Private Chat — Fundraising and secondaries during private credit’s liquidity crunch

[MUSIC] Hello and welcome to Cloud 9th in. I'm Tom Quinn, a reporter on the private credit team. And today we're going to talk about one of the major themes of private credit, which has been liquidity management. It's happened over the past six months. And the high profile of credit meltdowns that we saw last year, combined with some concerns over software, have led to record redemption requests from BDCs, non-traded BDCs in particular. That has led to funds having to gate their funds in order to manage liquidity. So that's happening at the same time as when we need more liquidity, we're seeing this ballooning credit secondaries market. And as that market improves, you're seeing more activity, both in continuation vehicles, but also loan sales. And so today we have Jeff Griffiths, who's the perfect person to talk about both of those dynamics in private credit. And Jeff is the global head of private credit at Campbell Lutton's, at which is a leading private credit fundraising, but also secondary advisor. Jeff, thanks for being with us today. Tom, thank you very much for having me. Really happy to be here. Awesome. So also, Campbell was just acquired by Lizard, which shows a huge strength in the market. And also this dynamic that's playing out across Wall Street, which is a developing or continuing to develop the private capital. And so that's the way we're talking about the private capital. And so, we're talking about the private capital. Why is this market attractive? The equivalent public market in this, in, to, to private credit, is broadly syndicated leverage loans. And how you'll bonds to a certain extent. But broadly syndicated leverage loans is the equivalent public market. And so, when anyone ever is an asset allocator looking to move from between public and private markets, what does the private market offer? It still offers better returns. And according to some of the numbers that we've run, the direct lending market, if you're looking at the private market, and the direct lending market, if you look at the cliff water direct lending index, which I think is a very good, compendium of returns in the market, has outperformed broadly syndicated loans in 18 of the last 20 years. And then consistently, when you run those returns through a 20-year cohort, it's outperformed, broadly syndicated loans by about 500 basis points. So, I think the pitch is basically fundamentally down to returns. The private credit direct lending markets are more, more likely than not in most years. And in most economic circumstances, going to offer a better return to investors than public market equivalent. Now, the corollary to that is the liquidity point, right? And that's an incredibly important point. It's more important for retail investors than it is for institutions. Institutions can lock their capital up. They don't need generally a lot of liquidity. They don't really care whether they can get out of something in the quarter or two quarters. It's just not something they care about because they're looking to generate returns over 5, 10, 15, 20-year horizon. But if you're dealing with a less sophisticated investor or retail investor, or even some high net worth investors, liquidity is very important to them. So, then the question becomes, is private credit appropriate for that investor that needs liquidity versus the public market equivalent? In many cases, it's not actually appropriate. And I think one of the big lessons learned from this market, and I think clearly a lot of investors will be retail investors will be saying, "Well, I may have bought into a private BDC. I thought I might be able to get out. I actually can't get out when I want to." Is that the right investment for me or should I be invested in a broadly syndicated loan mutual fund or should I be invested actually in what is really, what was the original retail vehicle for private credit, the publicly traded BDC? Those are the ones that you and I can go buy on the stock exchange through our broker today. And those have been around since the 1990s, late 90s, early 2000s. So, I think those vehicles have been, that should really be the classic retail fund vehicle. And the pitch is, you know, right now you can buy a lot of those at a significantly discounted values. The publicly traded BDCs are trading some at a material discounts to nav. And that some investors may view that as an interesting opportunity to acquire portfolios at a discount. So, I think direct lending just to summarize your answer to your question. It has proven over many years over two decades now that it can generate better returns over a long period of time. And that's through the GFC, through the energy price volatility in 2014, '15, '16, and through COVID. So, I think investors looking at this market should again remind themselves that it's risky, but also remind themselves of the long-term return generation. Right. And when you say the pitch is in those publicly traded vehicles, you are specifically saying for retail investors, right? Yes. You're not, are you saying also for institutions? Not necessarily, because I don't think a lot of institutions want to own big blocks of shares in publicly traded BDCs. They could, they could do that. It could be an interesting way. If some are trading at significant discounts, that might actually be an interesting way. In fact, if you think of what's happened, the dynamic between the