The Compound and Friends - It’s Only a Bubble If You Panic

Episode Date: October 24, 2025

On episode 214 of The Compound and Friends, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Sonali Basak, Chief Investment Strategist at iCapital and Compound host Ben Carlson to discuss: the private credit landscape, stress in BDCs, and much more! This episode is sponsored by Public and Vanguard. Fund your account in five minutes or less by visiting https://public.com/compound Learn more about Vanguard at: https://www.vanguard.com/audio Sign up for The Compound Newsletter and never miss out: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠thecompoundnews.com/subscribe⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Instagram: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Public Disclosure: All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Public Investing, Inc., member FINRA & SIPC. Public Investing offers a High-Yield Cash Account where funds from this account are automatically deposited into partner banks where they earn interest and are eligible for FDIC insurance; Public Investing is not a bank. Cryptocurrency trading services are offered by Bakkt Crypto Solutions, LLC (NMLS ID 1890144), which is licensed to engage in virtual currency business activity by the NYSDFS. Cryptocurrency is highly speculative, involves a high degree of risk, and has the potential for loss of the entire amount of an investment. Cryptocurrency holdings are not protected by the FDIC or SIPC. See terms and conditions of Public’s ACATS & IRA Match Program. Matched funds must remain in the account for at least 5 years to avoid an early removal fee. Match rate and other terms of the Match Program are subject to change at any time. Alpha is an experimental AI tool powered by GPT-4. Its output may be inaccurate and is not investment advice. Public makes no guarantees about its accuracy or reliability—verify independently before use. *Rate as of 9/26/25. APY is variable and subject to change. Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

So I, uh, I downloaded, are you using the new, the chaty BT or the open AI app or the web browser? How is it? No. I just started using it like literally, uh, this morning. I haven't really put around with it that much. I just said, like, what am I doing tomorrow? And it connects to your calendar and tells you what you're doing. So it reads your tabs and it helps you like complete things?

I don't know. I just started using it. But like, for example, it gives you ideas like find movies and shows I recently viewed. So I clicked it and it goes through your search history. Oh, it's like prompt. Now it's basically. full-on mind control. It's like telling you what you should be doing.

I need to be told what to do. I don't. I love it. This is like Shari 2.0. Yeah. I already have that. I already have somebody who tells me what to do all that all that. Have you watched the, um, the Marty Dock?

No. No, should I? I'm not too busy watching the John Candy one. Um, I don't have Ben guys in my, in my headphones. Wait, can we have Ben say confident in his assertions? Over confident. A one, two. Very confident.

I don't know my assertions. All right. Shnali, I just got back from Las Vegas. Oh, yeah? Yeah. For fun or for work? For work. All I do is work.

Las Vegas is my nightmare. It's, you know what? I love it. I love all the depression and the tears. 36 hours, right? I had fun. I was there 18 hours. And, uh...

That's probably out right. I didn't... I was there on a Monday and a Tuesday. Or no, a Tuesday and a Wednesday. And it was still hopping? Yeah, I mean the encore So the encore is always going Yeah, yeah

I'd go for the sphere I've never been to the sphere The sphere is insane Yeah, he's one of the things That lives up to the hype I saw you two All right I'm going back in May

Okay For no doubt I'm so excited Michael and I're going Like two weeks to Vegas What are you Are you? Are you gonna see something at the sphere

We were gonna go It's a Wizard of Oz But I'm just go Just go Just go see a movie It's beyond It's so much more than a movie It's a fully immersive experience

I don't know. Just go. All right. You sound like a Chamber of Commerce person. No, because why wouldn't... I mean, unless you have other cool things to do. Blackjack. How much Blackjack can you really play?

12 hours. Josh brought this back from me and Chris. Yeah, check that out. That's a troy ounce of silver. You ever see this before? This is the top. It crashed right as he bought it. So, can I tell you something?

I walk... I walk, there's a guy... There's a guy with coins, gold coin, silver coins, on a display at the event that I'm at, And I go... Better as a hard asset. Good for alternative. So I want to buy a few of those. How much are they?

He goes, well, it's an ounce of silver. I'm like, okay, well, I don't know offhand what that means. I don't know how much an ounce of silver is. He's like, no problem. I'll tell you how much it is. He looks on the Bloomberg app for the price of silver. He goes, it's 48. So I'm like, okay, two please.

He's like, no problem. No problem. That's how he charged you? That'll be $96, yeah. Huh, go figure. Like right off the quote screen, because it's an ounce of silver. I thought that was... He wasn't comfortable with the Google pricing.

I think that was kind of cool. Wait, can I send one of you a chart that's I love? Yeah, yeah. We don't need to use it. It's just kind of interesting and informative. What's your email? We want it. Michael at Ritholtzwell.com.

I think people can figure it out. I get a lot of emails. Ridholtz. You got hose. It's already done to $42 an ounce. Bellagio has a new carbone restaurant. that's carbone seafood, you have to take a boat to get to it.

Are you joking? No, I'm not. Wait, where are we staying in Vegas? We are staying at the casino. I don't know which I thought we're saying it. But I'm going for night. So I'll tell you what I've learned. I stay at the tower suites.

Oh, we're at the MGM Grand. Okay. So there are three of these. You stay where there's no casino, right? No, there is, but it's a separate building that's connected. So there's the Waldorf, which is just a tower. It's like a Manhattan High Rise. None of the bullshit in the lobby.

Like, you don't hear ding, ding, ding, ding, ding. None of the dregs of society. I need the bullshit. I need the stale cigarette smoke in the air. I need it all. I love it. And then there's the... Where are you from, Batnik?

The Encore Tower Suite's separate entrance you pull up to. There's nobody there. There's security guard and a few people working behind the desk. You check in in two seconds. You walk in through elevator. You go right up. And you're like in a... You're almost like in an apartment building.

I was in L.A. Sort of. I was in Nashville, Opryland. Have you been there? Yes. It's like Vegas. Opry land? I've heard both. Grand Ole Opry.

Grand Ole Opry. I say an opera. I didn't like it. You went to the wrong thing. You're supposed to go to the Ryman Auditorium. Can we do 10 seconds on this? It's important, actually. The original Grand Ole Opry was at this 1800s era church that became the Ryman auditorium.

That's where, like, Dolly Parton became famous. Yeah. That's, like, for country music, maybe for all of American music, that is, like, Vech, that's like the Vatican. Okay. The Riemannibal Opry that they, they tape, like a TV show, that's 20, that's 20 miles outside of Nashville. Who is this for? For Shannali. It's, you know, I mean, I went to, well, it was very corporate, right?

It was like the Delta Lounge, this, and like, you know, another. So if you really want to see like a country music show in the heart of Nashville in downtown, Vandal Lopry. That's the Ryman Auditorium. I got to brush up on my Nashville. Beyond that, Nashville's the most amazing place. It really is. I'd move there if I could.

We have employees there. It's pretty sick because you have the, you have Belmont, which is like one of the best music colleges in the country. Vanderbilt is right downtown. you have all of like Google and everybody is opened up and then you've got the whole music component to it like Broadway with all the honky tonks

and all that. So you've got good music taste but like is Batnik like just betting on the side like what are you doing over there? That is a cool Nashville, there's live music everywhere ago. It's so cool. We saw like a band that a holiday in there and it was amazing. Everywhere. Everyone's carrying a guitar down the street. It's so cool. So Chanel, you're the perfect

person to have this week. We're going to be talking a lot about the cockroaches and I want to to say this before we get into the show. So I, relatively early on, probably two years ago, was like, why the fuck am I getting so many emails from private credit companies? What is happening? Like, I've been on this corner for a long time now, right? It's been a minute.

