1 00:00:05,960 --> 00:00:08,000 Thanks for joining us for Real Deals with Private Debt 2 00:00:08,080 --> 00:00:10,000 Roundtable. I'm reporter Simon Thompson. 3 00:00:10,320 --> 00:00:14,280 As capital markets emerge from a disruptive 2020, private debt is 4 00:00:14,280 --> 00:00:18,040 expected to play an increasingly influential role in meeting deal 5 00:00:18,040 --> 00:00:19,640 and corporate funding requirements. 6 00:00:19,840 --> 00:00:22,600 In this roundtable, we consider the growth of private debt, 7 00:00:22,640 --> 00:00:25,720 what's driving it and what it means for lenders, borrowers and 8 00:00:25,720 --> 00:00:28,520 financial sponsors. We have a strong and balanced 9 00:00:28,520 --> 00:00:31,650 lined up for today's discussion. Joining us on our roundtable is 10 00:00:31,770 --> 00:00:36,090 Jordan Rothberg, MD at Blue River Partners, Andrea Fernandez 11 00:00:36,130 --> 00:00:39,450 in European Credit and Reach Management, Teber Verba, 12 00:00:39,730 --> 00:00:43,890 Director at Astor and Martin Leherz, MD and Head of Global 13 00:00:43,890 --> 00:00:45,610 Capital Markets at Morgan Stanley. 14 00:00:45,650 --> 00:00:46,770 Thanks for joining us. Thanks. 15 00:00:49,570 --> 00:00:53,940 For having us, no worries. So just to set off a bit of info 16 00:00:53,940 --> 00:00:55,380 to set the time for the discussion. 17 00:00:55,580 --> 00:00:58,940 According to data from frequent private debt is expected to show 18 00:00:58,940 --> 00:01:05,500 an annual growth rate of 11.4% to reach 1.46 trillion U.S. 19 00:01:05,500 --> 00:01:08,180 dollars by 2025. This is coming as investors 20 00:01:08,180 --> 00:01:10,740 continue to search for yields and attractive risk adjusted 21 00:01:10,740 --> 00:01:14,100 returns in a current low interest rate environment. 22 00:01:14,340 --> 00:01:17,940 So John, we'll start off with you from a P perspective. 23 00:01:17,940 --> 00:01:20,220 Why are we seeing increased allocations to private debt? 24 00:01:22,110 --> 00:01:24,670 So from a fund administration perspective, I'd say it's been 25 00:01:25,190 --> 00:01:28,630 probably the most sales calls I've been taking on a day-to-day 26 00:01:28,630 --> 00:01:30,230 out basis. Private debt is just starting to 27 00:01:30,230 --> 00:01:32,630 rip in the market yet again. You know from a fund 28 00:01:32,630 --> 00:01:35,830 administration perspective, we tend to see the cycles of debt, 29 00:01:35,830 --> 00:01:39,310 real estate, venture capital, private equity kind of flow in, 30 00:01:39,310 --> 00:01:41,550 flow out and I think people are really trying to take advantage 31 00:01:41,550 --> 00:01:44,390 of the market specifically. It's an unfortunate time that 32 00:01:44,710 --> 00:01:48,030 no, let me rephrase that it it they're taking. 33 00:01:48,890 --> 00:01:51,490 Advantage of an unfortunate time that is COVID in order to take 34 00:01:51,490 --> 00:01:53,490 advantage of it for the market for their investors. 35 00:01:53,490 --> 00:01:56,930 And I think that's one of the main drivers as to why the debt 36 00:01:56,930 --> 00:02:00,450 market is just thriving. Interesting, Andrew, do you want 37 00:02:00,450 --> 00:02:02,010 to kind of pick up from there? What are you seeing in the 38 00:02:02,010 --> 00:02:03,930 market? What's driving private debt? 39 00:02:04,490 --> 00:02:06,890 What kind of growth, What does it look like on your end? 40 00:02:07,770 --> 00:02:13,490 So I think the growth has come from 8 different angles. 41 00:02:13,530 --> 00:02:16,490 I think well you have bank retrenchments just to set the 42 00:02:16,490 --> 00:02:20,390 stage and you have private. Capital really feeling that boy, 43 00:02:20,390 --> 00:02:25,030 but I think one of the reasons why L P's like the asset class 44 00:02:25,030 --> 00:02:30,190 is because it delivers a pretty consistent high yield and 45 00:02:30,190 --> 00:02:34,550 because he has an illiquidity premium and it has a low 46 00:02:34,550 --> 00:02:37,590 correlation to fixed income and global equity markets. 47 00:02:37,590 --> 00:02:40,470 We saw that last year, you know Asset. 48 00:02:41,040 --> 00:02:44,080 Are floating weight in nature and therefore there's less 49 00:02:44,080 --> 00:02:47,160 sensitivity. I'm sorry, there's less interest 50 00:02:47,160 --> 00:02:50,520 rate sensitivity. Their returns are current and 51 00:02:50,520 --> 00:02:54,480 contractual in nature. You have less market volatility. 52 00:02:54,560 --> 00:02:57,840 The protections tend to be stronger. 53 00:02:58,040 --> 00:03:02,560 But I do think that manager selection is key. 54 00:03:02,760 --> 00:03:06,080 I think that every strategy yields the same results. 55 00:03:06,880 --> 00:03:11,210 For us it carries. In the sole lender in top 56 00:03:11,210 --> 00:03:14,410 performing companies with strong governance and controls have 57 00:03:14,530 --> 00:03:18,410 proven to be defensive. We've been able to to really 58 00:03:18,410 --> 00:03:21,610 work with our sponsors to protect our investors capitals 59 00:03:21,810 --> 00:03:25,130 and and replies risk in the capital structures were 60 00:03:25,130 --> 00:03:27,210 appropriate. Interesting. 61 00:03:27,210 --> 00:03:29,730 Tebo, could you kind of speak to some of the strategic drivers 62 00:03:29,730 --> 00:03:33,930 behind LP interest and also where their return expectations 63 00:03:33,930 --> 00:03:38,900 sit? I'm sorry that that Question 64 00:03:38,900 --> 00:03:40,340 Time was pardon me, I'm not sure. 65 00:03:40,620 --> 00:03:42,780 If you could. Kind of talk about the strategic 66 00:03:42,780 --> 00:03:47,060 drivers behind LP interest and also their return expectations. 67 00:03:48,220 --> 00:03:51,820 So I think the return expectations definitely varied 68 00:03:51,820 --> 00:03:54,580 with the risk return of the asset class. 69 00:03:55,580 --> 00:04:00,380 In general, I think people at the asset level expect high 70 00:04:01,380 --> 00:04:10,290 teens, low double digit I Rs. I guess the strategic drivers 71 00:04:10,330 --> 00:04:14,490 again I think if you compare it with other asset class, you know 72 00:04:14,570 --> 00:04:18,450 within private debt, you know the mezzanine market continues 73 00:04:18,450 --> 00:04:21,089 to shrink in Europe given the strength of the high yield 74 00:04:21,089 --> 00:04:25,170 market at the at the large end of the market for the small end 75 00:04:25,170 --> 00:04:29,770 of the market you have the unit tranche that really replace that 76 00:04:29,770 --> 00:04:32,090 asset class. You have special seats, distress 77 00:04:32,130 --> 00:04:36,650 strategies that really offer a different risk return profile. 78 00:04:37,140 --> 00:04:42,500 In many ways are more keen to a private equity risk and I think 79 00:04:42,500 --> 00:04:45,940 one of the the reasons why investors like to partner with 80 00:04:45,940 --> 00:04:49,220 us in direct lending is because we operating all weather 81 00:04:49,220 --> 00:04:53,460 strategy that delivers strong but also consistent basically 82 00:04:53,460 --> 00:04:57,660 just the returns I'll be probably lower than for example 83 00:04:57,660 --> 00:05:01,140 a special seats distress strategy particularly at some 84 00:05:01,140 --> 00:05:03,940 points of the economic cycles. But if I look at. 85 00:05:04,570 --> 00:05:09,010 Our global direct lending portfolios, we saw very modest 86 00:05:09,290 --> 00:05:12,290 NAV movement. There was really not that much 87 00:05:12,290 --> 00:05:16,170 more to market. And if I look back, we've 88 00:05:16,170 --> 00:05:20,250 delivered current yield throughout all of our capital 89 00:05:20,290 --> 00:05:23,450 polls over the pandemic. So I think that's one of the 90 00:05:23,450 --> 00:05:27,410 reasons why Lps really like this asset class. 91 00:05:28,490 --> 00:05:30,930 I think that would drive continued growth. 