operate differently, consumers are going to interact with certain companies or industries or products in a different way. Um and I would say when you think about pricing those instruments, there is a bit of complexity. Right? And so the private credit markets do evolve from, you know, kind of very safe, non cyclical oriented businesses with L. T. V. S. Uh, that still offer a nice premium relative to the world, a syndicated loan market. But you can still evolve into that level of complexity whether you're talking about forecasting out, uh, the cash flows on assets of the airline industry, certain regions that have a different complexity when it comes to their bankruptcy codes, uh, and evolving credit markets. So all of that is generally evolving. And I think what you touch on here, Airlines, we've looked at airlines and, and think there are opportunities. We do think the aviation industry is going to be different um today, 24 months, 36 months. Um, and you know, that will impact the capacity, how much these airlines are paying on for new fleets, the types of price points that they're able to sell within, uh, you know, as a randy touch them. Maybe it's not the business traveler, but maybe the filling seats with regards to, uh, more of the consumer, retail and all of that, just going to leave a level of cash flow and I get to the point of arm. And is that if you're comfortable and you can forecast that out with the level of conservatives and you have the right structure and pricing, it can provide a nice level of return relative to other assets, Charles has you've been talking to, to private credit managers? I guess there's two things, there's partly what opportunities they see coming up, but there's also what state is the private credit manager themselves in? Because presumably in 2020 there was a, they will have a lot of work to do to go go back to all the people they lent money to. So As you're looking at committing client capital to private credit managers today, how much of your time is working out who had a good 2020 and whether they frankly got the bandwidth to look ahead? It's, it's a very good question. I think you're right. What happened initially is that a lot of the managers shifted to, you know, really reassessing every single loan they had net portfolio classifying, um, uh, kind of a traffic light system, which ones they should spend more time on, which ones we're, you know, comfortable, etcetera. So I think that, that was definitely the same reaction we saw across all the different managers. Um, you know, going forward, I think that's definitely changed and we're more in the back to normal is uh James mentioned earlier. Um in terms of, you know what we can can see going forward, I'd say probably it's you know, similar, similar type of things that we always go in the past really. The don't get any issues in terms of headcount or teams going forward. I think that's we're basically back to the did he did all normal and I suppose implicitly a lot of the conversation we've had so far has been looking at the U. S. Uh markets. But as you look more more globally, do you think the best opportunities are in the States Asia, europe? What are your thoughts that hey, I think you gotta look globally for opportunities? And I think they vary. I mean every country's in a different part of their economic cycle policy was going on in china right now is different than what we see in the U. S. And europe. And that being said, industries and companies are in the evolution of that cycle. The markets in the U. S. And north America and europe are deeper today, certainly in the private credit markets than you see in uh in the Asia or latin America regions. But that being said, I think there are growing opportunities and we touched on this before, as you said that you can get different risk for just returns or different risk points. As you see different levels of complexity and you know, we talked about the airline industry, but as you go into some of these other markets that are not as deep the financing um uh competition is not as deep. There are opportunities for the finance businesses in the same fashion that we see here in the US. Meaning there are companies that are seeking capital to grow their businesses and accelerate, um, their own business plans, whether that's for m and A activity or just uh, spending Capex. And we see a lot of that opportunity in the Asia back region as well. Um, and then you have other things evolutions in places like India that have changed their bankruptcy regime a few years ago. Uh and you know, when you look at some of the markets there, uh, the evolution of what's going on in real estate and the non bank finance corporations and the different forms of capital. There's, there's just a variety of opportunities. And at the end of the day, it comes back to a Charles touched on in the beginning, is if a client is looking to look at the long term liabilities and figuring out how to achieve those water, the assets that are available globally in order to help and fit within your aggregate structure and the global property credit markets, You know, from pure direct lending at that kind of 5-7% all the way to 15% plus are available. Uh and I think those are just things that clients should look globally to find out solutions for their own funds. Another thing I just want to pick up on it is what is the typical size of a deal in this market? And is it is it getting bigger or is it getting, are there more and smaller deals? There's all these complex individual needs of companies come up On the sponsors side. I think there's a very wide range, I think you see deals as small as $50 million dollars for a borrower uh to as large as what would compete with a broadly syndicated and