Voiceover: This is the View from Apollo podcast, an
Voiceover: ongoing conversation on alternative investing, economics, and the
Voiceover: trends shaping up financial markets.
Introductory speaker: In two thousand twenty five's turbulent market environment,
Introductory speaker: one quarter of private credit is enjoying its
Introductory speaker: moment in the sun, asset backed finance. In
Introductory speaker: this episode of The View from Apollo, Brett
Introductory speaker: Lees, Apollo's co head of asset backed finance,
Introductory speaker: explains how this estimated twenty trillion dollar global
Introductory speaker: market works.
Bret Leas: The mortgage on your home, that's a fixed
Bret Leas: contract that pays something, has credit enhancement, has
Bret Leas: a tangible asset beneath it. I mean, by
Bret Leas: creating this and fostering this lending every single
Bret Leas: day, we help the economy grow and we
Bret Leas: help people get the access to the credit
Bret Leas: they need.
Introductory speaker: In a wide ranging conversation, Brett discusses why
Introductory speaker: asset backed finance can be resilient in turbulent
Introductory speaker: times, how new innovations are democratizing access to
Introductory speaker: the space, and the global growth he expects
Introductory speaker: as more markets embrace securitization. So without any
Introductory speaker: further ado, let's get started.
Brad Young: Hello, everybody. Welcome to another episode of The
Brad Young: View from Apollo. I'm Brad Young, the head
Brad Young: of client content strategy in Apollo's client and
Brad Young: product solutions group. I'm guest hosting this month
Brad Young: for Torsten Slock, and I know we always
Brad Young: like hearing from Torsten. I do too. But
Brad Young: I'm really glad to be here for this
Brad Young: conversation today. We're gonna talk about the dynamic,
Brad Young: fast growing asset backed finance market with the
Brad Young: person who's pretty much been writing the book
Brad Young: on it here at Apollo. Brett Lees is
Brad Young: a partner and Apollo's co head of asset
Brad Young: backed finance. And he's been running the firm's
Brad Young: asset backed business since two thousand and nine.
Brad Young: So a lot to talk about today, and
Brad Young: I'm looking forward to it. So thanks for
Brad Young: being here, Brett.
Bret Leas: Oh, Brett, thank you for for having me,
Bret Leas: and I'm excited to talk about asset backed
Bret Leas: finance.
Brad Young: That's great. A little level setting for listeners.
Brad Young: When we talk about asset backed finance, what
Brad Young: do
Bret Leas: we mean, and what exactly is it? Sure.
Bret Leas: So what we mean by asset backed finance
Bret Leas: is actually in the name. Right? So you
Bret Leas: have two ways to invest in this world.
Bret Leas: You can give your money to companies. You
Bret Leas: can make a loan or a bond, and
Bret Leas: you're backed by the operations of that company,
Bret Leas: the full faith and credit that company, and
Bret Leas: you rise and fall with that company. Well,
Bret Leas: asset backed finances is the opposite. You're going
Bret Leas: to invest back by a pool of things,
Bret Leas: and those pool of things cash flow, and
Bret Leas: they self amortize as a function of time.
Bret Leas: And so that distinction is actually very, very
Bret Leas: meaningful. And you why it's so meaningful and
Bret Leas: why people should really care about this is
Bret Leas: because it's the thing that you touch every
Bret Leas: day. You know it every day. It's what
Bret Leas: makes our economy it's what our economy goes
Bret Leas: around on. So for example, you know, you
Bret Leas: must live in some sort of dwelling. I
Bret Leas: have a house. You have a house? That
Bret Leas: house is probably financed with a mortgage?
Brad Young: Yes. It
Bret Leas: is. Okay. Well, that's asset backed finance. The
Bret Leas: mortgage on your home, that's a fixed contract
Bret Leas: that pays something, has credit enhancement, has a
Bret Leas: tangible asset beneath it. That tangible asset can
Bret Leas: be sold if you default, and there are
Bret Leas: millions and millions and millions of them. And
Bret Leas: by creating this and fostering this lending every
Bret Leas: single day, we help the economy grow, and
Bret Leas: we help people get the access to the
Bret Leas: credit they need.
Brad Young: That's great. And it's actually having a a
Brad Young: bit of a moment in the sun in
Brad Young: twenty twenty five and and been going for
Brad Young: a long time. But so why now for
Brad Young: ABF?
