00:00Tony, let's start with you. The hyperscaler issuance, how much appetite do you have for this?
00:06Obviously, the hyperscaler issuance has just been dramatically increasing with forecasts rising,
00:12basically on a monthly basis. We've seen about a 35% increase from last year,
00:17forecasts over another 40% increase till next year from $700 billion to a trillion.
00:22So clearly, there's going to be lots of paper coming. We've been pretty judicious in terms of
00:28the names that we've been gaining exposure to. If you look back to 24 and 25, we saw a lot
00:34of this
00:34AI financing happening in the private markets and the structured finance markets. So it's pretty
00:39clear you were going to have to move from that smaller market into the public markets, particularly
00:44IG. So we had plenty of powder dry for this type of issuance, but we're being pretty cautious because
00:51we expect the numbers to continue to increase. And in order for that to get financed, while we think
00:56it will, we're going to probably need to see continued kind of wider spreads as we've run
01:01into a little bit of indigestion here on the hyperscaler debt. And we're going to have to make
01:05sure that we're pretty cautious around some of the structural complexities that you're seeing
01:10away from the very high-quality hyperscalers.
01:14Jerry, do you feel the same way?
01:17Yeah, we feel, I'd say simply, we feel no sense of urgency to run into an overweight to hyperscalers.
01:24I think offsetting a lot of this, we always ask ourselves, are you being appropriately compensated
01:28to take the risk you're being asked to take? And there's been a lot of indigestion, as Tony
01:34mentioned, a lot of issuance already, 30% of investment-grade issuance on a net basis year
01:40to date has been hyperscaler. And when you take a step back and you look at the performance,
01:49you're starting to see that. You see an underperformance in hyperscalers.
01:53So we have been adding, I think we've been adding in a judicious manner, some high-quality
01:58hyperscalers. They have levered up. We are taking advantage of that.
02:03But like Tony said, I would just say we expect a significant amount of issuance over the next
02:0812 to 18 months. I think we expect about a half a trillion dollars at least
02:12on hyperscaler-related issuance, both from the large names, on-balance sheet, off-balance sheet,
02:19private credit, high-yield, leveraged loan. You're going to have your pick of what market to access,
02:24how you want to access it, the structure of which you want to buy it. And so as we look
02:28at it,
02:28we think there will be plenty of choice. And so we've been very measured about how
02:32we're adding, but we have been buying. I want to go back to something that Amanda Lyman
02:36of Goldman Sachs had said in that sound just a little bit earlier. She said there's going to be
02:41more nuanced conversations from investors about where to take the AI exposure and at what price.
02:48As both of you guys have said, we're starting to see the at what price discussion kind of come
02:52through where spreads are. But Jerry, let's start with you. What about on the exposure side?
02:57Are you starting to hit the exposure limits to certain names? Does that even exist?
03:02And if so, are we getting there?
03:06I think this is the right question to ask, because when you look at AI exposure,
03:11it's across every asset class. And so when you're thinking about accessing or allocations and portfolios,
03:20we are looking at the asset-backed market. We're looking at the CMBS market. You're looking at
03:25private credit, public credit, high yield, investment grade, bank loans, asset-based finance.
03:31It is literally in every corner of the marketplace. And so I think your guess was right to say,
03:39it's not going to be all in one market. It's actually in every market. So as we look at it
03:46from a portfolio perspective, you have to have kind of a cross-asset view of AI. You have to have
03:52a
03:52cross-asset view of hyperscaler because ultimately, you could think one asset is attractive in
03:58one asset class and CMBS and then look at another asset class and bank loans and just magnify your
04:04risk. We have not hit limits yet. I think we have plenty of room to add. I think you have
04:09to just be
04:10realistic. When you look at this and you have to look across, you have to look across asset when
04:16you're looking at your exposures. Tony, how are you measuring exposure limits and particularly when
04:21it comes to whether or not you're going to be hitting exposure limits to certain names? You know,
04:26you think of something like an NVIDIA $500 billion announcement. I mean, that's just one name and it's
04:31a lot of money. Yeah, it's a great question. And we're certainly looking at NVIDIA exposure across
04:37not only the direct hyperscalers, but really hyperscaler adjacent credits as well. And we're talking
04:43about that in our public and private markets, our below investment grade and investment grade markets,
04:48our corporate credit and structured product markets. And one of the big keys is looking at
04:54where the ultimate guarantor is, particularly when you're looking in the structured product space.
04:58So there, we want to make sure that we're not double counting, getting additional exposure
05:03that we're unaware of. So really digging into the documents, understanding where the ultimate
05:08guarantors are, particularly on some of this GPU financing, for example.
05:12That's pretty critical. And we're certainly combing through the documents to make sure
05:17that we understand all of our exposures. At the moment, we're not hitting any limits because we've
05:21been pretty cautious about gaining exposure, knowing that there will be continued supply
05:27across all those markets and across multiple currencies. So, but it's a very great question
05:32and asking one that certainly all investors need to be paying a lot of attention to.
05:36Okay. So we've been talking about, you know, cross asset, multiple different asset classes within
05:40credit. Jerry, talk to me about the high yield market because spreads mostly haven't been moving
05:47this year, but triple C spreads have moved quite a bit. What does that mean?
05:53Well, I think when you, when you look at the high yield market, you can look at the high level
05:59and
05:59you say, okay, high yield spreads today are 270 roughly. That's not a lot of compensation to
06:05absorb volatility, not a lot of compensation to absorb loss. If you look over the last 25 years,
06:12we're trading in pretty tight spreads. If you pull the lens back, as you mentioned, and you look at the
06:16sub, the subcategories by rating, and you look at triple C's, there's been a real underperformance.
06:22That underperformance is really pronounced over the last couple of months. There's a few sectors
06:28that are, that are really driving that. And so when you think about triple C's, it tells you a couple
06:34things. I think it tells you that there's some real weakness under the surface. I mean, you know,
06:40the, the, the triple C cohort of the high yield market is roughly 10%. So it's smaller than it has
06:44been high, high yield market itself is of higher quality, but we're seeing some real stress underneath
06:50the surface and in a couple of sectors. I think software is a, is a big one. Cable has seen
06:55its own,
06:56its own areas of, of, of stress. And there's a few idiosyncratic names that, that tend to
07:01overwhelm. And I think what it tells you, I think is it's, it's, it's in some sense a healthy sign,
07:06which is, you know, the, the market doesn't, doesn't fund a bad business. You, you don't,
07:11you don't solve that with, with capital. In another sense, it does tell you maybe of growing
07:16vulnerabilities in the marketplace that we have to pay attention to. We're seeing that in the high
07:19yield market and triple C's. And we're seeing that in the leveraged loan market as well,
07:23with a growing cohort of loans trading below 85.
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