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♪ All my families see ♪
♪ See what mainstream ♪
♪ We're going mainstream ♪
♪ We'll shrink the number of bad news ♪
♪ We're going mainstream ♪
♪ Venture calculus to athletes ♪
♪ We're going mainstream ♪
♪ The person who has collected training cards ♪
♪ We're going mainstream ♪
♪ And collision of culture and culture ♪
♪ We're going mainstream ♪
Welcome back to the ALCO's mainstream podcast.
Today's episode is with someone who is running the long race.
We sit down and run with prolific long-distance runner Ivan Zinn,
who's been a pioneer in alternative credit NASA-based finance.
Ivan has had a long career in private credit.
He started at DLJ before joining Leonard Green Partners in hybrid capital.
He then joined HPK before founding
Pioneering Private Credit firm Adelaia Capital Management, where he was also the CIO.
Ivan and team, through Adelaia, to over 10 billion in AUM from 2006 to 2024,
before being acquired by Blue Al Capital for $450 million,
and $800 million if you include our doubts.
As part of the transaction, Ivan became a managing director at Blue Al,
and is the head of alternative credit, where the firm is now expanding its footprint
due to Adelaia's expertise.
Ivan is as prolific outside of the office as he is in.
He has a long-distance runner running 100 mile races,
and was an NCAA Hall-American tennis player,
which comes as no surprise given the discipline, focus, and expertise,
required to excel at the activities he's done throughout his career in both work and sport.
He's also a board member of the USDA Foundation.
Ivan and I had a fascinating conversation about the evolution of private credit
in the growth of asset-based finance.
We discussed how and why ABF has grown within the private credit ecosystem,
ABF's market structure, and a trip down Main Street.
The potential size of the ABF market,
why moving assets off bank balance sheets can help the financial system,
why private credit is a data rich asset,
where ABF fits into a portfolio,
and why consumer credit is potentially misunderstood within private credit.
Thanks Ivan for coming on the show to share your wisdom and expertise
on private credit and ABF.
And good luck to anyone keeping up with you on a run.
Ivan, welcome to the Aqua's mainstream podcast.
It's great to be here.
Great to be here in Blue Al's offices.
I'm sure we'll end up going for run at some point too.
But right after this, I want to start there because I think there's so many parallels
between the ability to go the distance,
not just in running but in business.
And I'd love to just hear how you got into that,
how you thought about it, how you ran this 100-mile race.
There's plenty of similarities.
One of those is some of the cumulative build-up of expertise in the case of investing
in business, and then if you're running, you can't just go out and run a long distance by any means
when you're either not up for it or haven't built up miles and miles.
In the other parts of things like resilience,
where I always joke about any race that I've ever done,
whether it's a 5K or a 50 mile or longer,
at some point probably two-thirds or three-quarters of the way in,
you think it's a really horrific idea and you want to stop.
And that happens, obviously, every race, it doesn't matter what it is,
because you're having to struggle through whatever that is.
And I think there's a lot of elements of exports in general,
but running in particular because it's this singular endeavor where
you're doing something that largely doesn't make a ton of sense,
or at least doesn't feel like at the time,
but you keep going and you obviously have to build up to that.
And there's a lot of physical but also mental and psychological parts of it.
I think those are probably the easiest parallels to draw.
Between the two.
You've done something similar, first in founding,
Adelaia, now becoming part of Blue Al,
and also that's mirrored a lot of the evolution of credit.
So we'd love to start there in terms of the long race you've been running
with Adelaia and now becoming part of a bigger platform
and what you're building in the credit space.
I can start even a little before Adelaia
when I started doing private credit.
We didn't really call it private credit.
Didn't have a defined term of art, if you will, in the early 2000s.
But at that time,
myself and then now I'm going to remember my colleagues at Highbridge doing it.
And there was Cerberus really started and kicked it off a couple of
a number of years before that.
So we're pointing Fortress show up and I joked that
the terms were liable plus a thousand,
known negotiating and that was really the deal.
Of course, that was a long time ago and private markets were
just forming around this.
We were competing with Goldman's prop desk and with occasionally
other prop desks and G capital and people that weren't banks
but who are obviously lower-cost capital.
But we managed to because it was early
to be able to ride something that was different
and outside the banking system and this idea at the time.
Some say shadow banking became much more developed pre-08.
I adopted by a modest number of sponsors or a modest number
of borrowers but of course the GFC happens.
Most of the capital had been raised in that landscape where
called hedge fund like things whether it was called hedge fund or not,
but it was hedge fund like.
O8 happens.
The people of the survivors that were able to come out the other side,
at least in our case we flipped our hat around and started buying all these asset classes
that we had tried to be lendersed against in the past.
And because G got carried out, obviously asset liability matching,
problem, capital source and text drawn and others.
A lot of the natural competitors were out of the system.
Of course banks were out of the system.
We really started to flip our hat around and started
opportunistically buying all these asset classes trying to figure out
how do you service a bunch of truck leases or cop your leases or
how do you buy these consumer loans and
either lending it somewhere by them.
So really when I look at the Adelaia business and the evolution,
we at some level post GFC slowly took a different
tack track, which is to focus not on corporate direct lending.
Now at the time we thought there was going to be more competition
calling on smart financial sponsors who were going to
beach up on terms.
That was all true, but it just happened to be that the market evolution was that
all this corporate credit came out of the banking system and went into private vehicles
and it came much quicker and faster and bigger than anyone
really thought at the time that there wasn't a billion dollar transaction in
2010 or 11 or 12 and then all of a sudden now 12 fast forward there a lot of them.
But we were at some level toiling away in this asset fact and
asset base world and doing some other opportunistic investing of course.
And what we realized is that of course it was great to buy assets at
big discounts from FDIC failed institutions, but it was also
some of these had risen out of the ashes of the GFC.
They had proven that they were good at creating whatever asset class it was,
whether it's equipment leases or a credit card or otherwise.
And so we could finance them at pretty attractive terms because there's no other money for it.
And then at some point they said we don't like your expensive money.
How about something lower?
And we developed this fun to do lending against these assets exclusively.
At the time we weren't smart enough to realize that people didn't just
want the most expensive capital that they would show up and ask for the lower cost capital,
but it really became not just a graduate program for people coming into our lower
returning vehicles. But for us, I'd say next phase was having either opportunity to buy
or opportunity to lend and to have a slightly different cost of capital.
That really for us was a real growth driver because the marketplace then
continued to come our way in terms of more people needing the capital.
Banking system obviously continuing to basically not deliver that.
