00:00I do want to start off with that last one, permanent volatility.
00:02We were talking with Mike Pyle over at BlackRock, and he kind of talked about this idea, you know, the
00:05energy shocks and now the AI shock, whether it's good or bad.
00:09But the idea that these types of disruptions, if you will, are going to become a much more of a
00:13recurring feature of the investment landscape going forward.
00:17Do you see it that way?
00:17Absolutely.
00:18I think we go through time and you do this long enough, you see periods.
00:21We've had more, I think, closer together than we've had historically, usually to be spread out more and more.
00:26But as information becomes more readily available, you're hearing about these things more real time.
00:31And I look as we as credit investors are looking to primarily credit investors looking over the long term.
00:37We've got to underwrite things through uncertainty.
00:39I think when you think about all the factors that could do that, you've got to be with the downside,
00:44protecting against the downside, irrespective of what the external markets will do.
00:48So amid all this uncertainty, there was no pullback, no pause at all in what you were doing?
00:53No, you may change your perspective.
00:54But again, if we're in our lending businesses, we're looking at lending to five to seven years.
00:59There's a lot that can happen over there.
01:00And so as credit investors, we tend to be just looking to protect the downside.
01:04Maybe some would say pessimistic to a little bit.
01:06So you're always anticipating something to happen.
01:09And so your underwriting standards are really to make sure that you can weather those storms.
01:14Well, I do want to get back to the conversation we've been having about redemption requests.
01:19Obviously, Barron saw some of that in the first quarter.
01:22I believe your Barron's private credit court funds had redemption requests of about 11 percent.
01:28And I wonder, you know, from where you're sitting now, it feels like on a headline level, things have settled
01:34a little bit.
01:34But I mean, would you expect to see those requests be elevated for the next quarter, a few quarters from
01:41here?
01:41Yeah, it's hard to say.
01:42I think one thing we look at and we remind investors when we talk to them,
01:45the importance of this and the conversation we should be having is how has the underwriting been and how is
01:49the performance of these assets?
01:50Certainly, in some respects, these have less liquidity than other assets.
01:54And there's a reason that there is a premium that's afforded to investors for this.
01:59It's the liquidity premium.
02:00And the structures that have been built to somewhat limit redemptions to 5 percent are really meant to protect.
02:05It's not a bug of the structure.
02:07It's a feature of the structure.
02:08But we look at it and say, is the performance of the overall portfolio, are the underwriting standards of our
02:13investments as well as our competitors in the industry going well?
02:18We see we think they are.
02:19We're not seeing a lot of concentrated pockets of weakness in our companies.
02:23I think the economic information is is more mixed than it's been, but it's generally supportive of credit.
02:29And so it's very hard to say.
02:30I will say that on the institutional side, we continue to see inflow.
02:34So there is there is a difference between what's happening in the retail space and what's happening in the in
02:38the institutional side of things.
02:40It's an important distinction.
02:41And, you know, it's a point that keeps coming up, sort of the difference in demand when you take a
02:45look at institutional investors versus retail.
02:48And I do wonder how you see retail in these products sort of evolving, whether or not, you know, these
02:55these semi-liquid vehicles with these 5 percent redemption caps,
02:59whether or not that's appropriate for the individual investor.
03:02It depends on the individual.
03:04I think with everyone, we look at it in a lot of ways.
03:07And what is the liability structure?
03:09What is the liquidity need of someone?
03:10I'd say even individuals have liabilities that in the future they'll have to meet.
03:14And we say for retirement, we call it retirement spending.
03:17Insurance companies have liabilities, pensions.
03:19And so I think when they have to balance what liquidity they need for for future future returns,
03:25that's got to be a suitability discussion between them and their advisor.
03:28And I think the products will evolve more.
03:30But I do think the structures, again, they will evolve over time.
03:34But I do think limiting liquidity is the appropriate structure for these over time.
03:38I'm curious.
03:39You talk about that illiquidity premium.
03:40But that's been an issue, too.
03:42I mean, when we talk about the spread compression, there's been a lot of debate as to whether you're actually
03:45getting a real premium.
03:47And then, of course, if you are comparing and contrasting that with public markets, which continue to be on fire,
03:52I mean, you can make maybe potentially 20 percent just, you know, riding the S&P up.
03:56Sure.
