00:00I think we've talked so much on this show about the cracks that we're seeing in the credit markets.
00:04We've talked so much here about the lack of exit possibilities in the private equity space.
00:09Are you actually still running into the house that's on fire, or are you standing outside waiting for someone to
00:15put it out?
00:15Well, look, right now, the market feels like it's a poly crisis.
00:20So you had the tariff war, the trade war, the Ukraine war, the Iran war.
00:26And these are tail risks that come with little or no warning.
00:31But if you cut through the noise, as you said, it's the new money opportunity that's the most interesting for
00:37investors.
00:38So you mentioned private equity, digesting legacy assets that were maybe mispriced in risk in the previous decade.
00:46If those assets are sold at lower prices, just to clear the backlog, because the distributions are slower and lower.
00:53Well, if they're sold at lower prices, somebody is buying at lower prices.
00:58So it's important to see who's able to lean in to those opportunities.
01:01I am curious, though.
01:01We've seen so many of these asset managers reluctant to even put it out there for sale, because, of course,
01:07obviously it exposes potentially what it really is.
01:10Are you seeing a little bit more willingness?
01:12I say willingness.
01:12Are you seeing more of these companies being forced to finally come to the table and say, OK, fine, give
01:17me an offer?
01:18I am.
01:18I mean, I think it's it's not a case of return of capital.
01:23The capital is being returned.
01:24It's about how much return on capital is being returned.
01:27And I think if you have a fund, which is, let's say, 2015 to 18, that kind of vintage, you
01:32know, pre-pandemic.
01:33And it still has, you know, a good chunk of its inventory sitting on the shelf.
01:39You know, eventually you have to kind of, you know, move on because the IRRs are going to look, you
01:44know, pretty weak.
01:45So I think that is going to happen.
01:47And as I said, that creates opportunities for those who can lean in.
01:50On the private credit side, we still have really interesting opportunities to lend to the core growth areas of the
01:56economy.
01:57You have data centers, energy supply, infrastructure.
02:00So although there are a series of, you know, controlled implosions in the private credit landscape, I think those are
02:08the minority of what we're going to see going forward.
02:10And essentially what we'll see is a rewriting and upgrade and underwriting standards going forward.
02:15Well, let's talk about who potentially is getting caught up in those controlled explosions.
02:18And I will be using that phrase again.
02:21Retail investors.
02:22I mean, that has been the talk of the town over the past year or so.
02:25How do you expand this asset class private markets to retail investors?
02:30Now, I mean, we just got this headline in the past couple of minutes.
02:33Cliffwater's private credit fund said to see seven plus redemptions.
02:36They're certainly not alone when you think about what we're seeing over at BlackRock and other firms as well.
02:42And I wonder, you know, when it comes to the individual investor, the retail investor, which is a pretty broad
02:48church, do you think that there is a structural misunderstanding about liquidity expectations for some of these funds?
02:56I think education is the best defense.
02:59Understanding is the best defense.
03:00If you're a retail investor and you're buying public stocks, are you fully, fully informed about what you're buying or
03:07you're relying to a certain extent on reputation and the fact that it's liquid and everybody knows the company, you
03:12know, you're buying shares in Apple or whatever.
03:15With private markets, it's much more difficult to really understand what you're getting into.
03:19And I think it's important to understand that we're in the very, very early stages of this expansion to retail
03:25investors.
03:25So I think there are bound to be some vehicles that don't work out.
03:29You know, the prospectuses are big.
03:32There's a lot of hard work, smart people working on these things to make sure that people really understand what
03:38they're buying.
03:38But, of course, it's going to be a challenge because ultimately you have to size your exposure to what you
03:44know you can't take out quickly.
03:48And when someone is selling you this product, it's difficult sometimes to understand.
03:52How does the conversation potentially change around putting private assets in 401ks?
03:59Because that was also part of this push.
04:01And you think about Treasury Secretary Scott Besson saying at the end of February that he doesn't want, quote,
04:06something rotten getting passed off to individual investors when it comes to PE assets.
04:11And he's got company, actually, from Senator Elizabeth Warren.
04:14They're on the same side of this issue.
04:16She has also said that we need to stop pushing these risky investments into Americans' retirement accounts.
04:23Certainly that has been a big goal of some of the big players in the private market industry.
04:28Do you think that some of that urgency maybe is removed by the episode that we're living through right now?
04:34I think selection is absolutely key.
04:37I mean, I get this question from friends of mine, relatives, all the time.
04:40They're successful in their own business.
04:42They have some savings.
04:43They've been marketed some private markets funds in one form or another.
04:47I think if you look at the major franchises, their flagship funds that have delivered consistent alpha through market cycles,
04:56you're probably likely to think that those are quite a good place to examine opportunities.
05:02I think the issue is that most investors would not really know which are the best funds and firms to
05:08look at.
05:09And therefore, education is really essential before they go into these kinds of decisions.
05:13But this has got to be hard in this particular environment because, I mean, the whole sort of draw to
05:16a certain extent of sort of getting access to this as an individual investor
05:21was that for years, a lot of these folks were on the sidelines looking at these incredible, you know, 20
05:25-plus percent returns
05:26and wondering, you know, why we can't get a piece of that.
05:28Now you're in a lower return environment.
05:31You're in an environment where there's a lot of cracks, so a lot of fear about what's there.
05:35And I'd say long term, this might not, this won't work out well.
05:39But in the short term, I don't even understand how you sell that.
05:41I think you have to, you know, the onus is on the individual investor to do the homework and not
05:47skip the diligence.
05:49I'm sure the firms are going to be very careful how they package investments and how they sell.
05:54You know, long term, I think it's quite a good thing.
05:57I mean, if you look at the macro environment today, you know, as I said, it seems like a poly
06:01crisis of different risks.
06:03You have, you know, different wars. You have the tariffs. You have the trade.
06:06And actually, it could make sense, if you're an individual investor, to have part of your balance sheet in private
06:12assets to shield from daily volatility.
06:14The question is how and the question is with whom.
06:16And I think that is going to take some time to figure out.
06:19And Sachin, before we let you go, you know, I am curious to hear your perspective on how things look
06:24different or similar
06:25when it comes to private equity versus private credit, because a lot of the conversation is centered on private credit.
06:31And we've sort of been talking about the two as a monolith here.
06:34Yeah, they're different.
06:35I mean, the issue is both are experiencing turbulence, as we've talked about.
06:40You know, for some time, you'd find that one is kind of growing at double-digit rates and the other
06:44one is a little slow,
06:45but they're both experiencing turbulence.
06:46The best thing is diversification.
06:48I mean, if you're going to look at having a balanced portfolio, you're going to look at a little bit
06:52of equity and debt.
06:53I'm still finding really good opportunities in both spheres, but certainly you have to be very selective,
06:59and the bar is much, much higher than it was even just a couple of years ago.
07:03Well, don't you know where I'm talking about lots of people.
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