E289: The Evolution of Private Credit and What Comes Next

Why did private credit secondaries emerge, and what problem do they solve for investors? David Weisburd speaks with Rakesh Jain about building one of the world’s largest private credit secondary platforms at Pantheon, the mechanics of liquidity in private markets, and how seasoned portfolios differ from primary credit origination. Rick explains how diversification, underwriting discipline, and alignment shape risk-adjusted outcomes across cycles.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Weisburd?

  Thanks for coming on. So Rick, you're the global head of private credit at Pantheon, overseeing one of the largest private credit secondary platforms in the entire world, with over $12 billion raised from 250 institutions.

• 0:14David Weisburd?

  When you look back across your chapters in your career, what were the first principles, lessons that shaped how you think about a private credit business inside a global alternatives platform like Pantheon?

• 0:25Speaker 01

  We really started with a kind of a really modest, modest beginnings. We had a couple of investors and a first close in a fund. But I think it really starts with kind of formulating what the value proposition is for investors. As leadership, what we were trying to figure out was with our team and with our platform, what's our edge, what's our angle in the marketplace? And what problem are we really solving for clients? So we figured out what the value proposition was for credit secondaries. It was then from there figuring out how do we develop and communicate what the investment process should really look like when you're going after a market opportunity that's very nascent and very new to a lot of different people.

• 1:09Speaker 01

  So we spent a lot of time developing the investment process and the underwriting philosophy. And then you bookend that on both ends, one with how do you originate those types of assets? And then at the final part of it, the other bookend is how do you portfolio manage that? So once you have origination, investment process and philosophy plus portfolio management set up, you then figure out how do you scale? How do you scale to become a trusted liquidity solution provider in that market? That's where, you know, team, technology, operations and everything else come to the forefront. So that allowed us to be an early entrant and innovator in credit secondaries. And it really set the base for us trying to build, you know, the type of platform that we have today with our immense size and scale and depth and breadth.

• 1:54Speaker 01

  But it really starts off with that. How do you figure out what's good for investors? What problem are you really solving? And then figuring out the different elements along the way to make it achievable.

• 2:05David Weisburd?

  And why does the market need a secondaries fund within credit? It's a bit counterintuitive.

• 2:11Speaker 01

  Absolutely. So I think what we realized a long time ago was that the credit markets on a primary basis had gotten so large, call it around 1.7, 1.8 trillion dollars in size with so many different types of investors, whether they're institutional, insurance and pension to high net worth to family offices and the like, plus the immense number of managers that had been created over the last decade. When you have a lot of managers with a lot of vehicles, a lot of investors and a lot of capital, you fundamentally need the ability to tactically reallocate and rebalance

• 2:51Speaker 01

  those exposures if you're a holder of those exposures. And we as Pantheon saw this evolve in other asset classes like private equity 35 years ago and infrastructure, you know, 15 to 20 years ago. Each of these private markets asset classes have varying degrees of liquidity and duration. And we realized that private credit didn't have that. And the real big bang moment was when we, again, back in 2018, created this fund focused on Europe initially for credit secondaries with the right cost of capital and the right go to market. That really created the impetus for this market and where we are today. So we looked at client innovation in that regard

• 3:36Speaker 01

  and then figured out that's how we need to, that's how we need to address the market needs for liquidity.

• 3:41David Weisburd?

  Said another way, a secondary solves a problem which solves liquidity for the investor and they have entire portfolio. You could have a venture secondary, you could have a private equity secondary. Why can't you have a credit secondary? And your answer is yes, we can do that. And that's what you created.

• 3:57Speaker 01

  Absolutely.

• 3:58David Weisburd?

  And it's a bit different in that credit secondaries and private equity secondaries, you're buying out some kind of discount and then it might be undervalued or overvalued depending on the intrinsic value of the equity. In credit secondaries, it's whether or not the credit instruments pays off. It's whether your loan is repaid.

