Gleysteen: "Concerned About Pace of Recovery"

Credit Management. They've got roughly three billion in assets under management. He joins us on the phone from New York City. Peter, so good to have you back with us. How are you. How's your world? Um? Well, I am excellent. Carol and Jason, I hope both of you and all your friends and family are also well. Yeah, we're doing okay. So tell us about the credit world, because we are certainly watching very closely. It looks like things are working fairly smoothly.

What are you seeing from your perspective. That's a very good description of the new issue loan market. It's at relatively low levels historically, but eligible, strong borrowers can come to market and raise capital. That's a really positive thing. It's it's also very attractive for investors because these borrowers are are paying more, so the risk adjusted returns are

much higher than previously. Another comments I'll make from an investor's vantage point is that most of the borrowers who have come to the brdly syndicated loan new issue market since COVID last six to eight weeks are much stronger borrowers than the typical average borrowers, so that it's logical that that strong, well managed companies, not that many many other and smaller companies aren't also well managed, are taking the opportunity of the conservative step to raise additional passion

put it on the balance sheet because the market is open for them to do that, and they're doing it because you know the unprecedented uncertainties ahead. I'll add that the so called secondary market, which is the actively traded market for already existing loans which are approximately one point three trillion and broader syndicated loans um many all those

loans have sold off. In that sense, the loan markets are highly disconnected from the equity markets that we hear you're about and read about every day, um and But the point I want to make is in this very large population of loans, in excess of the trillion there are, are there haves and have nots in the sense that many of these borrowers, the majority of them are performing well. You know, they're affected by the circumstances and really but

they're performing well. They're resilients, have capital structures that are such that will enable them to not go through the storm, but through the scale like a kind of a perpetual gale. But notwithstanding that, their their prices um are severely discounted.

So it's an investment opportunity. Right. Clearly, there are many that there are many companies that you wouldn't want to invest in as a regular investor because they're they're quite challenge Well, that's exactly what what I wanted to talk about, Peter, because you know, for those of our listeners who aren't as fluent, you're beyond fluent. You're your teach a masterclass

in the credit markets. But you know, part of what it sounds like you're saying, and it is important to remind folks about, is that this is actually a clear window into the health of companies than we get from watching the vicissitudes as it were, uh of the equity

markets bouncing around. Right, that's an excellent point, Jason. So what the what the recession has done has created high high visibility into borrowers that can survive a really bad if any recession, never mind a bad recession, and the ones that cannot. In normal times, you really, you know, to quote mon Buffet, until the tide goes out, you can't you can't see what's going on. But in this case,

it's it's very, very visible. So what's happened is there are many borrowers that are clearly challenged, but there's so many that that that are resilient and are our great investment opportunities. So there, in addition to the fact that the markets open for qualified borrowers to raise capital, both for new loans but also old ones, there's plenty of investment opportunities. You know, there's there's no press continue the market reaction can be to throw the baby out with

the bath water. So well, that's a good point. And so where where do you see the opportunities right now where people might get confused and actually throw the baby out with the AWA are where are you seeing those opportunities that you've got to make the distinctions? UM, Well,

that's a great question. I would say that most most investors and also most asset managers UM look at credit quality and also the subject of portfolio diversityations is a really key point UM through through the lens of the industries that the borrowers performing in. But more important than the industry that a borrowers is is is what the business that a borrower has UM. How correlated is to g d P to the economy. Because you can have

you can have. There are many industries who UM where there's credit risk, but the credit risk is dispersed over time as opposed to occurring at single points in time like a recession. UM. So so that I'll pick some obvious examples, and there are also some surprises. And obviously example is food UM or food supply or food storage or the transportation of foods UM. There are many, There are many, many many. One of the fastest for years, one of the largest now and fastest growing UM parts

of our economy has been business software UM. In many cases, the business models were strong occurring revenue, which has high switching costs and good competitive musicians. UM. There are many kinds of business services think of iron mountain or documents storage or UM or even building security or even or even insurance brokerage or broad or broadband people getting internet access, never mind defense. There are many UM either industries or subsectors within industries that the term that a g L

