Mark Jenkins on Leveraged Finance and Pension Plans

in credit assets. He has a fascinating career doing all sorts of work across the credit universe, and there aren't very many people as knowledgeable as he is, uh in as many types of fixed income and credit investing as he is, whether it's aviation, real estate, liquid a liquid, private investments, um, distressed assets, really across the board. His focus on alternative credit assets is quite comprehensive. Carlyle is one of the fastest growing credit shops and private equity

shops out there. They're probably traded and I just found this to be a master class in how to put capital at risk when you can't get a whole lot more than one and a half two percent and fixed income but you don't want to see the same sort of volatility and risk that you see in equity. What's the sweet spot in between the two? Really just an absolutely fascinating conversation and I learned a lot and I think you will also with no further ado, my conversation

with Carlisle Groups Mark Jenkins. This is Masters in Business with Very Redults on Bloomberg Radio. My extra special guest this week is Mark Jenkins. He is the Managing Director and Head of Global Credit at Carlyle uh, the private credit and investing giant with over three billion dollars in assets under management. As head of the Global Credit Desk at Carlisle, Mark overseas seventy three billion dollars in assets

under management. Previously, he led the Canada Pension Plan Investment Boards Global Private Investment Group, and prior to that, he was at Barclays, where he was Managing director and co head of Leverage Finance. Mark Jenkins, Welcome to bloom bark Berry. Thanks for having me. I appreciate it. I'm excited about this. This is an area that I don't think people understand or or hear enough about. It's usually all day long equities and I'm I'm excited to talk a little bit

about the various types of credit you manage. But before we do that, let's get into your background a little bit. You attended Queen's University in Canada, where you earned a commerce degree. How does that translate into an interest in

credit and investing? Yeah, sure, Verry, I think you know, when I grew up, I grew up in a town called Ashwood, just outside of Toronto, and um, you know, growing up, I didn't really have uh, any influences that were in the business side, and so as I was kind of progressing through my childhood and through high school, I sort of was very interested in commerce and how

that works. So, you know, my first job really was working at a corner store where I used to stack what we would affectionately call in Canada pop bottles, but you called soda bottles that if you're in Minnesota, you might calm pop bottles as well. And I used to sweep out the parking lot as well. That was sort of my first job at thirteen, and I was very

interested in how that gentleman ran that store. And my brother in law actually ran a small lumber yard in town that I worked at as well, and so I was very very interested in how business has worked, you know, how that operationally worked, not just the actual element of working at them. And so I kind of looked at people who had progressed into business, and most of them in Canada at least had commerce degrees. So that's how

I went to Queen's Commerce. And you come out of school, you end up at Goldman Sachs prety early in your career, right, Yeah, Actually it took a bit of a short stop first. So I um, back in the day when I was sort of again trying to explore how to get into business, I noticed a lot of chief financial officers in Canada had a c p A or back then as c A, and so I actually spent two years at Cooper's and

librand working on my CEA. In Canada, you have to intern at a at an accounting firm, so I worked there in corporate audit and business investigations, which basically back in did a lot of the bankruptcies in real estate. So in fact, one of my early experiences was working on the Olympian York bankruptcy with the Reichman brothers. So so I have to imagine that's a useful set of skills to have when you're trying to decide, hey, am I going to see a return of capital as well

as return on capital? For this particular credit. Yeah, it's it's certainly taught me how to understand, like how you're gonna get your capital back if you will. I think that, you know that. I think my early formative years in terms of business was one of skepticism because eighty nine ninety was, at least in Canada was going through large, you know, recession, predominantly in real estate. Owen Y had overextended itself building out in Canary Wharf at the time.

I recall cross collateralization. I was kept from all the banks, of course, which was part of what we discovered. And I think my formative years was started with a lot of skepticism, which probably led me into credit as a result. So so from Cooper's and libraries and and accounting, how do you make your way to fixed income and Goldman? Yeah? Sure, well I I realized that the accounting profession, probably long term, wasn't going to be for me, and most people would

move on to something different. I had some friends who worked over Golden Sacks, which frankly I didn't know a lot about at the time. I walked across the street in Toronto, ended up working there and initially in um in controllers, but eventually worked my way into being a credit analyst there. Uh, and you know, very shortly thereafter, I moved down to New York and spent actually most of my career in New York working for Goldman uh

and always on the credit side. So Goldman and then you end up at Barclays where you were co head of leverage product that that sounds like that's an aggressive portfolio, is it what it sounds like? Yeah, I you know, I'd spent over eleven years of Goldman. I learned a tremendous amount of that organization as it you know, transferred from transformed from basically being a partnership into a corporate

uh and all the changes that go with it. But it was an extraordinarily um fertile time for me in terms of growth and development, in terms of just being very entrepreneurial and commercial. And I love that aspect of it. But Barkley's a couple of my friends had left Goldman to start up the leverage finance business there, and it really for me, it was it was an opportunity to learn how to build a business. I was, you know, spent all my years doing very highly structured transactions on

the credit side, being a credit analyst, et cetera. But really what I hadn't learned as the business side of it, and that was a great, you know, formative time for me, which which kind of led me into my next move, which Canadian Pension Plan, which just sounds very different than

prior experience. Yeah, very different, but but similar in that you know, um, my former boss used to joke when you hired me that basically I was joining a hundred billion dollar startup because the Canada Pension Plan Investment Board, in fact is manages what you would think of as in the U S terms excess contributions to social security if there was such a thing, which there isn't, um, but but that's effectively what you're doing. You're managing those

excess contributions to the Canada Pension Plan. And for me, it gave me the ability to take all the knowledge I learned on the credit side, the business building opportunities, and transform that into a private credit UM direct private credit investment platform for c p p I B and later you know, as I progressed their stayed there. I guess if I ended up running private investments which include a private equity, infrastructure credit, energy credit, and some other assets.

