Hello, and welcome to the Credit Edge Weekly Markets Podcast.

My name is James Crumby.

I'm a senior editor at Bloomberg.

And I'm your own Julius credit analyst at Bloomberg Intelligence in London, covering European banks.

This week, we are very pleased to welcome Mike Dennis, Co head of European Credit at Aris Management, one of the largest alternative investment managers in the world, with close to five hundred and fifty billion dollars in AUM as of the first quarter.

How are you doing, Mike, Yeah, very well, Thanks for having me.

Good to have you.

Mike serves as a member of the Ares Credit Group's European Direct Landing Committee and also the European Liquid Credit Investment Committee, and prior to joining in two thousand and seven, he was head of the London Financial Sponsor Group at Barclay's.

Should also add that Mike's a bit of a glutton for punishment, as in he's our first repeat guest on this show in three years of doing it.

We tend not to have repeat guests, but we are delighted to have you back.

And before we get to the questions, I just want to set the scene a bit.

Credit markets are looking pretty complacent at the moment, with junk bonds trading ever tighter as demand for yield rises and supply of corporate debt dries up.

Robust returns in public debt leads people to question the value of private markets, which have enjoyed stellar growth over the last few years.

Private debt is taking a bit of a beating.

Jeff Gundlack from Double Line recently compared the mania for that market with the rush to collateralize debt obligations or CDOs in the run up to the global financial crisis, and we all know how that ended.

He also doubted whether the asset class is actually less volatile.

Prices appear not to have moved very much this year, despite all the chaos of tariffs, rates, inflation, taxes, immigration, and global geopolitics, but who knows whether the loans are actually being marked accurately.

And just this week Jamie Diamond, in his earnings call said the words peak private credit.

So Mike, what is your take?

Is private credit risk fairly valued at the moment?

Do you think are all the concerns warranted?

Yeah?

Look, I think people are certainly taking a a closer look at private credit valuations.

You know, that's that's regulators and other people alike.

But you know, what I would say is, if you think about the heritage of private credit really from the US and the BDC model, which are public vehicles, you know a lot of these valuation processes are well trodden, you know, very granular.

We've brought a lot of that technology across in our business in Europe, and I would say that, you know, the the kind of regulators have looked at have looked at these best practices, and you know, we value our portfolio on a quarterly basis.

We go line by line right through the portfolio.

We mark those assets both to market and to impairment.

And then of course, you know, our LPs would expect us to have independent audit of those valuations, and we do use independent firms to do that on a quarterly basis, and and those are signed off in the audit process as well.

So I would push back and say, actually, the process is the policies for valuing assets in the private credit managers I know are actually pretty robust.

Yeah, so I would push back on that notion.

It's quarterly enough though, because we're getting such volatility, you know intra day that you know, like maybe we're being too slow to Martin.

Well, most of the most of the capital that private credit managers or suddenly at areas is kind of in locked up, closed end vehicles.

Right.

This is not hot capital that flows in and out of the market.

This is capital that's taking a long term view, and so I don't think necessarily, you know, daily valuations is sssarily the right way to think about this asset class.

Mike, could I ask about the growth potential of private credit in Europe?

If you look at GDP growth, you know that's quite low, even negative in some countries like the UK, Germany around zero.

Against that sort of backdrop, what would you say are the growth prospects for private credit as a sector?

Yeah, let me address GDP first, because there's a couple of things to think about.

One is obviously low but steady growth is not actually a bad macro backdrop for credit, right for senior lending.

Firstly, in direct lending, a low and slow GDP backdrop is not a bad thing, I would say.

On top of that, however, if you look at what direct lenders are typically trying to do, they're being very, very selective in the sectors the types of businesses they're lending to, which I would argue are not wholly correlated to the GDP backdrop.

Anyway, if you look at our portfolio, for instance, you know you do see revenues across the piece across the portfolio growing in double digits eb DA.

Similarly with with with strong EBDA margins.