uses is our a recessionary US. There's credit risk, but the credit risk isn't UM has load and no correlation with actual GDP. So, Peter, I want to shift the conversation a little bit if we can. You're a Wall Street veteran. This has been, to say the least, a tumultuous time on Wall Street, and not just for the usual reasons of we've got a crisis, We're trying to figure out how to invest through it. We are trying

to essentially reinvent Wall Street. It feels like a Wall Street is trying to reinvent itself on a number of fronts. One is from a remote perspective, and one is a long overdo reckoning with a lot of racial injustice, a lot of a lack of diversity, and so many elements that we've all been talking so much more about let's start if we can on how Wall Street changes in its operation coming out on the other side of this as we try to figure out what the new Wall

Street looks like. That's a great question, Jason. Let me kind of work backwards. So I think you mentioned, you know, the need of course for more diversity, special racial especially racial diversity, and also the challenge that the new the new modality of working remotely. So what this is all presenting is an opportunity, especially because we've seen that financial services, investment, banking, even trading, all aspects of finance UM can be very

effectively done remotely. There's a lot of pieces that are missing UM from human contact. But it means there's an opportunity to effectively start with a clean sheet of paper. So what we're dealing with, our our legacy cultures, business frameworks, systems, there's an opportunity now to say, okay, well, if we can take it to the next level, and if in many maybe not all cases, but in many cases, assume that we can build it from scratch or have a

better policy from scratch, let's do so. One of the you know, coming back to diversity, one of the things that working remotely does is it forces you to rethink anything that you just in the habit of doing so in the real world. A lot of what we did, we did it that way because we always did it, or that's what our friend there is, which kind of with a default for incumbency, legacy mode um. Working virtually is illuminated that a lot of things, including that you

don't have to get a lot of things done. You can even do it faster in some ways better and some ways not. But without the traditional way of doing it. It also makes it clearer and cleaner to to be objected um it um. We all we all have, I guess for life without our term embedded bias, subconscious biases.

But when you're when you're working remotely and you're not you're looking at actual information and actual formants, it's easier to to compare it, appreciate it, understand it, respect it um without without kind of the lenses of kind of our our culture or or proclivities, whatever they may be. So I think there's a real opportunity to take things to level. I think it's gonna be hard. I will

just make one more common about working virtual. I think it's hard dist on our our youngest colleagues across the industry because you know they're learning, they need feedback, and some feedback of course needs to be is for lack of better term, is it is not in a written or virtual form. You actually need to have have have a human presence or social proximity, especially to learn and and to see how you're making progress. But I do

think it is a huge opportunity. I can't believe how how effective and productive, um much more could ever expected a g L has been. In fact, you mentioned our size. UM just since COVID, we have done two securitizations working virtually entire firms work in virtually totaling a billion dollars section, the most of any any manager has done since COVID. So um that just this testimony to how effective, how

effective of not being in a physical environment is. I do think it's going to be a blend of the two in the future from what that b But I do to the more important question, I think it's incumbent on all firms of all sizes and types to take the responsibility to make it a better work environment, a fairer environment, and more opportunity for all. God I could just keep going talking about this. I have one last question. I want to go back. Forgive me, it's a bit

of a turn. But you know, you sent over and you showed some notes with us, and you said we are in a recession and there is higher risk everywhere. How concerned are you, Peter about the economic outlook what it looks like. Well, we get on the other side of this and we've just got about a minute minute

twenty left. Very concerned. I'm more concerned about the pace of the recovery, how fast it is, how wide it is, and and also the possibility that we can have kind of setbacks, hopefully not from from a second wave, especially a bad second wave. But I do want to point out that, um, it's not one size fits all. UM. Many businesses are normally surviving UM and for investors depend only focusing on on the right opportunities. There's a step

shift increases in terms of risk invested returns. But I am but this reason that they're higher is for the reason you just said, there's just so much uncertainty, unprecedented level of it. Absolutely well, we really enjoy catching up with you whenever we get a chance to. Peter Gleistein CEO chief investment officer of a g L Credit Management. Just one of those thoughtful voices on Wall Street Carol

that we love checking in with. He has sort of just a calming way about him that basically says, here's where we are, here's how we're going to figure it out. I love his point about the objectivity that comes with distance.