The dollar dilemma for public sector bond issuers

You're listening to the Global Capital Podcast. [Music] Hello and welcome to the Global Capital Podcast. I am Ralph Sinclair and I'm the Chief Product Officer at Global Capital. I'm John Hay, Corporate, Markets and Sustainability Editor. And Arthur Belser, Equities and People and Markets reporter? I'm George Collard, Emerging Markets Editor. And I'm Madison Gong, I'm the SCC Editor. And now this week we'll be looking, once again, at some of the direct and indirect consequences of the war with Iran on the bond market. We'll be discussing the effect attacks on the Middle East's energy infrastructure, having on emerging market bonds and how economies that so often rise and fall on the strength of commodity prices can weather the surge in oil and gas prices in particular. We'll also be looking at how the wider volatility the conflict is causing in markets. It's affecting public sector issuers. And in particular, their ability to issue in one of their core market dollars. But we also have something very different to that, don't we John? We'll also be looking at private credit and private equity and their exposure to software companies, which is something we've discussed already on the podcast. But we've got more investigation and color this week on how that is going down in Europe specifically and the effects that's likely to have. Okay, now George, we mentioned that we were talking about the effect that attacks on energy infrastructure in the Middle East are having on emerging market bonds. Tell us a little bit first about what the attacks are and what the effect is that they've had on commodity prices and how that affects emerging market debt. Yeah, so in the last couple of days there's been deliberate targeting of infrastructure for hydrocarbons in the Middle East in Iran and then also Qatar. And the Qatar one is particularly important, I think, because the Qatar energy official has come out and said a pretty significant chunk of the country's energy production is going to be offline for several years, which isn't good for anyone. For EM, it's particularly risky because there's there are a lot of exporters, hydrocarbon exporters in emerging markets, but there are also a lot of importers, whether it's all angous and a lot of those countries are lower rated. They're not quite as strong as developed market economy. So any rise, any significant rise in oil or gas prices, we've seen can have a pretty bad impact on their economies. Yeah, and the oil prices as we know is raised up this week, isn't it? Yeah, it's gone way back over $100 a barrel, which when you compare it to what it was just a month ago, it's enormously higher. And how have emerging market bond yields reacted? They have gone up, but I think importantly and encouragingly not by huge amounts. So this week we looked at the yields for some of the sovereigns in EM and in particular Semia that are big energy importers, so the likes of Egypt, the likes of Turkey, Kenya as well in Africa. And they've gone up, but it's not disastrous. It's not a complete meltdown like we saw last year with Trump's tariffs, for example, or anything like 2022. And why do you think that is? They haven't gone up by a huge amount. Do you think that investors just have a better grip on their sort of understanding of how this will flow through into these economies or is there something else to play? I think firstly, the market is still being quite optimistic that this isn't going to last forever. I think there's the hope it will still end within a couple of weeks, which will keep a lid on energy price rises. And so, you know, oil, for example, if the war ends in two weeks, let's say it'll come back down some more palatable levels. But also, there's a more fundamental reason, which is simply the vast majority of emerging market economies. They're just in better shape, fundamentally, to weather this. When we went into 2022, for example, when Russia invaded Ukraine and energy prices shot up and inflation went up, and central banks had to raise rates, the world was still recovering from COVID and the economic effects of that. So, EM in particular, it just wasn't a very good shape. It was still recovering from one enormous shock and then got battered by another, whereas now there's been years of good fiscal policy pretty much across the board. There are exceptions. And just generally, EM is more resilient, which has kept a lid on things. I think when you look at the bond yields of the likes of Kenya and Egypt, for example, which are deep in sub-investment and territory, at the seven, eight-year tenants, they're a little bit over a hundred basis points higher than yields, which doesn't sound great, but in the great scheme of things in EM, that is not disastrous. And they're still well within the realms of being able to issue new bonds and raise new debt, if they wanted to. Did you do any investors about it, George? Yeah, a couple. And they obviously, they're not happy about this. It's not good. It can create balance of payment pressures. Higher inflation isn't good for any fixed income investors, whether it's EM or elsewhere. And a turnaround in central bank policy from dovish to hawkish isn't good either. But they're still optimistic, as for the reasons before, it's EM is still fundamentally strong. While this is a big shock to the EM debt universe, there'll be winners and losers, but there aren't going to be any massive winners. There aren't going to be many massive losers. They'll be worse off at the margins or better off at the margins. And the overall picture of EM won't be too drastically changed for good or bad. What about for the export? I mean, you mentioned Qatar. I know the oil prices higher, and we often think that will be good for oil-producing companies. But certainly for a country like Qatar to have a chunk of its liquefied natural gas production and the high-bossed is, I can't be good for its economy, can it? No, it's not