So again we're not trying to lend to a benchmark or lend to the macro.

I think in terms of growth, there are a number of drivers at play.

I think one is if you just look at the differential between the private equity class.

Equity class that's been around now for for decades, it's a more mature market.

There are you know, trillions of assets invested in private equity.

The same is not the case in private credit, and at some point I think private credit will up with the private equity markets.

Look for every euro of private equity capital invested, typically you're raising you know, a euro, a dollar a pound of private credits.

So I think just in terms of the two markets, you know, private credit is much more immature.

There is a lot of dry powder in private equity markets today.

Know that both in the US and Europe over two hundred billion in Europe, as I guess a conservative estimate.

And let's not forget now that you know private credit, we've been doing this for what's seventeen eighteen years in Europe.

There's a lot of private credit assets in the ground that will need to be refinounced as well.

So I think there's a number of different drivers on top of the fact that there's this secular trend of companies staying private or you know, a lack of I guess companies going public to put put to want of a better phrase.

So private markets in general are enjoying this, this secular trend, and I don't see any reason why private private credit can't grow or continue growing on the back of that.

So for areas specifically, then you have I believe, around eighty billion dollars in European credit.

Aum how high could this go?

Has the company got a specific target in mind?

Well, we certainly haven't got a specific target.

And just just to clarify, by the eighty billion of assets under management you reference is in our direct lending or our direct lending business.

So of course we have liquid credit, alternative credit, other credit strategies that would be on top of that eighty billion.

But I think it's it's well documented.

We had a successful fundraise during twenty twenty four, you know, that's all public information.

It was our biggest fundraise today.

There was a lot of investor demand for that fund, and just the feedback we're getting from investors is there's no let up in that kind of appetite.

I mean, investors like the yield, they like the low volatility, they like the low losses that private credit has demonstrated over many, many years, both in the US and Europe.

So I personally can't see that growth abating anytime soon.

That fund you reference my thirty billion euros.

I mean, that's the biggest of its kind.

When we've got all that cash slushing around, what's the pressure to deploy?

You know, in the US, we're not seeing enough deals to actually get into.

Yeah, And I think that's something that we're obviously very mindful of.

I mean, the critical thing in direct lending is to make sure that you are seeing the widest opportunity set that you can see.

And we've invested very heavily.

Yeah, every year since we started the business in seven, we've invested very heavily in our origination capability.

So the critical thing is seeing as much flow as you can across across the European jurisdictions in which we operate, and to give you a sense, we now operate across seven real core jurisdictions.

We see fourteen hundred different deal opportunities a year from the circa one hundred investment professionals that we have out in those markets originating for assets.

So you know, given that flow and with a selective rate of say three to five percent, that's really conversion rate of deals seen to deals completed.

You know, with that kind of flow, we don't feel that compelled for any particular deal opportunity.

I EI.

There's no pressure to deploy.

And you know, if you want to talk about kind of market market activity, it's interesting there's a lot of headlines around lack of m and a, et cetera.

And whilst that might be the case at the upper end of the markets that we look at, when we think about the core middle market, you know, we're actually see quite a buoyant picture.

You know, market activity started to build through twenty twenty four.

We came into twenty twenty five pretty optimistic.

Yes, of course, around you know, the April the second there was a little hiatus, albeit short lived, and actually volumes have continued to grow into into quarter two and we remain pretty optimistic for the rest of the year.

So I would say middle market volumes have been much more robust than maybe some of the headlines would lead people people to believe.

What does middle market mean to you now, Mike, because one guess recently described a billion dollar transaction as a middle market deal.

Is that what you're seeing?

That's interesting?

I would probably say that's more upper upper market than the middle market.

I mean, look, I think a lot of the transactions that we would consider middle market are companies with eb DA of say ten to one hundred million euros pounds of eb DA, And really you can you can kind of define it as a market where there is a less or a less of a bid from the capital markets.

Let's put it that way.

