Understanding The Private Credit Craze

In this episode, we unpack common misconceptions surrounding the private credit market and explore what investors often get wrong about how it really works. 

We break down the structure, risks, and opportunities in private credit, separating hype from reality. 

Want a free Portfolio review? Feel free to schedule a call with our team today- https://lifegoalinvestments.com/contact/#get-started

Transcript

SPEAKER_01 0:00

From Wall Street to managing hundreds of millions in client money, Nick and I use our alphabetic tube of credentials to discuss the investing and tax strategies that actually work. Oh, and we played Division I college football together. So strapped it. This one hits hard. Let's go.

SPEAKER_00 0:21

All right, everybody. Welcome back to another episode of the Life Goal playbook. Nick Rossetti here with Brett Sans. And today we're going to be tackling what uh might be the most talked about and probably most misunderstood headline generating corner of the investment world right now, which is private credit. Brett, the last few weeks have been uh a really wild ride for this space. So um I think today it's gonna be important just to cover a few things. I think it's important to just highlight you know and educate folks what is private credit, how's it work, what role does it play in in a portfolio, and and what are some of these headlines I think getting wrong uh at this point in time? So um w what what's been your kind of uh your your take on what's being reported out there?

SPEAKER_02 1:15

Absolutely, man. Heck yeah, this this podcast hits extra hard today because it's St. Paddy's Day, so happy St. Paddy's everybody. So I'll just start off with a little bit of uh you know why we think private credit's getting drug into the headlines here when it's been you know essentially hiding out in the back for uh you know for a couple decades now. A little bit of conspiracy theory here, but um I think it's probably fair. The big banks, this used to be the big banks lending business, right? Big banks lent to corporations across the United States. And then after 2008, government regulation forced the big banks to essentially reduce their lending uh to corporations and kind of focus on you know higher quality lending and mortgages and things like that. Um and if we look at what's going on now that you have uh you know Trump coming in and looking to deregulate, the banks can potentially get back into this business, and because of that, they're looking to rattle the current players that are in the business. Um, so it's that in addition with hedge fund managers actively shorting the stocks of uh the big uh private market, uh private credit strategy, you know, private credit uh managers that are out there, like Blackstone, Apollo, KKR, uh there's a long list of them. So that is a little bit on the conspiracy thought side of it. Obviously, it's a big asset class that's grown a tremendous amount over the last several decades. Um so you know that's that's why they're in the headlines today, though. It's it's not because the performance. Uh the performance has so far been pretty darn solid. Most most funds are up about 1% in the calendar year of 2026, with the SP down about 2% over that SP 500 equity market down about 2% over that exact timeline.

SPEAKER_00 2:58

So it's uh Yeah, and I think there was there was a couple catalysts leading up to this, which was the uh tri-color situation, which was a private credit holding. There was a tremendous amount of fraud uh that went went on there. Um so some of the concerns about maybe the the credit quality um because of the growth of the space was kind of an issue. But then really we've seen an acceleration uh here over the short term with the evolution of AI and the concerns that that may have for some some software names. So um there's there was a little bit of momentum, a little bit of concern. I think to your point, I think some folks um are being a little opportunistic uh and trying to take advantage of um uh of some a little bit of weakness there. Um but I think just going back to you know, for folks who are maybe a little less familiar with the asset class, let's just break down private credit forum, what it is. You kind of hit on a little bit there that it was banking activity and and things that the big banks, JP Morgan's of the world, um were running point on. Um, and that's kind of changed hands. But just give give folks um who may not be familiar a a little bit more of a breakdown there.