• 4:21Speaker 01

  There's a lot of different value drivers in credit secondaries. You've alluded to this correctly, which is we're trying to figure out what the asset is worth and what kind of risk-adjusted return are we getting on that asset. So the way we think about credit secondaries is you're providing a liquidity solution. There's a cost related to that. That cost in the form of a discount and potentially portfolio selection helps cushion you against some level of expected loss that will manifest itself in those portfolios over time. And then as a buyer, we can do other things. We can get the dynamics of a pull to par in a portfolio.

• 5:04Speaker 01

  As an example, a portfolio might be marked at 95 and it could repay back at 99 or 100. We'll get some call protection, maybe some equity upside in some of these portfolios. So there's a lot of different drivers of value in a credit secondaries book of loans versus just simply buying, you know, as an example, in the private equity market, an asset at a headline discount. So the dynamics are much more complex, much more nuanced, and that's what makes it, I think, a pretty interesting place to spend time in.

• 5:37David Weisburd?

  And the underlying loans, what's the quantum within your fund? And how do you think about diversification and exposure to different market cycles?

• 5:48Speaker 01

  So we've been in this market a long time, so we have exposure to over 5,000 loans on a look-through basis. We have relationships with over 100 GPs globally. We are spread primarily between North America, primarily the US and Western Europe, and we span a whole range of different underlying credit strategies. They could be on the senior side, middle market, direct lending, but we do participate in lower middle market and upper middle market, parts of the direct lending market. Within other credit strategies, we have exposure to mezzanine and supported native debt. We've done some things in real estate credit, structured credit, capital solutions, special situations.

• 6:32Speaker 01

  We've even done some things in royalties and film finance. Music royalties and film finance. What we're trying to build are, depending on the various components of assets, diversification across many different matrices. Diversification can come through individual company, obviously, where we really limit the look-through exposure. It can come through vintage year, sector exposure, those sub-strategies, as well as duration and credit quality.

• 7:01Speaker 01

  So what we're really trying to do for clients is deliver an access point for them that they might in otherwise not able to get themselves in a significant way, and they're able to get it at a discount or attractive pricing with much shorter duration and potentially even better credit quality than they might get on a new origination basis. That's the real beauty of the strategy in a nutshell.

• 7:26David Weisburd?

  One of the hardest things of investing is seeing what's shifting before everyone else does. For decades, only the largest hedge funds could afford extensive channel research programs to spot inflection points before earnings and to stay ahead of consensus. Meanwhile, smaller funds have been forced to cobble together ad hoc channel intelligence or rely on stale reports from sell-side shops. But channel checks are no longer a luxury. They're becoming table stakes for the industry. The challenge has always been scale, speed, and consistency. That's where AlphaSense comes in. AlphaSense is redefining channel research. Instead of static point-in-time reports, AlphaSense channel checks delivers a continuously refreshed view of demand, pricing, and competitive dynamics powered by interviews with real operators,

• 8:09David Weisburd?

  suppliers, distributors, and channel partners across the value chain. Thousands of consistent channel conversations every month deliver clean, comparable signals, helping investors spot inflection points weeks before they show up in earnings or consensus estimates. The best part, these proprietary channel checks integrate directly into AlphaSense's research platform, trusted by 75% of the world's top hedge funds, with access to over 500 million premium sources. From company filings and brokerage research to news trade journals and more than 240,000 expert call transcripts. That context turns raw signal into conviction. The first to see wins, the rest follow. Check it out for yourself at alphascense.com/HowIInvest.

• 8:51David Weisburd?

  Is the product supposed to encapsulate and end investors' entire credit?

• 8:58David Weisburd?

  Portfolio, is it intended to do that? Or should it be part of a broader credit portfolio? And talk to me about that.

