Hello, and welcome to The Credit Edge, a weekly markets podcast. My name is James Crombie. I'm a senior editor at Bloomberg. This week, we're very pleased to welcome Mattis Potter, co Chief investment Officer at Artmont Asset Management. How are you, Mattis very good?
Thanks James, thanks for having me on the show.
Thank you so much for joining us today. We're very excited to dig into your credit market views. Also delighted to see Cat Hidalgo with Bloomberg News. Welcome Cat, Thanks so much for having me. James and Rob Schiffman with Bloomberg Intelligence. Great to see you again.
Rob stoked to be here.
So we're here to talk about private credit, the hottest trade on Wall Street. We've seen staggering growth over the last few years, and private credits now a one point seven trillion dollar market, biggest deal, biggest fundraising, titus pricing among some of the superlatives we racked up over the last few years, and every day we see more exciting headlines.
At the same time, though, there's growing concern about private credit risk as interest rates stay high for longer and the economy slows, putting pressure on companies with a lot of debt. We're seeing more borrowers having to pay in kind, which means that they are using more debt instead of cash to cover interest payments. We're also seeing more amendments and extensions to existing deals. That's often a sign of stress. Meanwhile,
tighter spreads imply lower returns. Fundraising is getting tougher. There's not enough deals for all the funds that have already been raised, and investors are having to reach for a bit of yield. Plus, there are signs of creditor on creditor violence and fears that new, less experienced money so called private debt tourists, could be running into trouble here. Red flags being raised by the likes of Jamie Diamond, the IMF, and PIMCO. Some say the Golden Ages over
not very long after it started. What's your take, mattis is it the beginning, the end or people worrying too much?
Yeah, Look, it's a very interesting topic. It's a very interesting debate. Looking at private credit and recent growth, I would say private credit in Europe has been growing consistently for a decade plus. We were fortunate to be one of the first ones to start the industry after the GFC. We started with a one billion fund more than twelve years ago and we are now ten times plus that size. I how I view the private credit growth as consistent
growth over many many years. Fundraising. Industry growth was very very strong, I'd say more in terms of twenty twenty one, early twenty two and frankly over the last eighteen twenty
four months it was very bifurcated. Were the likes of the largest asset managers in the space, with a special focus on what they do with a clear differentiation, had an easy time fundraising because we're generating very high yet for firstly in credit, but a lot of the rest of the market frankly did not, So I would actually not say that in the last twelve of eighteen twenty four months was the fastest growth for the industry in terms of fund raising, But the US picture may be
slightly different. There's different sources that you can raise from in terms of wealth bdcsent the likes. Europe is an almost fully institutional backed market where investors allocate to private debt consistently and they increasing their allocations as right, and we're growing very well, but it is not that they're jumping into private debt and then straight back out. I wouldn't. I wouldn't call the last eighteen to twenty four months a huge growth in our European private credit space.
Hey Madison, I've got some big picture macro questions for you, But just in terms of background, I'm Robie Schiffman. I'm a team leader and a technology credit analyst for Bloomberg Intelligence, which is Bloomberg's research department, and we've got a ton of analysts, five hundred analysts and strategists for covering all major markets, over two thousand equities and credits across ninety industry.
So having a chance to talk to you about credit risks and rewards is really a true pleasure if we could just start off, maybe with your big picture and dig deeper into your bottoms before we dig deeper into the bottoms of value. View, this is a credit world that feels like a little bit of a Goldilocks story. So I'm wondering where you are in terms of the investment cycle, direction of rates and opportunities across geographic areas.
Look, I think James and I talked about it last week in terms of how we're wired, what we do and how we invest. I must say we are very you want to call it boring or consistent shop that has been investing in private credit in Western Europe sponsor backed with a very similar strategy for far more than a decade. That has served us very well. I think it is very important in credit whether you talk about risk and reward. The reward is your contractual return. That's it, right,
they have no upset. It's very important to be steady, consistent, have underwriting discipline over all the deals you do, all the years you invest in, and we shy away from binary risk, cyclic risks, regulatory risk, which is why, frankly, of course we debate a lot. The perfect micro picture is youre going to into recession, which country, which market, which industries We are set up, and we model for every deal we do that we're going into recession and
that our companies can withstand that. I think that's how we are wired, that's how we invest, and frankly, that has changed very little over the last ten years.