And I also think that a lot of the conversation that is happening and I'm, like, how did I turn into like the voice, the spokesperson for the private credit industry. It was never, that's not like what I'm here to do. But I think a lot of the hyperbolic fears are just a way overblown. You know, it's like any other asset class. Why would you paint it with a broad brush? It doesn't make sense to me. If you're picking fund managers in public markets, you would look at those fund managers, you would look at their track record, you'd see how they've been doing over time. You would see importantly, which to me, this drives me crazy. Nobody asks what they're actually invested in. What are they underwriting? So those questions you've got to ask them.

And if you look under the hood, you know, today was a great example. One of the biggest alternative managers had published their report. Blackstone. Did you see the results? I did. Phenomenal. I'm a shareholder. So Blackstone's private credit business alone was up almost 13% private equity also 13% over the last 12 months. So doing well despite all the cockroach fears. So I had sent you that chart over there too. Blackstone went down 4% today. Gives a shit. You know, actually, all year long, these managers have been reporting record assets and... Oh, boy, that laugh.

All right. That was Ben. All right, guys, they're doing the show before we start the show. Well, let's get started. I just wanted to get it. Because I want you to have the mic. It's enough of me. Three claps coming in.

Wait, do you feel like you've spent the last week defending private credit? Not a little bit. I don't want... I feel like I have been, and I don't... How did this happen? How did you become? How did you become? I was the first person to say it's bullshit. And now I'm defending it.

All right. Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. Today's show is sponsored by Public. Public is the investing platform for those who take it seriously. You can build a multi-asset portfolio of stocks, bonds, options, crypto, and more. You can also access industry-related yields like the 3.8% APY you can earn on your cash with no fuser minimums.

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Paid for by public investing, full disclosures in the podcast description. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value in fixed income is not easy. bond markets are massive, murky, and let's be real, lots of firms throw a couple of flashy funds your way and call it a day, but now at Vanguard. At Vanguard, institutional equality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and

traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's dot com slash audio all investing is subject to risk vanguard marketing corporation distributor welcome to the compound and friends all opinions expressed by josh brown michael batnik and their castmates are solely their own opinions and do not reflect the opinion of redholt's wealth management this podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to the Joe Rogan

experience. My name is downtown Josh Brown. Today is going to be one of the most epic episodes we have ever done. I could not be more excited. We have in the house John, Duncan, Nicole, Rob, the compound crew. In addition, joining us today, you know him, you love him, from several other shows on this network, and anytime he joins us in person, it's a barrel of monkeys. Ladies and gentlemen, Ben Carlson. I don't have a bio written for you. Star Broken Arrow and several other 90s action classics.

Ben is a collegiate football star. Well, you are. He flamed out in high school. He flamed out. All right. That was high school. That was high school? I played in college for a couple years, but it didn't happen.

I was too busy party. All right. More importantly, Ben is the head of institutional asset management here at Riddle's wealth. He is the author of a wealth of common sense. He is the co-host of Animal Spirits with Michael Batnik and just an all-around gym of a human being. Welcome back, Ben. So happy you're here. And first-time guest.

She is, in my opinion. She was, in my opinion, one of the best reporters covering high finance. That's what I call it. Like the upper echelons of finance. What about to finance? No, no, no. Yeah, high finance. I mean, that's your beat.

Finance. You changed him. I love it, finance. You have interviewed, before I even say your name, you have interviewed like every impressive person on Wall Street. You would agree with that? And even some non-impressive ones. Sure. Sure. That's true, too. Shanali Bassick is the chief investment strategist for I Capital, responsible for developing market views and research.

Prior to joining I Capital, Chaneli anchored Bloomberg television show Open Interest while serving as the network's chief global finance correspondent. Welcome to the show. Are you happy to be here? I am so excited to be here. A long time listener, a long time. Fan, first time, yes, though. Thank you. All right. My first question, how dare you defend private credit? All right. So this is going to be, this is going to be a show that's fairly focused on private equity, private credit, clearing up some of the misconceptions that I have been spreading in the media. And no, what we want to do is get to the bottom of what somebody who is very connected within this world has to say. I know you've probably spent the last two or three weeks speaking to people at a very high level about this, both investors. and fund managers and corporate executives. Yeah, we've been speaking to people about it, but we've also been doing a lot of research because we wanted to be so clear about what is and what isn't.

And it's funny because private credit in particular, we were joking around Batnik and I just a second ago about how you were getting pitches for private credit funds for years now. And most of my career at Bloomberg was very much around the private markets because that's where so much of the activity was moving. So similarly, you couldn't avoid it. So where are we now? It's grown so meaningly.

So let's start there. Like, how much are we all about to lose? Well, we did this analysis. You shared it. I have one bone to pick, but I'll pick it later. Okay, good. And so, because I know you like a little spiciness. And so if you look at the exposure across the business development corp universe,

this is the private credit versus universe you'd really look at. Did you see how small the actual exposure was to two bankruptcies? Yeah. Triclope zero. Well. Not only small, but so did. dispersed that no one player is really affected at all other than Jeffreys? We looked at more than 165 BDCs and just over a dozen had any exposure at all.

And most of the exposure within those funds was 0.05%. Can we back up and tell the audience what we're talking about? When you say exposure to first brands, for people that aren't paying very close attention, what's like the synopsis of why all of a sudden, everybody's worried about this. So there's two companies in a row, first band and tri-color, that face bankruptcy. By the way, I would actually argue for different reasons, there was a third company that no one talks about, the premiland company, right? But because it wasn't tied to private credit, no one talked about it, right? Or because it didn't have a private credit. Not salacious

enough. Exactly. The private credit world draws a lot of questions and attention. So when they went bankrupt, we did see losses tied to banks. And then a lot of questions around how exposed banks were to private credit firms because you saw those types of losses within these two, what you know, what Jamie Diamond is calling cockroaches, what people have heard for the last couple of weeks, what, you know, people are calling the idiosyncratic risks tied to certain private credit. But really, this was a banking problem, ultimately, at the end of the day. These were bank lines that at the end of the day.

I want to be clear also, in one of these cases, someone is alleging fraud, which is not the same thing as, quote, unquote, reckless lending. It's its own. Fraud is just a part of, unfortunately, it's a risk that every financial institution faces. But even beyond that, there were a lot of questions about loans that were not disclosed to investors among those firms, right? Fraud. But, you know, was there diligence enough? Was there not enough diligence? This is a big question among the firms that were exposed to each of those companies. Don't you think that this is actually a positive for the industry, though? Because there's, people wouldn't talk about this stuff a few years ago. Now, I think it's just going to be more transparency.

I think in the end, that's a good thing. Yeah. Right. I couldn't agree more because we were saying a little earlier, if you are invested in a public market manager, you are looking at their holdings. You're looking at what they're invested in. You're asking about track records. Why wouldn't she do the same thing for private credit?

If you call up your manager, I did it throughout the last two weeks. I called a bunch of managers and I say, what are you holding? What are you holding and how sensitive is it to the broader economy? You have the ability to do that. Everyone else doesn't. You know, the thing that's really interesting about private credit now, because it's opening up to a broader market of individual investors, you are seeing more managers be more and more clear with as many advisors that they could be. Really open the doors to the ability to have conversations. But I also want to point out, these things don't have QSips.

This is the fundamental difference. So when you own a public, when you own a public bond fund, the manager is buying all sorts of bonds. all sorts of loans in some cases, and for the most part, they tend to have a CUSIP, which means an end investor can look these things up, which is way more transparency than by definition you would get from private credit, from direct lending. There's no way to know what anything's worth until the manager files and says, here's the mark, this is what we think it's worth. But don't you think it's interesting?