• 9:05Speaker 01

  Great, great question. I think the use case is very, depending on who you are as an investor. We found that a number of institutional investors are looking at credit secondaries as a very attractive complement to what they already do in private credit. So they, in many cases, are looking for alpha. They're looking for a differentiated way to get access to many of the assets that they're familiar with, particularly in direct lending. So that could be a use case for many investors. They want to get access to alpha, a premium return, a better risk adjusted return by investing in fully funded diversified portfolios. We have some clients who are insurance companies and their real attraction to this space is

• 9:49Speaker 01

  that they can invest in a very capital efficient way because many of these portfolios have a diversification and cash flow profile that allow them to be rated attractively on an IG basis. And so for them, that's incredibly attractive. What a lot of investors have also realized is that the benefits of credit secondaries are such that you can reduce the dispersion of returns that exist in private credit if you were otherwise investing on a blind pool basis in a new portfolio. And again, that's where the benefits again of investing in fully funded portfolios at attractive pricing come into play. For a lot of high net worth investors who otherwise can't access closed end funds because

• 10:32Speaker 01

  of minimums, or they want some sort of periodic liquidity. Again, we created access points for private wealth, both in the US as well as internationally, to get access to credit secondaries. Again, solving some of those same needs around getting alpha, getting interestingly access to strategies and assets and other types of portfolios they might not otherwise get access to.

• 10:56David Weisburd?

  The fund invest through. LPs and through GP-led portfolios. Tell me about that rationale and what are the pros and cons of that strategy versus going out and buying direct loans yourself?

• 11:09Speaker 01

  So our market sources opportunities through those two channels. So we simply look at the market as one where we are trying to buy seasoned performing credit with top-tier managers by providing solutions around liquidity to the holders of those assets. The holders of those assets can sometimes be in the form of an LP interest where you're simply transacting on those particular portfolios. The benefits for us are that you're investing in a set portfolio. You can't really change the composition of that portfolio or the structure or the terms of it. So very simply, you're providing a point of view on price and execution to deliver that liquidity.

• 11:53Speaker 01

  What's really growing in our part of the market is what we call these GP liquidity solutions, which are often in the form of what we call continuation vehicles. And what we're really doing there is we're buying a select portfolio that we curate based on our views of credit quality, the attractiveness of pricing, and how it fits in our overall portfolios. And those assets may be held by one vehicle, one investor, or across many different vehicles. And we're often partnering with the GPs. The benefit for us is we can often get very detailed diligence on each of the underlying assets in a greater way than we otherwise would on the LP side, even though we do underwrite

• 12:37Speaker 01

  line by line and bottoms up on the LP side as well. But what we can also do in terms of picking the portfolio is we can also dictate the structure in terms of what the ultimate fees, expenses, recycling, if any, might be on that portfolio, what kind of leverage structure might be on it. And then finally, we can also dictate what the alignment might be on that portfolio, which is really important, obviously, as an investor. You want to make sure your GP is aligned on that portfolio and shoulder to shoulder with you with their capital as well. So the benefits can often be. Much more downside protective in a GP liquidity solution because you can eliminate potentially problem assets, you can lower the overall risk profile.

• 13:22Speaker 01

  But very simply, they are just two different channels to get access to the same types of assets. The way in which you can do it can be a little bit different. The timeline in prosecuting them can be very different. We are seeing almost a very significant sea change on the GP side. We've, we've executed over 45 of these types of transactions. Uh, in our history, we did over 20 of them, uh, by 2022. So what's often viewed as kind of a new development in our market is certainly something that we've been very familiar with for the last six or seven years. And we see the growth of that continuing for the foreseeable future.

• 14:01David Weisburd?

  Secondaries always sound great. You're getting in private equity secondaries, you're getting 10, 15, 20% discount. Venture, sometimes you could get 30, 40%. And then number one thing to always look out for is why is this person selling? Also known as adverse selection potentially. How do you know that your portfolios are not adversely selected? And how do you do the diligence to make sure that that's not the case?

• 14:22Speaker 01

  Great question. Well, our, our view is that adverse selection can come in any market, right? Whether, and it really depends.

