00:00The folks that you talk to, and more importantly, the folks that are talking to you,
00:04looking for some guidance and advice, what are you hearing? Is there fear? Is there concern? What?
00:11Well, first of all, hi, Katie. Hi, Romain. Thanks for having me back.
00:15Listen, we are in a moment that is, I guess I somewhat agree with Ted Pick's assessment of
00:23the state of the market in terms of its maturation period. It's a market that has grown rapidly.
00:28It is going through an experience of growing pain, so to speak, in terms of market participants
00:35understanding how the market works. And there's plenty of new market participants coming in
00:39to this private credit market as it grows. And so what I'm hearing is a lot of chatter,
00:48so to speak, that is trying to separate the market reality from market perception.
00:53And what we at Kroll are focused on doing is showing the market participants a source of truth.
01:01And as we talked about last time, we developed a private credit benchmark that is really meant to
01:07show the facts that underlie this evolving and maturing market.
01:12So what is the truth, though, Jake? I mean, we know there's risk out there. I guess the question is
01:17sort of, you know, what is the actual measure and whether there's any sort of concern or legitimate
01:22concern about contagion. What are you finding?
01:25Yeah. So what we're finding when we look at the Kroll Stepstone private credit benchmarks
01:31is that, in fact, risk as measured by traditional leverage and credit metrics has not really increased.
01:40And this is through really the end of the first quarter of this year. Key credit metrics like leverage,
01:47like interest coverage have really not increased in any meaningful fashion. And in fact, based on new
01:53issue volume that formed part of the benchmark itself, we're actually not seeing spreads widen
02:00materially across various market sectors. Now, there are idiosyncrasies, of course, and there are certain
02:07sectors where we are seeing certain spreads widen. But in fact, we believe that the fundamentals
02:12underpinning the market, at least through the first couple months of this year, are sound from
02:17a credit and risk point of view. And Jake, I am curious to hear your perspective on the push that
02:23we're seeing to more frequent pricing, more transparency on how these assets are actually
02:29traded. You know, you've seen some folks within the space push towards maybe monthly marks, maybe in
02:35some cases, the ambition is go is to go to daily pricing. I mean, is that something in your view
02:40that is realistic and achievable? I do. And I think over time, the market will absolutely head
02:48in the direction of more frequent marks and more volume of marks. And we really are at the at the
02:55center of trying to develop the infrastructure with great in class GPs who are very active in the
03:01marketplace to enable the system to support that type of frequency. We're not there yet. It will
03:06take a while. There are certain players who are out there sort of leading the charge in terms of more
03:11frequency. But that is certainly a trend that we are seeing as the market develops.
03:16And I am curious to get your thoughts on whether or not, you know, we could see a cycle turn
03:21here when
03:22it comes to private credit. We heard from JP Morgan CEO Jamie Dimon, of course, this week talking about
03:28how we'll probably see a credit cycle at one point or another. And I wonder if, you know, in your
03:33view,
03:34that's inevitable. And if so, if we do reach that cycle turn, whether or not this big growth,
03:41this new interest and these new investors that have entered the space, you know how that will play
03:47out, should we actually see that rotation? First of all, I'm not a market strategist or a market
03:53prognosticator. We're here to support the growth of the market. I do believe that
03:58whether or not there is a cyclical shift one way or the other, that the secular trends towards the
04:05growth of the private markets and the growth in other forms of investors in the private markets
04:12will continue. And I think it will continue for for years, if not decades to come. So we believe
04:19that the secular growth of the overall asset class and the exposure to new forms of investors will
04:25continue to grow. And what we're focused on is making sure that the market infrastructure can
04:30keep up with that growth and demand and whether whatever storms might might impact a market from
04:36time to time.
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