Okay, I think we're just about set. Hello and welcome to the S&P Global Ratings webinar, the North American Leveraged Finance series. Thank you for joining us today. My name is Andrew Watt. I'm the Regional Practice Leader for the Alternative Assets, Financial Services, Infrastructure Practice here at S&P Global Ratings. I'm very, very, very pleased to have Marc Lipschultz, the Co-Chief Executive Officer of Blue Owl Capital, as our guest for today's series. Just a couple of pointers. Although we're in a virtual environment, we do want to hear from you. We encourage you to ask questions at any time during our webinar through the chat function. We encourage you to type them into the Q&A box. We're looking forward to a fascinating discussion with Marc. As a reminder, today's webinar will not be recorded. Before I introduce Marc, it's here in the Northeast, we're having a pretty hot weather period. We actually started the series calling it the Summer Poolside Series. I think we should have stuck with that three years ago. In the past, we've had wonderful guests, including Ken Kencel, the CEO of Churchill, Professor Ken Rogoff, Aswath Damodaran, and we expect to have future guest speakers of that caliber here. We're absolutely pleased to introduce Marc. Let me give you a little background on Marc before we get started. Marc Lipschultz is the Co-Chief Executive Officer of Blue Owl Capital. He's a member of the firm's board of directors. Marc also served as Co-Chief Investment Officer for each of the Blue Owl Capital Credit Advisors. Previously, Marc co-founded Owl Rock Capital Partners and the predecessor firm, Blue Owl's credit platform. Prior to co-founding Owl Rock, Marc spent more than two decades at KKR, serving on the firm's management committee and as a global head of energy and infrastructure. Marc has a wide range of experience in alternative assets, including leadership and leadership roles in private credit, private equity, and infrastructure. Prior to joining KKR, he was with Goldman Sachs, where he focused on M&A and principal investing activities. Marc serves on the board of the Hess Corporation and is actively involved in a variety of nonprofit organizations, including the American Enterprise Institute for Public Policy Research, the Michael J. Fox Foundation, Mount Sinai Health System, Riverdale Country School, and Stanford University's Board of Trustees and the 92nd Street Y. Marc received his MBA with high distinction. He was a Baker Scholar at the Harvard Business School and graduated with honors and distinction with a Phi Beta Kappa from Stanford. Welcome, Marc. Happy to have you. Thank you. Good to be here. I only wish we were poolside. We'll do that next time. If I earn a return trip, we'll do it poolside next time. We'll go back and do a kind of rebranding for the type of weather we're experiencing here in the Northeast. Maybe just to start, Marc, can you tell us a little bit how your summer is going and any highlights to share with us? Yeah. Since we will have—summer's going well. First of all, thank you for having me here today. It is a privilege to be with S&P on this platform to have this conversation. Thank you for that. In and of itself, therefore, a current highlight of the summer. Summer's good. Business is very good. We will come back, of course, to that in depth. I will park kind of the business answer aside. On the personal front, off to a good start. I have all my kids back here in town, and they are all working this summer, and it is nice to have the family together. Great. You mentioned something about a concert. Oh, yeah. The non-business highlight of the summer aside, of course, from having the family together, I did go with a group of friends out to see Dead & Co at the Sphere. That was spectacular. I'm a longtime Deadhead. I'm sure it looks that way. I love the Grateful Dead and now Dead & Co. The experience at the Sphere is incredible. For anyone that has the opportunity to go for any show, I'm kind of personally biased toward Dead, but it's really quite incredible. That has been a lot of fun. That was a highlight so far. Now this is the highlight. Thank you. Thank you for being so clear on that. I'd love to see a picture of you in a different type of garb at some point, but we'll get to that at some point. That'll be after the poolside chat. All right. All All right. Maybe to start our discussion for our audience, can you tell us a little bit about Blue Owl and its history in the private credit markets? Sure. Blue Owl, as a platform in total today, pro forma, we manage about $200 billion in assets. Roughly 50% of that is in private credit. It is the progenitor business here because Owl Rock, which is the predecessor, ultimately renamed Blue Owl, is our credit business, which is coming up on a decade old since Doug Ostrover and I and our third co-founder, Craig Packer, started that business. Our business overall, as I said, therefore has three components. It has $100 billion roughly in private credit. The other $100 billion is split—a little more than half of that is in our so-called GP Strategic Capital or the Stakes business, more commonly known. We have a real estate business, a fairly particular real estate business, where we do triple net lease. That is to say we do really financings against real estate for investment-grade rated or strong-rated companies. Actually, we in S&P interact very actively there as well. Another area where we really focus on the kind of ratings and credit quality of those counterparties. That is the total picture. The legacy, if I go back over that rough decade, has followed the sort of evolution of what I would argue are the private markets. We can go back decades before that too, if and when you wish. I started at KKR in 1995, and private credit did not exist as a thing. Certainly, direct lending did not exist and definitely not in this format. The last 10 years, which we've been fortunate to be a part of, and I don't say we're the ones that did it, but I think we've been a part of driving this evolution of direct lending from a lender of last resort model, if you go back more than a decade, to lender of first choice. We've seen that evolution over the course of these many years now. If you look over the last several years, private credit has played a fairly significant role in really the majority of large-cap private equity transactions. Yeah. I want to get to that specific point about the relationship on the private equity and private credit side and how that's evolved and how that will evolve over time. However, let me just—I heard you speak at a conference, a few conferences this year. The BofA conference earlier this year in January is one that struck me where you talked about what I consider the three P's: predictability, privacy, and partnership as key differentiators in the private credit market, particularly for certain providers. Can you elaborate a bit more on that and tell us what you think some of the key drivers of success for private credit managers will be in the future? Absolutely. First of all, thank you for listening to those remarks and the BofA conference or elsewhere. What I've tried to do for myself, and I in general try to do, is sort of keep things simple, try to find where the