We jumped a little bit on fundraising in your previous answer there, and I think it's fairly well known that larger funds like yourself, who raise billions and billions in each fund definitely have an easier time of it than those smaller funds.
But I think that it's fair to.
Say that even you big guys have seen the fundraising environment change and become slightly more difficult. How do you deal with that? I'm sure there are loads of options on the table. What does Art want doing?
Look, it helps when you have hundreds and hundreds of investors that have packed you in the previous fund and often the fund prior to that. They've senior returns. They see the cashier, they like the current increase year that we're generating, but they've also seen how you've behaved with troubate assets in the past, how you've restructured them, how
you've gotten value back to them. It is much easier for them to undred us than a new credit manager or someone who's just started their business in twenty nineteen twenty twenty and ramped it in the probably most difficult period for new credit jops twenty one twenty two. It is much easier for an established manager to.
Raise, undoubtedly, but have you found yourself needing to go after new investors as well? We've seen a lot of pushing into places like insurance companies or for example, in the Middle East. Are you kind of following any new lines.
Look, we always we have a global investor base across Europe, Asia and the US, actually North America quite a lot as well. But that doesn't mean we're not like there are many investors that are not part of ours, and we will always go for new investors. We did eighteen months ago a partnership with TA and Novenda, obviously being one of the largest pension and insurance companies and one of the largest allocators to private that globally. That is
a partnership that hasn't come from nowhere. That is very synergistic and that's probably the biggest step change in our fund or investor capital raising that we have had in quite some time.
So that facilitates fundraising.
You're able to kind of use the network that comes from your relationship with Uveen.
Both internal from TA and Novene. Of course, they haven't bought us for a reason, they're partnering with us for a reason, and they're investing with us. And of course having a global platform together with Navegna and Churchill in the US provides completely different opportunities on the fund raising side than just being our ports stand alone.
I don't know if you're happy to kind of go into this already, because you mentioned briefly there that you like that your investors like the way that you've been able to return money to them. Have you seen much distress in the portfolios so far? Have you had to take any kind of actions like workouts or do you have to do much restructuring so far?
Look, we have I think by now twelve to thirteen years of investing, we've done more than four hundred years. Of course, we've had problems, we have restructured, restructured very successfully. If you're looking at the very recent period, and this is very very different two five, six years ago. We have a portfolio of very many companies and I think that if you look at the percentage of issues deforce problems,
it is very very low. I think the good bit with private credit is that most of us larger, more established managers have focused on industries that are less reliant on the macro, and that often hundreds of customers were frankly, also, inflation, which we were very worried about two years ago or one year ago, can be passed through to customers and
you keep your margin. So I think portfolio performance is probably the one piece that, having gone through the last two or three four years, has held up very well.
So that is you know, I know mandate is somewhat critical. But in a changing rate environment, in which part of the capital structure are you finding most attractive these days? And it has that changed over the past two years.
We have always been invested in firstly in credit the vast majority of what we do. In the last two years, I'd say we're staying even truer to that, simply because we think in the subordinated piece of the capital structure you're taking a lot more risk and especially the loss given before it is much higher than in the senior
piece of it. We don't see we get very we get the double digit years these days and getting the extra one or two percent from being as Secondly in a pig or pref equity we don't see much value in. So we have focused much more on just being firstly in senior in the current environment.
And what about in terms of sectors. I know you've been recently positive in the tech space, from software to it to business services. You can give some of the characteristics of these sub sectors that make them more attractive than others. And then if you could potentially just highlight the next and video for all of us, we'd appreciate it.
