00:00What's up with the discrepancy here? Oh goodness, it's a discrepancy across
00:05every angle that you could imagine. So the definitions can be different, the
00:09sample sizes can be different, yeah, the geographies can be different. Yeah, so
00:16it's really kind of, you can't find anything that really accurately shows
00:21the entire market and what exactly the default rate is for private credit. At
00:25one end of the extreme you have PIMCO, as you reported, putting like the shadow
00:29default rate for businesses, for BDCs at 19%, which is pretty chunky. I wonder if
00:36there's a consensus, maybe not on the rate, but the overall health, if there is a
00:40general consensus that like, oh yeah, defaults are picking up but it's within
00:43historical norms or even that sort of view is widely skewed depending on who you ask.
00:48Yeah, that's a very good question. I'd say a year ago people would just insist that
00:53they had no problems in their portfolio and that is no longer the case. Today if
00:57you ask someone what's going on in your portfolio they will admit to at least having some issues,
01:02but you know saying we're getting through it, it's all going to be fine. I think it's pretty
01:07clear that things are having trouble. You know the default rates that we see, perhaps they're not
01:12all the same, but they are, a lot of them, rising. So I'd say there's cause for thinking for sure,
01:20there's cause for thought. Always a good thing to do, Kat. How much of this is also just obscured
01:26with creative tactics for can kicking, you know, PIC loans and the like? Well, that's the thing and
01:32that's also an explanation for why some of these vary so widely. So the 19% from PIMCO
01:36include, tries to include all of that activity. They include amendment extends, they include PIC,
01:43whereas someone like Lincoln, for example, tries to avoid that type of thing and their
01:48rates as a result are in the single digits. You know, even when you start to include those
01:55kicking down the can down the road, some direct lending firms insist that it's for the best of
02:00the firm and that the result is actually much better for the individual firms and the default
02:06rates and the recovery rates. So it's hard to even be completely clear on if that's good or bad.
02:13Kat, how does the backdrop of the concerns earlier this year around the retail-focused
02:19funds, around BDCs, how does that color this conversation? Are there concerns that those
02:24funds specifically might have assets in them that have higher default rates than
02:29what these funds are serving up to the institutions?
02:33I don't think there's a question in that. I don't think there's a question in that. I think they are
02:39pretty similar. I mean, we have a much better idea of what's in the retail funds than we do in
02:44the
02:44institutional funds. But I think that it's highly unlikely that they're super different. There are
02:48some regulations that kind of encourage private credit firms to make sure that they're serving
02:53similar debt up to the institutionals as they do to the retail. But I think this whole issue affects
02:59retail investors a lot more because they don't have as good disclosure as the institutional firms.
03:04If you're just a mom or a pop looking to invest in this area, you've only got these kinds of
03:10public
03:11ratings to go off of. And as we know, they're just not giving you a clear picture.
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