core is, because there's a lot of complexity, obviously, in the back end of everything we do. I'm sure the same you would suggest. At the end of the day, there's the singular output, and that's what the users care about, right? Whether that's that specific rating that you provide or, in our case, look at the end of the day, what we produce are principal-protected, lower volatility alternative solutions that are yield-oriented and inflation-protected. At the end of the day, that risk return is the experience the investor has, and that's the experience that matters. How do we achieve that? Why does it work? And then there's—well, I'm sure we'll get into it. There are a lot of complicated mechanics, so to speak, at work and lots of people that go into selecting the loans that we make. But what about this? Where's the alpha? Where's the return? And why is it durable? Actually, I think you put your finger on it. It comes down to the three P's. The predictability, privacy, and partnership are the value that Blue Owl or our peers offer to a user of private capital, a user of direct lending solutions. That has really been at the foundation of this evolution of direct lending from lender of last resort to lender of first choice. There had to be a value proposition. The durable value proposition is the explanation for why the risk return works, and I think is very compelling. I always find if you can't—if something seems too good to be true, then either you have to be able to explain it, or it's just too good to be true, and maybe it's not. The explanation lies in the three P's. What I mean by that is that we do charge a premium in direct lending. This has been the proposition from day one. We charge a higher rate. Our documents, and I would argue more importantly, our documents are much more restrictive. What a borrower is allowed to do is much more limiting in a manner of protecting, of course, the lender. We do that all in a way where the diligence component is much more invasive. We'll spend weeks or months crawling through a company to make a decision to commit capital. All of those things, those are burdens. Why does someone pay those burdens? Why is someone willing to pay us more and restrict themselves more and subject themselves to that type of deeper dive? Because of the predictability and privacy and partnership we offer in the capital solutions we provide. Marc, in that form and other forums, you talked about situations, particularly over the last, I would say, 18 months or so, where that partnership aspect really played out to benefit certain, perhaps, companies more so than would have been in the public markets. Can you talk a little bit about that as well? Absolutely. You are hitting on, again, exactly right. The one that we ultimately think is what most differentiates private credit, and frankly, is also where Blue Owl itself can most differentiate itself even relative to the handful of other large-cap providers that we end up competing with, is in this role of partnership. That is this ability to have a call, much like you and I are having right now when times change, for better or worse. We obviously prefer the calls for better, but we obsess about what the calls are as a user of the capital. For worse, when times change in unexpected ways, how do we address those problems in ways that protect the credit? That is what is critical to us. To the borrower, allow them to carry forward having invested large amounts of capital. How do they remain in a position to continue to achieve their long-term goals? That partnership, that dialogue, literally like this, one-on-one, is kind of worth its weight in gold when that conversation is either required or desired. I'll start with the more affirmative case, and then let's move toward the negative case, because, again, we all worry about downside. That's where this focus comes to. The affirmative case that people have experienced very frequently over the last couple of years, think about 2022, 2023, there was no liquid debt market, no leverage lending debt market to speak of, right? It was non-functional. The result of that is, during a time when people had strategic ambitions to acquire businesses, those who had private solutions, those who were partners of Blue Owl or other direct lending peers, had ready access to capital. They had a partnership with us and could call up in the middle of what amounted to a moribund debt market and say, "Listen, we have an opportunity. We're number two in our market. We have an opportunity to buy number three in our market. This is a great opportunity for our company, therefore for our credit and our equity. Can we do this? Even if it's not wired into the document, we obviously don't have the capital. We need you to—we'll provide equity, but we need some corresponding debt." All of a sudden, they did that in a world where very few other people had access to capital. It was an enormous competitive advantage to have access. We have this regularly with companies of ours say, "We'd like to actually expand our credit facilities along with more equity, do something strategic." We did that very regularly in 2022, 2023. I view that as kind of, let's say, that is the affirmative case of when times change and you want to pick up the phone and make that call, how that can create value for the lenders and the equity holders. That is the affirmative case. The negative case, of course, is the one that we obsess about, and logically, all of us would think about is, "Well, what about when things change for the worse? How do you address that problem?" Here, one of the catalytic elements, catalytic moments for private credit turned out to be the pandemic. Because the pandemic is obviously a perfect study in the absolute unexpected occurring, the overused black swan. We can all agree that nobody had built a capital structure or a business plan around, "Okay, here's my global pandemic case," right? Or, "Here's my case where my revenues are zero." We had a lot of companies, of course, in the world that went through that. Within our portfolio, we had some companies that went through that. I think roughly about 10 companies ultimately in our portfolio that literally were in this doing fine to we have zero business, right? They had consumer interactions, or they had factories that were literally shut down by the government. In that moment, the ability to call up and say, "Hey, we need to talk about what's happening here and what the path forward is," again, became worth probably more than its weight in gold. It's one thing to capture an opportunity. It's another to deal with an existential moment. Again, we could have a conversation that said, "None of us know the path of this pandemic, but we do all know that company—" I'll give you an example. We had a company that is the largest provider of dental implants. They do all the lab work that's outsourced for dentists. You can imagine, of course, the number of people that were having visits to the dentist in April, May of 2020 was about zero. The number of people getting implants was about zero. The number of people that were still going to need those implants and still have dental issues someday was exactly the same. We all could agree there would be a day, and that