The next time video sure, unfortunately not in the game. But the companies we like is five ten, fifteen percent like forlycorganic growth goods, healthy margins, twenty five thirty percent, high cashlow generation eighty nine percent from ebadats to cash flows ideally one of the market leaders in the industries. Because then what happens when you get a wage inflation shocked like in the last two years, you have many customers, you're not reliant on any you can pass it through
and people actually won't churn. That is the type of company we like. That can be business services, that can be insurance broking, that can be software. All these these these sectors have those characteristics, but characteristics very often it does companies that are very tough to break. If grows cycles slow, and they certainly have slowed a bit in the last one two years and you're not growing sort of low double digit but mid single digits not a
problem for us. It is important for us that give you keep a stable and growing top and bottom line to pay our interest and keep the CASHWS were running. That's the most important. We shy away from anything that looks anywhere near nvideo. When something grows fifty percent plus, we probably scared and run away because we have a fear that the same happen on the downside. So we are very focused on stable, consistent, growing companies.
Do you have the ability to talk about any specific investments that have worked out?
Well, I'm not sure we should talk about specific years. If you put you into context what we do day to day and year after year, we do forty to fifty years a year, and that twenty of those new logos new companies we invest in the rest is portfolio. So very often we just minor portfolio and reinvest add on investing in portfolio companies that we affect for years and years, and frankly, almost all of them work out
and we get our contractual year back. Very little of them we get outsized returns, and very little of them we get hit with issues and problems. And that is what we like. And we see more than a thousand deals a year and we pick, and that's important to understand, we pick twenty twenty five new companies every year out of a huge pool of companies that come to us to refinance for a new LB or whatever it is.
Origination deployment is very very easy if you have been doing the same thing for a decade plus, because people know exactly what you're doing, they trust you, they've seen you how you behave on a good day and frankly on a bad day. It is a very very good place to be. And then it is all about credits, election and underwriting standards, and originating is, frankly at the today where we set the easiest bit of our business.
You know, it's interesting. I think you sort of answered what I was going to try to focus on next. It seems like there's so much private capital chasing after the same companies, but you're saying there's not a lack of investment opportunity. Now, why do you think that is? Is there a lack of public capital?
Now?
Are you? Are you guys offering money that's just simply more attractive because you're not charging what you used to have to? Like? Why is why are there so many more opportunities today than there ever were?
Look, I think it is also I think a big difference between the US and Europe to be honest, it is if you're European scaled private debt manager that has been dealing with many many private equity funds, management teams and borrow us over many many years, they have a strong preference to keep partnering bit with you because these private equity firms, of course they're interested in economic terms as you say, but in reality, how they make their
money and how they drive their equity stories very often is buy and build with a trusted partner then can give you the debt capital to do so, and that oftentimes they get two hundred million from us they won in the first LBO, and they get another two hundred million over the next five years of US doing this
doing add on deals to form those companies together. And if they take the money from someone who's just raised a huge amount, maybe from Wales or from other source of capital in the US and place Europe in twenty twenty one, it is gone for twenty two and twenty three is back in twenty twenty four. They will think twice and oftentimes they give us a last look on financings and say, look, you want to do this deal because frankly I know the same people, the same funds.
The same strategy you've done for the last ten years, you will be there for the next ten years. It is a very differentiated proposition simply because you've built a network and you've built a business over a long period of time that has done similar things in France, in Italy, in Germany, in Sweden. It is very different, I think from what people often think that you can just drop in and do a deal that is at market terms and then drop out of the market again. It just
doesn't work that way. It is. It is very important for our partners. Our prioritically firms that we are in the market, we're a scale player, and we will back them in the future. That's why origination is easy. If if you are in a business that tries to play the market opportunistically in a specific year, I think origination is very hard and you will need to be very very competitive and usually probably you will lose the years because you're just not a trustworthy partner for future.
You have seen margin compression in the market though, that's correct, right, Yeah, we've been kind of tracking about one hundred bits over the last year. I know it's very difficult to say overall.
But do you think that's how much things have come in roughly, I.
Think it's less than that. I think you have to look if you look at margins over time, I think you have to look at not just twenty two and twenty three. Those were Look, I'm not gonna I'm not going to sity and say second half twenty two and all of twenty three were great years for us. The
liquid markets were shot. A lot of the players that usually do Europe sometimes they were out of the market because they had problems with the macro maybe fund raised, and the smaller players in Europe didn't didn't have the money to invest as much. So in reality, the last eighteen twenty four months were exceptionally good. I think that's right, And margins were high. Terms were very good, and that is true, and we're off that I would say, probably
anywhere twenty five to seventy five BIPs ish. But if you look a bit further back, I think margins and spreads are very much similar to where we did. DearS and tranjected in the time prior to sort of exceptionally strong spreads and yeah, in terms time.
