00:00And there is a real conversation happening right now of, are Marks honest?
00:03And is this a system that's really gummed up because Marks aren't honest?
00:08Do you think that there is a private equity problem specifically that needs to be discussed?
00:13I don't think there's a private equity valuation problem.
00:17Valuations have been coming down to reflect the current reality.
00:20And one of the, again, disconnects, the private equity deals that are getting done
00:25are getting done at multiples that are consistent with where people are holding their current market.
00:30But isn't it just the good stuff being sold right now?
00:32I don't think so.
00:32I think it's more than that.
00:34It's about sector, how aged is it, where is somebody in their fun life, where are they in their business
00:41plan.
00:42So, again, I think we all try to simplify a lot of really complicated things into headlines and sound bites,
00:47and I don't know if it's that easy.
00:49I do think part of this private credit thing, and it's not meant to be disparaging,
00:53is to talk about private credit in the context of private equity.
00:57And so one of the things that we've tried to highlight is that the private credit market
01:01sits at about a 40% loan-to-value, meaning it's underpinned by a significant amount of private equity.
01:08And so if you want to talk about stress in private credit, you have to talk about stress in private
01:13equity.
01:13And that may be a little bit of the headline today, but I actually don't think so.
01:18So I think what's happening is the folks that own these funds are looking at it and saying,
01:23even if I'm generating the return that I wanted, I might as well just go get my money back because
01:29life's too short.
01:30And I don't know if that's healthy or not, but I think it's more about just investor psychology
01:36than an understanding of what the real risk and return is there.
01:40It's just on my mind because not only the Partners Group, but I had a banking executive say to me
01:45the other week
01:45that private equity is broken because they're all sitting on these aging assets and unable to sell them.
01:50I mean, is that not a problem?
01:51Obviously, it impacts debt markets too with new deals flowing through, specifically from sponsors.
01:56It's not broken.
01:57It's going through a transition.
01:59And one way to think about this is you had a 10-plus year run-up in growth in private
02:05markets broadly,
02:06not just in corporate, but in real assets.
02:09It was reflective of structural changes in the capital markets,
02:13but it was also reflective of a zero interest rate environment.
02:16And so you have roughly 30,000 companies today that are owned in the private equity ecosystem
02:22that are really, really good exposures, but were probably bought at a valuation multiple
02:27that was reflective of a lower interest rate environment
02:30and a capital structure that was probably also taken on when rates were lower.
02:35So the system needs to kind of unclog, and that's happening.
02:39It doesn't necessarily have to happen by the IPO window opening up or sales.
02:45A lot of what we're doing now is we're using secondary solutions, opportunistic credit,
02:50private credit refinancings to kind of chip away at that disconnect between the capital structures
02:56that exist from the old rate environment to the ones that are new.
03:00And the pipelines are picking up, and we talked about this on our first quarter earnings call,
03:04that we are beginning to see, just because of the weight of money and the passage of time
03:09and the strength in earnings, that that transaction environment is actually improving.
03:12That's a lot of what I'm saying.
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