private BDCs and how those structures work, it's taken the market several months to figure it out. They actually are stable structures because they only allow out up to 5%. And actually, most of them don't have to allow anything out. Actually, they have the optionality to not let anyone out. Most of those funds will want to meet 5%, up to 5% per quarter. That's not going to put a significant burden on those funds. But the point I wanted to make there is that they offer people out at NAV. So they offer to give you your U-share back at NAV. And a lot of times, if you're in a private BDC with a large well-regarded manager, they will also have a publicly traded BDC. That's in a relatively similar portfolio. So if you're a rational investor, you may redeem at NAV in the private vehicle, and then go buy the shares at a discount in the public vehicle. And you're essentially recreating your portfolio at a discount, which creates an incentive, actually, for more people to want to redeem from the private BDC at NAV. And then move into something else at a cheaper value. So there's a bit of that playing out. But I think overall, I expect to see continued share. I don't actually like to call them redemptions, because I think redemptions is more of a mutual fund or a hedge fund term. These private BDCs, all they're offering to do is it's a share repurchase program. They're saying the investors, "Okay, you have your shares. If you want to tender them back to the fund, we may buy up to 5% of them in any quarter." So it's a share repurchase program at NAV. And that's how they work. It's a stable structure. It was actually designed going through the GFC, the lessons we learned. And this was very frustrating, actually earlier this year, when a lot of markets participants were trying to run analogies between this situation and the GFC. That was very frustrating for many of us who've been through the GFC, because this is really very-- this is not nothing like that. There, there was a very significant mismatch between assets and liabilities. There is an significant amount of liquid assets. that were on bank balance sheets with the wrong liability structure here. Essentially, what we have is a private asset that's being packaged in a private fund. A private BDC's are private. They're closed-ended vehicles. And you have a liquidity mechanism, which is allowing people out 5% of quarter and no more than that. So actually, it's quite stable. And it means that those funds aren't going to be forced selling assets. I don't believe they would have any reason to force sell assets. They will just have to move into a more of a defensive position, perhaps hold more liquid assets, hold more cash, and let's those portfolios. In the anticipation that they're going to have to repurchase 5% of shares every quarter. Right. And so it sounds like what you're saying is the skittishness that we're seeing with the non-traded BDCs, the investors in those, is a little bit boxed into that type of a vehicle. But when you're going out and trying to raise money from institutional peace for direct lending funds, maybe SMAs, you're not seeing that same dynamic. No, so we have seen some softening of demand even from institutions. So I think really what that is, it's not necessarily concerns about structure. It's more of the concerns about has a lending in private, the credit or direct lending gotten too aggressive. Is there, are there certain sector over exposures that we should look at? Those are all legitimate questions. At the end of the day, investors in private credit are taking default and loss risk. They're taking default, loss sector risk, company risk. These are, this has always been the case. So yeah, it would be wrong for me to say that we have, we have seen some, definitely some institutions pause, institutions step back and say, do I have the right mix in my credit portfolios? Should I change things? Should I pause here? Should I overweight there? That is definitely happening. But we are definitely not seeing any wholesale institutional pullback from, from private credit or direct lending at all. It's still a growing market. I think on large, by and large, we see institutions and by that, we mean pensions, insurers, and downless foundations, large family offices. They still are generally either growing their private credit allocations or keeping them stable. And so we're not necessarily seeing a skittish reaction from them. So on that too, I mean, obviously private credit is a massive asset class and direct lending is just one of them. And as you see people either reallocate, are they, are they thinking about allocating out of private credit or just reallocating within private credit? So saying maybe we'll give a little less to direct lending and more to ABF for a different type of private credit structure. I think largely when we talk pension funds, insurance companies, this is a real large institutions, they're not allocating away. They're allocating into other parts of private credit. So we are seeing a definite focus on more asset backed and asset based lending. And this is something that we've been trying to get investors to do for years now. And we spotted this opportunity several years ago where we looked, for example, at the infrastructure debt market where you have private credit against private infrastructure assets, large stable, contracted assets capital intensive, but easy to understand. Most, a lot of industrial investors just don't have infrastructure