Bret Leas: Sure. So this has been around for a
Bret Leas: very, very long time, but you're right. Now
Bret Leas: it's the hot dot. Right? Like, everybody's talking
Bret Leas: about it. Asset backed finance, asset backed asset
Bret Leas: backed finance. And so the the the real
Bret Leas: reason is is twofold. Right? One is there's
Bret Leas: this big move among companies, you know, big
Bret Leas: and small to start shedding assets. They're finding
Bret Leas: that they run a more balance sheet light
Bret Leas: model. Right? Their valuation goes up, I e
Bret Leas: the equity markets are rewarding it. And those
Bret Leas: could be private equity markets or or public
Bret Leas: equity markets. And so they need buyers for
Bret Leas: these receivables they create, but they have to
Bret Leas: keep creating these things because that's part of
Bret Leas: their business. That's kinda step one. Step two,
Bret Leas: the stability of capital that has come with
Bret Leas: the private debt revolution has made people much
Bret Leas: better investors thinking long term, thinking about illiquidity
Bret Leas: premium, thinking about complexity premium. And so capital
Bret Leas: is finding its way to this market as
Bret Leas: well where you're matching up people who might
Bret Leas: be overweight, certain other types of of risk.
Bret Leas: And then third is there's been significant regulatory
Bret Leas: change that has occurred, not just at the
Bret Leas: banks, but also on a global basis where
Bret Leas: people have a vested interest adding more credit
Bret Leas: into their economy. And this market, by spreading
Bret Leas: the risk across a number of investors, is
Bret Leas: helping that all grow. And so as people
Bret Leas: spend more money and they buy more things
Bret Leas: and companies create more things, they need a
Bret Leas: broad and diffuse way to to finance it.
Bret Leas: The asset backed market solves that problem.
Brad Young: That's great. And you brought something there that
Brad Young: I wanted to touch on a little bit
Brad Young: more deeply, the regulatory environment. So as I
Brad Young: said at the outset, you started at Apollo
Brad Young: in asset backed finance in two thousand nine.
Brad Young: I believe it was June of two thousand
Brad Young: and nine. Yeah. So the world was a
Brad Young: pretty different place in June of two thousand
Brad Young: and nine, and a lot of the regulatory
Brad Young: environment that we have around this space was
Brad Young: actually set around the global financial crisis at
Brad Young: that time. So what was it like starting
Brad Young: this business in two thousand and nine?
Bret Leas: It was an amazing time to start a
Bret Leas: business because we had something very special here
Bret Leas: at Apollo. We had a clean balance sheet.
Bret Leas: We didn't own legacy issues. We didn't have
Bret Leas: problems with things that had gone from a
Bret Leas: hundred cents to to to fifty cents on
Bret Leas: a dollar. And so what you could do
Bret Leas: is you could sift through all that was
Bret Leas: out there, and you could separate fear from
Bret Leas: fact. You could decide what was good, what
Bret Leas: was cheap, and you could buy things from
Bret Leas: people who might be for sellers. At the
Bret Leas: same time, the regulators were clamping down on
Bret Leas: the banks. They were clamping down on cheap
Bret Leas: pools of capital and highly lever pools of
Bret Leas: capital. And so what you were doing is
Bret Leas: now you were providing much needed liquidity to
Bret Leas: the market. Now, unfortunately, you were just coming
Bret Leas: off a time of very high innovation in
Bret Leas: the mid two thousands to a time of
Bret Leas: low innovation. So products got simpler. They got
Bret Leas: easier to understand. They were delevered. They were
Bret Leas: cheap. So it was an amazing time to
Bret Leas: start a business because then as the markets
Bret Leas: restarted, as people started doing things again, as
Bret Leas: lending got unstuck and unfroze, right, you now
Bret Leas: had built in that that infrastructure. You've built
Bret Leas: in that expertise, and you were ahead of
Bret Leas: the game.
Brad Young: So now, sixteen years later, did you have
Brad Young: any sense that the market would be where
Brad Young: it is today or where it's projected to
Brad Young: go? Our estimates have it at about a
Brad Young: twenty trillion dollar global market. Could you
Bret Leas: have imagined then that we would be where
Bret Leas: we are today or where we expect to
Bret Leas: go? No. It's just not a chance. So
Bret Leas: we knew that the market would come back,
Bret Leas: and and the reason we knew it would
Bret Leas: come back is because it's necessary. Right? And
Bret Leas: and the you know, you'll say, oh, well,
Bret Leas: Brett, like, why, you know, why are you
Bret Leas: sure why Why would you think something's necessary?
