00:00So Drew, I want to know with some of the fear in AI creeping into public debt markets, is that risk accurately reflected in private markets?
00:10That's a great question. I think if you look at just the sheer amount of capital that AI is, that was required for AI, it's consuming massive amounts of capital.
00:21And so I think what you're seeing in the credit spreads of some of the metas and oracles of the world are just a reflection of the amount of capital that's going to be consumed.
00:30I think, you know, we're big believers in AI. You can be big believers in AI.
00:35You can also question what the investment returns that are going to be yielded through some of these infrastructure investments,
00:42because just the sheer amount of capital and will the revenues produce the amount of capital.
00:47A lot of folks like to point to the Internet bubble in the late 90s and early 2000s.
00:52Obviously, the Internet was a wild success, but the amount of capital that was required for infrastructure didn't match the revenues in the early days.
01:01And I think what you're starting to see reflected in some of the credit spreads is just that question around whether the revenues are going to be there to support the amount of capital that's been spent
01:12and the amount of capital that's going to continue to need to be spent as the as the upgrade cycle flows through.
01:18Jack, let me bring you in on this, because a lot of your peers have been inking monster deals.
01:24Again, yours has been more on the energy side and some of the real estate, too.
01:27But we've seen some of your peers tens of billions of dollars financing packages with Meta, with other big giants like Intel.
01:35Is there a sense that deployment has gone too far to Drew's point that sometimes maybe the revenue won't fully reflect the capital expenditure that's being done?
01:46Yeah, I think from our perspective, we find it tough to predict what the future is going to look like.
01:51As Drew said, what's the use case for data centers, how much capital needs to go into them in five to 10 years time?
01:57So I think from from our perspective, we've been focused on investing in, you know, the companies that are providing services around the AI space.
02:06We made an investment in a company that owns 30 mobile turbines.
02:10Those mobile turbines are used to provide temporary power to data centers.
02:15That's a hard asset that we can get our hands around.
02:17You know, we have the ability to reposition those assets to other use cases that are outside of AI.
02:23So I think from our perspective, you know, that's a better way for us to play this investment than compete with the firms that are focused on writing these these multibillion dollar checks into the data center space.
02:34Jack, just on that is you don't want to compete because of the size of it or there's just too much risk in there?
02:42Well, I think it's a combination from our perspective.
02:44Those are those are massive checks.
02:46And so I think you really have to have a lot of conviction and to compete.
02:50You have to have a lot of capital.
02:51And so, you know, we like to focus on areas where we can have an edge.
02:55And I don't think we necessarily have an edge to compete in these big data center projects.
03:00And again, I also think when we look out at the spectrum, it's tougher for us to have the conviction that, you know, we know what these assets are going to be worth five or 10 years in the future.
03:10And so we'd rather invest in in other types of services or assets that we have a better picture on the long term visibility of values.
03:18Let's talk about where that edge is.
03:20And Drew Fortress has a history of being very active in the regional banking space.
03:25In the summer, you gave an interview where you said there's going to be an opportunity set in private credit because of the gaps that exist with small and regional banks.
03:33I wonder, does that sort of hint at a dislocation that still exists within the regional banks, that there are still some cracks there that maybe the rest of this market doesn't fully appreciate?
03:44Sure. Look, I think if you look at the growth in private credit over the past 10 years, a big part of that growth hasn't necessarily been the overall credit pie growing.
03:56It's been what we now call private credit and capital from private equity firms filling the void that both investment banks, post-financial crisis and regional banks have left.
04:07As you've seen regional banks pull back, I think we've seen that opportunity really since 2023.
04:13When you saw the regional banks pull back post-Silicon Valley, Signature Bank First Republic, you saw a lot of banks reassess their liquidity requirements, reassess their duration.
04:24And that's where we've seen a big opportunity in private credit and for us specifically in the asset-based credit space where we've been quite active.
04:32We've had a business going back to 2002, but really in the past, call it two years, we've really seen that opportunity set expand.
04:42And that opportunity set has expanded not by us doing anything different, but by regional banks deciding they want to pull back or need to pull back
04:50because of some of their own liquidity issues around the fractional banking system.
04:55Well, Joe, one of the reasons I ask, and I understand that, but one of the reasons I ask is also because we were just hearing from Mark Rowan speaking to Bloomberg
05:02about these late-cycle dynamics where they're, in his words, good banks and bad banks.
05:07There have been some very high-profile blow-ups when it comes to things like tricolor and other investments.
05:14Again, that's been both in private credit and the banking system.
05:17You have so much experience and some more of these distressed assets.
05:21Drew, for your, has the list of stressed assets, the watch list, has it been ticking up recently?
05:29Look, I think both Mark and Jamie Dimon can both be right.
05:33I do think credit events like Tricolor and First Brands are showing signs of some folks and some competitors that are probably getting out ahead of themselves.
05:46And aren't doing the proper amount of diligence in researching their investments and structuring their investments.
05:53And I think, just like Mark said, there's going to be good asset managers and bad asset managers.
05:58One of the things that we've said for a long time in the credit space and the private credit space is,
06:03it's going to be hard to tell who's doing a good job when defaults are very low, right?
06:08Because the reality is, in credit, if you get paid your coupon, you're going to perform as expected.
06:13And so I think if you look back, and really private credit as a distinct asset class came about post-financial crisis.
06:19We've been investing in private credit going back all the way to 2002 when we founded the credit business at Fortress.
06:24But it's really hard to differentiate yourself when there's no defaults.
06:29I think when you start to have some defaults, you start to have just a normal credit cycle, a normal investment cycle, economic cycle,
06:39you're going to start to see variance in returns.
06:42And from our perspective, we've always invested deeply in the asset management part of the business,
06:47which means taking care of those assets if you start to have the watch list.
06:51And so as we look forward, I do think you're likely to have a little more volatility, right?
06:56The economies, I think there's a lot more uncertainty around the economy.
06:59There's a lot more uncertainty around interest rates, geopolitics.
07:03That's going to lead to potential defaults.
07:05The good part about credit, if you structure it right, is you don't have to lose money if you have a default,
07:11if you've got a well-structured loan.
07:12And so from our perspective, we actually believe this is an opportunity for us to really outperform
07:17and start to differentiate from a performance perspective.
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