good. It's a lot of money. I think it was about $20 billion of revenue a year for the government that's going to be lost because of this. I think there's two points. One analyst actually made an interesting point that there is a level where when the oil price or the gas price gets so high, it can wipe out the loss from exports, if that makes sense. So a country loses X amount of money because it can't export. But it also gains that because of what it is exporting has been sold at a much higher price. It's quite hard to quantify exactly what that level is and it differs between countries because they all have different brain-given prices. But the moment, I think, his impression was that for pretty much everyone in the Gulf, the oil price is so high that it's going to maybe not completely assuage the loss of export, but it'll go some way to doing it. And secondly, I think these countries are, you know, extremely strong credit, extremely strong economies. It's not good for Qatar to be losing $20 billion a year revenue, but it can afford it. But of course they can't sell any oil at all until they can get it out. And for the Persian Gulf coastline countries, that means going through the Straits of O'mus and as we know that's impossible at the moment. So I think the benefit of the oil price being high might be something that will help them after the war, but at the moment it's, you know, it's no good to them at all. Yeah, there are pipelines in the Gulf, which mean that they can export some products, but it can't make up what's being lost through the Straits of O'mus. But I think the optimism that this isn't going to be a complete game changer for these economies like Qatar's, you can see it in the Bond spreads for their bond. They are wider, tens of basis points, which for most emerging market, sovereign issues, that isn't a big change in spreads. You know, it happens regularly. If you're Turkey, for example, tens of basis points, in spreads happen quite often, but if someone like Qatar, that is quite a big change. It's a double-a-rated credit. It's as strong as you get in the year and minutes as highly rated as plenty of European countries. So the fact that, you know, it's not suffering a massive sell-off itself and its bond spreads are still very tight to US Treasuries. It shows that it's not good for them. It's not good for other Gulf economies and Gulf issuers, but it's a phenomenon disaster. The its good old change, the caveat is obviously, and this is the problem with asking, you know, investors about this is the caveat. It's known quite no as how long this is going to last. It could end tomorrow. Could still be going on six months time. Well, I guess the most recent famous example of institutions not anticipating how long a problem was going to last was in 2022, when we had, again, energy price-driven inflation that was supposed to be fleeting and turned out to be anything but. And that, of course, is the other problem that the bond market will have to contend with, isn't it? It does prove to be inflationary and what that means for the trajectory of interest rates. What are people saying to you about that? Yeah, the sort of disaster scenario would be that we have a repeat of 2022, whether it's a big spike in inflation and central banks have to raise interest rates. And for EM, you know, the most important central bank is the Federal Reserve in the US because dollar funding is what the vast majority of emerging markets do for the most of the time. So that big increase in interest rates in 2022 and over the next few years, it really, really hurt EM because it made borrowing in dollars expensive for everyone and it made it too expensive for an awful lot of countries which led to fears of a big wave of defaults. It didn't quite materialize but it wasn't good and where it was sort of still on the way out of that. I think this week's central bank meetings, whether it's the Bank of England, DCB, the Fed, they have taken a hawkish turn. I think one economist was optimistic that the Fed isn't going to be raising rates any time soon, which really would be bad for emerging market debt issuers. But at the same time, it's also not going to be casting rates any time soon. I think for investors in EM, it's an encouragement, but it's also a discouragement is that again, this could end quite soon. And if it does, that means central banks can almost ignore it when it comes to what they're going to do with interest rates. Again, it could last for a lot longer and that could really make the Fed or whoever else. It may be take on a more hawkish turn in the future. But for now, they're pretty content still with regards to the Fed and they're pretty happy that we're not going to be seeing any rate rises in the near future. And what about emerging market issuers in the near future, George? I think recently we've only had a deal funnily enough for a Polish oil refiner and a small one of that. Any deals on the horizon? There are, but I think particularly in the Gulf, it's contingent on this ending. I don't know anyone in the Gulf is going to be issuing any time soon. And for the issue is outside of the region, in whether it's the Africa, Latin, they need rape, stability, they need US Treasury's stock bouncing around or if they want to assume euros, they need euro rates, stock bouncing around and they also need days where there aren't all the headlines every morning. I think going back to the countries that import their energy. Another reason of optimism is that this year has already been unbelievably busy for Euro-1 issuance. It's been this year before the war started and it was the same last year, it was so busy. So a lot of these countries have already done a lot of fundraising before this and so there's no great pressure to issue really for anyone. So it's not like 2022 when there was a wall of assurances coming over the next few years and no one was quite sure how they were going to refinance that. They've been proactive in debt