Bret Leas: Well, if you close your eyes, right, imagine
Bret Leas: you go into a Ford dealership and you
Bret Leas: wanna buy a new car. You're not thinking
Bret Leas: about how you pay for that car. You're
Bret Leas: thinking, what's my payment going to be? Well,
Bret Leas: imagine a world where you walk in and
Bret Leas: you have to buy that car for cash.
Bret Leas: Imagine a world where you reach into your
Bret Leas: wallet and there are no credit cards there.
Bret Leas: Right? Imagine a world where you go home,
Bret Leas: you turn on the television, and there's no
Bret Leas: content to view. Right? Because nobody will finance
Bret Leas: the royalties that need to be paid for
Bret Leas: all these people. Nobody will finance production. That's
Bret Leas: the world we live in without asset backed
Bret Leas: finance. Now our government, in all of its
Bret Leas: wisdom, actually realized this during the financial crisis,
Bret Leas: and they also realized this during COVID. They
Bret Leas: set up programs to restart this market once
Bret Leas: it froze. And so they realized that the
Bret Leas: free flow of credit to consumers, small businesses,
Bret Leas: big businesses, banks, finance companies, like, is so
Bret Leas: necessary to what we do as economy that
Bret Leas: this market needs to exist. The question is
Bret Leas: just what's the size and scale. And the
Bret Leas: size and scale have now grown along with
Bret Leas: our GDP, along with our economy, along with
Bret Leas: the the the value of all of our
Bret Leas: assets has grown immeasurably, and it's not going
Bret Leas: to stop growing. So twenty trillion, I think,
Bret Leas: happily, is just the start.
Brad Young: So that's a great look back and a
Brad Young: great look at the journey to get us
Brad Young: to where we are today. But let's shift
Brad Young: a little bit to the current landscape. Pretty
Brad Young: much nobody roots for chaos in the markets,
Brad Young: and you and your team don't certainly. But
Brad Young: you're prepared for times like we've seen so
Brad Young: far in twenty twenty five. Such a volatile
Brad Young: year in the markets. Why is ABF so
Brad Young: well suited and well positioned for these kinds
Brad Young: of environments like we've seen so far this
Brad Young: year?
Bret Leas: Yeah. So it has a couple of features
Bret Leas: which are great in environments like this. So
Bret Leas: first, if you're backed by a harder tangible
Bret Leas: asset and you enter an environment that is
Bret Leas: inflationary, Right? The value of your assets are
Bret Leas: going up. The value of your collateral is
Bret Leas: increasing, which helps protect your land. Right? Costs
Bret Leas: aren't going up, but the value of your
Bret Leas: assets go up. The second is these assets
Bret Leas: are actually contractually paying you something, and they're
Bret Leas: self amortizing. So I'm not relying upon going
Bret Leas: back into the market to refinance something. I'm
Bret Leas: not taking refinancing risk in in the market.
Bret Leas: I actually know what I'm doing here in
Bret Leas: terms of of tenure. Third is the assets
Bret Leas: themselves are generally short. Most of the assets
Bret Leas: are three to five year assets. So that
Bret Leas: means, shortening my timeline. And so the amount
Bret Leas: of time I'm giving for the event to
Bret Leas: go long is also short. But finally, these
Bret Leas: are all held in a dumb box. And
Bret Leas: I say that, you know, not lightly. In
Bret Leas: other words, it's a rules based system once
Bret Leas: you own it, self advertising. There's a preset
Bret Leas: amount of rules for what it can do.
Bret Leas: It's not like when I give my money
Bret Leas: to a company and management can go off
Bret Leas: and do r and d and moonshots and
Bret Leas: build new corporate headquarters or build rockets or
Bret Leas: do whatever they're gonna do, which may or
Bret Leas: may not pan out because they're investing in
Bret Leas: enterprise value. Right? I know what I own.