SPEAKER_02 4:13

Yeah, so the best way to think about private credit uh is actually to use another name that it's also called, which is direct lending. The direct lending name makes it a little easier to understand. So essentially what's going on is the lender who in the modern world that we're in now, the investment landscape, is essentially wealthy families and institutions. They're the lender, they're coming right up to the to the company and they're lending directly to the company. Whereas historically the bank has stood in between there, right? And the bank was the lender and they were taking deposits uh from wealthy families and other folks um and essentially turning it into loans. But when you come right up to the company, and generally speaking, it's a private equity company, right? It has a private equity-backed sponsor, right? So a lot of these you know unicorns that are out there, like Databricks or Anthropic, any of any of those type of names, they may have debt out there as well. That that would be if it was lent to you know uh a wealthy family or an institution, that would be an example of direct lending because the bank is not standing between them. And what that does is it takes out the middleman, it puts the yield directly into the pocket of the lender, and that can be as much as 3%. So uh that's essentially kind of what it is at a high level. The way it's been delivered to the the wealth management world where we operate, um, essentially helping wealthy families and retirees, you know, navigate uh whatever challenges they they may be uh presenting, is in a pooled vehicle, much like a mutual fund, right? But oftentimes it will have a credit investor where you have to have a million dollars worth of net worth or uh you have to meet certain criteria in order to be able to go into the fund. And then the other unique aspect to these funds is they offer quarterly liquidity, very different than a traditional mutual fund or an ETF where you can sell every single day, right? Quarterly liquidity. And the reason why is because this is not a liquid asset class. This is an illiquid asset class, right? It's not a public security like it used to be with a loan or a bond that the bank issued, right? It is a loan that is made from the lender to the borrower. And if somebody else is gonna step in and buy that loan, they need to underwrite it to understand it, to understand what the risks are. So it's less liquid. Because it's less liquid, it needs to go into a less liquid vehicle. And that's actually where you know some of the uh the concerns are as well. So think about it as a quarterly liquid vehicle where you're in with many other investors, hundreds, thousands of other investors, multi-billion dollar funds. And the benefit of the size of the fund is it allows you to get diversification across all the different sectors of the economy, right? So the loans, let's think about the loans. This is critically, critically important. People talk about AI coming in and changing the software landscape, and that absolutely looks likely, right? But it's gonna take you know five, 10, 12, 15 years to uh you know to completely change the landscape of software. Well, guess what? These are the loans we're talking about are three to five year loans most of the time. So all that needs to happen is the company needs to be solvent five years from now in order for you to get paid whole on your loan, right? In order to make it, you know, get all of that uh money that you lent back as well as the interest along the way. Two things that we should not confuse this with. This is not a 30-year mortgage, right? This is not a 30-year loan or a 20-year loan. This is a three to five year loan, right? And what people actually own may only have one or two years left on the loan, right? Because it was a loan that was issued a while ago and and you know, three years later, the only part of it is left. What is it also not? It is not equity, right? This is not private equity. Uh, we do not need the company to appreciate and value to get our return. All we need is the company to remain solvent and be able to cover their debt. So, who are the borrowers? The borrowers, and we brought this up a little bit, but just to add a little bit more context, generally speaking, it is um very well-established countries throughout the United States and even the world for that matter, that may do$100 million in revenue per year, EBITDA per year, uh, even potentially way more than that. And they may do billions uh uh in in revenue per year. And oftentimes they're private equity sponsored. So private equity names are some of the names that we uh mentioned earlier, like Blackstone, KKR, Apollo, Carlisle, et cetera, those are all publicly traded, very large, extremely well-respected private investment managers that have been around for decades, and they will help startups go from being, you know, a startup, an idea in somebody's garage, to being the next SpaceX or the next uh, you know, anthropic, whatever it may be. Along the way, it's highly likely that they will raise private equity funding, which means the the person giving the money owns a piece of the company. And it is also highly likely that they will need debt, right? They'll do debt financing, which means somebody does not own a piece of the company, but they are lending to the company. So that's kind of the setup.

SPEAKER_00 9:06

Yeah, no, and I I I I think that's um yeah, good good breakdown of of you know what the asset class is and and who who those these loans are and direct lending is is going to. And and yeah, I think a lot of folks will will also comment just on the size of the market. We kind of teed up as to you know why these other private market participants have stepped in because of overregulation, but there's been a huge growth uh in this asset class because of the tremendous returns that it's provided over time. Um, not only just from a total return perspective, from a but from a risk adjusted, looking at the volatility of the asset class. Um and we've been in a yield-starved environment, right? I mean, looking at uh you know high quality fixed income uh investment grade over the last decade it's been extremely, extremely low. Net inflation, uh, you're barely getting a real return. So there's been a lot of demand uh across the board for folks to go out and and earn a little bit more income. So that's that's really been the um another driving force in why the size of this market um has has grown as rapidly as it has.