03:56That puts a lot more pressure on the private credit side in terms of what they're offering and, you know,
04:01what they're offering to lock in for a longer period of time.
04:03Yeah.
04:03If we want to compare public markets in the debt side with private markets on the debt side.
04:07And I know that's not fair.
04:08But people are doing it.
04:09But no, it's a topic of conversation.
04:12We look at it and we've built our business to have both public and private capabilities because we know capital
04:18will be efficient.
04:19It will move around to the right spots.
04:21And certain borrowers, whether it be for purchasing buildings or whether it be a corporation, will go where the capital
04:27is most appropriate for them.
04:28It could be that they're looking for the tightest spreads, and that may be offered in the public markets or
04:32maybe offered in the private.
04:33It could be they're looking for ease of execution.
04:35They're looking for one lender to do things.
04:37They're looking for certain things in their documents.
04:39So I think what we've tried to do is build a business that at any point in time, capital may
04:45be flowing into private assets.
04:47It may be flowing into public assets.
04:48Neither is inherently good or bad.
04:50They're just different at that period of time.
04:52And I but I do think it's it's dangerous to say there will always be great opportunities here and never
04:57any good opportunities over there.
04:58We think it's going to be much more balanced.
05:00And just like volatility, it will move back and back and forth.
05:03With regards to the structure of your business, you talked about at the start this idea of consolidation in the
05:07industry.
05:07You made a few acquisitions of late Artemis, Griffin, Altice.
05:11I'm probably forgetting a couple of others.
05:13Is that the way to thrive in this space now is through M&A, through consolidation?
05:18I think it's a combination.
05:20I think there's certainly organic builds that take a lot longer to do.
05:23And we have done that.
05:24Our middle market direct lending business will have built organically.
05:27We started in 2012.
05:28So way ahead.
05:29But it takes some time.
05:31We will be hopefully be an acquirer, continue to be an acquirer of things that complement our portfolio of capabilities
05:38going going forward in the future.
05:40And I think large scale M&A will happen over time.
05:43It's difficult in this industry.
05:45If you're again, these are hard to do.
05:46This is a people business.
05:47You've got to make sure that the cultures fit.
05:50You've got to make sure the expectations are aligned.
05:51But with the support of our parent company, MassMutual, and we announced that we were bringing in another minority owner,
05:58hopefully that will close in the next couple of weeks, we look to be acquisitive over time.
06:03Well, I'd love to talk about the industry at large because what we keep hearing is you want to be
06:09selective with managers in this environment.
06:11And I do wonder whether you see a broader shakeout beyond, of course, at Barings and your acquisitive, but whether
06:17or not you think we're going to see consolidation among some of your peers as well.
06:21I do think, and I think we've seen a lot of clients, and this has been a trend that's been
06:24going on for a while, they want to do more things with fewer managers.
06:27It benefits them from a relationship standpoint.
06:30And so we've seen a consolidation of that and where we have the most success with some of our clients
06:36are being able to offer a broad array of things.
06:38Because as we talked about a little bit earlier, sometimes the relative value changes in markets.
06:42And if you have flexible mandates to be able to move back and forth between those, you can ultimately provide
06:47more alpha to your clients.
06:49But I think from an ease of use standpoint, they're also looking at it and saying, if I have 50
06:53managers doing 30 things, is there a way to shrink that down for their operational complexity?
06:58And when it comes to your own M&A strategy, again, going back to the word you used, acquisitive, that
07:03you're acquisitive in this environment, what necessarily would you be looking for?
07:07Would it be adding capabilities, maybe areas where you do have white space?
07:11Would it be about adding talent, you know, there's specific PMs or et cetera you want to bring on?
07:16What sort of the thinking there?
07:18Yeah, great, great question.
07:19So we look at it in a number of ways.
07:21There's kind of the adjacent or tangential strategies that we do, and we've tried to build our business on a
07:26global basis.
07:27And so two of the acquisitions that were referenced before were really expanding capabilities in the AsiaPak region.
07:32So we had capabilities on the securitized side as well as on the real estate equity side in Europe and
07:39in EMEA.
07:39We wanted to build that out in AsiaPak, so we made some what I would consider tangential or geographic expansions.
07:45And then there's other areas we'll be looking just to bring in where we have white space.
07:48To your point, we want to make sure that our holistic portfolio is there to meet the demands of clients
07:53over time.
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