Let's you know, where the syndicated loan markets, the high yield markets are less interested, and that tends to be as I say, ten to maybe seventy five, ten to one hundred million of eb da, that's what I would classify as the middle market.

And so when you talk about that competition.

I mean, the banks are very active, your colleagues have said that so retrenching and private debt will supplant them.

But at least in the broadly syndicated loan market, bank debt has been super cheap lately, unitranch lenders are struggling to compete.

What's the tension there, you know, is that only for bigger deals, in which case do you go for the smaller ones?

What's your advice for private credit lenders in this environment?

Yeah, Look, I think we saw in twenty twenty four capital markets become much more active in Europe.

We saw record clo issuance, and therefore there is more liquidity in that market than there has been for the last couple of years, that's for sure.

Twenty twenty five we've continued in that same in that same vein.

So for those larger issuers there is now more choice.

There is a choice between a broadly syndicated loan or high yield deal in the public markets and a private credit alternative.

And I do stress there is still an alternative, and actually private credit providers are still being relatively successful there.

And we've talked before, James about the convergence between private and public credit markets.

And I think that that continues.

Albeit the bid as I say, the bid from the capital markets is pretty strong today and you have seen spreads compress.

But the strategy that we've always had, and again this goes back to the size of team, that we have the ability to assimilate a lot of deal flow, a lot of deal opportunity.

The fact is that we can pivot from the upper end of the market to the lower end, to the middle part of the market depending on where we see best relative value.

And I would argue today, given the liquidity that exists for those larger issuers, I would say the best relative value sits in those slightly smaller companies.

And that's again, you know where our heritage is.

That's where we've built our business in Europe over the last seventeen eighteen years.

But you need good, well developed infrastructure for that.

You know, you need a lot of people, you need local officers, you need a good origination engine to make sure you see a lot of that middle market deal flow.

And that's that's I think an advantage or a benefit that we're seeing today.

That's interesting because some of the bigger US competitors, we taught to.

You know, we had a guest from HPS recently talking about risk in the middle market, and that's where they see all the risk lying really, you know, in terms of you know, where where the trouble is because they think the bigger deals are going to be safer.

They're obviously more liquid, and they're more transparent, and they're they're better you know, players to whether the volatility ahead.

But you're seeing the other side of that.

Well, Look, it depends how you depends how you define safer.

If you look at the quality of the companies.

Look, I'm not going to argue if you're a half a billion euro eb DA company with lots of diverse revenue streams, geographically different product lines, et cetera.

Of course there are some really good credit metrics or credit characteristics to those kinds of businesses.

However, there are still very very high quality businesses just at that smaller and let's not forget when you're looking at each of the markets in Europe, it's very different to the US.

Right, a thirty to fifty million EBITDA business in a domestic market like Germany or the UK, etc.

That could be a market leader in a niche it's unlikely to be a market leader in the US just given the size of the US economy and the markets over there.

So I think middle market doesn't mean necessarily small and more vulnerable smoke stroke in increased risk.

And the other thing that you need to quantify or think about is just that the deal structures that are available to lenders in that part of the market.

Right we are still seeing financial maintenance covenants on deals in that part of the market.

You're still seeing quite restrictive documents.

From a cash leakage perspective, you know, there are lots of elements in the governance and the controls and the terms on those deals which I would argue make the structures safer, despite the fact that you may argue that that that the credit quality of the businesses is slightly is slightly lower, which again I would push back on that notion because I think so there's some very very high quality businesses in the middle market.

And again just from a structural point of view, you know, when you're structuring deals to thirty forty percent loan to value, lots of equity cushion beneath you.

Firstly, in security protections, et cetera.

Again, I would push back on the notion that that is somehow a much riskier place in the market to play.

Mike, as a bank's analyst, private credit, to me, is still quite an opaque sector with lots of well basically it's it's it's a label that covers a lot of different types of products, different types of lending.

Which of all those various products has the highest growth potential?

Is it vanilla mid market lending, is it leverage finances, infrastructure?

Is it something else?