SPEAKER_02 10:15

Um when looking at the private credit asset class, it's incredibly important to understand uh the loan structure and also uh the corporate structure if you're talking about a corporation in the United States. So um when you're trying to wrap your head around the risk of private credit, right? It yields 10%, which is incredibly attractive, and that's why it's you know 10%, 10% or 11% uh is the is the yield right now, generally speaking. So it's incredibly important to understand, okay, well, that's my you know, that's my return. What is my risk? And you need to look at the corporate structure, right? So go back to your to your MBA textbooks and look at how if a corporation goes bankrupt, who gets paid out and when? That's really, really important. Okay. So if we think about the corporate structure, at the top of the corporate structure, if something goes wrong, the very first person to get paid, or a group of people to get paid, are debt, right? So debt can be either bonds or loans, and they can be either secure. If it's senior secure, that is the very top of the stack. Just so happens that's exactly where private credit falls, the vast majority of it, right? About 90% of the private credit universe is senior secure. This the stuff that most wealthy folks are are investing in. And even um, you know, even some of it's higher than that. It's almost pushing 100% senior secured. Below senior secured, you have uh subordinate debt. Below that, you have preferred stock, below that, you have common stock. So if the company, you know, if the US goes into a recession and the company essentially goes into a bankruptcy situation, the people who are gonna get paid out with the remaining of the assets that are left at the company, the very first person to get paid out is gonna be the people that are senior secured. That is exactly where private credit lands. So we are in the single best place you could be in the corporate capital structure. Guess where the vast majority of the founders of these firms' wealth is? It's in either preferred stock or common stock. That is below senior secured debt. So this is incredibly, incredibly important. This is the most important point to be made in this entire podcast. If the company is gonna go bankrupt, the person who, the private credit lender, is going to take out the equity ownership of the company. They are going to get the equity ownership of the company away from the founders. That's what happens. That's what the corporate structure means. That said, everybody knows if anybody knows a founder, they will go out on their shield before they will give up their equity position, right? So they're gonna do everything in their possible power to uh be able to pay off the debt that they have that they have borrowed in order to retain their equity position. So that is so incredibly important to understand. These people you hear out in CNBC, uh, you know, and obviously some of them are know exactly what they're talking about, but a lot of the writers, uh, beat writers that are on this topic have no idea or appreciation for this concept, and it is overlooked, and it cannot be overlooked. It is incredibly, incredibly important. Uh, and that's why the if we do go into a default situation like we did in 2008 and other in other sit, you know, in other scenarios where the economy is challenged at large, anybody who has senior secured debt, which again is what private equity is or part private private credit is most of the time, generally speaking, they get paid out to almost 100 cents on the dollar. So you're in a very strong position uh at the top of the capital structure. And that cannot uh cannot be left off of uh the top of this conversation. So, Nick, going back to you on we absolutely have uh several clients that are invested in private credit. We are personally invested in private credit, and um I'd love to hear you kind of you know take us through how you see most of your clientele uh utilizing private credit or direct or direct lending.

SPEAKER_00 14:03

Yeah, no, I think it's it's got a role to play within the uh a portfolio and and like all alternative asset classes or or private markets, um, no matter what risk asset it is, actually publicly traded or or privately, um, you know, just sizing the allocation is really important, right? It's uh this isn't an asset class due to its illiquidity. Um I mean the the 10% returns have been fantastic over the last couple of years, but you're not gonna put somebody 30, 40% of their money in into a private credit strategy, right? So we typically size these between, you know, depending on your objectives, time horizon, five to eight percent of uh of a model can be allocated there, deliberately measured. Um, and and we use different managers with kind of different focuses with it within that space. But you've got great income generation. Again, we hit on the yield between nine and ten percent uh versus you know the four percent you're getting on the 10-year treasury right now. Uh if you go into investment grade corporates, you might be getting 5%. Um, the diversification benefits, which right now are being used to attack the asset class because of the liquidity and illiquidity um features of this, uh, but those have really provided uh a lot of stability uh to an overall portfolio into the asset class over time. And we've and folks who are saying like this is the first time that private credit has ever been or direct lending has ever been stress tested, just look at the situations that we've experienced just in the last five years alone. Uh, you know, we've had we've had COVID, 2022, we had massive inflationary spikes. Um, and and here we're heading into a uh a new a new war in the Middle East, and and we've got AI disruption. Um so there's been a a lot of different market cycles that this asset class has performed through. Um so I think it's it's it's a it's a great way when you're looking at an entire portfolio, again, to have another uncorrelated asset class that's gonna provide you equity-like returns uh at these income levels. So um, you know, I think it's again important to make sure that you're sizing that position correctly and that that the intention is is is not that this is gonna be your your your down payment for your house, right? If you need the money in in a very short period of time, uh this isn't this isn't where you're gonna throw all of it in.