would be a perfectly good business again. The question becomes, "Okay, how do you get from here to there?" Those are examples of businesses. We had a software business for the supported fitness centers. No business in fitness centers. Of course, people were going to return to working out outside the home someday. All of those are examples of where we could engage and work to an answer that was protective for the credit. In 9 out of 10 cases, it allowed the equity to carry forward in a way that worked out well for them. Yeah. Thanks for that, Marc. One of the things that we observed coming out of the pandemic, and I think particularly over the last couple of years, has been this real drive to around formation of more private credit firms or more private credit vehicles or investment arms of existing companies. I recall someone mentioning in a conversation that when you have so many new entrants, so to speak, you will always see later on transactions that people said, "Well, this is my first deal that I've done." The first deal in many cases for many firms is not the best deal that they've done. They look back and kind of regret that. Are you at all concerned about just the high degree of interest and investment in private credit from firms that maybe are entities that do not have the history of a Blue Owl or Owl Rock before entering the marketplace? Yes. I am concerned about certain behavior by certain firms on certain credits. However, not a small however. I'm not concerned about the health of the private debt market writ large. Look, I'm using the word a little bit loosely because my job is to be concerned, right? I spend all day thinking about, because we're in the downside protection business, what could go wrong in any given company? What could go wrong in a portfolio? Trying to address your question in a way that's useful to the people that are kind enough to join this morning, I'm genuinely not concerned about the health of the sector and the health, certainly, of our portfolio. By the way, again, I don't want to be overly parochial. It's not unique to Blue Owl. I should say the market is pyramid-shaped, so I want to do one thing to calibrate my comments today. I try to, over time, what I find over the decades is I realize how little I know. The more you realize the complexity of the world, the more one, hopefully, appreciates how little you know. There are certain parts I have knowledge of, and I like to make sure I'm clear about what I'm speaking to. Think about the market like any market. It's pyramid-shaped in direct lending. At the base of the pyramid is this ever-increasing number of participants who can do small-cap to mid-cap loans: $25 million, $50 million, which are not small dollars in the real world, but they are small in the world of what we would consider this pyramid of lending. You go up that, and of course, each tier, it gets fewer people that can write the bigger checks. At the top of the pyramid, where we are strategically positioned and where we consider ourselves fortunate to be there, but it was always our strategic ambition for reasons we can get into if you want, to be in the very largest end of the market. Now, the largest end of the market 10 years ago was doing a $100 million-$150 million loan. Today, we do a $1 billion-$1.5 billion loan. Everything's gotten bigger. The whole pyramid's grown out of the sand, so to speak. The top actually looks very much the same. There's a handful of people that populate this top of the pyramid, and we are the go-to providers for the largest credit solutions for the largest backers and their largest companies. There is a reason for that, and we like it. My comments are going to be more particular to the behavior of that small group. By definition, when I have 30 or 40 people running around and I do not even have visibility into what they are all doing in the smaller end of the market, I am sure we will have by number more challenges, and I am sure even a manager here or there that tips themselves a bit over. In the large end of the market, and certainly by some extension out of that, generally speaking, the credit quality has been and remains extremely high. Will there be individual credits that do not work? Of course. Nobody can generate the kinds of returns we generate with no risk. That would be a ridiculous statement for any of us to make. It is a risk-bearing asset. We're built to sustain, having hopefully a very small number of problems. When we have a small number of problems, get a good recovery. When we do that, the math works. Today, when I sit here, I feel very confident that's where we are. I feel quite confident, actually, that's where the industry, again, at the large end is today as well. Yeah. Maybe switching over a bit to the sponsor side, any observations there on how that relationship is changing and continues to change as sponsors grapple with exits and secondaries as different ways to essentially achieve the returns? The PE market, which by the way is my origin. In 1995, when I started, I did LBOs, what they were called LBOs then, as you know. Many of this call will not particularly have used that term because we changed it in the late 1990s to private equity to sound better. Now it's private equity. Back then, there were two large LBO firms in the world, KKR and Forstmann Little, and I was fortunate to be at KKR. At that time, we had 20 total professionals, front, mid, and back office included. Contemplate that world for a minute. Our large-cap megafund was $3 billion. I mean, today, that's right in the big middle of middle market. The world has changed. I say that again only to inform our friends on the call here can judge the value of my comments. From the PE point of view, I've been around that market for 30 years. If I anchor back to 1995 to today, so that 30-year arc, there have been a tremendous number of changes. Looking now there through that lens and sitting here today, there's two changes of very substantial note. One, of course, has been the tremendous growth and institutionalization and proliferation of private equity from two firms of scale to thousands of private equity firms, literally thousands today, right? From a $3 billion megafund, and Forstmann Little had something similar. Think about single-digit billions plus TPG was a startup. Blackstone had a $1 billion fund. You could add it all up. It would be measured in a couple of hands of billions to, of course, $4 or $5 trillion of assets in the hands of private equity firms. That has been one dynamic. The other dynamic more recently, though, with that evolution has been a rigidity in the buying and selling, right? We have certainly seen a meaningful slowdown in probably what was this hyperspeed buy-sell motion of 2021 being the peak of it. I think when we look back, we will all remember 2021 as a fairly euphoric moment, particularly in—it was not unique to private equity. Within private equity, for the purpose of this conversation, the result of all that is people bought a lot. LPs made a lot of commitments. Now, just to cut to the chase, people are overcommitted, and it is not so easy to sell things. The whole market is a little bit sluggish. I think that is informing through that lens when you look at private