You know, there's a story on Bloomberg today that's consistent with what we're saying. As these products become much more available, these investments become more available, you're all of a sudden seeing what was impossible a few years ago, possible now. Now we have monthly reporting for many funds, for example. And so that transparency, it has to increase as availability increases. But with that said, let's talk about just private credit for a second. Shouldn't we just take a big step back here and say, why are we even talking about this? If you think about it, why is it that I have spent so much time on private credit?

it's because so much of my career was after the financial crisis. After the financial crisis, regulations really hamstrung the banks in certain areas. But then there's two other moments, arguably, that really accelerated this. COVID. When the banking system froze up in a lot of ways during COVID, it was actually private credit that moved a lot faster into many parts of the economy. People still needed loans. Totally. Yeah. And so that was one thing. And then when Silicon Valley Bank happened, right? You had seen that kind of regional banking crisis of 2023. And that was another big moment for private credit to really expand its wings in a massive way, because again, you saw the banking system freeze up in certain ways, especially among smaller and

middle, medium-sized lenders. So private credit firms started to backstop many of those lenders and become what is now a more critical lifeblood to the American economy than it was a decade ago. So you're still relatively new to the space. I'm curious, like, what you've learned being on the inside now that we don't see from the outside. I actually, the chart that I sent you of returns, right? I think a lot of people are asking. Let's put that up. Yeah.

You have it? John has it. Yeah, it's really, really interesting chart here. And what you're seeing is that you have double digit returns in many parts of the private markets. I thought this was the most clarity. Manager selection has been an important driver of return outcomes and alternatives. We're looking at dispersion. And I think, Shana, I want to speak for you.

What's your point? I think I know what it's, but you go. So a lot of people talk about volatility. I don't think volatility is a problem. dispersion is the problem. And if you're not in the better funds, if you're not doing the diligence that many people, as you were saying, Ben, are not doing, by the way, then you're not getting what is possible from this industry and a lot is possible. Remember, this is also an asset class that institutions were more privy to than individual investors. We had a great,

I pulled this up for you, Josh Brown. You were asking how big of an opportunity the RIA channel is for alternatives. If you are an RIA with assets above 500 million, you could have, they they have had much, much, much more exposure to ALTS. Makes sense. You might have bigger clients in that book and more money than to put aside to ALS. You used to have bigger minimum ticket sizes. But now you could invest $25,000 in an alternative fund with a fair degree of, I hate, this is a whole other topic, which you get into liquidity, right?

I think that's the biggest tip. That's why we're never going to have a plane crash in private markets, because it'll be, like, let's say this really was, it would be a death by a thousand cuts because the investors can't panic. You can't get out of it quickly. How would you panic as a private credit investor? You would have to buy CDS against the basket

of the loans that you're on the hook. So because of the illiquid nature of the funds, like that would make it worse if there was a credit problem. And everyone said, all right, get me out now. You can't do that. You literally can't because of the way the funds are structured. So, John, actually, but so just like a little bit of nuance there,

we saw a small version. Some would say, if the people that said this is a canary in the coal mine ended up being wrong. But we saw an episode where Black Rock has a semi-liquid. Blackstone. Excuse me. Blackstone, B-wit. Semi-liquid. And Blackstone had to gate redemptions because the alternative is allow people to have their money back and sell things at a depressed valuation.

Wait, hang on. And that's not good for anyone. if the portfolio is forced to liquidate things at prices that they don't want to. So they gated redemptions. Eventually, the redemption requests cooled off and B-Reed is still trading and it's okay. But if you go back to that time,

it's such an interesting moment, right? Because it actually worked the way it was supposed to work. A gate is only a gate if you're not legal. Like, they had limits. All of these funds, to Ben's point, have limits on how much. Right, it's not full liquidity. And it's also not a gate. And so to talk about these funds as though they're liquid is a big mistake too.

Starwood gated, right? Wasn't it Starwood that said there's no more money coming back? We could, people could fact check and I want to like spend a message. Right, I don't have a right. But I thought of Starwood. So, John, Chart 10. So we're fast forward for a little bit. Here, this was going to be my ultimate take.

I have been of the mind that the episode that we just experienced with tricolor and first brand, it's not nothing. there is something happening. Is it systemic? I don't think so. I think that it ultimately blows over in a very similar way that B-Reed blew over. And guess what? The stress in the real estate market, particularly the office space, which they don't have a ton of exposure to it, this not anymore.

This was so much more significant and potentially systemic. Think about the stress in the real estate sector, the actual stress. And here we are a couple years later, and it's fine. Matt, Nick, you know, I'm just going to call you on Tuesday nights now and just feel like, let's talk about this. I mean, I think that's, to Michael's point, the assets in this, true, the assets in this fund have been between 50 and 60 billion for the last two years straight, and that, that disruption that everyone said, this is going to be the death knell for these semi-liquid real estate vehicles

turned out not to be true. And to Michael's point, like, the, uh, the hysteria cooled off. But if there are real losses, though, the clients are going to have to eat them. That's the thing. That's the, that's a difference. But that goes back to the dispersion chart, too. It's not that people don't lose money in this asset class, but they lose, they also make a lot of money. Those are going to be the story someday is like, look at how terrible this fund did, the people were overpromised or there's too much leverage or whatever it was. Those are going to be the story.

Okay. So my comment at the time was what? You think you can't lose money in a publicly traded read? Like, what are we talking about here? So B-Reed, the returns have not been great over the past couple of years. Yeah, real estate's been challenged. We know. But is it a catastrophe for investors? No, it's a great.

No, it's not great. It's basically flat for the last few years. But let's get back to Chenali's chart that she showed in terms of dispersion. Okay, I think this is really important. When you are investing in things with highly idiosyncratic manager access risk, like venture, like growth equity, the dispersion of returns are a mile wide. And if you're not in the top, whatever, decile, quartile, you might as well. The better managers versus the run of the mill managers or the bad managers.

Direct lending is the opposite. We are, we. The industry is making loans. And guess what? Most of the loans get paid back. So this is an interesting, like I said, in the last week, I've talked to a lot of managers about this. And it's not like, you know, if you're Stan Drucken Miller, right? Stan Drucken Miller is known for big, concentrated bets, right? That is the secret to his success. But those are like 40% returns, right? Venture capital is like that, too, but different type of asset. Direct lending, super diversified. There are hundreds and hundreds of loans that are being underwritten such that if one loan were to go bad, it's a typical. What is the typical position size for one of these funds?

I know there's a lot of different funds, but I mean, what is it? 1% to, like how big are the position sizes in these funds? Well, let's put it this way. When it was first brands, the losses that we saw, like I said, it was 0.05% that was lost for most of these funds. So who has taken the losses? So it's a half of 1% position. Okay. Yeah. So in a bankruptcy, you're taking basically a total loss. Less than a 0.05%. And the problem with that is that the collateral, the liens were no good because there was fraud.

Yes. Double counting assets. But even then how small that was relative to the overall portfolio, that's kind of the point. But with that said, I actually was pulling up an email because I asked our diligence team how they go about picking funds as well. And they said there are two rules. They're two. Your rules when it comes to underwriting, protect capital and don't forget, no, definitely not that. Have you ever heard, protect your capital and don't forget rule number one. How do you ever finish a thought? That's a Buffett, that's a Buffett quote. Rule number one, don't lose money. Let me give you another one.

Number two, don't forget rule number one. Who is the one that said don't ever hire an optimistic credit manager? Right. I like that one. So my take is there is, if you look at just rolling returns, not rolling returns, rolling like inflows, the institution has pulled back. dramatically because they're good. They're full, right? And distributions on the private equity side have just not materialized. So they're not really allocating as much there on private credit or equity.

