Blackstone's Michael Zawadzki on How Private Credit Got so Big

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I'm Tracy Alloway and I'm Joe wasn't all Joe I keep thinking about that Sam Altman hype cycle kind of phrase the whole It's over and then we're so back thing and obviously he was talking about AI and how people you know feel about AI But I think you could apply it to a bunch of different markets at the moment So AI obviously but also private credit totally think back to the end of last year, right? We had all the JP Morgan Jamie Dimons proverbial cockroaches emerging from private credit and people started to get really worried Fast forward to January, 2026 and a lot of those concerns seem to have faded into the background, right? You wrote that thing right like spreads everywhere are super tight and already we know that the the stock market is up for the year But credit markets off to a very strong start of all flavors from what I understand Right stock markets stealing all the spotlight, but if you look at the corporate bond market now This is the public bond market not private but spreads are you know at basically historic tights I think the the high yield index is starting at its like tightest level ever in the history of the index for the year This is crazy But it also highlights an important point which is that spreads and returns are all relative. Yeah, right? And so if the public market is absolutely booming That could be a good thing for private credit, but also private credit competes with the public market, right? So if you're getting Pretty good returns in public credit or leverage loans something like that Maybe you're not going into private credit as much as you used to What if you found a house that just had one cockroach that would be could you imagine? There's never one cockroach. That's the point There had to have been a first cockroach that enters the house You get it really quickly in your and then you don't have a cockroach problem Did I ever tell you I hate cockroaches so much The first of all the first Japanese word I ever re-learned when I moved back to Japan as like a 14-year-old Was goki-bori hoi-hoi Because I had to go down to the local company the convenience store And buy cockroach hotels because the entire apartment was infested And secondly I hate cockroaches so much. I once read an entire book About cockroaches just to know my enemy. Wow. It was like 300 pages on cockroach Should we get their author on the podcast? Oh, it was actually a really good book. It was a sort of like cultural and scientific study of the history of cockroaches But anyway, we are getting massively off topic Shall I introduce our guest we do in fact have the perfect guest All right, so we're going to be talking all things private credit Including how private credit is relating to the AI space at the moment We're speaking with Michael Zowatsky also known as Z He is the global chief investment officer for Blackstone credit and insurance So Z, thank you so much for coming on the podcast Wonderful to be here. Thanks for having me So I am told by your lovely Blackstone representatives The over the last 20 years you have grown Blackstones credit franchise Into the largest business by assets at Blackstone How hard was that? Were you just sort of like riding a wave of corporate issuance? Well, let's talk about a few things that have happened here Great You know, I often get asked about this growth of private credit And I think there's a misconception that that growth was driven by excess risk taking But when you actually step back and think about what's happened in the market You basically had a innovative breakthrough That changed the way business was done That was better for all market participants The way I like to analogize it too is what happened with Amazon in the retail space Right? Before Amazon if you want to go buy something you had to go to the store But Amazon kind of took out that middle man And brought you the consumer directly to the manufacturer And in the process created something that was simpler More efficient, better for the economy, more transparent What's private credit done? It's done the same thing It's brought the borrower right up directly to our investors' capital We sometimes call it this farm-to-table model Right? What have you done in that process? You've cut out all the middlemen All the syndication, all the trading desks All the stuff that led to leakage along the way And in the process you built something that was better for all market participants If you're a borrower you get to speak directly to your lender You get to customize solution You get speed, certainty of execution If you're an investor you capture all of that excess leakage And the form of higher returns And that's been the case for the last 20 years And by the way if you're the financial markets You have an ecosystem that is less levered More asset liability management Brings more financial stability to the overall ecosystem When you have something that's really good for all market participants It tends to grow a lot And that's what's happened in private credit What is the equivalent of like in this analogy which I really like What is the equivalent of the web, right? So the reason Amazon could cut out the physical bookstore Or the various other retailers etc Because the internet exists and that creates all some information problems etc How is your describe the sort of like The thing that exists now such that So many different middlemen and so forth can be cut out Scale Okay Scale Right the reason we couldn't do what we do today 20 years ago Yeah It's because we didn't have the capital base We couldn't write a billion dollar plus deal Here's an interesting fact before 2021 There were only five billion dollar plus private credit deals done ever Since 2021 100 plus And we have blacks don't have done most of them So what does that mean? We have the scale of capital actually solve the problems for our clients We have the breadth of team to go out and cover the market And bring these solutions direct to our borrowers And then the other thing that's happened Is the expansion of private credit Beyond what a lot of people think of it as Which is middle market sponsor back direct lending Into what we call the real economy Right Taking what is a two trillion dollar market today And thinking about a 30 plus trillion dollar addressable market When you think about areas like private investment grade Real assets, asset-backed finance And so the other big piece of this Is just the massive expansion in the addressable market that's come about So I take the point about you know Customized financing solutions And bringing investors closer to capital and all of that But at the same time Like the concern is that as the space grows Competition for deals increases And that's