equity. I think it helps us see a bit more about some of the pressures and opportunities, right? The pressures are certainly on, "Hey, how do I drive exits? How do I drive liquidity?" It is creating new structures like NAV loans, right? That is a bit of a new, it is a brand new phenomenon in the U.S. It is a new-ish phenomenon worldwide. Europe started doing it a little earlier. NAV loans are a new phenomenon. GP-led continuation, I think, is going to be a very big phenomenon for people trying to bridge this world of, "I have a great asset. It's not really a great time to be a seller, but I need to be a seller because I have LPs that need capital, and I've got to print IRRs if I want to raise my next fund. I think you're going to see a very meaningful development of this GP-led secondary market, right, where a firm keeps a prized asset, a trophy asset. You're going to see this question rise, and I'll let you guide me if you want to talk about it. The so-called maturity wall is going to be a very different animal in the world of private credit with private equity firms now at their scale being stuck with assets sounds too negative. It's not like they're stuck with—they're not bad assets. It's just that it's not a very good market to try to sell them. It is going to bring kind of a new definition to the question of what do maturities look like and mean if the private equity firm either is in no hurry or just is not in a place to optimally sell an asset, and you have lenders that have lent capital to it. I think there are a bunch of things that are going to change about the PE landscape. It is going to be a—the returns are going to be lower, right? That is just a reality. That is math. If you look at where people's expectations got to in PE, they got very high, and they were partly generated by very rapid turnover. If you take the same math and just stretch it out by two years, you know what that does to IRRs. The IRRs are going to change radically. Frankly, the cost of debt has gone up. I mean, we're generating unlevered double-digit returns. That itself, number one, they have to pay those bills before they realize their equity value. Also, for investors, what realistically are you expecting to make in an equity? If people like ourselves can generate 10%, 11%, 12% returns, you got to have something meaningful above that to make it worth taking a whole lot more risk. The world's evolving. It's not a bare sign. It's just an evolution or maturation of a market. In your view, does that make private credit a more attractive "asset class" relative to some of the other areas where plan sponsors, wealth funds, and the others may be looking to allocate funds? It does. At the end of the day, and by the way, it's not the solution for all problems, and it's not for every dollar of every portfolio. It's about risk return. To be clear, the way we describe what we do from an investor point of view, we're in the, so to speak, the stay-rich business as opposed to the get-rich business. You don't come into private credit trying to make triple your capital. Now, we can debate the viability of making triple your capital and where you're going to make it and what risks you're going to take. That is kind of a conversation for another day. Our place in a portfolio, private credit, yes, I think at the end of the day, most investors, if they could say, "Look, I am pretty comfortably—" I don't want to overstate it. These are not government bonds, but if I can pretty comfortably make a 10% return that is floating rate, so I'm not having to take a view on do I win or lose in the face of rate changes, that's going to be durable through a recession, someday we're going to have one, I think most investors for a portion of their portfolio would say, "That works pretty darn well for me." I think that's what we're seeing happening. That doesn't mean we are the answer for every problem. We're not. Yes, I think institutions and increasingly individuals are realizing there is a distinct role as long as I can tolerate some illiquidity, to be clear. If I want purely liquid assets, this isn't your answer. If I can tolerate some illiquidity, this is an awfully good answer. I think we are seeing many people say, "You know what? To be in the top, we on average lend about 40% of the value of an enterprise we buy." To be in the top 40% of the capital structure and earn a, again, roughly double-digit return versus go to the bottom of the capital structure and be overly simplistic, like two and a half times the risk, like I got to get to 100 from 40, I appreciate that's a crude statement, to earn what? I mean, I don't know. Are you going to earn a 12? I mean, I don't know what realistic expectations people have or how much they want to risk to get more. I think, and I don't want to make it sound like a commercial because, again, as I said, there's lots of reasons for lots of strategies. Yeah, I think we have found that people are moving part of their PE allocations toward private credit and moving from liquid credit to private credit in part, just like they did with liquid equity to private equity. It has become a very helpful part of a well-thought-out portfolio. I mean, over time, one of our colleagues here, Ruth Yang, who's absolutely terrific and leads our private markets effort, has talked about kind of the growth of the private markets in general, whether it's private equity, private credit, and the more limited role of the public markets over time. Do you have any perspective on that you can share with us? That observation, that work's been tremendous, by the way. I fully echo the sentiment. At risk of being sort of directionally repetitive, there's little doubt the evolution over these same decades has been from more public to more private. I think there's every reason to believe that's going to continue. Not ad infinitum and not, again, there tends to be these hyperbolic and maybe stories that we're interested in when they're written to the drama of this market taking over that market, right? Private credit taking over from the syndicated market, that's not going to happen. It shouldn't happen. The private market taking over from the public market, that's not going to happen. Shouldn't happen. There's a role for both markets. However, there is no doubt that the progression of time has led to an increasing scale and will continue directionally, in my view, to lead to an increasing scale in the private markets over the public markets. For one simple reason: because it works. I mean, at the end of the day, back to this, again, I always like to come back to this KISS principle, keep it simple, which is the only reason that's true is it's not mysterious. It's because we are able to generate in certain applications for a certain portion of the market a superior risk-return experience for the investor. That itself is back to, in our case, to bring it back to our world, the three Ps. This public market cannot—there's no way for the public market to offer the predictability, privacy, and partnership we offer. Where that is valuable, again, it's not valuable in every case. It's not valuable to every user. We don't want to finance every credit. It's not a singular solution. Where it's valuable and where someone's willing