The Blurring Lines Between Public & Private Credit Markets

Greg Campion: The growth of private assets and more specifically, the private credit market has been well documented in recent years. With estimates for the global private credit market's current size coalescing somewhere around the $1.7 trillion mark, putting it roughly on par with the global high yield bond market and the broadly syndicated loan market, but also growing at a double- digit percentage pace. What is perhaps less well documented is the so- called blurring of lines between the public and private credit markets. As more and more capital is raised on the private side, in many cases it's getting more complicated to draw a definitive line between traditional public credit and private credit. What does this all mean for borrowers or issuers in the debt markets, the lenders or asset managers who are extending this credit, and for the investors who are funding these transactions and ultimately looking to earn attractive returns?

David Mihalick: I think as investors increase allocation to private markets, you're starting to see them think in some cases, less about a specific asset class like corporates and thinking about, okay, what's my goal income? Right? And so I want credit exposure, but I mostly want income and I want to diversify my risk, so maybe I want some corporate credit, maybe I want some real estate debt, maybe I want some infrastructure debt. And so again, we're in all those areas and we're able to have that conversation around relative value, and relative value and where you can deploy, because you make an allocation to a market on the liquid size as Martin said, you put the money to work in a day or two. On the private side, does it take a month? Does it take six months? Depending on the size, how long does it take to get that exposure? And then that relative value can change from the time you make that decision, right? Like what's happened in the public markets. Did you have a big sell- off? And again, maybe investors aren't moving that dynamically because it's a core allocation, but we certainly can have that conversation with them and deploy the money smartly.

Greg Campion: That was David Mihalick, Head of Private Assets at Barings, and this is Streaming Income, a podcast from Barings. I'm your host, Greg Campion. Coming up on the show, the blurring lines between public and private credit markets. Before we get into the conversation, if you're not already following us and you're interested in hearing our latest thoughts on asset classes like high yield, private credit, real estate, and more, just search Streaming Income on Apple Podcasts, Spotify, YouTube, or wherever you get your podcasts. With that, here's my conversation with Barings' respective Heads of public and private assets, Martin Horne and David Mihalik. All right, David, Martin, welcome back to Streaming Income. I know you're both coming from the investment offsite, so maybe we'll talk a little bit about that, but very excited to have you both here and to dive into what's I think a topic that's on a lot of people's minds right now, and that is this kind of so- called blurring of lines between public and private credit markets. So David, maybe I'll start with you and we can just dive right in. Your career has really spanned both public and private markets, so I think you've got a really unique perspective on this. I'm curious, what do you see of all the factors out there right now that's kind of driving this convergence, so to speak, or this blurring of lines?

David Mihalick: Yeah, well, thanks for having us. And yeah, we just had a two- hour journey from our off- site through a rainy soaked highway, but we made it. Yeah, I think as I thought about the topic today, I thought maybe take a step back of, I've been in leveraged finance markets for over 20 years now, and if I think back when I started 20 years ago, I was at a bank, Wachovia, now part of Wells Fargo here in town. And thinking about how those businesses and where the markets were and sort of the leverage loan syndicated market, then the high- yield bond market. Did that for four or five years, came to Barings on the buy side, joined what was called a CLO platform at the time, because that was the dominant buyer pre- crisis in those markets, and saw all those, the syndicated loan, high- yield bond markets grow from hundreds of billions to over trillion dollar markets. And then about 10 years ago, direct lending really started sort of gaining market share as well, and to your point, in my career. And then three years ago, I went from sort of being all on the public side, moved to the private side, which is broader than just direct lending, but our biggest business is our direct lending business. And so that market now is 1. 7 trillion, depending on how people measure it. So as big as the syndicated loan market, big as the high- yield bond market. And if I think about the types of deals we're doing today in our direct lending business, they look and feel a lot like the types of deals I was doing 20 years ago and what was the broadly syndicated market at the time. So 30 to 50 million of EBITDA, four to five times leverage, sponsor back leverage buyout. And so now all three of these markets are sort of on par in terms of size, but very different reasons that borrowers may access one or the other, or investors may be interested in one or the other. And in each of these, you're seeing now you can do really big deals in the public markets. You're seeing public market deals go into the private markets and a lot of fluidity between them. And I think that inevitably led to a blurring of the lines. I think importantly, if you're thinking about direct lending specifically, the underlying risk is still the same. It's a corporate credit, largely sponsor backed leverage buyout, but it's just the execution of the financing. And we can, I'm sure, get into the reasons issuers may tap one market or the other, or investors may want one market or the other. But I think inevitably that's led to a blurring of the lines and you're seeing issuers move between the two markets. And I think it's important too, we're starting with private credit here. I think beyond just direct lending, beyond corporate credit, you're now seeing a headline a day around asset- backed finance and the opportunity to do other things. So I think as we think about our platform, our engagement with our clients, it's really what's possible in the private markets expands every day. And I think as we think about how we're organizing our business, it's to be able to take advantage of that and offer those types of things to our clients.