when you start to see Not just potentially lower spreads But also more leverage And we have seen you know some first leans that are now unit ranches And things that would normally spark a little bit of worry Is that something that you're seeing in the market Well it's funny look I've been doing private credit for two decades I think back to the deals that we were first doing in private credit 20 years ago And I would tell you I don't know that A single one of them would pass our investment committee today They were small, they were cyclical They were basically the stuff the banks wouldn't do Best forward to today think about the average direct lending deal we do It's a $200 million dollar EBITDAB business It's 40% loan to value Pre GFC loan to values on deals were 65% plus And so when I think about the risk posture Of a senior secured loan today It feels pretty good relative to history And then that Needs to be combined with the fact that This opportunity in investment grade private credit I would say is the fastest-growing opportunity we see in credit at Blackstone Right so this is the other new thing that's happening is a IG private credit So you know private credit extended to companies with very good balance sheets Not junk rated Has become more of a thing it's going mainstream And a lot of that is driven by AI issuance and tech-related issuance Talk more about what you're seeing in that space Well I think that's a big part of it Right anytime you see a significant need for capital Which we obviously see and the data center build out and then Connected to that all the energy power and infrastructure that needs to Accompany that you see huge capital needs and markets That need that much capital need to access all available Options and that includes public credit But that also includes private credit Morgan Stanley put out a piece late last year that estimated that 800 billion dollars of private credit alone Is needed to finance The digital infrastructure build out over the next five years. Okay. So that's a massive number I think what gets missed when people think about the financing element of Financing a data center for example is We're financing 15 20-year take-or-pay contracts With some of those take-or-pay contract meaning Think about a triple net lease contract no matter what your usage is no matter what your operating costs are You're getting you fix some every single month from your tenant And they can't get out of that contract. Okay. Okay, and you're getting that from some of the highest quality credit counter parties in the world Right hyperscalers are the tenants in most of the data centers today And so as I sit with my credit hat on If I can lend again some of the best counter parties in the world Against a known defined stream of cash flows and I can do that with 150 to 200 basis points of excess spread versus Like rated public credit. Yeah. Well sorry explain that so we the most credit-worthy companies in the world Are these cash flow gushers the big tech companies etc What is the I still don't quite get what is the advantage for them of the private credit market Spreads as you mentioned our wider They can access the bond market they do it all the time or they certainly can So what is the what is private credit solve for the metas of the world and the apples of the world Such that they can't borrow Versus the public credit market customization. Okay speed Certainty flexibility bringing that solution direct to the borrower sometimes There's certain elements in terms of the timing or whatever the case may be that requires a private solution Yeah, just explain that a little further like what is it about these projects specifically when you say like customization If people say customization all the time give us a specific example. Yeah. Okay. Well sometimes there's a construction element Okay, so you need to fund over time as opposed to funding all of your capital day one That's a good example right sometimes you need to structure in a certain way um in terms of the timing of the cash flows that's another example So there are things that are needed that don't necessarily increase credit risk But they don't fit the cookie cutter mold of a straight away investment grade pump on Today's markets move fast get the insights you need in 10 minutes with the Barclays brief a new podcast from Barclays investment bank Through sharp dialogue and scenario-based analysis our leading experts analyze key market themes each week So whether you're managing a portfolio or leading a business the Barclays brief podcast can help you make smarter decisions today Stay sharp state briefed find Barclays brief wherever you get your podcasts Hey, there are lots of snares as we come into 2026 we are realizing that one thing we're constantly thinking about on the show is how companies actually get built Not just like the headline version of that story, but the messy Operational reality of it right we love messy operational reality of things The never ending question dive deeper how companies make it big what causes one company to succeed while others fail Well, I have good news that is exactly what the acquired podcast does Ben Gilbert and David Rosenthal pick a company and then explore all the ins and outs of its trajectory Lots of detail there how it scaled the ups and downs and so much more Yeah, and we actually we had them on odd lots back in February last year We talked to them about everything from TSMC and video maras or mes scale capital structure the importance of incentives All of the different I guess ingredients that go into some of the success of these names that we talk about every day Also their show actually turned 10 years old in 2025 just like us So we're I guess the same age in podcast years big year anyway If you like odd logs believe we get into various market dynamics how the economy actually works under the hood You'll obviously appreciate and enjoy the acquired podcast they do similar work similar ideas All focused on the context of individual company so go check out the acquired podcast you can find them wherever you get your podcasts So this might be a difficult question to answer but when you look at your own portfolio your own very large portfolio Can you give like a rough estimate of how much AI exposure has increased over the years Well, that's a fascinating question right because I tend to think about AI exposure pretty broadly right because I think AI will impact not just Data centers and the direct, you know first derivative impact but the second derivative impact the third derivative impact so you're looking at companies that could be disrupted as well We're looking at it all and we have been looking it on this is this is part of working a blackstone right like we have Unbelievable insights into what's going on all around the globe and