I think they've they've all got, you know, really good growth prospects.

And you know, areas as you've just mentioned some of the products there.

Areas is very active in direct lending.

It's active in alternative credit, which is financing of financial assets, portfolio of financial assets.

It's active in infrastructure debt, is it's active in real estate debt.

And you know what all these these strategies have in common is the fact that they're all benefiting from banks shedding assets.

Right there is an asset transfer going on here between banks balance sheets and balance sheets of institutions like areas.

So you know that that bank or that asset shift, you know, we're still that's still not fully played out and we can see that quite clearly in all those strategies that we that that we're active, that we're active in.

So I wouldn't pick one, to be honest, Jeran, I would.

I would actually argue that each of those those product strategies have have excellent growth prospects.

What about the fence might that's a massive theme for Europe across the board, trillions dollars of spending potentially.

How much is private credit going to get involved there?

Yeah, that's a really interesting question, James.

You know, we are starting to see more defense opportunities come across the desk.

I mean, I think that's that's obvious given the spending commitments that the governments in Europe have made.

That said, I think, you know, we would tend to be cautious in the sense of, you know, we need to listen to our you know, what our LP's appetite for those types of businesses are, and it's not it's not a sector historically that's been kind of a favorite of private credit providers.

That's not to say there aren't some very good businesses, quality businesses in that sector.

So I think what you'll find is that selectively private credit providers will get involved in that sector because just the volume of opportunities will increase significantly.

What's the caution around, like, is it ESG related or what's the pushback?

I think some some LPs would absolutely say from any SG perspective, they wouldn't want to get heavily exposed to the defense sector.

And of course, you know, using you know, a wide definition of defense isn't necessarily that helpful either, right because you can have companies in the defense sector at one end, which is involved in munitions et cetera.

That's very different from other defense you know, businesses that perhaps are not involved in that kind of area.

I mean, I've heard the argument that defense is actually very ESG because you know, you're keeping the peace and defending your country and it's all good for society.

But depends on your point.

I've heard that arguments as well, James.

In terms of your your being on the ground, being local, all that stuff.

You recently opened up an Italy office.

Keen to know more about that, you know why?

Now?

Yeah, it's we have just announced it very very exciting development for our business in Yoururope.

I think a lot of the themes that we're seeing in Italy are the themes that we saw playing out in other markets where we open officers, you know, as I say, in the Nordics, the Benelux, Madrid, Amsterdam in twenty nineteen, we're seeing in Italy.

Of course, Look, it's a it's a big economy.

There are some great companies in the Italian market.

We've been investing in Italy for the last couple of years, just kind of testing the market, and we now feel we're at a position where we can really scale that business.

We think the domestic private equity market in Italy is growing.

We think there's a lot of Pan European private equity players becoming more interested in the Italian market.

So deal flow is ramping quickly.

And whilst Italian banks have been more active for longer, we do start to see the Italian banks pulling back a little bit.

So with those ingredients, I think now is actually a really good time to invest in that market.

And as we have done in other jurisdictions, you know, once we're serious about a market, then we will invest and we will have a local team on the ground.

So that's that's very much the plan.

But the legislation there hasn't been super friendly towards private credit.

A lot of lenders haven't really ventured that far into it, and you know, so we've gone from very little activity there to suddenly, you know, quite a lot, but it's still relatively small versus the rest of Europe.

And you know, the deals that are getting done, we're seeing a lot of leverage, quite cheap pricing.

And then we've got a lot of companies you know, still in by the founders or have gone through one or two rounds of pe ownership rather than three or four like in UK of France.

They're seen as less sophisticated, possibly riskier, and then you know, on the other side of the restructuring is very painful in Italy as you know, so you know, to what extent are you are you having to manage all those risks and how how are you coping with that?

Yeah?

I think you make some good observations, James, which is why you know, we are selective in the investments that we're making in Italy, because we are mindful of all those those those issues.