• 14:31Speaker 01

  The way to mitigate adverse selection is having a really wide origination funnel. So as I mentioned at the beginning, we've spent a lot of time cultivating relationships directly with GPs, directly with LPs, um, with intermediaries. We created a funnel that was broad geographically and by strategy. So we've sourced somewhere on an annualized basis, somewhere between 50 to 55 billion dollars of deals this year. That compares to something close to around 36 billion last year. And, and almost six or seven years ago, around $5 billion a year. So that gives you a sense of the growth. So the way to mitigate that adverse selection is having a wide funnel, but it's also having access to tremendous amounts of information.

• 15:14Speaker 01

  So having all of those incumbent relationships in private credit as well as a very large portfolio. A $2 billion primary program in private credit just gives us unique insight, incredible vantage point, both on a micro level and macro level around what's happening in private credit and with specific companies. So that allows us to identify things that are problem assets. Obviously, they might be marked already in the 70s or 80 cents on the dollar. That's obviously a red flag. But even more importantly is the red flag around an asset that's marked at 98 or 99 and is potentially underperforming, right? So we are in the midst today, at the end of October, of a lot of talk in our market around

• 15:58Speaker 01

  idiosyncratic risks that have happened, generating losses in the credit universe, not necessarily private credit, but companies like First Brands and others that looked seemingly performing from a valuation perspective, but were clearly underperforming from an operating perspective. So having that information, having those relationships, and just having a team of credit experts that have been doing this for a long time with decades of experience, analyzing direct credit in all of these different end markets. You know, we have specialists who've done both sponsored and non-sponsored direct lending, asset-based lending, European lending, special sits. So when you put that all together,

• 16:44Speaker 01

  that's a good recipe for being, I think, very confident in terms of being able to vet credit and make sure you're not stepping into someone else's problems. Fundamentally, for us, for me, when you talked about first principles around investment philosophy, you really want to be focused on performing credit and performing assets. Buying someone else's problems is really much more of an equity risk, and that's not what our investors are looking for. They're generally looking for consistency, predictability, and stability. Those are really important attributes around credit investing. Protect your capital at all costs, first and foremost, principles of investing in our asset class.

• 17:27David Weisburd?

  So said another way, if it's performing, that's a good thing. If it's not performing, it's very difficult to tell to the extent that's not going to perform.

• 17:36Speaker 01

  You're going to discount it, right? So if something's a problem asset and you have to take it, then you know, you're going to mark it down. So you know, a good example of this more recently was we bought a portfolio, an LP interest with a very high quality manager that had a line item in it that recently hit the news. We knew it was a problem asset and during the course of our diligence, we, we realized and, and noticed that it got marked to zero in the portfolio. So even it was a problem asset in the portfolio, we didn't have to worry about it because we weren't paying anything for it. The GP proactively decided that that asset was going to be worth zero. So for us to take it as part of the portfolio didn't impact how we thought about overall pricing or return.

• 18:19Speaker 01

  But it's important to identify those things as part of your diligence process. So you know that, you know, you're not stepping into other situations that might have similar characteristics to them.

• 18:29David Weisburd?

  I want to have you take off the hat of private credit investor and put on the hat of private credit and finance entrepreneur. You've built this $12 billion franchise within Pantheon. How does one go about building such a franchise? What is the first step? What is the second step? And what are some principles that you use to build out such a franchise?

• 18:49Speaker 01

  We are in the human capital business. So I think first and foremost, you have to look around and look at the kindling that you have. And I think the, the first thing that we, we gathered was putting together a great team. So we put together a team where we had expertise in direct credit. We had expertise in secondary solutions, fund finance, M and A. These are all important skillsets to have to bring together in, in one place. And then finding people who are really interested in building a business and growing an asset class.

• 19:29Speaker 01

  So I think early on, we discovered a common thread among people we were talking to who also felt uncomfortable about kind of the risks and challenges that were existing in the primary market of private credit. And we're looking to exercise their investment muscles effectively in a place where they could be creative, solve complex problems, and be part of something that could have a real future and change our industry, particularly in credit and in secondaries more broadly. So it really started with a culture of those types of attributes and team expertise, and then leveraging our strengths as a firm, right?