to pay for it, an investor is the beneficiary of it. There's a durable explanation for private markets because at the end of the day, just to bring it back to private equity and private credit, that ecosystem, what is it we can do? We can take long-dated capital and provide long-dated solutions. We can plan for five years out and make a fundamental credit decision. Will we get paid back? The equity holders can say, "Will this company fundamentally be worth more?" For those who want to, and I think there is a lot of value in being able to do that, that means there is a role for the private marketplace, and it is going to continue to grow. It is not going to wipe out the public market, but it is going to continue to grow as an application. Yeah. I want to come back to this point, particularly around some of the areas where I think we've done some work as an organization around transparency and so on. There's another area where we've gotten a fair amount of questions. I encourage those who are listening into our webinar to, if you'd like, put your questions into the chat, and we will make sure we propose those questions to Marc. In terms of the channels that support growth of private credit generally, you've seen the tapping of the institutional markets clearly. There have been some linkages with large, long-duration pools of capital, for example, insurance companies. There are some interesting developments on the wealth channel. That's relatively new. I wonder if my own personal view, it's a little untested, but that may be proven over time. Any thoughts about how that will unfold as we go into the next three to five years? Again, fully correctly, I think you've hit on the three core capital formation channels for us. We're in all three of them now. We, of course, like everybody that's in this business, are in the institutional channel. That's the traditional source of capital, of course, for any large alternative asset manager. As a firm, and I'll come on to the questions about wealth, we actually, from day one when we started Owl Rock, Blue Owl, we actually built our firm to serve individual investors and institutions as true peers. We had a view roughly a decade ago that serving individuals and this maybe more high-minded sounding democratization of alts was a real opportunity. By the way, democratization makes it sound all too selfless. I think it is wonderful to be able to deliver a superior risk-reward that has benefited institutions for 20 years. There's a reason they do it to individuals. I like being able to do good, but we can do well also. It's obviously because we thought that's a market that's been underserved. We've actually been in the wealth channel really since its pretty earliest days. When we started our firm, some of the literally the first couple of people that joined us were the people that run our whole wealth business, our broker-dealer and our wealth business. We have evolved to the point where today we at Blue Owl are actually probably, depending on how you measure it, on gross or net flows in these continuously offered products, either number one or number two in the world of wealth management for alternatives in these types of products. We'll come on to this question of what does that all mean? Then there's insurance. We can come to insurance if you want, but that's clearly become a convergence between the traditional insurance markets and the alternative markets. There's a little doubt there. It doesn't mean they're combining, but they're converging. The need because who has the longest-dated pools of capital where they need to earn some kind of premium return but can comfortably give up liquidity? Insurance. It's the perfect marriage for what we crudely use the term manufacture, right? We manufacture long-dated assets. If you can desire or you can accept or like the illiquidity that goes with that, you will earn a premium return, knock on wood, for doing it. With regard to wealth, it's like many things, the answer to does it work? Is it tested? It depends. It's well tested in terms of the underlying investments. All we're doing are just illiquid, semi-liquid, fixed income securities. I mean, that's well tested. It's the very same thing every institution participates in. We know decades of how leverage loans behave. You know better than we. There's lots of data. The only distinction between a liquid leverage loan and ours today is on average, our loan values are lower. Our documents are tighter. There's actually lots of data to inform the underlying credit performance. As for the wrapper, so to speak, the wealth access channel, here it's a bit of a depends. In a world where, and this starts with for us, for example, credit, where you pay out every month or every quarter the income. The result of that is the investor is getting a test testing all along the way, how am I doing relative to how I perceive I'm doing based on these reported results. It kind of ties to transparency a bit, right? What's untested, and I think actually will lead to some bumps in the road, will be a miscalibration or even a structural reality. The more you put alternative products where the returns are generated through capital appreciation and not through income, the more you're putting pressure on these sort of market movements and distortions, the more you're going to have these moments where someone wants liquidity, doesn't match so well with the time when people can provide liquidity. Right? In our business, we have, take our core income product, we have probably 400 different loans in there. They're being paid off at all different times, right? We collect interest every single day on some loan. There is liquidity embedded, and we use long-term leverage in our capital structure, right? We can move that up and down. There are all kinds of doors for access to liquidity. Even then we say to people, "Yes, it is quarterly access, but do not assume that you get it on a single quarter. Maybe you do not. Maybe you have to wait a couple of quarters." Understand this is not on-demand money. The more you move toward things that are much more concentrated and much more illiquid and do not generate income, the more this ability to get liquidity will be, I do not want to say illusory, but you have to be much more sober-minded about what does it mean to say, "Oh, I would like some liquidity from this continuously offered infrastructure product." Okay. I mean, it could be a very long time before there's liquidity available. That's not fatal. It's just an eyes-open question. I think to your point, the untested part is how do these wrappers evolve and work, and how do we make sure that users and providers understand each other's expectations and kind of the realities of the underlying assets? Yeah. I mean, the way this may not be the best way to frame it, but the level of sophistication and need in the wealth channel may not be quite the same as you see in the institutional channel. There are a couple of vehicles over the past year or so where you've seen this kind of disconnect between what's expected and what can be delivered, right? Sometimes in areas where you see rapid growth, it can actually become a little bit more problematic. That is why I'm asking. Yeah. I echo that sentiment. I