all of these markets not just within our credit business That has 5,000 plus borrowers but our private equity business our infrastructure business our real estate business We happen to own a couple of largest data center developers in the world We have a huge operating team that helps companies implement AI capabilities help them play offense and defense when needed and so we leverage all these resources and I think about AI impact across almost every business in our portfolio The varying degrees, but I think you have to be front put in and thinking about that as an investor What about direct exposure Yeah, I take the point, but like the reason I'm asking is because there are some concerns around concentration limits at places like Consures. Yeah, look we have over 500 billion dollar of assets And credit at blackstone and I would tell you like the the amount of direct data center exposure is a small minority of that It would not rise to the level of something where any of our clients would feel like they have concentration What about in terms of setting aside like formal concentration limits Just in terms of like on a day-to-day business right now or over the last year How much of new new activity would you say is related to either sort of data centers or maybe some of the power Yeah, the power financing that is also needed for data centers. Look I would tell you it's a Material portion of what we're doing because it is such a capital intensive credit intensive part of the market Yeah, but when I think about everything we're doing across our business and credit It doesn't it does it screen as something that's you know Significantly overweight like if I think about what we're doing in our private investment-grade business That's a real asset strategy broadly defined right that includes obviously digital infrastructure and includes energy and power But it includes residential mortgages, which is a massive assay class. It includes equipment finance We just announced a deal recently To do to do an aircraft engine partnership and frankly, I'd say the single biggest thing that it includes Is what we call corporate solutions and these are large scale customized private credit partnerships With public investment-grade companies and so recently we did a deal with Rogers up in Canada where we did a billion-dollar financing for them against their network infrastructure Backhaul we then did a deal late last year with separate infrastructure to help them build out an LNG project And we're seeing that not just in the U.S. We're seeing that globally We announced the deal yesterday in fact with Aholl the the European supermarket company to help expand their logistics footprint And so I would tell you the biggest theme I see across our private investment-grade business is this notion of what we call corporate solutions um What's it like sourcing deals at the moment so blackstone obviously very big so I imagine people are coming to you constantly But at the same time one of the things we heard when the private credit market was very very hot was There's a lot of competition for deals right and everyone wants um in on certain financing transactions So what's it like you got to take it market by market right we were just talking about private investment-grade corporate solutions Some of these big infrastructure credit areas. I would tell you in that market There is more demand for capital than there are players like blackstone with the scale to actually meet those needs And so that is a market where I would tell you we have robust deal activity And that is a market where I see a lot of excess spread I know you mentioned earlier that spread your tight that's an area where I would say spread are actually quite attractive Right if you think about Public IG spreads today are 80 basis points if you can make 250 basis points It like for like credit rated risk like that's a lot of relative excess spread And that's happening because the demand for capital relative the supply of capital is quite attractive And that's showing up for us as lenders I'd say in the direct lending market That's a market where spreads have tightened in sympathy with the Liquid sub-investment-grade markets But the excess spread remains right that excess spread of a couple under basis points persists I think what is helping is you are seeing this increase in deal activity We saw very strong M&A activity in the back half of last year If I look at our Q4 pipeline It's actually up 25% versus what it was at this time last year And so I think we are optimistic about a strong recovery in deal activity That will help on your point in terms of sourcing deals in that market specifically I think the other thing that's really important and you ask this question around How do we scale a business? Part of it is not just waiting and sitting for the phone to ring A huge part of what we do is Think about the thematic areas with all of last time not just credit That we want to deploy capital in And digital infrastructure energy and power those are good examples In the investment-grade space But there are also examples on the sub-investment-grade space Life sciences utility services And what our team does is we proactively identify these companies And pitch them customized solutions And because we have the scale of capital to actually solve that problem We can do that we did a deal late last year with a company called Signed in Health in the life sciences space The billion dollar plus transaction that we led How do we do that? Well, we had financed their number one competitor We had followed this loan because we had held it in our liquid book And so we had the idea Hey, let's call this company and say you should do a private loan And that's where the idea Asian comes And that's where the differentiation in the market comes A lot of people can pick up the phone Not a lot of people can create their own ideas And actually effectuate them And I think that's something we're uniquely good at Everything is just sort of like Scale and power laws and compounding return from having grown And having having that worker The big get bigger It's really such an extraordinary thing And we see it in tech But we also clearly see it in finance I think with like, you know, the percentage of market share That accrues to the biggest players Clearly an advantage Obviously want to talk more about the industry overall Going back to, you know, Tracy mentioned They were so it's so over we're so back We're so yeah, that's a cycle So at the end of last year There are two things There were like two like kind of blow-ups Yeah But both were both related to auto So tree-claw, I don't know if I'm pronouncing it, try Yeah, you got it That's one of those words where I feel like Very stupid pronouncing it the right way Yeah, I do Clicolore Yeah, that's right Should I