And then near and dear to your heart, the FinTech overlay, if you will, really got going.
For a long time, we call it had to choke the word FinTech out when we'd say it,
because we weren't true believers. But today I think it's really an accepted that
there's great delivery vessel or pipes that do things that you otherwise couldn't do.
And whether that's originate credit or evaluate credit or collect on credit or otherwise,
all those really are different and had been transformative, not in the way that maybe people
thought they were, that they were going to destroy all the banks, if you will, but different.
And I think those concurrent themes of some of these winners that we've been financing
winning and growing and needing more capital, and we like to talk about is one of the few
places in credit where the winners run.
And the other element of that is having the FinTech growth engine, if you will, things
like fancy venture funders coming in and throwing a bunch of equity capital into things
that we've never seen before. I think that happened in 2012. It was the first time we
financed something that was a fancy venture investor. And we go, oh, this is great. They
actually are well-capitalized and they're financing all these loans with equity. And we can
facilitate that. So those were some of the main drivers. Of course, the 2223 era really
was the final, I'd say, inflection point. Why we think asset back to asset based activity
has become much more topical was this 2223 where rates go up banks where I would say tourists
and things like equipment leases are buying loans from FinTechs because when they're borrowing
cost is zero. Everything makes sense. When rates go up, you exit all those things. And that's
where we've been able to say, no, we're a long-term stable source capital. Yep, our cost
capital is probably greater than a bank, but we're not going to call you and tell you to
rip up your loan agreement or we're not going to exit just unilaterally because the
deposits were all ringing up the door. So I think that was really the final for the asset
based part of the story. And for us, of course, in the meantime, corporate direct lending
has been growing and thriving and replacing and privatizing all of corporate credit. And
we think that's why we're at the early stages of that growth trajectory for the asset
back. But that's why it's a topic today, despite us yelling next generation private credit
for the last 10 years, we're early, but we like to say early, but right? Really interesting
overview of all these evolutions. I think the FinTech pieces are really interesting one
in that FinTechs caught up to the size and scale of all the large private credit players.
So I want to get to that. But first, I think there's a really interesting conversation
we had around pre-GFC. There was obviously an opportunity in private credit post-GFC.
There's also an opportunity in private credit, maybe slightly different because of some of
the structural changes post-GFC. What did you see pre-GFC that made you excited about
private credit at that time, maybe not knowing what the structural changes would look like
over time?
Yeah, I don't think a lot of us solve the structural changes and the structural changes
were absolutely magnified and accelerated by the GFC. It's hard to say what the other
door would have looked like and that would happen. But I don't think we're thinking about
it, at least certainly I wasn't young and dumb, but some levels saying we can go make credit
ourselves and we can go originate it and whether that meant directly in some cases sponsors
or in some cases like calling on companies or in some cases through small intermediaries,
we used to joke that our favorite types of deals came from an AOL email address. So not
well-intermediated. Some of the view was we can manufacture extra return by doing it
ourselves. Better covenants, better terms, more spread, not to get disarmediated. That
was the essence of the pre-GFC trade and do some things that banks wouldn't do, for
sure.
Now, the GFC changed that radically because there was a lot more that banks wouldn't
do and a lot of the corporate credit really got pushed out of the system with the leverage
limiter, but Frank, the banks were so hobbled that they were also not doing it. And of
course, the regulators trying to get risk out of the system and getting it to a more distributed
place or a diversified place, which I'd say largely worked. I think the thing that we saw
a little bit of with the benefit of hindsight is that one thing that we observed, for example,
early, early days, we would just do effectively what today would be called unitrons. There
would be no other lender. And then some point you'd partner with foothill or Wells Fargo
foothill or CIT or GE and they'd do a first out and you'd do the second out and you'd
still get your library plus a thousand and I was joking about. But that was a pretty
expensive and difficult form, like negotiating with that first out, what became really
impactful, a little bit pre-O8, but a lot after-O8 was this middle market CLO technology,
which is just doing a bunch of effectively unitronge deals that allowed you to really reduce
your cost to capital, which made you much more competitive with less to say sponsor
finance. And so the beginnings of that took place and those largely they worked in the
sense that the cost to capital was lower. It was a better structure for the investor
of a better structure for the counterparts to control your destiny. I think that was
actually one of the important developments is you looked post-GFC where once the engine
started going again, that started to become much larger and you could do larger deals.
You could control more of the capital structure. So over time, it was a competitive effectively
source of capital. I was still a little bit pricier than, for example, a term loan from
a broadly syndicated deal, but you could rely upon one counterpart to do that. And I
think that's what we saw and have benefited from in the asset backside, which is this
idea that they want to know who their lender is and they want to know that you're good
for it, because we're deeply embedded in these ecosystems. They were really the oxygen
for these businesses. If they're making loans, then we got to be good for it in terms
of providing that capital to them because they need to be good for it. And it's more
important that they have a trusted counterparty. So over time, we realized that we need to
be that one, be more, let's say, relationship oriented. We want to do a lot of repeat business.
Similar to the corporate world where there was not a lot of thought about repeat business
in 2003. It was more how much can we extract? And over time, it became, we wanted to make
good returns, but at the same time, we want to continue to do good business and have them
come back to us and whatever format that was. And so that was certainly an evolution that
we adopted. More importantly, as you look down the road from where we are today, we think
that same evolution, IE, the having the right cost to capital, to grow with people, to
be able to do a bunch of different things, has been critical to our business up until now
and will be even more critical going forward. Because to your point earlier, the size and
scale of these things is growing. And of course, some people are going to be able to take
our capital at a double-digit rate of return. And some people are going to say, no, I earned
my way down to something that looks more like a securitization, but we want to privatize,
if you will, all the things that were otherwise done in the ABS market, or in some case, the
banks, but really be able to do that and essentially hold that ourselves. So that's the trend
that you saw in corporate credit, which we're seeing, we're in Italy behind, then lagging,
but now accelerating. Related to that, though, you mentioned something
earlier, which is interesting, which is that obviously the banks have retrenched post-GFC.
On the asset manager side, asset managers, I think understand and make the argument, which
I think is a very valid one, that moving certain assets off of the bank balance sheet
and into the private credit marketplace may actually be good for the ecosystem. And we
can get into that because I think that's a worthy discussion to have. But do the origination
platforms? Do they understand that too? And is that why they're coming to private
credit firms? Because they know you will be certainty of capital. They understand that
moving that off of bank balance, you might be good for everybody as well.