management. A lot of them, Kenya's a great example. It's really reduced its refinancing risk in the last few years. So they're in a good position, these euro bonds sovereign issues, whether it's Qatar who doesn't really need to borrow money anyway or whether it's Kenya that doesn't need to borrow money but it's already done it. So they're in a good spot in that sense. Well, thank you George. Anyone who's interested in reading more about that can find the story at globalcaptal.com. The headline is spread spike for oil importing emerging markets as refineries are bombed. Well, thanks very much George. Now, Addison, you've written a very interesting story this week about the Super National Sovereign Agency borrowers and they asked you to the dollar bomb market. Now, the dollar market is obviously and generally seen in bomb markets as the sort of mother market, the biggest, the deepest, often the easiest to access. And we've heard a bit of that in the last couple of weeks since the war began, but not for the SSA issues. Thank you, John. I think for SSA, the dollar market and euro market obviously are the main two main market. And while we had continued supply in the euro market SSA, if you think about it, we had very large sovereign syndications on the second working day of the week right after the war broke the previous weekend. So actually, there are lots of signs that are telling people that, hey, there is cash in the system and be investors of willing to put those cash to work. And you would think that in uncertain times like this, SSA is something that's safer. And higher quality is a natural choice of investment for investors, be it in the dollar market, in the euro market, or in other currencies. So why haven't we seen more dollarations like we did in euros, in euros, we had almost 20 SSA bonds being priced over the last few weeks, some since the war began, but in dollars as of this week, we only had four issues going for it. Two of them happened this week and then one in each of the week before. I think demand isn't the only factor driving the equation or the decision here to be able to execute a successful SSA deal. What is also very important is the stability you have to have a relatively stable background. So SSAs obviously are, their bonds are going to be in demand. There's no doubt about that, but it's all about the pricing and they're very price sensitive issuers. And obviously, their funding decisions, therefore, are going to be based primarily on where they think they can get the tightest spreads, you know, as well as other factors, but that's the dominant one. So what are the reasons why in dollars, despite despite the market's general health, it's more difficult for them to get the spread they're looking for? Do you think, John, if we take a step back, regardless of which market, if we think about SSAs, they generally, most of them manage a floating rate based balance sheet and they're a fund in fixed rate, which means a key metric that they have to look at when pricing a new bond issuance is the swap spread. And that's a measure between the swap rate and government bond. So in essence, they're trying to offer a good fixed rate yield that will attract investors that they can then swap into a floating rate liability. And they want that spread on that floating rate liability to be as tight as they possibly can. Yeah, that's right, John. And then main concern for SSAs is obviously very important to have that swap spread stability, which as you can imagine, hasn't been there for the last few weeks. And then as an issuer, if you want to execute a transaction, you don't really want swap spread to be moving in the background for five basis point a day. That's far from the most optimal window for you to go out with a trade. And for issuers funding foreign currency, and in the case of most European issuers or European agencies, there is a cross currency element to this equation as well. And that's going back to your point, or question John the bell, why haven't we seen more dollar issuers? The interesting fact is for most European issuers, the cross currency element has actually moved in favor of dollar issuers for anyone who's managing their liabilities in euros. So well, the cross currency element is working for issuers. The swap spread element, as we mentioned, has been very volatile. And what is especially difficult for issuers looking to raise dollar funding is the dollar SSA execution takes place over a longer timeframe. And of course, these issuers, Adison, whether they're dollar based or Euro based, are often monitoring the markets. Well, they're constantly monitoring the markets to see which currency is best for them to issue in, aren't they? And and you know, we have some sort of evidence that that some of these issuers have been looking in particular to do dollar deals, but not bringing them. That's right. I think one of the issuers we had this week, Renton Bank, they were both monitoring actually issuers opportunities in both dollars and euros. And they decided to go for euros because dollar funding cost is slightly more expensive for them at the time being, for the time being. But for other issuers, like NWB and FMO, the two issuers that we saw in the dollar market this week, the dollar funding cost has actually been working in their favor. But the cross currency element, like we said before, is only one factor driving the decision of which market and issuers should want to issue in, although it is a main factor for SSA issuers, which are very cost conscious. But another, I guess, important element in all of this is the execution on background going back to a point about, um, swapspreads and how that's important for SSAs. And the swapspread, volatility has been particularly bad for SSA issuers to navigate in the dollar market. So, Addison, why is it more difficult in some ways to execute a dollar deal than one in euros at a time when the markets have all it all? Yes, thank you, John. I