00:00What a year it's been for you. It's only June. It's only June, and it probably feels like a
00:04decade for you. And I know things have quieted down on private credit, but you still get glimmers
00:09of it or glimpses of it. Two funds specifically called out for redemptions, putting gates. I mean,
00:15do you, in your mind, have things quieted down or is there still stress that needs to be worked
00:20through? It's not stress. I think there's education that needs to get worked through. And I think
00:26with each quarter of redemption, people are going to begin to differentiate between people asking
00:31for redemption in a partially liquid fund versus underlying performance and fears of stress in
00:39the private credit market. So what's so dissonant about this conversation is A, the corner of the
00:44private credit world that sits in these illiquid funds is tiny. It's about 10 to 15% of the entire
00:51private credit asset base sits in these funds. So to just be talking about this disconnected from
00:56the broader institutional market is probably a missed opportunity. But when you look at the
01:01underlying performance, the underlying performance is delivering exactly the investment outcome that
01:07these investors signed up for. So I think it's more of a conversation about investor psychology
01:13and behavior within these structures as an indictment on private credit. And I do think it calmed down
01:20when we had earnings and the market saw that folks like us were growing 25 to 30% year on
01:26year,
01:26that the institutional investor was seeing this as a huge opportunity to come into a market that was
01:32maybe seeing liquidity come out of it and returns were improving. So I think it's just going to take a
01:37little bit of time for people to see the performance demonstrate that durability. And then the way
01:43people are perceiving this redemption cue will likely change. I mean, it's the great irony of Aries
01:48every quarter raises some new like record fundraising figure. So point very well taken. The news this
01:54morning, though, and I of course would never ask you to comment directly on a competitor of partners
01:58group is interesting because it is an evergreen fund because it does have equity in it. And there is a
02:02real conversation happening right now of are marks honest? And is this a system that's really gummed up
02:08because marks aren't honest? Do you think that there is a private equity problem specifically that needs
02:14to be discussed? I don't think there's a private equity valuation problem. Valuations have been coming
02:20down to reflect the current reality. And one of the, again, disconnects, the private equity deals that are
02:26getting done are getting done at multiples that are consistent with where people are holding their
02:32But isn't it just the good stuff being sold right now? I don't think so. I think it's more than
02:36that. It's about
02:38sector. How aged is it? Where are where somebody in their fun life? Where are they in their business plan?
02:44So again, I think we all try to simplify a lot of really complicated things into headlines and soundbites. And
02:50I
02:50don't know if it's that easy. I do think part of this private credit thing, and it's not meant to
02:54be
02:54disparaging, is to talk about private credit in the context of private equity. And so one of the things that
03:00we've tried to highlight is that the private credit market sits at about a 40% loan to value,
03:06meaning it's underpinned by a significant amount of private equity. And so if you want to talk about
03:11stress in private credit, you have to talk about stress in private equity. And that may be a little
03:17bit of the headline today, but I actually don't think so. I think what's happening is the folks that
03:23own these funds are looking at and saying, even if I'm generating the return that I wanted,
03:28I might as well just go get my money back because life's too short. And I don't know if that's
03:34healthy or not, but I think it's more about just investor psychology than an understanding of what
03:40the real risk and return is there. It's just on my mind because not only the partners group,
03:45but I had a banking executive say to me the other week that private equity is broken because they're
03:49all sitting on these aging assets and unable to sell them. I mean, is that not a problem? Obviously,
03:54it impacts debt markets too, with new deals flowing through specifically from sponsors.
03:58It's not broken. It's going through a transition. And one way to think about this is you had a 10
04:04plus year run up in growth in private markets broadly, not just in corporate, but in real assets.
