00:00Mark first it was the software concern. Now it's liquidity around these retail funds. Just how existential of a moment
00:06is this for private credit.
00:08Is there going to be some real pain and scarring coming from again all these risks that we're now starting
00:14to flag.
00:16Yeah thank you very much for having me on. I think you have to realize that this market is in
00:21the early stages of maturity and you're going to see a lot of bumps along the way.
00:26As you mentioned there was a lot of scrutiny around software exposure. We have said in that you didn't the
00:34question is not good or bad software exposure.
00:37It's what is it. How well is it embedded. What is the structure of the loan being provided to the
00:42software company. So there's a lot of issues around that.
00:46We've also seen a lot of issues of late around liquidity retail investors perhaps not understanding the features of of
00:56of the private credit market.
00:58And that's created some some some volatility. Yeah I wonder about the Boaz Weinstein said a couple of days ago
01:07one of the greatest accomplishments of private credit masters of the universe was convincing the market that this is the
01:15best thing since the Internet.
01:16When it's really just lending money to small companies. What's the differentiation though that that you actually see Mark.
01:23Yeah private credit is offering something that the banks and the public markets have not offered to date. They're providing
01:30bespoke lending there to two borrowers.
01:34They're providing certainty of execution and they're providing speed and to the investors. They're providing diversification duration and enhanced yield
01:44and the alternative asset managers are managing that that that that paradigm.
01:49And have seen a lot of growth as a result of doing that.
01:53Mark I was speaking to a lawyer that does a lot of private credit work last night who basically said
01:59the Blue Owl stuff is a red herring. KKR Aries share selling off. All of that is a distraction.
02:06The real issue is these more mid size mid market lenders that have because of competition had cove light deals
02:16or have just rushed and signed essentially really bad loans that they've done pick.
02:21They've done it once. They've done it twice. And finally things are going home to roost and they are saddled
02:27with these zombie companies. Are you seeing the same pressure in these again more mid market type lenders that there's
02:33some real issues among them.
02:35I can tell you we haven't this this current episode is really all about liquidity. It's about providing liquidity to
02:44retail investors that are investing in long dated assets that assets themselves have performed quite well.
02:51And quite frankly, the recent sale of assets by Blue Owl at roughly par for a large portion of one
02:58of their funds shows that asset quality is actually pretty strong.
03:02This is really a liquidity story, not an asset quality story today.
03:07Mark, do you think it was then I know the market reaction to it was pretty bad, but do you
03:11think it actually makes sense then what Blue Owl did put the gates up for the redemptions, but instead return
03:17money on a more regular basis?
03:18I mean, there is a soft promise that business development companies have and that is around providing roughly five percent
03:27of their assets in redemption towards redemptions every quarter.
03:32It needs to get approved by the board. Typically, we've seen them give that five percent in periods of stress.
03:39We've seen them go over that five percent. So Blue Owl recently went over that five percent, but that's not
03:44new.
03:45We saw that during covid where a number of other business development companies provided redemptions up to six, seven and
03:52eight percent.
03:53These redemption, these elevated redemption periods typically last one to two quarters.
04:00We saw elevated redemptions in the fourth quarter of 2025.
04:05We expect to see elevated redemptions again in the first quarter of 2026.
04:11But what's important to note here is on a net flow basis, business development companies are still seeing positive inflows.
04:19The outflows is just one side of the story. They are still so trading at such an extreme discount to
04:26Navmark.
04:27It's pretty remarkable. I mean, are any of the fears founded?
04:32Do you think we were just talking with the CEO of BXPE?
04:35That's Blackstone's private equity portfolio or product for wealthy was saying investor education is so important.
04:42Do you think that there is just an issue where maybe the blue owls of the world haven't or other
04:47BDCs haven't fully educated their investors enough to say, hey, maybe you shouldn't expect as much liquidity from this.
04:54Like, where are the mistakes being made? Because clearly there is some fear out there.
04:58Yeah, the market has definitely been spooked and it's moved much farther beyond just the pure BDCs.
05:05And that has to do with the lack of transparency, the concerns around valuations and the illiquidity of this market.
05:13But what I'd like to to really emphasize is that illiquidity is a feature of this market.
05:19It's not a bug. There is a need for more investor education.
05:24That is for sure. Retail investors are used to liquidity.
05:27Institutional investors are not.
05:30And they're very careful and they're very thoughtful and typically buy and hold investors.
05:36Retail investors, again, are not that type of investor.
05:40So as the industry seeks to bring in retail money, they need to do very carefully with education.
05:48And this is just highlighting the challenges that the private industry, private credit industry is having now and will have
05:55for some time as they bring in retail money and get retail investors up the learning curve.
06:02Mark, I only got 30 seconds here, but just hearing for you, have they gone too far too fast then?
06:05Are they bringing in money faster than they are doing that work to educate?
06:10That is a really good question.
06:12The market would tell you that maybe there's been investors who have rushed into this without full knowledge and full
06:20understanding of how this market works and the illiquidity that is present there.
06:25And so we'll we'll we'll have to see.
06:27But there may be a small pullback in the short term, but longer term.
06:30We think the trajectory of the private credit market will continue in the way we've seen it recently.
06:37Someone asked me the other day about, you know, what inning are we in?
06:40Yeah, I would say the national anthem hasn't even been sung yet.
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