mean, really, what's great is you and your conversations like this and the way you're informing the people you do business with, it is about education and information and transparency and people understanding. As I said, even this spectrum of differences, if you look at where there have been some of these kind of problems over the last couple of years, not surprisingly, it's in places where people have said, "Oh, the returns are really good. Here's your NAV. Here's your NAV." The market adjusts. People actually quite rationally say, "Oh, wait a minute. If I can have yesterday's NAV in today's world, that's a kind of a good result. I should do that." It is something no one's done anything wrong. It's just the structure incensed one to say, "Well, then I should take those on-paper profits." Again, I'm not pretending we knew this 10 years ago to be clear, but what has become very clear is an income product at our—again, this is what we happen to do, so we think about it a lot—but an income product doesn't have that attribute, right? What are you going to get? You can have your money back. I mean, that's true. All your income you've gotten. There's no, "Oh, if I want my profits, I have to cash in." You already got your profits. In leverage loans, again, you all know this better than I, what's a leverage loan market going to move? A point, a couple of points? Nobody wakes up and says, "Oh, I should redeem because I think I can make a two-point arb trying to trade the public market." However, when markets correct, like real estate markets correct 30 points, nobody can produce enough alpha to overcome that beta. So it does not matter. You might be the greatest manager on earth. Anybody would logically say, "I hear you. You're the best that ever lived, but 30 points is 30 points. I should go take it. Yeah. No thanks, Marc. We've got a couple of questions here. One question, I want to make sure I read it carefully. It says, "The same LP investing in your private credit fund may also be an LP in a private equity fund that you are lending to. How should that LP think about the returns that you are giving them double-digit for being at the top 40% of the cap structure versus a PE fund that owns the equity?" I thought that was a pretty interesting question. It is. It is a live question. It is a very real question that we are seeing play out in real time. Again, as these timelines stretch out a bit and as some companies start to stumble a bit, all of a sudden, that stark contrast is getting starker, which is before we can have $1 of a problem, you have to have a PE firm lose all their capital, right? They have to lose their 60% before we talk about any impairment. That is becoming a bit of a front and center, more visible conversation as time goes by. We have firms that have both. I actually think that will prove to be part of the educational process as people watch the play forward and say, "Well, what experience did I have in average terms on returns?" When I have both, and we have people that have both for sure. I will candidly say that I'm very biased in what I'm about to say. This is the hammer and the nail, so I want to acknowledge this. I have often wagered people a beer, so to speak, that, "Look, I think on average, we will be able to deliver returns that are comparable or maybe even better than the average private equity return." Not the top decile private equity return. There are still reasons for all these worlds to exist. Part of it is this articulation. Look, we live in the same world. Here's the—and I'll finish this comment, but I think it was like states of the world. Here's what can't happen. Using the word can't in quotes, because we all know as soon as you say something can't happen, that's what happens. Here's what can't happen. Private equity cannot have good returns and private credit have bad returns. That's not possible. It's possible for us to both have good returns. It's possible for private credit to have good returns and PE to have great returns. It's possible for private—and this is the important part now. Private credit can have good returns and PE can have good. Private credit can have good returns and PE can have fair. Private credit can have good returns and PE can have poor returns. On the side of, "Hey, I think the market's a little overdeveloped," or, "I think the world is going to get a little more topsy-turvy," what you cannot have is, "Oh, I'm going to be in private equity, but I'm bearish private credit." We're in the same companies. It's not possible for private equity to have done well when in our hundreds of holdings, it's all senior to their hundreds of holdings. On a given company, of course, one person might have a good return or bad return. Across these large portfolios they and we alike hold, it can only be the case that we do well when they do well. We might do well and they don't do well because we're 40% and they're 100% of the capital. That's the, a lot of LPs are, I don't want to say waking up to that, but acknowledging, "Hey, there's something pretty appealing about this top side of the cap stack, particularly versus more of my average private equity manager." I think we are seeing attrition in the private equity middle. People are having trouble raising money in the middle a little bit because it's, "Well, what's the role? Yeah. Let me move on to—there's another question here about NAV loans. The question is, what are your thoughts on how large the CV space can be and the NAV loan space can be? The CV space, I think, will be a very large one. I think the CV space is not—it's a very small one today, so there's a little bit like growth rate as a—but I think the growth rate will be very high. When I think about addressable markets, I think it is the logical evolution of this kind of growth and not maturation of private equity, but kind of maturation of private equity. Because here's the thing I can anchor back to, and I want to be conscious of time. Thirty years ago, thirty years ago in private equity LBOs, we used to say, "You know what the problem with this market is? It's that you find a great asset." And look, there's a lot of things you don't know until you buy a company. And the reality is everyone buys a company thinking it's a good business. Nobody buys a company thinking it's a dog, right? By definition, what really happens is the dogs emerge because you didn't know what you bought fully or some problem occurs. The trophies emerge, and they become clear they're better than you ever thought for reasons you didn't really grasp. Once you own a trophy asset, this has been a decades-long complaint of the veterans of private equity. Go back to the true legends of the business, the Henry Kravis's and the George Roberts. They would forever say, "You know what the problem with this model is? We get a great company, and then we have to sell it." How ridiculous is that? Just so we can get the money and go back and try to buy another great company, which turns out often to work, but sometimes it doesn't. It is a wacky kind of structure. The solution to that is once a private equity firm knows they have a trophy asset, if you can form capital to allow them to keep that asset, that is a winner for the LPs that say, "Hey, I want to stay