SPEAKER_02 16:28

Yeah, 100% uh you hit the nail on the head there, and that's that if you're gonna go into this, you know, into any asset class that has a quarterly liquid structure, you need to be thinking long term, right? And if you know, there are situations where we may have uh an investor that has more than an 8% uh sleeve in this, and you know, even up to 25 or 30 percent in in things like this. Um, but that is done in in such a way that we understand the liquidity needs of the client, and the client has indicated to us that they want to, you know, essentially target that income level, uh, you know, that 10% yield, and then we will marry that with daily liquid um strategies. And we've actually done podcasts before where we talked about utilizing uh you know private credit in addition with uh with municipal bonds, investment grade municipal bonds, and you have a barbell there of a lot of yield and credit risk with the private credit, and then with municipal bonds, you have a fair amount of interest rate risk, but no credit risk, right? Because generally speaking, municipal bonds are you know have uh extremely low default rates. But um I just for those of you that are listening, you're not gonna see this. But for anybody who would catch this on YouTube or any of the podcast channels, you're actually see the video. So I'm just holding up a um a uh chart here of the returns of the direct lending or private credit um index going all the way back to 19, uh going all the way back to uh 2019. And I'll just read a couple quotes off here. So they're calling this the wall of worry. So here's a quote from Institutional Investor. High if high yield is oxy, meaning oxy cotton, private credit, private credit is fentanyl, right? And that was in January of 2020. Uh, I'll give you another one here. This one is from the Wall Street Journal in June of 2020. Payment problems rise in the fast-growing private debt market. Here's one in 2023. UBS, uh, this is UBS employee warns about bubbles forming in private credit. And then uh the last one here that I'll read of about a dozen that are on this uh on this sheet of paper is short sellers bet against private credit lenders. That's a Bloomberg quote, May of 2025. Okay, over that entire period of time, this asset class has returned approximately 10% per year and has had very, very few down months. Okay. And in 2025, you know, it clocked in at like an 11 or 12% return, even though the Bloomberg quote came out in May of 2025, the short sellers were essentially, you know, stepping up. And the Jamie Diamond in the cockroaches comment came out that was October 14th of 2025. And the asset class performed strongly into the end of the quarter, and even so far uh in 2026 here, uh, you've got a positive uh return of about 1% for the asset class. I do want to isolate when we're talking about AI and software, you know, that is a niche of a niche market, right? We're talking about a sub-sector within the technology sector, which is one of the 11 sectors of the S P 500, and we're talking about direct lending in that sector. That is a sidebar conversation, right? Generally speaking, what we're talking about here, uh, Nick and I is a broad basket of direct lending or private credit. And that asset class, we think will continue to perform very well in 2026, and it performed very well last year in 2025, even though Jamie Diamond, who I think there's a conspiracy theory behind it, he's looking to get his lending business back, uh, is beaten up on the asset class, um, performed very well there. And then I'll just say this too. Literally, earlier this morning, Nick and I were on a call with the top three biggest uh active traditional bond manager out there, not a not a private credit direct lending manager, a traditional bond manager. And they told us verbatim that they anticipate this asset class, direct lending asset class, to do seven to nine percent return for the calendar year of 2026. Okay. That is not a bad return. Who's who's not, you know, like that's a pretty solid return from a debt-oriented asset class where you're senior secured, right? And that's somebody that is incentivized to speak poorly about the asset class because they have lesser, uh, they don't have as many funds in the private credit space, they have more funds in the traditional bond space. So it just gives you some context there. Like all this news coverage is blown way, way, way out of sorts. This asset class is in is in solid shape. Now we can go kind of down and talk a little bit um about you know kind of what we saw in in 2008 for the asset class, and then we could talk a little bit about um you know, flows and gating and things along those lines. But Nick, I want to toss it back to you on uh calendar year of 2008, right? Great financial crisis, and then what do we see there?