Right of course, so we're kind of back to normal, is what I think.
That's right. I think it is. I think if everyone says sort of we were in a golden age and now it's all over and it's all terrible and extra competitive, we add a couple of very good years where we could play up and back much larger business than we usually do. But the bread and butter of what we do fifty two hundred million with our businesses, they're too small for the liquor markets, and they're much too large for the smaller direct lenders, for the commercial banks, et cetera.
It's a good space to be in. That's what we're currently doing. We're not competing with a BSM market.
So you mentioned earlier that you're not a big fan of pick. What do you do when a company comes to you and says that we're having trouble with our cash burden? Can we can we turn this into pick? How do you typically deal with that?
I think so those there's two things that pick or subordinated capital. I think it's different if if you're first lea in cash BA loan with a small element of PICK to it, because you control your destiny, your firstly lender. If they are trouble, you are the dominant piece in the capital structure, and you will force the outcome which direction it goes into. If you're a junior pick lender and the cup company comes into trouble and the value breaks in this you face the risk of losing hunder
percent of your capital. That has never happened to us, and we must avoid it all. Of course, that's why we don't like junior picks.
Right, okay, But you never come into a situation, you know where that's looking to kind of it's coming to maturity and it's looking to refinance, and they say to you, you know, are you capable of giving pick?
Would you like to give pick?
I mean, I guess my question is would you be happy to lose that deal instead of offering a pick?
We are okay to give a pick or component to borrow us private equity firms when they say, look we want to level this company six times, Really the lever should have been five and a half times. On a cash pay basis, can we structure alone that you have a component of the margin to be picked, and we're
open to that. There's obviously a different risk profile for the pick versus cash pay because it's not quarterly accruing cash yield, so that is also priced a littleit of a premium, but we will offer a l of pick indias.
Okay, cool, that's that's helpful tonight. Thank you.
I know I'm not as nice as Roberts, so I'm going to keep pushing on you. Are you seeing more requests for this type of pick, because we certainly are. Is that something that you're seeing across the market or in your portfolio?
So I think I think it is correct that private credit and our funds it is much easier to allow for an element of pick than the liquid loan markets. There are ten times leveled clos that need cash pay and they must get the cash pay in full in order to pay the liability sec Most of our money is unlevered, some is one to one leveled at the peak that it is very different So we can be a bit more flexible and we do that, and and then we offer an element of pick. I think that
is a differentiator. And then the buy and build I talked about earlier, where you have committed and uncommitted lines that people can tap. Those are the two differentiators we have versus these very level structures that are very boxed in a certain way that they need to behave all funds that very flexible.
I'd love to go a little deeper into this because you know, it seems like so many pieces of the market are priced to perfection right now. And I know that capital solutions is a key strategy of your firms. Know what sort of dislocation are you seeing today in terms of size and sectors that are in most need for liquidity or rescue financing, and how do you best take advantage of that?
Yeah, that's a good question. So our business, we have a capital solutions business as part of our private credit offering, and that sort of joined the private credit offering I want to say five years ago roughly, and it's had a very good time. And the reason is that I talked about earlier what we focus on direct lending or direct lending funds, and it's quite narrow. If I talked about the industries the type of businesses we like, we
are quite narrow. We are selecting very carefully and frankly, they are very strong businesses in slightly more cyclical sectors in what our capal solutions business we call unloved sectors. From credit or other investors, you can invest in market leading good businesses and unloved sectors and often get e plus ten percent and more for it, and they can
generate mid teens returns that way. I think that is given our standing in the with also the private equity community in Europe where we've done this more with more than one hundred funds, they will, for more challenging sectors, et cetera, try to come to a trusted source where they get the financing not from our direct learning proposition,
but from the couple solutions business. That is the biggest difference that we have in capital solutions that the origination platform is so strong that from a dirog lending business we reject some of those slightly high risk credits that then they will transact on. That has always been the
biggest differentiator they have done. They're also very flexible funds, even more flexible diag lending funds, and they can of course also take advantage of seasonal cyclical differences that you may have when the liquid markets are completely dissilocated, are trading at the discount currently they're working well, so then they focus on private opportunities that come through the private equity franchise that we have.
