So once again, we're seeing rates rise, although not full points every three
So once again, we're seeing rates rise, although not full points every three

weeks. But still they're going up, probably
weeks. But still they're going up, probably

gonna go up again next week. What does that mean in a broader sense
gonna go up again next week. What does that mean in a broader sense

for investor? I mean, this is a different world than
for investor? I mean, this is a different world than

we've seen for several years now. Yeah, well, look, I think for if you
we've seen for several years now. Yeah, well, look, I think for if you

look at a longer time period, think of it from a strategic point of view.
look at a longer time period, think of it from a strategic point of view.

Investors have been investing really in equities and very little in fixed income
Investors have been investing really in equities and very little in fixed income

for 15 years. And people have moved away from negative
for 15 years. And people have moved away from negative

interest rates. They've blocked private credit.
interest rates. They've blocked private credit.

They've put private assets. They've put equities.
They've put private assets. They've put equities.

You know, assuming that that's where the return was going to be.
You know, assuming that that's where the return was going to be.

So now you're in paradigm shift and, you know, you can't say, well, this is what
So now you're in paradigm shift and, you know, you can't say, well, this is what

to do with my money tomorrow, but over the next 18 months, you're going to see
to do with my money tomorrow, but over the next 18 months, you're going to see

significant shifts of capital into the fixed income complex.
significant shifts of capital into the fixed income complex.

That will include longer duration securities, that will include high yield
That will include longer duration securities, that will include high yield

securities, that include investment grade securities, which for the first
securities, that include investment grade securities, which for the first

time will actually be attractive and include the short duration complex as
time will actually be attractive and include the short duration complex as

well. I also think, interestingly enough,
well. I also think, interestingly enough,

emerging markets has got to be a place we look at.
emerging markets has got to be a place we look at.

Emerging markets are down the Andes down 20 percent, maybe 16 percent as of
Emerging markets are down the Andes down 20 percent, maybe 16 percent as of

today. And it's probably got a yield of 8
today. And it's probably got a yield of 8

percent into next year if everybody's predictions are wrong and the Fed
percent into next year if everybody's predictions are wrong and the Fed

doesn't raise rates by much. Everybody thinks it's going to go down,
doesn't raise rates by much. Everybody thinks it's going to go down,

then more than likely you're going to see some recovery in emerging market
then more than likely you're going to see some recovery in emerging market

debt and that could yield 8 percent plus some price appreciation to 10.
debt and that could yield 8 percent plus some price appreciation to 10.

So, frankly, you know, that's a place where I don't think people are looking
So, frankly, you know, that's a place where I don't think people are looking

and I think probably there's some thought if you didn't take what Peter
and I think probably there's some thought if you didn't take what Peter

said does and ultimately does that end up in cash because that's the shortest
said does and ultimately does that end up in cash because that's the shortest

term investment. You can move them around quickly and
term investment. You can move them around quickly and

maybe you have to get ready for a bounce back in 18 months.
maybe you have to get ready for a bounce back in 18 months.

So I think it depends on who the investor is.
So I think it depends on who the investor is.

I think for investors that are much less risk tolerant, that if they're and I'm
I think for investors that are much less risk tolerant, that if they're and I'm

taught from the respect of individual investors, if they're older, if they're
taught from the respect of individual investors, if they're older, if they're

in retirement, they were forced way out the risk spectrum and a zero interest
in retirement, they were forced way out the risk spectrum and a zero interest

rate environment. And for anybody that doesn't have a high
rate environment. And for anybody that doesn't have a high

risk tolerance, that have those liquidity needs, that have the need to
risk tolerance, that have those liquidity needs, that have the need to

live off of income, getting a real yield on a cash like or very short term
live off of income, getting a real yield on a cash like or very short term

security. That's the first time they've
security. That's the first time they've

experienced that in quite some time. But I also agree with Peter.
experienced that in quite some time. But I also agree with Peter.