just say try color? So there was a tree-claw And then first brands, which I'm pretty sure are pronouncing correctly And then there was like, so that was like in the auto space And then there was all the stuff that went viral for about five minutes Something about the chips And maybe they're going to depreciate faster That people expect and a bunch of people are going to be holding the bag And I want bracket that out decide Okay, you get those blow-ups in the auto area Jamie Diamond comes out with the cockroaches What was your read on that moment? Was there reasons to think that there are more tree-clawers? I just want to say that I like saying that You do well Thank you, more tree-clawers out there I would tell you when all of that was going down Yeah, we were scratching our heads And the biggest reason when we were scratching our heads Were all of those examples Were bag-led, bags-sidicated, bag underwritten deals That's somehow got confused with private credit And this is the biggest frustration for us Because we looked at those deals and we said, hey One of the advantages of private credit is You can actually do private-level due diligence You can get access to management team You can do weeks of work You can get private access to information And so one of our observations there was there was this misconception And that's why we think it's so important to continue to educate on the distinctions Between public credit and private credit And those situations were public credit I think the other thing that I think people maybe maybe don't appreciate is While private credit has gotten a lot of attention Recently private credit's been around for a long time You could look at 20-year returns in private credit And you can see that they've outperformed Liquid credit by several hundred basis points over 20 years Through cycles Also, you can look at the fact that realized losses over that 20-year period For the industry have been 1% And so I think we look to the data We look to the clarification But then I think the last thing that's also important to highlight here is Defaults happen in some of the best big great credit I think this is the other thing that I think gets missed People see a headline about a credit issue We have thousands of credit in our portfolios Some of them are going to have issues That is normal If you look at the long-term default rate in the leverage loan market In the public high yield market It's 3% These things happen We account for them in our underwriting We account for them in how we mark our portfolio And most importantly We have the resources to deal with those situations We have operating people We've got a big workout team And if we do have challenges in our book I think to your point on scale Joe Having the strength of Blackstone The resource and intellectual capital of Blackstone To actually support those companies And drive good outcomes for our investors over term That's what matters Just I take your point about the 20-year returns But you know, 20 years ago The private credit industry barely existed Right And then we've basically had a 17-year bull market Except for five minutes in 2020 A 17-year bull market in risk assets So I don't think it's crazy to say like Yes, the returns, the real, they deliver The faults are low, the faults happen But I don't think it's totally crazy To wonder if you're at turning points Because there's to some extent You can only take a 20-year track record so far If 17 years of them were in more or less a non-stop bull market So here's what I see First off What I think will happen in the market Is that you will continue to see private credit grow And you will continue to see strong private credit performance That said, you're right If I look forward versus looking back I think it's reasonable to believe That you will see more dispersion In the asset class You will see some players underperform You will see some players have higher losses I don't think that means the entire asset class Will face challenges Because the model like we started with That Amazon analogy That still persists The excess spread versus liquid markets That is durable The way our clients access private credit And all of these new areas Beyond direct lending We're at the very, very beginning Of that very, very long road And so I think the long-term thesis For private credit is intact By the way, you don't see massive ways of defaults Outside of recessions And it doesn't feel like to me we're headed into a recession When I look at corporate earnings growth When I look at where consumers are When I look at fiscal and monetary stimulus None of that points to recession to me And so when I look forward I don't see we I don't see this big turning point for the industry I see continued growth in the industry But what I do see is more dispersion Which is a good thing If you think about all established asset classes You have top textile managers And you have bottom quartile managers And so I think the asset class will be a lot more about Who is better at originating deals Who is better at managing challenges in their portfolio Who has the broadest aperture to identify areas Within credit broadly defined Where clients can deploy where there is excess spread Where there is better risk adjusted returns I think that's the error we're heading into And I would say we strongly embrace that error Okay, so you don't see lots of defaults coming up But what about liability management exercises Or just restructuring debt Because this is something that comes up occasionally If you look at the default rate for private credit I think officially it's below 2% Something like that But if you add back in the liability management exercises That we've seen at places like first brands It goes higher I think it goes to like 5% or something like that Would you expect more companies to be restructuring debt As this dispersion effect maybe feeds through Well I think there's two pieces I want to unpack there One, this whole notion of liability management It really is a public market phenomenon And it exists in the public markets Because public credit documents are really weak They don't have the same covenant protections That you have in private credit And so you can have debt layered in front of you You can have collateral strip That's what's happened in a lot of these situations In the public markets Fortunately in private credit the documents are more protective And so I think you will see less of that aggressive behavior In the private credit markets Certainly versus the public credit markets The second thing I would say Tracy is The default is just the beginning What really matters to clients are losses Because the strength of a private credit document Allows you to get to a table And negotiate with the owner for maybe more equity Sometimes we have to take control