But jen Away, I'm I'm a practitioner in the credit side. So when I was doing my research into your background, you have family members who were investment investors and pensioners into the Canadian pension Plan. How did that, police, teachers, pensioners, things like that. Did that impact how you thought about

doing your job? For sure? For sure? I think that the greatest takeaway from me, and I take that to my job today is like, I know who you work for and for me of a ninety one year old mother and she would say to me every week when I talked to her, how are we doing? Because it's her money, right And so my my my mother, my brothers are about eighteen years older than me, so they take the Canadian pension Plan right now as well and

my sister, so they're all beneficiaries of that. And and on top of that, my brother and my other brother they're both were one with a teacher, one with the policeman, so they also benefit from the Ontario Municipal Employee retirement Plan and Ontario teachers pension plans. So they're all beneficiaries of these large pension plans in Canada. And I think

what it what it really did. Has made it real, made it real for me in terms of the money that I was investing the sacred trust were literally nineteen million people are giving you money to invest on their behalf is a sacred trust. And so I used to say to the team at c P P I B that that's a special place to be and that has a higher duty of care in my mind, because think about if you lose twenty million dollars, that's like the entire city of Peterborough contributing to CPP for a year.

So that really puts things in perspective. And and I've taken that with me now because now I work on behalf of many beneficiaries and fiduciaries across the globe and I and I do still think it's a sacred trust and it's a privilege to manage money. Huh. Quite quite fascinating. Let's talk a little bit about credit and fixed income side for your career. What what led you to make that leap from from a credit analyst and a fixed

income analy us to actually managing credit portfolios. Yeah, Barry, you know, when I think about just being in credit generally, people ask me that all the time, and I look back and my my my not illustrious sporting career, which was you know, soccer hockey, and I always played defense, so I never really played on the offense. I was always trying to keep the puck or the ball out

of the net and helping people do that. And I think when you you think about credit, what you're looking to do is there's a contract between me and you, and I give you some money, and at the end of that term of the contract, you give me the money back. That's that's defense I'm not looking for. We're not looking for massive upside that you you know, shoot

the lights out on the equity side. And so it always seemed to be very much a comfort zone for me that I could operate in an area where I could understand what was going to allow me to get my money back at the end of the day. And all that training at Goldman had taught me as a credit analyst, that's what I was always thinking about, is how will this obligore give us the money back at the end of the day, so that you know we're in a good position and we're minimizing our credit risks.

I think the other thing that Goldman really taught me was how to mitigate risk and downside and really focus on the downside and a lot of situations. And so coming at investing from that perspective naturally led me to a better credit hat than it ever did equity. And in fact I did run equity private equity at at c P P I B. I think I was okay at it, but I definitely majored in in credit. UM. So that's the path I pursued and and it's been it's been fruitful, and I really find it fascinating. I

know I'm a credit geek. If you will, you know, I'm intrigued. I love the soccer hockey metaphor. I have a friend who's fond of saying a bad year in fixed income is a bad afternoon and equity and and it's really kind of true. What's the worst year? High quality fixed income has not not that bad because of

that return on of capital. Yeah, And I you know, I think for anybody who manages the portfolio and getting back to that, you know, managing large portfolios at a place like CPP I B, as you recognize we're just like one exposure in somebody's broad portfolio. So you've got to think about what you're meant to deliver into that portfolio, and that is a very stable, persistent return three cycles.

And that's to me what credit encapsulates from an investor standpoint. So, so let's talk about some of those different silos of capital. You have a couple of different credit segments liquid credit, a liquid credit, real estate assets. Am I missing any or no, that's it. Those covers the big three. So

break those down for us if you would. Yeah, So what we wanted to do and from my experience on the other side and experience that these other organizations was explaining credit which isn't really a monolithic asset class like it has a range of exposures and a range of expected outcomes you know through time that we really wanted to be able to deliver two investors that range of

risk return outcomes. Right. And so if you think about, you know, non investment grade credit, you go from leverage liquid loans clos which is the liquid credit side of things, to direct lending, to opportunistic credit, to distress which is really private or a liquid credit because it doesn't trade.

And then there's real asset credit, which involves assets like real estate infrastructure in our case, aircraft aviation where the underlying security and cash floads are determined on herd assets and all of those from ourn investor's perspective, allow you to um put together a portfolio that is diverse away from just single name credit. And I think that's what people like on the institutional side. I know that from experience, that's what we look to do in my portfolio, my

former life, and that what people are doing today. So that was point one. We wanted to be relevant to our customer, if you want to call them that the investor. Number two, we've got to be relevant to the user capital right like it's by having a platform approach which really kind of covers that span, that broad span. We can be relevant to almost any borrower in the world

for whatever they want to do. Right So they may have some real estate, they may have ongoing cash flow loans, but you can put them together and you can deliver an opportunity. Why is important because it allows us to have the widest funnel from an origination standpoint that we can and leverage that car Carlisle network where we're operating

on a global basis. So that's that's really those three verticals really feed into what we're trying to accomplish from a platform perspective, So I understand real estate obviously is gonna be collateral in that space. When you talk about hard assets and aviation, you're referring to the actual aircraft. To the actual aircraft, I mean, the actual metal in the sky only has value to the extent you have a contract to lease it out. So it's not it's

not just enough to have the airplanes. What's as important is to have the relationships with the D and ten plus airlines that we do on a global basis in some a D plus countries around the world, so we have that diversity and maintaining that long term contracts. So through this period of time which a lot of people would say, geez, it must have been a really tough

time in global aircraft, which it has been. You know, we've been able to take advantage of restructuring and turning out our long term leases, which is good, gives us lots of optionality, but also take in more aircraft. So we've now actually risen from being I think it's the fifteenth largest lesser in the world to the sixth largest

lesser in the world. As long as we close on Manchester, which was announced just before Christmas, So so we really leaned into something where the metal in the sky is relevant, but as relevant is are the long term contracts that you have with the with the airlines, and so essentially you're making a bet that we will eventually return to normal, travel will recover and and people will move about the country as they were the world as they as they