I think there are paradigm shifts that happen when you go for cycles,
I think there are paradigm shifts that happen when you go for cycles,

particularly when you go through a full cycle where you have an economic
particularly when you go through a full cycle where you have an economic

contraction and you go from a bull market to a bear market and to a new
contraction and you go from a bull market to a bear market and to a new

bull market, there's always that recency bias.
bull market, there's always that recency bias.

There's always that obsession with looking at what had been the leadership
There's always that obsession with looking at what had been the leadership

and feeling that there's not going to be momentum in an asset class like you come
and feeling that there's not going to be momentum in an asset class like you come

back to that leadership. Leadership changes.
back to that leadership. Leadership changes.

I think there is opportunity in fixed income.
I think there is opportunity in fixed income.

I think there is opportunity international.
I think there is opportunity international.

We've got to look through the windshield, not the rearview mirror.
We've got to look through the windshield, not the rearview mirror.

It's interesting. I just saw a note from Rock Creek.
It's interesting. I just saw a note from Rock Creek.

I've seen it. Beschloss is a note that said something
I've seen it. Beschloss is a note that said something

I hadn't focused on, which is actually one of the winners this year has been
I hadn't focused on, which is actually one of the winners this year has been

Latin America. The Latin America has done surprisingly
Latin America. The Latin America has done surprisingly

well. I've not been paying any attention.
well. I've not been paying any attention.

Let American on, I say. Obviously, commodity driven, oil driven,
Let American on, I say. Obviously, commodity driven, oil driven,

that that's what is driving that. But look, I don't think that we're
that that's what is driving that. But look, I don't think that we're

saying don't invest in equities. I just think that the when you look at
saying don't invest in equities. I just think that the when you look at

the where your money is allocated, you're going to start to allocate more
the where your money is allocated, you're going to start to allocate more

money to the fixed income complex. And pretty much you're going to go
money to the fixed income complex. And pretty much you're going to go

through a pure volatility here where private assets are probably going to
through a pure volatility here where private assets are probably going to

have some challenges. You will go to get a new liquidity.
have some challenges. You will go to get a new liquidity.

They're just gonna have to hold them. So you're going to have opportunity
They're just gonna have to hold them. So you're going to have opportunity

losses there. You've seen some of that already in
losses there. You've seen some of that already in

these large pools of private assets that have cash withdrawals or cash
these large pools of private assets that have cash withdrawals or cash

requirements. And I think you're going to continue to
requirements. And I think you're going to continue to

see that as people try to take their liquidity and get 8 to 9 percent, which
see that as people try to take their liquidity and get 8 to 9 percent, which

they haven't seen for 15 years. So on this program, you've talked about
they haven't seen for 15 years. So on this program, you've talked about

form factor investing. Different factors.
form factor investing. Different factors.

I wonder if one of the factors is ability to service debt.
I wonder if one of the factors is ability to service debt.

And we're starting to see now as the interest rates go up, some companies are
And we're starting to see now as the interest rates go up, some companies are

starting to struggle over the 3 percent that we had carbonate go into a
starting to struggle over the 3 percent that we had carbonate go into a

restructure this week of some of its debt.
restructure this week of some of its debt.

Are you gonna have to look at that factor about sort of excess self funding
Are you gonna have to look at that factor about sort of excess self funding

to strike the balance sheet, high cash, lower debt, the ability to service share
to strike the balance sheet, high cash, lower debt, the ability to service share

that more easily? And you and I were talking before we
that more easily? And you and I were talking before we

came on about you don't you don't wish ill on any company or group of companies
came on about you don't you don't wish ill on any company or group of companies

or their employers. But you know what?
or their employers. But you know what?

What's happening now with this move off the zero bound is not just opportunities
What's happening now with this move off the zero bound is not just opportunities

and asset classes like fixed income opportunities for active operating on a
and asset classes like fixed income opportunities for active operating on a

more level playing field relative to passive.
more level playing field relative to passive.