debt as part of their allocation. And they really should in our opinion because if you're, if your core allocation is just direct lending, that means that you're mostly insponsored private equity deals. It's very asset light companies. So services, businesses, IT, software, healthcare. And you're not really getting a real broad diversification of the real economy. It's certainly not getting exposure to hard assets. We think hard assets are important for people to get exposure to. And now we're now seeing increased interest in that market from investors finally after spending several years and working with some really great clients in that space. And we have been raising money. But it's now become easier because we are seeing investors really look at their private credit portfolios and realize that a bit more asset heavy exposure would be appropriate to balance things out. Right. And so the other, the other area that's been, that's been very interesting to watch over the past few months has been geopolitics and looking at the types of investors and where they're investing. So we've had, we've had over there like since 2026 an issue over Greenland, which has caused issues with Europe, especially Scandinavian countries. Then we've also had an Iran war, which has caused issues with the Gulf countries. Are you seeing any change in the behavior of the funds that, the institutional investors that are based in those regions as they look at their US capital right now? Yes. So we are seeing some, certainly a change in certain European investors that would like to allocate more locally to their own local European strategies. And it's not necessarily a bias against the US per se. I think it's more for them, how can we invest more closer to home? How can we invest in for Europeans? There's an enormous amount of infrastructure investment and defense investment that they need to engage in. And so I think responsibly they're asking themselves, how can we do more at home? The challenge they face is that the US markets are just so much bigger and deeper than what any European private market can offer. European private markets are great. They've been around for many years, private equity, private credit. They are deep, they're diverse. But if you're a large institution, it's very hard to avoid investing in the US. Very, very difficult. And if you were to just focus on your home market, you might end up with certain concentrations that are perhaps not desirable. So we are definitely seeing preferences for European investors to stay closer to home, do a bit less in the US. And that's translating into more, perhaps, easier fundraising conditions for European strategies versus US strategies. But I wouldn't call that anything dramatic at this point, but it's definitely happening. It's definitely happening. And it's created more challenges for US fund managers that are trying to raise money in Europe. In the Middle East, a bit too early to tell, we have not seen frequent visitor there. We haven't seen much pullback. I think clearly there's been disruption in terms of working patterns and people being in and out of the office. And it's been an incredibly difficult time for staff on the ground in that region. But we haven't seen really any difference in behavior from them yet. But they also have significant, they could potentially have significant internal investment requirements in defense required depending on how things play out. And so that may affect what those sub because a lot of the capital there is sovereign capital. It's national sovereign capital. And if the countries need to invest more locally, that will impact fundraising internationally. That will mean that fund managers looking to raise money in the Middle East will find it harder. But at this point, we have not seen that yet happen. Right. So the concern is that it's more of a nationalistic response, not anti-American, but pro your own region. I think so. I mean, I think clearly I would be wrong to say that there isn't some frustration with the behavior of certain administration officials versus so Europeans being frustrated with that. But again, I think the institutions have a fiduciary duty to their stakeholders, their pension holders. They don't have a fiduciary duty to their governments. Now, sovereign wealth funds do. But if you're a pension fund in an in Nordic country, you need to look after your stakeholders by and large. They may have other rules, but but that's where you're not necessarily. Your job is not to please the government in Sweden or Denmark. Your job is to make the and so that's why then you come back to the point of, well, then if that's my job, then I can't not invest in the US because it's so such a deep market, such a diverse market, it offers so much more selectivity than other parts of the world that it's it's almost a necessity. Right. That makes sense. So then the other area that's that's pretty interesting is some of the legal changes and docs changes that have happened in capital deployment for private credit, especially direct lending. And the the fund structures as the as the price class starts to mature have started to get a little bit complicated, especially on the deployment and also the fund structure side. How much are LPs wanting transparency into the docs that their managers are using or how much are they wanting to to control what managers can and can't do when they want to deploy that money? I mean, I think that investors do have so one of