ABOUT THE SECONDARIES. WHEN WE TALK ABOUT PRIVATE
CREDIT, IT IS OBVIOUSLY MUCH BROADER THAN IT USED TO BE HERE.
A CERTAIN PART OF LENDING WILL GO TO THE MIDDLE MARKET.
MAYBE CERTAIN ASPECTS OF IT. THERE IS A SECONDARY SPACE.
USUALLY HIGHER-QUALITY THAT THEY ARE USUALLY CHASING AFTER.
>> OVER 6 TRILLION DOLLARS DEPLOYED IN PRIVATE EQUITY.
TODAY THE NUMBER IS NORTH OF 10,000 COMPANIES.
THE INVESTMENT UNIVERSE IS NOW MASSIVE.
YOU HAVE PENSION FUNDS AND OTHER ASSET ALLOCATORS THAT
HAVE EXPOSURE ON THEIR BALANCE SHEET TO THE PRIVATE MARKET.
THERE ARE PUBLIC MARKETS. BOTH 2022 FIXED INCOME AND
EQUITY PORTFOLIOS CAME DOWN PROBABLY 20%, FIXED INCOME 15%.
YOU HAD TO PAY ATTENTION PULLING IT FROM YOUR LIQUID
ASSETS.
SUDDENLY THEY ARE FINDING THE DENOMINATOR EFFECT OVER
ALLOCATED TO PRIVATE MARKETS. SO THEY WILL CALL A SECONDARY
LENDER AND SAY, SHOULD I TAKE SOME OF THIS OFF THE BALANCE
SHEET. PARTNERS WILL COME IN TO PICK
WATCH -- WHAT PARTNERS AND MANAGERS I WANT.
TAKING INTO CONSIDERATION
CURRENT OF -- THERE ARE NOT ENOUGH MANAGERS IN THE
SECONDARY SPACE IT TO ABSORB ALL THE VOLUME AND DEMAND.
IT'S BEEN A GREAT TIME TO GET THE PRICING. ROMAINE:
A LOT OF DEMAND CAME FROM BIG INSTITUTIONS.
NOW WE ARE SEEING INDIVIDUAL INVESTORS ENTER THE SPACE.
A LOT OF COMPANIES OPENED PRODUCTS TO A LOWER TIER ON THE
INCOME SPECTRUM.
>> SELLERS TEND TO BE INSTITUTIONS AND HISTORICALLY
BUYERS TEND TO BE INSTITUTIONS. WE HAVE BEEN VERY SUCCESSFUL
BRINGING IT TO THE REGIONAL WEALTH CHANNEL.
IT'S A GREAT WAY TO GET EXPOSURE TO THE PRIVATE EQUITY
MARKET WITH A DIVERSIFIED PORTFOLIO.
ALSO YOU HAVE WHAT THEY CALL THE J CURVE.
WHERE YOU FIRST INVEST IN PRIVATE EQUITY THE FEES MAKE IT
SO THEY $100 INVESTMENT MIGHT BE WORTH $95 FOR A TIME.
THAT SMOOTHED OUT IN THE SECONDARY. ROMAINE:
WHEN THE STRATEGIES REALLY BECAME POPULAR IT WAS BECAUSE
OF A LOW RATE ENVIRONMENT. THE IDEA THAT THE YIELD AND
RETURN YOU CAN GET PARTICULARLY IN THE FIXED INCOME SPACE IS
NOT THERE. SO YOU NEED A BETTER DIVERSIFIER WITH A BETTER
RETURN. DOES THAT INCREASE IN INTEREST
RATES OVER THE LAST OR CHANGE THE APPETITE? JENNY:
IT HAS THE POTENTIAL TO CHANGE IT IN PRIVATE EQUITIES.
SECONDARIES ARE REPLACING IT AT THE TIME THEY PURCHASE THE
PORTFOLIO SO THEY CAN TAKE INTO CONSIDERATION INTEREST RATES.
I THINK YOU WILL SEE SOME OF THE MODELS THAT WERE JUST ABOUT
LEVERAGE WILL BE HARDER. THOSE THAT WERE MORE ABOUT
RESTRUCTURING AND FIGURING ABOUT -- OUT THE BEST WAY TO
MANAGE THE BUSINESS WILL STILL BE SUCCESSFUL EVEN WITH HIGHER
RATES. ROMAINE: WHAT ABOUT STRAIGHT FIXED
INCOME? THE IDEA OF SO MUCH CASH MOVED
INTO SHORT-TERM TREASURIES, BASICALLY, CASH INCREMENTS.
JENNY: FINALLY YOU ARE GETTING PAID TO
OWN FIXED INCOME WHICH IS TERRIFIC.
A MONEY MARKET FUND CAN GET 4.75% HIGH-YIELD.
YOU CAN GET 9%. YOU CAN GET LIQUID ASSETS
IMPACTING OUR PRIVATE CREDIT. IF THEY HAVE NOT HAD THE KIND
OF DEALS TO INVEST IN SINCE THE GLOBAL FINANCIAL CRISIS.