But I also think price discovery is coming back into the mix reconnection of
But I also think price discovery is coming back into the mix reconnection of

fundamentals to prices and maybe not an environment anymore that just keeps
fundamentals to prices and maybe not an environment anymore that just keeps

zombie companies afloat. For me, year after year and we're going
zombie companies afloat. For me, year after year and we're going

through that. A simple way to think about what what
through that. A simple way to think about what what

we're talking about here is if you look at the various different.
we're talking about here is if you look at the various different.

Credit cycles we've had since really 2000.
Credit cycles we've had since really 2000.

In each case, there are between 150 and 200 defaults.
In each case, there are between 150 and 200 defaults.

And between a thousand and fifteen hundred downgrades.
And between a thousand and fifteen hundred downgrades.

So this is a credit cycle that probably is not as severe as 0 7.
So this is a credit cycle that probably is not as severe as 0 7.

But it's not benign. It's not zero.
But it's not benign. It's not zero.

We know that economy is going to slow. We know revenues are going to are going
We know that economy is going to slow. We know revenues are going to are going

to begin to reflect the financial constraints of the Fed.
to begin to reflect the financial constraints of the Fed.

So what is the default rate? Is it one hundred?
So what is the default rate? Is it one hundred?

Is it 200? Is it, you know, the downgrades?
Is it 200? Is it, you know, the downgrades?

A thousand or fifteen hundred? Is the market price for that?
A thousand or fifteen hundred? Is the market price for that?

Are people ready for that? I don't think so.
Are people ready for that? I don't think so.

And I and I think it's impossible for that not to.
And I and I think it's impossible for that not to.

Well, let's I wonder if people are ready for something else, something that's
Well, let's I wonder if people are ready for something else, something that's

different, I think, than, for example, 0 7 0 8 is how much of it's private.
different, I think, than, for example, 0 7 0 8 is how much of it's private.

Peter mentioned earlier private credit. We have private equity.
Peter mentioned earlier private credit. We have private equity.

We've got a lot of things that are not as discoverable and are not mark to
We've got a lot of things that are not as discoverable and are not mark to

market, frankly. And I wonder if the market's prepared
market, frankly. And I wonder if the market's prepared

for that. There could be more damage out there
for that. There could be more damage out there

than we know exists, right? I think you're right.
than we know exists, right? I think you're right.

In fact, I've looked at data on the broad cohort of foundations and
In fact, I've looked at data on the broad cohort of foundations and

endowments. And just over the last 20 years, looking
endowments. And just over the last 20 years, looking

at their allocation to traditional equities, fixed income and to the
at their allocation to traditional equities, fixed income and to the

private markets inclusive of PE and venture.
private markets inclusive of PE and venture.

And it's more than doubled its 50 to 55 percent of exposure to the private
And it's more than doubled its 50 to 55 percent of exposure to the private

markets. And at a point where there's liquidity
markets. And at a point where there's liquidity

needs and you've tied up that liquidity. I think it's a it's a very different
needs and you've tied up that liquidity. I think it's a it's a very different

environment in the next few years relative to what it's been in the last
environment in the next few years relative to what it's been in the last

10 to 15. It's a really important point, Peter,
10 to 15. It's a really important point, Peter,

and I don't know if this is connected now.
and I don't know if this is connected now.

Well, we saw Blackstone have issues with their reach and really shut down some of
Well, we saw Blackstone have issues with their reach and really shut down some of

their withdrawal and then their private credit.
their withdrawal and then their private credit.

And there may be no problem there at all.
And there may be no problem there at all.

But it may be as people feel more pressure, they need that liquidity and
But it may be as people feel more pressure, they need that liquidity and

start to take it out of some of those funds.
start to take it out of some of those funds.

It may not be that easy. Well,
It may not be that easy. Well,

I was afraid of that earlier. I don't think there is going to be a run
I was afraid of that earlier. I don't think there is going to be a run

on the bank in either B credit or B read, on the other hand.
on the bank in either B credit or B read, on the other hand.

I think it is crystal clear that the investor is concerned about the
I think it is crystal clear that the investor is concerned about the

potential marks in those assets and the lack of liquidity that they have.
potential marks in those assets and the lack of liquidity that they have.