I would say from a restricturing perspective, actually the situation is getting better any I think that regulators, central banks, they they do want to encourage a diversification of supplies of capital, you know, that's that's the issue we had back in two thousand and seven is that you know, banks dominated the market and there was no alternative.

So I think I think regulators, central banks are keen to try and entice other providers of capital into these markets.

I think that just makes for a healthier a healthier market.

So you're right, there are still considerations around the Italian market that that that we're congnisant of, but also we're finding some really interesting deal opportunity and as I say, now, we think the time is right to have a team on the ground because actually having a team on the ground, the diligence issues that you just talked to, you know, you can mitigate a lot of that risk.

You know, if you if you're on the ground, you're close to the management teams, you're close to the advisors, you know what's going on.

I think you can mitigate a lot of the diligence concerns that you that you just outlined.

Mike, you you mentioned the banks in Italy, and I'm interested in the relationship between a private credit and the banking sector.

Is it is it a zero sum game whereby private credit wins and banks lose in terms of the lending or other instances whereby you you could team up.

I believe that you flagged multi channel origination strategy.

I don't believe banks are part of that of that of that mix, but could you talk a little bit about that.

Yeah, we we view the banks very much as partners.

I mean we always we always have In every deal that we do, the company in question is going to need a banking relationship, it's going to need working capital facilities, it's going to need banking transmission and other non risk product.

So we work with banks on every deal that we do in some capacity or other.

I think taking a step back in terms of how we're working with banks, and you say zero some game, I really don't think it is.

I just think that banks are choosing to access this asset class in a different way.

And what I mean by that is it is more cost effective from a regulatory capital point of view for them to access this market through pooled asset risk i e.

Providing leverage facilities to managers like areas they can provide us with leverage for some of our funds where where LPs want that levered product and they can access that much more favorable regulatory capital treatment than they can if they were lending bilaterally to these middle market companies.

So I actually think it's a win win, and we're seeing increasing appetite from banks to lend to managers like US.

We've got some very deep and good relationships with a number of banks across Europe to provide these kind of facilities.

So I just think it's banks accessing the asset class in a different way.

Deron.

I don't think it's necessarily a zero some game.

Okay, okay, thank you for that.

Now you mentioned the capital treatment.

Trump's new administration.

As we all know, you know that they are thinking about postponing Basil three end game as they call it over in the US, possibly and definitely you know regulates in Europe they may follow.

And you know, for instance, today you saw the UK.

In the UK, you saw the postponent of the aspects of Basil three point one.

Is there a possibility that the pendulum is swinging back towards bank deregulation and as a result of that banks being able to compete more effectively with the prior credit.

Yeah, I think there's two things to think about on top of just the regulatory capital treatment of the assets.

I think the first is the human capital element, right, so you know, too, to have an origination capability, you need to invest in people, in officers, in infrastructure, et cetera.

That's a fixed cost.

And question do the banks have appetite to reinvest, if you like, in all the fixed cost around those origination teams that they might have had pre the GFC.

So I think there's a there's a question mark there whether they want to take on that that that cost today when, as I say, they can access this asset class in other ways, and I think, you know, building that capability up will take will take time.

You know, talent is incredibly scarce in this market.

You know, I think having a well built out, robust and resilient team is actually a big competitive advantage because finding talent is not is not is not that easy.

So I think that's the first thing.

And then the second thing is just if you look at the scale of some of the institutional managers in the market relative to the just the bank's balance sheets that they would have to allocate to this asset class.

Again, you know, when you're thinking about institutional managers direct lenders investing one two, three, four hundred, five hundred euros per asset.

Is that something that the banks can offer even with the more favorable regulatory treatment.

I'm not so sure.

You know, the balance sheets just aren't as big, or the allocations to this asset class from these balance sheets aren't as big as some of the some of the managers that operate in these strategies.

Now, can we talk about returns in terms of you know, how that's changed over time, because we were chatting with PIMCO late last year about this kind of idea that there should be roughly two hundred bases point pick up, you know, for your inloquidity on a leverage deal in private versus public.