So it's been a evolution of their thinking, too. But every time that you have some volatile
period, and I'm not even counting the last six weeks at this point, but some volatile
period, we've seen that the originators of this assets go, "I need a better, long-ish
term solution. I can't rely upon the scurzation market. Scurzation market is going to be open
and it's going to be shut." And if I'm originating credit, I can't just hang out and wait
for months or longer till it opens back up again. Whether it was COVID, rate cycle, even
more recently, the idea that you need at least some portion of your capital. Now, in some
cases, maybe you need a couple legs to your stool, but at least one of those legs has to
be a stable source of capital and stability. I think we've seen, it comes from not being,
for example, relying to bond deposits. We saw this during 22, 23 where myself, maybe
you are trying to get your money out of first republic or Silicon Valley bank as fast as
possible. One, because you were taking unscored credit risk and two, you wanted to make more
than zero, which is what they were offering. And we moved deposits out, but everyone else
did too, and what really that showed, and we have some discussions with the next regulators,
the really the velocity of deposits in the banking system was way faster than anyone
ever thought. Back in '08, it was tough to get your money out. You might have had a banking
app on your phone and you're maybe catching a check that way, but that was about it. So
that wasn't a great proxy. When you're 22, 23 rolls around, I think everyone realized
that banks are going to say more risky in terms of at least the liability side of their
balance sheet. I think more importantly, as a good slide, I've seen that they've produced,
which is essentially the delending of banking, which is this idea that banks are going
to try to be shorter dated with their loans, but they're going to try to do as little as
possible. By the way, the regulators, all things being equal, they're totally happy with
that. They want to have the most boring banks possible. They want banks to do business with
people who are depositors, people who are already. So I think the idea there is that getting
out of these assets off of bank balance sheets, going back to the Dodd-Frank and beyond,
they worked. It de-risked the banking system, the leverage came down, the banks were
less risky. And then fast forward, you see, didn't continue to work in every step of the
way. If you were a originator of credit and you needed cash as your oxygen, you should
have said, I was scared during COVID or I was scared during the rate cycle. And I need
that certainty. So just like private equity sponsors, I think have a appreciation for,
which is why I think the numbers are roughly half of the address will market that could
go to private market, private credit and corporate does. In other words, they have about half
the market share that they could. We're at the very early stages of that in the asset
back world because historically, I think there's been a lack of either understanding or an
adoption or banks were still doing some of it off the side of their desk. And that's
the trend line that people are looking at and staring at and going, this is going to
be a really big opportunity. So I think your point about people who are in the origination
business are getting it, I think more slowly than we would like, but they're definitely
getting it. And every time you have these shocks to the system, more people understand
it. Will it be distributed the same way that it is because it feels like scale is a feature
of private credit and capital is aggregating to the larger firms? What does that do to
the ecosystem? I think it's a reasonable point. If it all ended up in four people's hands,
then you'd probably end up in the way back machine where banks were too big to fail.
But at the same time, even that, Bluel and other estimators, it's not like that system
won't fund. That end of itself was distributed to many different underlying either funds
or then other investors. So I don't even think there's a great monolithic answer to
Bluel's 100% market share. Therefore, it's more risky conceivably that'd be distributed
into many different hands. So you have a reasonable point, which is if it was too concentrated,
it's more risky than much more diversified. But even the concentrated isn't concentrated
in the context of, hey, you're JP Morgan, JP Morgan's got a massive amount of assets
and the massive amount of short-term liabilities on their side. And those may not be matched
up. So I think it's certainly better than the banking system, better than what we've
had before. But only in some extreme concentration scenario, I think it actually gets to the
risk-eap stage. I think you bring up a really important point, which is private credit is
a lot of different things. And ABF is just one thing within the broader private credit
universe. I would love to unpack the definitions of ABF. You referenced it a little bit earlier,
but there's asset-based finance, there's asset-backed finance. We'd love to unpack that because
that in and of itself is one piece of the private credit universe, growing one. And then not
only do you have corporate ABF, but you have consumer ABF. And so there are really a lot
of differences and nuances to this space. So I'd love for you to unpack all of this.
I'll try to do a little bit of a broad-based generalization in terms of the categories,
because no question corporate credit in itself is a lot of things. It could be a larger cap,
it could be a smaller cap, non-sponsored, other flavors of it, but they taste a little
bit more similar. And I think the struggle that we've always had is explaining what is
asset-based finance, because an asset-backed finance, is it music royalties? Because that's
a very different thing than a credit card. And packaging it all under one moniker is of
course the challenge. And those are pretty radically different things in terms of how good
they are as investments, but also understanding them. So I think that investors should
some level endeavor to recognize that one of the good parts about something like asset-based
finance is that it's a bunch of different underlying asset classes. Now, we find that there's
a handful of things in there that get distracting. Whether it's the music royalties is one thing
that everyone brings up, and it's a tiny fraction, and probably not that interesting, but
everyone likes to talk about it. So I think that we would look at it more broadly and say,
of course, there's real estate credit, and there's many different flavors of real estate
credit, and those are at least asset-backed by call it definition. There's infrastructure,
there's private corporate credit, there's many different flavors of this thing, and in
a future state, like private equity, like other forms of capital, private or public,
people have verticalized specialties, and people are good at that, and then you'll have
people that are broad-based, and you'll have some multi-asset solutions, and you'll have
some very specific solutions, and investors will be able to choose, I want all corporate
credit, or I want this flavor of corporate credit, or I want all asset-backed or this flavor.
And so I think the future state will be much more verticalized, if you will. Now, we're
not there yet. We're still at the early stages where people say private credit, and they only
think corporate credit. You know, really, the asset-backed, asset-based, let's spend some
time there, because that's a senior and dear to my heart. I think we would say, the real
credit nerds would say there's certainly differences between ABL and ABF, and what we're
now calling alternative credit, which is even a slightly broader mandate. I think, without
getting into the credit nerdery, we'll just call them the same for the most part, asset-based,
lending historically has been receivables, and other forms of collateral that you've lent
to a company, but you'd lend against their receivables or inventory. Again, something
that we would say, fine, not something that we're maybe as excited about, but certainly
an asset-based. Asset-backed is really what we, I think, is the meat of the opportunity
in terms of trillions or tens of trillions of opportunity, and that we've defined it
as either hard assets, so, equipment leasing, and there's many different flavors of equipment
leasing. There's really copier leases and truck leases in planes and much bigger assets
and including even assets that we've done and decided we don't like anymore, like shipping
to volatile, but you could certainly call that an asset-based. All the way to, in terms
of those hard assets, there's inclusive of that, we define that to include residential
finance. Some people might separate it because it's massive, but we put it in there because
we think of it as backed by house. The other flavors of asset-backed finance we've put in
there is really financial assets, Chuck Lowe at this before, which is a small business
in credit cards and other flavors of consumer. Those are where we focus our time and energy
because we think of those businesses generally, in other words, repeatable, scalable, not
just fun to talk about, but also actually have a repeatable nature to it. Certainly, there's
other items in the soft asset category, music royalties, intellectual property, litigation
finance. All things that fit in the probably niche category where funds will crop up,
funds exist today, they'll be small, they won't be widely distributed, and people love
to talk about whiskey barrel aging and other things because it's fun to talk about. Unfortunately,
it's not a great succinct answer and this is the struggle is helping people define and
demystify this, and that's in fact something we spend time with investors on, which is
saying, you own this already, it's in your fixed income portfolio, it's in a ABS format,
but it's not to the middle market size company, it's to America Express or some version
of that.