92 00:05:30,930 --> 00:05:35,300 I'm moving to you. I wanted to kind of get a sense 93 00:05:35,460 --> 00:05:39,300 how has COVID changed the relative attractiveness of banks 94 00:05:39,300 --> 00:05:42,460 indicated debt instruments as opposed to private debt? 95 00:05:48,180 --> 00:05:51,140 I mean the key differentiators between these two instruments as 96 00:05:51,620 --> 00:05:54,380 Andrea and Martin will know definitely is probably the 97 00:05:54,380 --> 00:05:58,740 covenants which is one of the key differentiators and. 98 00:05:59,250 --> 00:06:02,210 And most of the product that at least in Europe it's moving 99 00:06:02,210 --> 00:06:06,530 ahead in the into the US but had had a covenant, a covenant which 100 00:06:06,530 --> 00:06:09,610 indeed has has a lot of importance when you are 101 00:06:09,610 --> 00:06:13,050 discussing a, I mean a company in the COVID environment, a city 102 00:06:13,050 --> 00:06:14,890 called a retail business for example. 103 00:06:15,690 --> 00:06:18,250 So that's the key differentiators between the two 104 00:06:18,250 --> 00:06:21,530 as a class meaning that in such an environment having a COB 105 00:06:21,530 --> 00:06:25,890 light instrument, So, so no maintenance covenants is is 106 00:06:25,890 --> 00:06:27,970 pretty key and very supportive as well. 107 00:06:29,380 --> 00:06:33,100 Now there's, there's, there's all the factors of usually to to 108 00:06:33,140 --> 00:06:36,380 take into account. Be above and beyond the simple 109 00:06:36,380 --> 00:06:40,100 documentations because you you may have stronger longterm 110 00:06:40,260 --> 00:06:44,050 relationship with. With the direct lending side of 111 00:06:44,050 --> 00:06:47,170 it, when you have, when you're facing 1-2 or three lenders 112 00:06:47,170 --> 00:06:50,410 maximum compared to the syndicated market where you are 113 00:06:50,770 --> 00:06:53,650 most of the time and marketing will correct me, but probably 114 00:06:53,650 --> 00:06:56,810 facing at least 25, it's not 30 different investors. 115 00:06:56,810 --> 00:07:00,090 So obviously you don't have the same relationships and you may 116 00:07:00,090 --> 00:07:05,090 have different views on each of these as a class. 117 00:07:05,850 --> 00:07:08,890 Interesting. So in the same name, Martin, if 118 00:07:08,890 --> 00:07:12,520 you could kind of speak to that, but also how private debt 119 00:07:12,520 --> 00:07:15,160 managers have fared through this crisis and to respect them 120 00:07:15,160 --> 00:07:19,640 managing their own portfolios. Yeah. 121 00:07:19,640 --> 00:07:22,760 In terms of how how private debt managers have fared in this 122 00:07:22,760 --> 00:07:24,520 crisis, I probably defer to Andrea. 123 00:07:24,520 --> 00:07:30,040 But I mean in terms of the different basis the that there's 124 00:07:30,040 --> 00:07:32,560 the key differentiator, right. I think the other differentiator 125 00:07:32,560 --> 00:07:34,960 that I would highlight probably is that it's the yield point. 126 00:07:35,800 --> 00:07:38,720 It depends on where you are exactly in the cycle, where the 127 00:07:38,720 --> 00:07:42,280 market is at that point in time. And clearly we've seen some 128 00:07:42,280 --> 00:07:44,400 volatility over the course of the last 12 months in 129 00:07:44,400 --> 00:07:47,000 particular, right. I think the syndicated loan 130 00:07:47,000 --> 00:07:50,360 market and the high yield market was for all intents and purposes 131 00:07:50,720 --> 00:07:54,760 shot for a period of time over the course of Q2 last year, came 132 00:07:54,760 --> 00:07:57,800 back really, really strongly, in particular post the US election 133 00:07:57,800 --> 00:08:02,000 results in, in Q3 and Q4. And at this stage is, you know, 134 00:08:02,000 --> 00:08:04,280 really, really going very, very strongly at this stage. 135 00:08:05,300 --> 00:08:07,860 And I think the the yield differential is, is clearly 136 00:08:07,860 --> 00:08:10,500 there, right. Andrea mentioned before what the 137 00:08:10,500 --> 00:08:12,460 expectations were on the private debt side. 138 00:08:13,020 --> 00:08:16,100 I think in the syndicated loan market, it is, it is a market 139 00:08:16,100 --> 00:08:19,620 with let's call it a significant number of players, a significant 140 00:08:19,620 --> 00:08:21,860 amount of pressure to deploy capital. 141 00:08:22,140 --> 00:08:25,700 And the result I think the, the price that you would see in this 142 00:08:25,700 --> 00:08:28,500 market also tends to be a little bit lower. 143 00:08:28,620 --> 00:08:30,860 It is also not as much of A bespoke instrument. 144 00:08:30,860 --> 00:08:33,940 To a certain extent it's a more standardized documentation as 145 00:08:33,940 --> 00:08:36,110 well. So there's always pros and cons, 146 00:08:36,110 --> 00:08:38,150 but I think that would be the other differences worth raising. 147 00:08:38,909 --> 00:08:41,030 Interesting. So John, I just kind of wanted 148 00:08:41,150 --> 00:08:43,470 to back to you, you mentioned that you're taking you know 149 00:08:43,470 --> 00:08:45,790 increasing number of calls, you're getting letter inquiries. 150 00:08:46,070 --> 00:08:49,510 Do you feel like the market can continue to sustain same level 151 00:08:49,510 --> 00:08:53,430 of growth and new entrance that it has done you know maybe just 152 00:08:53,430 --> 00:08:55,630 since 2008 and the financial crisis? 153 00:08:55,630 --> 00:08:58,590 I mean is there, has there been a second kind of wind, what's 154 00:08:58,590 --> 00:08:59,990 the kind of state of AS at the moment? 155 00:09:01,130 --> 00:09:02,770 Yeah. No, I definitely think in the in 156 00:09:02,770 --> 00:09:06,770 the states the wind is was blowing strong in the the 157 00:09:06,770 --> 00:09:09,570 private debt and credit markets right now I I I definitely say 158 00:09:09,570 --> 00:09:13,450 that it's it's what we're we're seeing the most that's up 159 00:09:13,450 --> 00:09:15,970 ticking and I think it's just because investors are, it's a 160 00:09:15,970 --> 00:09:18,010 bit more way for their investors to secure their money and 161 00:09:18,010 --> 00:09:20,210 receive better returns over a long period of time. 162 00:09:20,530 --> 00:09:22,930 You know whereas over the private equity side when you're 163 00:09:22,930 --> 00:09:25,330 just doing shared equity, there's the risk return ratio 164 00:09:25,650 --> 00:09:28,530 whether or not the deal is going to hit or not and you don't know 165 00:09:28,530 --> 00:09:30,050 where that's going to go. So I think. 166 00:09:30,530 --> 00:09:33,130 I think there's the sales are strong for what's going on with 167 00:09:33,130 --> 00:09:35,330 private debt right now and I think it'll continue to grow 168 00:09:35,890 --> 00:09:38,610 over the next couple years, Interesting. 169 00:09:38,610 --> 00:09:43,170 So before we move on to certain areas where there is growth and 170 00:09:43,170 --> 00:09:45,690 kind of different debt products and solutions, Andrew, can you 171 00:09:45,690 --> 00:09:49,210 maybe just give us a sense of how that managers have aired 172 00:09:49,410 --> 00:09:52,650 through the crisis in respect to managing their existing 173 00:09:52,650 --> 00:09:56,510 portfolios? I think in general the asset 174 00:09:56,510 --> 00:10:00,430 class has whether they're storm well, part of it is because a 175 00:10:00,430 --> 00:10:04,750 lot of the managers had underlying exposure to strong 176 00:10:04,750 --> 00:10:08,870 sectors such as healthcare and telecom that have feathered the 177 00:10:09,710 --> 00:10:15,230 have weathered the storm relatively well, but we also saw 178 00:10:15,230 --> 00:10:19,030 the benefits of credit selection and and strong underwriting. 179 00:10:19,950 --> 00:10:24,190 I think the, the one aspect that the crisis highlighted was the 180 00:10:24,190 --> 00:10:29,270 benefits of scale not just of a UN but also of team and 181 00:10:29,270 --> 00:10:32,870 infrastructure. So access to deep sources of 182 00:10:32,870 --> 00:10:37,710 capital and in resources where very important for direct 183 00:10:37,710 --> 00:10:42,430 lenders to to manage 2020. So I think what what you'll see 184 00:10:42,430 --> 00:10:45,470 is that you'll continue to see growth in the asset class 185 00:10:45,470 --> 00:10:48,310 because the banks continue to retrench in the middle market. 