think we also had Raffia, who was an accidentally banker of SSA. So, please jump in Raffia. If you think anything that I said was incorrect or if you want to add, to that. But basically, if you compare the execution styles across the core currencies or the major currencies, we have the certainly market, which usually the deals executed as an intraday. So, you basically announce or mandate the deal in the morning and price later that day. And then you have the euro market, which typically most deals are announced on the first day and executed on the second day. But there is no price guidance or price thoughts being released on day one. So, the guidance was set at the beginning of book building on day two. But in the dollar market, well, the mandate is also reviewed on day one execution, official execution on day two. But on the first day, the lease and the issue are also released initial price thoughts, which we call the IPTs. Not that gives you messes a level to look at. And whether they wanted to commit some sort of interest, or put some early orders in ahead of the official book building, that process we call the ROI process. And precisely because there is a price guidance out there, if SWOT spread has been moving a lot overnight on day one, come the morning of day two when you expect to either set a guidance to start official book building or set a spread straight away, which some may sure sometimes do. Then you could actually shoot yourself in the fur in that if SWOT spread hides Titan, which by definition means SSS spreads would widen against swaps and Titan against guvies, that could mean that your secondary, if the movie is large, that could mean your secondary spreads will widen and that will have an impact on your fair value assessment, assessment and how much new supremium was built in the original IPTs. And that would obviously impact the final pricing because if the new supremiums and the longer in the IPTs than investors could say, look, this deal is too expensive. It doesn't make sense based on the current secondary. I'm just not going to participate in the deal. Yeah, I think that's absolutely right, Addison. You've got to think the starting point for this on I guess day zero is an issue with an all in funding target and floating rate euros. And then, as you've already described, how does that work out to a fixed rate spread in dollars? And the longer you leave that open, the more chance the market volatility will move against you. Now, I guess the other important point to think about is why do you need a two day execution window in dollars, but you don't know some of these other currencies? And that is of course because it's this global currency. And therefore you need Asian investors to be involved. They are first in if you think about how time zones work. But of course you also want US investors involved too. And that's why you have to run these deals over such a long period of time. An interesting aspect of your story, Addison, was that the sense that these traditions, though, are immutable. And obviously there's a need to have, but as Ralph said, investors in all three times are involved in the dollar deal. Otherwise, you're not reaching the whole market. But the timing of the price, the release of price guidance, for example, that's at the option of the deal team. They could change that. And I wonder whether some of these conventions are times like this, perhaps getting in the way of the market. And another thing that occurred to me is you're taking it that there's an absolute prohibition on the widening or changing the problem. price guidance and you know couldn't they just do that if the market's moved against them? No I was just going to say and I think there are obviously steps that the lease and the issuer can take for example if you know what spread could potentially be volatile overnight you could build in slightly more new supremium in the initial price thoughts so that gives you a more room to be able to tighten or do something on the morning of day one day two sorry even when it comes to releasing the guidance if you think things have moved a lot or you message didn't seem to have put a lot of interest in the deal you can choose to leave the guidance and change from IPT's you don't have to tighten on the next morning or you could even set the spread at that same level so there are different things that people could do I guess in theory correct me rough if I'm wrong but I think I've only seen it once in the last few years that been here is you can actually price a deal wider than where you started which is not very common but we have seen a couple deals in the past some few years like I said but I think many issues would perhaps would also opt to just take the deal off the table completely if the oincost is doesn't mean they're target or if they didn't want to price a deal wider than where they started then that's also an option to cancel the deal and then come back to the market at a later point so there are different options for for issues who are facing a market that moved against it but I don't know or are from your experience well I think you can't really underestimate the power of convention in this market and also the nature of the issuers now these are the highest quality in terms of credit issuers that there are and so they that's why they pay such attention to getting the tightest price possible also you know this is public sector money that we're talking about they can't really play fast and loose with spreads and yields it's also a group of issuers that because they are frequent borrowers in the market pride themselves as well as being predictable which is why the conventions are so strong when something passes for an innovation in the way a bond is syndicated in the ssa market it's usually such a subtle change in the process that you know people in other markets are wondering what the change even was and so issuers and the banks will think incredibly carefully about