• 20:10Speaker 01

  We've really been innovative in other parts of the secondaries market over our four-decade history. And then, obviously, leveraging a lot of our personal connectivity and relationships as individuals. I think one of the things I really like about our business is that we are real partners to GPs. We're not competitive to them. We help them with references. We help them think about the market. We help them with investor introductions. We help them think through fund structures. So we're trying to be not just capital. I realized early on, when I was involved in building other credit businesses, you know, your capital is a commodity, but who you are as an individual and your relationship and where you can be constructive to somebody, whether it's someone that you're interacting

• 20:54Speaker 01

  with on a transaction, you're trying to buy something from them, you should try to be constructive and value-added, or whether we're partnering with a GP who's going to be stewarding a lot of our assets on a go-forward basis, that's important to be value-added to them, too. So those are all, I think, the most important elements of how you build something from the ground up.

• 21:13David Weisburd?

  What do you think GPs look for you from a perspective of value-add? And how have you been able to add the most value?

• 21:20Speaker 01

  So I think GPs recognize that we are GPs ourselves. We're not just LPs. So I think first and foremost, there's that level of commonality of experience and being in the trenches and investing in different things similarly over the course of our careers. I think GPs are really looking to us as a trusted sounding board. They're looking at us for candid advice that they probably can't get from other allocators in the market or other investors that just don't bring some of those shared experiences and battle scars having worked through different investment cycles, different investment environments, and different types of strategies.

• 22:00Speaker 01

  So GPs are ultimately looking to us as a solutions provider, obviously, if we're looking at a particular transaction. But when we're not working on a particular deal, they're really looking for us for knowledge, for expertise. Can people on our team help them think through how to be better in fund management? How can they better serve other LPs that we also have as part of our own ecosystem?

• 22:27David Weisburd?

  Private credit today is somewhere around $1.7 trillion asset class with a T. What are some of the misunderstood risks on the asset class? And what are maybe some of the headwinds?

• 22:41Speaker 01

  Yeah, I thought a lot about this. I think there's a number of things that I think are misunderstood. One is, you know, maybe more at a micro level, you know, valuations are always things that investors scratch their heads about, right? To our earlier discussion around if an asset is in trouble, why is it marked so highly? And I think, you know, the valuation anomalies that exist in our business are a function of just private markets, time lapses between how valuations are put together and when information is got or received. And that's just the difference between, you know, being a private market, private markets investor and a public market investor. I think other things that are misunderstood include kind of correlation risks in our

• 23:26Speaker 01

  business. So when I see See a lot of investors getting into asset-based lending as an example. And again, it's it's kind of been more in the news lately because there have been several instances of of fraud or collateral that's been mispledged or or not diligence well. And I think a lot of investors tend to overestimate the non-correlation of certain types of assets when they invest. And then finally, the other thing I think is misunderstood is just alignment, right? Our industry has changed a lot. We have a lot of large asset managers in our business. And we have a lot of boutiques. And I think how GPs are incented around their portfolios to deliver performance

• 24:10Speaker 01

  to clients is is changing a lot. There's a lot of consolidation going on in the market as well. And and who is aligned against your capital, I think, is an important consideration always. But I think it's an even bigger risk today than it's ever been over the last 10 years.

• 24:25David Weisburd?

  Conversely, what do you think the skeptics get wrong about private credit? And maybe this should be a little bit less skeptical on.

• 24:31Speaker 01

  There's a lot of angst about private credit. But they don't realize and there's a lot of worry around competition. But I think for a lot of things to negatively impact private credit, a lot of other things have to go wrong in other asset classes. So we as credit investors always talk about the fact that if you're worried about credit impairments, you have to think about equity impairments first. So being first dollar at risk in many businesses fundamentally means that you are not in a first loss position, someone else is. So if you really are going to think through challenges in credit, you really have to think through challenges in other parts of your book as well. So we often see investors that are very heavily in the private equity business or heavily in equity.