It.
It is different in different years, but this year, of course, liquid et cetera. For capital solutions are not relevant.
So your track record enables you to be highly selective. That's pretty clear, and that reduces significant amounts of risk, particularly as you're moving up in the capital structure. But if you had to define, you know, the one or two things that that keep you up at night that you're really worried about, what are they?
It is interesting. I mean, I think actually, if you look at our funds today compared to our fund one that we first raised, what are we trying to do. We're trying to be first lean, we are trying to diversify the funds. We want to control our destinies, so we usually lead our deals and all of that together, and we want to back larger businesses because they are safer,
and all of that together. Frankly, in Front one we had to make a lot of compromises because it was much smaller, with much less track recorded, with much less relationships. It is a lot easier, and I think the risk that is currently in our funds is a lot less for that reason. What keeps me up. Let's be honest. We are credit people and we are constantly worried. I share the IC at least twice a week. We see
ten plus memos and transactions every single week. Underwriting standards, consistency in backing the right credits, and making sure to make no mistakes on upfront when we go into a credit into a company. I think that's the thing that always worries me most, and that is debt together with people, because people consistency and people will drive those decisions I think are most important for our firm. And people have
been very consistent rising too. But when you do forty to fifty loans a year, you've got to be on your tours all the time.
You spoke a bit about controlling your destiny, and when you say that, I think of depth for equity swaps, I understand that you Aren'tmont took over a business called Sosalitos in.
Germany last year.
We hear a lot about dept frequity swaps and we get a lot of kind of speak from from direct lenders telling us, you know, well, we can actually get away higher return when we get a debt f equity swap, and some people kind of frame it like it's actually a really good thing. I'd love to hear where you stand on that pendulum, and again sorry for being so mean.
Look, we don't want to take over businesses. I think we are wired that we are running highly that first firstly funds that frankly we just want to get our cash return and be repaid after three to four years. Normally we don't want to take over. I think we don't opportunistically take over, but sometimes we have to. We've done hundreds of hundreds of years and there's a number which is much less than ten over the last thirteen fourteen years that we had to take over. And then
we do that, we take action. The important bit is when do you take over. We have covenance almost all our the years. When they breach and there's an issue and the private equity is not willing to sort of put new money and back their back their investment, we will have to do that and then we have to come in oftentimes change management team, correct stabilize the company and growth again. And I don't think that's an excellent opportunity,
but you need to be able to do it. Of course, wetructuring teams, you need to have partners in the business that all we have restructure before and it is for a private credit fund, it's incredibly important to be well set up to do it, do it successfully return the money to investors. Yeah, that's how we think about it.
Fair enough, sponsor relationships, as you've spoken a key how how do how does that kind of work when you do a debt for actor swat are you able to kind of keep the relationship up with the sponsor if you were to take a company. And I'm happy to hear about this kind of in theory because yeah, I've never personally worked on a debt.
Franquity thought, Look, it's very rare. We do it, and it is. It is very We've done more the Hunt, We've worked with more. We are working with more than one hundred sponsors. We've taken over businesses with very, very very few, and it is a unique experience every single time. And sometimes, frankly, when we take over what we see what the private aguiti film has done and how they'vet oft at the business, and we're not very enthused with what we see, and maybe we don't want to transact
with them in the future. But sometimes frankly, there were external issues, other issues. You work with them together and maybe you jointly help the company, you jointly run it, and you're very much respect for the private equity firm, and you do transact in the future. It completely depends on how these situations are being dealt with each time.
That makes sense.
I wonder if I could get your opinion on the private equity industry as a whole. Obviously you speak to loads of sponsors very closely connected with the industry. I was at Super Return last week and Scott Kleinman was on a panel, you know, saying I'm here to tell you everything's not going to be okay. Things when we look at kind of pick going up, leverage going higher, things like no fun financing getting secured against secuity positions.