186 00:10:48,830 --> 00:10:52,630 And there's a void there. But I think LPS will start 187 00:10:52,630 --> 00:10:59,750 supporting a core group of managers and you'll see less 188 00:10:59,750 --> 00:11:04,510 backing for new entrance for indirect lending, state of 189 00:11:04,510 --> 00:11:06,710 market consolidation basically there. 190 00:11:07,390 --> 00:11:09,190 Interesting. I wanna defer back to you. 191 00:11:09,590 --> 00:11:12,630 Obviously there's we all agree there's kind of a fair bit of 192 00:11:12,870 --> 00:11:16,070 growth and momentum there. Where are the specific areas 193 00:11:16,070 --> 00:11:20,110 where we feel like there's going to be major attention from 194 00:11:20,110 --> 00:11:23,710 investors and also in terms of how pays and investors and also 195 00:11:23,710 --> 00:11:26,110 just demand from borrowers as well? 196 00:11:26,550 --> 00:11:30,790 What's driving the growth in Direct landing itself? 197 00:11:30,790 --> 00:11:34,470 I think if you look at the UK, it's probably the most mature 198 00:11:34,470 --> 00:11:37,350 market, but if you sort of go throughout Europe, there's 199 00:11:37,350 --> 00:11:42,190 markets where. Banks continue to dominate a 200 00:11:42,350 --> 00:11:45,830 large share of the market, so such as like the Nordics or 201 00:11:45,830 --> 00:11:49,590 Benelux. So I think you'll see growth in 202 00:11:49,590 --> 00:11:51,910 those markets in Continental Europe. 203 00:11:52,830 --> 00:11:56,470 The other trend that we've been seeing in areas is really the 204 00:11:56,470 --> 00:12:00,350 convergence of the private and the public markets. 205 00:12:01,230 --> 00:12:05,870 We do have the the, the capital base to be relevant for larger 206 00:12:05,870 --> 00:12:08,760 borrowers. Now you know the cap, the 207 00:12:08,760 --> 00:12:12,640 capital markets are very competitive and borrowers can 208 00:12:13,160 --> 00:12:16,760 access pretty cheap cost of borrowing. 209 00:12:16,760 --> 00:12:20,160 So it's not for every company, but we've seen a lot of 210 00:12:20,160 --> 00:12:24,200 situations where large companies decide to pay a premium because 211 00:12:24,200 --> 00:12:27,040 they want the confidentiality, they want the certainty of 212 00:12:27,040 --> 00:12:31,040 execution, they want to know who their counterparty is, they want 213 00:12:31,040 --> 00:12:36,800 to have ability to to grow through follow on capital. 214 00:12:37,330 --> 00:12:41,170 And so I think that also is going to probably drive a lot of 215 00:12:41,170 --> 00:12:48,130 the growth at least in the near to medium term interesting. 216 00:12:48,570 --> 00:12:53,250 So I just kind of want to get a broader sense where do we feel 217 00:12:53,250 --> 00:12:56,290 like banks are going to more inclined to retrench? 218 00:12:56,290 --> 00:12:58,410 Also there's been previous retrenchments from the market 219 00:12:58,410 --> 00:13:01,890 that have created open, open areas for private come in and 220 00:13:01,890 --> 00:13:05,410 kind of dominate. Where do we feel like is that 221 00:13:05,410 --> 00:13:07,010 happening again? And where's that opportunity? 222 00:13:07,010 --> 00:13:13,010 Where's that window? Shall I take that one? 223 00:13:13,010 --> 00:13:16,610 Yeah, that might be. So in terms of banks 224 00:13:16,610 --> 00:13:22,650 retrenching, I guess what we saw in 2008 and 2009 is that you, I 225 00:13:22,650 --> 00:13:26,290 think the market observed that the European banks in particular 226 00:13:26,290 --> 00:13:30,050 were playing across the globe across all sorts of geographies 227 00:13:30,050 --> 00:13:31,610 and I think what we saw thereafter. 228 00:13:32,260 --> 00:13:36,060 Is the European banking universe retrenching to their home 229 00:13:36,060 --> 00:13:40,740 markets in particular? That theme continues if you 230 00:13:40,740 --> 00:13:42,340 like. I mean the Germans are very, 231 00:13:42,340 --> 00:13:46,620 very strong in in the dark region but operate much less 232 00:13:46,620 --> 00:13:50,340 than they used to do in the UK or France or elsewhere, albeit 233 00:13:50,340 --> 00:13:52,380 with with with certain exceptions. 234 00:13:53,340 --> 00:13:56,740 But in terms of of future retrenching, I think it comes 235 00:13:56,740 --> 00:14:00,230 back to. You know, I think banks just 236 00:14:00,230 --> 00:14:06,030 have a certain criteria and a lending policy that is hard to 237 00:14:06,030 --> 00:14:10,430 adjust too rapidly, too quickly. And so you know, I think when 238 00:14:10,430 --> 00:14:14,470 there are you know macro shocks in the environment, in fact you 239 00:14:14,470 --> 00:14:16,990 know obviously as we've seen in the last 12 months, I think it 240 00:14:16,990 --> 00:14:22,270 is much easier for the private debt community to adjust to that 241 00:14:22,270 --> 00:14:28,950 environment, you know credits. Which perhaps in the near term 242 00:14:28,950 --> 00:14:31,630 don't fit the traditional sort of lending criteria that a 243 00:14:31,630 --> 00:14:35,110 commercial bank may have, but equally is probably a very 244 00:14:35,110 --> 00:14:38,790 viable business. And I think if you're in the 245 00:14:38,790 --> 00:14:42,110 private debt space, you can probably look through cash flow 246 00:14:42,110 --> 00:14:44,990 limitations for a couple of years, create an instrument 247 00:14:44,990 --> 00:14:48,190 which is bespoke and catered for that particular situation. 248 00:14:48,510 --> 00:14:50,670 And again I think that's easier to do in the private debt 249 00:14:50,670 --> 00:14:54,070 community as opposed to in the regular way banking community. 250 00:14:54,070 --> 00:14:57,190 So you could argue that arguably. 251 00:14:57,540 --> 00:15:02,620 In the more volatile industries or the more impacted industries 252 00:15:02,620 --> 00:15:05,860 by COVID that the banks will struggle a little bit more 253 00:15:05,860 --> 00:15:07,660 perhaps than than the private debt community. 254 00:15:07,660 --> 00:15:12,340 Equally, I would add that the banking community is clearly 255 00:15:12,820 --> 00:15:17,140 been given the mandate by let's call it society, but also 256 00:15:17,140 --> 00:15:20,940 regulators and central banks to ensure that capital flows 257 00:15:20,940 --> 00:15:25,100 continue, right, that liquidity remains in the system and that 258 00:15:25,100 --> 00:15:28,910 is you know, ever present so. I think a retrenching as such 259 00:15:28,910 --> 00:15:31,030 isn't there. But as I said, I think there are 260 00:15:31,030 --> 00:15:33,910 some areas where banks will struggle more than the private 261 00:15:33,910 --> 00:15:36,270 debt community. Interesting. 262 00:15:36,750 --> 00:15:41,670 I think I can add as to how the banks will continue to get 263 00:15:41,670 --> 00:15:45,910 exposure to that type of risk. I think doing that direct middle 264 00:15:45,910 --> 00:15:50,590 market lending for the challenges that Martin just 265 00:15:50,670 --> 00:15:56,440 outlined will continue to. Yeah, will continue to drive 266 00:15:56,440 --> 00:15:59,480 retrenchment, but I think the banks continue to want to have 267 00:15:59,480 --> 00:16:02,560 that risk. So a way that we partner with 268 00:16:02,560 --> 00:16:06,080 the banks is through asset back on level leverage. 269 00:16:06,600 --> 00:16:10,160 So they're getting exposure to the underlying companies, but 270 00:16:10,160 --> 00:16:12,800 they're getting a better regulatory treatment because 271 00:16:12,800 --> 00:16:16,360 they're investing in a pool of assets rather than that single 272 00:16:16,360 --> 00:16:19,770 company. We also sometimes partners with 273 00:16:19,890 --> 00:16:24,330 banks on 1st Outlast out pieces where they take a very small 274 00:16:24,330 --> 00:16:27,770 super senior term loan at the top of the capital structure 275 00:16:27,770 --> 00:16:33,290 which has limited risk for them and at the same time dilutes the 276 00:16:33,290 --> 00:16:35,530 cost of borrowing to our companies. 