04:11It was reflective of structural changes in the capital markets, but it was also reflective of a
04:17zero interest rate environment. And so you have roughly 30,000 companies today that are owned in
04:22the private equity ecosystem that are really, really good exposures, but were probably bought
04:28at a valuation multiple that was reflective of a lower interest rate environment and a capital
04:33structure that was probably also taken on when rates were lower. So the system needs to kind of
04:39unclog and that's happening. It doesn't necessarily have to happen by the IPO window opening up or sales.
04:48A lot of what we're doing now is we're using secondary solutions, opportunistic credit,
04:53private credit refinancings to kind of chip away at that disconnect between the capital structures
04:58that exist from the old rate environment to the ones that are new. And the pipelines are picking up.
05:04And we talked about this on our first quarter earnings call that we are beginning to see just
05:09because of the weight of money and the passage of time and the strength in earnings that that
05:13transaction environment is actually improving.
05:14One of the deal types that is by far getting done, both at Aries, on credit side, your private
05:20equity peers too, is anything having to do with AI data centers. But there's so much debt being put
05:26out there around this. And it's not just that it's on the equity side too, whether it be IPOs, whether
05:30it be equity offerings from Alphabet and the like. Do you worry at all that the supply demand dynamics
05:35are going to flip? Because it used to be part of the bullish case. There's so much money that needs
05:39to be put to work. Just the immense amount of money that needs to be spent on this project.
05:43Does something change in the marketplace?
05:45I think the way that we're experiencing it, and again, complicated ecosystem globally,
05:50different counterparties, different parts of the AI ecosystem, core cloud versus large language model
05:58training. So you have to really zoom out and start to think about where the investment's being made
06:03and what the risk of that investment is. And I do think the market's getting better
06:06at differentiating between locations, technologies, counterparties, lease risk, duration risk,
06:13all of those things. Whenever I think about risk and talks of bubbles, I always ask myself,
06:20where is there leverage in the system that's either seen or not seen? And what is the risk of that
06:27leverage unwinding because of some mismatch? Because that's generally when the markets can actually
06:32digest the stress. What's fascinating about this CapEx cycle is it's largely being driven by equity
06:40capital that's coming from large, high-grade, hyperscale counterparties that are pushing this
06:47technology forward. And the leverage side of the equation is happening at the asset level
06:54in a very structured, well-understood way. So right now, it does not feel in any way over-levered or
07:04out of balance. In fact, there's just not enough capital right now to keep pace with the technological
07:10change. And so there's a capital constraint. There's an energy constraint. There's going to be a water
07:16constraint. So we have to start thinking about even as fast as these technologies are moving and as quickly
07:21as we can build power shells and deliver them to our partners, there's going to be other constraints
07:27that come in and that are going to slow the pace of progress a little bit here.
07:30Hey, Mike, before I let you go, I would love to ask about the world of sports. I know you
07:33talked
07:34about it on stage too. One of the things I've always been really curious about you because you both are
07:38a personal owner and things like the Orioles, the LAFC, but then Aries also has this really vast and
07:43sophisticated sports platform that runs multiple geographies. What difference does that make for you
07:49when you're sitting in on an investment committee being both a personal or an owner and the Aries
07:54platform? Is it hard to kind of separate the fan from the fiduciary ever? No, I actually think it may
08:00the intersection of our personal investments and professional opportunity, I think actually
08:08helps us make sounder investments because what's so exciting about sports now, aside from just all the
08:14capital innovation is you have startup leagues that need to mature to start to look like some of the
08:21more entrenched leagues. And we have a lot of understanding of what that takes. And then even
08:26within the mature leagues, you have a lot of assets that have been family owned for 30, 40, 50 years,
08:34and the ability to come in and apply best practices in terms of running the business,
08:41bringing data and analytics and different medical views. Whatever it is, I think there's a huge
08:47opportunity through professional ownership of sports to really transform the asset in the way
08:51that we have. This is why I couldn't be an investor, because I'd be like, this is a cool sport,
08:54and that's why I'm investing in it. Mike, thank you so much for joining. Michael Arongetti of Aries.
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