the advantages of being an institution and investing through GP LP structures, so the traditional traditional draw down private market structure is that it does offer the LP more, I would argue, more say in the governance of a fund, more of a role, more transparency than if you were to invest in a BDC, which is very it's a regulated vehicle. It's a 40 act vehicle has a lot of rules and regulations, but you're a bit more of a passive investor in those types of vehicles in some regards. And so I think that yeah, investors are looking for particularly investors that have large pools of capital, they're allocating significant tickets to certain investors. They are in a position of influence. They can make changes or request changes in documentation, fund documentation in their favor. Fundraising is generally challenging. It's always been hard in private credit and investors have always been very much, they're not, you know, I want to say in the driver's seat, but they do have a lot of influence and control. So we are seeing some improvements there for LPs, but what I would also say is I think that also, So transparency is really good, I think, in private credit. I think they're particularly direct lending. Direct lending is, if you're in a direct lending fund, you pretty much see everything. You see all the line items, you see all the companies, you see what, you know, the industry, the interest rates, the terms, the leverage. It's all there. If you're an investor, you can see it. That's not necessarily case in other parts of private credit, particularly asset-based lending and this little bit more opaque, less transparent because you have hundreds of thousands or thousands of underlying loans in those platforms. That's much harder. Transparency is not as strong, but I think in direct lending, it's quite strong or in corporate credit strategies. It's pretty strong. So LPs, yes, absolutely, are looking for more controller and fruits. If you're a really big LP, you'll just do a separate account. And then in that separate account, you'll have a bilateral agreement with the manager and then in that agreement, you may be able to set up quite a lot of flexibility and transparency and optionality into your documents. Right. And on that, you know, we see LPs that want to be exactly that, which is just a limited partner, but there's also more activity from some LPs to be either co-invest or directly participating in these loans through like buying them on the secondary market example. Is that changing the dynamic when you go out to fundrais now where certain LPs that want to be better or more active participants are acting a little bit more like managers that they used to. That does. So there is a, we do see more and more investors basically say, I'm sorry, I'm not interested in the fund. You're selling me. I'm more interested in, can you sell me a portfolio? Can you show me a direct deal? Yes. That more of that is happening. I think that that's also only natural as the market matures and as teams, as investors are able to bring in teams in house. I think there's a limitation to that though as well. And I go back to what I said earlier about this market is risky. These are risky loans. These are single B double B loans. A lot needs to go right in five, six, seven years for the company to pay you back the end of the day. And so the point I'm trying to make there is that it's hard to, it's hard for an LPs to hire these teams to pay them what they would get paid at managers. And then manage that risk internally when it's directly on balance sheet is somewhat difficult. So I think we are seeing more direct participants, particularly with larger pools that are well resourced and that have the capability to hire talent. But there's a limitation. We have also seen the opposite. We have seen recently some larger traditional more sovereign like LPs who have traditionally been very active directly. They've been coming to us and saying, we're not seeing enough co-invest. We're not getting enough deal flow. Then you show us more fund opportunities that then we can increase the diversification in our portfolios. So I think there's a limitation to it, but we expect it to continue to happen. We expect that more investors will in house some capabilities and be able to behave almost like a manager themselves. Right. And that's not necessarily what we would think of when we think of secondaries, but it's a little bit on that road. And secondaries are a massively growing practice. So one of the areas that we are really interested in understanding is as the capital growth happens in secondary is one of the things that happened as you had too much dry powder in the private credit in the direct lending market was you saw the deterioration of. Yes. When you go out to LPs, institutional LPs and you say, okay, these secondary markets are really where we should be allocating capital. Is there a concern that if there's an over allocation and there's too much dry powder there that you could see the erosion of terms like a similar pattern that we saw in direct lending? Well, yes. I think there is what we saw in direct lending arguably. And I don't necessarily disagree with you that when there's too much, when you have this influx of retail, I call it hot money coming in that then money needs to be deployed quickly. And then it could often be deployed in unattractive deals. And that's never good. I think that that's, but that's just fundamental supply and demand of any