277 00:16:36,730 --> 00:16:38,930 Interesting. Tim, I'm gonna get a sense, 278 00:16:39,530 --> 00:16:41,890 where are the real opportunities in the current state of the 279 00:16:41,890 --> 00:16:46,550 market and kind of downsides and risks exist for where you sit in 280 00:16:46,550 --> 00:16:48,910 the market and kind of your your role in the market? 281 00:16:53,470 --> 00:16:57,590 At the moment there's probably, I mean there's there's limited 282 00:16:57,590 --> 00:17:00,390 downside and a lot of opportunities could streaming 283 00:17:00,390 --> 00:17:03,950 from as we've been discussing indeed this newer class 284 00:17:05,550 --> 00:17:09,750 increasingly finishing the deliberate finance markets. 285 00:17:10,720 --> 00:17:18,240 So the the opportunity is really to to to to benefit from a very 286 00:17:18,240 --> 00:17:23,319 attractive unit trans terms and have some complete and test put 287 00:17:23,319 --> 00:17:26,680 some completion as well to the more capital market exposure as 288 00:17:26,680 --> 00:17:28,480 well. So that's probably the the the 289 00:17:28,640 --> 00:17:32,240 the real benefits of the moment. I can see nevertheless that in 290 00:17:32,240 --> 00:17:38,120 the smaller credit, the in the smaller size financing maybe the 291 00:17:38,120 --> 00:17:41,120 market which was. Still a capital market in the 292 00:17:41,120 --> 00:17:45,920 including two hundred maybe 250 million term loan is now kind of 293 00:17:45,920 --> 00:17:48,200 a bit more and more difficult to access. 294 00:17:48,200 --> 00:17:51,440 I I feel that Martin will correct me maybe given the 295 00:17:51,440 --> 00:17:54,520 strength of the of the unit transit alternatives in in in 296 00:17:54,560 --> 00:17:57,000 this specific market. So there's there's a market 297 00:17:57,000 --> 00:18:03,000 whereby you you now have a more difficult alternative, more 298 00:18:03,000 --> 00:18:06,560 difficult choice than before, which is this exact middle 299 00:18:06,560 --> 00:18:11,500 market side. And John, you know obviously 300 00:18:12,740 --> 00:18:16,060 like tethering off what it was kind of said, how long will this 301 00:18:16,060 --> 00:18:19,860 market be in this state We have major growth and opportunity for 302 00:18:20,580 --> 00:18:23,740 you know your stakeholders like how long will it stabilize and 303 00:18:23,900 --> 00:18:26,980 kind of I guess normalize, how long is this going to be kind of 304 00:18:26,980 --> 00:18:30,700 in this position for growth? Yes, I'll I'll defer to the 305 00:18:30,740 --> 00:18:32,700 Beaver and Andrew on that just because they're, they're sitting 306 00:18:32,700 --> 00:18:34,060 on that side of the world I think. 307 00:18:34,670 --> 00:18:37,230 The, the one thing at one point I want to bring up is that you 308 00:18:37,230 --> 00:18:40,030 know for those limited partners that are investing in these 309 00:18:40,030 --> 00:18:44,390 direct funds, it's first come to the market and and they're able 310 00:18:44,390 --> 00:18:46,310 to deploy the capital very quickly and they're able to get 311 00:18:46,310 --> 00:18:49,230 in on an expedited basis. And I think that's where you 312 00:18:49,230 --> 00:18:52,790 know, coming out of 2020, we're able to, you know, rip a bit 313 00:18:52,790 --> 00:18:54,910 more at least in the states where we're able to get in very 314 00:18:54,910 --> 00:18:58,070 quickly to these different positions and be able to grow 315 00:18:58,070 --> 00:19:02,950 the funds accordingly. Andrew, do you want to pick up 316 00:19:02,950 --> 00:19:06,400 on that? How long is this opportunity 317 00:19:06,400 --> 00:19:07,960 have like obviously there's a massive opportunity in the 318 00:19:07,960 --> 00:19:10,280 moment. How long, how? 319 00:19:10,280 --> 00:19:12,120 How far? How much runway does it have 320 00:19:12,160 --> 00:19:14,200 before it maybe stabilizes and normalizes a bit? 321 00:19:16,120 --> 00:19:20,320 Look, I think it's, it's the $1,000,000 question. 322 00:19:20,400 --> 00:19:25,280 We don't know. I think what we know is that the 323 00:19:25,280 --> 00:19:29,760 UK is relatively matured. As I mentioned, we don't think 324 00:19:29,760 --> 00:19:32,080 that the banks are going to exit completely. 325 00:19:32,800 --> 00:19:37,080 Like they did in the US we also know that there's certain 326 00:19:37,080 --> 00:19:41,680 geographies that are picking up and a lot of sponsors in those 327 00:19:41,680 --> 00:19:46,680 geographies are realizing that private debt is a very useful 328 00:19:46,680 --> 00:19:49,600 and friendly product. So that will continue to drive 329 00:19:49,600 --> 00:19:53,120 growth and and you know, as I said, the convergence between 330 00:19:53,120 --> 00:19:56,920 the liquid and the private markets, it's another Ave. of 331 00:19:56,920 --> 00:20:00,200 growth, but I think it's hard at this stage. 332 00:20:01,150 --> 00:20:05,990 To kind of have an outlook of how many years of growth we're 333 00:20:05,990 --> 00:20:09,830 looking for, we're looking at. But I think what's interesting 334 00:20:09,830 --> 00:20:13,190 is that the funds and I don't speak on anyone's behalf here, 335 00:20:13,190 --> 00:20:15,070 but I think that the fund and the fund managers are really 336 00:20:15,070 --> 00:20:18,110 starting to pivot and start to become a bit more strategic as 337 00:20:18,110 --> 00:20:20,750 Andrew is implying, right. So maybe taking a direct lending 338 00:20:20,750 --> 00:20:23,830 approach and then bringing in a banking platform as well to 339 00:20:23,870 --> 00:20:27,840 double down almost it's able to. Get a bigger piece of the pie. 340 00:20:27,840 --> 00:20:31,080 But also, you know, they've been doing it one way for so long, 341 00:20:31,080 --> 00:20:35,000 you have to pivot a little bit as and and adjust rather as as 342 00:20:35,000 --> 00:20:37,960 time progresses. Would you say that in in that 343 00:20:38,040 --> 00:20:42,000 main private debtors in some extent going head to head with 344 00:20:42,040 --> 00:20:46,240 banks or is it they kind of forming a function that they're 345 00:20:46,280 --> 00:20:48,160 moving away from what haven't done at all I? 346 00:20:49,080 --> 00:20:51,680 Think very strategic fund managers are going head to head 347 00:20:51,680 --> 00:20:53,080 with banks. I think it just depends on the 348 00:20:53,080 --> 00:20:54,680 size of the fund and the size of. 349 00:20:55,260 --> 00:20:56,980 The investment class that they're looking for right, if 350 00:20:56,980 --> 00:20:59,380 it's if it's a billion dollar plus fund, I would imagine 351 00:20:59,380 --> 00:21:03,260 they're going against the big banks and and that their billion 352 00:21:03,260 --> 00:21:06,700 dollar plus funds they are going against the big banks. 353 00:21:06,700 --> 00:21:09,100 Whereas if it's more the the lower middle market side of the 354 00:21:09,100 --> 00:21:12,260 world, they might have the the direct lending market is is 355 00:21:12,260 --> 00:21:14,660 probably quicker to get in than the big bank just cuz of the, 356 00:21:14,660 --> 00:21:17,620 I'm gonna guess red tape that there might be at the bank side 357 00:21:17,620 --> 00:21:19,660 as opposed to the direct lending side. 358 00:21:20,540 --> 00:21:23,660 Certainly cases, but one abroad? Maybe it's one for you might on 359 00:21:23,660 --> 00:21:26,590 a more broader scale. Is there sort of a market split 360 00:21:27,430 --> 00:21:29,990 with banks focusing on specific areas and then private debt 361 00:21:29,990 --> 00:21:33,750 funds maybe looking to kind of consolidate and dominate others? 362 00:21:35,470 --> 00:21:38,310 I wouldn't, I wouldn't say there's a split per se, but 363 00:21:38,310 --> 00:21:42,910 there is, Tebow mentioned it. There's a certain focus that the 364 00:21:42,910 --> 00:21:46,870 respective markets have, right. So first of all, size, the 365 00:21:46,870 --> 00:21:51,070 syndicated loan market isn't necessarily restricted to 366 00:21:51,070 --> 00:21:53,590 transactions of 250 or so or larger. 