Obviously there's not an apples to apples comparison because you know they're different deals and all that.

But you know, investors still want the return.

They still want to kind of get their arms around how much more am I going to get for this lock up and this lack of visibility?

Where are we at now in Europe and how is that changing and where is it going?

I think the I think the relative value or the spread differential, the return differential to the liquid credit markets is still pretty robust.

You know, if you go back over a decade, we've seen that that pickup or illiquidity premiums as you put it, James, you know, we've seen that well over two hundred basis points in both the US and Europe.

And that's actually that's been that's been preserved over time.

And let's not forget the other important aspect of economics for private credit or direct lenders is that capture of the upfront the upfront fee, which you know is anywhere between one and a half two and a half points in Europe today, So there's that added economic benefit where you're originating the assets yourself.

So if you if you include that that oad or arrangement fee with the spread differential, there is still a you know, kind of multiple one hundred basis points pick up or illoquisity premium for investing in these direct lending assets relative to liquid credit.

But as the demand intensifies, you know, everyone loves private credit, everyone loves Europe.

Now you know what stops that all getting eroded?

Yeah, well, again it goes back to just the underlying growth in the market.

So you know, how much growth is there an opportunity set relative to the capital that's available to invest in these deals.

I think that supply demand dynamic is not out of kilter.

And therefore, I think if you've got a good origination engine and you're willing to be selective in the deals that you invest in, that you could still find you know, good relative value and good yield for your investors.

And there's no need to sacrifice terms.

You know, you're not having to loose some covenants or get rid of all those protections you mentioned earlier.

There's not a pressure to do that.

Look, the market, the market is competitive.

I'm not trying to suggest that we have it all our own way, James, but I would say that the terms the governance, especially in that middle market, are still very reasonable relative to the risk you're taking in these structures, which are, as I said before, you know, thirty forty percent LTV.

You know, call it four five times cash flow.

Mike, can I talk.

I'll ask you a little bit about loan book quality, which on the bank side has been has been tested in recent years, and I'm guessing for private credit providers the same rates short up in twenty twenty two to twenty three and then they started to come down last year.

Probably they won't return to the levels that we saw before twenty twenty two.

What has been your portfolio experience so far.

Yeah, we're pleased with the portfolio performance.

I mean, I think as an asset class, it's interesting.

You know, the argument made five six years ago was that private credit really hadn't been tested.

And we sit here today having been through COVID, having been through an interest rate cycle, and actually, when I speak to my peer group, my competitors, people's loan books have performed, have performed pretty well, and actually lost rates have been you know, very very low through that those cycles.

So I think we're sitting in a position now where we can safely say to our LPs, I can say to you that actually the asset class has been tested relative to where we were sitting in twenty nineteen, and the loan book, yeah, the loan book is performing, is performing well.

I go back to during something I said earlier, which is, you know, we're looking to back businesses that operate maybe in smaller niche markets, but these businesses are growth businesses.

You know, these businesses are not necessarily linked to macro fluctuations, and it is typical in these direct lending deals to see businesses growing their revenues and eb da you know, in the double digits with very high levels of cash generation.

That's the other thing obviously you need to think about is that, you know, these are typically asset light businesses where they're converting EBDA to cashlow that are kind of eighty to ninety percent.

If you're in that type of business, then actually you can weather you know, most storms certainly in terms of interest rate cycles, et cetera.

That the cash generative nature of these assets meant that they were pretty well placed to perform through through the last couple of years.

How exposed Michael your borrowers to the whole trade war?

You know hasn't really shown up over here that much, but you know, Donald Trump could wake up tomorrow and impose one hundred percent tariff on EU if he wants.

We don't know, he could, who knows, who knows what is next to his next move is.

But no, of course looks as prudent credit managers.

I mean, the first thing we did on April or third is go line by line through our portfolio and look at where potential first order or second order impacts might might exist.

Again, you know, go back to the types of companies that we're investing in.