SPEAKER_00 21:14

Yeah, so again, we we talked about kind of some of the the short-term uh credit cycles that we've we've seen in the last five years, but this asset class has got a much longer track record than just that. Um, you go back to 2008, the SP 500 ended the year down 37%, peaked at trough, it was down 55%. High yield bonds publicly traded, high yield bonds ended the year down 26%. Private credit realized losses peaked at 9%. So the income that you were generating off of those loans, off of that, uh off the it was it more than made up uh for the uh the drawdown you experienced or the markdowns that were in the portfolio. So uh that's obviously. Been the the the greatest mark period of market volatility the world's everything seeing the the the fine whole entire world was brought to its knees uh in 2008 uh and this asset class really really held up very well against traditional equities um and and and fixed income. So um I I think that's that is worth mentioning when folks are are screaming running around saying that this is this is the next 2008. It's like we've already seen that it actually wasn't quite that bad. For sure, for sure.

SPEAKER_02 22:33

The um I think one thing that's that's important to bring up, and I brought up a couple times this year the performance so far for the calendar year of 2026, the you know, the this asset class is up about one percent, even though the SP over that same time frame is down, you know, about one one and a half to two percent. Um and people will say, well, hey, the valuations on those loans are are not accurate. And I would would um counter that by saying that's a fair comment. And I think that some of the the big um private credit managers out there are probably not doing a great job marking their book accurately, but I do also think that there are several examples where we have had marks on loans that we do think are accurate. And then there's also a fair number of funds out there in the calendar year of 2026 that year to date are down one and a half percent. Okay, if if if a private cred private credit fund is down one and a half percent for the calendar year of 2026, I would argue that it is being marked accurately, right? It's similar, uh similar to the S P 500 and it has a similar return profile to the SP 500, about 10% per year. So, but keep in mind too, Jamie Diamond, this is important. Jamie Diamond talked about the cockroaches when he was talking about that, when that news broke, was October 14th of 2025. I can tell you that any financial advisor that's worth their fee did a deep dive into their book of business the second that those words came out of Jamie Diamond's mouth. And that's exactly what we did at Life Goal. We went and we analyzed their book of business and our assets, right, that our clients hold and that we hold personally. We took a deeper dive into them, make sure that you know we had a good understanding for what's going on. When that happens, that essentially is a stress test on the asset class. You had all these different active managers out there looking at their pricing, right? So that in its own right, you know, does a little bit with flushing out any any false valuations. And then I'll just give a couple other examples here. So Blue Owl, right, which is you know, which was the original problem child on this a few weeks back, they sold$1.4 billion in private credit loans at 99.7 cents on the dollar. Okay, there was an actual transaction that happened in the market. So a billion four, you know, a billion four sold for 99 cents on the on the dollar. Cliffwater, who is another um very large private credit manager uh in the interval fund space, you know, it's quarterly liquid strategy, they just did a sale uh two weeks ago, a billion dollar sale. Okay, and if you look at the performance of that fund, it is still positive and it really hasn't had much of a drag. So we don't know what the price of that sale was, but they did release an article that said they sold a billion dollars worth of loans. So I can tell you that those loans did not sell at 70 cents on the dollar. If those loans sold at 70 cents on the dollar, there'd be a massive dip in the net asset value of their fund. Their the net asset value of their fund is essentially, you know, a flat line right now. So that didn't, you know, we could tell that the price is not terrible. So it just kind of goes to show that there are folks out there that we think, because you you can see performance out there too that that may look a little bit inflated in the calendar year of 2026 on some of the private credit and and and um direct lending strategies, and then you can see some that are down one and a half percent, goes to show that there's probably better marks in some places than others. Uh, but also, you know, not everything is software, right? This is an asset class that has a fair amount of exposure to software, but I would argue that 80% of the asset class is not software, right? So uh there's a lot of different differentiation there when you look across the underlying subsectors. So, Nick, going back to you, when we were talking about the performance of private credit in 2008, um, I think one of the things that saved the asset class that allowed for such strong performance was the gating feature. Um so coming right up on to you know, one of the topics we wanted to hit on is the redemptions that are are seeing uh redemption spikes right now. So I'll toss it over to you for that.