were pre pandemic. Yeah, at a macro level, at solutely, I think that's true. I think the the other thing I would layer into that is there has been a shift in terms of the older aircraft that have been retired, so that the actual inventory has shrunk and the actual O E M s Airbus and Boeing have actually shrunk

the number of planes a producing. So there is there's another technical factor going that you're having old aircraft retired because they're not economical to fly, and you have the O E M slowing down, so actually makes our midlife aircraft much more valuable. If you're trying to have a very economical asset in the sky to fly from, it makes sense you can strain supply with the same demand. Prices are going to go up, So so let's focus

within the ill liquid credit silo. Tell us a little bit about private credit, because I want to hear that phrase. I tend to think of merchant banking and the sort of mid level bank services that Wall Street has sort of grown out of and only focuses on the largest companies. But there is a lot of you know, really substantial amount of UM firms and activity in that space. It

just doesn't seem to scale to public Wall Street activity. Yeah, Well, a little bit of history, I guess it is probably worthwhile. If you went back to oh eight oh nine, which you know, I was fortunate enough to be in the credit markets, sent to to to work through that, which was very, very interesting. What you found is the banks

had already started to retrench from the lending market. I mean that in fact, it started well before oh eight o nine, and then late nineties more or less uh in the institutional market, specifically on the loan side, started

to increase. And if you went from eight o eight oh nine to call it twenty if you saw the amount of credit inventory that banks were carrying to today, that's down, you know, And I put it in simple terms, is there no longer um They no longer hold inventory they're shippers at the risk right and in that void if you will. You had a couple of other things happening. One, you've got a thirty year decline in absolute interest rates,

which we've all observed. And um, you've seen a rotation as a result of that of these larger institutional funds that have to make returns that are in the high single digits rotate into a liquid assets. The first phase of that that was in private equity. People looked and said, I can pick up five hundred extra basis points on average if I go into private equity, plus or minus a hundred here or there, and I don't want to be exact on that, but just approximate, and they made

that rotation. That happened coming out of O eight oh nine, and we've seen that progression. The next wave is people who are in fixed income who are picking up two three in corporate bonds and rotating to the extent they can allow themselves to be more eliquid, picking up a hundred two hundred fifty basis points by going into privates.

Now it's not obviously without risk because you want liquidity, but I think oh eight O nine showed us that you may be over paying for liquidity because I lived through that period of time and what you could sell was the best high quality liquid names and anything that wasn't high quality within all that liquids. So the risk, you know, premium you're paying for that was pretty substantial for for liquidity. So what we what we have today is a private credit market that's grown from three billion,

it's over triple to one point one trillion today. Total alternative assets today as of the end of last year eight point nine trillion in a market where the combined fixed income and equity markets are two hundred and twenty nine trillion. So alternatives as a whole are pretty small in somebody's portfolio. Private credit is it's a one to nine ratio in terms of total alternatives on a path where we've tripled in size, over tripled in size since

eight oh nine. And what we see because of all those dynamics, the banks retrenching the rotation into alternatives is a ten to twelve percent kagger over the next five years. So it's there's you know, we don't hear about it because it's relatively small, but it's it's a part of somebody's portfolio, and it's becoming increasingly more important. So you mentioned the um thirty plus year bull market and fixed income with rates falling from the early eighties and Paul

Vulcar down to close to zero. What was it the bottom of the ten year about one something one two one one. Uh. It appears that that thirty five year market is coming to an end, and we're looking at a combination of both rising inflation and higher rates. How what sort of challenges does that present to you working in credit markets where hey, maybe rates are going up, maybe inflation is is going to impact our our real

adjusted returns. How do you figure that into your Yeah, well, the early early returns are if you look at high yield, it's down four year to date. That's relative to the SMP five, down eight and a half percent year to date. Leverage land exactly. Leverage loans are flat. Now why is that? Because they're floating right zero like zero point five duration versus a longer duration fixed income on. So right now, it's pretty clear that the moving interest rates is impacting valuations, right,

it's not. There's not been a fundamental shifting credit yet. Although default rates you'd imply with spreads right now that default rates went from the end of year at one point one to maybe one point to five, still very very low skill. So I think the early returns are um really indicative of interest rate moves, which, by the way, we should have expected. I mean, I don't know how long people thought the punch bowl was going to stay there, but we couldn't believe we're going to stay at that

that level forever. So none of this is unexpected. I think the shock of the moves is always I find in the market unexpected by people, but it should have been expected. So as you think about investing, if you think about it from a return perspective, you've got that hedge if you want to call it, against rising rates.

What we're not seeing yet, but this is what we I think we get paid for is the credit impact of a slowing economy with rising rates and inflation, and that you know, That's where I think we moved from two thousand and twenty one, which was I would say arguably a macro focus trade, if you want to call it that, even though we're long term investors, to very much focusing on the micro, which is security selection and portfolio construction. Because the one thing I've learned in thirty

one years. Is the only thing that's protected us ever coming out of like a massive disruption in the marketplace is a high quality, diversified portfolio. So that's how we're focused today. Inflation isn't is not so much where we think rates go in terms of how I think about it, it's how does it impact the companies that we are lending to. So, for instance, we have a company recently um they call it like a staple food provider, white label it, and the biggest cost to them is the

inputs of the food obviously gone up dramatically. We're our concern was was were they able to pass that on to the distributor large distributors you could think of of of food in in the United States, And the answer

is they were, okay, So that's a good thing. What we're trying to do is look at portfolios were that ability to pass on costs or absorb costs is greater than things that are more sensitive to it, because we know that's going to hurt margins and EBITA growth, and that's that's what we're focused on right now as we think about inflation, not so much out it in effects

