WEBVTT NOTE Transcription provided by Deepgram 00:00:02.000 --> 00:00:04.560 This is the View from Apollo podcast, an 00:00:04.560 --> 00:00:08.639 ongoing conversation on alternative investing, economics, and the 00:00:08.639 --> 00:00:10.660 trends shaping up financial markets. 00:00:11.759 --> 00:00:14.455 In two thousand twenty five's turbulent market environment, 00:00:14.514 --> 00:00:16.914 one quarter of private credit is enjoying its 00:00:16.914 --> 00:00:19.635 moment in the sun, asset backed finance. In 00:00:19.635 --> 00:00:21.955 this episode of The View from Apollo, Brett 00:00:21.955 --> 00:00:24.535 Lees, Apollo's co head of asset backed finance, 00:00:24.835 --> 00:00:27.954 explains how this estimated twenty trillion dollar global 00:00:27.954 --> 00:00:28.775 market works. 00:00:29.529 --> 00:00:31.449 The mortgage on your home, that's a fixed 00:00:31.449 --> 00:00:35.370 contract that pays something, has credit enhancement, has 00:00:35.370 --> 00:00:37.610 a tangible asset beneath it. I mean, by 00:00:37.610 --> 00:00:40.250 creating this and fostering this lending every single 00:00:40.250 --> 00:00:42.489 day, we help the economy grow and we 00:00:42.489 --> 00:00:44.135 help people get the access to the credit 00:00:44.135 --> 00:00:44.795 they need. 00:00:45.255 --> 00:00:48.375 In a wide ranging conversation, Brett discusses why 00:00:48.375 --> 00:00:50.935 asset backed finance can be resilient in turbulent 00:00:50.935 --> 00:00:54.375 times, how new innovations are democratizing access to 00:00:54.375 --> 00:00:56.880 the space, and the global growth he expects 00:00:57.120 --> 00:01:01.280 as more markets embrace securitization. So without any 00:01:01.280 --> 00:01:03.140 further ado, let's get started. 00:01:05.680 --> 00:01:08.480 Hello, everybody. Welcome to another episode of The 00:01:08.480 --> 00:01:11.134 View from Apollo. I'm Brad Young, the head 00:01:11.134 --> 00:01:13.935 of client content strategy in Apollo's client and 00:01:13.935 --> 00:01:16.814 product solutions group. I'm guest hosting this month 00:01:16.814 --> 00:01:19.455 for Torsten Slock, and I know we always 00:01:19.455 --> 00:01:21.455 like hearing from Torsten. I do too. But 00:01:21.455 --> 00:01:23.055 I'm really glad to be here for this 00:01:23.055 --> 00:01:25.960 conversation today. We're gonna talk about the dynamic, 00:01:26.100 --> 00:01:29.300 fast growing asset backed finance market with the 00:01:29.300 --> 00:01:30.900 person who's pretty much been writing the book 00:01:30.900 --> 00:01:33.140 on it here at Apollo. Brett Lees is 00:01:33.140 --> 00:01:35.460 a partner and Apollo's co head of asset 00:01:35.460 --> 00:01:37.875 backed finance. And he's been running the firm's 00:01:37.875 --> 00:01:40.775 asset backed business since two thousand and nine. 00:01:41.155 --> 00:01:42.835 So a lot to talk about today, and 00:01:42.835 --> 00:01:44.354 I'm looking forward to it. So thanks for 00:01:44.354 --> 00:01:45.075 being here, Brett. 00:01:45.075 --> 00:01:46.915 Oh, Brett, thank you for for having me, 00:01:46.915 --> 00:01:48.675 and I'm excited to talk about asset backed 00:01:48.675 --> 00:01:49.075 finance. 00:01:49.075 --> 00:01:51.415 That's great. A little level setting for listeners. 00:01:51.590 --> 00:01:53.670 When we talk about asset backed finance, what 00:01:53.670 --> 00:01:53.750 do 00:01:53.750 --> 00:01:56.310 we mean, and what exactly is it? Sure. 00:01:56.310 --> 00:01:58.550 So what we mean by asset backed finance 00:01:58.550 --> 00:02:00.230 is actually in the name. Right? So you 00:02:00.230 --> 00:02:02.170 have two ways to invest in this world. 