Blue Owl Chief Looks to Bank Loans for Dimon Cockroaches

Bloomberg

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00:00The credit environment has been very healthy. The economy has been healthy. Defaults are quite low,

00:05but there seems to be this specific amount of nerves about private credit and private capital

00:10in general. The publicly listed giants have seen their shares fall. Blue Owl has seen its shares

00:16underperform. BDCs have also started to underperform, too. What do you make of the nerves

00:21at this moment in an otherwise healthy moment? I suppose, like anything, when it's perceived

00:28as new, there's always the fear, again, sometimes fanned intentionally by people, but just the fear

00:35of, well, like, what don't I know about this thing that now I'm hearing a lot about and I just wasn't

00:40familiar with? By the way, that's understandable, and I think part of the obligation of anyone in

00:45this industry is to be part of the education process. Opportunities to sit with thought

00:51leaders around finance like you, who have talked about topics around this forever, I would say is

00:56part of our obligation. For me, it's an opportunity, but it's an obligation to explain, because it isn't

01:02a mystery. It's pretty straightforward, actually, what we do, how it works, and why it works, and I

01:08think that's not a small point, which is anything that seems, you know, happens fast, you know, maybe

01:14in some ways seems too good to be true. I always, I'm kind of a simple person. I just always step back

01:19and say, well, either then you can explain it to me as to why it works and why it's good, or maybe it's

01:26just too good to be true, and so I think that is an education obligation, but, you know, listen, there

01:31are people who have considered this, like, meaningful parochial interests in the industry not continuing to

01:39grow and succeed, like, the market share is coming from somewhere, and, you know, the way alts firms have

01:45thrived, you know, Blackstone's market cap exceeds the market cap of most financial institutions in

01:51the world today, so it's not as if that's not coming from someone, and, of course, those people

01:55don't like it. Those people might be Jamie Dimon at J.P. Morgan, worth mentioning what he said on their

02:02earnings call just today, talking specifically about Tricolore First Brands, which, of course, the former

02:08more heavily exposed to J.P. Morgan is. He said, my antenna goes up when things like that happen.

02:15When you see one cockroach, there's more. Everybody should be forewarned at this point. What do you

02:21make of his warning? Well, I'd have to start by making sure I interpret it, so I guess he's saying

02:26there might be a lot more cockroaches at J.P. Morgan, or I'm not sure I know what he's saying.

02:30I mean, it's not a private credit issue. I mean, it's a liquid credit market, so I don't,

02:35first of all, I'm not even sure I know what he means, but I also think it's like a really

02:42colorful way to phrase something, but actually, I don't see the relevance. You know, let's

02:46think First Brands, right? Well, first of all, yeah, there are bankruptcies. There will always

02:52be bankruptcies. There are thousands of credits in the marketplace, so I don't know why it's so

02:59fascinating, you know, when one happens, but even if it is, let's actually look at that one.

03:04It appears, allegedly, that it's a major fraud. I mean, I just don't know what that tells us.

03:09Actually, I don't know if that's a cockroach. I don't know why I would suggest there's a bunch

03:13of others. I can tell you the facts. The facts in direct lending, but really the facts for Blue

03:18Alley, I don't want to pretend to speak for everybody, is our portfolio is incredibly healthy.

03:23We are not seeing rising defaults. We are not seeing companies struggling. Of course,

03:28there's always a company that has its own problems, and there are always going to be some losses,

03:32losses. But it's not as if we don't have, as I said, decades of data on what that looks

03:36like. Or if you want to focus on this, putting the word private in front of it, take the last

03:4110 years. You know, for the last 10 years, we've run at an average loss rate of 13 basis

03:46points. So approximately over a decade, we've lost 1% over an entire decade. Now, that's low.

03:53I'm not suggesting anyone should invest, assuming that's the durable result. It's not like it's been

03:57calm. I mean, we did go through the collapse of Silicon Valley Bank. Oh, by the way, a bank,

04:01not a private credit institution. We did go through COVID. Remember when, like, everyone was

04:06in their basement wondering what might happen to the world? Private credit did well. It doesn't mean

04:12it's flawless. But it's just an odd kind of fear-mongering. I take it as very sincere by some

04:18people, as I just don't understand it. And I just, look, I understand people have their own

04:23business to run. And, you know, some people are axed against the product class. But I know from

04:29the ground up, and I tend to be fact-based, it's working, it's working well. And if anything, to return

04:35to where this started, these, you know, these couple of bankruptcies, both of which are in the

04:40syndicated market, would seem to be the evidence of the problem away from the private credit market.

04:47So maybe this, he might be right. Maybe it's a time for a flight to safety away from the syndicated

04:51market to the private market. So I think maybe Jamie and I agree.

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