interest rates. So that's interesting you're you're using that as a single example, because when I was learning about what you do with Carlisle, you know, sometimes I look at a particular manager and they're all about the selection. Other times and I'm gonna throw this to you, it's more about creating a platform that they can um opera raid off of, as opposed to being so focused on the granular single company selection. Tell us a little bit about

the platform that you helped develop at Carlisle. Yeah, our platform approach is really informed by my time at c p P I B and what I learned there, where they were agnostic to product in silos. They were simply seeking at the best adjusted risk adjusted returns. And if you looked at the old days of oh eight oh nine, things are very silent, high yield leverage, loans, distress maybe

special sits, but they were very specialized. And what we learned, or I learned at least with my team at cpp I B, is by having a broad platform that could connect to the information flows coming in from the public market side, coming in from the private equity side, you know, coming in from our infrastructure and real estate, helped inform opportunities and allowed us to move three cycles to where

those opportunities were. So, for example today at Carlisle, what we were able to do is as we were going into we're obviously working across the platform and direct lending an opportunitisy to credit, not really need to stress doing really regular way performing deals. And when the market dislocated in April, March and April, it felt like eight o nine again, and we were able to go immediately to the secondary market and deploying the leverage loan market where

things were trading off dramatically. So Charted Communications trading at seventy two, I didn't need to be a genius when I looked at the market cap of chart Communications Trading at seventy two to recognize I'm probably gonna get my money back, right. So if you don't have a platform that allows you to pivot, you can't take advantage of that. So what we've done deliberately is have this cross platform approach both in products set expertise, but geographically so that

we can swing to where those opportunities are. So, for instance, in the past i'd say six months, we've seen a lot of opportunities coming out of Europe because the US capital markets tend to hear themselves a lot quicker and stabilize quicker. Europe because of the multiple different jurisdictions, tends to take a little bit longer. We're looking into Asia,

we see opportunities, they're evolving. If you don't have a broad platform that's connected globally, it's very hard to take advantage of those opportunities to swing your capital to where those opportunities are really, really quite interesting. Let's talk a little bit about the state of credit today. You mentioned global credit um generally has grown. You've grown your platform um to seventy three billion dollars as of the end of one that's about two x what it was four

years ago. Uh, and it's one of Carlisle's fastest growing segments. Tell us a little bit about what you're doing in terms of fundraising and how much of this is performance related. Well, you can't raise What I've learned is you can't raise money without performance. So one figure one that gets the other.

I would say that what we're what we're wanting to do is I think that the thing that's really important as we've build up the platform is a lot of people say, you know, why do you why does scale matter? Will scale matters because it allows you to take advantage

of the best opportunities on a global basis. So we want to be scalable so that we can do any transaction that we want to do globally period and that was the goal of getting to scale seventy billion, eighty billion, ninety billion, like you're in the snack bracket where you can do any transaction you want and being very selective. What that also leads to is that you know, each successor fund more people want to participate. So that is

an ongoing growth trajectory that we just deal with. If you have poor performance, well guess what, people don't want to participate in your funds. So far, Touch would In the six years that I've been involved, our performance has

been I think very good. But the most important thing, and I said this before, is that we're there to deliver an expected exposure into somebody's portfolio, consistent and persistent through time, and that is something you demonstrate over time and so far, I think with the team that's there, which is excellent by the way they have been delivering those returns over the past six years, even through the pandemic, which is really important. I think the next twelve to

twenty four months. You know we're gonna we're gonna have some challenges. Everybody's gonna have challenges, and but I think that the portfolios are well positioned for that. But what it also means is when we talk to our investors is they need to invest capital like that doesn't stop just because the markets are volatile um and people are rotating more into private credits you and I discussed earlier, and so we're seeing that growth. So we're trying to

balance our growth versus what the opportunity said is. And the one thing I had learned from my prior life is that you know there is a certain growth trajectory that if you get beyond that and I almost had infinite capital at my prior job, but you don't have infinite opportunities, and so you have to continually build the team in the platform that allows you to scale into the opportunity set to be able to prosecute if you can't esecute it, and then you may end up in

a not a good place for your investors. And so we're very thoughtful about that. But the programs that we've built out have scaled mostly because we've been able to do those larger size transactions and control them on the front end. And I think, you know, we'll continue to to to leverage into those programs that we're being very successful. So you raise a really interesting point, which is there is only so far this can potentially scale. You were

talking seven. I'm assuming that this can scale up some multiple of that. How large can private credit grow um even though it's such a relatively tiny portion of overall investable assets? Uh, where's the ceiling? Well, I don't I don't don't know if I can predict the ceiling, but I can tell you that our forecasts and belief is that it's it's growing at at least ten to twelve percent cager pery, or from a one point one trillion

dollar base today. Right. I know it sounds ridiculous to say from that relatively mole base of just a trillion dollars, but in the grand scheme and thing, But if you think it's a percent of global asset, but if you think about it's very small part of a global ass that you're absolutely rights. But if you think about the participants, even the largest participants aren't greater than a hundred and fifty I mean, that sounds like a lot, I know, but in the context of that that there's not like

a clustering at the very top yet. So I think, you know, we're going to grow with at least the market obviously, you know, stakeholders would like us to grow beyond that. I think if we do that in a very thoughtful, deliberate way, that's fine. The other thing we pursued, which is slightly different than maybe some of our peers, is we do have that three pillar approach across multiple strategies.