00:02:02.310 --> 00:02:03.910 You can give your money to companies. You 00:02:03.910 --> 00:02:05.750 can make a loan or a bond, and 00:02:05.750 --> 00:02:08.125 you're backed by the operations of that company, 00:02:08.425 --> 00:02:10.185 the full faith and credit that company, and 00:02:10.185 --> 00:02:12.505 you rise and fall with that company. Well, 00:02:12.505 --> 00:02:15.465 asset backed finances is the opposite. You're going 00:02:15.465 --> 00:02:17.625 to invest back by a pool of things, 00:02:17.625 --> 00:02:19.890 and those pool of things cash flow, and 00:02:19.890 --> 00:02:21.890 they self amortize as a function of time. 00:02:21.890 --> 00:02:24.530 And so that distinction is actually very, very 00:02:24.530 --> 00:02:27.090 meaningful. And you why it's so meaningful and 00:02:27.090 --> 00:02:29.250 why people should really care about this is 00:02:29.250 --> 00:02:31.329 because it's the thing that you touch every 00:02:31.329 --> 00:02:34.004 day. You know it every day. It's what 00:02:34.004 --> 00:02:36.564 makes our economy it's what our economy goes 00:02:36.564 --> 00:02:38.564 around on. So for example, you know, you 00:02:38.564 --> 00:02:40.325 must live in some sort of dwelling. I 00:02:40.325 --> 00:02:41.765 have a house. You have a house? That 00:02:41.765 --> 00:02:43.605 house is probably financed with a mortgage? 00:02:43.605 --> 00:02:44.004 Yes. It 00:02:44.004 --> 00:02:46.084 is. Okay. Well, that's asset backed finance. The 00:02:46.084 --> 00:02:48.345 mortgage on your home, that's a fixed contract 00:02:48.800 --> 00:02:51.920 that pays something, has credit enhancement, has a 00:02:51.920 --> 00:02:54.560 tangible asset beneath it. That tangible asset can 00:02:54.560 --> 00:02:56.720 be sold if you default, and there are 00:02:56.720 --> 00:02:58.640 millions and millions and millions of them. And 00:02:58.640 --> 00:03:01.280 by creating this and fostering this lending every 00:03:01.280 --> 00:03:03.605 single day, we help the economy grow, and 00:03:03.605 --> 00:03:05.205 we help people get the access to the 00:03:05.205 --> 00:03:06.105 credit they need. 00:03:06.245 --> 00:03:08.485 That's great. And it's actually having a a 00:03:08.485 --> 00:03:09.925 bit of a moment in the sun in 00:03:09.925 --> 00:03:11.845 twenty twenty five and and been going for 00:03:11.845 --> 00:03:13.845 a long time. But so why now for 00:03:13.845 --> 00:03:14.340 ABF? 00:03:14.420 --> 00:03:15.940 Sure. So this has been around for a 00:03:15.940 --> 00:03:18.019 very, very long time, but you're right. Now 00:03:18.019 --> 00:03:20.420 it's the hot dot. Right? Like, everybody's talking 00:03:20.420 --> 00:03:22.819 about it. Asset backed finance, asset backed asset 00:03:22.819 --> 00:03:24.819 backed finance. And so the the the real 00:03:24.819 --> 00:03:27.635 reason is is twofold. Right? One is there's 00:03:27.635 --> 00:03:30.515 this big move among companies, you know, big 00:03:30.515 --> 00:03:33.635 and small to start shedding assets. They're finding 00:03:33.635 --> 00:03:35.875 that they run a more balance sheet light 00:03:35.875 --> 00:03:39.010 model. Right? Their valuation goes up, I e 00:03:39.010 --> 00:03:41.490 the equity markets are rewarding it. And those 00:03:41.490 --> 00:03:43.570 could be private equity markets or or public 00:03:43.570 --> 00:03:45.810 equity markets. And so they need buyers for 00:03:45.810 --> 00:03:47.490 these receivables they create, but they have to 00:03:47.490 --> 00:03:49.570 keep creating these things because that's part of 00:03:49.570 --> 00:03:52.595 their business. That's