367 00:21:57,990 --> 00:22:00,510 Without any maintenance covenants that is typically the 368 00:22:00,510 --> 00:22:04,710 domain of transactions which are in that size or bigger, right 369 00:22:04,710 --> 00:22:09,030 250 plus. So you know that is that is you 370 00:22:09,030 --> 00:22:12,230 know let's call it some way of defining the market and and if 371 00:22:12,230 --> 00:22:15,670 you're lower than that typically you will require a covenant that 372 00:22:15,670 --> 00:22:18,790 is either a commercial banking product or it is something that 373 00:22:18,790 --> 00:22:22,230 can go or would go perhaps to the private debt community. 374 00:22:23,060 --> 00:22:24,660 Right. So there are there are certain 375 00:22:24,660 --> 00:22:27,260 sort of features of the market, right, which you which you 376 00:22:27,260 --> 00:22:30,060 struggle to get away from. And as I said before I think 377 00:22:30,060 --> 00:22:33,860 that that the broader syndicated loan market is also a little bit 378 00:22:33,860 --> 00:22:36,540 more standardized if you like. You know there are lots of sort 379 00:22:36,540 --> 00:22:39,980 of unique features that can be add from transaction to 380 00:22:39,980 --> 00:22:42,060 transaction and in the documentation. 381 00:22:42,460 --> 00:22:45,140 But for example, take currency right. 382 00:22:45,140 --> 00:22:49,620 The market is dominated by it being euro denominated to a 383 00:22:49,620 --> 00:22:52,380 certain extent. Also sterling, but to. 384 00:22:52,940 --> 00:22:58,740 A lesser degree since 2016 given related to the Brexit vote and 385 00:22:58,740 --> 00:23:01,700 now perhaps it's recovering again, but still it is somewhat 386 00:23:01,700 --> 00:23:05,380 euro driven. So for example, if we had an 387 00:23:05,380 --> 00:23:11,420 issuer or sponsor looking for a a regional currency, take one of 388 00:23:11,420 --> 00:23:14,020 the Nordic currencies for example, it becomes more 389 00:23:14,020 --> 00:23:17,500 difficult for the broader syndicated loan market to 390 00:23:17,500 --> 00:23:20,300 compete with that, that being institutional market if you're 391 00:23:20,300 --> 00:23:22,100 looking for a covenant night transaction. 392 00:23:22,690 --> 00:23:23,850 If you want a covenanted child, I. 393 00:23:29,010 --> 00:23:32,010 Think we're, we're a technical colleague, Martin there. 394 00:23:35,050 --> 00:23:36,890 Thank you. Martin, I just want to defer to 395 00:23:36,890 --> 00:23:39,250 you again. Is there any kind of particular 396 00:23:40,130 --> 00:23:44,490 providers or strategies that you are looking to back or that are 397 00:23:44,490 --> 00:23:47,130 concerned or of interest at you guys at the moment when you're 398 00:23:47,130 --> 00:23:49,210 making decisions about who you're investing in? 399 00:23:54,500 --> 00:23:59,900 If so to refer to questions, if we are using one financing 400 00:23:59,900 --> 00:24:03,500 alternative versus the other to looking at the banking 401 00:24:03,980 --> 00:24:08,300 alternative that is financing. I think when when looking at 402 00:24:08,300 --> 00:24:11,180 financing is, I mean as Martin defined it's, it's there's 403 00:24:11,180 --> 00:24:14,300 several questions to look at it. First, it's a question of size. 404 00:24:15,220 --> 00:24:19,340 Because obviously below certain size the the, not the, the 405 00:24:19,660 --> 00:24:22,700 capital markets indicated markets will not be available 406 00:24:22,700 --> 00:24:24,580 for search for anything above and beyond this size. 407 00:24:24,620 --> 00:24:28,940 I think it's a matter of looking at the company and the quality 408 00:24:28,940 --> 00:24:32,780 of the company, acknowledging that as Martin was saying, the 409 00:24:32,940 --> 00:24:35,980 capital market is relatively standardized regulate. 410 00:24:37,280 --> 00:24:40,960 With with the regular base of investors which are probably not 411 00:24:40,960 --> 00:24:47,640 going to look at the most most strange or specific situations 412 00:24:48,240 --> 00:24:52,880 which a private lenders maybe may have the capacity to do so. 413 00:24:53,200 --> 00:24:57,320 Because your private lender will have a portfolio of of loan 414 00:24:57,320 --> 00:24:59,880 which may be smaller. So it'll have more time to 415 00:24:59,880 --> 00:25:02,920 indicate to such such investments compared to the the 416 00:25:02,920 --> 00:25:06,260 capital market side of it. So I think it's a question of 417 00:25:06,260 --> 00:25:09,460 size, question of quality of the assets, question of speed as 418 00:25:09,460 --> 00:25:15,300 well, which is obviously offered by the unit trench or direct 419 00:25:15,300 --> 00:25:17,540 lending side of it. And last but not least, the 420 00:25:17,580 --> 00:25:19,900 question of complexity, complexity of the management, 421 00:25:19,900 --> 00:25:23,660 ability to run a syndication and rating process and the like. 422 00:25:24,340 --> 00:25:25,940 Interesting. So obviously we've talked quite 423 00:25:25,940 --> 00:25:30,060 a bit of different should thanks to the market, the banks versus 424 00:25:30,420 --> 00:25:33,620 private debt lenders. Andrew, could you kind of talk 425 00:25:33,620 --> 00:25:36,580 about is there any kind of opportunity or many 426 00:25:36,580 --> 00:25:40,860 opportunities for complementary funding between banks and 427 00:25:40,900 --> 00:25:43,980 private debt lenders in terms of working together maybe taking 428 00:25:43,980 --> 00:25:47,820 different sections of facilities to you know for the best 429 00:25:47,820 --> 00:25:50,140 solution for the borrowers basically. 430 00:25:51,740 --> 00:25:55,340 I mean as I mentioned that we partner with banks and I think 431 00:25:55,340 --> 00:25:59,020 banks are here to stay. We partner through them through 432 00:25:59,060 --> 00:26:03,760 fund level leverage through first outlast out positions in 433 00:26:03,760 --> 00:26:06,720 syndicated, in the syndicated markets. 434 00:26:06,720 --> 00:26:10,680 And we we have backed for example anchors and transactions 435 00:26:11,760 --> 00:26:15,640 in the in the first lien market. We have provided second lien 436 00:26:16,360 --> 00:26:21,280 options behind a first lien term loan that it's that has been 437 00:26:21,280 --> 00:26:23,360 syndicated in the capital markets. 438 00:26:23,360 --> 00:26:26,720 So there's a lot of ways that we have worked together with banks 439 00:26:26,760 --> 00:26:29,440 and I think that partnership will continue in the future. 440 00:26:30,850 --> 00:26:32,250 Interesting. So I want to kind of make 441 00:26:32,250 --> 00:26:35,290 another view on the market, Jordan, more in the US. 442 00:26:35,290 --> 00:26:38,530 The private debt market in the US has probably has historically 443 00:26:38,530 --> 00:26:39,810 at least been a bit more progressed. 444 00:26:39,810 --> 00:26:42,730 Could you kind of just a sense of maybe some of the differences 445 00:26:43,050 --> 00:26:46,090 you see or what you see in the US that's perhaps coming on the 446 00:26:46,090 --> 00:26:49,370 horizon for us in the UK and Mainland Europe? 447 00:26:53,170 --> 00:26:55,210 Look, I'm not going to lie from like a direct investing side 448 00:26:55,210 --> 00:26:57,610 that I would defer to the other experts on the panel considering 449 00:26:57,610 --> 00:27:00,610 I I sit behind the funds not in front of them getting out there 450 00:27:00,610 --> 00:27:03,850 from an investing perspective. I think one thing that that is 451 00:27:03,850 --> 00:27:06,530 probably the biggest hot topic button in the United States and 452 00:27:06,530 --> 00:27:09,290 and how it can be factored into your fund especially from a 453 00:27:09,290 --> 00:27:12,570 fundraising perspective would be ESG and how that factors in to 454 00:27:12,570 --> 00:27:14,770 your fund and and what implications your investors 455 00:27:14,770 --> 00:27:16,600 might. Want to step into from a risk 456 00:27:16,600 --> 00:27:19,200 profile perspective to make sure that we're we're factoring that 457 00:27:19,200 --> 00:27:22,360 in when investing in the underlying entities, but I would 458 00:27:22,360 --> 00:27:26,720 obviously defer to the esteemed colleagues on the call to see 459 00:27:26,720 --> 00:27:29,680 how the investment side is going from the US into the UK and 460 00:27:29,680 --> 00:27:31,440 abroad and. Did you want to pick that up? 461 00:27:34,080 --> 00:27:37,280 Yeah, sorry, I thought she'd go ahead and. 462 00:27:38,920 --> 00:27:41,600 Yeah. So just in terms of in terms of 463 00:27:41,840 --> 00:27:44,480 investment themes, I mean Jordan mentioned ESG. 464 00:27:45,430 --> 00:27:49,070 It's a big topic in any market I would say at this stage, right. 