And the flows have been replaced by wealth managers. We know the story. It's very transparent. But it's not as if the inflows have triple X. So even though I guess my skepticism would say there's so much money coming in that there can't possibly be this many good loans to make. And therefore, the underwriting standards have probably come down. There's probably some sloppy behavior, which we're seeing, and it's not going to be, in my estimation, a systemic, holy shit, I can't believe we were so blind to the risk, it'll probably be lower returns. Now, the counterpoint is, well, but it's so for plus six, and that's just kind of what it is. And so if rates come down, returns will come down, but let's say that there's a tick up

in defaults, returns will come down to it. So fine, so it's not 9 to 11%, it's 7% to 9%. And again, it depends on the manager, because the one we were talking about this morning is still double digits, right? But with that said, yes, you're right. there is an element here. I call them tourists. There are a lot of people who have entered the space

that don't know what they're doing. That's for sure, right? And why do I believe that? Stop sub-tweeting, Michael. Is that? Oh, my God. You used to be my favorite. I have a phone.

I have a private credit fund. Taking investors now. Well, you know, the thing about the tourists here is that we haven't seen a real market cycle here since 2008, not to a severe degree. And so a lot of people who are entering the industry

have not experienced that pain. And, you know, a lot of people, when they look at their managers, say, okay, well, what kind of pain have you experienced and have you navigated it? To the point you were making, Ben, on, it's not just the ability to withstand pain in the market. The bigger managers, because of scale, there is a benefit, right? If you have management teams and big teams that can work with the portfolio companies, you're also at greater, you know, greater protection of even making it to a workout. And if you make it to a workout, by the way, a lot of these people have been through, just strapped. cycles before. They know how to work those. For the listener, the workout is, all right, we can't actually make these payments as currently

structured. What else can we do so that the underlying company survives? And then the lender has all the incentive in the world. And a lot of times, these are bilateral things. It's not a syndicated loan where, you know, it just gets adjudicated in court and there's nothing you can do about it. These are like phone calls between people who trust each other. When were we in Charlotte with, uh, with, with, with, with Cam Harvey? Years ago. Okay. So in 23, I was talking to Cam and this is back when I was like, why am I getting

several emails, a dozen a week from private credit managers? And I spoke to Cam and I said, does this worry you at all? And he's, I don't think he's not, he's not known as a pessimist, but he's a risk guy, right? And he was like, no. And I said, really? Tell me more. And he said, well, because these loans were otherwise syndicated by, by banks and there was a million different investors and night fights galore.

and lawsuits. Like, I'd much rather this go, I didn't say Blackstone per se, but I'd much rather the risk being in the hand of a single operator that can negotiate with these companies and work it out. And so there's like been a lot of talk about this payment and kind stuff. Oh, it's all just payment and kind. They're just adding to the end of the loan. They're extended it because they can't pay.

And if you look at the data, that's actually just not happening. And if it were, I would be sharing it and people would be talking about it. But it's not. John, can you throw up chart two? So this is from Hulahan Loki. And we, next chart, please, I'm sorry.

Chart three. Like, we're talking, we're just talking stories without, like, fundamentals and data. And look at the top chart. Payment and kind. As a slow down.

Define for... I just did. No, but what does that mean, what does that mean for somebody that's investing in the fund? So payment and kind is when the payment is missed

and it is added to the end of the loan, it makes the principal payment. making a payment today, we'll just give you more money. We'll lend you even more money and you'll owe us later. So that is like the buzzword that people keep talking about. That's what the Financial Times looks at and says, this is going to, this will end badly.

Okay, but look at the data, please. So payment and kind is a percent of total interest income. It's steady. And if you look at non-accrual investments, which are borrowers that missed a payment, there's nothing there. You know, and I've got to say, tried to look at this in so many ways and stress test all these ideas because, you know, not only has this remained steady, when you look at the markets, are you more worried at this

juncture, honestly, about public credit or private credit? Private credit. Why? Credit spreads are enormously, enormously. But don't the yields have to come down, though? If there's that many lenders out, Jack said, well, it's the SOFA plus whatever, don't they have to come down if there's that much competition for the loans? That's what I'm worried about.

Okay, let me address this, too. There's two things going on. The traditional way private credit used to be defined was direct lending. This was, you know, levered loans, by and large, that's estimated to be a $1.7 trillion industry. Broadly syndicated loans are actually less than that. What's the difference between those two? I thought they're like kind of the same thing?

Bilateral versus a syndicate where there's a million lenders and everyone has a tiny slice. Levered loans and bank loans aren't the same thing? So broadly syndicated loans, levered loans are in the same bucket, but a direct lending versus BSL. That's what I'm talking about. Direct lending is now a bigger, by many estimates, industry, than broadly syndicated loans. So it's kind of how much bigger can it really get when they're kind of the same type of borrower? We'll see. The high yield market is, you know, different estimates, but just a little bigger, $2.6 trillion.

So where now has private credit been going next? Why is it growing so much? It's not all direct lending anymore. There's a lot of data centers, which are absolutely fascinating. Oh, great. More exposure to AI. I know. That's what everyone's missing.

in their portfolio. It's more AI exposure. There's so many funky things, right? Asset-backed lending, music royalties. There's consumer finance, which is more weighted to the credit cycle. And so I think the industry is evolving in different ways. You're just seeing, it's just lending. It's just lending.

Direct lending is Ares raises a fund. They raise $10 billion. Mid-sized companies that are not going to issue bonds in the public market, go to Aries and say, we have a contract to supply X number of gigawatts of electricity to this AI data center. Here's the contract. Meta is paying. We know it's money good.

Basically, it's almost like factoring. But let's go to the data center thing. So wait, wait. So Ares makes that loan in their fund. Yes. I'm comfortable with that because it's Aries on the hook for it. I thought you hated private markets. He's talking to himself into it.

I know, no, no, no. I want to point this out. I think it's important. A lot of people are making the comparison, myself included, to the mortgage bond era. Interesting. The difference between this and that, this actually seems safer to me. Because in the mortgage bond era, nobody knew who owned what? It was syndicated to death and trunched.

And it was backed by the strawberry farmer who had eight houses. Right. This is back by meta. So that's not the same. So I'm saying something very constructive here, which is that I feel pretty confident the guys running Blue Owl and Ares and Apollo, they're not complete insane maniacs that are just randomly spitting money at lending opportunities and hoping for the best. And they all have seen a credit cycle, right?

These guys were all, these guys all came out of. Like Drexel. Yeah, they've seen it all. So I'm comfortable with that aspect of it. This is what I've been saying. They're not the only players in the market. That's one. Now you have a second tier.

Yeah, because those big firms, they can shore it up. But wait, hold on. They're not the ones pitching Michael. But wait, okay, so this is a very important point. So all of this bullshit in my inbox, these funds are nonsense, right? Even if it's like a third tier as a manager that we know, no chance, buddy. Sorry, not going to happen. But the Blackstone Aries KKR Carlouse of the world, there is only like six of them that can

make this $5 billion loan. So they're not fighting for scraps with all of these fourth-tier entrants. They're going to get smoked, the lower ones. I'm pretty sure to Josh's point that the contracts with Oracle, at least for now, they're going to be okay. The contracts that you have at the hyperscalers are some of the most interesting ones. And why? One is because those are between 15 and 30-year loans.

They are so long. And yes, you know, if you're worried about public market valuations of those kinds of companies, that's one thing. they have to pay their lease, right? That needs to happen. Wait, why are those loans so long? Because they're leases. Their data center leases.