Greg Campion: Yeah, it's interesting to me that you mentioned your background coming from a bank, because I think one of the things that we've talked about a lot internally is just a lot of these asset classes on the private side are not new asset classes, so to speak. There's been these kind of waves of bank disintermediation kind of over time, and you just kind of referenced a couple of those. And that we could probably do a whole separate podcast discussion on that. And also there's a blurring of lines between some of the activities that asset managers are doing and banks are doing, and we're seeing more and more partnerships taking place there, both on the distribution side but also on the origination side. We've just seen some big headlines this week on that side. There's so much going on there. We've seen a lot of money come into private assets. You referenced the growth that we've seen in the direct lending market, but do you think part of what's going on with this blurring of lines is that clients are looking at things more holistically now and kind of looking across that kind of bucketing credit together with credit, whether it's public or private? Is that an element that's driving this?

David Mihalick: Yeah, I think they're looking for the best risk adjusted returns always, right? And so as I said, the underlying risk, if they're looking specifically at corporate credit, right? Then for in a lot of periods of time, you get paid a premium in the private market because you don't have liquidity. And so to an investor that is attractive if they're willing to live with less liquidity. At the same time from the borrower's perspective, they get certainty of execution, maybe a little more efficient process on the private side, and they're willing to pay more for that. But we've also seen periods of time where if that premium is too much, then companies are more willing to issue in the public markets because the premiums just, the public market spread is compressed and they're not willing to pay that premium. And so again, to the original question, the blurring of the lines. I mean, I think there's no sort of a step one, two, three of why a company issues in one market or another and similar, why investors may have interest in one market or another. It's a portfolio decision on the investor side, and it has on the issuer side, what's their hold period? Is it a play where they're going to do a lot of add- on acquisitions, so they want to have certainty of execution with a small lender group? So there are a lot of variables that can feed into it, and I think people think of them as a version of the same thing just with different pluses and minuses, depending on whether it's liquid or private.

Greg Campion: Yep, that makes sense. Yeah, I mean, there's just so many different areas where the lines are blurring to. Like you mentioned liquidity and now you're seeing more headlines around different firms starting to set up trading desks for their direct lending groups, which is even further kind of blurs the lines there, so.

David Mihalick: Yeah, I mean, you've heard some people say that over time the private markets will evolve to have all the characteristics that you get on the public side, which then makes you wonder, is it still a private market? So I think how people think about these and how they evolve over time, I think there'll be a lot of interesting developments. And trading is probably the one that's most in the headlines recently.

Greg Campion: Yep, yep. All right, Martin, let's bring you into the discussion here. Barings is obviously very active across a very broad range of credit asset classes, both public and private. Where are you actually seeing this blurring of the lines? Like looking at the day- to- day business, where are you actually seeing this kind of manifest itself?