I think you bring up a really interesting point because there's so many different flavors
of credit that also probably means there's different risk profiles to some extent, but there's
also the public side of it, people own perhaps exposures to a similar category, maybe different
size borrower on the public side, but how should investors think about their exposures
and risk when you actually break it down to a more unitized or atomized level of private
credit, given that it's not just maybe one piece of an investor's allocation, but it's
actually a lot of different things.
Yeah, if investors had perfect transparency in terms of they knew that this fund had this
amount of corporate credit in the side ABS and this amount of underlying ABS, what the
flavors were, the look through, I think would be interesting, I haven't seen tools that
do that yet, maybe we'll get there.
I think that, again, people would be surprised that they own some flavors of all these things
we're talking about, maybe an incredibly small size already, but the biggest food groups
there, whether it's consumer credit or residential finance or criminal icing, those already,
again, a little bit in ABS bonds, and I think that if you were to look through it, I still
think that ABS and ABS have been underrepresented, but at the same time, that's the opportunity
and underrepresented, because, again, they've existed in a serious eyes format, but our
opportunities to go and basically get more to the source of the opportunity and manufacture
that more directly and deliver that in a way where people are actively choosing that
as opposed to passively getting it from some bond fund that they have.
I think that's a really important point, and I want to unpack that.
Some people have called it like farm to table, I think you've called it locally sourced.
That's a really important point because it strips out fees.
If you're going direct to the borrower rather than having it packaged in different ways,
what does that do to the credit ecosystem, both for the borrower's, but also for investors
who are investing in private credit as opposed to some more public form of credit?
Well, certainly there's a bunch of economics that are sitting there, even if, for example,
wants to say a bond fund buys a ABS bond and makes a 6. That's not a 6% cost of capital
to the credit card.
card originator that's probably more closer to a nine or something a couple hundred basis
points wider because the investment bank took its fee, the rating agencies took its fees.
There's a bunch of other trustees and other things in the middle and so there's hundreds
of basis points there.
So it's some of our goal is to disintermediate and take that by getting it to a directly
and making it directly and don't necessarily need a rating in fact, don't want one in
the large part or at least don't need one.
And so I think that we're capturing that for sure from a more direct sales.
The other part is that if you need a hundred million dollars, the bond market does not
care about you.
Good luck and it's not going to cost you a couple of other basis points where it's going
to cost you a lot more because the fees are still the same and the rating agencies are
still the same whether it's five hundred million or a hundred million.
So I think there's a fit problem too which is that there's only so many things that can
be effectively in the public markets.
Of course you see that in a public equity market today too right that people are going
and I don't want to be a public company because it's too expensive and no one's going to
care.
Same problem and in fact if you're a bond buyer, you want to know that issuer is going
to come back not just once because there's no liquidity in that bond and you want to know
that there's going to come back every quarter or maybe for the next ten years and so there's
this real gap between what's essentially advisable to be public or traded and yeah we're
trying to find the things that are one a little bit smaller and two where they understand
that we're also good for it whether it's twenty two where the markets gyrating all over
a place and we're still in business and still really trying to stand up to that.
So I do think that is the kind of progress marches forward the idea that we can go deliver
these and somebody can sign up for I want that I want asset backed or I want infrastructure
or I want this kind of credit as opposed to just kind of getting it passively as more capital
comes into private credit ecosystem does that mean returns will likely go down certainly
capital markets would suggest that so I got to believe the answer that is yes over time
and I think it's true at some level today that corporate credit for example the spread
from call it public to private over time has gotten less and I can definitely say that
the last twenty years because really was library plus a thousand and it's now very rarely
is so for plus a thousand but I think the idea that it is still a manufacturing premium
just one from returns and two from things like documents and structure that's real
because if we do a deal blah we're going to own that risk and we have to live with it
we're not selling it down the road to somebody else we're going to have to basically manage
that risk and we want to know that the covenants are tight that we can manage through any
problems that come up so we got to negotiate something will live with as opposed to some
things in the transactional atmosphere where you're selling it I think that certainly
spreads have come down on margin and is more capital flows in will come down but also
I think it will also provide a broader set of counterparts I think this is definitely
true in private equity I mentioned for example there wasn't a billion dollar deal and now
there's lots of them if you were doing a billion dollar deal ten fifteen years ago you had
to go to buy your market and brought this indicator market because you couldn't find
the money today you can find the money and again they don't do it out of the goodness
of their heart they're doing it because it's a better solution and then we're seeing
that evolution in the asset back to world where for a long time we're looking and we didn't
do a billion dollar deal until twenty two when that opportunity set came because of the
rate cycle but more importantly it's because there's enough assets there we're going to
see the growth of the opportunity set and over time look that certainly means the capital
cost will come down in some cases it'll just be different funds you'll have something
it's generating higher returns you know something generating middle returns and then you'll
have something that might be insurance related over here and that's certainly what's happened
the corporate credit landscape I actually think the reason why returns have probably come
down more is insurance related than anything else where do you think you need to have the
biggest mode or edge is it around origination or is it around things like underwriting analytics
and managing portfolio if you don't see it you can't do it so I think that the starting
point really has to be with the re-nation which is a lot built over we think a long period
of time because the counterparty risk is real you need to know that your counterparty's
good for it understands what the heck they're talking about but it's necessary to see
the transactions but we've seen certainly plenty of transactions where we thought it was
fine not bad not horrible it would have been fine except for if anything bad shock to
the system happens and the only way we can really look at that and say here's what our
analysis says if there's a shock and you sensitize losses up 50% or up a number percent is
you have all the data in the past and you have a pretty good analytics tool that goes this
portfolio is not going to be the 13 that you model that it's going to be a 4 and while
that's okay if for example the GFC loss scenario as you make a 4 that's pretty good you're
pretty happy making your money back in a little bit in some really extreme stress case
but if it's only 10% worse or 20% worse than you expect then you have a massive return
degradation so I don't think it's easy to say it's one of the other I think they're both
critically important but I do think that if you see it then you can have the tools to