kinda step one. Step two, 00:03:52.655 --> 00:03:55.375 the stability of capital that has come with 00:03:55.375 --> 00:03:58.335 the private debt revolution has made people much 00:03:58.335 --> 00:04:01.475 better investors thinking long term, thinking about illiquidity 00:04:01.695 --> 00:04:05.280 premium, thinking about complexity premium. And so capital 00:04:05.280 --> 00:04:07.200 is finding its way to this market as 00:04:07.200 --> 00:04:09.200 well where you're matching up people who might 00:04:09.200 --> 00:04:12.340 be overweight, certain other types of of risk. 00:04:12.480 --> 00:04:14.980 And then third is there's been significant regulatory 00:04:15.040 --> 00:04:16.800 change that has occurred, not just at the 00:04:16.800 --> 00:04:19.120 banks, but also on a global basis where 00:04:19.120 --> 00:04:21.735 people have a vested interest adding more credit 00:04:21.735 --> 00:04:24.135 into their economy. And this market, by spreading 00:04:24.135 --> 00:04:26.535 the risk across a number of investors, is 00:04:26.535 --> 00:04:28.295 helping that all grow. And so as people 00:04:28.295 --> 00:04:29.975 spend more money and they buy more things 00:04:29.975 --> 00:04:32.135 and companies create more things, they need a 00:04:32.135 --> 00:04:34.295 broad and diffuse way to to finance it. 00:04:34.295 --> 00:04:36.390 The asset backed market solves that problem. 00:04:36.550 --> 00:04:39.270 That's great. And you brought something there that 00:04:39.270 --> 00:04:40.630 I wanted to touch on a little bit 00:04:40.630 --> 00:04:43.670 more deeply, the regulatory environment. So as I 00:04:43.670 --> 00:04:46.310 said at the outset, you started at Apollo 00:04:46.310 --> 00:04:48.150 in asset backed finance in two thousand nine. 00:04:48.150 --> 00:04:49.670 I believe it was June of two thousand 00:04:49.670 --> 00:04:51.855 and nine. Yeah. So the world was a 00:04:51.855 --> 00:04:53.695 pretty different place in June of two thousand 00:04:53.695 --> 00:04:55.235 and nine, and a lot of the regulatory 00:04:55.375 --> 00:04:57.455 environment that we have around this space was 00:04:57.455 --> 00:04:59.695 actually set around the global financial crisis at 00:04:59.695 --> 00:05:02.655 that time. So what was it like starting 00:05:02.655 --> 00:05:04.530 this business in two thousand and nine? 00:05:04.610 --> 00:05:06.130 It was an amazing time to start a 00:05:06.130 --> 00:05:08.290 business because we had something very special here 00:05:08.290 --> 00:05:10.290 at Apollo. We had a clean balance sheet. 00:05:10.290 --> 00:05:12.530 We didn't own legacy issues. We didn't have 00:05:12.530 --> 00:05:14.610 problems with things that had gone from a 00:05:14.610 --> 00:05:16.850 hundred cents to to to fifty cents on 00:05:16.850 --> 00:05:18.295 a dollar. And so what you could do 00:05:18.295 --> 00:05:20.215 is you could sift through all that was 00:05:20.215 --> 00:05:22.535 out there, and you could separate fear from 00:05:22.535 --> 00:05:24.935 fact. You could decide what was good, what 00:05:24.935 --> 00:05:26.775 was cheap, and you could buy things from 00:05:26.775 --> 00:05:29.415 people who might be for sellers. At the 00:05:29.415 --> 00:05:31.735 same time, the regulators were clamping down on 00:05:31.735 --> 00:05:34.199 the banks. They were clamping down on cheap 00:05:34.199 --> 00:05:36.699 pools of capital and highly lever pools of 00:05:36.919 --> 00:05:38.599 capital. And so what you were doing is 00:05:38.599 --> 00:05:40.759 now you were providing much needed liquidity to 00:05:40.759 --> 00:05:44.199 the market. Now, unfortunately, you