00:00It's an incredible dynamic. It's a push-pull you're seeing. You have the likes of Aries on one hand.
00:05Mike Garragetti telling me this could be one of our best times. We are getting 11 to 12 percent growth.
00:11At the same time, you and I are looking at this. The private equity industry can't sell assets at any sort of speed that they want to.
00:18Their companies are falling into distress in some scenarios. Where exactly is that pain?
00:24It's an interesting one to think about and something that I think a lot of the market participants are thinking about.
00:33Where is this focus? Because so many of the private credit firms are super bullish about the future and about their current portfolios.
00:41One of our market participants said they were most concerned about second lien, so subordinated debt.
00:48That could be a big issue. I'd also look to bigger firms that have seen their legal dollars.
00:54documentation relaxing and kind of taking away some of those investor protections.
01:01But yeah, I mean, some market participants would say that across the board in private credit, things are looking somewhat dangerous.
01:08So at what point do things turn around? Is this kind of a foregone conclusion that we're going to see some pain,
01:15given that rates have remained high and that that game of amended extend, this game that taking on more debt to prolong any potential issues
01:23might be coming to an end sometime soon? Why can't you just keep borrowing to mask the problems like many people have been doing the last few years?
01:31Well, at some point, you've got to crystallize your assets, right? At some point, investors are going to take away their money.
01:38And that point is going to get closer and closer, especially as private equity still isn't returning too much money.
01:45A lot of the investors that you get in private credit are private equity investors also.
01:51And a lot of them are coming to private credit for the cash yield.
01:55But yeah, as I said, at some point, the LPs are going to want to crystallize their returns.
02:01At some point, the market's going to take a downturn and people are going to say, you know, we need cash.
02:05And at the point that that comes, yeah, private credit firms might be in a little bit of trouble for sure.
02:13Kat, are they looking to other opportunities?
02:16To the extent that they look at that private equity opportunity and there's been frustration, to say the least,
02:21among private credit lenders and limited partners, where else do they go?
02:25Because other types of assets have become more in vogue.
02:30Yeah, thank you so much for asking that question, because that's something that really came out to me in reporting this story.
02:35This story is very much about the disconnect between what investors are doing, how much money they're deploying into private credit,
02:43and the warning signs that are out there.
02:45And for me, a lot of the reporting came down to the fact that, yeah, there isn't much else that these investors can do.
02:53I mean, some people have said, you know, why not try cash or gold?
02:57But that's the kind of state of mind that we're in here.
03:00For a lot of them, PE is not where they want to focus right now.
03:05Public markets feel very scary, very volatile.
03:08They're looking at private credit with their occasionally double-digit returns, with their regular cash yield.
03:14They're thinking this is senior secure, this is first lien.
03:18And that's kind of what we think is pulling so much investor dollar in there right now,
03:25even despite the kind of warning signs that you mentioned at the beginning of this segment.
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