00:00Look, when you look at risk out there, right, from a private credit perspective, has it changed for investors, the
00:05appetite for private credit in the last couple of months?
00:08So private credit has been in the headlines, as you've just said.
00:13And we have to separate between two distinct issues that are affecting.
00:18The first one is asset underlying quality, and the second one is investor liquidity.
00:24Investor liquidity has grabbed the headline, but really it relates to retail funds, and it's only 15% of the
00:30market.
00:30So the big question is asset quality.
00:33What are you seeing, though, in general in terms of inflows and outflows in this space?
00:38So the inflows in the credit asset class are unquestionably strong.
00:45We are seeing a rare mix of elevated yields, strong corporate fundamentals, and very strong earnings.
00:53And in public markets, very high credit quality.
00:55So, you know, given where we are now, in May 2026, where do you think credit spreads are heading?
01:01So the starting point is that credit spreads are consistent with very high earnings and very strong fundamentals.
01:09So that's the first thing.
01:10There's a lot of question marks as to where spreads are going.
01:13But the thing that we've learned in the past six years is that companies adjust to shocks.
01:20They adapt.
01:21And so we've had pandemic.
01:23We've had oil shocks.
01:25We've had labor shortages and so on.
01:27And every single time, the consistent take away has been that the companies have been remarkably resilient.
01:35So I think that's what's feeding spreads here.
01:37But do you think, Sanjay, that actually investors are adequately compensated for the risks they're taking in this space?
01:44So what's interesting is that a lot more investors now that we talk to are comparing corporate bond yields in
01:53fixed income to government bond yields.
01:56And the argument that we didn't hear echo even a few months ago, that government debt is elevated and corporates
02:05are in good condition, which is really what defines spreads, is coming back to the fore.
02:11So for the moment, we've seen resilience.
02:14Yes.
02:14Does this last?
02:16Resilience?
02:16Yeah.
02:17There's no reason to doubt that it's going to last.
02:20The thing that is often overlooked is that the breadth of the strength has been immense.
02:27You just have to look at the Russell 2000 to see that it goes well beyond AI and AI adjacent.
02:33It goes to small and middle-sized companies as well.
02:38So if you look at market dynamics, are you going to see more decompression between, for example, companies and rating
02:45bands and some of the sectors?
02:48So credit cycles create alpha.
02:50And that's undoubtedly the case.
02:52There is, at the moment, a revival of, or a rise, should I say, of defaults and stress from very
03:05low levels, right?
03:07And nowhere is it more present than in the software sector.
03:11Right.
03:11So is that the biggest risk?
03:13Is that where you could see something underlying?
03:16So I wouldn't qualify it as a risk.
03:20In software, we are past the shock.
03:22Okay.
03:23Right.
03:23You just have to look at last week's model releases.
03:26And you notice that it did not bring the sort of negative market reaction that came earlier, right?
03:35So we are past the shock.
03:36And investors are much more now discriminating and opportunistic and looking for opportunities.
03:42And we really have two-way interests.
03:44So where do you see hidden risks in the markets?
03:48Where do you see hidden risks in the markets?
03:50I don't think that there are hidden risks.
03:52I think the market in general is right.
03:54Like the market is a price level and an equilibrium that reflects both the risks and opportunities.
04:02So, of course, there is always things on the horizon that could develop over time.
04:08But as we sit here, right here and right now, we're seeing AI CapEx that is feeding a really strong
04:15cycle and robust trade spreads.
04:19But, Sanjay, I mean, I guess two questions.
04:21The first is how much of this is driven by rates rather than fundamentals, right?
04:27The short answer is very little.
04:29The short answer is very little.
04:31The AI CapEx that is coming is coming for a very simple reason.
04:37It is that the hyperscalers are seeing demand that is accelerating faster than they can supply.
04:44And so that is unquestionably a positive.
04:47But does the hyperscaler demand, I guess, impact at some point the secondary markets?
04:51At some point, it will.
04:53At some point, it will.
04:55But what you notice now is that hyperscalers are accessing a wide variety of markets.
05:00They're diversifying away in terms of currencies and structures, and they're really maximizing.
05:06The bottom line is record credit issuance in the sector is being absorbed by the market really well.
05:12So that's basically showing us that investors are buying.
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