were just coming 00:05:44.199 --> 00:05:45.879 off a time of very high innovation in 00:05:45.879 --> 00:05:47.915 the mid two thousands to a time of 00:05:47.915 --> 00:05:51.195 low innovation. So products got simpler. They got 00:05:51.195 --> 00:05:54.155 easier to understand. They were delevered. They were 00:05:54.155 --> 00:05:56.395 cheap. So it was an amazing time to 00:05:56.395 --> 00:05:58.555 start a business because then as the markets 00:05:58.555 --> 00:06:01.290 restarted, as people started doing things again, as 00:06:01.290 --> 00:06:05.130 lending got unstuck and unfroze, right, you now 00:06:05.130 --> 00:06:08.330 had built in that that infrastructure. You've built 00:06:08.330 --> 00:06:10.090 in that expertise, and you were ahead of 00:06:10.090 --> 00:06:10.750 the game. 00:06:11.290 --> 00:06:15.105 So now, sixteen years later, did you have 00:06:15.105 --> 00:06:17.665 any sense that the market would be where 00:06:17.665 --> 00:06:20.225 it is today or where it's projected to 00:06:20.225 --> 00:06:22.305 go? Our estimates have it at about a 00:06:22.305 --> 00:06:24.945 twenty trillion dollar global market. Could you 00:06:24.945 --> 00:06:26.865 have imagined then that we would be where 00:06:26.865 --> 00:06:28.385 we are today or where we expect to 00:06:28.385 --> 00:06:31.610 go? No. It's just not a chance. So 00:06:31.610 --> 00:06:33.130 we knew that the market would come back, 00:06:33.130 --> 00:06:34.410 and and the reason we knew it would 00:06:34.410 --> 00:06:36.810 come back is because it's necessary. Right? And 00:06:36.810 --> 00:06:38.890 and the you know, you'll say, oh, well, 00:06:38.890 --> 00:06:40.410 Brett, like, why, you know, why are you 00:06:40.410 --> 00:06:42.555 sure why Why would you think something's necessary? 00:06:42.615 --> 00:06:44.855 Well, if you close your eyes, right, imagine 00:06:44.855 --> 00:06:46.455 you go into a Ford dealership and you 00:06:46.455 --> 00:06:48.615 wanna buy a new car. You're not thinking 00:06:48.615 --> 00:06:50.375 about how you pay for that car. You're 00:06:50.375 --> 00:06:52.855 thinking, what's my payment going to be? Well, 00:06:52.855 --> 00:06:54.535 imagine a world where you walk in and 00:06:54.535 --> 00:06:56.315 you have to buy that car for cash. 00:06:56.849 --> 00:06:58.530 Imagine a world where you reach into your 00:06:58.530 --> 00:07:01.270 wallet and there are no credit cards there. 00:07:01.330 --> 00:07:04.849 Right? Imagine a world where you go home, 00:07:04.849 --> 00:07:06.930 you turn on the television, and there's no 00:07:06.930 --> 00:07:09.835 content to view. Right? Because nobody will finance 00:07:09.835 --> 00:07:11.275 the royalties that need to be paid for 00:07:11.275 --> 00:07:13.835 all these people. Nobody will finance production. That's 00:07:13.835 --> 00:07:15.675 the world we live in without asset backed 00:07:15.675 --> 00:07:17.915 finance. Now our government, in all of its 00:07:17.915 --> 00:07:20.574 wisdom, actually realized this during the financial crisis, 00:07:20.810 --> 00:07:22.730 and they also realized this during COVID. They 00:07:22.730 --> 00:07:25.930 set up programs to restart this market once 00:07:25.930 --> 00:07:28.410 it froze. And so they realized that the 00:07:28.410 --> 00:07:31.550 free flow of credit to consumers, small businesses, 00:07:31.610 --> 00:07:34.895 big businesses, banks, finance companies, like, is so 00:07:35.035 --> 00:07:37.515 necessary to what we do as economy that 00:07:37.515 --> 00:07:39.755 this market needs to exist. The question is 00:07:39.755 --> 00:07:41.595 just what's the size and scale. And the 00:07:41.595 --> 00:07:44.795 size and scale have now grown along with 00:07:44.795 --> 00:07:48.009 our GDP, along with our economy, along with 00:07:48.009 --> 00:07:49.530 the the the value of all of our 00:07:49.530 --> 00:07:52.169 assets has grown immeasurably, and it's not going 00:07:52.169 --> 00:07:54.729 to stop growing. So twenty trillion, I think, 00:07:54.729 --> 00:07:56.430 happily, is just the start. 