Bret Leas: I know how it behaves. I know what
Bret Leas: my collateral is. If it doesn't do what
Bret Leas: we want, we can seize it, sell it,
Bret Leas: and liquidate it, and that gives us this
Bret Leas: nice modicum of control in more chaotic environments
Bret Leas: that actually has more value. Now it's possible
Bret Leas: that, you know, what we thought may happen
Bret Leas: could be worse. Right? But we have, in
Bret Leas: most cases, good credit enhancement. And when you
Bret Leas: have good credit enhancement, you have a nice
Bret Leas: amount of cushion too.
Brad Young: And talk a little bit about the role
Brad Young: for direct lending and asset backed in the
Brad Young: portfolio together because there might be a perception
Brad Young: of, like, do I need both? Like, talk
Brad Young: a little bit if you could about how
Brad Young: they work together in a portfolio. So we
Brad Young: tend to think of
Bret Leas: the world sometimes in this either or construct,
Bret Leas: right, or a zero sum. If I do
Bret Leas: this, I shouldn't be doing that. But the
Bret Leas: fact is, right, portfolios work well on the
Bret Leas: concept of diversification. Right? There is absolutely nothing
Bret Leas: wrong with private credit when done right. There's
Bret Leas: absolutely nothing wrong with with asset backed finance
Bret Leas: when done right. But when we think about
Bret Leas: investors out there, big and small, they've been
Bret Leas: moving toward private credit for the better part
Bret Leas: of a decade. Well, now they're making the
Bret Leas: same bet over and over and over again.
Bret Leas: Right? And so you're fairly weight something, but
Bret Leas: you're completely underweight asset backed finance. So what's
Bret Leas: happening now is you're taking yourself out of
Bret Leas: balance. It's like walking through the world with
Bret Leas: one eye closed. Direct lending market's two trillion
Bret Leas: dollars, three trillion dollars. Asset back market is
Bret Leas: twenty trillion and and growing. So why would
Bret Leas: you ignore such a very, very large market?
Bret Leas: That's kind of the first piece. And the
Bret Leas: second piece is it's also diversification of cash
Bret Leas: flow. Right? You can tell your durations. It's
Bret Leas: not easily indexed or levered, and so it
Bret Leas: offers an excess premium yield. And for us
Bret Leas: in particular, we like to go up in
Bret Leas: credit into the investment grade space. You can
Bret Leas: still earn a very healthy return by moving
Bret Leas: up in credit. So not only you create
Bret Leas: a balance in your portfolio and asset type
Bret Leas: and cash flow, but now you're also changing
Bret Leas: your risk profile some as well.
Brad Young: That's great. And that actually speaks a little
Brad Young: bit, I think, to the flexibility and number
Brad Young: of options you have as you make investment
Brad Young: decisions in the asset backed space. A lot
Brad Young: of arrows in the quiver, it seems like,
Brad Young: as you're making these decisions. Can you talk
Brad Young: a little bit about how those options have
Brad Young: changed over the years and how you and
Brad Young: your team sort of think about what's available
Brad Young: to you and how you activate those different
Brad Young: things on behalf of investors.
Bret Leas: We sure can. So when you think about
Bret Leas: asset backed finance, the keyword is assets. Right?
Bret Leas: So everything begins and ends with the asset.
Bret Leas: How well do you know the asset? Do
Bret Leas: you create the asset for a living? Do
Bret Leas: you service the asset for a living? Do
Bret Leas: you work through the asset for a living?
Bret Leas: Or are you just a financial investor on
Bret Leas: the sideline? We like to bring ourselves as
Bret Leas: close to the asset as humanly possible. In
Bret Leas: fact, the more you can create the risk
Bret Leas: yourself, the better investor you are all across
Bret Leas: the world. And so though those arrows that
Bret Leas: you mentioned then take it where you say,
Bret Leas: okay. The simplest form of accessing something is
Bret Leas: to buy a bond. But what if I
Bret Leas: could do anything? What if I could buy
Bret Leas: the whole loans? What if I could make
Bret Leas: the loans myself? What if I could provide
Bret Leas: a warehouse, an accumulation facility for other people
Bret Leas: to do? What if I could do a
Bret Leas: public bond, a private bond? What if I
Bret Leas: could own the company? What if I could
Bret Leas: own just the residuals? You can do anything
Bret Leas: you want, and the form is not the
Bret Leas: limiter. It's the expertise on the asset. Once
Bret Leas: you know the asset, you go to the
Bret Leas: cheapest to deliver way to to access this,
Bret Leas: and that's the business that we've built. Right?