That's where I think that the confusion around what's actually happening here, you're talking about what has traditionally been loaned, known as direct lending and private credit, yes, fine. But the way the industry is going is also these massive data center leases, too, that are very long leases. And so they're not just that. Some of these are also, you know, because they're rent, right? it's adjusted to inflation so they actually the cash flows grow every year that's the other pretty

interesting so now let me tell you though the second half what I'm saying this is what I'm worried about and I have firsthand knowledge of this okay because he's very old no no do you lose money in a private credit fund no yeah show me on the dollar with a private credit touch no but I have an analog that I think is that I think is very apropos of I think could I actually think this my first hand experience could be emblematic of what's happening all over the country, maybe all of the world. In my industry, the wealth management industry, every single day, there's another article in the trades about a private equity deal.

That's the bubble. Hold on, hold on. For a firm that I already know is a piece of shit. Okay? Every day. Not every week. Every day. They are taking other people's money.

They are buying firms that have no. real enterprise value at absurd multiples, 20 times cash flow. They are retiring the boomer who started the firm 20 years ago, and they're basically smashing this acquisition together with a whole pile of firms just like that, and they're calling it a business. In reality, they're buying salespeople and those salespeople's relationships with their clients, and they're counting on the fact that they're only going to have to sue a few of these people who try to leave. These are horrendous, horrendous. Now, I know this for a fan.

Not everything, again, dispersion, but to your point. Of course, not everything. But I have to overgeneralize because the question is, why is this happening? I will tell you why. All of these funds have raised so much money from investors. They have to do something. And all of the best assets are already spoken for or not for sale because they're good assets. So what's left...

Like us. What's left is making me. mediocre investments in mediocre companies at bad valuations, competing with 50 other funds, there's just no way on the equity side that that's good business. How could it not be similar on the credit side? It's the same firms. No, first of all, it's actually not the same firms often because, you know, what's grabbing headlines, sometimes it is.

When it's the same firms, you're looking at a big buyout and maybe the direct lender is exposed, but they're downside protected, right? That's another aspect of this. Why? Because they're at the top of the capital. It's a big difference. It's not even close to the same thing. But it's the same industry competitive dynamics if there are thousands of players.

Loans versus equity. Loans versus equity. But don't you see it's the same competitive dynamic. I understand. If we don't put this money to work, we're going to lose the AOM. I understand. But to Shannali's point earlier, the equity dispersions of managers, yeah, obviously I agree with you with what we're seeing in our industry.

I don't want to invest in those shunuchy companies. Every industry is the same thing. No, but loans and equity, they're so different. That is like, we'll get back to that because that is the most important part of this. But on private equity, to the point that you're making, it's even beyond the bad companies being bought, it's the fact that you have, they call it the DPI issue, right? Have you heard of this a lot? It's basically that private equity firms have been sitting on assets.

They're not giving investors money back. They're not giving investors money back. And so when people say that, they just mean that it's, they're stuck. It's a complete clog right now, not complete, starting to open up. that in the results. Well, because valuations got so silly. There's no more buyers. And, you know, what's happened? This is the problem. When it, as it pertains to private credit, there is a controversial thing going on right now in the way that people are keeping companies going via debt just because they can't exit in the private equity universe. So yes, I don't disagree

with you. But if you were a credit firm, remember, the risk profile is this. Josh Brown, I'm going to lend you money. I'm going to lend you money. You're not that good of a borrower. it comes to me at 15% to 20% because you're not a good borrower. And so I'm, but what I'm betting is you're not going to default. What I'm betting is you're not going to go bankrupt on me. You're not going to miss your payments.

So it has to be a much worse of a borrower than wait, the competitive dynamics are bad because if the competitive dynamics are bad, then your equity valuation just sucks. So the equity dumb schmucks that are investing in these companies at stupid valuations, they're not going to get money because there's no growth. It is an equity holder.

I may not intend to default, but in an economic downturn, I know we haven't had one a very long time. We're not going to know any of this until those are a recession. Some companies, just the cash flow

isn't there to support the loans they've taken out and the smart thing to do is to default and clean the slate or liquidate and we just

what Ben's saying is what I think which is that okay, we don't have a dry run. Yeah. We don't have recessions anymore though.

We had a seven-minute recession five years ago. It's been 50, that's the thing. All these situations, systemic risks we're always talking about, we're never going to know until we get another recession. How could you? We can't do a rehearsal. Right. So that's my only point is, and now the industry has made more loans than they've ever made. The dollar amounts have gone up. And the amount of

people in this ecosystem borrowing from direct lenders has gone up. And look, there will be losses in public credit too. Yeah. Everything you're saying is obviously true. Yeah. And when the tide comes out, people, people eat shit. Like, duh. Well, me and him were talking about this. But here's the difference. Wait, wait, wait, no, this is really important. Here's the difference as a financial advisor. I call my clients and I say, the economy looks really bad. You've got auto companies spitting the bit. You got banks reporting losses. You got credit card companies. Hold on. Hold on. Let's let's sell and go to cash. I can do that in H. YG whenever the fuck I want. I can't do that. You're saying that's good. That's not all good.

That people can panic? Not panic. Decide that they don't want to take as much risk in the credit market. After deep losses. I can't do that. Not after, maybe in the early innings. You don't know how long that goes on for. To me, that's like the least offensive part of it.

But also, remember, this is going back. I've been around a long time. Do you understand? I drank out of glass snapple bottles. Do you understand this? I was a long time. I'm just saying, as an advisor, if you say to a client, we're down in this bond fund,

because some of the credits are blowing up and we're just going to take a little bit less risk. We're going to trim. You can't do that. What are you going to sell first? If things are really going poorly, you sell equity. You sell your equities first.

No, but you're right that people are going to change their allocation preferences. A lot of them after. They're going to want more of this. Don't you see that? Yes, they are. There's going to be a lot of people who say. That just happened.

In 2022, when people got their asses kick because their bonds duration killed them, that's why they flooded into the floating rate nature of private credit. And also, floating rate good, floating rate good, illiquid floating rate, not as good. Wait, but that's what it is. That's what it is. But also even beyond that, I get it.

I get it. But 2020 and 2023, when we were talking about when credit ultimately, people didn't feel so good about it then, right, you still saw private credit being able to step in in this massive way and buy, that's when the things are cheapest. Those are the best investments that they could possibly make. Can we all agree that investors prize liquidity? in a crisis? Yes.

We can all agree there. Well, what you're saying is the 180, 180 degree opposite of that. I'm saying that if you are, if you have a normal, responsible portfolio and 10% of your portfolio is illiquid, you're going to be fine. But also, how much of your portfolios are in cash right now? 100%? I'm super bearish. Well, but like the average RIA has what I've heard anywhere.

The average RIA holds 2% aside, mostly so they can bill their clients. That's 2%. But should I? One other thing that we mentioned that we glossed over. on the way would you rather be private credit, public credit, again, not to be the defender here, but on the private side, what you are getting in exchange for the illiquidity is a relatively constant spread over sofer, five, six hundred, whatever it is. Which is meaningful. That's the source of returns.

In public markets right now, granted, you could say that the quality in H. YG is higher than it used to be because all the bullshit is going to the private direct lending. Fine, I'll grant you that. But right now credit spreads are so tight in public credit. Like, I don't know. Is that better? Why is that better? but but in general in general in it in an economic downturn yeah people very highly value and I'm going to tell you something about the financial advice business because there was a time where we were all told hedge funds got to be in hedge funds hedge funds avoided the dot com blow up hedge funds made money in the lost decade for stocks hedge funds completely there's a lesson here

there's a huge lesson in that and then the illiquidity of a lot of those hedge funds had private market assets. Yeah. They had to side pocket them. You couldn't get. And that pissed people off. Even if the returns five years later were good, it was beside the point when things are not going well, people really value the ability to reach in and pull cash out for whatever

reason. I don't disagree by any stretch of the imagine. Well, advisors who have very illiquid portfolios for their clients, unfortunately, are going to have a lot of difficult conversations if we ever have a recession again. Those clients will be our clients eventually if they do that. It shouldn't be, you should have a reasonable amount of alts in your portfolio that are not, it's not, you have to still have a liquid part of your, you know, it's interesting. Goldman came out with a survey the other day and a fifth, a fifth of the respondents in the survey were holding, actually no, out of the survey, one fifth of all the total assets that were surveyed for were in cash, a fifth, a fifth still today. When you say in cash, like all in cash?