provided by banks. There are several managers out there that provide very large solutions to leverage buyout sponsors in the hundreds of millions. And it's not billions at this point with the evolution of what's happened with the direct lending or private credit market On the non sponsor side. Again, it's a pretty wide range, it depends on what the particular needs are that of those borrowers. In 2020, there were several very large borrowers, multibillion dollar companies looking for financing and the upper hundreds of millions, or even in the low billions. Um And these were some of the most challenged sectors um looking for rescue loans or debtor in possession financing uh um in in more growth oriented direct lending, the loans could be as small as 20 or 30 million in the venture lending area, uh That is uh a very specialized part of the lending environment or the lending market. But as but even businesses that are larger than venture-backed companies, uh find themselves needing anywhere between 50 and $200 million dollars in growth oriented finance. So these businesses tend to have some level of revenues but are hitting an inflection point in their life cycles where they need some incremental finance to commercialize certain products that are in development stages in their product. Okay, thank you. And just a final thought on this, uh this topic, if if an investor said it sounds, it all sounds great, there's a huge amount of special is um and paperwork involved, it's not necessarily that liquid, It sounds quite buy and hold them. I'd rather just stick with high yield. Do they have a point or they miss it? Or are they missing the whole point of what private credit has to offer? Well, the challenge with high yield it is, it isn't so high yielding anymore. And, um, you know, we're seeing, I don't know, interest rates, they're kind of 4%, maybe. So direct lenders such as ourselves are basically offering, call it 7% on livered yields with structures that are fully secured, top of the capital structure where you have plenty of, uh, cash equity below you in buyouts. So from a risk of turn perspective, I think our investors and certainly firms that we have talked to over the last several years have found private credit to be a very attractive alternative. And frankly, a nice compliment to the liquid credit markets. You know, it's not an either or it's really, you know, having both. So that in periods where you might think high yield could do well, I mean, again remember high yield is typically the, the most risky part of the credit spectrum. Uh And so, you know, and also where the interest rate, where rates are going, you know, floating rate can be attractive as part of an overall diversified portfolio. And that's the reason that for example, our parent company devote so much of its capital to, you know, are kind of assets, which is they like the fact it's going right. They like the fact that secure top of the capital structure, low risk and less correlated frankly. Um You know, there was a lot of concern last year, people in general moving away from the more correlated um, assets, particularly as people thought that interest rates were going to go up. And that's what I say, a topic that we can talk about. That hasn't happened yet. But um, to extend it, does floating rate is a good thing to have. I wouldn't be wanted a final third of the program and Charles come to you on this first. I think you referenced it earlier is the amount of money that's out there. And whether that puts the power in the hands of the lenders or borrowers now, I think you said you felt it was probably still tilting towards the lenders at the moment. But do you, do you see that situation reversing as people become, get themselves under pressure to commit that capital? Um That's possible. I think it's probably hard to to really predict what is certain is that even within private debt, like in all the different private markets is going to be a huge variety of um managers with different capabilities in terms of access dealmaking etcetera. So uh and dispersion of returns like any other private markets is very important to. So it might be that some managers have a harder time accessing some of those deals, whereas others have built the networks to enable to do that. So I think it's hard to really generalize across the market. I think it'll depend on managers. The advantage that a lot of managers have is that, um, we see, you know, private debt is an area that's very segmented with lots of different sub strategies and so more and more. We're seeing manager's uh specialized and have areas where there are experts in terms of sourcing and creating deals. So I think that's gonna create a capacity for for deal flow from an investor perspective. Um You know, it is, it is always it's harder to really due diligence. Uh These managers for a number of reasons. The first point is that they tend to be maybe, you know, first of all the track records tend to be slightly more concentrated, so a lower number of investments that you've seen in the liquid markets, um, but also you might have a manager that has a very strong track record because they've been taking on additional risk where, you know, in the long term, that might not be the best strategy. So I think of the private markets, it may be one of the areas where deciphering the track records and the, the past performance maybe needs to really be done with great care, but we see a lot of great opportunities going forward in the space. Well, Brennan, just taking that idea on then, what, what do you do to stay disciplined, self disciplined? What will you do and what won't you do for the money, I suppose is ultimately the ultimately question we all have to ask ourselves, we were