0:06
Private markets, especially private credit, have undergone significant growth. And in this environment, you also have public debt markets becoming more concentrated in terms of the top issuers.

0:18
That combination is impacting how investors think about their allocations and it's making it more and more imperative in terms of how to optimise your credit exposure in this changing environment.

0:30
So as these forces are converging, it raises some fundamental questions about how investors navigate this environment and how asset managers deliver value.

0:40
So I'm really pleased to be joined by two expert colleagues from PGM in credit and I'll ask them to introduce themselves.

0:50
Thanks, Phil.

0:50
It's great to be here. My name is Gabe Rivera and I head to Securitized Products business at PGM.

0:57
Thanks, Phil for for for having me as well.

1:00
Matt Douglas, head of PGM Private Credit.

1:03
Great.

1:03
And guys like to explore the advantages of private and public credit under one roof.

1:10
We have, as you know, such integrated capabilities and such depth in both public and private credit.

1:17
How do you think about the advantages associated with that, Gabe and Matt?

1:21
You're right. So PGM has these amazing capabilities on both the public side and the private side.

1:26
Clients are looking for us to deliver value to them.

1:29
And you know, I think in order to be able to harvest this value to market you need, I think, asset managers that are able to operate across both these both different channels, which we which we do quite well.

1:41
So it's a focus on perhaps widening the aperture and being able to sort of find opportunity wherever it lies, wherever the label and  I think that's something we are set up to do quite well.

1:57
Yeah, Gabe, totally agree.

1:57
I mean, you know, it's funny to say private and public credit, these are massive markets, massive opportunity sets that for large investors and asset managers that have a broad set of capabilities we're ideally suited for here at PGM.

2:12
But then you still need to have specialization and you still need to be able to have the ability to go deep on these things.

2:16
And so for example, Gabe your business, the ABF business, tremendous specialization and capabilities there.

2:23
When you look at PGM Private Credit's corner of the market, focus on middle market direct lending and investment grade borrowing in the whole middle market for corporate infrastructure issuers.

2:35
You know, having the capabilities to through credit cycles, get access and deploy capital to the to the sector, structure it correctly and in a way to preserve value for investors and then manage it on the back end when there's challenges is a capability that we've developed for years and years and that's critical to deliver in that market.

2:55
And so when you put this all together and some more other in our public capabilities and our real estate capabilities, you put that together a PGM, we can offer quite a quite a spectrum of capabilities for investors.

3:05
Well, Gabe, maybe pick up one of the threads that Matt pulled on ABF.

3:10
Can you comment about, you know, that's obviously a segment that's very much in vogue.

3:15
How crowded is that trade become?

3:17
Great question.

3:19
We're definitely seeing new entrants into the space, but I wouldn't call it a crowded space by any stretch.

3:26
The first thing it's, it's it's a very large market.

3:28
And the second, and perhaps more importantly, it's the barriers to entry are are are are very high, right?

3:33
We're talking about an asset class where or you need scale, right?

3:37
And that means being able to execute on an implement large transactions.

3:41
That means structuring capabilities, that means having deep investments in technology and quantitative models and a very, you know, deep bench in terms of research staff.

3:52
So, you know, I think because of those reasons, a large market and these bears, we think it's a durable opportunity and, and we're very excited about it.

4:01
What are you seeing in terms of, you know, if winter might be coming?

4:05
What are the signs of stress or defaults that you're monitoring?

4:09
And, you know, where are you seeing that emerge giving the elevator prices, you know, rents, gas, food prices is definitely a tax on, on, on the consumer.

4:18
And it's something we're watching closely, you know, but you know, bank stop, don't stop lending just because, you know, the consumer is potentially not in a great spot.

4:28
It it's all about underwriting and, and controlling that underwriting box.

4:33
And we do that via asset selection, ensuring we're picking the right types of loans and we're lending to the to the right consumers.

4:42
And the other piece is really structuring and structuring around these transactions to ensure that there is resiliency across the good paths and the bad ones.

4:52
Maybe Matt in a similar vein, how are you balancing your disciplined underwriting?

4:58
You know what, how is that impacting the standards that you can potentially capture in this environment, given how competitive private credits become?

5:06
You know, I've been involved for almost 30 years in the industry.

5:08
It's been around a lot longer than just what's been the headlines.

5:10
And I can say in those thirty years, I don't know if I've ever said one year, jeez, that wasn't a competitive year.

5:15
You know, for me it's, it's about you have to have access and influence.  Access....

5:22
I've already talked about our origination network a little bit.

5:24
How do you generate influence?

5:26
It gets back to a borrower proposition.

5:29
You know, you have to mean something and deliver value in the market for the issuers as well, who have lots of options.

5:34
And even more, as you just laid out, we can do senior debt, sub debt, we even do structured equity.

5:38
You can be a single solution, even an equity owner is part of that.

5:44
And then finally, I do think it's about how are you going to behave as a partner and you can really differentiate yourself in that way.

5:51
What's going to happen when times, how are we going to work with the company when times are bad, but also working through situations with companies and figuring out how to do that effectively.

5:59
And the more competitive the environment, the more that matters in terms of your ability to be a deliver value for issuers too.

6:09
If you think about this environment, you know, maybe Gabe and Matt, you know, there's volatility.

6:15
How does that create tactical opportunities and entry points that can be favourable for you?

6:20
Listen, on the on the project side, we're definitely seeing some of those new entrants we talked about earlier perhaps retrench a little bit here, right?

6:29
You know, and I think that is sort of giving way for our ability to extract better structures, better pricing and and just sort of be more competitive.

