00:00So we're here in Saudi Arabia and as I was just saying in the intro there has been a lot of talk about number one sort of the local
00:08banks liquidity squeeze and the opportunity that prevent that presents for other participants to come in and sort of go down the
00:17direct lending roads. How are you looking to capitalize on that. Good morning. Great to be here with you at your show this
00:25morning. So we're very excited about the investment opportunity in the kingdom. At Jem Corp we specialize in investing in emerging markets and a couple of years ago we took a strategic decision to come here and set up shop in Saudi Arabia because we see Saudi as the most interesting global finance destinations today with the structural reforms that the government is driving here.
00:54You have growth economic growth at scale at basically four four and a half percent for this year. You have probably the top five growth environments here across the G20 countries and that economic growth ultimately creates the unprecedented opportunity for private credit and flexible capital.
01:18And as you said correctly the strategy for private credit is not new. We see this across the developed world in the U.S. in Europe because private credit firms like ours are complementing the banking sector to provide that flexible capital for the mid sector company SME companies.
01:40And that's exactly. I was going to say who would be the target market over here in Saudi Arabia. So here we have a very interesting opportunity across the Giga projects PIF backed companies like Neom like Red Sea Global like KIDIA.
01:56So these are basically big government sponsored projects attracting and needing tens of billions of dollars hundreds of billions of dollars of capital and also you have the SME sector because you have all those contractors and vibrant fast growing companies that are naturally getting a bit left behind in terms of attracting funding from local banks because local banks are naturally gravitating towards blue chip.
02:25Well I was going to say so that my understanding is that the local banks are very much focused on providing the lending to those Giga projects. Yes. But then because of the credit demand is outstripping the credit growth that's happening in the economy.
02:40You naturally need flexible capital and alternative sources of credit. Yeah. How do the returns here differ from the type of returns that you would get in advanced markets and private credit.
02:51I think you have very good risk reward here because ultimately the market is short on structural capital for private credit. And you have very good opportunities. So you have a lot of opportunities and very little capital.
03:05So basically by us bringing FDI and sourcing local capital from the real money accounts like insurance companies, pension plans to unlock and structure the capital for those investment opportunities to see actually superior risk adjusted return in Saudi Arabia than I would say Europe or the United States.
03:25Interesting. And you're also in the process of fundraising for Africa as well. Similar concept. Talk us through specifically which countries you're looking to get involved in and how big the private credit opportunity set is.
03:39Absolutely. So we've probably become one of the largest private credit investors in Africa over the last 10 years with around $7 billion portfolio there. The opportunity in Africa is also unprecedented because you have the youngest population on the planet fastest economies growth economies there.
04:00And we specialize on funding basically four pillars. Energy security. You have water security, food security and health care and education. Right. And ultimately across Angola, Congo DRC, Zimbabwe, Kenya.
04:19So these are markets Ghana where we already have presence. We have local teams on the ground. And yes, the private credit opportunity for those markets is huge.
04:31Yeah. I mean the thing is as well you know I just said Africa. But of course each country has its own set of challenges. You're talking about different jurisdictions here.
04:40You're also talking about different types of liquidity. How do you navigate some of those you know very specific elements to all of the countries that you're
04:49looking to get involved in because it's not. It's a very different backdrop to what you get for say private credit in the US. Absolutely. And that's a very good
04:57point that you're you're raising. Africa is not a country. And we get that that question asked by our investors and ultimately our differentiation differentiating
05:08factors and investors that we are specialists. And we have boots on the ground over three decades of investment management experience. We have basically
05:18developed skills for risk mitigation. But you have to be local. You cannot do suitcase banking for Africa from London or from New York.
05:26You have to be local. You have to become part of the investment community part of the ecosystem to understand the needs of our customers locally and structure
05:35those flexible solutions capital solutions that they need it. Yeah. And ultimately that's how you mitigate the risks. Interesting.
05:41So let me ask you a broader macro question. Just sort of if you look at where public emerging market spreads are trading very very tight
05:49at the moment. And so when you look at the overall risk reward and I know you know we've been talking about private credits do
05:58you think about the potential headwinds that have come through if there is a shock to emerging market credit spreads next year because at this
06:05point it's it's very difficult to argue that you know we're going to tighten another 50 hundred basis points from where we are. Very good
06:11question. So obviously the public credit spreads in EM globally and also in in Africa followed to driven by the general credit
06:19spread environment. Right. And obviously if we have a pullback in the sentiment you're going to see a pullback in in mark in price
06:26action in in public bonds. But in the real opportunities in private credit. Right. And you can actually structure private credit
06:35instruments for sovereign borrowers quasi sovereign borrowers good solid private credit borrowers where you have superior credit
06:43fundamentals than in developed markets which are giving you double digit returns. And I think these type of returns are going to be
06:51sustainable because you have the economic growth. Yeah. Maintaining this. OK. So then just to round things up a couple of weeks ago in the U.S.
07:00there was a lot of concern about these idiosyncratic fraud incidents with first brands. Yes.
07:06My color. Jimmy Diamond was talking about cockroaches is never just one. You know you have to be on alerts. And I'm sure your own
07:13firm you have very rigorous underwriting standards. But are you worried about the rest of the universe. I.E. that you know there's a lot of
07:22interest in this asset class. People are chasing returns. And that may lead to a watering down of some of the underwriting
07:28standards. Yes. We are. We are concerned. So we are following obviously the broader credit credit market closely. And as you
07:37said we see a lot of fraud and probably fraud fraud. Yeah. In terms of underwriting standards and documentation and
07:47governance in private credit deals. Yeah. And I think first first brands of some of those situations probably are not going to be the
07:56only ones. Ultimately you have too much capital chasing too few assets and artificially generating or trying to generate
08:06excess spread. That's why we feel that structuring and investing in private credit instruments in emerging markets where you have
08:14capital shortage and a lot of opportunities. You have ultimately positive deal selection bias. Yeah. Right. Ultimately you are
08:25there to choose the best deals and you drive the best terms and documentation. Ultimately that is the long term value
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