Martin Horne: Well, the easy stuff to point to is the loan market. That was the kind of original transfer from publics to privates. And the private market direct lending business, which is what we're really talking about, which is effectively a loan business. Exactly as David described, it's the loan business that I remember from my time in the CLO business from 2000 era. That was ticking along nicely and then COVID occurred. And what happened with COVID is the public markets essentially dissipated because asset pricing dropped so far that it really wasn't economic to issue into the public markets. And the private market stepped in, classically the private market stepped in. So if you look at the direct lending market and the size of the direct lending market, it exploded in 2020. That was the real filet for the size and the interchangeability of that market that we see today. And that's when you really started seeing these jumbo deals that no one ever envisaged private markets would be funding come to the fore. And that's when people really started thinking, is a private market going to replace the public markets? Now, the reality is in relatively short order, we had 2020. So we had 2020 COVID, '21, we came out of COVID or largely came out of COVID, felt pretty good about the world for about six months, and then we had a spike in inflation. Then we had an interest rate explosion, the largest global interest rate movement we've seen in our careers. And that meant the public markets once again took a step back because particularly fixed rate instruments took a dive and there was this perception of risk that public markets were very, very deeply discounted. And arguably, the arbitrage was much better in the public market if you'd bought into that market then, than the private market. But the private market was still issuing because there were people wanting to do new capital deals and it was more expensive to be in the public markets than the private markets. And then we get to 2024, our interest rate cycle seems to have plateaued towards the end of'23, and the public markets are back. They're back like Lazarus. And in the first quarter of that year, you saw about 13 billion of previously private deals refinanced in to the public markets. And we thought, okay, well this is a turnaround, this is a shift in gears between privates, which seem to be exploding ever upwards, and back towards publics. Then what happened in response to that, a load of private debt guys who had raised a lot of capital rethought about the terms that they were willing to accept and bring that arbitrage down, as David alluded to. And in the second quarter we saw almost exactly the same number refinance from the public markets into the private markets. And that I think is the balance that we're going to see now. You're going to see classic supply and demand functions play into the price and the flexibility of these different markets, and you're going to see them interact. And there's offshoots from all of that. There's particularly in the CLO market, we've seen CLOs, which were the domain of back in the noughties, these mid- market loans, they moved up to broadly syndicated loans with much larger companies. And now you've got this kind of tiering of classic broadly syndicated loan CLOs, and a new market that is the private debt CLOs which have less diversity but they offer higher income for liability buyers and potentially higher returns as they play through. So there's new product streams coming out of this interchangeability. It all drives back from banks getting dis- remediated, public markets stepping in originally, and now private markets taking the space of some of where the public markets have traded. And going forward, I think you're going to see it's oscillation of interaction between these two markets as different factors play into where issuers are really going to issue into.

David Mihalick: Yeah, and I think a key test too with private credit, which has grown rapidly over the last 10 years, is when we eventually get to an economic cycle and it gets tested through that. Because invariably when you have a lot of money chasing deals, invariably in some part of the market, there's probably deals getting done that may not be the best deals. And so eventually when you have an economic cycle, for the most part, it seems like the market has weathered the rate peak that Martin mentioned, now we see that coming down. Eventually we'll have an economic cycle, and I'm not here to predict when that is, but how does this 1. 7 trillion of debt, and it won't be in your face, right? Whereas in the syndicated market, it can gap down 10, 15 points. Individual companies can gap down more than that if they're not performing in the private markets. It'll be how different troubled credits work their way through the portfolio, what the loss experience is. And then ultimately, the end investors that are deciding between these two markets will sort of realize through a cycle, what return did they get after losses through a cycle? And that's when I think we'll really understand maybe longer term how these two markets potentially balance out.

Martin Horne: And I think that's important because at the moment, the soft landing scenario is everywhere. Right? People are pretty comfortable with risk. They're not feeling great about the economic landscape, but they're kind of neutral. It's not too bad, not too good, it's somewhere in between. And as a result, there's this complacency, I would say, about just assuming these are the same thing and they're not. And what's as important as to understanding the dynamics between these convergence is also to understand the differences between these two markets that fundamentally still exist, because under different circumstances you're going to get different outcomes. And investors just need to go in there with eyes wide open as to what that looks like.

Greg Campion: I think that's a great point, that the private credit arguably has not really been tested through a cycle yet. And so there's this idea that there's kind of some amend and extend kind of going on, or maybe there's lenders out there who have looser lending standards and it's not as immediately obvious as you might see a default in the public markets. Right? So that may take some time to play through.

Martin Horne: But just to be clear, we haven't really had a decent size recession since Lehmans. In Europe, arguably the sovereign debt crisis, there was some interesting stuff going on then in 2012, 2013. But it means that frankly, we're a decade away from ever testing those markets, really. The liquid markets under the structural changes that have occurred to them in the last decade and the private debt markets, which kind of not really been in fruition for more than a decade. So both of these areas are going to get tested. And again, you've just got to kind of articulate to investors very clearly, this is what you are getting and this is potential scenarios that could play out.

