WEBVTT 00:00:05,872 --> 00:00:07,407 So the increased complexity 00:00:07,407 --> 00:00:11,544 means that relative value must be assessed across the full credit spectrum. 00:00:11,778 --> 00:00:15,415 Similar risks can appear in different forms 00:00:15,482 --> 00:00:20,286 in public and private credit markets in order to meaningfully assess 00:00:20,620 --> 00:00:24,758 the asset class, one has to assess relative value 00:00:24,758 --> 00:00:27,761 across three key layers. 00:00:30,096 --> 00:00:31,164 The first one is, 00:00:31,164 --> 00:00:34,768 basically the point of purchase, or more of a bottom-up approach. 00:00:35,335 --> 00:00:39,305 In this case, basically private credit value is expressed through origination 00:00:39,472 --> 00:00:42,642 and also through other characteristics like structure, covenants, 00:00:42,942 --> 00:00:45,712 collateral, and underwriting discipline. 00:00:45,712 --> 00:00:48,982 And in public markets, price signals become more important 00:00:48,982 --> 00:00:52,085 because they are more transparent and they are more accessible 00:00:52,318 --> 00:00:55,321 through primary and secondary markets. 00:00:57,624 --> 00:01:00,126 The second layer is a cross-market comparison, 00:01:00,126 --> 00:01:03,363 so more of a top-down relative value assessment, where we compare 00:01:03,563 --> 00:01:07,133 similar risks across public and private credit markets. 00:01:07,567 --> 00:01:11,905 And the idea here is to assess how the same risk is priced once 00:01:11,905 --> 00:01:16,443 differences in liquidity, in structure, and volatility are taken into account. 00:01:19,446 --> 00:01:22,215 And then the third layer is portfolio construction. 00:01:22,215 --> 00:01:25,819 We need to make sure that we meet the needs of our investors 00:01:25,819 --> 00:01:31,124 in terms of illiquidity preferences, but also in terms of risk preferences. 00:01:31,491 --> 00:01:35,762 Anchoring the private allocation using investors’ illiquidity 00:01:35,762 --> 00:01:40,533 tolerances allows the optimization to become less sensitive to opaque 00:01:40,834 --> 00:01:43,837 and sometimes uncertain private market 00:01:43,837 --> 00:01:46,840 assumptions, like returns and volatility. 00:01:47,140 --> 00:01:51,344 And once those private allocations are set, the public credit 00:01:51,978 --> 00:01:54,948 piece provides flexibility, an opportunity 00:01:54,948 --> 00:01:59,252 to liquidity manage, and, also, the ability to rebalance portfolios.