of the company And we can use all of the resources of Blackstone To improve that company And actually deliver a strong outcome for our clients And so I think those are the two points I would focus on Yes, you will see default But the question is over time What is the loss experience for investors And that's something I think we have a lot of conviction in Okay so the other thing besides the first branch And first branch in three color blobs We just want to keep saying that I'm just going to say one more time Was this anxiety about the quality of some of these data centers I think the chip is going to be as valuable as people think And actually it's just looking up Like some of the credit default swaps on Oracle Actually basically continuing to hit new highs Corrie, which is another one that people are watching a lot That's actually come in a bit So maybe people chilled out a little bit But from the capital provider, the lenders What is the appetite right now for AI Or related infrastructure financing In the wave of some of these hiccups And what we see in like the CDS market For what might be some proxies for this kind of stuff Look, I think the nature of the risk matters Right, I don't want to paint it with a broad brush Because you hit it, the type of collateral matters Who your counterparty matters For us, whether we're financing chips We're financing a data center We don't want to take residual value risk Right, I don't view that as credit risk So if I can invest in chips If I can invest in a data center that has investment grade Counter-party risk And my debt will fully be repaid Inside of that contractual agreement Whether it's triple net Or whatever And I don't want to take residual value risk I don't care what that data center's worth in year 25 I don't care what those chips are worth in year 7 That's really good risk I think when you confine it to that Which is what we are doing I think that's quite attractive Will folks take that debt's layer of risk? They might But you need to make that see the returns Do you see any pullback in some of the, you know, the less triple net Whatever They like say, okay, January 2026 First January 2025 Any anxiety Because we know that there is still incredible demand for the buildout Right, it's this multi-year multi-trillion dollar thing From your perspective right now How strong is the capital base for that buildout Has it changed at all? I think when you have the contractual protections And I'm highlighting I think the demand is there Now might have been some change since 2025 I would tell you that because the demand for capital is so significant Okay And bigger than the supply of available capital When you see that happen You see spreads tend to widen That's a healthy thing That's a good thing for the markets And I think some of those deals that don't have the protections that I highlighted They have a harder time getting done in the credit markets And you see them get funded in the equity markets I think both of those things are healthy I think when I take a big step back There is a lot of chatter about this market But we are firm believers in the impact of AI And I think the bigger risk is underestimating The impact of it on your broader portfolio Like I was alluding to before Um, what was the fourth quarter actually like for you And what sort of questions were you getting from investors Because we know you know some other private credit players Like Blue Al got a bunch of redemptions Um, did you see similar pressures Look anytime you tend to see Um, some of the press that you highlighted It's natural to get questions And we embrace those questions And we address them with the facts that I just highlighted I think for us we continue to see Very strong demand for credit I was around the world I think twice in the fourth quarter Meaning with our clients around the world And I would tell you in aggregate They want more private credit Right, our institutional clients I think year to day through 930 Influos were up over 50% versus where they were a year prior We held a forum with many of our big clients Late last year to discuss relative value and risks in the credit market And actually it was great for me because it was a way I could actually survey our clients on their views And I would tell you they continue to be very bullish on private credit If anything, they feel under-allocated to private credit It's an asset class And so I think the momentum will continue Hey there, Oddlox listeners As we come into 2026 We are realizing that one thing we're constantly thinking about on the show Is how companies actually get built Not just like the headline version of that story But the messy operational reality of it Right, we love messy operational reality of things The never-ending question dive deeper How companies make it big? What causes one company to succeed? Why others fail? Well I have good news That is exactly what the acquired podcast does Ben Gilbert and David Rosenthal pick a company And then explore all the ins and outs of its trajectory Lots of detail there How it scaled the ups and downs and so much more Yeah, and we actually, we had them on Oddlox back in February last year We talked to them about everything from TSMC, Nvidia, Mars, Hermes Scale, capital structure, the importance of incentives All of the different, I guess, ingredients that go into some of the success of these names That we talk about every day Also, their show actually turned 10 years old in 2025 just like us So we're, I guess, the same age in podcast years Big year Anyway, if you like Oddlox, the way we get into various market dynamics How the economy actually works under the hood You'll obviously appreciate and enjoy the acquired podcast They do similar works, similar ideas All focused on the context of individual company So go check out the acquired podcast You can find them wherever you get your podcasts This sort of touches on one of my favorite things to talk about Like sort of portfolio construction But for these mega clients And they say, okay, we're under allocated, we want more of this What is it that in their broad portfolio allocation The characteristics of private credit are solving for them right now Yeah, well look Yield Okay, especially not certain about everyone loves yield Right, everybody loves yield And I think even with spreads tighter And with rates coming off a little bit Even with that The yield in credit relative to the earnings yield of the S&P Is as attractive as it's been over a very long period of time So credit remains attractive I think when valuations are expensive Like they are across the world today In most asset classes Being defensive at the top of the capital structure Really matters Diversification Right Most of our clients have a lot of credit risk Corporate credit risk, excuse me Corporate risk in