David Mihalick: Yeah, and probably I would add, it's like private credit direct lending in particular has existed for decades, right? When I say it hasn't been tested in terms of the size that it is today with the proliferation of managers that exist today. And I think that's one of the things from my perspective and our platform is, and we have a lot of conversations around, you need to evolve with the market but be disciplined on credit. Know who you are, know the types of industries you like, the types of companies, the types of sponsors you're willing to back. And that is sort of a time- tested thing. And I think because the market's grown so quickly, we got a lot of new managers, people sort of pushing the envelope in terms of leverage or what they're willing to live with from a structure standpoint. And so it's big, it's more dynamic and as it exists today, when it goes through the next cycle, that'll be the test. I mean, the asset class itself, that's what people talk about it like it's this brand new thing. It's existed for decades, it's just a lot bigger now.

Greg Campion: Sure, sure. Yeah, yeah. I think Barings has been investing in it for 30 some odd years or something like that. But yeah, it's the size and the proliferation of the asset class. One thing I just want to follow up on what you said, Martin, because I think it's a somewhat misunderstood point. I think there's a view out there that basically the direct lending market has been kind of eating the broadly syndicated market to some degree, that it's been kind of a one- way street, so to speak. But I think it's, as you've just kind pointed out, we've seen periods of that where a lot of loans were refinanced into the private credit market, especially during some of the periods during COVID, but we've seen the reverse of that. And I was just looking at some of the numbers, these are JP Morgan numbers as of August. Year to date, $ 24 billion of broadly syndicated loans have been refinanced into private credit. 23 billion of direct loans have been refinanced into the broadly syndicated loan market. So it's been pretty balanced. Yeah. All right, Martin, let me just ask you this. So we're talking about the public market, the private market. Barings is obviously very active in all parts of the spectrum here. I'm just curious, what are the benefits, I guess, for a manager to be active? How is that working day to day? Are there real legitimate benefits to having a big robust high- yield business, for instance, loan business and a big direct lending business?

Martin Horne: Yeah, and the overlaps are obvious in terms of analytical capability because essentially I've got pools of analysts looking at the broadly syndicated market in industries like chemicals, consumer staples, industrials, and I've got pools of analysts working in the direct lending business doing pretty much the same thing. And the more that that data can be overlapped, if you like, that you can share industry trends, you can share management outlook, management expectations, the more you're going to see a consistency of messaging or just as important, an inconsistency of messaging that needs more attention. And so the overlaps are obvious, that you are dealing with big company risk and small company risk, generally speaking. And by small, not so small, as David said, what we used to call the broadly syndicated market in the noughties is pretty much the direct lending market in terms of the size and scale. So these are not generally speaking just mum and pup businesses as when the genesis of this asset class started. It was really small stuff and the differentiation of risk profile was marked. I think that is homogenized somewhat, but you still are looking at a lot of the high- yield issuers. As we sit here today, Boeing's potentially going to drop down into the high- yield market. That's a massive multinational company in an oligopolistic situation.

Greg Campion: Sure.

Martin Horne: That's very different than most of the vast majority of the things you're going to find in the direct lending business. And that comes with a different outlook as to what risks you would take, what structural gives you would be prepared to live with, and also this sort of viability of downside analysis because really big companies, there's plenty of things that they can sell off. There's market positions people want to own. Smaller companies, you're going to take a different discipline around what you're prepared to accept, and as you should do. And the direct lending market makes a big avocation of the structural protections that you're picking up and the ability to be close to a sponsor and have engagement with management and do all the things that you need to remediate if you're going to have to take a long- term view. To answer your question directly, what active managers should be doing is oscillating around trends in those markets, and that's the real give. What investors don't like about the public markets when you get a negative geopolitical or economic situation, because you get a lot, a decent amount of volatility, that's also your biggest opportunity set. You can buy into assets at decent levels of discounts and watch that capital appreciate as the markets come out of the interest rate cycle and people get more comfortable with the prevailing environment. That's really what you should be doing is moving those assets around. Whereas the focus on both of these asset classes is, you've got to make good credit calls in the first instance. Your remediation and your ability to trade in and out of assets gives you options should something surprise you from left field. With private debt, clearly you're going to have to just work with the sponsors, work with the owners, and work through the situation. And that could take a much longer time than the decision on the liquid markets where I'll just trade out of this and move into something else and see if I can rebalance my portfolio. That optionality is quite important, particularly when you think about just how many times over the last five or six years we've seen these markets sell off and what that opportunity looks like.