What do you mean? So a fifth of the total portfolios that, right? Morgan Stanley said that on one of their calls recently. That's what I'm saying. So if you look at the wealth community writ large, there's a lot of money in cash. So the liquidity question has clearly been on everybody's mind, especially at these levels, you know, where are we in the market? So on and so on. Josh is right.

If you overdid it on the private side with your clients and they're 40-50 percent, you are fired, you dumb asshole. I don't hate it. hate a barbell. You're allowed to curse on here? We do whatever we want. I don't, I don't hate a barbell of I'm 10% cash and I'm 10% illiquid, high yielding assets. And I can make sense of that because it's a total portfolio approach. It's not what I personally recommend. That's an advisor problem, not a client problem. It's an advisor problem. Yeah, no, but it's a real one. It is a real problem. But that's the thing. Thinking about it from a total portfolio is the only way to think about it, right? You can't just, like, dump all of your assets into illiquid.

But people do. But here's the problem, though. People, um, it's called mental accounting. People do this all the time. A client looks at their portfolio. They have a conversation to the advisor. 80% of the portfolio is going up, 20% is going down. What do you think the client has questions on? Yeah. Should we still own this? Yeah. How are we doing with this? Do you still like this as much as you liked it when you told me to buy it? They'll fixate on the part that's down. Now, they shouldn't because that's probably the part that's about to outperform. I'm just telling you the difference between data and how things actually go when you're when you're helping people with their money.

If things are going wrong, think about it this way. Let's just draw that scenario because 2008 and the market structure today for private assets are different. Yes, if I'm holding a hedge fund where you think they're in a bunch of liquid stuff and turns out they're not, that sucks. That totally sucks. It's also not what they really sold you, right? But now what you're looking at is a market that's meant to be a liquid, right? And so it's like, wait, okay, to your point, I know I can't pull this money out. And when things do go bad,

it's more likely that those public assets have been facing that decline than your private credit, which is supposed to be less volatile than what's happening in the public markets and not because of liquidity. But you know what I'm bullish on for that reason? I think the most popular category

in this space is going to be secondaries. Yeah, that's huge. Because that's how you do. take advantage of all the problems I'm pointing out is you're invested in a fund that's waiting for people to choke. And then when those other funds are choking on assets and have to sell things, the secondary fund is there to get that discount. Are you a distressed investor? I might be. Holy shit. I'm definitely distressed. There's going to be so many, I'm definitely distressed. There's going to be so many overreactions in the next recession. Oh, hell yeah. Right.

That's no matter what. It's been so, so long since we've had a real one that wasn't shorted up immediately, I think the knock on effects of whatever the next recession happen is going to be enormous. Well, let me ask you a question. You know, we were talking so much about privates, to your point on total portfolio. How vulnerable is the stock market to that? It'll be fine. Very. Oh, yeah. Very. What does a recession, like, you know, people are saying bubble this, bubble that, but realistically speaking, if something actually goes wrong with the macro... Yeah, if the loans go bad, could you imagine what the equity is going to look like? Like, could you even imagine... It'll be way worse.

So I want to just, I know we've gone long, but I want to, we can't not talk about the banks, especially because Moody's just put out a big report yesterday that is really important. And they talk about the big picture. And I would agree with everything that they said here in terms of this. Risk is rising, especially for smaller banks. They talk about growth in competition. They said concentration risk is a concern with banks specifically. The true risk can be hard to assess.

Of course, we all know that. And then lastly, transparency and bank loans exposure is improving, but new light exposes gaps. So they have these great charts that I want to talk about. They showed that banks help. Ironically, Jamie Diamond, I mean, there's a love-fate relationship. So banks- This is so wrong, though. The data's wrong.

Oh, go ahead, please. Sorry, this kills me because they said there's $300 billion. Moody's is never wrong about anything. No comment. Say more. This data is not, oh, here, maybe not wrong, but at least a little misleading for this topic. So $96 billion is really what's in private debt funds. They're saying it's $300 billion.

What they're counting for... No, that's percent growth. Well, no, but in total, what they're counting, it's percent growth. growth, but what they're counting is up to $300 billion in loans outstanding. That happened to be the same for no reason. But it's actually, when you look at the total, that's the growth off of a almost non-existent base that you're looking at. And then on top of that, it's actually $96 billion, not $300 billion.

And out of the entire universe of a non-bank financial credit, which is getting bigger, the private credit is only 4% of that. So this will bother you this. So is this a better, this is better representation, the NDFI on the bottom? It kind of, but the NDFI is a real non-deposit financial institution or shadow bank. That is like online lenders. That is like all sorts of specialty lenders. You name it.

All right. Forget that bullshit. Here's the important part. Here's the important part. John chart nine. I'm going to try one more time. All right. So the rise of private credit.

So Bloomberg took the data from Moody. So tell me if this is wrong too. It might be. So this is the amount of loans and private credit from the banks. And J.P. Morgan. Uh-oh. They've, wait, they, they found a way around Dodd-Frank. Yes.

So, Matt Levine wrote about this yesterday. Jamie Diamond's eating chocolate cockroaches. But look, Wells Fargo, $60 billion in exposure to private debt firms. J.P. Morgan, they're not making the loans, but they're making the loans to the people that are making the loans. They're lending the money to the lenders. It's genius. Exactly. But they've always done that, right?

J.P. Morgan's biggest customers, what? Like, mostly regional banks, right? How many do they bank? $4,000 of that? Yes. That's their business. And so when you look at this number with what I just said, that it's the private credit definition that they gave

is a little misleading because it's those online lenders, it's the specialty lenders, it's all sorts of lenders. So it doesn't actually show what their private credit exposure is here. It's a lot less than that. And, you know, you think about it. People are talking about J.P. Morgan's private credit exposure, but, like, they also just increase their provisions for loan losses to the entire economy, right?

that they have underwriting that suggests that loans, just in regular way, consumer loans could start to sour a little bit. So what do you think of this, though? Nothing's happened yet, and people are this vigilant. Is that a good thing or a bad thing? You know, I'm with Ben. I like it. You don't have delinquencies in real life.

And people are like, people are like suspect everyone. Let's be honest. If this is really a systemic risk, everyone's getting bailed out. Come on. Well, that's true, too. So that's the funny part is that no one will actually have any consequences. Yeah, it'll be fine. But do you feel like that's a good sign that we're all like, Jamie Diamond, we're scouring

all of our books? That's kind of good. That's very good. That we're doing that now before there are actual losses. Never hire an optimistic credit. All right. Next topic. Yeah.

BDCs. How do you sleep? No, I'm just kidding. I wrote it. So I know you wanted to take interest, take issue with one of the things I wrote. I wrote about BDCs. You call me biased. Not to see.

Well, of course you are. I'm biased too. Wait, wait. Shannali, I'm biased toward the stock market. So we all have our... Fair enough. Okay. I wrote about BDCs because I think they are the exposed part of the wound.

Hmm. If there is a wound in the way that they behave. People are worried about two things with BDCs. The first is very banal. As interest rates come down, obviously, the yields that these companies are able to pay have to come down with them. Nobody should be alarmed by that. That's the way interest rates work. So we know that dividend distributions will come down.

And these stocks are selling off in that expectation. We had the first rate cut of the cycle in September. Maybe we get another one in the month or two. Okay. No problem. But then the second part of that is, oh, wait a minute, there's fraud. at some with some of these loans.