So any of those strategies in and themselves can scale to ten or twenty billion, but if you you know, took that in totality across the platform, that adds up to a lot of money to manage, right, And so what we've really purposely tried to do is say, where are those veins that we think will expand infrastructure, real estate, credit, aviation, you know, corporate credit as a whole, obviously liquid credit. You know today if you look at the leverage loan market,

it's one point five trillion. It was less much less three to four times what it wasn't two thou two thousand and nine. So you know, we're trying to see in those large markets where there's scale and we can scale along with it. So I'm going to circle back

to infrastructure and leverage loans. I want to refer to something that you guys said on your fourth quarter conference call, which was, as a firm, we expect to see Global Credit have a breakout year in um given all the turmoil we've seen and potentially rising rate environment in the face of inflation. Why should we expect to be a

breakout year for Global Credit? Well, twofold one is I think you know that operating platform I talked about is in place, and so once you you put the operating structure in place, from an an investment in origination perspective, I mean, it really does allow you to scale and be much more efficient. So that's that's point one. We

have multiple avenues when we raise capital. We've got c Tech, which is a which is a retail product that goes cuts across our entire platform, and that is very attractive for investors where they're getting, you know, a very current cash dividend and a high single digits and that feeds

into our business. But then you've got these new verticals that you and I've talked about on the real asset side, which are growing probably faster than I would have thought because people are find that extremely interesting from a portfolio construction perspective. But then lastly, on the opportunity side, the volatility is a good thing for us because, as you and I talked about earlier, our ability to swing across

the platform and take advantage of opportunities. Volatility is actually UM creates vast opportunity that was difficult I would say pre pandemic, and pre pandemic we were in a you know, pretty well priced market. We thought UM where it was it was tough, tough sledding for opportunities and very competitive. And now UM companies that would typically have access to the capital markets who may have more complicated story you get one speed bump in the market and some negative sentiment.

There's still good companies in the long term. We're allowed, you know, we were allowed to kind of go in and do the work on a more complex situation and do that work that the capital markets won't do because they don't have access that information. And it creates opportunity for us. And and so we're always say excited, but we've been looking for some volatility in the marketplace UM for quite some time, and we're starting to see it.

So I was kind of impressed with how selective you are in terms of originations, really close on relatively few, something like five percent of the companies you put through their paces. Tell us a little bit about that process, and is it just a target rich environment and you're taking the cream off the top or why so few UM actual closes given given you know, how many opportunities you see worldwide. Well, it's it's like anything right you want to have from the top level. The platform just

really opens up a very broad funnel for opportunities. And and as a result of that, when you're in the market, you're scaled, you're known in the market, you get a lot of opportunities and they're coming in. You know, I say, left, right, and center, but it feels like that. Sometimes what we're looking to do is to pull together the most high quality, diverse portfolios that we can that we believe will weather

through you know, three cycles. And so as a result of that, you know, we do have to be very selective as to what we're gonna put in there, and we also have to be thoughtful about the exposures right when you think about portfolio construction, there's kind of three things, right their security selection, you know you're picking that asset

you're gonna put in there. That's the micro. There's portfolio construction, making sure you have a well balanced portfolio that's not highly correlated because that's not the exposure our investors are looking for. And then you you tilt those exposures depending on some conviction you may have. I think in this environment, the first two are really the most important. Tilts can can wipe out the first two very easily. So we

tend not to have tilts. We tend to have well balanced portfolios that we believe the weather through um volatility in the market, which we think we're going to see more of in the next twelve to twenty four months, really really really interesting. So so let's talk about Carlisle. UM in general, you guys have been on a torrid asset raising pace. You've been breaking categories, as has private credit also, so you're in the right place at the right time. Um, why is this so hot right now?

Is it just as simple as there is no alternative? Yields are so low on the fixed income so I it and you guys can deliver consistent returns without a whole lot of risk and volatility. Aka, you step back and think about it from the average institutional investor and what they're trying to achieve, and you know it'll it'll vary,

but let's use this as a starting point. Let's let's assume that on average, most institutional investor over the long terms trying to achieve seven percent for the beneficiaries in a call it, you know, a negative real rate environment with you know, equity returns have been I think fifteen percent over the since O nine roughly. If you get thirteen plus last year plus something like that, Well, where

where is your long term forecast for equity? I mean a lot of people would probably tell you public equity long term forecast is probably in the six to seven percent range, maybe lower, I don't know. You do the math on that over a ten year horizon, it's very hard to get seven percent. So you take six percent, five percent from public equity, and you add in two percent from fixed income, and you blended itself. And you've blended. That's the secret. You can't average and you got it.

Got to add them and that's how you get to see that they didn't teach that math in Canada. Maybe that's maybe how our education system was different. That that's the that's the problem with expected returns is we've been hearing forecasted lower expecteds. Hey, markets are high, valuations are high. We've had to we long term returns or eight percent. We've been thirteen. That was before last year's nearly pent

on the equity side. So you should ratch it down your expectations after you hear that, so long, people sort of stop paying attention to it. This is probably the year where they should be paying attention. And I and I think here's here's a good thing I think about the institutional investor at large is that they generally are pretty thoughtful and long term thinkers. I mean, I think that you know, sometimes us on the manager side think

we have all the answers. But I would say they're pretty smart people that are managing broad, diversified port folios. And I and I believe what they recognize is as a producier. You can't you hope isn't a strategy. You know, I hope I keep getting the same returns in public equities. That's a great that's a great thought. But I don't

know if that delivers. And so what people have been doing is there is a trend, demonstrable trend of putting some of your cash if you can be liquid, into alternatives, private equity, real estate, credit, infrastructure, and that trend is just going to continue as we continue to be in this lower rate environment. I know rates are going up, but like historically, they're still very low, and I could they could go up, you know, four or five increases

and you're still historically low. Yes, I mean, do you remember when library was like six percent? Yeah? I do. I remember when my parents had a mortgage that was eighteen percent. So I remember when my father in law's New York City General obligation bonds from the seventies that we're yielding eight came up and he said, what can you get me? Like, I could get you six percent in you and four percent in unis or six percent you know, longer term bonds. He's like six percent? Who

the hell wants six percent? And that was I don't know, twenty years ago. So and you would you'd kill for that right now? Six percent? Oh my goodness, how do I get six percent? Yeah? I remember, as off topic, but I remember I was I was talking to a guy who asked me, said, you know, I'm looking at these Ontario zero coupons at like, what do you think I said, Oh, I think they're going to go higher. I would buy them. He didn't work out. Well, he didn't buy him, and he's mad at me to this day.