doing anything even slightly different and you know the usual playbook is to go out a bit in advance and try and tighten price pricing by a couple of basis points and everyone pays a similar kind of new supremium the idea that they would do something different you know that it's they're not going to do that unless it's an actual full blown crisis underway in which case they may well just sit out the market entirely because of course that's also not forget this group of issuers are very well funded for this point in the year was that being said Ralph I think we are seeing issuers and their lead banks taking slightly different approach I'm not necessarily in the dollar market but in the euro market for example that in the last couple weeks we've seen issuers who typically price off swap rates switching to pricing their deals of their own curve with we've seen that from the Republic of Austria the sovereign and we've seen that from the European Union as well so both issuers in the last two weeks have decided to price in Austria Austria's case is a long and deal a 30 year deal but in the European Union's case is a 10 year deal so to take that swap spread volatility element out of the equation so that their price guidance and the pricing can move you basically alongside their own curve but of course it does not really taking it out of the equation it's just hiding it I mean well the reality the young reality is still there and and investors that care about one or the other will still care about one of the other and that's the fundamental official it's notable that the issues have done that one is a sovereign and the other wants to be seen as a sovereign you perhaps will have a very liquid secondary I think that's the but the more fundamental point is you can change the way you market and communicate about a deal which you know can make things simpler and sort of perhaps more straightforward but but if the underlying rates are moving around they're moving around and and investors and issues that care about the gaps between them you know they can't hide from that but I think the point there with the Austria and the EU is that one is a sovereign one is certainly wants to be seen as a sovereign an issue certainly sovereign like quantities of bonds and that issuing a spread over your own curve is a particular sovereign technique and one of the reasons they're able to do it is because they're not sensitive to swap rates they don't generally swap their issuance back to a floating rate so it's not really something that agencies and supernationals can can can take advantage of and of course a government bond market is quite different there will be many more investors there that aren't necessarily looking at the the bonds on a swap basis absolutely yield is very important for a lot of investors there and as well as for the issuers and even in dollars we have sovereign issuers like Canada and Sweden are pricing their deals of US treasuries directly instead of over swapped rates so yeah but yeah they're just slightly different execution styles out there but I guess that is to ask then where does this leave the SSA or certainly the dollar SSA market because we've talked about mainly about the euro based issuers but of course there are a heap of supernatural institutions and other dollar based issuers and there have been some significant absentees haven't there from the dollar market so far this year so a lot of the issuers have actually actively front loaded their issuers earlier this year that includes the dollar based issuers themselves and then some of them actually go by also go by a slightly different financial year than the more conventional SSA market be it end of June or end of March so a lot of those issuers were already in a very advanced position at the end of 2025 or even at the end of Q3 2025 so if you are an SSA issuer who doesn't have an urgent funding ease to come to market when the backdrop is uncertain I think a lot of them have made a conscious decision of just wait and see a bit I think that's the feeling so obviously you have issuers who decided that they can take all the various risk and be able to do something right now and there are other issuers who rather not so I think we have these variety of views it's quite healthy frankly for people to be making these different decisions based on their views but yeah we have seen some absent dollar issuers in the market and I guess in general it is not the most stable market it has been very volatile so it's no wonder that some people decided not to access the market which is frankly completely understandable. All right great thank you Adison that's absolutely fascinating and the story you've written that goes into this in far more detail and is well worth anybody's time is called respect for reality SSA is where we have dollar bond market amid overnight risks well thank you very much Adison and now Arthur you and Jennifer Law are corporate loans reporting in writing this week about private credit and the issue of software companies which is such an important issue this year and had it not been for the war in in the Middle East would would would still be top of the headlines so obviously this is caused a degree of panic or alarm about private credit funds because they lent extensively to software companies which are now feared having been the darlings of the private lending industry to be one of its most vulnerable sectors because of the effects of artificial intelligence which people fear could knock out some software business models so Arthur this problem began in the US how is it playing out in Europe we spoke to some private credit managers in Europe and they seem to be not all that worried I think it remains very much a US story it started at BDC's which are business development companies is a type of a fund and and what's happened in the US is that a lot of retail and and wealth investors have left these funds and they've asked for their money back a lot