their portfolio Private equity or on the credit side What about real assets That's why asset back finance That's why investment grade have been so Conventing for, you know, so high conviction For our clients because it offers that diversification It offers that access to real hard assets That are downside protected versus corporate risk And then I would say the other big theme For our clients around the world is something we call multi asset credit It is this notion that Credit as a whole is a place I want to be deployed into However, I'm also recognizing the fact that Markets ebb and flow Where one market within credit is attractive One might be less attractive How do I partner with someone like Blackstone across Everything we do Over a dozen different asset classes within credit To build a diversified Resilient Higher yielding portfolio That allows me to pivot to the best opportunities in the market Wherever they may be Hmm Setting aside some of the cockroach phenomenon of late 2025 There was another thing that happened that was pretty big for the credit market And that was the withdrawal of the leverage lending guidelines for banks Basically making it easier for them to do broadly syndicated loans Would you expect that to increase competition between the banks and the, you know BDCs so to speak If that one's gotten a lot of attention I've spoken to a lot of my friends at the banks recently I think the reality is on new direct lending deals The market and by the market. I mean the private equity sponsors They've largely spoken right like speed, certainty, flexibility, customization, all the stuff I hit on That's a really good thing for them especially when they're buying a company and they're in a competitive auction process Even deals that met the leverage loan lending guidelines that were in place Over the last two years 85% of them were financed privately Right so even when you had complying deals there were borrowers were still choosing private credit I'd say Today our partnership opportunities with the banks particularly on the investment grade side of what we do It is more it is bigger than anything I would say that we've seen over the last several years The banks desired a partner with us where they keep the client arrangement They keep the servicing we keep the asset We are seeing that as a global dynamic especially around some of these longer duration asset classes These hard asset asset classes and those are the exact things that our our investors want And so I think that partnership opportunity we'll continue to grow This is the frenemy dynamic that we've spoken about before right so private lenders are in competition with the public lenders The banks but at the same time we're seeing more partnerships No and there's a lot of into something intuitive there about you know wanting to keep that relationship But also this element of like okay the speed and customization the financing I have a question actually about management Internal management and the art of growing a business You mentioned being proactive so you're going to have people on the phone And they're like we did this thing which would be interested in this solution and so forth If this big company you're building it over time I'm curious like how do you design a system such that you have lots of people yeah working the phones But wanting to grow their own books but not lower standards and let garbage into it And how do you think like how do you build those systems into it so that the person on the phone Isn't you know yeah bringing a bunch of garbage just to grow volume. I love this question. So As I think back at the history of our business at Blasson and credit obviously we've seen tremendous growth We've seen tremendous success Um a big turning point for me personally was cobit because up until that point in time We ran each of our businesses almost as verticals right we whether it was direct lending or asset-backed finance or liquid credit We add pms in each of those businesses and they ran each of their businesses from raising the capital to investing the capital to manage the team Almost as a vertical entity. We had no horizontal layer But what cobit taught us when we were all at home and our pajamas and the markets were going wonky that We needed that connectivity would be really valuable if one piece of our business was really connected with the other piece of our business And so we started building out our CIO office which I lead as a horizontal layer to connect all the dots and bring tremendous consistency Across our teams and five years on That team is now 120 plus people and what that team does day and day out is unifying the fabric of every single one of our investment businesses And so we have a single investment committee that whether you are a direct lending dealer an asset-backed dealer or a liquid deal You go to that same investment committee same underwriting standards same memo But most probably the same people hearing the deals from all the different parts of the Blasson credit ecosystem to know where are the best opportunities By the way that investment committee also includes senior representatives of Blackstone outside of credit What are we learning in private equity? What are we learning in infrastructure that might influence this decision The way we aggregate and monitor data we now have one centralized portfolio company reporting system And so anytime we see weaknesses in an area Instantly the entire team knows that and say okay Let's pull back origination in this sector and let's lean into origination in this other sector And so systemizing our data centralizing our processes Being even more plugged into the themes. We see more broadly at Blackstone That has been a critical part of our journey and I think a huge competitive advantage for us going forward I just want to go back to where we started the conversation and I mean really the beginning of the conversation your job title So CIO for Blackstone credit and insurance. Yep I think this is really important and underappreciated in many ways But the partnership between insurers and private credit has been phenomenal Like a lot of the private credit growth that we are seeing is coming directly from insurers how important is it to I guess Be an insurance company if you're in the private credit space or have access to that pool of capital sure well Couple points. I want to really hit here. Um, one is our business model and insurance because it is different than some others right We don't have a captive insurance balance sheet. We don't originate Insurance liabilities directly at Blackstone all we do is act as a third-party asset manager on behalf of insurance clients That's what we do best. That's all we want to do brick-brick we built our client base It's a fully open architecture model all of our clients sit