So anyway, but but you know, you go back to this and you and you say to yourself, why is it these really smart institutional investors? Right? They're not? You know, they are smart people who are are investing money on behalf of a lot of people rotating into alternatives. And and the singular reason is is because they're looking for a pickup in a liquidity that they're getting from being

in that asset class. And my prior employers, C P, P, I B they recognize because of the long live of the asset base for them, which is they looked seventy five years forward. You could be a hundred percent equities if you wanted to be. Now, the volatility of that I don't think stakeholders could handle, but today they're there.

Allocation is equities. So if you can layer on top of that, alternatives would give you a premium and you can bear the whether the volatility, then actually you're probably gonna return more for your beneficiaries than if you just stayed in public assets. But I think a lot of investors forget the illiquidity premium is there for a reason, and if you don't have a need for that liquidity, you're effectively getting a discount in public fixed income markets.

So if you don't need that liquidly, why not take the additional hundreds of two hundred bases points and returns correct. And I think that that's that is what you're seeing, and that's what you're driving it right now. I mean, the conversations we have with institutional investors with consultants today is very much in that vein, which is, you can afford to have this much of alloquidity in your portfolio, you should tuck that away, and you should pick up

that illiquidity premium. And and there's other you know, all the academic studies say there's illiquidity, there's complexity, and there's a lot of other things in there. But you know, when you can pick up a hundred to five basis points, which is kind of the range, that's pretty attractive, especially relative to under two points on on a tenure. So So back to the question on scale, where does this

top top out? Are we still very early days in the growth of all these different types of private credit transactions. The way I maybe think about it in terms of growth is there's there's over one point three trillion of dry powder and private equity today, and it's probably much higher than that, and there's a lot of people out there raising money. If you think about how much financing that will drive, that drives at least another multiple of it, right two to three times. You know, two point six

billion trillion plus of just financing there alone. And that's just in the biout market. That doesn't include any corporate activity. That doesn't include um, you know, other special situations that you know, we just don't even account for in that number. So I think the growth is really driven by the fact that the third thing that we didn't talk about is the number of public companies today is about half of what it was over ten years ago. There's more

companies stay in private for longer. I don't know if the whole spack thing is going to change that a bit, although the run on that's not been great, but I would say people are staying in private for longer and as a result of that, the need for our capital is greater than it probably was ten or fifteen years ago. So I I think the tail winds are there for you know, the next five plus years for sure. So

so let's drill down to different types of of UM credit. Uh. And you mentioned infrastructure investments as a sizeable piece of the portfolio. Uh, let's talk a little bit about infrastructure. What areas are you investing in? Walk us through the

typical credit investment in in infratray. Yeah. Well, infrastructure as a as a strategy kind of came to me really from my experience at c P P I B where when I was running the infrastructure equity business, I looked at where the credit financing was coming from, even though we're putting equity in and a lot of the deals where we would put twenty to equity and required massive amounts of credit. Now banks generally would provide a lot

of that. US banks don't provide anything to infrastructure, very little. They it's just not something because of the long term nature of it. Canadian banks to a decent amount, but guess what, there's not that many Canadian banks, and then the Europeans. But then with some of the financial regulations that limited how long that duration could be. So my thought was always going to be that the capital markets would become a more relevant part of infrastructure finance, and

that was kind of the thesis. So when I came to Carlisle, what I started with on day one is I want to find a team that could help build out that business. And we found a very very experienced individual and who had worked at a number of places on the infrastructure side, most recently black Rock and UM He had been very successful and built up a very

very large portfolio. So we hired him and we've been building out this business and I can see this being a very substantial part of our overall portfolio going forward, tent of our overall portfolio, and there's such a great need for it. So when you think about what does that mean specifically, I mean they're really I would say, assets that have an underlying rate or regulatory charge that allows you to have more confidence in the stability of the return on that asset than you would in a

normal corporate asset. And as a result of that, they can also be longer duration, and a lot of insurance companies, for instance, who are trying to match duration. Look at these assets and see them as being very valuable and a diversify in your overall corporate portfolio. And when we talk about infrastructure assets, so we're talked me about ports

and rails and partways or rails, um, transit energy, transportation, pipelines, pipelines. Yeah, um, it could be transmission lines, it could be toll roads. I mean it has various natures. But anything where there is an overriding charge to use that asset that is disassociated with the price or volume that's going through, it makes sense. We talked about aviation as a hard asset, but we really didn't get into real assets. Let's let's talk a little bit about real estate and what you're

seeing in that space. Yeah, I think in real estate right now, what is really really interesting to us is uh and it was you know, as a result of some of the dislocation we're seeing is really in the opportunistic real estate space. So we're we're providing you know, mezzanine and sort of um completion capital if you will. You know, the banks are very efficient further up the capital stack and can provide that, but it's really that completion capital and we're seeing that in very unique and

interesting assets. I think the ice Star asset that we just announced several weeks ago is interesting to us because of the triple net least component really is underlying credit and it's a very diversified portfolio between commercial, office and entertainment. And I read those about three billion dollars three billion, and it's it's a business we want to grow. So there's a team there that's well known to us, an

asset base that's well known to us. UM. Roger Cozy, who we hired, actually used to work at I Star and helped develop that original portfolio. So we're we're quite excited about that in our ability to grow that over time. Uh. And as as as as everything we try to grow into, we wanted to be a ten billion dollar plus type

business because that gives us a scale advantage. Huh. And we haven't really talked about distressed assets, which I would imagine, having worked your way through on O eight oh nine must have been a another target rich in environment. Yeah. I think the stress has has gone through an evolution. UM. I believe if you think about distress twenty years ago, UM, there's fewer people doing it. I think that the the efficiency was it was a less efficient market. Fewer participants

made it less efficient. So there are you know, bigger outsized excess returns to make. I think today, given there's a larger number of participants with a lot of cash, it makes it less efficient. Uh, and it makes it less scalable quite frankly, Um, there's a lot of crowding around the larger opportunities, so and everybody piles into them. And then if you look at um, the smaller opportunities are just really hard. I liken it to uh private

equity light. I mean, really, if you do true distress for control or you're gonna take over a company, you really have to have a post acquisition value creation plan, which is really private equity. You've got to you know, run the board, you've gotta you know, oversee the management team, and you've got a great value. Uh. And that look, I think our private equity guys do that really really well.