00:07:57.289 --> 00:07:58.729 So that's a great look back and a 00:07:58.729 --> 00:08:00.255 great look at the journey to get us 00:08:00.255 --> 00:08:01.655 to where we are today. But let's shift 00:08:01.655 --> 00:08:03.615 a little bit to the current landscape. Pretty 00:08:03.615 --> 00:08:05.795 much nobody roots for chaos in the markets, 00:08:05.855 --> 00:08:08.015 and you and your team don't certainly. But 00:08:08.015 --> 00:08:09.935 you're prepared for times like we've seen so 00:08:09.935 --> 00:08:12.495 far in twenty twenty five. Such a volatile 00:08:12.495 --> 00:08:15.295 year in the markets. Why is ABF so 00:08:15.295 --> 00:08:17.990 well suited and well positioned for these kinds 00:08:17.990 --> 00:08:19.669 of environments like we've seen so far this 00:08:19.669 --> 00:08:20.169 year? 00:08:20.310 --> 00:08:22.150 Yeah. So it has a couple of features 00:08:22.150 --> 00:08:23.910 which are great in environments like this. So 00:08:23.910 --> 00:08:26.169 first, if you're backed by a harder tangible 00:08:26.229 --> 00:08:28.150 asset and you enter an environment that is 00:08:28.150 --> 00:08:30.634 inflationary, Right? The value of your assets are 00:08:30.634 --> 00:08:32.315 going up. The value of your collateral is 00:08:32.315 --> 00:08:35.435 increasing, which helps protect your land. Right? Costs 00:08:35.435 --> 00:08:37.195 aren't going up, but the value of your 00:08:37.195 --> 00:08:39.595 assets go up. The second is these assets 00:08:39.595 --> 00:08:42.660 are actually contractually paying you something, and they're 00:08:42.660 --> 00:08:45.380 self amortizing. So I'm not relying upon going 00:08:45.380 --> 00:08:48.100 back into the market to refinance something. I'm 00:08:48.100 --> 00:08:50.420 not taking refinancing risk in in the market. 00:08:50.420 --> 00:08:52.420 I actually know what I'm doing here in 00:08:52.420 --> 00:08:54.820 terms of of tenure. Third is the assets 00:08:54.820 --> 00:08:57.060 themselves are generally short. Most of the assets 00:08:57.060 --> 00:08:59.155 are three to five year assets. So that 00:08:59.155 --> 00:09:02.355 means, shortening my timeline. And so the amount 00:09:02.355 --> 00:09:03.795 of time I'm giving for the event to 00:09:03.795 --> 00:09:06.675 go long is also short. But finally, these 00:09:06.675 --> 00:09:10.035 are all held in a dumb box. And 00:09:10.035 --> 00:09:12.470 I say that, you know, not lightly. In 00:09:12.470 --> 00:09:15.190 other words, it's a rules based system once 00:09:15.190 --> 00:09:17.930 you own it, self advertising. There's a preset 00:09:17.990 --> 00:09:19.670 amount of rules for what it can do. 00:09:19.670 --> 00:09:21.350 It's not like when I give my money 00:09:21.350 --> 00:09:23.350 to a company and management can go off 00:09:23.350 --> 00:09:25.190 and do r and d and moonshots and 00:09:25.190 --> 00:09:27.634 build new corporate headquarters or build rockets or 00:09:27.634 --> 00:09:29.394 do whatever they're gonna do, which may or 00:09:29.394 --> 00:09:31.314 may not pan out because they're investing in 00:09:31.314 --> 00:09:34.375 enterprise value. Right? I know what I own. 00:09:34.915 --> 00:09:36.995 I know