market. And secondaries, I think that essentially what you have, when we think of secondaries, and I think it's probably the part that I think is really interesting right now is the structural need for direct lending funds. Most direct lending funds are housed in end of life to draw down vehicles. And by that, I mean, GPLP structures that have a six, seven, eight, eight, nine, nine, usually nine, ten year life. And there's an end. I have to come to an end. Usually there's a point in time where towards the end, they have to keep extending the fund because there's assets in the fund that need to be moved. They can't sell the, they don't want to sell the assets because they would have to sell them at a discount. They're ill-equate assets are not meant to be sold. So basically what you also see in direct lending funds that are draw down structures is a decay in the IRR. When you, when you move out of the investment period, you generally start to see the IRRs start to deteriorate because you're sitting on a melting ice cube. You have these loans. You have no control over when they pay off, some may pay off early later. And so there actually is a technology in the secondary market where we take those tail-in portfolios or not necessarily tail-in, but year six, seven, eight and move them to a new vehicle, bring in a little bit of fresh capital, add some new loans, put a little bit of recycling in it and you've now have a better pool of capital to manage going forward. What is the interesting structural, I think that's going to be a constant structural element in the private credit market and that is where there is the most activity happening right now in private credit secondaries. Some people may call them continuation vehicles, that's essentially what they are. They're a bit different to the private equity CV world. These are multi-asset CVs in credit and they're primarily being done because of the mismatch between the end of life in the fund vehicle and the assets themselves. And for those deals to work, the three constituents need to be fairly treated, right? The existing investors in the fund that are giving the option to get their money back, the manager and the new investors buying in and recapitalizing the fund. And if all three of those constituencies are happy and pleased, then these deals, and they have been happening, these deals are going to be a big place to deploy capital. And then finally, what I would say is back to your point on concerns, there are concerns and there would be, if direct lending funds are seeing a deterioration, their portfolios or assets, the secondary market is just buying the same thing. They're just buying that. They might be buying it at a slight discount, but they're essentially buying the same exposure. So those concerns would be present in the secondary market as well in terms of asset quality and discipline of deployment of capital. Those concerns are the same concerns would also be applicable in the secondary market. Right. So it sounds like there's almost two different types of secondary markets that are evolving. There's one which is a little bit more distressed, but then the one that we're talking about is the performing credit market, which says, yes, you know, if you're six, seven years into your advantage, you maybe have a 70, 80% DPI at that point to your investors. You just want to exit and you can get them, you know, maybe not all the way up to where they were going to be, but high enough up that they don't particularly care. They can redeploy that capital. That's exactly right. And then you add a few new loans to the continuation view of the goal to get some returns. And this is what you're talking about. Yeah. That's the exact same. So an institution's been in a fund for seven years. They've gotten a good return. The option for them is, okay, I can cash out now, get everything back, redeploy that in something else. Or that's attractive. You've been in something for seven years. That's quite a long time. And if you're just giving the option to get everything back, most of the investors in this market will take that option at the right price. And then as a new investor, you're basically buying into a seeded portfolio throwing off cash flows right away. You can CDS. That's you can diligence them. You can price them. And so that's also attractive. And that's the secondary funds that are raising capital primarily on that thesis of you as LP investing my secondary fund. I'm going to give you fast deployment direct access to cash flows, diversified portfolios, interduration strategy, perhaps slightly higher IRR because IRR is just a cash flow measurement, timing of cash flows measurement, slightly higher IRR, but on a total return basis. So the actual total return of the milk, it might not be as attractive as if you're in a blind pool. So that's essentially the arbitrage that's happening. It's really a timing. It's a liquidity arbitrage really. But those deals aren't going to happen if buyers and sellers aren't close on pricing. And that right is right now, single digit discounts to NAV. If those discounts to NAV were anything more than that, then I think the option of the sellers is not attractive. And they may decide to just stick with the assets because selling out at anything more than several points of a discount may not be attractive to them. Right. And so there are solutions to that though, right? So if your sellers say that, okay, we don't want to take a big discount on this