465 00:27:49,070 --> 00:27:51,950 It's been obviously something that's arguably been in the 466 00:27:51,950 --> 00:27:59,750 market for a long, long period of time, but it is, it is 467 00:27:59,750 --> 00:28:04,710 clearly you know relevant as we encounter investors in our 468 00:28:04,710 --> 00:28:06,550 transactions which we bring to market. 469 00:28:06,950 --> 00:28:10,470 You know I think the on the equity side people will confirm 470 00:28:10,470 --> 00:28:12,470 as well. It is absolutely paramount on 471 00:28:12,470 --> 00:28:14,590 the fundraising side of the private equity community. 472 00:28:15,160 --> 00:28:20,120 It is literally a an all-encompassing aspect of the 473 00:28:20,120 --> 00:28:21,640 finance world at this stage, right. 474 00:28:21,640 --> 00:28:25,320 So that is that is certainly a a big theme and how that 475 00:28:25,320 --> 00:28:29,000 translates into transactions. I guess we will see over the 476 00:28:29,000 --> 00:28:31,160 next coming months. You know we've already seen 477 00:28:31,160 --> 00:28:34,200 certain margin ratchets being introduced into transactions 478 00:28:34,200 --> 00:28:39,880 linked to certain key indicators being met and thresholds being 479 00:28:39,880 --> 00:28:41,560 met. So I think that's a that's a 480 00:28:41,560 --> 00:28:44,720 very live and real time evolving situation. 481 00:28:45,550 --> 00:28:48,110 I would say that came a little bit more maybe from Europe going 482 00:28:48,110 --> 00:28:50,670 to the US it's supposed to say actually the other way around, 483 00:28:51,590 --> 00:28:53,990 but that is that is clearly a big theme at the moment. 484 00:28:54,070 --> 00:28:56,590 Usually, in fairness though, it is, we see a lot of themes 485 00:28:56,590 --> 00:28:59,750 coming from the US to. Europe could you elaborate on 486 00:28:59,750 --> 00:29:02,350 that on the you go I'm. Saying this is a theme that is 487 00:29:02,350 --> 00:29:05,310 the hottest topic in the US currently and I completely 488 00:29:05,310 --> 00:29:06,590 agree. It's definitely something that 489 00:29:06,710 --> 00:29:11,110 the Europe is way ahead of the curve on and it's not to say 490 00:29:11,110 --> 00:29:14,020 that America. US and American fund managers 491 00:29:14,020 --> 00:29:16,380 aren't considering ESG whatsoever, but I think it is 492 00:29:16,380 --> 00:29:19,100 now in from a fundraising perspective. 493 00:29:19,100 --> 00:29:23,660 It is definitely not a check the box exercise, but it is a it 494 00:29:23,660 --> 00:29:26,500 needs to be something that is checked in order for an investor 495 00:29:26,500 --> 00:29:29,180 to enter into the fund depending on where they fall into that 496 00:29:29,220 --> 00:29:30,660 that need. From the SG perspective, it's 497 00:29:31,340 --> 00:29:33,900 it's one of the biggest things I've seen recently, which is 498 00:29:33,900 --> 00:29:36,700 fascinating. I mean, what does it look like? 499 00:29:36,700 --> 00:29:39,220 Is it just increasing priority on it or I mean maybe you can? 500 00:29:39,650 --> 00:29:41,890 Take that up table. But what it actually look like? 501 00:29:41,890 --> 00:29:44,690 Just increasing demand for it? Has it manifest? 502 00:29:46,730 --> 00:29:49,450 I can take that. I think, look, I think investors 503 00:29:49,450 --> 00:29:54,570 have brought it to the forefront of their investment objective 504 00:29:55,490 --> 00:29:58,890 and therefore that's really pushing the industry to be more 505 00:29:58,890 --> 00:30:01,930 accountable for ESG. I think historically there was 506 00:30:01,930 --> 00:30:04,570 an argument that because there are glenders at the end of the 507 00:30:04,570 --> 00:30:08,280 day don't control the company, but the involvement needed to be 508 00:30:08,280 --> 00:30:11,400 at the screening stage rather than during the life of the 509 00:30:11,400 --> 00:30:15,200 investment. And I think Lps are challenging 510 00:30:15,200 --> 00:30:21,160 that convention and that's why I think he's hear it more talked 511 00:30:21,160 --> 00:30:24,840 about in the market. You know they are saying, look 512 00:30:24,840 --> 00:30:28,200 if you're a scale lender and you have a long term relationship 513 00:30:28,200 --> 00:30:33,610 with these companies and these sponsors and you definitely are 514 00:30:33,650 --> 00:30:36,810 a counterparty with influence, sometimes you're the only person 515 00:30:36,810 --> 00:30:40,370 in that capital structure. Besides, besides the sponsors, 516 00:30:40,650 --> 00:30:44,730 you should be able to push and make these companies uphold 517 00:30:45,010 --> 00:30:49,850 high, high ESG standards. I think the other topic that is 518 00:30:49,850 --> 00:30:53,170 being talked about is that often times you're lending to middle 519 00:30:53,170 --> 00:30:56,130 market companies that are small and probably don't have the 520 00:30:56,130 --> 00:31:01,470 resources or the infrastructure to really be tracking policies 521 00:31:01,510 --> 00:31:04,830 and frameworks. And I think the direct lender 522 00:31:05,110 --> 00:31:08,670 can act as a resource in that in that situation. 523 00:31:09,110 --> 00:31:12,790 I think all of those are things that are really being pushed by 524 00:31:12,790 --> 00:31:18,030 the LP community. And and again, we've been 525 00:31:18,030 --> 00:31:23,150 raising funds and I think we've seen how much more 526 00:31:23,150 --> 00:31:28,190 accountability the investor community is asking on the 527 00:31:28,190 --> 00:31:31,230 direct lending side on ESG practices. 528 00:31:32,190 --> 00:31:34,030 Dressing, so sorry, I kind of cut you off. 529 00:31:34,270 --> 00:31:35,630 My apologies. Did you want to kind of 530 00:31:35,630 --> 00:31:39,310 elaborate on ESG? No, no, I'll totally echo Andrea 531 00:31:39,310 --> 00:31:43,150 as well as the, the LP community as well is pushing. 532 00:31:43,150 --> 00:31:45,550 We probably have a similarity base at the end of the day. 533 00:31:45,550 --> 00:31:49,390 So they are clearly pushing us as well to be more comfortable 534 00:31:49,390 --> 00:31:53,750 at the at the at the astral level, but also to push that to 535 00:31:53,830 --> 00:31:56,910 each of our portrayal companies. And obviously the most 536 00:31:56,910 --> 00:31:59,390 importantly is you need to push that to the smaller side. 537 00:32:00,030 --> 00:32:03,710 Smaller businesses whereby the music function is probably not 538 00:32:04,550 --> 00:32:08,830 not a real solid function and usually done part time by the 539 00:32:08,830 --> 00:32:11,150 senior, for example the CFO or likes. 540 00:32:11,710 --> 00:32:17,510 So we are clearly getting more and more questions and focus 541 00:32:17,510 --> 00:32:21,040 from IP on that front. We are definitely pushing that 542 00:32:21,040 --> 00:32:26,360 as well to our to our debt partners as well whether that's 543 00:32:26,560 --> 00:32:28,920 on the unit on the non diet lending side, but also on the 544 00:32:28,920 --> 00:32:32,800 capital market side where we've seen a couple of, a couple of 545 00:32:32,800 --> 00:32:36,400 names in the lower finance market being properly as if 546 00:32:36,400 --> 00:32:40,400 compliance as nothing was saying And clearly this year we will, I 547 00:32:40,400 --> 00:32:46,080 mean part of our objective is to make a big third of it's not 548 00:32:46,080 --> 00:32:48,880 half of our debt finance, new debt finance. 549 00:32:49,320 --> 00:32:54,760 Actually easy friendly we're even thinking and not in that 550 00:32:54,800 --> 00:32:58,200 one we're even thinking actually turning an old financing into a 551 00:32:59,040 --> 00:33:04,320 year as you friendly one. Interesting. 