All of this to me looks like private equity is in a very difficult position and that things could get a lot harder in the future. I'd be interested to know where you stand on private equity returns.
Look, I think if you are general as private aguity fund at the moment that is doesn't have the decades of track record of the larger ones, it is much harder to raise and get your new fund together then it was three years ago. I think that's clear and we see that with private equity firms it is it is much tougher, and it is, but let's be clear.
I think private firms have gone through very tough environments in the GFC and after and they are quite good at managing difficult periods and managing the assets through those and then also coming out at the other end. That will probably they will not all go through this well and easily. If you have a specialized fund, if you have long track record, it's all about returns. If you have good returns and also cash returns to your investors
in the last years, you will raise money. It is very important to show these cash leads that a piece want so much these days.
Yeah, definitely, and that's actually what I mentioned. Have fund financing already. Is this a potential strategy for you guys in the future. Do you think could you look into doing that fund financing?
It's definitely a possibility. Look, we are we are first with our direct lending business. Then we capital solutions. We are very good in providing solutions for the private ecor community and get the best returns out of that for our ALPS and ENAW would be a logical extension where your private decor relationships in a different product could frankly give us a very good deal flow in a different set of opportunity that we haven't tapped into at all.
So, I mean, it's my job to be nervous about the industry. We're talking a lot about leverage and leverage on leverage and kind of we're seeing leverage packages on certain deals not really getting.
That much smaller in general.
I'd love to hear you passif could you pacify me, say that everything's fine, or do you have a doomsday answer? Is this really kind of a dangerous moment that we're in in terms of just how much leverage is in the industry.
Look, the typical deals that we do are single bee credits, right, they are levered. They're private equity owned. Call it five five and a half times leverage. That's a typical deal. These companies do transact. We typically do deers at thirty thirty five percent loan to value. So if you have five times loan, it's a fifteen times company most of the time, or on average leverage on leverage and there's leverage, right, A five or five and a half times business is
a levered business. That's why we need to be very picky on industries, industry leader, can they sustain difficult periods, et cetera, et cetera. But leverage on leverage and is the system levered and is there a lot of problem in our fund structure? All of that, I think it is. Frankly, it's very different to when you're at hedge funds, credit hedge funds and clos, which are all sometimes five times plus and colos ten times levered. We are often unlevered,
sometimes up to one to one. That's it. I think, Yes, we lever companies highly. I don't. I'm not going to dispute that. But in the background, I think there's very little leverage in the system.
Definitely, is this matter Spotter telling us that he's worried about CLO leverage and hedge fund leverage.
Look, I know, I think. Look, I mean the in the liquid credit market, clos have played a very important function for decades. They've actually, if you look at CLO returns through the GFC, they've played up quite nicely if you hadn't sold at the worst possible time, which I unfortunately some people did. I think they're very relevant for the structure. They have a good business model networks, I'm not worried about.
That, and made one more for me, like, how worry are you about the private credit in general? In terms of deal flow? You mentioned like you have to turn down looks like ninety five percent of the deals that you're being shown. But what happens in a few years if we're in an immaningly lower rate environment is does the need for private credit drop dramatically and do we go back to where we were five years ago? And what does that generally mean for your business profile?
Yeah, I mean we lived in zero rate environment for most of our existence. Frankly, the last two years were different. I think what has the last two or three years have shown to borrow us issues private equity firms That a private equity structure, private debt structure with committed capital is a huge differentiator to a liquid structure or a structure where you backed by a source of finance which can't give you stable, consistent and debt finans for future growth.
And I think that is the step change we've been through and that was so great for the last two or three years for private credit because even the larger private aquity firms that frankly often operated on the assumption that I'm going to get the loosest stock, the tightest price from the liquid markets. I have a revolver, I do a bit of M and A, and I tap the market and I get that revolver refinites in two days and it's perfectly efficient. It is great and it works.
COVID Ukraine conflict the markets being shot for some time showed the Pe community that that is not the case, and a lot of companies we looked at had finance from larger, less scaled players, liquid markets, people that don't focus on Europe all the time, that were gone in twenty twenty three, and that is there's always been. Our pitch is that you rely on the prior credit players. We've done the same for you for years and years.
