00:00Let's talk about just overall what we're seeing in the macro outlook and the like.
00:04It seems like public markets, at least, are really gripping themselves on over what's going on with trade.
00:09How much visibility is there in the private space right now, the companies that you own and the investors that you talk to?
00:15It's actually been the trade volatility has actually been a positive for private capital,
00:20private credit at least, out in Asia for a couple of reasons.
00:24As I travel around the region and I go to Japan, I go to Korea, I go to Australia,
00:27if before the tariffs they were going to invest $100 into the U.S.,
00:31they're now doing $70 into the U.S., $30 somewhere else.
00:36Most of that somewhere else is Southeast Asia, it's India, it's Australia.
00:41Have you seen any signs of stress at least?
00:43I mean, obviously tariffs, they don't weigh on borrowers in any way?
00:46There hasn't a little bit on the cross-border for companies that are serving the U.S.,
00:51but they're rethinking their supply chains.
00:53And that's actually created an opportunity for us to finance the supply chains,
00:57especially as they get overweight with product and they need to put factories in different countries.
01:03And so as everybody rethinks their supply chain strategy, it's actually been a big positive for private capital.
01:08What does that leave valuations then?
01:09Should I assume that things should be adjusted higher or lower in the region?
01:12It's hard to say on the equity side because most of our focus is on private credit or on senior equity.
01:18But on private credit, we're still seeing good spreads, and we're putting a lot of money to work in Australia.
01:25We're putting a lot of money to work in Southeast Asia at comparable spreads to what we're finding in the U.S. and Europe.
01:30There are some naysayers out there that say, you know, the glory days of private credit are over.
01:36You know, you're starting to see fundamental headwinds, you know, a global slowdown possibly here in the face of this trade war.
01:42And coming at a time when public and private markets are seem to be converging in some ways,
01:46where the pricing of direct loans is moving closer to public.
01:50Are the glory days over, do you think?
01:53No, well, I don't think the glory days are over.
01:54And I think what the trend you're talking about is direct lending or sponsor lending in the U.S.,
02:00where it is going to be a cyclical business, and it is a cyclical business.
02:03But the private capital trends out here are actually more structural factors benefiting our business.
02:10I was shocked when I came out here.
02:12I would have not guessed that we would have had a large partnership with the Japanese bank to buy assets off their balance sheet.
02:18But we do.
02:19Because private capital out here is finding the right, the productive way to partner with banks, with companies, and with sponsors.
02:25So it's actually a structural factor where private capital is filling a gap that the banks can't fill today.
02:30Do you need to subscribe a certain premium on private markets over public now, you know, in exchange for the loss of liquidity?
02:38For, in Asia, there is less liquidity in the private markets than I think what you're seeing evolving in the U.S.
02:43You do earn a premium for being private versus public.
02:47Yeah.
02:47What is that gap right now?
02:49Anywhere between 150 and 200 basis points.
02:51Okay.
02:52Okay.
02:52You know, what if in a downturn, right, there's a lot of talk about this asset class that saw, you know, a rapid rise when global rates were essentially at zero.
03:01It hasn't been test-proof in a way when things slow down in the world economy.
03:05What happens then to private credit?
03:08Well, I think you're already seeing it.
03:09There's some recent stats about amend and extends going up, the amount of PIC going up, or the amount of PIC is going up in underlying funds.
03:16I think you're going to see increased defaults and restructurings.
03:20But a lot of these private credit lenders are going to have to look at their book and see how they underwrote it.
03:26If you're a 2020-2021 vintage loan and you underwrote a deal with low rates and low inflation, you're going to have a much different terminal value and cash flow profile when you go to refinance that loan than some of the later vintage loans.
03:38Something that's also a trend that's happening in Asia is that, you know, some, I guess, asset managers are tapping into retail investors to get into the private credit space.
03:49I mean, this is, as you say, illiquid, not a whole know-how, really.
03:53How does that change the dynamics of this market if there is a domestic or retail investor involved now?
03:58Yeah, you haven't seen, other than in Australia, you haven't seen private credit managers in Asia tap that retail market.
04:04It's really been for global product.
04:07And it really depends on the underlying manager.
04:09For us, where we buy everything onto our own balance sheet that we buy for retail or that we buy for institutions, our job is to protect that capital.
04:16But what you saw out here in Asia is you saw a rotation from local equities and local real estate into private credit because you can get 10% yields, in theory, with low volatility and low default risk.
04:29And one of our flagship direct lending products has sold very well because of that.
04:32And they like the fact that we're buying these loans right alongside them.
04:36Matthew, I know you're spending a lot of time all over the world.
04:39You're going to be about to talk about Japan and the credit boom that we're seeing there.
04:42In terms of geographies, where are the sort of the untapped sort of opportunities now?
04:47So I was in Australia yesterday talking with some of the government officials, and they have no idea where the long duration capital is going to come to support the industrial renaissance that we've talked about, which is a global theme.
04:58And same thing in Japan.
04:59You look at the average loan on a Japanese bank balance sheet, it's three years in duration.
05:04And all in yield is about 175 basis points.
05:07So it's really, really high quality and really short term.
05:10And these countries are running with fiscal deficits, and they're asking themselves, where does the capital come to finance these longer term projects?
05:18And that's where private capital is going to step in.
05:19But I'd say right now, Japan, Australia, and a bit of Southeast Asia.
Be the first to comment