552 00:33:04,320 --> 00:33:07,080 How's that received, Martin? I mean, how's from your end of 553 00:33:07,080 --> 00:33:09,520 the market, What's the kind of general view on that? 554 00:33:11,740 --> 00:33:15,540 Well, I I I think we've we've all mentioned it, it touches all 555 00:33:15,540 --> 00:33:17,780 facets of of the market at this stage right. 556 00:33:17,780 --> 00:33:21,860 And what that translates into intangible terms for us on on 557 00:33:21,860 --> 00:33:24,820 the South side when we're selling loans or bonds is, is, 558 00:33:24,820 --> 00:33:29,740 is actual demand and as a result pricing and you know the 559 00:33:29,740 --> 00:33:33,980 execution that you can achieve. So you know, I think perhaps, 560 00:33:33,980 --> 00:33:37,140 you know whether it was 18 months ago or two years ago, ESG 561 00:33:37,140 --> 00:33:40,650 was. A question during the process, 562 00:33:40,650 --> 00:33:45,370 the marketing process, there was a lot of Q&A on the topic, 563 00:33:45,810 --> 00:33:50,770 whereas I think nowadays it feels like it's much more of a, 564 00:33:50,770 --> 00:33:55,050 it is a question, but it drives actual demand, right, being 565 00:33:55,050 --> 00:33:59,850 managed by the investor community that will perhaps not 566 00:33:59,850 --> 00:34:01,850 invest. If the answers are very 567 00:34:01,850 --> 00:34:05,410 different and so therefore it's it's you know has a direct 568 00:34:05,410 --> 00:34:08,010 impact on how we can execute a transaction and what the best 569 00:34:08,010 --> 00:34:09,730 pricing is that can be achieved as a result. 570 00:34:10,409 --> 00:34:14,090 And while I know we're focusing on credit and debt, I I think 571 00:34:14,090 --> 00:34:17,929 what's interesting is that this is not just to to completely 572 00:34:18,530 --> 00:34:20,010 change the topic of this whole conversation. 573 00:34:20,050 --> 00:34:21,929 It's not just focused on credit and debt. 574 00:34:21,929 --> 00:34:24,530 It's spanning across the entire industry, whether it's 575 00:34:24,850 --> 00:34:27,810 agriculture or real estate or just straight private equity 576 00:34:27,810 --> 00:34:29,810 investments. And I think it's it's a. 577 00:34:30,500 --> 00:34:33,060 It's an awesome way that's sweeping the world and it's it's 578 00:34:33,060 --> 00:34:35,659 important that our investors are thinking about this on a 579 00:34:35,659 --> 00:34:39,739 day-to-day out basis and it's reshaping how companies are 580 00:34:39,739 --> 00:34:43,340 building and informing. Is there a kind of this? 581 00:34:43,340 --> 00:34:47,340 Is the big criticism I've heard with this ESG is with the ESG 582 00:34:47,659 --> 00:34:51,739 more generally, is the local standardization and metrics and 583 00:34:51,739 --> 00:34:55,900 how well they actually kind of communicate or actually show 584 00:34:55,900 --> 00:34:59,420 materiality of results? From a private debt perspective 585 00:34:59,420 --> 00:35:03,500 and also managing funds with ESG in mind, what kind of challenges 586 00:35:03,580 --> 00:35:05,980 come with this and what more progress needs to be made in 587 00:35:06,020 --> 00:35:07,820 terms of fleshing out those KPIs? 588 00:35:07,820 --> 00:35:16,660 I think one of the challenges that we see for example is that 589 00:35:16,820 --> 00:35:19,900 some of these companies are small and don't have the 590 00:35:19,900 --> 00:35:24,140 resources to really be tracking these KPIs or even be doing 591 00:35:24,140 --> 00:35:27,060 anything with the data and internally. 592 00:35:27,060 --> 00:35:31,440 So I think that's a big challenge for direct lenders. 593 00:35:31,440 --> 00:35:35,360 You can't push it, but the company perhaps is not well 594 00:35:35,360 --> 00:35:38,640 resource to to be able to address it. 595 00:35:38,720 --> 00:35:43,920 And and again I think LP's are are are saying well you will 596 00:35:43,920 --> 00:35:47,680 need to help and they're holding the direct lending or the direct 597 00:35:47,680 --> 00:35:52,840 lender or the private equity or the shareholder accountable for 598 00:35:53,200 --> 00:35:59,840 helping those companies push those ESD frameworks and making 599 00:35:59,840 --> 00:36:05,440 sure that it's part of their everyday operations rather than 600 00:36:05,440 --> 00:36:09,800 just a check the list and a KPI that goes into a system. 601 00:36:11,840 --> 00:36:14,640 I would add to that from and I don't know the answer and I'm 602 00:36:14,640 --> 00:36:15,520 just going to float it out there. 603 00:36:15,520 --> 00:36:17,600 It's from an accounting perspective as we've seen the 604 00:36:18,040 --> 00:36:20,400 evaluations of regardless of whether it's private. 605 00:36:20,950 --> 00:36:24,670 Debt, private equity, real estate, have we seen the from an 606 00:36:24,670 --> 00:36:26,910 accounting perspective, how valuations have evolved in 607 00:36:26,910 --> 00:36:30,110 financial statements, where ESG might fall in down the road into 608 00:36:30,110 --> 00:36:33,310 financial statement metrics? If that is a key competency or 609 00:36:33,310 --> 00:36:36,510 core competency rather for the underlying managers, that it'll 610 00:36:36,510 --> 00:36:39,350 be interesting to see if that ever gets kind of flown into the 611 00:36:39,350 --> 00:36:40,830 financial statement footnote somewhere. 612 00:36:41,630 --> 00:36:44,110 Or more earlier in the process is kind of what you're saying as 613 00:36:44,190 --> 00:36:47,350 opposed to kind of more? That kind of. 614 00:36:47,550 --> 00:36:48,990 More from like a tracking perspective. 615 00:36:48,990 --> 00:36:51,750 So that way you as Andrew has alluded to, you're holding your, 616 00:36:51,750 --> 00:36:54,390 the Lps are holding their investor, their sorry, their 617 00:36:54,390 --> 00:36:57,190 funds honest to it and saying well if this is something you're 618 00:36:57,190 --> 00:36:59,990 touting then you know put your money where your mouth is, let's 619 00:36:59,990 --> 00:37:02,270 let's show it to everyone and how we're doing it. 620 00:37:02,470 --> 00:37:07,030 So I want to move to eyeball transitioning from a debt kind 621 00:37:07,030 --> 00:37:10,790 of asset managers perspective, is it playing out the way it was 622 00:37:10,790 --> 00:37:14,270 anticipated to every organization has a different 623 00:37:14,270 --> 00:37:18,910 approach I think in areas where global credit firm and therefore 624 00:37:18,910 --> 00:37:22,310 that has been at the forefront of our agenda. 625 00:37:22,750 --> 00:37:28,190 We formed a committee back a few years ago when this was 626 00:37:28,190 --> 00:37:30,070 announced. And what we've been doing is 627 00:37:30,070 --> 00:37:32,350 making sure that all of our documents have, you know, 628 00:37:32,350 --> 00:37:37,630 replacement benchmark language in them to make sure that we are 629 00:37:37,950 --> 00:37:40,590 having a smooth transition transition. 630 00:37:40,590 --> 00:37:45,680 But more importantly, we get to a place where it's economically 631 00:37:45,680 --> 00:37:50,000 neutral for both us, the manager, but also for the 632 00:37:50,000 --> 00:37:54,480 companies. But I'll let Martin maybe 633 00:37:54,480 --> 00:38:01,480 chiming on their perspectives. Yeah, it's quite similar, right. 634 00:38:01,480 --> 00:38:05,480 I think we have a, we have a team internally that's been 635 00:38:05,480 --> 00:38:08,680 working with the loan Market association specifically on. 636 00:38:10,350 --> 00:38:16,430 You know, deriving A suitable, you know, revised benchmark, but 637 00:38:16,430 --> 00:38:20,310 specifically the coming up with the right language that would be 638 00:38:20,310 --> 00:38:24,310 inserted into the documentation. That's been obviously a project 639 00:38:24,310 --> 00:38:26,110 that's been going on for a number of years. 