THE CHALLENGE IS THAT THE TRADITIONAL FIXED INCOME MARKET
ON THE LIQUID SIDE IS ACTUALLY PAYING GREAT RETURNS.
SO, THE VAR IS A LITTLE HIGHER TO DECIDE WHETHER YOU WANT TO
TIE UP THAT CAPITAL OR STAY SHORT AND INVESTED IN
TRADITIONAL MARKETS. ROMAINE: IT RAISES THE QUESTION ABOUT
HOW CLIENTS ARE LOCATED NOW. THERE WAS CONCERN ABOUT THE
LAST BULL MARKET CYCLE. EVERYBODY WAS IN STOCKS AND
PEOPLE WOULD JOKE ABOUT BEING 99% OVERWEIGHT IN U.S. EQUITIES.
OBVIOUSLY A LOT HAS CHANGED. I AM CURIOUS, THE MIX WE ARE
SEEING NOW IN ALLOCATIONS, DOES THAT HEARKEN BACK TO THE MIX WE
SAW HOT -- PRIOR TO THE GLOBAL FINANCIAL CRISIS AND.COM BOOM.
J.: A PENSION FUND USUALLY TRIES TO
TARGET 6.5 PERCENT 7% RETURN. THEY HAVE ONE THIRD OF THEIR
PORTFOLIO NOW INVESTED IN FIXED INCOME AND THEY CAN ABSOLUTELY
ACHIEVE THAT RETURN TAKING RISK OFF THE TABLE.
ONE OF THE ISSUES UNDER APPRECIATED AT A TIME WHEN
INTEREST RATES WERE ZERO WAS TO GET RETURN YOU HAD TO MOVE UP
THE RISK CURVE. NOW THEY CAN BRING THAT BACK A
BIT.
ROMAINE: THE RISK WE TALK ABOUT, IS THAT
TRANSPARENT ENOUGH? I AM TALKING SPECIFICALLY ABOUT
PRIVATE MARKETS. JENNY: THE RISK FOR THE PRIVATE
MARKET, I AM NOT SURE. THE RISK IS LIQUIDITY, RIGHT?
BECAUSE, YOU ARE MAKING, YOU KNOW, A PRIVATE LOAN, IN MANY
WAYS. BECAUSE OF THE BANKS ARE NOT
LENDING AT THE SAME LEVEL. THEY ARE GETTING EVEN GREATER
RETURNS FOR THE SAME RISK LEVEL. THE QUESTION IS, DOES THE
INVESTOR UNDERSTAND IT? TIM:
WHERE -- ROMAINE: WHERE IS THE QUIDDITY?
RIGHT NOW IT SEEMS ALL THE LIQUIDITY IS COMING FROM ASSET
MANAGERS IN THE PRIVATE SPACE LOOKING TO PUSH THE INSTRUMENTS.
WE DON'T HAVE A FED LIQUIDITY ANYMORE AND WHAT WE HAVE SEEN
IN PUBLIC MARKETS CHANGED AS WELL. JENNY:
THERE IS A RISK BANKS WILL NOT KEEP LENDING IN THE SAME WAY
THEY WERE LENDING. FROM A LENDING STANDPOINT THAT
WILL BE COVERED BY PRIVATE MARKETS.
THE QUESTION IS, IF YOU ARE A MIDSIZED COMPANY CAN YOU GET
ACCESS TO MARKETS AND WHAT IS THE COST OF THE ACCESS IS THE
BANKS ARE NOT CONTINUING TO LEND IN THE SAME WAY.
SYNDICATED LOANS. WE NOW REQUIRE A BANK TO KEEP A
PORTION OF THAT EQUITY ON THEIR BALANCE SHEETS.
IT'S VERY EXPENSIVE AND PRIVATE CREDIT MANAGERS DO NOT HAVE THE
SAME REQUIREMENTS.
ROMAINE: I AM CURIOUS ABOUT WHAT CLIENTS
ARE ASKING YOU ABOUT THEIR WORRIES ABOUT THE ECONOMIC
ENVIRONMENT. JENNY:
CLIENTS ARE ASKING, OBVIOUSLY, BIG MARKER THINGS.
U.S./CHINA RELATIONS. WHAT DOES THAT MEAN?
WILL THEY'LL BE RESTRICTIONS ON CERTAIN INVESTORS FROM
INVESTING IN CHINA? WHAT DOES THAT ULTIMATELY MEAN?
I DON'T THINK ANYBODY SEES AN END IN SIGHT FOR THE WAR
BETWEEN RUSSIA AND UKRAINE. WHAT DOES THAT MEAN FOR ENERGY
AND FOOD SECURITY? THERE IS HONESTLY A LITTLE BIT
OF A DIVIDE YOU ARE STARTING TO SEE BETWEEN FRIENDS OF THE