thinking that, you know, in 2018 2019 when, uh, there was really risk was kind of out the window, nobody really thought that there was anything to worry about. Um, and we were, we were disciplined, as I mentioned coming out of the great recession, we had sort of, things were going to do and not do when we stayed away from Sequels, we stay in late, away from covenant life, we stayed away from high leverage And we were losing some business in that 2018, period. We thought, you know what, you know, this is why we've been successful. We were successful coming through the Great Recession, let's just stick to our knitting. And you know, we did really well last year, we had no defaults, no losses in a portfolio of $6 billion 200 portfolio companies. So I think it all worked out for us. And so we came out, I think this is Charles Point earlier, we came out with a head of steam compared to other managers because we had basically nobody was, um, in our portfolio was hurting. And so we were able to lend as much money as we wanted to is why the fourth quarter was so strong. And I think that, um, you know, now the opportunity is to really continue to grow and as we mentioned, the ability to write larger checks and be more competitive in this market. Uh, now that we know where things are headed is a real positive, particularly with sponsors. Is there not a certain amount of pressure to sort of say, well, you know, there's some great deals in here and there's some average and one or two sort of real turkeys. But you know, if you're gonna have the relationship with us, you got to take all of it, you know, and we've all got a lot of money to get through the system. I mean, how does that happen? How do you handle those kind of issues? We're actually blessed in one way and that the sponsors that we do business with on the credit side are actually funds that we invest in. So we're actually a client that there were a limited partner in their funds. And so um they actually treat us like the client rather than the other way around, which is kind of a unique advantage. Um So we can kind of be very selective without and then say no to your point, we can say no to something we don't like and sponsor Kent dislike us because we're investing in their next fun. Um and you know, I think our selectivity is something like, well we turn away 93 or 94 deals out of 100 which means we're basically only doing four or five deals out of that 100 which means you got to work hard to get more deals. But the advantage of that is that this goes to the point the panel has been making, you know, when investors are looking for yield, they're also looking for low losses because credit, unlike equity, there's, there's no real upside in terms of equity improvement growth and so forth that the company is really well, we get paid back. If the company does okay, we get paid back. So that's 7% yield is really the alpha is no losses. So having no losses in your portfolio is really the key to keeping those um those investors happy, which is the key to success in life I think. And James, we're talking there about that sort of roughly seven return that you can expect from from private debt. But given how, given the backdrop and how in the round, optimistic people are feeling, what's what's your thought about adding leverage into that to enhance returns? Is that is that a good idea at this point or something to be a little bit wary of? So it depends really what the client is looking for. And I think this is really an asset allocation question for a client and where they're scheming. So if you're looking to invest in a certain asset and a certain risk from, you know, obviously they're adding risk into that investment when they have leverage on to it. You have to look at that vis a vis all their other assets and how that fits in. So, uh, my own view with regard to the backdrop that we talked about here is that very constructive with regard to the macroeconomic backdrop and what that equates you from an earnings perspective and the quality of credit that you can get. And so what you are seeing is is fairly low volatility um from a credit perspective. Uh LTD dispersion at this point, which I think will changes as the economic backdrop changes. Um and so I do think if you could add leverage into that Visa structured credit or through other forms of leverage, it can create a very attractive asset class that competes relative to the equity market. So I like that backdrop. But again, I think it's really important in any one of these vehicles when the client thinks about private creditors, what is the outcome that they are looking for and the risk that they are taking. So we've talked about pure direct lending was sponsor backed M and a activity all the way through bridge financing and complexity with regards to growth or restructurings and turnarounds. Those are varied risk when it comes to either financial leverage, operational leverage, jurisdictional risk. Um And those can vary and I just think it's important two for clients to understand what they're investing in and what that experience and risk might be on the outcomes. Thank you for this. Uh you mentioned earlier that non sponsor is quite an important area for you at Oak Tree. Um Does that create a lot more paperwork and time to get a deal done? And if so, is there is there a danger you're missing out? You know, whilst being a perfectionist, you're missing out on a lot of opportunity. Could you give us an example of that? Perhaps also you mentioned the importance of the growth of looking some of these growth businesses. So so perhaps you could use that for us as a worked example. Yeah, I mean, so we invest in both sponsor and mon sponsors. So I could get compared to on the sponsor side. It's usually