of these funds I mean there's different structures but a lot of them are semi-liquid right so investors have the right to request a particular share of the fund or of the investment every quarter usually that's about 5% and and they requested quite a bit more and so because of that you know funds have had different responses to that some of them have gated reductions which means they they actually you know told their investors well actually you signed up for 5% so we're giving you 5% others have decided to to give back a bit more some more like 7% and other is like blackstone is the biggest example have ever really said it will give you whatever whatever money you want to sort of calm the rooms in Europe the share of wealth and retail investors is much smaller it's about 5% ending the US about between 40 and 60% of the fund so that has a big impact right because this is a sort of retail and wealth driven crisis in the US you don't have the same dynamics in Europe because institutional investors are are sitting put right they're not following this sort of a private credit panic that's happening in the US and so as you as you pointed out part of it is to do with this the the funds structure and the rules around the funds which which which is where some of the friction and alarm have come isn't it and you know the BDCs the unlisted BDCs that you're referring to they can only really work because their ultimate investments are illiquid they can only really work or at least provide liquidity to investors when when the demand for that liquidity is low and what they've been struggling with is is that demand being high now it is perhaps a bit surprising that the fund managers don't just say well you know these are the terms you you signed up to it you can't you know you can only withdraw certain amounts so you know just please wait yeah that's what essentially with some funds have done everything blackrock is the the main example I I don't think that they raised their redemption rates, right? I think the reason that other firms don't want to do that is that there is this perception that if you tell investors you can't have your money back, well that implies that something is wrong with your assets. And so it has to do with confidence, right? It has to do with wanting the broader market to function and then wanting your fund raising to go well. Then so they're thinking a bit more long term, but that in a way can create some short term problems, right? Because how do you meet those redemption that you're gonna have to sell assets? And in fact, unless you have access to cash, but so some like do I always an example, right, had to sell some assets to meet redemption? And when you do that, that affects the quality of the assets, there's still on the book, right? So you're selling some of your most liquid assets to meet redemption and then you're left with some less liquid assets. So there is, because of the nature of private credit and the fact that these are relatively illiquid loans, there is a limit to how much you can expand redemption. - And actually one of the people you spoke to sort of made the opposite point, didn't he, saying that, if you do actually give a lot of liquidity and sort of in a way encourage withdrawals, that can also lead to headlines that scare people. - Yeah, it can actually, it can definitely backfire you on. - So the fund structure, as we've talked about, is one aspect, but the other is the fundamental credit issue. And you've spoken to investors this week about how much at risk are these software companies, in fact. And what have they been telling you about that? - So the difficulty in evaluating the risk in software is that software companies are doing very well. And that doesn't really fit the story, right? That if you actually look at the financials of the kind of software companies that private credit lends to, they're doing perfectly well. And they've had some other record profitability. The question is so not how the companies are doing today. The question is how the companies will do two, three years from now. And the reason is we just don't really know how these companies are going to be impacted by AI. Some of them will, their business model and especially their pricing models, which is often by seat, will be challenged by AI. Others will not, right? And so we're in this process where managers and investors are looking at their portfolios and asking, what is the specific impact in specific software companies? It's not an easy process. I think it's a process of the text time. And that, I think there's a bit of a discrepancy right between the way that investors react to headlines, especially retail investors, and the reality that you need to go through your investments and really look company by company at what the actual impacts of AI are. And we'll only really know, you know, over several years, just as significant these impacts will be. Okay, that's an interesting point, Arthur. I detected a certain complacency perhaps in some of the sources in your story. They were saying, well, there's been no change in default rates. You know, the credit conditions are exactly the same. But of course, you know, the famous sort of analogy people use to describe getting out of a liquid instruments is, you know, shouting fire and a crowded theatre. Perhaps, you know, the sensible time to get up and leave the theatres when you first smell smoke and not hang around until you can see the curtains going up and flames. I guess that's really what sort of play here, isn't it? It's just with early people, people early, so don't want to hang around for the point of which they can't get out of this. And it will take time for all of this to feed through into software companies' financials. I think that's true, yeah. But what's interesting is that it's not necessarily the most sophisticated investors that are running at a theatre now, right? Like in previous crises, you had retail sort of holding the bag at the