it if you just have the tools and you don't see any deals you have a business at that
point either when you think about the consumer side of credit I want you to unpack that perceived
risk versus actual risks I think there's some interesting nuances there that get into
how you underrate how you build origination partnerships we're seeing many of these dimension
fintech so the consumer fintech like the paypal's the clarinus the sofas all of these
firms are doing large either forward flows or facilities with big credit players and
these are big numbers we're talking about billions of dollars tens of billions of dollars
how should people think about risk and consumer credit and what that means from underwriting
and also monitoring perspiration it is one of the things that we do struggle with because
I think there's this perception of consumer sentiment is let's say right at this point
in time is not good and yet people then say consumer credit must be also not good and
we say that actually maybe business contrary people are essentially being more conservative
over here they're probably actually doing better at making payments over here to be clear
their journal had a article the other day said sentiment's really bad but the data doesn't
show it and we would actually echo that which is sentiment's not great now we're standing
last week where everything's up data doesn't say that spending the fault rate billing
would seize all that doesn't actually say that this point at least from all the millions
of data points that we collect but I think the important part there is the perception is
that it's risky the perception is it's highly cyclical and historically speaking it actually
hasn't been true we wrote away paper one point maybe we overdid it by saying don't hike
my mount stupid but the idea wasn't by means to suggest that the readers were that but the
idea was really to say the perception of this risk is just not right in other words that
perception is risk here because I think people don't know better and it's harder and it's
complicated of course one single credit card versus one single corporate loan is more risky
but we're not talking about one we're talking about thousands or tens of thousands or more
in any given portfolio and all those streams of cash flow payback principle plus interest
is a credit card there's a lot of utility to that you got to pay today's bill to get access
to credit tomorrow so there's a lot of utility we saw that through the GFC is actually one
of the better performing assets surprisingly I think to a lot of people that that utility
function was a critical part of it because again you need access to credit and you're not
walking around a bunch of cash in your pocket and so the thing that we show people is look
first of all again we talked about earlier ABS historically trades tighter historically
we can show people that essentially that resilience has been better now the resilience comes
from massly diversified portfolio and a lot of cash flow coming back constantly and I think
that's just again it's a complicated concept one where you do need data science where we've
learned not to pull out the charts right away and make people's eyes glaze over because
it's complicated stuff we're hopeful that the proof is in the pudding by the performance
but also then ultimately by being able to show people over time and we like to look
at effectively our standard analysis is can this survive the GFC if we buy a pool or lend
against a pool of assets small business loans or anything can this survive the GFC like
losses we happen to have the data for a lot of these things we can overland that to our
model I think that's a surprising conclusion but it's also something you can do well for
corporate credit because the data analytics don't exist in the same way do investors
who are allocating to private credit particularly consumer focus private credit do they have
to have a view
on the consumer or SMB to have conviction in allocating,
or are you saying there's so much diversification
across these different types of nights?
In my head, I go to that great chart
that you've put together on Main Street.
It's like there's so many different pieces
you walk down Main Street.
All these different things are related to private credit.
Is there so much diversification in the ABF category
of private credit that people may not need to have
a view or conviction on the consumer or SME
to make a decision to allocate
and it's actually getting diversification in a category
that they want exposure to,
in addition to all the other parts of private credit.
- No question there's a bunch of diversification
within ABF.
But we would even say, you mentioned and started the consumer,
which is, SMB people says,
do you like consumer credit today?
And we go, that's like saying, do you like stocks?
We don't like all of them.
We like some of them.
We would say consumer credit has just been a place
where you could scale and repeatable
and we've been really successful
and done hundreds of transactions at this point.
But we can point to what we like, what we don't like,
why we like it, repeat success, winners.
But this goes back to, we don't like all consumer credit.
In the same way, we don't like all of any other kind of credit.
And we would suggest that when people look at it,
they're looking at not just, hey,
we're not taking a bet on consumer credit,
some macro call.
The same way that if they're investing money
in a corporate credit, like a private corporate credit,
I don't think anyone's asking them to make a macro call on,
is it a good time to be corporate or not?
Words they're saying, manager's gonna be good at selecting.
I like this kind of company, but not this one.
I like this sponsor, don't like this one.
Just like investing in corporate credit
or real estate credit or database credit.
The idea that you have to have a strong conviction
that it's a great macro period, I think is false
because you're ultimately relying on the manager
to know what they like and don't like.
We think the simplest analogy is this idea that,
no, of course we don't like all consumer credit.
We like a bunch of different parts of it.
And certainly you're seeing the scale and size of it.
You mentioned some of these large announcements,
and that's exciting to us.
A lot of those are done with private market investors.
These aren't big announcements to say,
hey, I'm selling $5 billion into the ABS market.
These are much different. These are doing transactions
with people that look like us.
We've talked a lot about the manufacturing side
of private credit.
I wanna talk about the packaging side of credit to investors.
So first I wanna start with Adelaia
and your journey to joining Blue Al.
You built Adelaia into one of the top independent credit firms,
particularly in the ABF category, grew to $10 billion.
Blue Al then acquired you recently.
Walk us through that thought process
of why join a larger platform.
I think we as a business was growing and it had success.
I think we, some point realized that $10 million
wasn't a big firm.
When we started it was a big firm in years later.
And certainly with the 22, 23 change,
it started to feel a little different.
I feel more topical.
I feel like people were coming directly our way.
And we look at our own tools.
We said, well, we've been okay at institutional fundraising
and capital formation.
We've really struggled to do anything
with insurance companies, not zero, but not a lot.
We found it very difficult to be on the other side
of the table and manufacture and figure out
what they liked and didn't like.
And everyone wanted a different flavor
and we couldn't figure out why.
So we'd done very little there and we'd done also
very, very little in the private wealth channel.
We looked and said, can we compete down the road?
We felt like we were going to be able to compete
from an investment perspective.
We thought we were more innovative in areas like data science
and more innovative in other areas.
But if we didn't have the capital or the right capital
that we were going to get run over.
We've gotten phone calls for a long time
from various people and for a while it was flattering.
And then at some point we just said, gosh, we're gonna
not spend our time here.