SPEAKER_00 26:23

Yeah, no, I think and that's that's one of the uh other big concerns that that journalists and investors are uh are bringing up. Um so it's it's important to to kind of look at um what's going on. So a lot of these funds, typically in an interval structure, will allow up to 5% of the funds NAV to be redeemed per quarter. That's the kind of the typical average. Anything above that threshold typically gets held held back, right? Gated is the is the term that they use. Um so if more than 5% is redeemed, you'll get a prorated uh amount uh of your redemption request back. This is a lot of folks out there are are screaming that this is um uh a negative, but largely when you're when you're looking at this space, the liquidity profile of the fund matches the liquidity profile of the underlying securities, and that's that's really, really important. Those quarterly redemption gates are doing exact exactly what they're designed to do. This isn't this isn't a sign of failure, this is a mechanism working as designed. So um if you're if if the manager was forced to sell, let's say, 20% of his portfolio, he's going to be forced to sell illiquid um assets and probably have to get rid of them at a really deep discount. And we've we've seen that on the public side as well. Um, you know, one of the fixed income managers I worked at uh many years ago now, but invested in a lot of securitized credit, just smaller pools of consumer-based loans, right? So these were in this particular case was triple A rated credit card-backed loans from Citibank. They were senior secured. Um the this and this was all during COVID. Um, the only way that you wouldn't get paid back as the bondholder there is if Citibank went under and went and closed closed up shop. So this thing was money good, um, but we had big redemptions. It wasn't it wasn't a a uh a quarterly liquid strategy, it was daily liquidity. The managers had to sell that bond at call it, I think it was 78 cents on the dollar because they had to meet those redemptions. So that's the I think is the misunderstanding that that a lot of folks who are talking um about this loudly don't really understand that that's that's actually a a benefit to the investors that are in this fund, that you you don't have these massive swings um and are forced to sell good assets at the wrong time, right? So um, and we've seen examples of that previously, right? I mean, if you go back and and look at uh at Blackstone, right, Brett?

SPEAKER_02 29:12

Yeah, so two examples. One, I think that that had everything to do with the success in the performance of the private credit asset class in 2008, was that it was in uh quarterly liquid hands, right? It was institutional investors, generally speaking. It wasn't in daily liquid hands where they were being forced to sell and essentially create fire sale pricing. But I'll give you another example. So Blackstone, as most folks know, uh one of the biggest private managers out there, John Gray, who is um gonna step in for Steve Schwartzman when he retires, most likely be CEO of the firm, gave a quote the other day on happened to be a really good example of where gating protected shareholders. So they run one of the biggest uh private real estate funds out there. It's called Blackstone B Reat, right? It's like a$50 billion strategy. And throughout the life of the strategy, which it has, I think, a 15-ish year track record, there were three quarters when clients could not get their money out because it was gated. They could get some of their money out, but not all the money. If they wanted to request 100% of their money back, they prorated it and gave them a fraction of it back. Again, that strategy, the liquidity profile in that 5% rule is exact same what we're talking about right here with uh private credit as an asset class. So B Re held funds back from clients for three quarters. Okay. Throughout the life of that fund, which is approximately 15 years, it has outperformed the public real estate market that is daily liquid. You can get your money out of it anytime you want by 60%. So the question becomes are you willing to trade off some liquidity for excess returns? And it doesn't mean that, you know, just because it happened in B REAT that the same exact thing is going to play out in the private credit space. But guess what? So far, that is more than played out, right? Private credit has absolutely outperformed the public debt markets materially, right? And it forecast by most large institutional money managers to do it over the next 10 years, too. It's forecast at about a 10% return because that's approximately what the yield is. So that is uh about double what you're anticipating from the public uh bond market. And yes, you're going to have to give up some liquidity if you want to be in there, right? It's quarterly liquidity and you shouldn't anticipate that you're gonna pull it all out, right? You only want to go in if you're a long-term investor, right? Which is really important. And you need to have a very serious conversation with your financial professional about whether or not you are a long-term investor. If you're buying a house, uh, you're probably not a long-term investor. If you're in a retirement pool, uh with you know, your assets are gonna be there for the next 30 years or 50 years, or even if you're, you know, they're gonna be in there for 10 years uh in retirement, you're gonna stream income off it. You can still stream the income. It's not like the income stops paying, even though they gate the fund. So long story short is gating of B REIT, uh, you had a 60% outperformance over the public market alternative. And the compromise was there was three quarters over that 15-year period where you couldn't pull 100% of your money out. And I think most people, if they were to step back and um you know ponder on that, they would be absolutely willing to make the trade-off. So uh Nick, just kind of coming over here to kind of wrap things up, head towards the conclusion here. So, five reasons why life goal remains constructive on private credit and direct lending. Again, this is an asset class that is extremely diversified, right? We are not talking about just software private credit, right? We're talking about uh an asset class that has every subsector that's in the or every subsector and in sector that's in the SP 500. Um, generally speaking, you're looking at yields approximately 10%, super attractive, right? We are senior in the capital structure of a company, okay? We are the top of the stack. That's what that means. If the company goes bankrupt, the founders have to give us their ownership, right? That's what that means. So the founders are gonna give us their ownership that they broke their back to build uh to pay us off if the company is gonna go bankrupt. Um, the borrower universe is broader than it's ever been before, and these companies are a lot bigger, right? Most of these companies are doing over a hundred million a year in EBITDA. Okay. Manager selection, okay. So we're not just going with any, you know, this isn't an ETF uh that's that's a private credit manager, it's an actively managed strategy, right? And we have fully vetted the active managers that we're using, and we have the highest level of conviction in these active managers. I'll say lastly, in addition to that, actually at Life Goal, uh, we have put an emphasis on where we are involved in the direct lending and private credit space. We actually have put an emphasis on, and this was in place well before Jamie Diamond and the Cockroaches comment came out, on hard asset backed loans. So we want something with a piece of real estate behind it, or maybe an infrastructure project, or maybe a um, you know, uh an airline asset. There's a lot of airline assets in the space. And then lastly, is um when you have when you have a situation as we have right now where there's a lot of volatility in an asset class, it actually creates a buying opportunity. And anytime that's the case, we want to consider coming in and increasing our exposure. It doesn't necessarily mean that we will day one, uh, that we see volatility. And it also doesn't mean that we're gonna immediately double our exposure. We may incrementally increase our exposure. But when there's volatility, if you're a value-oriented manager, which lifegual we absolutely are, you have to step in there and take a deep dive into the space and see what you can find that you think is attractive. And then all that said, I'll also say that we will use multiple managers in the space to avoid the gating situation or at least diversify the gating situation if potentially it does come up. And then also you always want to have more than one active manager because they're gonna have a different angle on how they want to approach the asset class. One may see value in one sector where one doesn't. And uh, generally speaking, that will help drive returns over time. So, Nick, just coming back to you on the four pillars that we see within private credit.