How much more fraud might they're... Okay, what if there's three? What if there's four? Zion's bank came out and said they're suing somebody. Oh, there's definitely more than four. No, there's going to be more than two. I'm not saying it has to be 2000. But a lot of the things people are saying

in defense of the BDCs were the same things that they were saying in defense of the mortgage funds 15 years ago. And I know, because I was there. and it's not terribly different in terms of rhetoric. The reality might be different. What do you make of the panic, minor panic, that we saw in the publicly traded BDCs,

and would you agree that this is a better gauge of credit risk right now than what we would traditionally look at, which would be junk spreads relative to treasuries? There's such a massive difference, I think, between... I know. I know. No, no, no, no, no, between credit risk. and between spread compression and credit risk, right? Credit risk, we're talking about whether you're lending to a worthy borrower.

Spread compression, you're saying returns are going to come down over time. Okay, fine, maybe. But if returns come down in private credit to the point Michael Batnik was just making, it would come down in public credit too, and the spread for private would still be higher than that. So the wound, which wound are we talking about, I think, is what my question is. I'm not worried about spread compression. I don't think that's an emergency. And so are you worried about widespread fraud?

I'm worried about the rush to put money to work. Okay. That we all have to acknowledge has been a big part of this era. What are the ramifications that will stem from that if and when we have a credit cycle? So, Josh, right, the only question that I have for private credit matters as we talk to them is, what if you get $10 billion in funds tomorrow? How quickly deploy it and how? What are your controls? Is it just cash in?

got to make loans, cash in got, because you can't, it can't possibly work that way. And if it does, and people are doing business that way, and I know a lot of people are, you're going to be in trouble. Yeah. And not just for credit, for private equity, too. The biggest mistake many managers made the last few years is they made all of these acquisitions in 2021. That doesn't look so pretty today. You know, things felt really good.

So people put a lot of money to work and look at where we are now. But, you know, if I don't think. think if we saw a scenario in which Ben was talking about, which is a widespread recession, who's safe in that scenario? Like, what is safe? You're right. And nobody. In 2021, when the music was playing and all these giant mega growth funds were investing in

these companies and insane valuations, I remember that there was very few people calling it out and saying, this is crazy. And one of them was our friend, Howard Linson, who was like, I have cash and I'm not investing because the prices that I keep seeing are stupid. They spent it too fast. And when they stop being stupid, I will start investing. again. And that's who you want to give your money to in periods of complacency. And there's no doubt that there is too much lending. And it's too much. It's too fast. Hey, you know, I mean, if there's

anything to take away from all this, right, is do the damn homework. Right. Don't put your money just because there's a promise of something interesting in an industry that's a hot asset class. Do the work and say, okay, what is this actually investing? I put it in your 401K for God's sakes. I was waiting for that to come up today. Do you think investors should be biased toward the larger players in the space as it just in case? Yes. Because I do. I think brand and size and scale really matters.

It's matter for a lot of reasons, but not in every asset class, right? Because things like private equity, actually middle market and lower middle market have much more attractive return profiles than you would have in like those large scale buyouts right now. This is the opposite. I feel like in venture and with hedge funds, smaller managers tend to do better because scale is the enemy at that. in that space. I think with Lending, it's the opposite. It's the opposite. You need scale.

I would agree. I would agree with that. Okay. So that's, so you're, like, you're asking people to do their homework, due diligence. Most people listening to this who are being recommending. No, I mean like you, like the advisor. Oh, I'm doing deal with me. So this is going to be, this is going to come off as like overly cynical and sardonic,

which is right on brand for me. But somebody asked me what's your private equity, private credit strategy? And I said, I'm just going to. wait for the disappointment and then take everyone's clients. Do you own a house? Yeah. Is that my private credit strategy? You own a hard asset.

You own a private asset, right? And so, you know, what you're asking someone to do in a private fund is to buy assets that, you know, you're going to buy hard assets, you can buy infrastructure, you can get into. Yeah, Shanaily, I don't have enough money to be able to buy the things that are private assets that I actually think I would want. Do you have $25,000? Yes. That's what?

How will that move the needle for me? But that's what I'm... The thing is, I don't have a big. billion dollars and I can't buy an NFL team and that's what I that's the private asset that I am interested in a financial planner I can't really help you there but I know some athletes but that's my that's my I don't think every market yeah I don't think every market makes sense for every person that's true okay so in the private market the best managers yeah who have access to buy the best assets yes are not going to be accessible by every investor that's my point

That is true, but I would also argue that because there have been, there's a lot going on. The operational efficiency is getting better. The documents are getting more fluent to access and the technology is getting better. The fund structures are changing very meaningfully. The minimums are coming down. That's why we're even talking about this, honestly speaking. It used to be impossible to access many of these types of assets. Even 10 years ago, wealth managers couldn't do it.

Even two years ago, they couldn't do it. I agree with that. And those are all good things. anything that you do that makes these things more accessible and makes it so you can actually research them and more transparent

and lowers the fees and adds transparency is unequivocally good but that means lower returns lower returns lower returns it has to it depends I actually don't agree necessarily on that

because these are you know when you just because you open up something to a wider array of investors doesn't mean like your 401K plans that's scale that's pricing power and that's net of fees a better return now I will say

this, the liquidity trade-off, that's where the return compression comes in. You're seeing a lot of products come to market that are like, oh, yeah, you know, we're private, but we're liquid. You go one level deeper. Disaster. But it's also not private. It's blended. The more liquid something is, right, by definition, it's not. It's not liquid. It's not private. It's not private. And so a lot of these funds are like, okay, well, we're part this and part that. And like, really, the private allocation is like this big. And yes, you're going to have a trade-off there where you're not getting paid for that illiquidity premium. Human nature, okay?

Just answer me this. If something is an amazing investment, whether it's an asset class or a particular property or a particular whatever, if something's amazing, are billionaires going to let dentists get in? No way, right?

Well, the billionaires, you know, it's funny. Tony James wrote a book about this. The billionaires need the dentist, though, now. Yeah, the billionaires need the dentist. Yeah, as exit liquidity. No, not necessarily. What are you talking about? Who's saying this is a book?

It's an amazing investment. Private loans do eight to 10% a year. No, no, no. We're talking about what topics? We're talking about private equity now. Okay. I'm saying if something is like an incredible opportunity and Mark Cuban buys Mark Cuban buys 20% of it and someone else buys 20% and someone else and all these wealthy, well-connected, famous, brilliant people. Josh, what team do you want to buy? Wait, wait. And then there's 10% of it left. Why would there be 10% of it left? Why would there be 10% of it left for the public. Let's put it this way. Why? Why wouldn't they just buy the rest? You're right. You're right. Of course. The best investments are for the, for the ultra wealthy. That will never change.

Never, ever. So anytime you're democratizing something, you're telling me this is third tier. First of all, our sports seems always good investment. Yes. Name one that isn't. I don't know. It's funny. I once asked Mark Lazary why he got out of the bucks, right? Best trade ever. Well, he said. He bought it for $400 million and sold it for billions. That's a good enough reason. But he then went to other kind of more esoteric sports like pickleball, right? Because the return profile was better there. And yes, these are not available to everybody. But I would say...

You know the jets are probably worth $5 billion? Oh, I'm so glad you mentioned that. Sorry. There is no sports franchise that goes down in value. So last night I went to the Knick game. But the return rate can slow. That's what I'm saying. True.

Last time I went to the Knick game and I was genuinely thinking about this. What are the Knicks worth? I don't know, $6 billion, $8 billion, $10. But whatever it is. 15 in real life. Okay, whatever. Fine. Let's just say it's 10.