in. I am not worried about the liquidity. Some need liquidity. So I need to create an optional exit ramp." The beauty of this model attached to a now multi-trillion-dollar private equity industry is, "Hey, it is an exit ramp that allows those who want to stay to stay, those who want to go to go, and the person who spent that time and energy finding that trophy asset to keep it and continue to earn economics managing that trophy asset." Again, meets a need. I think that would be a really significant high-growth business, actually. There is not much capital for it today. The limit today is not people who want to use it. You look, there have been some surveys done. The number of people that want to do continuation or are open to it is like literally 80% of GPs, something about that number. There is so little capital formed. I look at that as a—I do not call it a mega trend, but it is a meaningful opportunity over the next 5-10 years to form and provide the capital for those GP-leds. NAV loans, I do not think, are going to be as big as sort of the mind's eye is today. They are complicated to implement. The reality is LPs are already saying, "We do not love these things." Right? I I think there is already an awareness. Indeed. Yeah. I think that there's an LP awareness, not from a lender point of view. We're perfectly happy to provide them. We've done NAV loans. It's a good piece of business for us. I think a lot of PE LPs are saying, "Wait a minute, wait a minute." Now on the front end, it's subscription line. You're really borrowing my credit on the front end. Now you're going to borrow my credit on the back end. You're going to cross-collateralize. One of the things about PE that's sort of pretty magically powerful is that each asset stands alone, right? If a domino tips, it has no ability to impact the other dominoes. A NAV loan ties everything back together. Now, done at conservative leverage levels, we probably all would agree it doesn't very unlikely to happen. Often, a truly low-leverage NAV loan can even be a highly rated piece of paper. Like anything, it's a matter of degree. The thing about NAV loans, I think, is they're very hard to do. They do put limits on how you can then crystallize and return capital to LPs. LPs are saying, "Look, I don't love adding a whole nother layer of leverage into the system. You're already doing leverage companies underneath them." I actually think that one will—it'll be meaningful because it'll follow the pressures that have led subscription lines to grow. We'll push NAV lines the same way, like taken to the hyper and silly extreme. You'll never call the money. It'll just be like this subscription line, and then there's like NAV line. All that will happen is we'll just use the credits of the LP—and it's not we, but the credits of the LPs, and then just write them checks. Of course, that's not going to happen. I mean, that is kind of the extremity of these market pressures. That said, there's an awareness, and I think there's a skepticism by LPs about, "We don't love these NAV loans." It just enters in a whole lot more leverage into the system. We don't want it. Marc, this is not a question, but it's something that's come up in a wide variety of forums around LPs. Where do LPs sit relative to all these developments in a market where you go back five, six years, it was probably a little clearer on where things are and what people's expectations are? What are you hearing from LPs in general? I know it's a broad and general question, but. LPs are correctly more demanding, and LPs have a more refined understanding of alpha versus beta in the world of alts and the kind of PE ecosystem in general. It has—I do not want to say the tide has gone out, but enough of the tide has eased to the point where people that were just sort of really just index trades, but with fees and carry, and so therefore net were not really producing value, has been made more apparent to the LP community. You can see it in fundraising today, right? There is a much tighter screen on who they allocate to. Part is who they do not have the capital, but in allocating the capital, they are also saying, "Listen, I have 200 managers, and 100 of them, what is even the point? There is just nothing distinctive about what they are doing," or even maybe 50 and 25, whatever the numbers may be. What we're seeing is LPs seeing more choices. To the first question, a very sophisticated question about the LPs in both sides of the equity and the debt, yeah, some are saying, "Well, I'd rather do the debt. I'm going to take—or at least I'll divide my exposure because with regard to the same company, I'll take this durable top end. If I like it for the bottom end, I must like it for the top end. I can't want to own the equity and not want to own the debt. That doesn't really make a lot of sense." We are seeing this evolution of allocations. Correctly, LPs are more demanding because the world has changed. You look back five years to your point, and people just couldn't—getting into the funds was deemed the challenge, and all the power therefore shifted to the GPs. I think we're seeing a rebalancing, and by the way, kind of healthy, I would argue, a rebalancing of that power to, "Hey, listen, we got to do things that work for both of us." It's like, "Yeah, of course, the GPs, yeah, you should do well. You do do well." But some of this matters to us too. There need to be some boundaries around this, and our voice needs to be heard. Things like NAV loans are an example I think of three years ago, four years ago. I think LPs felt like they could not say much about it. Granted, it was not a big phenomenon. Today, I think LPs are much more likely to say, "Wait a minute. We do not want another layer of leverage. That is just introducing a risk into this thing that we do not want. Or if we do, then we would do it because we want higher returns. Exactly. By the way, our cost of capital is lower than yours. If we want to leverage our asset, then we may as well leverage it. Why are you leveraging it for me? My cost of capital as a double-A pension is a lot cheaper than your cost of capital as an unrated NAV loan. Yeah. There's another question on NAV lines, and the question is, should investors be concerned about NAV valuations given the more opaque, non-market-based valuations that it's based on? I think people should be—the way I would look at it is be aware. Relative to the public markets, is it? Yeah, yeah, yeah. I think I would say be aware. It's not necessarily alarming or even—of course, it's concerning because everything should be accurate all the time, but there is a difference of what do you mean by a valuation. Is it a valuation of selling what could be sold at that moment, which is a trading price, versus what is in an undisturbed market, right? What would be the fair price between a willing buyer and a willing seller? There are legitimate differences. I think the answer is to be aware that the movement in NAV is by the mechanics of the way it's calculated in equity. I'm talking about equity in particular. This is not so much movement in debt, right? It's really not as much as it's relevant to the question of any illiquid asset. As we all know, senior loans, again, to the point, they do