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00:00I feel like a big theme of this year's conference has been AI, both in terms of an investment as
00:05well as how it's being deployed internally.
00:08You have a lot on your balance sheet right now in the broader AI tech space, power generation as well.
00:13Is this a long-term bet you're making?
00:17Right now, AI is an enabler.
00:21And so we are leaning into it at Eldridge in a massive way.
00:26We have – we're fortunate enough to have all of our workflows in Slack.
00:31As you probably communicate over Microsoft Outlook and use your calendar, our cloud can power into Slack, can power into
00:40Outlook, can power into our calendar, and it's a big enabler for us.
00:45And so right now we have a competition effectively internally to use the product and to upskill across the organization.
00:54We have 440 people.
00:56We have 397 monthly active users.
00:59Of those 397 monthly active users, 280 are using it on a daily basis.
01:04And our power users are spending, you know, call it $4,500 a month in total.
01:11And we've spent year-to-date, you know, $133,000 on cloud.
01:15So it's not super expensive.
01:17We'll see where the spend goes in the future.
01:19But we're leaning into it just because you need to understand where technology is going in order to be effective.
01:25Well, that's what I'm curious about.
01:27I mean, as you sort of deploy it internally, I assume you're using that same lens to decide what to
01:31invest in.
01:32You've already made some big bets on names like CoreWeave and Metropolis, Zinia in the insurance space, which is basically
01:37just AI, tech stack, Atlas on the power side, power generation side.
01:41Give me a sense here as how you make decisions about what is the right way to spend money on
01:47this technology.
01:48So we have 12 people internally that we've hired either from consulting firms or from, you know, tech shops that
01:55are, you know, helping the entire organization, whether it's investments in a capital formation, you know, finance, operations, client service,
02:02upskill, and use the technology.
02:04And they're embedded with our technology team that looks at investments.
02:09And so we're not going to, you know, see a new advancement in tech and AI and say, OK, well,
02:14you know, here's a software company that we might have invested in or we made a mistake in and we
02:18need to get out of.
02:20Well, talk to us a little bit about, you know, how you're thinking about PE-backed software, because AI, obviously,
02:25an enabler, like you said, but also an incredibly disruptive force.
02:29And certainly we've been seeing that play out over the past couple of weeks and months.
02:33I think PE-backed software, so lenders took solace in the fact that you were a low loan-to-value,
02:39OK?
02:39And so you would overlook high leverage multiples and you would take comfort in the fact that someone else was
02:46buying the business and you were lending 40 cents on the dollar, you know, relative to the purchase price that
02:51was clearing in the market.
02:53At the end of the day, you know, at 40 cents on the 40 percent loan-to-value and you
02:58might be 8 to 10 times, you know, levered in that business, all of your cash flow goes to support,
03:04you know, the debt service.
03:05And so when you have all your cash flow supporting debt service, you can't invest in the future of the
03:12business.
03:12And I think those software companies are going to need to evolve into an orchestration layer on top of AI
03:18to, you know, in order to evolve and survive.
03:20And if you have too much debt, then you're not going to be able to invest and pivot your business
03:24model.
03:24Absolutely.
03:25And we know that, you know, there are some maturity walls coming up in 2028.
03:29And maturity walls, I feel like they're the boogeyman, but maybe this one will be interesting.
03:33But talk to us, too, about, you know, sort of the power demand that goes into powering AI.
03:38We've been hearing a lot about AI-driven data center demand over the past few days, one of the big
03:43hot topics here at Milk.
03:45And I wonder how you're approaching that, because it feels like that really has bloomed sort of as a new
03:50asset class on its own.
03:52So we finance some data center builds.
03:55We have financed Colossus's, you know, which is XAI's data center in Memphis, Tennessee.
04:03We finance their, you know, they have a couple of combined cycle turbines that we have financed.
04:09We put about $600 million worth of debt on those, and that amortizes down in cash flows.
04:16And so, you know, listen, we've lent to, you know, the build and the infrastructure, you know, build out.
04:22Data centers are, you know, here to stay.
04:24It's going to be a political issue.
04:26In the next three to six months, you saw what happened at Sam Altman's, you know, house.
04:30You saw he was attacked.
04:32You saw there was a Molotov cocktail, you know, that was thrown.
04:35You saw the, you know, the terrible, you know, gunshots that were, at the end of the day, AI is,
04:41there's going to be a big backlash against AI.
04:43I don't think, I think, you know, data centers are squarely in the middle of that.