NAV, the buyers can say, okay, we will take it at wherever you want to sell a 95, 96. But the manager is going to have to make some concessions. And the ones that we've seen are there's types of deferred payments. There's manager's subordination of their own carry that they have to roll. How important are those? Those kind of features that managers can throw in at the end to try and bridge that gap? They are important in a market where the pricing is softer or in a market where you could argue today where the bid asks spread is a bit wider than yes, managers that are the managers. that are trying to get CVs done are going to have to agree certain terms that may be less favorable to them and deferred payments and subordination of carriers are some ways for them to do that. But there are times where they just may not agree to that and the deal may not just may not happen. Because these deals don't have to happen. They don't necessarily have to happen. You could actually just have a melting ice cube and keep extending the fund. That's an option. But it's not usually optimal solution when there is a healthier credit market and you can agree on price. So I expect those features will be commonly used and they are being commonly used but not in all markets. Right. And the other thing is that it sounds like this, what this conversation is kind of providing is this seems like it is a little bit of a structural shift. There's a question that says, if we are six years, seven years outside of a 2020 vintage, a very active vintage that needs a lot of liquidity at this moment, that it could be a response to that specific situation. But what you're describing is no, like as you get to the end of any credit fund, no matter what, that's right. It could be a potential. That's right. So I don't think it is a vintage specific. It is a purely structural. You have a drought. You have a fund that with a nine, 10 year life, it comes to an end. So there is a vintage effect in that it's somewhat a vintage effect in that when you're in a rising rate environment like we have been in the last several years, where rates rose from the you created a vintage at very low rates and then that vintage is seasoned into higher rate. That definitely creates a longer duration situation or a situation where private equity funds aren't selling assets because it costs the capital is too high. And therefore then that means that private credit funds are sitting on assets much longer than they normally would. And so then yes, you have a problem. You need to move those assets. You can't sell them from the fund. You don't want to sell them into the into the direct market. You need to move them organ in an organized, diversified way into a new vehicle. So there is there is a vintage effect to it. I think probably primarily driven by interest rates and the fact that in this current situation and the vindages that were originated through COVID, they originated at very low rates rates went up to 5%. They're still relatively high. And PE firms haven't been selling the businesses because the valuations haven't been not necessarily valuations and financing markets have not been as attractive for them to be able to sell those assets. So the duration trade, the duration play in private markets has been much longer. But in a different, might in a zero rate market, you might not see a lot of CVs like this because the portfolio is going to be just naturally liquidated really quickly through repayments, early repayments. Right. And so one of the other things that we've looked at is the try the attempt at sale of individual loans. So not necessarily going to a CV, but instead trading, creating what we would normally think of as a secondary market as people who work as leverage loans as well in that you can go to a bank like a JPM and say, I want to reduce exposure. Maybe it's $100 million of exposure to a certain credit. That also doesn't seem to have the same momentum. There's a lot of interest, but there doesn't seem to be a lot of trading. Is that accurate for what you've seen as well? Definitely. I mean, again, this is a difference between private and public markets. Private markets are meant to be bought, held to maturity, not meant to be sold in a secondary market on a single asset basis, particularly in credit, you credit to try to sell single assets is very difficult to try to sell a multi asset diverse fight portfolio is easier because the buyer is getting the benefit of diversification. But no, we're not seeing, and I don't expect to see a lot of single asset private loan sales, although we are, there are some cleanup, poor cleanup trades happening with some of the regulated vehicles like the BDCs that have certain restrictions on how many types of assets they can hold, or I think I don't expect to see BDCs that are heavy in software to be selling software loans. I just expect them to just not be doing any more software and then diluting their existing software exposure down by doing more of other things. So, as this market deepens and matures, there's definitely going to be more single asset trades or small portfolio cleanup trades, but I don't expect it to become a big trend. What I expect to be the big trend and what I think is already happening is the multi asset CV trend out of direct lending funds. That has happened big time. Many managers have done it. I expect more to happen. It's a structural, it's purely a structural necessity. Right. And then the last topic is just