But more importantly, the world I think continues to evolve
where there's these pillars of capital you need
where you need the institutional investors.
You need something that's insurance related
and you need the private wealth.
And we were looking to say, we can't really do
the private wealth thing well.
We had one person doing it and we did well for one person,
but we didn't have 100 or 200 as a case of the well.
We basically had almost no insurance
like relationships of any meaningful import.
And that tends to be the lower cost capital
we just talked about earlier.
And so we were looking to say, we're not going
to be successful a long term.
And so it didn't feel like we need to do anything
urgently by any means.
But it did feel like the world was changing
and it got to keep changing.
And that's true, even last year we could see that evolve
at even more rapid rate, like the number of people
have launched varying forms of evergreen structures.
In any kind of asset class is my suspicion,
is it multiples of what it's been in the previous years?
And we see that and observe that.
And we didn't have all that necessarily perspective,
but we knew that it was coming.
And again, I feel like we were right in the sense
that is evolving even faster than we thought.
So for us, it was a matter of saying,
we can do something, answer is yes.
And so in the case of, we were really
very comfortable with the authorization.
A lot of people here, they didn't do it.
We did.
There was going to be no conflict.
There was also going to be an easy kind of integration
where there was not going to be a lot of overlap
of what we did.
And I think importantly, it was a Goldilocks
size where it was big enough to have those resources
that we didn't have.
But small enough where we were able to have some impact
and have some impact not just on the growth of the business,
but hey, what should data science look like across platform?
How should this work?
Can we influence that as opposed to much,
much larger organizations where we felt like we would have
disappeared and never to be heard from again?
So that was really the backdrop for what we did.
And I've seen that steady drum beat of people
doing transactions.
Even last year, I'm sure it's continuing.
And we'll continue as we go forward.
Because $10 billion is not very large.
And I think when you look at people
who are multiples of where we were,
they're worried about the same thing.
Can they be public?
Do they want to be public?
Can they not be public?
Can they compete for some of these things?
I think that's real.
And these are firms that we kind of looked around the run
and said, if we double, triple, quintuple,
we're going to still worry about these same things.
Why would we want to go through that?
Why don't we make sure that we're one of the winners?
We have these incredible sourcing,
origination, execution, and all the analytics associated
with it.
We need to really make sure that we are winners with those tools.
One of the other things embedded in who
you just shared is the importance of DNA and shared culture
in terms of how you think about running a business,
particularly when it comes to credit.
You have to have a pretty similar view of underwriting.
So how did the two DNAs and shared culture mesh together?
Because that's so important in credit.
Having a similar mindset.
The roots of blue all, of course, are from our octaves.
It was a credit business.
So I think you can look in today, credits
till it's the largest business.
And real estate businesses growing rapidly as well.
But even a lot of what we do in real estate
is credit-oriented.
Where we're taking the credit risk of an investor-grade
counterpart, we're really relying on them to be good for it.
So it is deep credit DNA across the firm, whether it says
credit or says real estate.
And we take some comfort from that
and take some comfort from some shared, not just
perspective, but the entrepreneurial nature of blue all,
I think, is something that I appreciated.
Having built Adelaia from scratch and having gone through
all the trials and tribulations associated with that.
And then you have Doug and Craig and Mark and others
come together and basically have built these other businesses
and now ultimately bring those together that truly
are operating as one.
We ultimately had to spend time saying
we're comfortable putting the bloggers on.
Our answer to that was, yes, that we
think that the way these things work the best
is not a hedge, like a 51% deal, a 2/3 deal,
where one foot in, one foot out.
For all sorts of conflict and other reasons,
I think it works best when you go to where you're
going to do this together.
We believe we're putting the jersey on.
By the way, we continue to make investments the same way,
same investment team, same investment committee,
same investment process.
It's open to everyone to join, but we're still doing it
the same way that we've doing it before when it comes
to investing, but all those other things we need
and want help on and we want people.
And by the way, we want the benefit of the BLL umbrella,
by the sourcing engine, we joke a little bit
that nobody cared when Adelaide had a press release.
And then when we start doing the BLL, everyone cares a lot more.
That's real.
I think we absolutely opted into that,
but we thought we were going in eyes wide open.
We thought we were going in eyes wide open
with the right culture because we knew so many
of the same people.
We had that shared history in DNA of certainly
the credit cultural, the entrepreneurial mindedness.
And I think we also took some comfort
from the success of the Oak Street transaction.
I was at Oak Street Fund Investor going back pre-blooded,
saw what happened to that, could speak to Mark Zarr.
And I think.
All that coming together is what made us comfortable.
But these are hard to get done.
And I've had that discussion with someone here
even afterwards.
These are hard things to get done.
How things to bring together, hard things to make people
really row in the same direction.
But we did that really purposely.
And I think a lot of these are maybe more rickety in terms
of whether they're going to work long-term or not,
because I'm not sure that people are all in.
One of the other aspects of this, too,
is being able to work in the wealth channel.
Blue Al has built an incredible business
working with the wealth channel across the different strategies
within Blue Al, and I think that's another piece of all of this,
which is, it's interesting to think about private credit
within a wealth investor's portfolio.
How should a wealth investor think about private credit?
And why should it be a part of a portfolio?
I think it's the same way any other industrial private
wealther otherwise.
It's a fixed income replacement, hopefully, earn a premium
to which you would in a regular way bond fund or otherwise.
Fixed income replacement has to work for that.
Second, the question is, at least from a delivery vessel,
how long are you locked up?
Are you locked up forever?
You can get your money back or your capital calls.
There are things that private wealth worries about
and should worry about, certainly.
I'm on the other side of this, too,
which is the headache of capital call, draw down,
pay attention to it.
Ten years, don't get rid of it, all those problems.
I think that what we've found is these semi-liquid delivery
vessels, VDCs, greets, interval funds or otherwise
are certainly a viable and they're provenly good,
notwithstanding the various reservations
that people had a long time ago.
I think today we would say it's generally worked,
just like private credit's worked.
These delivery vessels have worked.
And so if they can be that fixed income replacement
for people to pick up hundreds of basis points of return
and are not trading off liquidity forever,
people should seriously consider that as a meaningful part.
And of course, where binomial is the only one saying that,
lots of people will say that and you're seeing the adoption
of all, but certainly these vehicles for that reason,
1099 and all the other delivery vessels make it much easier.
So, I think the basic level is can it be fixed income
replacement and is it headache?
If it solves those two problems for private wealth,
then they should consider, is it just one flavor
or is it multiple flavors?