not move that much. This is a much less interesting question around credit. It is a very interesting question around equity or any bottom-of-cap structure kind of securities that move a lot. It only matters if there is a transaction occurring relative to that or if you are planning your portfolio around it, which is to say you should care because you should understand the NAV will be slow relative to the public markets. On the other hand, if you are not really acting on it and you are sort of having this, "Okay, I made this PE allocation. I know I do not have access to it for the next five years. It's sitting here, and I'm going to find out in five years the net result. Whether you really understood exactly in between where the NAV stood on a given day relative to the public market, there's nothing you can do about it anyway. If you're not using it to kind of make a decision, I'm not sure how much it matters. I think it turns it into, of course, we should care because everything should be accurate, and everyone should have the best information they can have. People more ought to be just vigilant of what relevance does the NAV have. If they're counting on it or trading on it, on the NAV, then it has a lot more relevance than, "Okay, that's sort of interesting on a piece of paper. Yeah. In that distortion in a redeemable product turns out to be interesting. In the distortion in a non-redeemable product, it's not interesting, right? Let's take a real estate fund. Real estate funds that have redemption opportunities, the gap between NAV and public actually was an actionable question. In a closed-end real estate fund, the actionability of the gap between NAV and public markets was inactionable. It was maybe interesting, but not highly. We're certainly in a very interesting and complex industry, and it offers opportunity. One thing that I did want to touch on, I think there are a number of questions here. There are actually 13 more questions, and we're not going to get to. One thing I did want to touch on, which I found interesting, was do you have any perspective on the recent acquisition of Preqin by BlackRock and what they may mean for the industry in the future? Maybe we'll do rapid fire. I don't have any great insights. The consolidation of information resources at some meta level catches my attention, but I don't have any insights into the kind of situation. The reason I posed it came to mind with this question is because there's been some talk over the past number of years about some type of private credit index or some form of a metric that people can relate to relative to returns. Any thoughts on that at all? I think S&P should produce that, and we're happy to help. I think it would be great. Coming from a highly credible organization, it would mean a lot. I think it'd be great for the market, actually, because people are feeling around trying to say, "Well, what's my benchmark?" I think it would be very helpful to develop for the evolution of the asset class. Yeah. And one last question. What's the best way for accredited investors to access the private credit market? Is it through a publicly traded BDC or a private vehicle? Either/or. Depends on what you're trying to achieve and depends on how you value liquidity. Just in its simplest form, in the world of—very simple. We have a public BDC, OBDC, trades publicly. It's a great product, great coupon, great portfolio. We have private vehicles that are both institutional, and we have continuously offered ones. We've created gateways depending on the answer to that question. If you want daily liquidity, you can access private credit on a daily liquid basis. You will have a security to trade. What you're going to overlay is the market's trading views of private credit on a given day, not its fundamentals, right? The fundamentals could change—I don't change much at all on a given day of all the underlying companies, and yet the price of OBDC moves around. If you go to the private vehicles, like continuously offered, you go in at net asset value, you come out at net asset value. It depends what you're trying to achieve. If you're saying, "What I want is pure private debt and only the experience of the private in, private out, and I'm willing to take some of the liquidity to do it," this is probably your wrapper. If you're saying, "I don't mind if it goes up and down. If it's down, I'm just not going to be the seller. If it's up, okay, great. The daily liquidity I value," your right answer is to be in the public vehicles. Right. I think our job is to produce this. I'll come back to it. You said there's a lot of complexity in all we've talked about. Pulling back up. It's to do something really simple, which is to assemble pools of capital, look at as we have 10,000 companies to lend to the 500 we have, do a good job of making sure almost all of them do well, and then having this—if we've had, we've had seven basis points of running loss rates. Seven basis points. Of course, it'll go up from there. I mean, that's not a durable number, but multiply it by any number one wants. And a well-managed credit portfolio is to be a part of a portfolio, not a risk-free part, and deliver a—here's all those mechanics I talked about, all the complexity, what are we supposed to do? Lend to a good company and get paid back. That is what we are supposed to do. What we should do is create wrappers, gateways that suit the needs of investors. All the rest of this stuff we talked about, which I find interesting, and I hope some people found interesting, should prove to be the sort of, "Well, that is what is happening behind the scenes." My experience is I really care about liquidity. I kind of care. I do not care. I am going to access this kind of simple thing, lend money to a big company for a long time and get paid back most of the time. I think that is the job. Those are great final words, Marc. I thank you so much for being our guest speaker today. We had over 300 participants, and we have a ton of questions still in the queue we could not get to. I did not get some of my questions about PIK loans, feeder funds, and all types of credit questions, which. The poolside chat is preordained. Any questions you or your team or people on the call had, feel free to relay them over to us, and we'll get answers across. Okay. No, no, no. Thank you so much. I also want to thank Ramakrishnan, who heads our leverage finance team here at S&P Global Ratings, and Ruth Yang, who heads our private markets efforts. Ruth has a dedicated webpage on private markets. We put stuff out on LinkedIn all the time on at least a bi-weekly basis on some of the research we are doing in this marketplace. Today's webinar was not recorded for replay. Your feedback is very important to us. For the listeners, the attendees, a survey is available at the bottom of the right-hand side of your screen. We will pop it out automatically once the session ends for your convenience. We appreciate you taking the time to join us. We hope your summer goes well. Marc, thank you so much for being our guest speaker. Wonderful session. We look forward to working with you and your team in the future. Thank you. Great you. Great being with you all, and I hope everyone has a great day. Thanks. Thanks.