And so that's a temperature gauge on the point that that lesson is is mentioning.
And so that's a temperature gauge on the point that that lesson is is mentioning.

Look, think about it this way. We've been running interest rates at
Look, think about it this way. We've been running interest rates at

basically zero cash in three to four percent spreads.
basically zero cash in three to four percent spreads.

Now we have 4 percent cash and 5 to 6 percent sprints.
Now we have 4 percent cash and 5 to 6 percent sprints.

And your income, your revenues probably went up because of inflation, but your
And your income, your revenues probably went up because of inflation, but your

units probably that you're selling probably went down.
units probably that you're selling probably went down.

And so your fixed charges have changed dramatically to the negative.
And so your fixed charges have changed dramatically to the negative.

Now, you don't have to refinance in 2022.
Now, you don't have to refinance in 2022.

You may not have to really if we fancied 20 feet, but by 20 for your refinancing.
You may not have to really if we fancied 20 feet, but by 20 for your refinancing.

And when you refinance, the banks are going to say, I'm not sure I'm is
And when you refinance, the banks are going to say, I'm not sure I'm is

comfortable with that much debt. And that's where this restructuring is
comfortable with that much debt. And that's where this restructuring is

going to take. Well, listen, one final point on this.
going to take. Well, listen, one final point on this.

It's a question of whose temperature, who's comfortable also.
It's a question of whose temperature, who's comfortable also.

Because it's one thing for institutional investor who's used to this can ride it
Because it's one thing for institutional investor who's used to this can ride it

out. No problem.
out. No problem.

We have a lot of retail investors now participating some of these funds.
We have a lot of retail investors now participating some of these funds.

And and that is where the absence of liquidity, they might not even have
And and that is where the absence of liquidity, they might not even have

realized it. But when push comes to shove and they
realized it. But when push comes to shove and they

need that money, it's harder to access. So is there a problem in private credit,
need that money, it's harder to access. So is there a problem in private credit,

do you think? Overall, I know
do you think? Overall, I know

there is an unrecognized loss. There is a restructuring activity to
there is an unrecognized loss. There is a restructuring activity to

come, and there will be investors who conclude that locking up their liquidity
come, and there will be investors who conclude that locking up their liquidity

for what you get in private credit is not as attractive as owning liquid
for what you get in private credit is not as attractive as owning liquid

securities, which now are actually providing attractive returns.
securities, which now are actually providing attractive returns.

So two to the point made earlier about where the allocations of capital go.
So two to the point made earlier about where the allocations of capital go.

We've seen 15 years of money moving from public equities and public debt to
We've seen 15 years of money moving from public equities and public debt to

private credit and private equity. That's going to reverse.
private credit and private equity. That's going to reverse.

It's not going to zero. It probably isn't going back to where it
It's not going to zero. It probably isn't going back to where it

was, but it's not going to keep growing. Last thought, Lazard, is there also an
was, but it's not going to keep growing. Last thought, Lazard, is there also an

opportunity usually when there's some destruction going on, when there's some
opportunity usually when there's some destruction going on, when there's some

tension, there's some bargain for somebody to come in and say, you know, I
tension, there's some bargain for somebody to come in and say, you know, I

can pick it up pretty cheap. I think that there are opportunities.
can pick it up pretty cheap. I think that there are opportunities.

Some of the rallies that we've seen this year that have not been long lived have
Some of the rallies that we've seen this year that have not been long lived have

been weighed down the quality spectrum. There are times where you want to go
been weighed down the quality spectrum. There are times where you want to go

down the quality spectrum when you're pricing in a real significant pickup.
down the quality spectrum when you're pricing in a real significant pickup.

I don't think we're there, but the opportunities come with what's dear.
I don't think we're there, but the opportunities come with what's dear.

Look for companies with positive earnings provisions, with strong
Look for companies with positive earnings provisions, with strong

operating leverage, with strong balance sheets.
operating leverage, with strong balance sheets.

So there's ways to navigate.
So there's ways to navigate.