a private equity firm that's already done a bit of work and has already won a bit for a company where is or is at the finish line with maybe two or three competitors. And so there is a more um a defined set of documents and information that's already been assembled relating to that company. That could be um, that could be used for the underwriting by the direct lender. Um, and therefore usually the documentation, the due diligence is a little bit of a shorter time frame on the sponsors type because the deals are pretty well buttoned up with other counter parties prior to direct lenders getting involved. Oftentimes. So, you know, you could, you could see a sponsor back direct loan, get get done between four and eight weeks from the time that it enters the door of an investment manager. On the non sponsor side is very bespoke. There isn't a data room per se that that has all the information and the quality of earnings reports audits um that that usually you would see in the case of a sponsor deal. Um and therefore that information needs to be put together, the lender needs to get comfortable with that information. The situations are always bespoke. A growth business is uh is suffering from or in need of a different type of financing solution vs. A. Vs. A troubled company and therefore understanding the needs of those borrowers is a critical component to winning that deal or crafting a solution that makes sense and is well protected on the down side. And it is compensated appropriately on the upside as a result of that between the diligence and restructuring on the legal side, Those types of deals could take 6-6 weeks to three or four months. Um, and yes, it certainly is more involved and it can, it can be a drain on resources internally in terms of our analyst staff because it takes them away from from doing other deals, especially if we have a large slate of, of sponsor deals to consider as well. But we find that if we are successful at sourcing underwriting and structuring these non sponsor deals, we get usually more intensive legal protections and we usually get a few 100 basis points higher in terms of our economic, our economic payments or interest payments associated with those loans. Thank you. Now, we are almost out of time. There's so much more we can chat about, but I'm afraid that the clock has pretty much, uh, to, to the end for us. So I want to end by getting a final thought from each of you just out of everything we've talked about. If there was just one key point you want to leave us with, what would it be? Let's say that that's kind of our fund managers first up randi, I think stick to your knitting really Mark, you know, don't change strategies because, you know, others are doing something different. You know, Armand sounds like he's got that non sponsored thing down. That's great. You know, and you know, we're not gonna try to do something that he's, he and his firm is obviously spent long time perfecting. We're going to just stick to our knitting and doing sponsored deals. Um, that gives investors a choice, right. You know, if you want to do non sponsored, you've got somebody who does that really well and sponsored, um, and so forth. So I think sticking to your knitting and doing what you do best. Um, you know, because that will allow you to invest through all cycles, which is really from an investor's perspective. What they want to hear. Thank you James Kinne, maybe touch a little bit of what Charles said is that, you know, we used to call it alternatives. But I think this is more of a core market now and I think, you know, when clients look at about their long term goals that they're trying to achieve. You know, the, the private credit markets are evolving and growing market and it's really offer a lot of complimentary risk and return relative to what you can get in the public markets. And so, you know, looking through and I would say, you know, the broad private credit and private debt markets, um, for alternatives to what you're investing, your core fixed income asset classes is an attractive price point with a good backdrop right now. Thank you Armand. Yeah, I think I would echo what Randy said, which is sticking to your meeting is an important, uh, an important element to remember in this market. The competitiveness of the direct lending market is, is at all time highs. Um, and it's easy to get sort of lulled to sleep and everything will be just fine. And you could kind of extend yourself on the wrist spectrum to areas where you hadn't before. Um, and so I think that that's, that presents a danger to clients. And so the market is large enough and diverse enough to be able to continue to do a lot of business. Um, and and extending oneself to uncomfortable areas is probably the biggest risk that I would, I would highlight right now. Thank you and Charles a final thought from you, you've, you've heard our, from our three asset managers, what was your key takeaway? I think that it's actually quite, quite well summarized today. Really, the key point is there's a huge diversity of strategies available in private debt, whatever the risk return objectives of clients, whatever their objectives in terms of um, you know, cash flow versus capital gains etcetera, there's going to be a strategy within that universe that fits nicely or a couple of strategies that fits nicely their their objectives. So, um, we're going to leave you with that key point that there is a huge diversity of things available even within this, this asset class, we have to leave it there. Thank you for watching. Just remind me to thank our fantastic panelists, randy schwimmer, Armin, promotion, James, keenan and Charles de Lozada here from all of us here. Thank you for watching and goodbye for now.