Greg Campion: Credit underwriting is credit underwriting, whether you're talking about looking at the broadly syndicated loan market or the direct lending market, there's a lot of different factors that you just pointed to, company size, other elements to consider. But I think that that kind of credit underwriting skill proliferating throughout the organization is very important. And I would say, I guess David, thinking about how this is actually impacting the business and how you all are thinking about setting up the business and running the business, etc. I'm sure, well, things are not staying static. Right? The market is changing. We're sitting here talking about blurring of lines, so naturally managers are going to change, and we're changing alongside that. So one of the changes that you and the team decided to make recently was putting together our public and private asset- backed groups. Tell me a little bit about the rationale for that decision.

David Mihalick: Yeah, I think I might've mentioned this in my opening answer, but you see a headline a day around beyond sort of the middle market direct lending, which we've spent time talking about here initially, that there's this expanding opportunity in asset- backed finance and other areas of private credit. And people, basically anything a bank can do can also be done or that can be done in the liquid market can also be done in the private market. And I think when we looked at the growing opportunity set there, and we as you mentioned historically had sort of a private asset- backed team and a public asset- backed team, and there was just a lot of overlap and that one in the analytical work that people were doing. And so the ability to share that insight, if you're looking at the mortgage market, whether you're focused on private executions or public transactions, you're still looking at the mortgage market. Having a view on rates and FICO scores, health of the consumer, things like that. So having those resources, not sort of duplicating effort. But also issuers increasingly would be coming to the market and deciding on a public or private execution. And when we're engaged with counterparts on the banking side, they might be calling two different desks at Barings. And so having that all sit in one place to have the best analytical work we can have done, the best view in terms of relative value on the market to our clients, and then longer term, the growth opportunity. And I think there'll be similar to the direct lending conversation. There's a role for the public markets, but there's also an increasing role in the private markets and you can get potentially more creative on the structuring, more creative on the types of collateral you're willing to look at. So we view that as we see that growth opportunity in the market and we wanted to make sure that our capabilities were organized internally to be able to take advantage of that.

Greg Campion: Now, you kind of alluded to the choice that borrowers have when they're coming to firms like Barings, they have a broader menu of financing options to choose from. Right? So tell me a little bit about what that looks like in action. I don't know if, I know this is something that our capital solutions group, for instance, is historically doing, very bespoke types of financing. But I'm curious throughout the organization if there's examples or things that come to mind where different teams are maybe working together or a borrower wants to issue over here in the public market for one reason and over here in the private market for a reason. Is that type of stuff happening?

David Mihalick: Yeah, I think one of the best things to me about the breadth of our platform, the asset classes we cover and we do it in both the public and private markets, is that whether it's an issuer or a client that wants to invest, I feel like we can be an honest broker. I think a lot of times you'll see people and you'll say, " Oh, this certain market is great, this is the place to be." And if you look at their business profile, it's like, well, that's what they do. Not saying it's nefarious or anything, but that's their perspective, right? And I think because we work across all these markets in both public and private format, we can work with companies that have a need and really deliver a solution, right? Whatever's the most appropriate thing for them. And then with clients as well, expressing a view on relative value. And so there's many examples of, and we talked earlier about some loan deals going from the public market into private and back and forth, and Martin and I regularly encourage our teams when we have that happening, let's share information, share knowledge. Again, we've got to be cognisant of MMPI and all those sort of things, but those things are all manageable. And so the ability to work across those two markets in a seamless way is something I think we're focused on from a team perspective because again, the lines are blurring. And so if a company wants to originally thought they were going to do a private asset- backed deal and for whatever reason we're engaged with them, and then at the last minute the public markets have just ripped tighter and they say, " You know what? Let's just execute in the public market." We have a really seamless way to be able to participate in that transaction.