These tend not to be you know, manufacturing businesses with complex supply chains that that that that trade internationally.

These tend to be more domestic businesses.

So whilst I don't think any portfolio is is wholly immune to some of these macro impacts, I mean, you know, if if if Trump wanted to put you know, Taris up, that created some kind of global recession.

I'm not arguing that any portfolio would be totally immune, but I am saying that on an asset by asset basis, it is difficult to see what the first order impacts might be from from Taris.

The companies that we've invested in just aren't you know, aren't that that that that exposed.

Okay, going back to the European market for private credit and to get a little bit in the weeds, unitrand clubs are kind of the way that people there seem to seem to have accepted that's the way things go.

Areas hasn't done that.

Many just wondering why, you know, what's what's the issue with that structure.

Yeah, we just we have done some of those club deals.

You know, our preference, especially in the middle market where that the the loan sizes aren't that significant relative to the the appetite or capability we have, the preference would be to be soul lender and to have that bilateral financing relationship with the the borrower.

I think at the upper end.

Yes, you're right, there's been an increased number of unitranch club deals, but we've been we have been acting in those as well.

I guess relative to the amount of deals that we do in any particular year and the fact that we're focused on the middle market, it might look like a smaller percentage, but we've still been active.

So where are the problems?

Then?

You know, people do worry about private credit.

Maybe they worry too much, but for example, you know, software technology was a big recipient of private credit over the years.

People worried about how those businesses will do as the use of AI accelerates.

Do you expect a big issue in that sector particularly.

I'm not sure about that sector specifically.

I mean, we've done a little bit in that space, but yeah, Look, I think AI impacts businesses in every sector.

I don't think it's just limited to software and technology.

I think AI has the potential to accelerate change in most sectors that we all operate in.

So I think any good credit manager is having an eye to AI impacts on all their assets, not just not just in the software and technology technology space, and actually how AI can be used within our businesses to create efficiency and competitive advantage, whether it be an origination or portfolio management.

I think you know, we're obviously exploring how we can use AI to our benefit as well.

So there's not just a bunch of dodgy software loans out there that are going to blow up.

I mean that seems to be the assumption from some corners.

I wouldn't have thought so, James, No, okay.

In terms of the risks, though, we are hearing a lot more about payment and kind other kinds of issues that are right.

Obviously they can be good pick, but there's also bad pick.

As the economy slows and rates stay high, to what extent you seeing worrying signs in private credit right now.

Generally across the market, we're not seeing an increased use of pick or I think what you're referring to James's pictoggle mechanisms in transactions It's true that pic toggle mechanisms have become more market standard in deals, and I think you know, financial sponsors now ask for those as a matter of course.

But then the question is, you know, how are they being used or are they being used more frequently?

We're just not seeing that.

And the reason that you're not seeing that is typically, you know, these pictoggle mechanisms are controlled, they're not necessarily always available for the life of the loan.

They are expensive to use.

So again the notion that you can just pick the coupon without any financial or economic penalty, that's not right.

It does cost borrowers more to use these mechanisms, and I would have thought that most managers I know our view is that, you know, you would always protect a minimum cash yield in any event.

So whilst this mechanism, I can't argue that they don't exist in documents today.

They do, but we're not seeing a proliferation of their usage because of the controls and the economic penalty that's associated with them.

Mike, could I ask about all terms of asset managers.

You know that they're increasingly trying to attract retail investors into the space as opposed to the institutional money that has been driving growth and au M until now.

For instance, areas you know yourselves, you've launched a European credit fund for for wealthy individuals.

What what are the risks around that development.

I think it's a huge opportunity Jerane, to be honest, because I think you know, there's there's there's huge amounts of assets that still sit in the in the wealth management channel, and to date it's been harder for individuals to access directly access these types of asset classes.