• 25:16Speaker 01

  And they're really wringing their hands around private credit, but not understanding completely some of the the connectivity in that relationship. The other thing that I think is also maybe misunderstood is just this concept of risk-adjusted return in private credit. I think it's unique to the asset class because there are many different ways to get a 9% return, a 10% return, or a 15% return in private credit. Most equity investors, as an example, think about multiple of capital. They think about the specific industry exposures or style of deals that they're involved in. In private credit, because of the use of structure and leverage and different forms of duration and cash flow profiles. I think the risk-adjusted nature of how you invest is really important, right?

• 25:59Speaker 01

  If you can get a levered 15% return lots of different ways, but the risks involved in getting that 15% could be markedly different. So I think those two facts, I think, are probably kind of key things to think about in private credit for the skeptics anyway.

• 26:17David Weisburd?

  You built one of the first evergreen private credit funds aimed at private wealth. What has surprised you the most about building an institutional-grade product for the private wealth channel?

• 26:28Speaker 01

  It probably wasn't a complete surprise, but what surprised me is the appetite, the level of demand for clients. I think we've always viewed it being strong, but I think it's really touched a nerve with investors with respect to getting access in a diversified, low-risk way. I think has really resonated with folks, particularly around credit secondaries. So we've, I think, been very careful around making sure we build it in the right way, that we're finding the right types of investors and explaining from an education and suitability standpoint, the trade-offs between investing in private wealth or retail evergreens

• 27:11Speaker 01

  and the trade-offs between, you know, we'd be using leverage or having access to liquidity and the pacing of those types of investments. So we think that has a long leg ahead of it. We, as Pantheon, have been involved in private wealth evergreens for over close to maybe 15 years. We have 12 billion, 12, 13 billion in that area across all asset classes. So we think we know what we're talking about and have a long history of performance there. I think the other thing that surprised me, maybe Is that it's a it's a complex business. It's a very difficult to to manage a daily marked fund with quarterly liquidity,

• 27:51Speaker 01

  which we do on on the US side of our business and and exercising those skills to make sure we're optimizing for performance and deployment in the right way. I think is a unique skill set and we've been having. We've had the benefit of being able to do that for a number of years now, but a lot of people who are new to it just don't have that level of expertise. So they're effectively learning on the job, which is, you know, has its own challenges and risks.

• 28:17David Weisburd?

  Last time we chatted, I was a bit critical of the tax schema for private credit. A lot of people are paying a lot of taxes on that. And you hinted that you guys might be working around a solution. What do you see on the horizon in terms of tax efficiency in private credit?

• 28:31Speaker 01

  I think this is also just a huge area of potential focus in the future. I would say we haven't cracked the code yet on it, but you're seeing lots of other parts of the investing world trying to figure out ways to deliver tax efficient solutions to their private wealth clients. And I think it's going to be one of these areas that's going to have just a huge amount of growth potential ahead of it. I mean, part of the whole push for for retail in private credit around 401ks and the like is to obviously have some sort of tax sheltered solution. But I think there's a lot of innovation, I think, coming around our structures where

• 29:12Speaker 01

  there can be marrying of different investment products to generate tax shields against private assets as a as a very high level example. So I think smart people are working on this and I think more and more clients should expect the delivery of these types of solutions on a go forward basis. I think it's pretty exciting and I think could be a real game changer in terms of how how investors get access to to these types of funds and these types of products.

• 29:38David Weisburd?

  Most family offices that ask this exact question, they say typically the answer is we have it in 401k, Roth IRA, we have it within a PPLI instrument or other tax tax aspect. But drilling deep into this topic ahead of the interview, I realized that some of your gains are actually capital gains because of the secondary component. Not all of it is is income.

• 30:00Speaker 01

  That's right. So I think, look, by itself, it's it's it's a very can be a very tax efficient alternative.

