00:00The conversation that we've been having on the close is really trying to untangle the sentiment
00:04that we're seeing in private credit right now from the actual fundamentals. But, you know,
00:10you think about the very human reaction, just human psychology at work. You see all these
00:15negative headlines of investors being gated, not getting all of the money that they would
00:21like redeemed back. I wonder, in your view, what that might mean for fundraising for this
00:27asset class going forward? Well, Katie, nice to be back with you. I think you laid it out perfectly
00:31well, which is you have a huge headline issue. No one wants to wake up every morning and be told
00:36there's an issue, there's an issue, there's an issue, because when they hear that, they want to
00:40do something about it, i.e. get out or avoid the issue. And so that's very different than what we're
00:46seeing at a fundamental level. You said it before, you're talking about an asset class that's almost
00:51$2 trillion. So inside of that, it's hard to lump everything together. So I like to think about
00:58sort of these private market firms like cars. We would never say we have a car problem. We would
01:04say, well, there's a problem with this particular manufacturer or this particular model, or there's
01:09a problem with this driver driving the car too fast or with too much risk. And I think that's what's
01:15being lost right now is that nuance of talking about cars and specific models rather than saying
01:22everything is a problem. I really want to dig into that metaphor. So, I mean, what do you think
01:28is the issue here? Is it certain brands, meaning, you know, asset classes, in my view, is this a private
01:34credit problem? Is this a situation where the drivers are driving too fast, where the managers maybe
01:40are taking on too much risk or maybe didn't properly disclose some of those liquidity requirements?
01:48Well, I think there's a couple of pieces. One, I think different car manufacturers build different
01:53quality of cars, and not every driver is equally adept at being an excellent driver. So I think it's
01:59the combination of those two things. But we also need to recognize that private credit is lending to
02:04all kinds of different businesses. So right now, the headlines would have us believe that private credit
02:10really just lends to software companies and software companies are in trouble. Well, that's just not
02:15true. Software makes up a very tiny portion of the overall private credit market. There's a lot of
02:20private credit that's being lent to industrial companies and manufacturing companies or retail
02:25companies or rolling up dental practices. Those are very different risk profiles, and those are impacted
02:32by very different economic fundamentals. So a whole bunch of that is going to have zero impact from AI,
02:38and some of that will have impact, and some of that's going to benefit, and some of that will be
02:42harmed. But again, the asset class is so large, and the amount of industries that are being,
02:48the capital is flowing into from the private credit market is so vast, that it becomes really hard to
02:53paint with a broad brush. And right now, that brush is very, very broad. But Eric, I can't help but
02:58think back to a few weeks ago, when the president at PIMCO said, quote, it's not just a crisis of
03:03confidence. It's a crisis of really bad underwriting. Is that just idiosyncratic to your point? Is that
03:08just one or two car manufacturers not doing their job?
03:12I absolutely see it. I mean, so you think about Hamilton Lane's sort of vantage point here.
03:17We're able to look across thousands of private fund managers, including hundreds, if not thousands,
03:23of private credit managers. Look inside their portfolios. See what they've lent to. See the
03:28businesses. See how those companies are performing. See how the credit is performing. Is it cash pay?
03:34Is it picking? What's happening there? And as we're looking through these portfolios, again,
03:40some not great car manufacturers, but saying that there's an issue across all of that is just not
03:46what the data is bearing out at all. But Eric, just thinking about looking at some of these portfolios,
03:51how much of a concern is it that a company that today is no longer software that maybe two months
03:57ago
03:57was categorized as software? I think there's going to be some concerns around that. And again,
04:02I think you're going to certainly see some software losses as a result of AI. But we also need to
04:07recognize that there's a lot of equity cushion sitting in front of the lenders. And so you're
04:13going to need to see outright bankruptcies in some cases where there's zero recovery value for either
04:18the equity or the credit to actually see those losses flow through. A firm that was bought for a
04:24dollar and is ultimately realized for an equity loss because it sells for $0.75, the credit's in
04:30fine shape there. And again, I think that nuance is being lost as well here.
04:35I'm trying to think of another car metaphor, but I'm coming up short. So I'll just ask you a real
04:40question, which is, you know, you think about a lot of these headlines, the headline risk that we've
04:45been talking about. A lot of it is concentrated to private credit specifically. I mean, from your
04:50perch, from your vantage point, how does what we're seeing in private credit compare to what
04:56we're seeing in private equity or in real estate or in real assets, given that, I mean, private markets,
05:02that's a very broad church. Very broad church. So I think we should look at a couple of different
05:07behaviors. One, let's look at what the institutional investors are doing, because the notion that the
05:13institutional investors are not investing in evergreen is also not accurate. So the evergreen vehicles
05:18and the BDCs that are sort of the headlines today, there's a lot of institutional capital
05:23sitting in there. And what we're not seeing is we're not seeing the institutional capital redeeming
05:28nearly at the level that we're seeing the individual investor. That sort of says to me,
05:33sophisticated, longer term, less frightened by headlines, more rooted in data, and they're voting
05:39with their feet and they're staying. In some cases, you're seeing large amounts of institutional capital
05:43moving into the private credit space right now, which is something that we're not at all sort of
05:48seeing in the headlines. The whole notion is everyone's trying to get out. And again, that's not what the
05:53data bears out. And in other cases on the retail investor, when you're seeing them redeeming from
05:58private credit, they're not abandoning the private markets. They're in fact just moving into other sub
06:04asset classes, infrastructure, venture capital, equities, but they still want to be exposed to the private
06:10market for good reason. You open the show talking about the open AI round. Well, $3 billion of that
06:16financing round came from individuals who want exposure to private, non-publicly traded businesses
06:23businesses because they see real opportunity there for return.
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