Bret Leas: It's finding the risk we like and then
Bret Leas: going to get it in the cheapest form
Bret Leas: you can. Very few markets offer that level
Bret Leas: of flexibility of access point.
Brad Young: With flexibility, though, also has to come discipline.
Brad Young: You have to be really disciplined about what
Brad Young: opportunities you are taking advantage of. There's a
Brad Young: lot you can choose from. So how do
Brad Young: you get it to sort of the discipline
Brad Young: side of that?
Bret Leas: Yeah. Like, we're professional hunters. Right? We're out
Bret Leas: there turning over rocks every day. We're at
Bret Leas: the bizarre kicking tires. All we do, right,
Bret Leas: all the time is we test and retest
Bret Leas: and test and retest. And so the way
Bret Leas: you build discipline, right, is you start by
Bret Leas: doing what I mentioned earlier is you get
Bret Leas: yourself close to the asset. You know how
Bret Leas: it behaves when you create it. You know
Bret Leas: what customer you're facing. You know how it
Bret Leas: behaves when things go wrong. You know the
Bret Leas: legal's ins and out. You know the asset.
Bret Leas: You actually become the expert, not by reading,
Bret Leas: but by doing. Right? That's the first step.
Bret Leas: The second step is you build your own
Bret Leas: quantitative and structuring tools. And then you use
Bret Leas: those to test and retest because there's a
Bret Leas: wealth of data out there. There's decades and
Bret Leas: decades and decades of data on mortgages and
Bret Leas: consumer loans and commercial loans alike where you
Bret Leas: can go back and you can isolate the
Bret Leas: variables that affect performance, and then you create
Bret Leas: models, and then you validate those models constantly
Bret Leas: using new information that you're getting all the
Bret Leas: time. That makes us smarter investor. Not everybody
Bret Leas: can do that though because that requires a
Bret Leas: huge team. It requires centralized resourcing. It it
Bret Leas: requires a big investment in tech. It requires
Bret Leas: a very large business to spread all that
Bret Leas: across. If you're focused narrow, right, you're not
Bret Leas: gonna be able to build that level of
Bret Leas: expertise to exactly what you said. And discipline
Bret Leas: also means that if it's not there, it's
Bret Leas: okay to let whole asset classes with an
Bret Leas: asset back lie dormant until it is there.
Bret Leas: So you're right. It's not always gonna be
Bret Leas: a good time to buy something. That's okay.
Brad Young: If you look at your time here, a
Brad Young: lot of focus has clearly been on the
Brad Young: institutional space. We're also now really focused on
Brad Young: the wealth space and the individual investor. As
Brad Young: you look at asset backed for wealth, how
Brad Young: do you think about that, and how has
Brad Young: it had to sort of evolve to meet
Brad Young: the individual investor?
Bret Leas: So individual investors understand asset backed very, very
Bret Leas: intuitively because it's it's how you and I
Bret Leas: started. From when you wake up in the
Bret Leas: morning till you go to sleep, you're touching
Bret Leas: it. You're in your car. You're listening to
Bret Leas: music. You're using your gym membership. Maybe you
Bret Leas: took an airplane to go on a trip.
Bret Leas: You stay in the hotel. You know this
Bret Leas: market, but you don't think about it. Right?
Bret Leas: It operates that well that you never have
Bret Leas: to think about it. When you get the
Bret Leas: moment that, oh my, this thing's there, and
Bret Leas: I use it every day, you kinda have
Bret Leas: that Warren Buffett example, that moment where you're
Bret Leas: like, oh, man. Why don't I invest in
Bret Leas: what I know? But nobody's ever brought it
Bret Leas: to me before, and nobody's ever brought it
Bret Leas: to me where I don't have to make
Bret Leas: the decision, where they say, I'm gonna do
Bret Leas: the hard work for you. Right? I'm gonna
Bret Leas: give you a broad based exposure of this
Bret Leas: globally. Now that's required some education. Right? That's
Bret Leas: required some fighting against some narratives out there
Bret Leas: that exist. But the investor now realizes that
Bret Leas: this thing's been closed to them, that it
Bret Leas: wasn't available. Now that it is, they're seizing
Bret Leas: the moment.