• 30:09Speaker 01

  In private credit compared to other forms of private credit exposure, where the vast, vast majority of the return profile is just focused on on ordinary income. But the beauty, the next innovation is really figuring out how to wrap a tax efficient blanket over that whole thing to to shelter even more what's going on on the ordinary income side. So I think that could be pretty exciting.

• 30:33David Weisburd?

  Historically, what percentage has been in capital appreciation versus credit roughly?

• 30:38Speaker 01

  For credit secondaries, it really depends on the end market. So if you're if you're investing in something that's more senior secured, floating rate in nature, I definitely and has a has a medium term duration on it. By definition, more of the total return is going to be oriented around ordinary income. So probably two thirds ordinary income versus, you know, one third capital gains oriented. And again, those are those are maybe averages with a high degree of variability, you know, deal to deal and situation to situation. If you're investing in more opportunistic credit where the discounts and the risk profile is a little bit higher because you're investing perhaps deeper in the capital structure,

• 31:20Speaker 01

  those discounts can be 50% or more of the total return profile. So that can be a different level of of mix depending on the risk reward.

• 31:30David Weisburd?

  Looking ahead in five years, where do you see the credit platform? And what do you see as the future of Pantheon's private credit platform?

• 31:38Speaker 01

  We're only at the very beginning of market education and adoption of credit secondaries. When we first started the business, I think the goal was to have, you know, a $3 billion business in five years. From an AUM standpoint, we've quadrupled that expectation over that timeframe. We continuously, I think, are surprised to the upside in terms of the deal flow, the size of transactions that we that we see. You know, we are now regularly looking at LP and GP transactions that are 500 million, a billion, $3 billion in size in terms of asset value.

• 32:18Speaker 01

  And we're just at the very beginnings of where that goes. So, you know, we're incredibly optimistic about where the environment is going. We broadly speaking, depending on the estimates, there's around maybe $20 billion of transaction volume done in credit secondaries on an annualized basis. You know, we could very easily see that, you know, triple over the next four to five years.

• 32:43David Weisburd?

  You've had an amazingly storied career. We didn't even get into your time at Morgan Stanley, Goldman Sachs, Citigroup. Topic for another day. What one piece of advice would you give yourselves coming into Morgan Stanley 1994? That's timeless. That would have either helped you accelerate your career or helped you avoid costly mistakes?

• 33:03Speaker 01

  I think, I think the biggest thing is to, um, you know, think about relationships and picking your partners carefully. When you're a young person, especially back then, it was all about technically being as proficient as possible, being able to grind through complex situations, handle multiple projects at the same time. And sometimes there wasn't that ability to really develop a lot of that mentoring or personal connectivity when you're early in your career. But I think over time, as you kind of graduate out from the bullpen and the, you know, 80 to 100 hours a week type of lifestyle and start exercising those skillsets, I think

• 33:46Speaker 01

  certainly developing relationships is so important. Picking smart people that you can learn from, recognizing that when mistakes happen, you really understand why those happened and learn from those in a really appropriate way. So those are probably, those are probably the things I'd tell myself from 30 years ago to think about more broadly. But I think we all, we all kind of work on those things at different points in our career. And I think hopefully over time, I've been able to develop those types of relationships that have made, made us and our platform and our team so successful today.

• 34:21David Weisburd?

  Being in the right rooms and also reflecting on mistakes when you make them.

• 34:25Speaker 01

  Absolutely. You know, you gotta be introspective. You gotta be always learning, you know, even you even on our even at my age and my vintage, you know, you're always learning from folks. And that's that's the other thing I love about this business is we get to touch, you know, some of the the biggest successes and brightest minds in investing in private credit at all of these great firms. And even at smaller boutique firms, they're just people that just had a myriad of different experiences, have invested through so many different cycles, have had successes and failures. And being able to talk to all those people all the time, I think, just makes us better investors and better partners.