Martin Horne: And this isn't new stuff. You go back to when my career started in the'90s, then you were seeing whole business securitizations that were largely private with a top- tier, inaudible high- yield issuance at the top of the company structure, and that was a public- private kind of interaction. What's really changed and made this kind of startling growth really apparent to the world is the insurance markets have deregulated, that's allowed them to open up the sorts of asset bases that they previously had to be quite disciplined around. It also means they've had to shift their asset allocation in certain regions. So in Asia for example, you're seeing a movement out of public equities and into other stuff, and all of this has exacerbated the need for spread premium products. And for spread premium, where am I going to get my premium? It's the private markets, because what am I giving up? You're giving up liquidity and you're taking on certain different profiles that mean your capital is locked up and ramping and everything else becomes really significant to investors who make that allocation decision because they are different markets. Public markets, you can pretty much go and buy whatever you like when you like. Private markets, the whole focus around having an origination effort and being able to reach into different pockets and pick them to make sure that you've constantly got a product range that's going to feed the beast that is your client's appetite, that's what's really important.

David Mihalick: Yeah, and I think to that point, I think as investors increase allocation to private markets, you're starting to see them think in some cases less about a specific asset class like corporates and thinking about, okay, what's my goal income? Right? And so I want credit exposure, but I mostly want income. And I want to diversify my risk, so maybe I want some corporate credit, maybe I want some real estate debt, maybe I want some infrastructure debt. And so again, we're in all those areas and we're able to have that conversation around relative value, and relative value and where you can deploy because you make an allocation to a market on the liquid side, as Martin said, you put the money to work in a day or two. On the private side, does it take a month? Does it take six months, depending on the size? How long does it take to get that exposure? And then that relative value can change from the time you make that decision, right? Like what's happened in the public markets. Did you have a big sell- off, and all of a sudden that decision you made a few months ago may not look as good? And again, maybe investors aren't moving that dynamically because it's a core allocation, but we certainly can have that conversation with them and deploy the money smartly.

Greg Campion: Makes sense, yeah. Yeah, going back to that idea on the borrower side for a second. I think some of the conversations that I've had with some of the folks on both of your teams, it's been really interesting to hear some stories about credits that kind of almost migrate across teams and across the platform. You kind of referenced earlier, but a company like let's say that has been issuing in the high- yield market for the last decade, they want to do their first securitization deal. Maybe they start in the public market and then go to the private market or vice versa. There's really something to this idea of institutional knowledge of a credit and having models that go back, in some cases decades, and just institutional familiarity with a company, with its assets. And from some of the stories that I've heard is that can lead to management teams being a lot more comfortable with you. It can lead to getting favorable allocations in deals. There's a lot of benefits when you can sort of travel with the issuer across.

David Mihalick: Yeah, and in that example you used, right? The asset- backed team and their underwrite, they're probably very focused mostly on the collateral in the structure, but they also want to have a view on the company, how's the management team going to behave? And to your point, if we may have followed that company for a decade and one of our other teams, and so yeah, they first, okay, who's the issuer, right? The corporate profile, and then here's the specific structure and deal we're underwriting. Both things matter and having that sort of long- term perspective on the company is very valuable.

Martin Horne: And again, that interaction is not new between the public and private teams. We've had our real estate guys come to us and seek a view on a corporate body that they were going to undertake leasing. And that is really important, that knowledge, that understanding, that sort of deep embedded feel for the risk profile is going to pass between different asset classes all the time. These markets, we're going through one of the biggest capital markets evolutions that I can remember right now. And that means that businesses like ours have to get smarter about how information is disseminated amongst teams and that we have a consistent knowledge throughout the years and the decades even, of how the likely allocations are going to play out and what the things and the issues we should be thinking about.

Greg Campion: Makes total sense. All right, going to start to land the plane here, gentlemen, so Martin can make his plane in a little while. All right, Martin, put yourself in the shoes of an investor and maybe we've already talked about this or maybe not, but so we've kind of talked about the world's changing. You just referenced maybe one of the biggest changes in your career. If you're in that investor seat, how do you play it? Anything you look for in particular in the managers that you partner with, or what are you really thinking about?