Brad Young: We've talked about asset backed as sort of
Brad Young: the next evolution of a private credit. That's
Brad Young: out of some language that we use. What
Brad Young: innovations do you see coming to the space,
Brad Young: particularly for the wealth audience and their ability
Brad Young: to access the asset class?
Bret Leas: We see increasing levels of liquidity. Right? So
Bret Leas: evergreen funds and increasing levels of liquidity make
Bret Leas: the ability for the wealth investor to vote,
Bret Leas: you know, with their wallet, but also have
Bret Leas: their money in the ground quickly. We see
Bret Leas: different levels of risk return points where, you
Bret Leas: know, it's very rare, in my opinion, for
Bret Leas: the wealth investor to go into, like, very,
Bret Leas: very risky asset back. Right? They're gonna stay
Bret Leas: on the safer end of the equation. So
Bret Leas: it's much more like a fixed income instrument.
Bret Leas: They're gonna get away from really long duration
Bret Leas: where they're taking a lot of interest rate
Bret Leas: risk. And so it's tailored to somebody who's
Bret Leas: really looking for income and diversification. Right? The
Bret Leas: second is it allows them to then break
Bret Leas: into a place that was really wholly closed
Bret Leas: to them. You know? There is very little
Bret Leas: what I'll call public asset backed out there.
Bret Leas: The vast, vast majority of this market is
Bret Leas: private. And in particular for things like whole
Bret Leas: loans and warehousing, it is completely inaccessible to
Bret Leas: them. And what we're doing is we're actually
Bret Leas: democratizing credit here. We're actually opening up. Right?
Bret Leas: We've democratized it both for the source of
Bret Leas: credit where we're allowing lending the flow more
Bret Leas: freely because there's long term homes for risk.
Bret Leas: But now we're democratizing on the other way
Bret Leas: where we're allowing you to access those things
Bret Leas: very, very freely that you know about intuitively.
Bret Leas: What are some of the harder questions that
Bret Leas: you get in the market?
Brad Young: You talked about their skepticism. There's always skepticism
Brad Young: regardless of the asset class. What are some
Brad Young: of the harder questions that you and your
Brad Young: team get about the space, and how do
Brad Young: you go about trying to answer them?
Bret Leas: Sure. So there's a bunch of questions. They're
Bret Leas: like, okay. How do I know that this
Bret Leas: thing actually behaves the way you say it
Bret Leas: will? Right? How do I know that a
Bret Leas: pool of ten thousand auto loans isn't perfectly
Bret Leas: correlated? That if we hit a recession, everybody
Bret Leas: stops paying their loans and the prices of
Bret Leas: used cars falls off a cliff. Well, we
Bret Leas: know because we have millions and millions and
Bret Leas: millions of data points. We know because the
Bret Leas: metal and used cars trades very, very freely.
Bret Leas: We know because we own giant fleet leasing
Bret Leas: businesses, and we're buying and selling cars at
Bret Leas: auctions all the time. And we know that
Bret Leas: even during times of recession when unemployment goes
Bret Leas: up, right, it's not that everybody becomes unemployed
Bret Leas: and not every bill doesn't get paid. And
Bret Leas: so we have a good idea of what
Bret Leas: the value proposition is. But the reason that
Bret Leas: we know this is because we've done the
Bret Leas: work. Right? The reason we know this is
Bret Leas: because we're in this business. We didn't just
Bret Leas: come to it yesterday. That's one hard question.
Bret Leas: The the second hard question is, how do
Bret Leas: we know that this isn't just a giant
Bret Leas: pile of fraud? Consumer lending, for example, is
Bret Leas: fraught with fraud. How do we know that
Bret Leas: we're aligned with the people creating this? Well,
Bret Leas: the answer is, right, you start to then
Bret Leas: create risk sharing with the people that are
Bret Leas: creating the assets so that they're on the
Bret Leas: hook for those things which you can't control
Bret Leas: from a credit perspective. The third is Didn't
Bret Leas: this blow up the world in two thousand
Bret Leas: and eight? Right? People ask that question still.
Bret Leas: Here we are seventeen years later, and people
Bret Leas: can buy homes and cars, and they feel
Bret Leas: pretty good about the world. But they're like,
Bret Leas: what happened? This is scary to me. You
Bret Leas: know, it's opaque. It's I just don't understand
Bret Leas: it. Okay. Well, you know what? Let's break
Bret Leas: it back down the basics, and that's why
Bret Leas: we keep going back to the whole loan.