• 35:06Speaker 01

  That's probably one of the biggest benefits of being in in credit secondaries and being in secondaries generally. All of the smart GPs that we get to work with, as well as just the interactions we have with LPs as well. There's a lot of talent on that side of the the street. And those folks oversee not just things in private credit, but they see across multiple asset classes and also have, I think, very unique vantage points in terms of how they see the market, how they think about risk, and therefore how they think about investing. So it's a it's a fun spot.

• 35:37David Weisburd?

  Perhaps a dumb question, but where do private credit secondaries fit into a portfolio? Are they secondaries? Are they credit? Do they compete with bonds? Are they an alternatives bucket? How do most people think about it? And also, how do you think they should think about it?

• 35:52Speaker 01

  For a lot of investors institutionally that have already been in private credit, they are they are looking at their direct lending book, saying, well, we don't need 10 direct lenders anymore. Maybe we only need five. And we want a complement to that strategy. So I think in some cases, they're taking those dollars from traditional fixed income, or they're taking it from existing allocations where they might already be overexposed to that sub asset class. I think a lot of investors also who want to pursue opportunistic strategies, look at the world of those other. Opportunistic credit categories and say to themselves, it's pretty daunting out there. There's 1,100 credit managers out there globally,

• 36:35Speaker 01

  360 plus direct lenders just in North America. How do I efficiently get access to really smart people in a scaled way? I might be writing a $20 million check. I might be writing a $200 million check. It's difficult to do that. Access is also an important consideration. And for the high net worth crowd, for private wealth, we've seen all sorts of use cases. We've seen people use credit secondaries as a transitionary asset class to hold cash from selling a large position in the equity markets. Let's say a founder of a large technology company wants to gravitate into other private markets. They use credit secondaries efficiently. And then other people, I think, are generally just looking for strategies that have a really nice supply, demand imbalance, right?

• 37:19Speaker 01

  If you look at lots of different parts of the private markets, they are under, they are oversupplied with capital. There's a lot of competition. There's a lot of spread compression. I think in secondaries generally, whether it's private equity, infrastructure, and certainly private credit being the least mature of those asset classes, there is an abundance of market opportunity and it's undercapitalized from both money as well as scale and resources. And as an investor, you always want to be investing with that kind of tailwind behind you because it means your capital is going to be priced appropriately in that type of market.

• 37:57David Weisburd?

  I don't know if you would like investors to look at you this way, but one of the most interesting strategies that I've seen is when people are building out their book, this was originally told to me by Frank McEl from North Dakota Land Trust. They look for just exposure to a certain asset class through evergreen funds. So let's say they have their private equity evergreen and they have their private credit. And as they find managers, as they find alpha, assuming that these evergreen funds are beta, they reallocate into those asset classes so that they can make sure that they're not keeping money in cash while they're choosing the managers and also having... Capital in these evergreen funds also allows them to have a high bar where the manager has to be better than the aggregation of many managers. So it's useful, I think,

• 38:40David Weisburd?

  both functional, but also as a way to discipline your investing.

• 38:47Speaker 01

  Yeah, absolutely. That's a smart way of thinking tactically around using different access points and vehicles to achieve your objectives. You know, as a CIO of a very large plan like that at North Dakota as an example. So we are seeing LPs that are sophisticated like that start thinking about using not only different asset classes, but those structures to their advantage. So I think that's a pretty clever way of being able to, you know, manage your book and allocate risk appropriately.

• 39:17David Weisburd?

  All right, Rick. This has been Absolute Masterclass in private credit and private credit secondaries. Blew my mind. Thanks. Thanks for jumping on. Look forward to continuing this conversation live.

• 39:25Speaker 01

  Absolutely. See you in the next, in the next iteration of this. We'll be looking forward to talking about the report card and update on credit secondaries at that time. Thanks so much for the time and great to speak with you today.

• 39:37David Weisburd?

  Thank you, Rick. That's it for today's episode of How Invest. If you're a GP with over $1 billion in AUM and thinking about long-term strategic partners to support your growth, we'd love to connect. Please email me at [email protected].