how it behaves. I know what 00:09:36.995 --> 00:09:38.675 my collateral is. If it doesn't do what 00:09:38.675 --> 00:09:40.530 we want, we can seize it, sell it, 00:09:40.770 --> 00:09:42.610 and liquidate it, and that gives us this 00:09:42.610 --> 00:09:45.490 nice modicum of control in more chaotic environments 00:09:45.490 --> 00:09:48.610 that actually has more value. Now it's possible 00:09:48.610 --> 00:09:50.530 that, you know, what we thought may happen 00:09:50.530 --> 00:09:53.090 could be worse. Right? But we have, in 00:09:53.090 --> 00:09:56.285 most cases, good credit enhancement. And when you 00:09:56.285 --> 00:09:58.045 have good credit enhancement, you have a nice 00:09:58.045 --> 00:09:59.265 amount of cushion too. 00:10:00.605 --> 00:10:02.925 And talk a little bit about the role 00:10:02.925 --> 00:10:05.325 for direct lending and asset backed in the 00:10:05.325 --> 00:10:07.565 portfolio together because there might be a perception 00:10:07.565 --> 00:10:09.010 of, like, do I need both? Like, talk 00:10:09.010 --> 00:10:10.450 a little bit if you could about how 00:10:10.450 --> 00:10:12.930 they work together in a portfolio. So we 00:10:12.930 --> 00:10:13.570 tend to think of 00:10:13.570 --> 00:10:15.810 the world sometimes in this either or construct, 00:10:15.810 --> 00:10:17.410 right, or a zero sum. If I do 00:10:17.410 --> 00:10:19.410 this, I shouldn't be doing that. But the 00:10:19.410 --> 00:10:21.649 fact is, right, portfolios work well on the 00:10:21.649 --> 00:10:25.415 concept of diversification. Right? There is absolutely nothing 00:10:25.415 --> 00:10:27.415 wrong with private credit when done right. There's 00:10:27.415 --> 00:10:30.055 absolutely nothing wrong with with asset backed finance 00:10:30.055 --> 00:10:32.295 when done right. But when we think about 00:10:32.295 --> 00:10:34.935 investors out there, big and small, they've been 00:10:34.935 --> 00:10:37.495 moving toward private credit for the better part 00:10:37.495 --> 00:10:39.570 of a decade. Well, now they're making the 00:10:39.570 --> 00:10:41.490 same bet over and over and over again. 00:10:41.490 --> 00:10:43.570 Right? And so you're fairly weight something, but 00:10:43.570 --> 00:10:46.930 you're completely underweight asset backed finance. So what's 00:10:46.930 --> 00:10:49.010 happening now is you're taking yourself out of 00:10:49.010 --> 00:10:50.850 balance. It's like walking through the world with 00:10:50.850 --> 00:10:53.965 one eye closed. Direct lending market's two trillion 00:10:53.965 --> 00:10:56.525 dollars, three trillion dollars. Asset back market is 00:10:56.525 --> 00:10:58.445 twenty trillion and and growing. So why would 00:10:58.445 --> 00:11:01.025 you ignore such a very, very large market? 00:11:01.085 --> 00:11:02.685 That's kind of the first piece. And the 00:11:02.685 --> 00:11:05.565 second piece is it's also diversification of cash 00:11:05.565 --> 00:11:08.130 flow. Right? You can tell your durations. It's 00:11:08.130 --> 00:11:10.690 not easily indexed or levered, and so it 00:11:10.690 --> 00:11:12.850 offers an excess premium yield. And for us 00:11:12.850 --> 00:11:14.850 in particular, we like to go up in 00:11:14.850 --> 00:11:17.250 credit into the investment grade space. You can 00:11:17.250 --> 00:11:20.115 still earn a very healthy return by moving 00:11:20.115 --> 00:11:21.875 up in credit. So not only you create 00:11:21.875 --> 00:11:23.875 a balance in your portfolio and asset type 00:11:23.875 --> 00:11:26.035 and cash flow, but now you're also changing 00:11:26.035 --> 00:11:27.895 your risk profile some as well. 