MANAGE LIQUIDITY

“I also think that we've been talking about private credit as it stands today, but it started so much earlier. And it started in an area that I think most people will tend to forget about, which is GE Capital was one of the largest providers of private credit under the GE umbrella for many, many, many years.”

“I think they're critical actually in the, retail channel because you're protecting both sets of investors. It's not the asset side of the equation. It's not the loans that they're making that are the problem. It's the other side.”

“The difference is when those dollars come in, they come into the fund on a subscription basis and need to be invested quickly. And that's what's really created a lot of the problems and what's really led to the degradation of credit underwriting. Because if you don't invest those dollars quickly, it creates the lag on performance in the fund.”

“In order to raise the money, they've needed to offer some concessions on the liquidity. Right? Because it makes it easier to raise money if you're gonna allow people or you tell them that you're gonna allow them to redeem at least somewhat periodically. That has allowed them to raise money really fast. It's a little bit piggy because they've just said, okay. We can raise a lot of money. Let's just raise the money when we can.”

“Then after the financial crisis, the bank regulators really did not want banks lending to highly levered and or risky entities, both corporations and individuals. So you saw pretty strict capital requirements. There is an explicit prevention from banks lending to companies with greater than six times leverage. That created this need for lending outside of the bank market.”

“The high yield market is substantially higher quality now than it was before. The double b portion of the market is approaching 60% that used to be about 35%. And the riskiest segment, the triple c's is now about 9% that used to be over 20%.”

“Historically, people have in the the LBO space, they were coming to the high yield market saying we'll put 20% down, finance the other 80%. If they go to the private credit guys and say, well, we'll put 40% down if you'll lend to us on the balance. We we love this business at 16 times. And I think they potentially persuaded a lot of these lenders to get a little bit too far out over their skis in terms of the amount of leverage that they were willing to extend.”

“So I think that all these things filter into more and more pressure on these companies, which could lead us to a spot where we do get to 15% of loans. I'm not saying that probability is very, very high, but if it happened, I wouldn't be shocked.”