Private debt

BRENT PATRY: Which areas of the credit market do you think provide the most attractive opportunities?

JAMES KEENAN: I actually think 2024 is going to be another really good year to deploy. I mean, first off, you have an economy that is softening, but you're still talking about a growth environment. You have a generally tight banking system. So, as you start to see more activity come in, I think you'll get really nice spreads per unit of risk. So, corporate direct lending remains attractive. Some of the bank deleveraging trades, risk transfers, real estate dispositions.

BRENT PATRY: When you think about the overall size of the private debt markets and the trajectory of growth, how do you think that is growing relative to other asset classes and other strategies within credit?

JAMES KEENAN: We see the market growing significantly over the next several years, but let's define that, right? You have a market right now that, because of the volatility and disruption in the banking system, you're going to see a shift in policy and even risk management around deposit flight. And what does that really mean? You're talking about trillions of assets coming out of the banking system, right, as you start to see more equity being needed in that. And if you think about the US banking system alone, that might be $2-3 trillion. And broadly speaking, globally, that's even going to increase. So, when we think about the market share shift to private debt, they're going to play a huge role in that opportunity. On top of that, because of the growth of the market, we see it as a good funding source relative to public markets. And then, third, just general GDP growth and earnings growth. We think that it will continue to grow the market. So, for those three reasons, we think we're fairly conservative when you think about the size of private debt and the opportunity for clients to continue to invest in that.

BRENT PATRY: Are there one or two key messages you'd like to give our clients about how we're positioning our portfolio or addressing the opportunity set?

JAMES KEENAN: Yeah, I think the last 12 to 18 months, some of the attractiveness about private debt for investors has been avoiding the risk of duration, right? And we certainly have seen that move and a little bit more of a stabilization of rates and where policy is going. I think, as you think about the next 12 months, it's still going to provide a really attractive opportunity. Because as you continue to see this mega shift, when the reduction of risk and assets off of the banking system, it's providing a huge pool of assets and even at a flat or inverted curve. You're talking about assets that are coming with really nice yields associated to in comparison to either the equity or the fixed income market in a growing market. So, I think that is really the risk or the return profile still looks really attractive in 2024.