manager selection, which managers are doing well right now. Right. We're hearing that some are marketing themselves as having, and again, this isn't exactly relevant to private credit, but we're hearing that some funds are saying we avoided first brands. We're hearing others that are saying we're not exposed to software. What is the, what's the winning strategy? How does a manager win over LPs right now? Is it changed at all in the past year? It's something we spend a lot of time as you would imagine, enormous amount of time focusing on. I think definitely what this, what any volatility does is it just helps you reevaluate quality, reevaluate incentives. I think it's really important incentives. So at the end of the day, credit investors want predictability, low volatility, cash flow, and it just returns within a narrow band, relatively narrow band. They're not looking to shoot the lights out, and they certainly don't want returns to look like public markets. Because otherwise they would have just invested in public markets, which would be easier and they would have the liquidity. So I think performance is very important, but performance and private credit is sometimes hard to measure, especially early in the funds life. If you're an investor and a manager shows up and says, oh, my latest fund vintage, which is two years old, is a 12% net IRR. What does that really mean? It doesn't really mean much. It just means that they've invested in a portfolio. They're marking it at something and it's throwing off the cash flows that expect to throw off. What you really need to look at is what it was the IRR in year 8, 9, and 10. Because again, these are backended sub-investment-grade exposures. A lot of the risk is tail end risk, especially with the problem companies. A lot of the value proposition is how do you deal with problems and how do you work out problems in the back end? So I think that there's been a lot of complacency in direct lending of people just thinking, well, it's easy. It's commoditized. It's beta exposure. I can replicate it. No, actually, I don't think that's true. I think that there's a lot of mistakes that can be made. It's risky lending and incentivization, particularly back end incentivization, I think is the best way for investors to align their interests with managers. And by that, I mean, retaining some element of incentive fees, back end to carry, and GP alignment. So making sure the manager is tied in personally to the funds and personally to the success in the back end. That's really important. What you don't want to see necessarily is just rapid fundraising, rapid deployment, and rinse repeat, rinse repeat. That's where I think mistakes will be made and perhaps are being made. You really want to go back to basics. These are private markets, long-term markets, work with managers that are aligned with you for the long run that have the proper incentive structures for them personally. They personally invested in their funds. They have their carry heavily in the funds and their back ended incentivize. I think that's what I like to see and what we focus on when we work with clients. And I think investors should go back to basics on that manager selection point. Right. And the one incentive that we think is really interesting is looking at public managers. So if your fees are based on called capital and you need to deploy capital and your public manager who has to report your earnings in a quarter, there could be that incentive issue. Does that come up at all in your practice? Or is that it does. I think I think there are all types of managers and being publicly listed and not publicly listed is not necessarily at all a determinant of quality performance. At the end of the day, if an asset manager is not producing good returns, that's going to hurt them regardless of whether publicly listed or private. But yeah, I think if a manager is incentivized just to raise money because they want to boost their AUM and show that next quarterly earnings report, that's not necessarily a good reason why you would want it. You'd want to make sure that that's not happening too much. You'd want to as an investor invest again with groups that are in it for the long run, not for the quarterly earnings report that are building long term businesses or that are part of bigger asset management institutions where long term value creation for their LPs and clients is of utmost importance. And then have the reputation of delivering for their LPs. But I would fully admit that manager selection in this market is really hard. It's really hard for investors to figure it out, get it right, decipher what the incentives are and judge what the right partners would be, especially in a market like this where there's just an enormous amount of consolidation. It's hard to think of many private credit managers of scale that are independent. There aren't that many. It's been a big growth area. That growth is slowing, I think a bit. So perhaps the M&A may be tempered a bit, but it's hard for manager selection. It's hard to find that perfect manager that's independent, founder, founder partner run where the teams are heavily invested and you know they're going to be there in year 10. It's not easy to find that anymore. It's hard. Right. We'll keep in touch as you as you work with LPs to try and find that answer. Thank you very much for joining Cloud9FIN. We really appreciate it. Thank you, Tom. I really appreciate great discussion. Thank you. Thanks.