00:00Are you still on the hunt? How much do you want to grow?
00:03We're still on the hunt. I think very pleasing for us is we've had a great year in realizations.
00:08We had an investment from very early on, 2001 in Circle, and of course they did their IPO this year.
00:16And then another fantastic company, Marshbury, which is a middle market, M&A, insurance-focused, just with an incredible team.
00:24And, you know, one of those transactions, Francine, where we're happy, the management team's happy, Lincoln International, who's the acquirer, is happy.
00:31Everyone's happy.
00:32Happy days.
00:33Exactly.
00:33What's less happy is maybe some of the concerns about private credit.
00:37So, you know, investors were certainly quite jittery after some of the most recent earnings from some of the banks
00:43because they were trying to understand how much they were stung by the high-profile bankruptcies of first brands and Tricolor.
00:50Like, do you think this could happen again?
00:52Listen, I think these are single-name kind of episodes.
00:57I think the whole move toward private credit in the wake of the financial crisis has been very positive.
01:04I mean, you and I have talked about this before.
01:05One of the great things about, you know, the U.S. economy is they have this huge financial services industry, very diverse, you know, private equity, hedge funds, venture capital, private equity, so many sources of financing.
01:20I think that it's been a very, very positive thrust.
01:23And I think what we're seeing right now is more single-name episodes, but I see nothing systemic in what's going on.
01:30Do we expect there to be more cracks in credit?
01:33I think we've all expected it.
01:34It's been a long bull run in credit.
01:37We had that long period of time of zero interest rates and probably less covenants.
01:42But there's nothing systemic going on that we see.
01:46We do expect to see more cracks.
01:48Is there anywhere that you would look for in particular?
01:51Or is there, if you say there's no, I mean, it's not systemic, but could there be a broader reason to worry?
01:56I think there's actually quite a bit of money sitting on the sideline looking for opportunities to invest in credit.
02:03I think these are very special situations that we've seen.
02:07I don't think they're indicative of what's going on in the credit space.
02:12But I think, you know, I think seeing some cracks, I mean, we still have very, very tight spreads really across the whole credit curve.
02:18So I don't see anything that causes me concern from a systemic point of view.
02:24I mean, the other thing we're trying to figure out was this, you know, jolt when it was revealed that BlackRock's HPS has written off about $150 million in exposure to a group of companies, you know, to zero.
02:35I mean, is this, again, is this targeted or is there something about lending standards?
02:40I worry about a lot of things.
02:41HPS is not one of the things I worry about.
02:44They've been a juggernaut, and I think them running off a few things is, again, we will see some cracks in credit, but not systemic.
02:52So what do you worry about?
02:54I'm feeling pretty good about things right now.
02:57I think, you know, you had the clip from David Solomon as we were starting.
03:02You know, dealmaking is alive and well.
03:05And some of the tailwinds coming from the U.S. and from this administration, from the Secretary of the Treasury, from the chairman of the SEC, what a sea change from kind of the, you know, the era of Gary Gensler and that malign neglect at the SEC where they would approve nothing.
03:22And now, whether it's the attitude toward regulation, where the attitude of the Treasury and the attitude of the SEC toward regulation and financial services is not to ignore digital assets, it's actually to integrate regulation across both traditional finance and digital assets.
03:41And we've seen such a change in the last six or nine months with BlackRock doing ETFs in Bitcoin, Larry Fink talking about the tokenization of assets across all of BlackRock.
03:55We're seeing real institutional adoption.
03:57And we've recently done a transaction where we're working with Hyperliquid, the exchange in Singapore and built on a blockchain that is incredible.
04:10And I think Bill Winters made the comment yesterday in one of the interviews here about blockchain being the underlying technology of finance.
04:20We think of Hyperliquid as the exchange of the future.
04:25So I'm rambling on.
04:27There's so much going on in the digital asset space, so much going on in traditional finance.
04:32And the tailwinds in terms of consolidation, in terms of more simple, straightforward regulation of financial services is powerful.
04:44How does it change your business into what you want to get into?
04:48Will it change it significantly in the next four to five years?
04:51So I think the biggest change, Francine, is that we're seeing a integration of the best of digital assets.
05:01We first really getting, we got involved in this with Circle in 2021, as I mentioned.
05:06We learned a lot about the blockchain.
05:09We learned a lot about stable coins.
05:11We are seeing with the success of Circle and USDC, just those types of things.
05:17We're now learning a lot about how the blockchain with the decentralized exchange and Hyperliquid can really begin creating an opportunity.
05:29Hyperliquid has begun trading not just hype, its token, but is now trading NASDAQ futures.
05:36So the integration of a lot of things in traditional finance with the best of digital assets, starting with the blockchain, I think is creating a tremendous opportunity.
05:48Does Europe get left behind?
05:50Well, I think in terms of the tailwinds that I mentioned, wouldn't it be wonderful to see banking union?
05:57Wouldn't it be wonderful to see cross-border integration?
06:01You know, we've seen many opportunities for the governments in Europe to approve cross-border transactions, which we think could have been very, very beneficial.
06:10The attitude of this administration in the U.S. to consolidation, regional and community banks is a good example.
06:17And the recent transactions that we've seen has been very positive.
06:20I think if Europe had the tailwinds of more positive cultural attitude to cross-border consolidation, more of an attitude toward bank capital should be simpler.
06:35Maybe stay where it is or go a little bit lower.
06:39I think the outlook for financial services across Europe, it's better today.
06:44You know, you've got banks like Santander and Standard and Chartered really performing well.
06:49But I think there's a lot more here.
06:50Bob, you've said in the past that actually one of the biggest opportunities is banking in the U.S. because of M&A and bank consolidation.
06:57And we're just seeing the green shoots of that.
07:00So how are you going to, I guess, capitalize on this trend?
07:04And, I mean, could you see big tie-ups between banks?
07:06Or how do you see that space evolving?
07:08I wouldn't say big tie-ups.
07:09What we are seeing, and we're very focused on regional and community banks.
07:13So we've done a first close in a fund, 100% focused on consolidation in the U.S. banking industry.
07:20Today we have 4,500 banks.
07:23When you mention that to people that don't know, they go, 4,500 banks in the United States?
07:28That's the wrong number.
07:29Well, it is the wrong number.
07:30And many of the smaller community banks are too small to succeed to get their return on equities back above 10% up to something more credible for their valuation.
07:40And the ability to do in-state mergers and with the support of the Treasury and the SEC in terms of approvals of these in the OCC,
07:50we think that there's going to be consolidation that takes that number of 4,500 to something closer to 1,000 or 1,500 literally over the next two to three years.
08:00Do you have, sorry.
08:02No, go ahead.
08:02Do you have ideal tie-ups?
08:04We have absolutely ideal tie-ups.
08:06We're working on them right now, and we can't say a thing about them.
08:09Give me a flavor of what you think will happen, if not what you're looking at.
08:14So one of the best opportunities is for banks, say, in that $10 billion to $50 billion area.
08:20Higher regulatory capital hits in at $100 billion.
08:24Most of the banks want to either stay below that or have a clear strategy approved by the regulators before they go over that.
08:31But there's tremendous opportunities for banks in that $10 billion to $50 billion area to acquire smaller community banks, typically more private, often in-state,
08:43where you think about the costs of technology come right out because almost all of these banks are on the same technology platform.
08:50The costs of regulatory relations.
08:53You've got duplicate departments.
08:55That comes right out.
08:56So what we're seeing, Francine, is an opportunity to get really, really good returns just from the cost synergies,
09:04to say nothing about the revenue synergies.
09:06And if you can do them in-state or close to state, those revenue synergies come even more quickly.
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