640 00:38:26,510 --> 00:38:30,070 I think the key thing as Andrea highlighted is that we're 641 00:38:30,070 --> 00:38:34,630 looking to move to something which is to quote Andrea just 642 00:38:34,630 --> 00:38:37,030 now economically neutral. I think that is one of the. 643 00:38:37,680 --> 00:38:42,560 To see key sort of drivers here, but it's obviously not a very 644 00:38:42,560 --> 00:38:45,920 simple transition. You know there's a lot of work 645 00:38:46,000 --> 00:38:48,080 that has been done. There's still probably more work 646 00:38:48,080 --> 00:38:50,920 that needs to be done. You know from a cell type 647 00:38:50,920 --> 00:38:54,960 perspective in a way you know what we're looking for is the 648 00:38:54,960 --> 00:38:56,560 wording. That is the consensus. 649 00:38:56,560 --> 00:38:59,960 Is it consensus, if you like, equivalent to your born, live, 650 00:38:59,960 --> 00:39:03,120 or currently? And then it is the fact of just 651 00:39:03,120 --> 00:39:08,360 updating the documentation. For it, but I think you know the 652 00:39:08,400 --> 00:39:10,440 updating the documentation is the easy part. 653 00:39:10,440 --> 00:39:13,560 The more common is finding that consensus in the 1st place, 654 00:39:13,560 --> 00:39:17,120 which you know, I think we've done a lot of work on between 655 00:39:17,120 --> 00:39:19,960 the banks and as I said the loan Market association in particular 656 00:39:19,960 --> 00:39:21,520 as well. Fascinating. 657 00:39:21,520 --> 00:39:23,360 So fairly pretty interesting stuff. 658 00:39:23,360 --> 00:39:26,240 We're gonna wrap it up shortly. But before we kind of finish up, 659 00:39:26,400 --> 00:39:29,320 I just wanted to get a statement kind of or a sense from each of 660 00:39:29,320 --> 00:39:33,200 you where you sit in the market, what the next four years hold 661 00:39:33,320 --> 00:39:35,870 for the private debt market? But Jordan, maybe you want to 662 00:39:35,870 --> 00:39:39,950 start us off. Well, look strategically from an 663 00:39:39,950 --> 00:39:42,990 Iqeq perspective, I really hope that the private tech market 664 00:39:43,110 --> 00:39:46,590 continues to rip and grow. We are able to service the fund 665 00:39:46,590 --> 00:39:49,030 administration side of it from end to end. 666 00:39:49,030 --> 00:39:52,430 And I think that is my outlook is really hopeful and excited 667 00:39:52,430 --> 00:39:54,870 for it. But I personally do believe that 668 00:39:54,870 --> 00:39:59,830 it is it will continue to grow. I think that investors are 669 00:39:59,830 --> 00:40:01,760 really. Getting involved and wanting to 670 00:40:01,760 --> 00:40:03,920 take advantage of the market, current market conditions. 671 00:40:03,920 --> 00:40:06,600 So hopefully those will maintain as we proceed. 672 00:40:08,960 --> 00:40:10,320 Do you wanna touch on that as well? 673 00:40:10,320 --> 00:40:13,120 And then we'll move to Andrea. Yeah. 674 00:40:13,120 --> 00:40:16,800 I think the private debt market will continue to grow in the 675 00:40:16,800 --> 00:40:19,920 same way as I think the overall debt markets will grow. 676 00:40:20,840 --> 00:40:23,760 I think it is. It was mentioned before that the 677 00:40:23,760 --> 00:40:26,120 banking community certainly isn't going anywhere. 678 00:40:27,450 --> 00:40:31,490 And frankly the institutional debt market is is also growing. 679 00:40:31,490 --> 00:40:33,610 So that is the high of bond market or the syndicated loan 680 00:40:33,610 --> 00:40:35,810 market. I think there are many 681 00:40:35,810 --> 00:40:39,770 situations now and going forward where you can try and optimize 682 00:40:40,370 --> 00:40:46,250 the the capital structure for the companies and that could be 683 00:40:46,250 --> 00:40:48,650 a combination of both. So it is not just you know one 684 00:40:48,650 --> 00:40:51,530 or the other, but I think all of these markets if you look at the 685 00:40:51,530 --> 00:40:54,250 trend for the last couple of years are heading towards a a a 686 00:40:54,570 --> 00:40:57,740 steady growth. How about you? 687 00:40:58,300 --> 00:41:00,780 What's your general? No, I I, I fully support the 688 00:41:00,780 --> 00:41:05,020 idea indeed I mean the the two two asset classes are are I've 689 00:41:05,020 --> 00:41:08,300 been growing a lot. I think the what has happened 690 00:41:08,300 --> 00:41:11,620 probably over the last year is the the profit that market to 691 00:41:11,620 --> 00:41:14,020 become a little bit more institutionalized if that's if 692 00:41:14,100 --> 00:41:17,460 if I may say with a clear differentiation on each of the 693 00:41:17,460 --> 00:41:21,020 products making it a little bit more maybe easier friendly or 694 00:41:21,020 --> 00:41:23,140 easier to to read or to understand. 695 00:41:25,150 --> 00:41:28,070 Compared to the dedicated market, which is by definition a 696 00:41:28,070 --> 00:41:33,950 very transparent market, the the two solutions are well 697 00:41:34,110 --> 00:41:37,350 coexisting I believe each of them having clearly different 698 00:41:37,350 --> 00:41:41,310 features, different perspective, different attractiveness 699 00:41:42,150 --> 00:41:44,470 according to the transaction you're looking at and obviously 700 00:41:44,550 --> 00:41:48,190 every time we on the product equity look at new transactions. 701 00:41:48,990 --> 00:41:52,630 It's most of the time pretty obvious which direction, which 702 00:41:53,070 --> 00:41:56,110 routes the financing will go between the two asset classes. 703 00:41:56,710 --> 00:42:02,150 I hope that will continue and I don't believe then the two asset 704 00:42:02,150 --> 00:42:05,590 classes really going head to head is necessarily good for the 705 00:42:05,590 --> 00:42:10,990 long term of the industry as it would I mean create potentially 706 00:42:11,030 --> 00:42:13,950 some slice of I mean will create. 707 00:42:14,320 --> 00:42:17,080 At one point in time a slightly more broad friendly environment 708 00:42:17,080 --> 00:42:18,960 of course. So it should benefit to me, yes, 709 00:42:19,280 --> 00:42:21,840 but I don't believe that in the long term that's the right way 710 00:42:21,840 --> 00:42:25,960 to to to to to to get financing in place. 711 00:42:25,960 --> 00:42:30,080 So I would only hope that the two asset class continue their 712 00:42:30,080 --> 00:42:35,200 route on the differentiated but but attractive products for for 713 00:42:35,200 --> 00:42:37,320 each of them. Interesting, Andrea. 714 00:42:37,360 --> 00:42:39,440 Next four years What does it hold for the private debt 715 00:42:39,440 --> 00:42:42,860 market? I think there's a lot of space 716 00:42:42,860 --> 00:42:47,340 to continue to grow, but I think we'll also see signs of maturity 717 00:42:47,340 --> 00:42:50,860 of that market. What I mean by that is that 718 00:42:51,020 --> 00:42:54,580 you'll see, you know, ESD triple in and people becoming more 719 00:42:54,580 --> 00:42:58,500 demanding. You'll see some managers exit 720 00:42:58,500 --> 00:43:02,780 the market, less new entrants in the markets. 721 00:43:03,140 --> 00:43:06,580 I think you'll see maybe a little bit more consolidation. 722 00:43:07,910 --> 00:43:13,630 But in general, I think that the trends for for growth remainder 723 00:43:14,870 --> 00:43:23,070 and you know I think this crisis and also allowed investors to to 724 00:43:23,070 --> 00:43:29,910 see the fundamental investment thesis of the asset class they 725 00:43:29,910 --> 00:43:33,800 saw that in fact it was. Resilient. 726 00:43:33,840 --> 00:43:36,880 They saw that in fact there was less mark to market movements. 727 00:43:36,880 --> 00:43:42,360 They saw how the robust contractual protections worked 728 00:43:43,480 --> 00:43:48,920 and I think that will give investors comfort to continue to 729 00:43:48,920 --> 00:43:52,240 commit to the asset class. Fascinating. 730 00:43:52,240 --> 00:43:55,040 Well, thank you for joining us, Jordan, Andrea, Tebo and Martin. 731 00:43:56,240 --> 00:43:59,480 For recording of this real deals Private Get roundtable and the 732 00:43:59,480 --> 00:44:01,160 latest in private equity news, you can always go to 733 00:44:01,160 --> 00:44:04,160 realdeals.eu.com. I'm Simon Thompson. 734 00:44:04,560 --> 00:44:05,920 Thanks to our guests for joining us.