Martin Horne: Yeah, I think, look, there's never a wholesale answer to what you've just asked, because your first question in any investor meeting is, what are you trying to solve for? And where does this fit with whatever else you own in your portfolio? In an ideal world though, we would give you or I would give you the relatively neutral answer that I'd like to play both markets because it's just not correct, that one market is always better value than the other. Actually, that interchangeability we talked about of allocation is going to mean your premium and your risk profile will oscillate around. And you think about what I would call the near term of history of the financial markets, others would call very long- term history of the financial markets. But in 2008, we had Lehman's. In 2012, the sovereign debt crisis. 2015, the commodity crisis. Q4 2018 wasn't good, that was an economic thing. COVID in 2020, and then the interest rate cycling in'22 after the Ukraine- Russian invasion. All of those things tell you that at different times the market opportunity is going to oscillate around, and sometimes you're going to want to play the public markets at deep discounts and sometimes you're going to want to play the private markets. You have to keep laser focused on, you are taking a different risk profile. There's quite a lot of narrative around at the moment saying that these markets are homogenizing, you're going to get trading of private debt and it's all going to look totally similar. I don't think that's the case, and people who are kind of playing that narrative aren't really understanding that there are documentary structural reasons why you can't trade private debt in the same way you can trade public markets. I think there will always be a difference because otherwise you're not going to get a premium between those markets and that's what investors really want to grab hold of. So as any manager would, you would advocate a profile that's as flexible as possible for investors, because market opportunities move around. As you know, in the subcategories of what our investor is playing to, often it's maybe asset liability matching and maybe they don't want to think about the oscillation of the public markets. They actually just want to get that spread premium that's classically insurance company kind of profiles. So there's different answers to that, but ultimately, know that at different times you're going to feel good, better about one or the other and that's only going to continue as you think about the metrics around the global economy and the metrics around the capital markets evolution that we're seeing today.

Greg Campion: David, I'm going to give you the last word. What is next? So, the easy question, right? Predicting the future. As you and the rest of the Barings leadership team look forward, I'm curious where you see this all going, how you're preparing, and maybe just any other parting words for our listeners.

David Mihalick: Yeah. Well, as I think we alluded to in the beginning, we just drove in from a three- day off- site we had with the entire leadership of the investment teams across our public and private platforms. And so I think the message there, to bring this full circle, the blurring of the lines, which is to the extent any of you don't know each other, get to know each other. There's so much synergy between all the things we've talked about, right? As these markets blur, as issuers sort of can move between them, and again, not just between syndicated loan market and private loan market, but also between the loan market, the high yield market, the ABS market. We want to make sure that as a platform we're thinking holistically, not thinking in silos, thinking about areas we want to invest. What areas are growing? Opportunities as we mentioned earlier, asset- backed finance, infrastructure, real estate, all that, very complimentary to our core direct lending business, our high yield business. Being able to deliver all of that to our clients in a seamless way, having the investment leaders thinking about the broader enterprise, a solutions- based approach. That's something that I think every manager wants to talk that way, right? But can you make it happen? And I think we're as well positioned as anyone in the market to operate that way and I think that was sort of the message out of our off- site. We're going to operate that way and then we're going to invest in the business. We're investing in distribution, we're investing in origination, all of that because we want to serve our clients and deliver good outcomes. And so you can talk about all these evolutions in the market I think we've tried to break down, that maybe the more differences there are maybe there's as much of commonality. And given our ownership structure, we're in this for the long term and I think we're doing the right things to position ourselves to capture some of the growth that's available in the market and serve our clients well.

Greg Campion: Yeah, that's great.

David Mihalick: You can make it complicated, but sometimes let's remember to keep it simple.

Greg Campion: Keep it simple, yeah. Great. Well, thank you both. This has been great. I appreciate it.

Martin Horne: No problem.

David Mihalick: All right. Thanks, Greg.

Greg Campion: Thanks for listening to or watching this episode of Streaming Income. If you'd like to stay up to date on our latest thoughts, on asset classes ranging from high yield and private credit to real estate debt and equity, make sure to follow us and leave a review on your favorite podcast platform. We're on Apple Podcasts, Spotify, YouTube, and more. And if you have specific feedback, you can email us at podcast @ barings. com. That's podcast @ barings. com. Thanks again for listening and see you next time.