Acklo's worth like $25 billion. Like all of these like nonsense pre-revenue companies or like when you put it into that context, I know it's apples and computers like it's not the, but it is kind of hilarious. But by the way, I don't think we're that far off from having individual investors being able to be in sports teams too because they're there. Private equity is there. That's what I'm saying. So actually the universe of investments is just getting a lot bigger.

So I don't disagree that there's exclusive investments that are maintained for the ultra wealthy. But I'm saying the universe of investments that only used to be for the ultra wealthy is. now expanding everything. So I think that's good. I do think people should leave room in a portfolio. People who are wealthy.

Did we win you over? No. The boxing judges called us on a tie. I was already there. But I also know. So, I'm a firm believer. I'm a firm believer that 90% of everything is shit.

That's what I think. Okay? You know, I will actually agree with you there. So most of these, so most of these investments, most they don't have to go bad. I wouldn't say that I would just say like

do you want to own the fifth best fund in a sector and you just showed us dispersion is really a big deal in this space you do not want to own the fifth best manager

you want to own number one or two or your returns will be radically different that from my perspective I think that's why I Capital has been so successful people need someone

to tell them this is the good one that's the bad one and it's the beauty of my job. And it's so funny because I asked my husband, I'm like, how do I fight with Josh Brown about the bias comment? We're not, so we agree on, we agree on almost everything. We do. And I would say it's not about, there's no interest in being biased. The interest is in, same for both of us, in being right. And being able to do as much diligence as humanly possible on behalf of everyone

else, right? That's what I got to do as a journalist. And it's what I get to do now. So my last question then, is it realistic for somebody who has $200,000 in a 401? to be able to take 25,000 of that and put it into a top-tier private equity manager or private credit manager? Do you think that's actually what's going to happen? I do. You do? I think it'll take a minute to get this ironed out properly, but private assets writ large.

You think the better managers will make themselves available to inflows from a 401k? That is 1,000. Yeah, don't they have to? They need it. If they go into 4Ks and it's a disaster, then, like, this is going to, that's going to be really bad. They're going to have to put some decent funds forward,

don't you think? Yeah, they'll get kicked off the, they'll get kicked out of the plans if they blow up right out of the gates. Yeah, they have to do that, it has to be top tier quality. And also, I mean, that idea of putting assets in a foreign,

you're holding that for a long time. Yeah. That's one of the best possible structures for private assets. Yeah, so I don't think Schwab and Vanguard will work with terrible firms or dodgy, I agree with that. I do think there will be marquee names

in private assets working with the marquee names that manage most of the country's 401Ks. So I don't think it's a case where bad product is going to be shoved down people's throats. I guess I just question it's probably not bad,

but is it even good? Is it even, will it be materially better than what they could do with low-cost index bonds and stocks? I don't know the answer. I don't know the answer, but that's the question.

You know, a couple months ago, remember, made a lot of news when Goldman came out with their assumptions for where the S&P in 500 is heading in the next 10 years and just because of valuations where we are today. I mean, that is one of the big problems, right? It's just capital markets assumptions where we are in valuations and the expected returns over 10, 20, 30, 40 years.

Right, why overpaying public markets? You could overpay in private markets. Very nice. But hopefully nobody's overpaying with us, right? Chanel, you're so good at this. It's scary. I just, I want to thank you so much for coming here and pointing out all of these things that are getting lost in the conversation. Do you have fun on the show?

I, I love the show. I'm your neighbor. I'll come. Can we do a Rocky versus Apollo for the thumbnail of you too? But we like agree on like 90% of this, I think. I think we both want what's best for the investing public. That's pretty obvious. Yes?

1,000%. All right. And I think I'm in. on secondaries because I like buying other people's pain. I like that. I'm just going to call him vulture for you. I almost forgot to mention this. We have to disclose this. We are a shareholder of iCapital.

You are? Technically Michael's your boss. I don't know if you know that. That's scary. Don't get me glass water. I capital bought one of our companies. So we have shares in your company. Look at that. So don't fuck it up. I'm hoping you're enjoying it.

My kids 529 is counting on you. That's why he's a spokesman for Yeah, no kidding. I love that. You could do that at me at the end there. It would have been nicer to you guys. All right. So we always end the show asking people what they're looking forward to.

And I'd love to hear from you guys. What's hot in your world? What's going on on the horizon? What are you excited about? Shinald, you can start. All I can think about is the CPI print tomorrow. Is that horrible? Are we even going to get one?

You and Cali, both. Callie's excited too. It's a data starvation for the last three weeks. I guess I'm sort of excited about it, too. I think just in general, I think we'll just get one more rate cut at the end of the year, no matter what, the CPI print is. Just one? You think definitely just one, not two? Maybe more, but I think we're definitely getting one.

Yeah, I would agree. So what are you excited about? What economic data point can you not sleep until we get? So I'm excited this weekend, my son plays third and fourth grade football. Okay. And his last game of the year. old man's footsteps. He's on the line.

He's not like me. They're playing their last game of the year at the big house in Ann Arbor. Oh, wow. It kind of came out the... Is Razznick going to be there? Yeah, is Jason Razzanick going to have a front row seat for that?

So something about football was my sport, so watching one of my children play football has been like so gratifying for me. It's unbelievable. What do you think of the lion season this year? I thought they'd be better. They're not bad. They're good.

I just thought they'd be better. Yeah, but everybody thought, losing their coaches. Ben's from Detroit. Wait, why are you looking at a lot? I'm a Packers fan, so I think we're not friends. Okay. No, wait, they lost their offensive and defensive quarter, and they're still kicking ass.

Yeah. We have the best running back in the league. Yeah. It looks okay. Yeah. Oh, that guy's freakishly fast, too. Gibbs, yeah. Yeah.

All right, so, but overall, it's not a terrible season. It's just, I guess I thought they'd be more dominant. Aren't they four and two? What's a record? Five and two or something? No, they're going to the Super Bowl. You think so? Yeah.

Okay. I don't know. Who's better than them in the Out of C? Nobody. I have very low expectations to the Lions every year. Grand Rapids had. When were they last in the Super Bowl? Never.

I was going to say. Yeah, they should have been last year. Sorry. Yeah, they got so many injuries, yeah. They should have been. So he's going to play, so he's going to play in front of 100,000 seats. 100,000 seats. 100,000 seats.

They give him an hour to play this game, so they get it like no halftime. Like, we got it because there's all these games, but he gets to finish the season. How old is he? He's eight. Eight. That's it. He'll remember that for the rest of his life. Yes.

Can I say what I'm excited for? I'm excited for tomorrow. If somebody told me 15 years ago that I'd be interviewing Jim Cramer with Josh, I would have smoked and dust. Oh, is he on the pod? Yeah. He's on the pod.

Tomorrow night. We're going to do it live. It won't air until next week. I don't know how long we have them for, but we're going to do like the Jim Kramer on the compound experience. Where are you guys doing it at? We have a venue holds about 120 people. It's fairly exclusive.

Custom cocktails? In a financial district. I don't know about that. That's a Nicole question. We're going to do it. I don't know, Rob, we're going to do it right, right? And thank you KKR for sponsoring the show tomorrow. Oh, my God.

All right. Anyway, something to look forward to. Guys, we want to thank our guest, Shonali Basap. Where can people learn more and get more of your insights? Because I feel like you just absolutely lit it up on the show tonight. Yeah, we keep it real on LinkedIn. We are on Twitter. We try to share as much as we can.

And on iCapital.com. Your Twitter as your real name, iCapital.com, people could subscribe to the research that you guys put out. Yep. Yeah, we have a newsletter where we share a lot of that research, and we have a tab under thought leadership where we publish every week. All right. You're the best. Thank you so much for being here. Appreciate it. Thanks to all the listeners, like and subscribe. I'll see you soon. You know,