I think credit people are okay at it um, but I think we're probably more interested in what we've been doing lately, which I would call structured equity minority equity opportunities, which give you kind of that higher return something that I wouldn't call opportunistic where we're in that mid mid team type range, but higher higher return perhaps with some you know, higher risk of course, but where we're working with really good companies and really good management teams, where

we have really good governance structures, but we don't have control. So so what does structured equity actually mean. Is this a sort of hybrid of equity And it could be a minority interest position. We've got one where we have a we have a minority interest position where we have some downside protection in terms of excess collateral and the shares. So that to me is, you know, we've limited a bit of our upside, but we've also taken a big

cushion on the downside. It could be prefect equity that's deeper into the capital structure than we normally would do um because of some views that we have on the company. When you say deeper, you mean lower in who gets paid in banquet? Correct? Correct? You know, like through through the capital structure, where we've created at a much lower

area in the capital structure. The other thing I would I would say, what makes us gives us an advantage there to a great degree is being integrated with Carlisle as a global platform, and I think that's the one thing that really turns the wheel for our platform today is that connectivity with Carlisle, who has been in business for over thirty years, owning companies, realizing on them on a global basis, boots on the ground not only in the US, Europe, but Asia in particular, which is a

great growth area I think for us UH and having that experience and experience with management teams, countries and companies, you know, it's it's unbelievable how much origination it helps us with. But also when we're making an investment, the different points of intersection that we can get from our colleagues in the private equity side, it's kenn and put a price on that. The the complementary nature of marrying global credit to private equity seems to be, Hey, how

come we didn't do this before? It really seems to have worked out nicely for you guys. Yeah. There, we're like, think of us as solution providers, right, Like I mean, if you're a management team, you're and you're looking to expand, you either sell control equity or you look for some sort of structured solution. You come to Carlisle. You can go to our biogroup it does control equity, or you can come to our group and we will do some sort of structured solution that will help you achieve your

growth objectives. As a combination. That's a powerful outcome because you get all the benefits of both those groups in one package to help those teams grow. Right. Really, if no matter what your needs are, and I don't want to sound like I'm doing a commercial for you, you you know, not at all, but but you can. But it seems like there it's kind of amazing to think back ten twenty years ago when in a lot of private equity

shops nobody was thinking in terms of credit. And really it makes in hindsight, it makes perfect sense to marry you know, It's like marrying a fixed income and equity together. It makes a lot of sense. Yeah, And I think look culturally as an organization. I mean, we didn't talk about this, but culture matters a lot. And culture matters a lot to me. I mean, I left a great organization with a great culture and I'm not you know,

I'm not at the beginning of my career. So I need to go to a place where I thought the culture is gonna fit for me, and Carlisle is a very collaborative, very supportive environment. Is known as a good partner in the marketplace, and that's that's worth a lot.

So when you're talking to a management team, you bring that with you and they know if they're dealing with Carlisle Global Credit or Carlisle Private Equity, they're getting that same partnership approach, and that's extremely valuable, especially when you're in competition for assets. So so let's talk a little bit about that for a second. And I'm not asking the name names, but who are your your clients? What sort of entities are Carlyle's clients? Who who do we

think of? Um? Are they? Are they pension funds? Are they? Yeah? I mean at amends? What what sorts? What sort of entities are carlisles Claus Sure I would say that, Um, you know, we have all the traditional institutional investors in anybody else is going to have. You're gonna have your traditional state pension plans. You're gonna have your you know, non Canadian or sorry, non US pension plans, whether that

be in Canada or Europe or Australia. You're gonna have sovereign wealth funds, which are a big component of that. And you're gonna have insurance companies. I mean, those would be the major institutional side. Then we've got high net worth. Really yeah. High net worth is for us in credit in particular, that's a growing How do you define high net worth because every entity has a different line fift yeah, I mean I don't so much define it as to how much they have, but as how big of a ticket.

And for for now we go all the way down to where I think we can take tickets in that are as low as ten thousand dollars really yeah, yeah, uh so, I know I only have you for a limited amount of time. Let's jump to our favorite questions. Ask all of our guests all starting with let's talk about what what you were doing to keep yourself entertained during lockdown? What were you watching? Streaming, listening, streaming? Okay, well, the two things that I one i've finished and one

I'm still watching. One is called it's called the Bureau or the Bureau, which is it's subtitles, but it's French and it's really about the French intelligence agency and their operations in the Middle East and um Northern Africa, and it's fascinating because of you know, really, what you do is you have these relatively normal people leading these clandestine lives to affect change and all the complications that go with it, and it's you know, it's complicated, but it's subtle.

It's it's really worth watching. It's probably the best thing I have watched in a long time. Really, these five seasons fantastic, the one, the other and the other one. And listen. I'm even though I'm Canadian and I did take French for twelve years, I'm really not proficient at it. So I do read. I watch these with subtitles Call my Agent fantastic hilarious. So so every time I discussed call my Agent with friends, I always have to tell them in France it's called ten, not called called my Agent.