If we combine what you just said around the ability
to potentially rebalance or take capital out
of these evergreen structures with something you said earlier,
which is that there's more and more transparency coming
to private credit around data and analytics.
What is the impact of that market structure evolution
from a technology perspective?
And what kind of impact does that have on LPs
and their mindset, do you think?
- Transparency's good in general.
No, I don't think anyone's gonna sit here and go,
transparency's bad, I think all of us are gonna be fans
of more information and more transparency.
I think the idea that people are gonna trade these things
around, I think that's part of the question you're asking too,
is should there be better pricing in market checks
or otherwise, I'm not convinced that anyone
actually wants to trade this stuff.
For a whole bunch of reasons, one is we tried to buy stuff
from every BDC throughout the GFC
and we got a total of one trade done.
It was from somebody who was liquidating.
That was one particular period of time
for maybe five, 10 year period of time.
But more importantly, I think that the private equity sponsor
or our borrowers, they want us to be the counterpart.
The whole idea of a private equity firm
doing a corporate direct lending deal.
So they know who their counterpart is.
In fact, as you probably know, there's all sorts of call it
gray lists or black lists of people who they can't do business
with or won't do business with
and they don't want them to hold that loan.
And so even more critical for kind of our capital
where you've got to be good for the capital.
So I don't think that if we did a deal and chopped it up
and sold it to 10 people, that's what our counterpart wants.
And I'm not sure that's better for us.
We want to eat what we make
and we want to try to eat as much of it as possible.
We're doing the hard work and finding it.
So I just don't know who wants to trade it
other than the idea that you get a mark.
I think I understand why people want a mark
and that might be a signal of whether it's good or not good.
I understand that part, but I also am not convinced
that the mark does much.
Maybe if you're an insurance manager,
you get more regulatory credit
'cause you can show that there's a liquidity.
So you have the less regulatory capital charges.
Maybe that's the reason.
But I'm not convinced there's anyone
who really is looking to trade this stuff
because if you're good at making it
and you make a lot of it and you have the capital,
you want to keep it.
And there was a time many years ago
when capital formation didn't keep up with it.
Like 2003, it's there and go.
Instead of $150 million deal, I have $2.25
and you figure out a chop things up.
That's not true today.
In fact, the all opposite is true
where you're trying to find more.
So I just am not convinced that people
really want to trade this stuff.
It's not right for the counterparty
and I don't understand why people would want
necessary sell it to others if you will.
Having a transparency of a mark is obviously
a little bit better than not having it all.
But again, I don't think that people are coming in
saying, hey, I need a third party,
like trading a mark to do that.
It's also even if you found a mark
and you could have a trade once,
does that mean there's liquidity to it?
Not really.
So I'm not sure what the objective there is
and I don't really agree with the idea of buying it.
What do you think is the next biggest thing in education,
particularly of investors who are maybe earlier
in their exposure to or understanding of private credit?
I do think that from our experience now,
it's certainly as far blue out.
There's a lot of effort going into the education,
certainly into the private wealth inside of the equation,
which is educating whether it's the larger wirehouse
or IRAs, there's a ton of material getting produced,
certainly white papers or otherwise.
I think that if some of the financial advisors
at the root need to basically be convinced
that it's a good fixed income replacement
for somebody who's never had any alts before.
So that's probably the front lines.
It's barely call it high net worth,
ultra high net worth folks who've probably
been doing some flavor of alts for a while.
Think that this is a good fixed income replacement.
It's not that tax-efficient,
at least certainly in the case of corporate drug lending
in some of our ABF strategies, but I do think
that it's some level, that's the educational piece
where we need to be able to get to the people
who have none of it and say you should do some of it.
Now the question is, what convinces people?
I think time.
I don't think that there's some magic article
or magic podcast necessarily that we can get it
all the way there, but also experience, right?
If we would say that historically now it's worked.
A lot of this today we're talking about
because it's worked.
The private credit has done its job
and other flavors of these have done their job
and made a nice return and so people say I'd like some more.
I just don't want the same exact thing.
I don't want to double down on what I have.
I want to diversify that out.
Where are we in that evolution within ABF?
'Cause ABF has been around for a bit of time,
but it's earlier in people's adoption of it
within the private credit ecosystem.
How much time or data and performance
do you think is required for people to start saying,
okay, yes, ABF is something we truly understand.
It's gonna happen more quickly than it's happened
with other, let's just say private photos, credit.
It's been around for a long time.
I joke that 2000 years ago you could pay for today's seeds
with tomorrow's crops.
There wasn't a private equity sponsor transaction to do then.
So this was very early asset-based finance
as a century dad.
Now, I think the comparable that you can point to
is like lending it software and recurring revenue,
which is 20 something years ago,
we were doing it, others were doing it.
Well, as far as a foot ill was doing a lot of it.
This was in the early 2000s and at that time,
the multiples were really low.
The private equity sponsors were a few and far between
that got it, but it was perceived to be risky
because it was technology.
Bill said software equals technology equals risky.
I don't like it, but those proved to be incredibly resilient
and then fast forward even to today
where you have dedicated large funds,
including blow-off funds that all they do
is lending against software.
And by the way, those multiples are higher.
At least if you looked at the pure financial metrics,
higher than they would be a widget manufacturer.
Now, that evolution's been shorter than 20 years
'cause it kind of didn't do anything
and it became very much well conceived
or well-accepted knowledge
that it was a good asset class to lend against.
So with that wind up, I think this is a handful
of years from now where people didn't say it's worked.
I did this fund, it made its return, it's diversified
and I'd say big enough where people can point at it
and go, it's work.
To say the starting point was after the GFC,
let's say software took 10 years to go from being.
Something a small number of people did to something
that was well-adopted and had funds dedicated to it.
We already have funds dedicated to that.
at base and ask back finance. So we're probably I'm going to pick a number three years from really
being able to look backwards and people going it's working. Now institutions could say it's worked
because they've been doing it for longer but it's still not well adopted. We think about private
credit as well. It's roughly 1.7 trillion size market. Some say it's anywhere between a 20 to 40
trillion dollar marketplace depending on which firm and also which assets. Let's use this in the
context of you're running your running acumen. You run a hundred mile race before. Where are we
in the private credit evolution? We're broadly not just ABF in that 100 mile race. What mile marker
at this point? The question so I'll put it in real ultra running geek speak for Western states
is one of the races that run mile 30 and change is Robinson's flat. So I'm going to say we're
early stage we're in the 30% category in terms of the adoption and I think it'll happen much faster
unlike the rest of my 30 to 100 mile race which I was getting much slower now faster. We're going
to see that much more accelerated from here and again because we've seen in corporate we've seen
other asset classes so you know we're going to call it somewhere in those early maybe it's 30%
third inning something like that. Reading your account of your 2012 100 mile race by mile 80 I think
you got IT band issues. Where does private credit start to see some IT band issues? It's a good question.
