00:00Is it, again, I want to ask you, the merger coming undone or something more?
00:05Like, is it just a company-specific thing that's a problem, or might it be the canary or owl in the coal mine?
00:11Like, is it something more in terms of what's going on in the private credit world?
00:16Blue owls are supposed to be fictional characters in the real world, and it's now up to the blue owl management to prove that their marks are not illusory.
00:23In a credit market where you're dealing with private loans, the investors, your investors are reliant on what you believe those loans are worth.
00:34Unfortunately for blue owl, many of their investors and their publicly traded BDCs don't quite believe the book value, and that's why it's trading at a big discount to book value.
00:45If you want to blame negative articles, that does sound a touch defensive, and it's not going to really help the cost.
00:51There are a lot of Wall Street veterans who are pointing in this direction and talking about trouble.
00:57But I would like to take a step back and say, you know, when you ask about whether this is a canary in the coal mine, we haven't seen some crazy implosion.
01:04When you're investing in 100 companies, there will be some defaults along the way.
01:08The question is, can you keep it below what your peers are experiencing, and is it below your historical averages so that tells you where you are in the credit cycle?
01:16And on those metrics, blue owl and the rest of their peers are seemingly doing just fine.
01:22But the mind goes back to the kerfuffle last month when Jamie Dimon got on the earnings call and gave what sounded like sage advice about the credit cycle and said, you know, when there is a problem somewhere, you can expect a few other problems to crock up, a few other cockroaches.
01:38Because for some reason, a lot of players in the private credit market took it as a direct insult hurled in their direction and got worked up about it.
01:47Prominent in that was Mark Lipschulz of Blue Owl, who really took a real swing at Jamie Dimon.
01:53A month later, you kind of feel like saying, if you come at the king, better not miss.
01:58Well, before, I want to bring in Davide, but Jamie Dimon, how many times have we had conversations with you?
02:04We all wait to see what he has to say about any situation.
02:07He doesn't, or does he, just drop something to stir the pot?
02:10Does he do that?
02:14Let me tackle this carefully.
02:15I think the fact that Jamie Dimon has been the CEO of JP Morgan, the largest bank in the United States, with a $4.6 trillion balance sheet for 20 years now, right?
02:27It makes you think that he's coming from a vantage point that is unparalleled, to be honest.
02:33And he's got the experience and the position and the pedigree to speak his mind, and thankfully he does.
02:39In this case, and if you look back over the years, some of the things that Jamie has said, whether it's about work from home or a myriad number of topics, can veer towards the extreme.
02:50But what he said here seemed fairly innocuous.
02:53All he said was, there's never just one cockroach.
02:56There will be other troubles that crop up.
02:58He didn't necessarily say the others will be in deep distress.
03:01Why did the private credit industry take it so personally?
03:05Yeah.
03:05So, Davide Shalito, come on in here, because you cover private capital for Bloomberg News.
03:10The focus that we've had this week has certainly been on Blue Owl, not just investor reaction, but also the press that we've seen around the company.
03:18Is this something you're seeing in your world outside of Blue Owl right now, too?
03:23Yeah.
03:23And I would say one thing to Jamie Dimon's comments, like he wasn't wrong because we have seen more of these situations and across across the industry.
03:32By the way, we've seen them on the bank side, too.
03:34So I think there is a broader issue kind of in credit markets where people are questioning like some of the underwriting standards and red flags that may have been ignored in the past.
03:44And that cuts both ways.
03:46I think what Blue Owl really put on the map is an issue that all of these firms are kind of wrestling with, which is how do you sell this asset class to retail investors?
03:58And what is the right format to do that?
04:01You can historically they've done permanent vehicles, like very long dated stuff that it's great for institutions.
04:06You lock up your money for seven years and it works well for them.
04:10But if you're making a push into individual investors, you have to provide some kind of liquidity.
04:15And what is emerging with this failed merger of Blue Owl is that that liquidity is an in between between daily liquidity and seven year liquidity.
04:26And it doesn't kind of work as intended sometimes.
04:29Well, how big of an issue is that for private credit overall if they don't have the market that includes retail investors?
04:36I mean, I would say it's a big issue because a lot of funds are being set up in a similar way where they provide quarterly redemptions subject to a cap.
04:45And you can either come out at NAV, which is basically the value of the assets in the fund that the manager assigns to them.
04:53Or if it's in a public structure, you come out at the price that the market assigns to it.
04:57And the market right now is believing that most BDCs are 20, 30 percent below their asset value.
05:03But here's the thing.
05:04There was nothing crazy or revolutionary or wacky about Owlrock or Blue Owl wanting to merge a private fund with a publicly listed BDC.
05:12It has been done in the past.
05:14The problem and the challenge was it was being considered or at least it was presented to the market at a time when the amount of redemptions in that private fund were climbing.
05:25And if it climbs above a certain mark, Blue Owl might very well gate redemptions.
05:29And you never want to be in a position where you tell your investors you're not allowed to get your money back.
05:34They had been honoring all their redemption requests so far.
05:37But if you ever had to get to the position of gating redemptions or basically saying right now we will not allow you to pull all the money that you want to pull, that spurs panic.
05:47That results in more people wanting to run away from your vehicle.
05:50So instead, when they talk about wanting to merge it with this public vehicle, which is trading at a 20 percent discount to book value, which means once you're in there and then you want to get out, you have a 20 percent loss on day one.
06:02It starts to feel a bit icky. And that's what really resulted in this market reaction that makes Blue Owl or at least pushes Blue Owl into this defensive corner.
06:15But all of this makes me feel like, OK, Blue Owl is supposed to be the poster child.
06:19Like if we're talking icky or redemptions or gating those redemptions, that to me, if you're talking about the poster child for private credit, then it makes me wait.
06:29Like, OK, if they're supposed to be up here and they're maybe potentially having issues, what else is out there?
06:37Because not everybody's in the same situation.
06:39And in other words, they're in weaker situations.
06:41And that goes back to the broader concern about the industry.
06:44It's not just Blue Owl.
06:45I think Blue Owl is in the spotlight because they tried to do this.
06:48Yeah.
06:48Some people, many people probably now would argue was terrible timing.
06:53But it is an issue that everyone in the industry has to kind of deal with.
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