shoulder to shoulder And so I think that business model is critical, right? We don't want to compete with our clients And we want to make sure that every single one of them gets a great experience with us I think that's a business model question And I think that's an important part of how we set up that franchise the second piece is the why why are insurance companies Seeking private credit capital well in the case of a life insurer you're writing a 40-year life insurance policy in case of writing an annuity You're writing a set Contract um the best way to manage assets against those liabilities are safe Cash paying contractual assets Those assets are exactly what we originate in private credit and that excess spread that we've been talking about throughout this discussion 150 to 200 basis points for investment grade like for like credit that is extraordinarily valuable for insurance companies versus just buying traditional liquids on the screen and we've seen US insurance companies Adopt that in scale with a ton of success and one of the big themes I see going forward is That same idea expanding to Europe expanding to Asia because it is such a strong fit for insurance company balance sheets high quality safe contractual Long duration investment grade assets. So I've never worked in insurance or private credit But I've worked in the media industry and the digital media industry and one of the phenomenons that you see is Company starts and they buy various third-party solutions off the shelf like oh, I'm gonna like buy a piece of software to run my Content management system for the website then you grow and then you grow and you're like you know what this Third-party solution doesn't work. I need to build my own software for managing my content et cetera Does that what happens like do insurance companies hit a point where it's like you know what We've enjoyed doing business with you But we actually want to launch her own private credit arm and we know that there are some of course I mean they're insurers who are joined at the do all did they what is there a point where it just makes sense for them to like have their own private credit shop or is it sort of Case by case whether that makes sense for them. Well, I think the direction of travel broadly Is the other way right the reason why our business has grown so much is because insurance companies have said hey Blackstone. You're really good at this. You've got a huge dedicated team. You've got tons of expertise We can't replicate it But that is company by company and some continue to do some things in house Some have certain strategies where they have that expertise and they'll continue to do that in house and we're happy to Complement in the areas where we can be additive But I would say the overall direction of travel is a realization that We have built out this infrastructure this origination team this cio Portfolio management for franchise this allocate asset allocation framework and clients want to benefit from that You've mentioned excess spreads throughout this conversation and I take the point that everything is relative I think I mentioned that in the intro, but it is also true that spreads on direct lending have fallen over the past years I think we went below 10% for like the first time in three years something like that They used to be in the mid to low teens What do you see happening to spreads next year or this year? I should say because it seems kind of concerning to me If we're getting more supply, but spreads are grinding tighter. Yeah Well, look, I think there's a couple of things there first you mentioned it right Forwards do have choice right and so there is going to be some connection to where the liquid markets are and Over time that 200 basis point spread for privates versus liquids has held and it holds today And so I think that's one thing to watch and I think that relative value point you made is the critical point I think the second thing is Yes, you are starting to see more M&A supply, but we're still well off where we were five years ago And so I think there's still a lot more room to run and when I kind of step back And I look at the simple math of Private equity drive powder versus private credit drive powder private equity drive powder outstrips it five to one Okay, and so I think there's still a lot more room to run in the supply equation I think spreads today are pretty stable and I think our clients earning that excess spread versus liquids earning that absolute return Which still feels quite good even though it's not the same as it was three years ago still feels quite good Related to where equities are valued today and other things in their portfolio In private assets in general one of the popular critiques is that you know people people call volatility laundering It's like oh look I had a rough quarter in my stock in my stock portfolio and my whatever But my credit portfolio was flat this quarter and because there were no trades or no marks and that makes me feel Sleep easier at night and the the accusation is is an industry build to some extent On this notion of like here is this asset class that just like helps me sleep better at night It doesn't doesn't move etc. What do you what's the response to the volatility laundering claim in in private assets generally? Yeah a couple of things there first I look to a 20 year loss ratio right like You can't hide that over 20 years and I think those stats speak for themselves second you're right like this question around Valuations have have been out there in private assets and blasts with been around for 40 years We use a best-in-class process with third-party valuation provider to remark our book every single quarter And and those third parties are the ones that are doing it and we mark that to market Company fundamentals market moves that all shows up what's funny to me is you know When we do see under performance in an asset and we mark it down which we do in our watchless assets We get questions about that people are paying attention to that Yet they are also asking us out of the same breath Are you actually marking your assets and so I think if you actually look at our portfolio You will see a small subset of the book that isn't doing what we expected to do when we mark those accordingly I think that's healthy. I think that's good. I think that provides some buffer for our clients And we'll continue to use our third-party well-established process to continue to do so You mentioned dry powder earlier and this is a truism of markets Which is dry powder always seems to be waiting in the wings like no matter where we are in the credit cycle Someone's talking about dry powder. I'm sort of surprised to hear That much the number you cited in the private credit space because again like we have seen phenomenal growth And there's still