00:11:28.035 --> 00:11:30.115 That's great. And that actually speaks a little 00:11:30.115 --> 00:11:32.339 bit, I think, to the flexibility and number 00:11:32.339 --> 00:11:34.660 of options you have as you make investment 00:11:34.660 --> 00:11:36.820 decisions in the asset backed space. A lot 00:11:36.820 --> 00:11:38.260 of arrows in the quiver, it seems like, 00:11:38.260 --> 00:11:39.860 as you're making these decisions. Can you talk 00:11:39.860 --> 00:11:41.779 a little bit about how those options have 00:11:41.779 --> 00:11:43.220 changed over the years and how you and 00:11:43.220 --> 00:11:45.140 your team sort of think about what's available 00:11:45.140 --> 00:11:46.815 to you and how you activate those different 00:11:46.815 --> 00:11:48.195 things on behalf of investors. 00:11:48.415 --> 00:11:50.175 We sure can. So when you think about 00:11:50.175 --> 00:11:52.575 asset backed finance, the keyword is assets. Right? 00:11:52.575 --> 00:11:55.055 So everything begins and ends with the asset. 00:11:55.055 --> 00:11:56.895 How well do you know the asset? Do 00:11:56.895 --> 00:11:58.495 you create the asset for a living? Do 00:11:58.495 --> 00:12:00.279 you service the asset for a living? Do 00:12:00.279 --> 00:12:02.040 you work through the asset for a living? 00:12:02.040 --> 00:12:03.960 Or are you just a financial investor on 00:12:03.960 --> 00:12:06.200 the sideline? We like to bring ourselves as 00:12:06.200 --> 00:12:08.360 close to the asset as humanly possible. In 00:12:08.360 --> 00:12:10.680 fact, the more you can create the risk 00:12:10.680 --> 00:12:13.080 yourself, the better investor you are all across 00:12:13.080 --> 00:12:15.324 the world. And so though those arrows that 00:12:15.324 --> 00:12:17.245 you mentioned then take it where you say, 00:12:17.245 --> 00:12:19.805 okay. The simplest form of accessing something is 00:12:19.805 --> 00:12:21.644 to buy a bond. But what if I 00:12:21.644 --> 00:12:23.404 could do anything? What if I could buy 00:12:23.404 --> 00:12:25.485 the whole loans? What if I could make 00:12:25.485 --> 00:12:27.690 the loans myself? What if I could provide 00:12:27.690 --> 00:12:30.410 a warehouse, an accumulation facility for other people 00:12:30.410 --> 00:12:32.010 to do? What if I could do a 00:12:32.010 --> 00:12:33.930 public bond, a private bond? What if I 00:12:33.930 --> 00:12:35.690 could own the company? What if I could 00:12:35.690 --> 00:12:38.250 own just the residuals? You can do anything 00:12:38.250 --> 00:12:40.855 you want, and the form is not the 00:12:40.855 --> 00:12:43.415 limiter. It's the expertise on the asset. Once 00:12:43.415 --> 00:12:45.415 you know the asset, you go to the 00:12:45.415 --> 00:12:48.235 cheapest to deliver way to to access this, 00:12:48.375 --> 00:12:50.775 and that's the business that we've built. Right? 00:12:50.775 --> 00:12:52.615 It's finding the risk we like and then 00:12:52.615 --> 00:12:54.529 going to get it in the cheapest form 00:12:54.529 --> 00:12:58.010 you can. Very few markets offer that level 00:12:58.010 --> 00:12:59.830 of flexibility of access point. 00:13:00.130 --> 00:13:02.790 With flexibility, though, also has to come discipline. 