04:48But, you know, it's a, you know, it's an issue that, you know, we as a society are going to
04:53have to, you know, adapt to.
04:55And, you know, it's not going to go away.
04:58But why do you think that people, at least certainly on the investment and asset management side, see the upside
05:04potential, at least relative to whatever the negatives are, while sort of rank and file people are almost looking at
05:09it from the completely different opposite lens?
05:11They're looking at all the negative aspects, the potential job losses, the potential disruption, but not really seeing any upside
05:17for themselves.
05:19I think you just got to use it, right?
05:21And people are afraid of it because of, you know, the publicity associated with AI and all the hype, you
05:28know.
05:29But right now, I think if you jump into it, which is what we've embraced at Eldridge, and you try
05:34to, you know, understand what the boundaries of AI are and you put it to use, you know, you can
05:42upscale your organization.
05:43You can get more done with little effort.
05:46You can have better conversations with your colleagues.
05:50You can have, you know, make more informed investment decisions.
05:54And that's really what we're, you know, what we're focused on doing.
05:56I think the people that it's easy to get scared by it and be in a state of paranoia and
06:04pause.
06:05Yeah.
06:06Right?
06:06And so I think you need to, you know, lean into it and upscale.
06:08Well, this is, one way or another, this is going to be one of the hugest structural shifts that we've
06:12seen in our economy.
06:14We're also going through another big shock right now when it comes to energy and geopolitics, whether that's going to
06:19be as long lasting as what we're seeing in AI, who knows.
06:22But here as we sit right now, public markets near record high, optimism potentially that we might get a resolution
06:27in the Middle East sometime soon.
06:29Are you surprised by how resilient the markets have been over the last 16 months?
06:35You know, the equity markets, the strength of the equity markets is undeniable, right?
06:39I think the thing that people aren't really talking about, you know, right now, and maybe you guys are on
06:46Bloomberg and I haven't been paying attention.
06:48But, you know, Trump is going over to China in eight days.
06:51Yeah.
06:51You know, and I think when China, when Trump's in China in eight days in Beijing, I mean, what's the
06:56outcome of that meeting with Xi?
06:58I think, you know, there's a, you know, 25 percent of China's oil supply is, you know, controlled effectively by,
07:06you know, the U.S. government by way of Venezuela and the Strait of Hormuz right now.
07:10I imagine he's, you know, teeing up for hopefully a pretty productive conversation with Xi.
07:14And, you know, maybe China can play a role in resolving, you know, the conflict over in the Middle East
07:19right now.
07:20They certainly have an incentive to do so.
07:22Yeah.
07:22And it is wild.
07:23You think about, you know, how much time we spend so focused on the U.S.-China relationship clearly has taken
07:28a backseat over the past two months as we've been so focused on the Middle East.
07:32But it's a good reminder that, you know, we're going to see a return there to that conversation.
07:37And, you know, you just think about what we're seeing in the energy markets.
07:40As you mentioned, the equity markets, it seems like it's not even on the radar right now, much more focused
07:46on earnings.
07:47But, you know, you just think about sentiment overall across asset classes.
07:51If we stay around these levels when it comes to oil, if we do see the daisy chain to other
07:58asset classes,
07:58is that something that, you know, you think is likely or are you hoping that maybe we will get this
08:04wrapped up pretty quickly?
08:05I mean, I hope it's wrapped up sooner rather than later.
08:09There's whether it's Qatar, Abu Dhabi, Dubai, Riyadh, there's a lot to lose.
08:14Right.
08:15There's a mass.
08:15You've been over there, Katie.
08:17Romain, you've been over there.
08:18You've seen the infrastructure that's been built.
08:19There's a lot to lose.
08:21And I think there's a lot at stake.
08:23And hopefully cool heads prevail and we're able to, you know, see an environment that, you know,
08:30where the U.S. and China and Russia can work together, you know, over multiple decades.
08:35I remember as a kid, you know, going to bed being, you know, terribly afraid of nuclear annihilation.
08:41Right.
08:41And the early 80s, you roll forward, you know, 10 years and we defeat the Soviet Union.
08:47Right.
08:47And there's a big peace dividend.
08:48But now, you know, we spend our time, you know, fighting ourselves in this in this country.
08:53And I wish that I wish that, you know, both sides of the political spectrum are in are
08:57in a spot and the rhetoric dies down a little bit.
