00:00Joining us now to discuss these concerns is Eric Hirsch. He's the co-CEO of private capital manager Hamilton Lane.
00:06That firm out this week with its 2026 market overview report. But Eric, first explain to us your relationship with
00:14private credit because your advisors, your consultants for a lot of customers who have tens of billions or hundreds of
00:20billions of dollars of private credit exposure.
00:24Matt, nice to be with you. I think what you're seeing here is contagious fear. What we're not seeing in
00:30the headlines are a slew of defaults or rising default rates. What we're not seeing in the headlines is equity
00:36coverage is dropping or interest coverage rising. What we're seeing is a lot of panic.
00:41And so we've got a lot of headlines out there. And what we're seeing is people wanting to get out
00:46of these private credit vehicles because they're worried about what might happen because nothing is happening right now that's actually
00:53negative.
00:53So, I mean, you have put your money where your mouth is here because I think I read a story
00:58earlier this week or last week that you went out and bought a million dollars or the shares in Hamilton
01:03Lane.
01:03What do you do with private credit? What's your relationship with this asset class?
01:08Well, as you said, Matt, we're a big investor in private credit. We're both doing that directly as a lender
01:15into companies and we are putting capital into private credit managers.
01:20What that should tell you is we have incredible visibility on the books of these managers and are able to
01:26look inside to see what's actually happening in terms of credit performance.
01:30And as you noted, I did put capital right back into Hamilton Lane. I'm seeing the information. I'm seeing the
01:36data and I'm not seeing things that are flashing warning signs.
01:40Also, I think we need to be clear saying private credit as an entire entity is like saying there's a
01:45problem with all stocks.
01:47Private credit is a huge space that entails all different kinds of lending.
01:51It simply means that you're going and lending to private companies. But the types of companies that we're talking about
01:57vary as dramatically as what you see across the stock market.
02:01So lending to someone who's doing a dental practice roll up or lending to a software business, those are both
02:08private credit.
02:09But those are two totally different ends of the risk spectrum. And right now, investors are not distinguishing between that.
02:15That's a fair differentiation. The other thing that I think people are overlooking is the way a lot of these
02:24funds are built.
02:25They say semi-liquid, which I think, you know, is a little bit too enticing to those who want liquidity.
02:32The way they're built, for the most part, is that you put your money in there and leave it in
02:36there, like maybe a CD or your 401k.
02:39And it doesn't seem like investors have been educated well enough on that point.
02:44Why don't we see more managers laying down the law, like Morgan Stanley, saying, you know what, 5% is
02:51the cap.
02:51We told you that when you signed the contract, and it's still the case today.
02:55I think managers are in a tricky spot right now. I think they are worried about sort of that run
02:59-on effect that they think might happen.
03:02And so you've seen a mix. You've seen a couple of people let the caps go over that 5%, and
03:07you've seen others completely hold the line.
03:09I think you're going to start seeing more and more hold the line. This is, frankly, in the investor's best
03:14interest.
03:15I think you said it. These are semi-liquid. These are not vehicles that are meant to be coming in
03:20and out of on a daily basis or a monthly basis.
03:23They are there as a long-term capital appreciation tool, and trying to get the managers to sort of force
03:29liquidate assets, that's not going to be in anyone's favor.
03:32And so, again, right now, I think you've got a lot of panic. You don't have enough good education on
03:37what's going on out there.
03:38And so people need to start looking at the fundamentals and looking at the data before making a decision, not
03:45simply looking at a potentially hysterical headline.
03:49Why? You know, we've heard from so many titans. Jamie Dimon, obviously, has been pretty vocal on this and has
03:57compared it to 2008.
03:59We've heard the same thing from Jeff Gundlach. We heard that this morning from Steve Major on Bloomberg Surveillance.
04:07Lloyd Blankfein has made those kind of comparisons. Mohamed El-Erian has made those kind of comparisons.
04:13But the totality of private credit is like $1.8 trillion, right?
04:18And in 2007, 2008, we were talking about mortgages that were like the size of the U.S. economy, if
04:25you looked at the value of all of the contracts.
04:29I mean, what kind of knock-on effects could we see if we do have a 15 percent default rate?
04:35Well, during the global financial crisis, the default rate didn't come anywhere near that level.
04:40And if you look at private credit performance, it's beaten its public market benchmark for the last 25 years straight.
04:48So that, I mean, the top quartile managers during the global financial crisis of private credit were putting up net
04:55double-digit performance.
04:57So, again, I think what we're seeing is headlines.
05:00But I'm not seeing, to your word, the titans coming out with data.
05:04The titans are coming out and saying this could be a problem.
05:07This feels like a bubble.
05:08This feels like, where's the data?
05:10Let's go back to showing hard numbers of are we seeing default rates rising?
05:15And the answer is we are not seeing it.
05:18They are sitting at sub-2 percent right now, and we're not seeing indications that that's going to be sort
05:23of dramatically altering.
05:24There could be some software problems.
05:26Fine.
05:27That's a portion of the, a small portion of the total credit market.
05:31And, again, could be offset with other more positive pieces that are coming through.
05:36So I think investors need to sort of start parsing this more carefully and looking at individual manager books and
05:43judging them on how they assembled their book, but not assuming that everyone's book looks the same because they absolutely
05:50don't.
05:51And as, again, the firm that's sitting here with the data, able to look inside the books, we can tell
05:56you they don't look remotely the same.
05:58I do wonder about asset sales.
06:01And so far we've heard from a couple of BDCs that have sold loans.
06:06They got 97 cents to the dollar or something near par.
06:12The concern, though, is that they're selling their best loans first and are left with the underperforming companies.
06:18What kind of data do you see in terms of the assets changing hands, Eric?
06:23So we've seen very little of that.
06:25And the few examples that you mentioned were literally 99 percent of par.
06:31And so that isn't indicating data.
06:34Now, are people cherry picking assets for early liquidation?
06:36We're not seeing evidence of that.
06:38And so that is not today sort of a fear.
06:41I think the bigger concern is if the liquidity demand continues to rise, either the gates are going to just
06:48be down and that's what it's going to be or managers are going to feel like they're in a position
06:52where they're going to be forced to be moving more assets than they otherwise would.
06:56And that just might create a supply demand imbalance.
06:58And that's that that would be more of a problem.
07:00But today, if you look at the amount of dry powder, so this is capital that has been raised by
07:04private credit managers that is sitting here looking for a home.
07:08There's a whole lot of it.
07:10And, oh, by the way, private credit managers continue to raise money, again, despite the headlines.
07:16And let's also remember, a large portion of the private credit industry, if you will, is not in semi-liquid
07:22vehicles.
07:23It's actually in long-dated, totally closed-end funds.
07:27And so that capital is much more permanent and not going anywhere.
07:30And then another big chunk of private credit is actually being invested using insurance companies and partnering with them.
07:37And so that capital does not appear to be going anywhere.
07:39So right now, this is more of a retail issue, retail investors seeing negative headlines, concerned about what might happen
07:46in the future, and retail investors trying to move money out.
07:51That's not true with the institutional investor.
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