We will be there. And also that give you committed line that you can tap for ad ons, because otherwise you have to do with the equity. And even though we're expensive these days, we're much cheaper than the equity capital. So this last two or three years I think has given a structural boost to the private credit industry in terms of demand because a lot of boris and fe films have realized there is much added value to private credit then they had frankly appreciated before. So I do think.
I think, I think look summer cyclical, the liquor markets are back, the mega deals we will do, but a lot of its structural growth that is the demand for our loans.
And when we look at the US against Europe, matter is I know you have that perspective. What we what we generally hear over here is there's a lot of money chasing too few deals, and there's a lot of frost and there's a lot of risk going on. But it sounds like what you're saying is in Europe it's quite different that there's a different sort of opportunity. Are you seeing money flow from the US to Europe for that opportunity?
Definitely? Look it is. I think it's very different markets, and the US is much easier to penetrate. But also the US is much more mature. The markets started ten to fifteen years before we started, and you can see it. They're much much larger players, many many more of them, and that makes it more competitive, more mature, and you can much easier transact in all corners of the US rather than between France and Stockholm and Austria or whatever.
You are investing, the different legal regimes, different structures, very different actors that you need to be very familiar with, it is harder to penetrate. But of course the successful US firms that have raised a lot of money and diversify into Europe, they are in Europe and they're investing, and in twenty twenty four they're very much putting capital to work in Europe. However, it is easiest with the large cap sponsors with large capital markets seen as London,
that are very much more transactional. It is harder when you go a level deeper where or the next work and the origination capability and the track record metters so much more.
And you're talking about double digit yields on first lean debt in Europe, what does that mean? Is that at ten or is it fifteen or is it twenty? And how sustainable are those returns?
I'd say ten to twelve and I in terms of spreads, our spreads have been very consistent for a decade. Yes, we're less than the last two years, but that was exceptional. And if you look at spreads and fees, frankly, you need you will get to high single digits returns and you add the base rates to it, and you add ten to twelve percent. I think that's what we're currently seeing, and I think that's sustainable. Whether rates will go we
will see that. Obviously everything's floating rate that will impact overall absolute returns. But important to us is always to keep a healthy spread risk premium differential to the liquid markets who invest in similar single bee type credits as we do.
The worry over here still seems to be that there are too many participants. Do you expect more consolidation?
Look, we partner with MARIENA. Churchill and it's been very good for US. It's a natural combination where global US focused manager insurance companies is partnering with US in Europe, you can see other managers that are having similar discussions and transactions being done. I think as the right approach. If you are a US firm and you want to penetrate Europe in earnest, not just as a diversifier, then those partnerships and consolidation makes a lot of sense.
And one last thing that sort of springs to mind in the context of private credit, to me always is when do you expect it to start trading will will there ever be a secondary market for this stuff?
That will be Look, I mean private equity has had a secondary market for a long long time. Private credit is much younger in Europe. It is obviously still quite young. And when most of the private gps and by now that's the case, have hundreds of investors, you're very different
type of investors with very different needs. And it doesn't even matter exactly oftentimes the perfect performance, but an investor may have a liberidity need and they need to create and they need to exit and unfortunately the long term lockdown structure, it's not possible. And that means they will have to find a secondary buyer and that is happening sporadically, and that's not a big market yet. I will evolve.
I think that market will certainly. Yeah, that would certainly be a larger market for it in a few years.
The great stuff matters pot a, co chief investment officer at Artmond Asset Management. It's been pleasure having you on the credit Edge. Many thanks, thank you, James, and of course Rob Schiffing with Bloomberg Intelligence, thank you very much for being on the show.
Thanks so much.
Bloomberg Intelligence is part of our research a buttment with five hundred analysts and strategies working across all markets. Coverage includes over two thousand equities and credits and outlooks on more than ninety industries with one hundred market indices, currencies and commodities. Last, but very much not least, Cat Hidalgo are ace private credit report in London. Great to see you.
Thanks very much for having me.
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Bloomberg dot net. I'm James Crombie. It's been a pleasure having you join us again next week on the Credit Edge