I think with benefit hindsight there was plenty issues that were at least lurking in the context of
doing any kind of long race. I think more likely as I said before at some point in any race we're
all the sort of the length you're thinking it's a really bad idea. I think private credit's gone
through some of these phases where people think it's a bad idea. GFC for example is one where people
go wait a minute I have all this private stuff in these funds it's some of it's about knowing what
you're getting into. I think the best coral area I would say is you're always going to have
niggles you're always going to have issues you're always going to have something that you're working
through and it's going to feel like a big deal at that exact moment in time. This unlike ultra
running where there's some endpoint of that race. This is a journey without an endpoint and I think
we're going to continue to evolve and we're going to say my IT band issues maybe I got to fix that
thing and I would actually say that all the evolution we're talking about today evergreen structures
evolution that solved the problem that these weren't that digestible for private wealth.
Something is now digestible not just private wealth but investing more broadly.
There'll be no other evolutions it exists so I think the cracks if you will are the issues those
have continued to come up you go back to GFC but mercilessly COVID rate cycle and whatever is
in front of us I think you're seeing that it's just the volatility every time that happens the other
side if you built the nice portfolio and you have the right infrastructure you pop out the other
side it's a stronger business maybe an unsatisfying answer but ultimately I think that you learn a lot
of when you go through this and you pop out the other side much smarter in case of any races I think
you pop out much smarter even if you maybe think it was a bad idea for a moment. I was like private
credit also needs to make sure it just has the right pre-hab and activation exercises and a good
physio along the way that'll prevent a lot of the big issues if you can prevent it yeah that in
the short and near there's many analogies you can come up with with that certainly one of them and
that it feels like that's starting to happen with all the innovation around data science making sure
people are underwriting really well having scale I think probably matters as well scale is a really
important part of it sod and corporate world we're going to see it and yes it back to world and
there'll be others infrastructure a good example right talking about data center activity where
is a massive need for cab X there not just the outside of the box if you all the real estate but
all the inside servers the GPUs are otherwise and that was something that was on nobody's radar five
years ago no one would have identified that is a really great area we've done some data center
quickly seeing the past but it wasn't a massive opportunity set and so these things will keep
changing think you bring up another really interesting point which is there's different forms and
flavors of providing financing and you mentioned this earlier in the podcast that it's going to get
more verticalized but then having the ability to do multiple forms of financing data center example
is one perfect example where one team might do the assets within the data center another team might
do the data center it feels like that's going to become a really important piece of this so that
you can be a service provider to at the borrowers and a number of different ways absolutely we're
calling on counter parts today our potential borrowers that we knew existed but we wouldn't have
been able to get in the door but some cases our real assets team has been doing business with them
or is doing business from now our tech team has been calling on them for something else and
if we do it right bring it all together we're seeing the beginning stages of that again not that
long ago no one could write those checks wasn't even on our radar so I think this all fits
in and I'll bring it back to you running theme here at Adelaia we had something we called the
three hours one of those was the relentless forward progress really I stole it out of ultra running
which is this idea this you're taking one step in front of the other you're have to believe that
you're making forward progress every day you have to buy into the idea that you need to keep changing
and getting better whatever that means and so this office and that category of trying to make
some relentless forward progress I think that's such a great way to to end this and tie it all
together because I think when you think about the speed at which this space has grown it's been pretty
fast takes over a 10-year period you look back and you go wow there's a lot it's changed here
and there's a lot that this a farm has grown blue alves eight nine years old right I mean you think
about another 10 years what does that look like and what's the space can look like so I think that's
such an important point to remember particularly in private markets when things take time but they
take time for a reason but then you look 10 years later and you say wow the space is much bigger than
the one before yeah firm is the opportunity says dramatically larger than we ever thought it was
and not that long ago so my favorite question to end is your most favorite or interesting
alternative investment that you've made there's almost too many that fit into the storytelling
category having done at this point I think we've done almost a thousand investments at out of
Alaya unfortunately the things that I have most seared onto my brain are the ones that went wrong
it can like a good credit investor yeah I've learned that over time but the credit investors
think about all the ones that went wrong and the equity investors say hey you win something
loose some don't think about those anymore that's what makes them good at that I think investments
that have been most memorable are those where look back and go we really knew all the pieces of
the puzzle maybe one that sticks out for example we bought a pool of non-performing second leans
and we subsequently bought a bunch of them because we decided it was attractive and all the stars
in line we were working with the servicing partner it would have been servicing already they were
putting up their own money it was a seller who was definitely getting out of the business somebody
who had been insurance company that adapted for a bank and kind of ended up with it again nobody
wanted this after the GFC he locks were five letters but a four letter word so we're buying them at
a single digit percentage of par value not performing to be clear and the reason why I think I look
back and say cash whoever sees these things again will do it even bigger in size but we thought
we were buying a stream of cash flows that were effectively a long dated but we were actually
getting we underpriced it but in a good way the call option on home equity being worth a lot more
so we got this stream of cash flows it was worth oh we thought it was at least from the kind of
a credit collections perspective but the call option on the home equity being something of real value
was incredible and so I think that drove that but it was really that downside
orientation where you got this free call if you will and I think we again trying to build
situations today where we get that stream of cash flows and then have some call options that one
just worked incredibly well and we fortunately did a bunch of more of them can't do any more today
because those are free GFC assets but that's probably the one one sticks out this is a prototype
for all the others I think that's an interesting one to highlight just because I think it
brings rise to the point of risk reward and that every investment in public also but certainly
private markets there's a risk reward to it and I think private credits an interesting example of
where thinking about that risk reward there are times when you can get more upside other businesses
you have here like GP stakes another example that where there's a risk that you're underwriting
there's a reward they are underwriting but then they're potentially more upside so I think if
that's an interesting framing of how to think about certain aspects of private credit where
underwrite something maybe hope something else happens but you don't need it to happen for to be
good at this list was a great conversation thank so much I appreciate thanks for taking the time
it was really fun likewise before to run same thanks for listening to this episode of all goes
mainstream I hope you enjoyed it you can read more about all to my sub stack all goes mainstream.substac.com. Thanks a lot and have a great day.
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