And all of the actors playing actors are actually the very famous French actors that if you're an American you may or may not recognize them. Um, but that was such a great show. I really enjoyed. I've not done it yet, but I quite enjoy It's my fun place to go. So so I'm gonna check out the bureau and you're already onto ont call my agent. UM, let's

talk about mentors who helped to shape your career. Yeah, I I would call them mentor facilitators if you which were people who not so much mentored me, but but put pushed me in certain directions. And I'd say the one there's probably three of them, and the one who initially think of as a guy, Tim Hodson and him and I worked at Tim and I worked at Golden Sacks. He was the CEO of Golden Sacks Canada for a while. He's he's now the chair of Ontario Hydro one I

believe called the utility up in Canada. Now. He's also on the board of PSP, which is the UM the sister pension plan to c p P I B. So he you know, he's a great guy and he really um pushed me to do different things. He actually is the person who encouraged me to go to c PP I B. But I think the biggest thing he did for me is give me perspective. And I think that's especially when you're younger. I think you need that in

perspective and some empathy. I put yourself in somebody else's shoes and replay back what you said to that person or how you act in that situation, and that that had profound impact on how I operate today. And and I give him a lot of credit for things that

I've been able to do in my career. The other one, the other two people are really UM David Dennis and who's a former CEO c p P I B, and Mark Wiseman, who who became the the CEO c p P I B. And they they stood behind me at a time when I started a private credit business during

the financial crisis of oh eight oh nine. They bought into that long term strategy that I had UM not dissimilar to the platform approach we have here today at Carlisle and UH at a time where we're going through the deepest, what we thought was the deepest, darkest crisis

we've ever seen. UH, they got behind me and and rallied board support to get that program going and really gave me the lane way to do what was what turned out to be a very successful program for c p P I B. And then finally I would say, UM,

you know my current boss, Quson Lee. UH, he kind of found me at a time where I was really considering UM starting my own fund and uh and somehow found me just before I had left to start my own fund and convinced me to come to Carlisle, uh and really gave me again the lane way, the opportunity to build what we've done so far, and we've got a lot more to do. But I but I I

you know, I think they're facilitators in many respects. They've they've listened to what I've had to say and given me some guidance, but but more or less have cleared the lanes to to allow me to do what I think is the right thing to get to business going really really quite interesting. Let's talk about books. What are some of your favorites? What are you what are you reading? Right?

You know what books are like music? To me? I listened everything right, So I listened to rap, I listened to nineties rock, I listened to pop, I listened to jazz, I listened to classical and country, and like, you can't really pin me down. And books are kind of the same. I go through periods where I want to understand something, so um, some of the greats I was just thinking about it before I came in here were you know, as we moved to the U S. I didn't do a lot of US history, so I read a lot

about you know, U S history. So some of the ones that stand out, Team of Rivals, doors, good and fantastic. Um ron Cher now has got some great books. I read Alexander Hamilton's before it became like a play, and I thought, how do you make a play out of that? But like, fantastic book on somebody who was so prolific in a very short period of time and had such a large, profound impact on America. I think that's fascinating. Grant.

I mean, you know chur Now another one there where you know there's a flawed man who who had his moment in history. Uh, you know, fantastic. And then you know, just recently I read, uh, Ladies and gentlemen, the Bronx is Burning, which is uh, you know, politics, sports and sort of merging New York in nineteen seventy seven, where you had the Yankees, Reggie Jackson, you had the mayor race, and you had you know, the Blackouts of nineteen seventy seven,

a cross all five boroughs. I mean, it's fascinating, So I really I really enjoy those things. And then I love reading about people who who are flawed but have achieved,

you know, in history great things. So Churchill, for instance, Um, you know, I read the Robert Carol book recently, The Power Broker, which is like massive but like you know, power crops, absolute, power crops, absolutely, And and now I'm I'm in the process of reading Partying the Waters, which is at Taylor Branch book on on Martin Luther King sort of in the early civil rights movement. So I like a lot of different things. Which Churchill book will you?

I think the best ones if you want to read, if you just say I want to read one, the definitive ones are by Roy Jenkins, no relation to me. And then Andrew Roberts wrote one recently, and I think that one's a pretty good one. It has some new material and really shows a flawed individual for sure, as we all are, not all of us accomplished. What what folks like Churchill did? Um, let's talk about advice. What would you tell a recent college grad who was interested

in a career in either credit or investment management? Yeah, I you know, I get this question a lot from junior people. They asked, what what should I do? And I think it applies to a lot of things, not just investment management. I think the biggest thing you can do is is to be obsessively curious, because if you're impassionate, if you're not curious about things like I don't know how you'll learn frankly, and so be early on. You have the ability to be curious in an uninhibited way

because nobody expects you to know anything. I mean, you might be brilliant, you might have come out of great school, but nobody really expects you to know much. And so that's a great time to be curious about what you're interested in. Right. So, if it's finance, be curious about that. If it's investing, be curious about that and ask a lot of questions because that ultimately is what's going to

drive you through. And a final question, what do you know about the world of credit and investing uh today that you wish you knew years ago or so when you were first starting out? Yeah, you know, I'd say the biggest thing that I've I've come to realize is that um change is constant. Change is constant, and I think in investing we sometimes fall back on history, we fall back on what we know, but change is constant. Some people say it's circular, but I think it's it

evolves as opposed to circular. And I think that change has increased dramatically in the thirty years that I've been involved in finance and investing, and if I had a thought about that, I think from an investing standpoint, it which some In some ways, it's influenced how I think about investing today compared to thirty years ago. For sure quite fascinating. Thanks Mark for being so generous with your time. We have been speaking with Mark Jenkins, managing director and

head of Global Credit at Carlisle Group. If you enjoy this conversation, well be sure and check out any of the previous I don't know three nine we've had over the past eight years. You can find those at iTunes, Spotify, wherever you purchase your favorite podcasts. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Sign up from my daily reads at Richaltz dot com. Follow me on Twitter at ritalts.

I would be remiss if I did not thank the crack staff that helps put these conversations together each week. Sean Russo is my researcher. Paris Wald is my producer. Attika val Bronn is our project manager. Mark Siniscalci is my audio engineer. I'm Barry Ritalts. You've been listening to Masters in Business on Bloomberg Radio.