cash lying around that needs to be deployed Look We continue to see strong flows into the market right the product is doing what it's supposed to do which is generate Strong consistent outperformance for clients relative to liquids I think as long as you see that continue You're going to continue to see strong flows across all of our clientize whether it's insurance institutions individuals Question I ask a lot of people today and January 2026 within your organization Are you finding productive applications of generative AI tools that make your life easier and reduce Free up working hours from people who to do other things. Yeah. Look. This is a huge Focus for us and I think I would be lying if I say we have the golden ticket today But we have a lot of focus on this area. How do we make our Business more efficient? How do we make it easier on our teams? Whether it's building models Knowing what questions to ask in their due diligence process Data aggregation and analysis all of this stuff is in motion That's at various stages of development And I think you will continue to see us lean into that significantly. It can never replace The investment decision right sure that's still going to be central to our process But I think anytime we can use AI to drive efficiency and I like I said We have tools that allow that to like create the start of an investment company memo the start of a model Aggregate data so we can help our team see trends earlier all of these things are in process and I think more and more you'll see higher adoption Could you imagine a future where valuation is done more by AI because I think about the third party valuation services They're doing matrix pricing, which is basically inferring the market value from you know other clues they can get Inferences like you know, that's AI basically. I think Using AI to support that process, you know where have markets spreads move Okay, this company's performance was x how does that translate into a mark? I think you will see just like I highlighted on the investment process I think you will see adoption of support tools driving efficiency driving accuracy driving scale At the end of the day, you still need a human at the end of that to make the decision But I do think you'll see it incorporating more and more into our workflows. What skills are you looking for when you think about Recruiting in 2026 and 2027 A lot of people anxious about what they should what they should know what they should be studying etc What are the skills that today are still Clearly valuable and will be valuable that you would want to see in a new recruit. Well look First and foremost the people we look to hire at blackstone Incredibly hard working genuinely good people Motivated by you know taking on more growing some of these like fundamental traits like yeah that is universal And I think that will never change I think in the environment where you're using more and more productivity tools How do you interact with people people want to you know do deal with folks that they feel like they can trust They develop good relationships How do you think forward around corners these are the types of critical thinking and communication skills that I think are going to be Even more valuable to layer on to all like the basic stuff We have always looked for and the people we bring into the firm All right, we're going to have to leave it there, but thank you so much for coming on all thoughts really appreciate it It was my absolute pleasure. Thank you guys. Thank you so much. It was a lot of fun. I learned a lot. Thank you Joe I'm a journalist for podcast host. You know, there's a difference. No, there's no no, we're journalists. People has made parties They have what do you do I say I'm a journalist. All right. All right. Uh the natural tendencies of journalists is to Be a little bit more pessimistic. Yeah, for sure. I mean if you're an investor almost by definition you have to be optimistic. I agree I'm paranoid optimist. That's right, but I do see some Signs of worry in the private credit market. So beyond the cockroaches um that we talked about, you know We have more companies doing liability management's the documentation point I found kind of surprising because In our previous conversations certainly in some of the research that I see People say that documentation is declining so investor protections are basically going down and there's more convergence with the public market and things like that So I take the point that like every private credit investor that we have on the show is going to say that they're different Yeah, and they're more selective and things like that and it may be true But overall if you're seeing documentation go down and leverage go up and supply increasing that seems kind of Bad Yeah, no, I mean look, I think the thing that I guess I mean all of that sounds very intuitive to me and the attentions The other thing that and it's sort of related to this is like How do you maintain like okay? You think about the fundamental service right you think about the fundamental service of like speed and customer Customisability and so forth and then the tension that exists is like okay You want to like turn this around yeah right away etc and the tension between that and like robust Documentations and I mean again 20 year business to some extent speaks for itself But on the other hand like you could see how these things over time would come into Especially come into tension such a competitive environment. Exactly. I want to you know what you you place a phone call to me Because you need money. I want to be able to give you an answer right away I want to say yes very quickly. I want to be able to say yes to you who to maintain your business to maintain that line and the tensions that could Potentially emerge between like our relationship as the lender to the borrower versus you know my relationship to my People who want protections etc. You could see how those would emerge for sure. Yeah. All right. She'll leave it there Let's leave it there. All right. This has been another episode of the all thoughts podcast I'm Tracy Alloway you can follow me at Tracy Alloway and I'm Jill. Why isn't all you can follow me at the stalwart follow our producers Kerman Rodriguez at Kerman, Armadassio Bennett at Dashbot and Kale Brooks and Kale Brooks more AdLots content go to Bloomberg.com slash AdLots We've a daily newsletter and all of our episodes and you can share about all of these topics 24/7 in our discord discord gg slash AdLots and if you enjoy all thoughts if you like it when we talk about private credit Then please leave us a positive review on your favorite podcast platform and remember if you are a Bloomberg subscriber You can listen to all of our episodes Absolutely add free. 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