09:01And we're able to lead, you know, from the center of the country as opposed to either
09:03sides of the polls.
09:04Are you hopeful that's going to happen soon?
09:06I mean, I'm I'm I'm I'm hopeful, you know, but I think I think that when when you're when
09:13you're in your scroll, you know, and when you're in your X feed or you're in Instagram,
09:18you have to realize that, you know, you're being impacted by foreign influences.
09:23Whether it's China or it's Russia or it's Iran, they're in they're impacting, you know,
09:28the echo chamber with which you perceive and you see information.
09:31And so, you know, I think most of America doesn't realize that.
09:36And I think that who benefits from the political discourse in our country, the only person that
09:42benefits is the only entity that benefits you really is our adversaries.
09:45You know, and so I think it's intentional.
09:48I think it's intentional that our adversaries are creating and fomenting political dissent
09:53within our country.
09:54And I think it's incumbent upon us as Americans not to be Democrats or to be Republicans,
09:59but to rise up and lead from, you know, a position that we are, you know, Americans.
10:03We want to see this country, you know, thrive and and and and and prosper, you know,
10:09over multiple decades ahead.
10:12You know, there's a lot of impossible questions I could ask you when it comes to geopolitics.
10:17So let's go to credit markets.
10:19Maybe that's a little bit easier.
10:21A little less controversial.
10:22We could go to privates, but I actually do want to talk a little bit about structured
10:25credits, specifically CLOs.
10:27There was an interesting story out today.
10:29Apollo apparently saying on their earnings call that they have a next generation version
10:33of a CLO that they're touting as less risky, which is interesting.
10:38I mean, you think about CLOs in general, they've been so hot over the past couple of years,
10:43especially high grade CLOs as interest rates have been so relatively elevated.
10:47Now there's a little bit of a different conversation happening there as the expectation is that rates
10:52will eventually come down.
10:54But, you know, I wonder how you're thinking about the CLO market right now, because my understanding
10:59is that this is a market that you've reentered somewhat recently.
11:03So there's a lot of tension on private credit and some of the, you know, the banks are focusing
11:11on private credit.
11:12They, in fact, distribute, you know, loans that are private.
11:15And so it's a form of private credit.
11:17Those individual loans go inside of CLOs.
11:21Historically, when Todd and I started at Guggenheim, we put together a CLO.
11:25We had, you know, 100 individual names inside of the CLO.
11:27Today, you have to manage that CLO with 220, 250 individual names.
11:32Why?
11:33Because the documentation that has been underwritten, you know, by the people that are distributing
11:39the loans has eroded.
11:41And it's eroded a fundamental, you know, principle between the borrower and the lender.
11:45And so there's gaps in the documentation.
11:48We're in a position to be able to provide capital and encumber collateral to be able to,
11:53you know, attach to that.
11:54But we have, and we have two, we have two CLO ETF products right now, a AAA CLO ETF that's
12:01called CLO X and then CLO Z, which is a mezzanine, triple B and double B.
12:06The AAA is a, is a, is, is, is in effect a 5% yield right now.
12:12That's, you know, that, that, that, that, that doesn't carry a lot of risk with it.
12:15One thing I'm curious, I mean, since Katie brought up Apollo, I mean, Apollo, I mean, I'm
12:19curious about the insurance asset management connection.
12:21Obviously Apollo buying a theme, KKR with General Atlantic, obviously your history as CIO over,
12:28over as security capital.
12:29Give me a sense here as to whether that becomes the better model for alternative assets going
12:34forward.
12:36I, you know, I, I think we, when we originate, we have a balance sheet and security benefit,
12:40which is a $60 billion, you know, insurance company.
12:43And they, and they, they, they, you know, need income.
12:47And so we originate income for security benefits.
12:50So in turn that they can provide income to their, you know, policyholders and retirees.
12:55Um, it's, uh, it's, it's, we're a, a, a much smaller version of KKR and, and, and Apollo.
13:02Uh, we're private.
13:03Um, we have an alternative asset management firm and elders capital management and security
13:08benefit is, you know, our insurance solutions business that, you know, is a, is a private
13:12platform, um, that looks a lot like, you know, Apollo and KKR.
13:17Yeah, but, but we've started with the balance sheet and we've built the asset management
13:20capabilities around the balance sheet, as opposed to starting with the asset manager
13:24and then buying the, the, uh, the, the, the insurance businesses.
13:27All right, Tony, unfortunately we have to leave it there.
13:29So appreciate your time.
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