Bret Leas: Right? Let me talk to you about your
Bret Leas: mortgage. Right? You went through the process. You
Bret Leas: know that somebody underwrote your income. You know
Bret Leas: that somebody came out and they appraised your
Bret Leas: home. You know that somebody looked at your
Bret Leas: payment history and your prospects, and they really
Bret Leas: did your credit. You know, you've probably got
Bret Leas: it from the bank that you bank with.
Bret Leas: Somebody actually did the real work, and you
Bret Leas: know the utility you get from that thing.
Bret Leas: Right? Now multiply that by fifty thousand of
Bret Leas: those same examples and tell me what we're
Bret Leas: getting into. And so I think people are
Bret Leas: actually a lot more into it than we
Bret Leas: give them credit for. They know when there's
Bret Leas: a bubble in certain types of lending, but
Bret Leas: these are all questions we still get. One
Bret Leas: thing I point everybody to, though, is look
Bret Leas: at the difference in the experience of Europe
Bret Leas: versus the US as a consumer. Europe has
Bret Leas: shunned this asset class since two thousand eight.
Bret Leas: Europe has an almost fifty trillion dollar bank
Bret Leas: balance sheet. Their economy has sputtered. Their insurance
Bret Leas: companies have fewer investment options, and the flow
Bret Leas: of credit is not nearly the same as
Bret Leas: it is here. Now look at the US,
Bret Leas: growing rapidly. The banking system is delevered at
Bret Leas: the mid twenty trillions. It has a asset
Bret Leas: backed market that is massive, and people can
Bret Leas: get the credit they need for the things
Bret Leas: they want. And we actually have a very
Bret Leas: healthy financial and credit system. This doesn't say
Bret Leas: Europe's bad and the US is good. It's
Bret Leas: to say that this market existing has created
Bret Leas: differential outcomes in the way countries grow and
Bret Leas: run and the way people access the things
Bret Leas: they need.
Brad Young: Does that make Europe a bit of an
Brad Young: opportunity then too if the worm terms a
Brad Young: little bit there in terms of the outlook
Brad Young: for this?
Bret Leas: It makes it a giant opportunity. And in
Bret Leas: fact, it's starting to happen. Right? Draghi's on
Bret Leas: the tape saying we need to make changes.
Bret Leas: The ECB is starting to promulgate new rules
Bret Leas: to make securitization more accessible. This allows for
Bret Leas: more cross border lending. This allows for more
Bret Leas: competition. This allows for lower prices and lower
Bret Leas: credit spreads, and that's exactly where they felt
Bret Leas: the need to go. And we're not seeing
Bret Leas: it only in Europe. We're seeing in the
Bret Leas: Middle East. We're seeing in Asia. Anywhere where
Bret Leas: people are having a highly mobile, burgeoning population
Bret Leas: that is well employed, we're starting to see
Bret Leas: asset backed markets grow up because you simply
Bret Leas: can't put all this risk on the bank's
Bret Leas: balance sheet. It needs to be spread in
Bret Leas: the economy to stable long term holders.
Brad Young: What else about the space beyond what you
Brad Young: just articulated globally excites you? What what what
Brad Young: gets you out of bed in the morning
Brad Young: these days?
Bret Leas: Oh my. Well, it's nice to actually have
Bret Leas: our day in the sun. I'm not gonna
Bret Leas: lie. I've been doing this for twenty five
Bret Leas: years. And, you know, for a bunch of
Bret Leas: those, people are like, you do asset backed?
Bret Leas: Seriously? Like, what's that? But it is nice
Bret Leas: to have your day and some but the
Bret Leas: real thing that excites me is the level
Bret Leas: of variety and innovation that we get to
Bret Leas: access every day. And it takes us to
Bret Leas: places that we never thought we would be,
Bret Leas: and therefore, we're learning things. So for example,
Bret Leas: we have a big business financing music royalties
Bret Leas: for a second. I, you know, I don't
Bret Leas: know about you. I enjoy music. Okay. Well,
Bret Leas: now you really get to learn the business.
Bret Leas: You get to, you know, you get to
Bret Leas: help finance artists and songwriters and help them
Bret Leas: monetize their life's work and their life dream.