6:37
And I think it over the long term, you know, I think borrowers also recognize that we have the staying power, right?

6:43
And then that we're here to lend not just sort of in the good times, but also in the bad times.

6:48
And I think over over the long term that makes us a more strategic lender and that I know that some of that applies directly to you too.

6:56
In volatile times, that's when certainty is worth more to to to issuers.

7:02
And so it's a great time when it's volatile and capital markets and options shut down for for companies in terms of where they can go for capital, which is a great time for our investors when we can come in and deliver value for them and it you know, say better terms and better pricing, etcetera.

7:18
At that point, it becomes about again, delivering values on the borrower side so that you can get access.

7:25
You have to have enough lines in the water consistently so the the companies know that you're there through cycles and then you can deliver value.

7:34
That's great for investors in times of volatility that borrowers are grateful for.

7:40
And what that does is that helps build the franchise for the long term, which investors benefit for over a long time to stay committed to the asset class.

7:47
Maybe just thinking about where there are opportunities.

7:50
You think about Europe, Gabe, you know, I think the Mario Draghi advocacy of revitalizing the European Securitization markets, you know, how do you see that developing and does that create opportunity for you in Europe or perhaps in other jurisdictions where you think there'll be more securitization opportunity building in the coming years?

8:14
The European Securitization has been stagnant really in the last, you know, since post crisis.

8:22
You know, it's definitely a market where is banks are have carries and they gain more weight and they're doing a lot more than funding on a percentage basis.

8:30
And you know, I think having said that, I think your point, I think the tide is turning from a regulatory environment.

8:37
We're starting to see regulators who really understand the benefits of securitization, the understanding the benefitsof leveraging this technology to kind of get risk out of banks and into into the capital markets.

8:54
And you know, so that ultimately will create opportunity for us.

8:57
So we were not necessarily US investors, we're global investors.

9:01
So to the extent that we can, you know, really add diversification to our portfolios by being able to look at asset classes across the globe, that is definitely something that excites us.

9:12
As you think about that breadth of opportunity, Matt, to what extent is Europe in scope?

9:19
It is certainly in scope.

9:20
You know about about quarter of our business is in Europe 1/4 to 1/3.

9:25
We have 5-6 offices, excuse me, across across both the continent, obviously in the UK and then in Ireland.

9:32
And we're equally committed there with the same philosophy of sourcing that unique, unique assets and opportunities.

9:39
And frankly, Europe in some ways lends it to itself even more to private credit, because the private markets are about information asymmetries and things that are difficult to get at and that aren't uniform and can be easily found and bought.

9:54
And even just the, you know, the lack of homogeneity in Europe, wonderful markets, all individual in their own right, but you have to understand them.

10:02
Heck, you have to speak the language if you really want to have an issuer proposition that resonates too, so you can get access, and through our teams, you know, with local originators and, you know, know the culture, know the know the language and know credit.

10:18
Europe's a big part of what we're doing.

10:21
So as we think about markets that are undergoing change, looking back at the US market, the Trump administration has deregulation as one of its focuses.

10:30
In the past, you described how banks have been tough competitors.

10:34
How might deregulation impact banks and the competitive landscape that you face and what might that mean for investors?

10:42
The banks, especially post GFC, and that retrenchment that's driven a lot of this development of the more institutional market that we've all seen.

10:51
And you know, the banks aren't happy about that.

10:53
Obviously they're using, they're rationing more and more their balance sheet as they're getting pared back there to drive other parts of their business.

11:01
And that's really been damaging to their business, including their syndications business.

11:08
This kind of phenomenon that this, this increased regulation of put on them.

11:12
In fact, as you look around, I mean, it's, and you see all these partnerships that have emerged in the last two, three, four years.

11:16
And that's the next chapter of this whole evolution is the banks realizing the asset that they have that's so valuable is origination capacity.

11:28
Deregulation comes.

11:30
I think that that'll probably change.

11:32
Those will probably maybe even start to unwind.

11:33
They'll be kind of interesting to see what those how those relationships evolve, I think is one thing, but the fact of the matter is, there will be a lot more competition and that doesn't change anything.

11:43
I've said a lot as we've been sitting there, Phil, it's about you have to be committed to the asset class that the value proposition has to resonate even more in those environments for for the issuers you're talking to, to be able to, you know, stand out and then even more crowded competitive market for the best companies and doing it in a way that gets your investors value that they can't get elsewhere, whether it's spread or, or downside protection.

12:11
So hopefully you got to avoid losses.

12:12
And that's why the downside protection is so important.

12:14
The fact that insurers have long and relatively illiquid liabilities that gives insurers the ability to invest in both public and private credit and for the portion of their portfolios that they know they can keep locked up.

12:30
That's a perfect home in terms of sourcing capital for private credit.

12:34
It's a natural.

12:35
In fact, it's not a new story.

12:36
It's one that's been going on for decades and it is expanding in terms of the categories of private credit that insurers are deploying to.

12:46
But it's really a continuation of a trend that's been there for decades.

12:50
And what's important for institutional investors is being able to optimize in this complex environment and having asset managers that have the full suite of capabilities from public corporate credit capabilities to securitized and ABF capabilities to forms of private credit such as the ones that you've talked about, Matt and Gabe.

13:14
And when you have that breadth of capabilities, this integrated approach can provide significant benefits

13:21
And as we look forward to the coming calendar quarters, there will be disruptions.

13:27
Those will create opportunities, but they also create risk to be managed well.

13:31

And that experience and that breadth may provide meaningful advantages.