So I think, you know, these types of products are you know, being well received by the wealth management channel in general, and we see in the future, you know, quite strong growth opportunity the business in Europe, and I would say European managers in general are much more weighted to institutional capital at this point, and the European retail channel is more nascent, but it is fast growing, as you you know, as you outline, and I think when you start to introduce retail money and capital into the system, then yes, I think you then start to think about regulation just the regulator take more of a kind of interested view.

But again, you know, we the regulator to date, I think quite rightly has been focused on transparency, valuation, et cetera.

All the things that actually most private credit managers are doing and are doing pretty well in my in my opinion.

But would you expect regulators to introduce oversight to the proud credit sector?

Do you expect regulars to come up with additional requirements at some point?

And have you got some sort of a dialogue with regulars already?

And we have very get a very regular dialogue with with regulators.

I think it's it's good for you know, transparency.

They're still learning about the asset class.

We're very happy to help them on that that that journey.

So you know, we've got regular dialogue.

There's nothing that I know about that's in the system about oversight, et cetera.

But at this point, I think it's just incumbent on us to provide that transparency and education about the asset class.

So in terms of your platform, mate, I mean, you've got a massive amount of cash and you've got boots on the ground, and it all seems like a pretty optimistic outlook at least the way you're expressing.

But what's your edge in terms of you know, how do you position and maintain dominance in the space and you know, keep ahead of the pack.

Yeah, we continue to invest in our business.

I mean, I think that's something that people have seen year in year out since we started.

You know, we continue to grow the team, both in our origination capability, in our portfolio management capability.

As you've highlighted, we're opening in the land this year and that's really to make sure that we are seeing the biggest opportunity set that we can see.

And then our edge, I think is the ability to be selective underwright well and pivot between the different segments geographies in this market depending on the best relative value.

You can only do that with a lot of people.

And as I say, we've got close to one hundred investment professionals today across our platform in Europe and that will continue to that will continue to grow.

Where's the next office in Europe?

Opening?

Good question?

Yeah, Look, we've looked at and we continue to look at some of the central Eastern European markets.

You know, I think there's some really interesting growth coming out of maybe Poland, Czechoslovakia or the Czech Republic.

There are some interesting economies in the in the in the CE and a developing capital markets or financing markets.

I don't think we're quite ready to expand there now, but but you know, in the in the future.

Who knows where's the best relative value right now?

I think in terms of activity levels.

I'll frame it like that because I've talked about the best relative value I think being in the kind of middle market.

But from an activity perspective, you know, we're seeing really good activity across some of our continental European officers, you know, Germany, the Nordics, etc.

They're very active at the moment.

But relative value, I think from a risk return perspective, I just think because of the liquidity that exists in the capital markets today, I do think it's in that slightly smaller middle market.

But if you have to drill down all the way to country and sector, mic, what would it be.

I'm not going to get drawn on that, James, And we look at every asset on its merits, and who knows what's going to come across the desk tomorrow.

You sound very optimistic though, which is, you know, very encouraging and it's great to have that view express But is there anything at all that worries you out there?

I mean, you know, we hear a lot of concerns.

We're credit people.

We worry about everything.

So what keeps you up at night?

Mike, Well, of course, I mean you've mentioned it.

Of course, you know Trump and you know whatever he does next.

I mean it's it's you know, it's very hard to predict, and credit managers don't like things that they can't predict or control, so that has to be a concern.

Albeit, I think you know, the types of investments and that we're making are somewhat insulated here in Europe.

But but of course, but of course you know that that that introduces uncertainty.

Other than that, I think I talked about this on the last time we spoke, James.

Is just just talent, and as say, it is scarce.

Retaining and looking for good talent is difficult, and once you've amassed a team like we have, you know, I'm very proud of the team that we've built over the years.

It is it is one of our competitive advantages that that's for sure.

And expensive we're hearing as well well.

I couldn't comment.

Great stuff, Mike Dennis with Airies, Thank you so much for joining us again on the Credit Edge.

Thanks Jake, and of course we're very grateful to you.

Run Julius with Bloomberg Intelligence.

Cheers.

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