Bret Leas: We we finance the media contracts for many
Bret Leas: European football clubs. We do player transfers. We
Bret Leas: do these really interesting things all day every
Bret Leas: day, and they allow you to learn these
Bret Leas: businesses, which have these giant holes in funding,
Bret Leas: which are not easy to finance. That really
Bret Leas: keeps me going because I know that the
Bret Leas: technology can be applied far and wide. We
Bret Leas: can apply the technology far and wide. We
Bret Leas: come back to what you said. Do you
Bret Leas: have the discipline to come into it? And
Bret Leas: for the last piece of it, I'm sure
Bret Leas: you've spoken about it with other folks. Right?
Bret Leas: The digital economy is hot. Digital infrastructure, chips,
Bret Leas: content, media, you know, all of it. Well,
Bret Leas: that's coming to asset backed as well because
Bret Leas: most of these things are under long term
Bret Leas: lease, under long term rent, under long term
Bret Leas: contract that makes them tailor made for asset
Bret Leas: backed financing.
Brad Young: It really is remarkable when you phrase it
Brad Young: that way and you put it that way.
Brad Young: It really is kind of everything that we
Brad Young: touch every single day. That was great, Brett.
Brad Young: Great overview of the market, and I certainly
Brad Young: appreciate your enthusiasm for it. We always end
Brad Young: our show. Torsten always ends our show with
Brad Young: a tradition where we give every guest an
Brad Young: opportunity to make a personal recommendation. Could be
Brad Young: a book you're reading, a movie you've seen.
Brad Young: So in other words, what are you into
Brad Young: these days when you're not running our ABF
Brad Young: business?
Bret Leas: Yeah. So I love history. I I said
Bret Leas: history in school, I think it has lots
Bret Leas: and lots to teach us. But most importantly,
Bret Leas: history is about storytelling. And you start to
Bret Leas: look at your daily life differently when you
Bret Leas: read history. So I I recently finished a
Bret Leas: book, which I highly recommend. It's called The
Bret Leas: Brothers. And The Brothers is about the Dulles
Bret Leas: brothers. And the Dulles brothers were Americans in
Bret Leas: the early part of the twentieth century who
Bret Leas: simultaneously were secretary of state and ran the
Bret Leas: CIA, which has never happened since, across multiple
Bret Leas: presidents. And they had tremendous impact in the
Bret Leas: wars we fought both overt and covert in
Bret Leas: many of the institutions we have today in
Bret Leas: building them and founding them and how our
Bret Leas: presidents interact with them. So, obviously, Dulles Airport
Bret Leas: is named after one of them, not named
Bret Leas: after both of them because their last name
Bret Leas: is Dulles, not Dulles is. But the brothers
Bret Leas: would be my top pick.
Brad Young: That's great. That's great. For my recommendation, I'm
Brad Young: gonna go with sports. You love history? I
Brad Young: like history. I love sports. And August is
Brad Young: actually a really good time to be a
Brad Young: sports fan for football in both of its
Brad Young: forms. So I'm a Penn State grad, and
Brad Young: I think they're actually set up to have
Brad Young: their best team in many years here in
Brad Young: twenty twenty five. They should be preseason top
Brad Young: five, and they're gonna be really fun to
Brad Young: watch. So my number one recommendation is watch
Brad Young: the Nittany Lions this fall. My number two
Brad Young: recommendation is football, the soccer version. My sixteen
Brad Young: year old daughter has gotten me hooked on
Brad Young: watching FC Barcelona. Great club. So much fun
Brad Young: to watch. I heard we were talking a
Brad Young: little bit about some asset backed work that
Brad Young: we do in the soccer space in Europe.
Brad Young: Their season is set to start in the
Brad Young: next few days. So other recommendation, watch FC
Brad Young: Barcelona. You will fall in love with soccer
Brad Young: if you don't already. So thanks, Brett. Really
Brad Young: appreciate you being here today for the great
Brad Young: conversation. We will have you back again soon.
Brad Young: The ABF space is only continuing to expand.
Brad Young: We'll always be dynamic, so we'll love to
Brad Young: keep tabs on it with you. Amazing. Thank
Brad Young: you. This podcast was recorded on August seventh
Brad Young: twenty twenty five.
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