end, right? And that's kind of the model is the institutional investors get out first. But here, you have retail getting out first. So, you know, that may, I mean, depending on how much you trust institutional versus retail investors, may inspire some confidence in the software. It's a very interesting question, isn't it? Because the other label that some people sometimes use for retail is they call it the dumb money. And because it's not, you know, they don't have all these sophisticated models and there's much information. But, you know, one does wonder if, swallowing the convention of the institutional investor world and having too much information can sometimes get in the way. I don't know. I guess we'll see in future years. There's plenty of dumb money in every type of investor category, I think. Especially when you have such a drastic change as with AI, right? It's harder for people who, you know, run financial models all day to evaluate something which might lead you to throw your model out, right? I think, whereas if you're retail investors, you might not have that sophistication, but actually maybe that serves you well in the kind of more drastic change, like what AI could be. I mean, we just don't know yet. It was very interesting, and I thought that one of the investors you spoke to said they'd been looking at this issue actually for some years. That's true. Some investors have been looking at the risk of it for from AI for quite a bit. And what they found is that some software businesses are more exposed and some are less exposed. So this investor has opted to focus on ERP, which is an enterprise resource planning software, compliance platforms, payroll and systems of record, as yeah, parts of the industry are less exposed. I think other investors will see this a little bit differently, right? There have been comments also this week about electronic arts, which is the games company that publishes the FIFA series of video games. And there's a leverage buyout of that company at the moment and the debt of it, the first charge has just hit the market. And there's been a degree of trepidation about this because of the angst about software companies that sprung up in the last couple of months. But it's interesting that people around that deal who are working on it or considering investing in it are focusing on and sort of comforting themselves by saying, well, you might be able to ask a large language processing model to code a video game. And they can actually do that remarkably well. But what they don't have is a Cristiano Ronaldo signature. And the links with all the real world sort of branding and personal identity side of it that can't be replicated. EA has actually given up the FIFA name, but they've kept the connections to the players. And so they found that that is what is valuable to them. And what we find with the AI is that the availability might come from avenues that are irreplaceable by AI. And another aspect of your story, Arthur, is that going back to this issue of retail demand, people in the market are now sort of thanking their lucky stars that they don't have retail investors. But that's a 180 turn from where the market seemed to be going, for example, last year. Yeah. So Europe has tried to follow the US in increasing retail investment into private assets. But now that the US is suffering from the high share of retail investment in private assets, people are looking at it in a slightly different way. And that's putting in question the growth of some of these new funds. So 2024, Esma reviewed its LTIF rules. These are the private credit funds that are available to retail in Europe, our LTIF funds. And so they introduced LTIF 2s, which were meant to provide structures that were more retail friendly. And many funds have been started in the past couple of years to encourage private investors, retail investors to invest in private credit. I think it will take time for us to see the impact of the US situation in Europe. We have to see how fund raising goes over several months. And it's too early, really, to evaluate what the impact will be. But we did have some managers say, this will probably slow down that pace of retail investment into the space. Yeah. And it poses an awkward problem for policymakers who have been promoting this idea for, in fact, years, and saying that what we need is more investment in private assets. And both the UK and Europe have done lots of things to try and encourage that, both by institutional investors and retail. And now they're facing this issue that that is where the latest problem is. Yeah, I think that isn't over, right? Because if you speak to the managers, you have a lot of purchases in the space. And banks cannot lend quite as much as this is necessary. And so you still have space for investors in the private credit sector. Now, what some managers told us as well is that people will take a step back and ask, OK, how do we guarantee that we don't have a similar situation to the US? And I think a lot of it is transparency. A lot of it is from the beginning being very clear about what kind of obligations investors have in these funds, that you cannot choose this like investing in meta, right? Because you won't be able to get your money back on the same day. That it hasn't been clear to some US private credit investors. And so the hope is that it is clear to European investors that are now coming into the sector. OK, well, thank you very much, Arthur. It's absolutely fascinating. And your story that you've written with Jane on this very subject is called European private credit managers, glad not to have US's retail headache. And I commend all to subscribe immediately. and seek it out and read it. Thanks for joining us Arthur and of course George and Addison and Asava John. That's all we have time for this week but of course we'll be back with more from the capital markets next week so thank you very much for listening and goodbye. Thank you and goodbye.