00:00This kind of slightly riskier-on-the-face-of-it lending has been outsourced to professionals like you and to
00:06people who know what they're doing.
00:07The worry is that suddenly you're now getting, in Britain we call Aunt Agatha, coming into these markets.
00:13That's more worrying.
00:14Look, we're going to have a correction, but it's no different than the correction that's happening in banking.
00:19If you look in banking, the dominant banking institutions of today were not as dominant pre-crisis.
00:24Those that sat out the subprime lending have arisen and become magnified in terms of their fortress balance sheet and
00:32market share because they were good managers of risk and good managers of underwriting.
00:36I believe the same thing is going to happen in investment markets.
00:39Investment markets, people made choices.
00:42If you wanted a higher dividend, you could take more risk, you could lend to smaller companies, you could do
00:46more pick, you could invest in equity and preferred, not just first lien, and you could run with a lot
00:50of leverage.
00:51That felt really good on the way up.
00:53That's not going to feel so good on the way down, and there are companies of which we are one
00:58but not the only one who went all first lien, who went almost all cash pay, who went large companies,
01:04who work with low leverage.
01:06I like where we sit, and Jamie Dimon said it, there's always going to be fraud.
01:12There's always going to be underwriting mistakes, but the question is who's a good risk manager and who's not a
01:17good risk manager.
01:18If 30% of your portfolio is in one industry, and that one industry is being impacted by technology, you
01:25have not been a good risk manager.
01:27I think that the, I just looked at Blue Owl, I think it was 70% in different versions of
01:31tech.
01:32There is a parallel, though, isn't there?
01:33The way you described the banking industry, it has consolidated, particularly at the top.
01:38That would imply the industry you're in is going to consolidate as well, that you will end up with fewer
01:43people, because as you said, there is a reckoning coming.
01:47Some of those people will have to come out.
01:49We have fewer people.
01:50I mean, you started.
01:51I mean, we were, the whole, the entirety of the companies that you see that are public today, everyone was
01:5640 billion in 2008.
01:58We're now close to a trillion, Blackstone more, KKR a little less.
02:02This is not good management, or not solely good management.
02:06This is a function of structural change in our marketplace, and that structural change is continuing, and the reward for
02:13good work is actually more work.
02:15In our case, it's managing more money, and I think that is where we're heading.
02:20I think this will be a shakeout.
02:21I don't think it is going to be short term.
02:23I think the 30% overhang of geopolitics, inflation, technological change is now here.
02:31It was foreseeable, not maybe exactly how it occurred, but it was foreseeable.
02:36It was predictable, and all you can do is have been a good underwriter, a good risk manager, have done
02:42a small number of stupid things.
02:44And by the way, we've lived in an environment of tight spread.
02:49If you were a good risk manager, you are going to make more money this year, and next year if
02:55it continues, than you ever have before, because you've been risk-off.
02:59And so that's always the bifurcation of minds.
03:04First, you want to play defense and make sure, in fact, you've done what you think you have done, which
03:08is manage good risk.
03:09And then you want to play offense.
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