SPEAKER_00 35:25

Yeah, and I think just with our approach, I think you you you hit on a bunch of those, but you know, no matter what kind of risk asset you're looking at, you know, it it's important to size the position there appropriately for and and realistically for what your liquidity objectives are uh and what your tolerance for for risk is, right? Um and and then you know you hit on the other ones, uh making sure you got the right managers. We want to see institutional grade underwriting, long-term track records across set credit cycles, um, and and that aren't gonna be levering up the portfolio to unacceptable risk levels, in our opinion. And then, you know, those, you know, with our process, we just we constantly uh are have a constant due diligence process. We are monitor monitoring these managers actively, want to make sure we understand what's under the hood uh uh of the funds that we we own um personally and and for our clients. And then, you know, just got to recognize, you know, no matter what asset class you're looking at, but in regards to private credit, you just need to acknowledge what it is and what it isn't. It's a it's a diversifying tool, it's an uncorrelated asset class that provides great levels uh uh of income that is are very difficult to find anywhere else in the marketplace. But you know, it's it's not really a replacement for for equities. This is not a cash alternative, right? So again, just having the right mentality and and um and uh an approach to that space, I think helps uh us and uh our our our clients broadly speaking. So um with that, Brett, let's let's wrap it up. I think uh I think we've given a lot of good information for folks to think about um and uh maybe some some context to to battle some of these headlines that are floating around. Absolutely.

SPEAKER_02 37:16

Uh happy uh St. Patrick's Day to all out there. And um we do think the asset class continues to deserve a piece of the asset allocation, uh, even even after you know this news and and potentially the redemption issues that the asset class may face. We see it as an institutional great asset class that is around for the long haul. And we think that it's a great opportunity to maintain your position and potentially even look to increase your position size with the volatility that's in front of us here. So thank you all so much, and we look forward to catching up with you next week on another podcast.

SPEAKER_01 37:53

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