00:13:03.330 --> 00:13:05.250 You have to be really disciplined about what 00:13:05.250 --> 00:13:07.965 opportunities you are taking advantage of. There's a 00:13:07.965 --> 00:13:09.565 lot you can choose from. So how do 00:13:09.565 --> 00:13:10.925 you get it to sort of the discipline 00:13:10.925 --> 00:13:11.405 side of that? 00:13:11.405 --> 00:13:13.645 Yeah. Like, we're professional hunters. Right? We're out 00:13:13.645 --> 00:13:15.645 there turning over rocks every day. We're at 00:13:15.645 --> 00:13:19.370 the bizarre kicking tires. All we do, right, 00:13:19.370 --> 00:13:21.450 all the time is we test and retest 00:13:21.450 --> 00:13:23.450 and test and retest. And so the way 00:13:23.450 --> 00:13:25.850 you build discipline, right, is you start by 00:13:25.850 --> 00:13:27.610 doing what I mentioned earlier is you get 00:13:27.610 --> 00:13:29.610 yourself close to the asset. You know how 00:13:29.610 --> 00:13:31.370 it behaves when you create it. You know 00:13:31.370 --> 00:13:33.495 what customer you're facing. You know how it 00:13:33.495 --> 00:13:35.975 behaves when things go wrong. You know the 00:13:35.975 --> 00:13:38.135 legal's ins and out. You know the asset. 00:13:38.135 --> 00:13:41.035 You actually become the expert, not by reading, 00:13:41.175 --> 00:13:43.175 but by doing. Right? That's the first step. 00:13:43.175 --> 00:13:45.255 The second step is you build your own 00:13:45.255 --> 00:13:48.120 quantitative and structuring tools. And then you use 00:13:48.120 --> 00:13:50.600 those to test and retest because there's a 00:13:50.600 --> 00:13:52.680 wealth of data out there. There's decades and 00:13:52.680 --> 00:13:55.800 decades and decades of data on mortgages and 00:13:55.800 --> 00:13:58.680 consumer loans and commercial loans alike where you 00:13:58.680 --> 00:14:00.600 can go back and you can isolate the 00:14:00.600 --> 00:14:03.695 variables that affect performance, and then you create 00:14:03.695 --> 00:14:06.275 models, and then you validate those models constantly 00:14:06.655 --> 00:14:09.055 using new information that you're getting all the 00:14:09.055 --> 00:14:13.215 time. That makes us smarter investor. Not everybody 00:14:13.215 --> 00:14:15.295 can do that though because that requires a 00:14:15.295 --> 00:14:18.760 huge team. It requires centralized resourcing. It it 00:14:18.760 --> 00:14:21.480 requires a big investment in tech. It requires 00:14:21.480 --> 00:14:23.480 a very large business to spread all that 00:14:23.480 --> 00:14:26.920 across. If you're focused narrow, right, you're not 00:14:26.920 --> 00:14:28.520 gonna be able to build that level of 00:14:28.520 --> 00:14:31.435 expertise to exactly what you said. And discipline 00:14:31.435 --> 00:14:34.634 also means that if it's not there, it's 00:14:34.634 --> 00:14:36.714 okay to let whole asset classes with an 00:14:36.714 --> 00:14:40.334 asset back lie dormant until it is there. 00:14:40.394 --> 00:14:42.074 So you're right. It's not always gonna be 00:14:42.074 --> 00:14:44.175 a good time to buy something. That's okay. 00:14:45.980 --> 00:14:48.060 If you look at your time here, a 00:14:48.060 --> 00:14:49.899 lot of focus has clearly been on the 00:14:49.899 --> 00:14:52.699 institutional space. We're also now really focused on 00:14:52.699 --> 00:14:55.180 the wealth space and the individual investor. As 00:14:55.180 --> 00:14:57.645 you look at asset backed for wealth, how 00:14:57.645 --> 00:14:59.245 do you think about that, and how has 00:14:59.245 --> 00:15:01.245 it had to sort of evolve to meet 00:15:01.245 --> 00:15:02.545 the individual investor? 00:15:03.005 --> 00:15:06.925 So individual investors understand asset backed very, very 00:15:06.925 --> 00:15:08.845 intuitively because it's it's how you and I 00:15:08.845 --> 00:15:10.540 started. From when you wake up in the 00:15:10.540 --> 00:15:12.300 morning till you go to sleep, you're touching 00:15:12.300 --> 00:15:14.220 it. You're in your car. You're listening to 00:15:14.220 --> 00:15:16.860