1 00:00:02,000 --> 00:00:04,560 [Voiceover] This is the View from Apollo podcast, an 2 00:00:04,560 --> 00:00:08,639 [Voiceover] ongoing conversation on alternative investing, economics, and the 3 00:00:08,639 --> 00:00:10,660 [Voiceover] trends shaping up financial markets. 4 00:00:11,759 --> 00:00:14,455 [Introductory speaker] In two thousand twenty five's turbulent market environment, 5 00:00:14,514 --> 00:00:16,914 [Introductory speaker] one quarter of private credit is enjoying its 6 00:00:16,914 --> 00:00:19,635 [Introductory speaker] moment in the sun, asset backed finance. In 7 00:00:19,635 --> 00:00:21,955 [Introductory speaker] this episode of The View from Apollo, Brett 8 00:00:21,955 --> 00:00:24,535 [Introductory speaker] Lees, Apollo's co head of asset backed finance, 9 00:00:24,835 --> 00:00:27,954 [Introductory speaker] explains how this estimated twenty trillion dollar global 10 00:00:27,954 --> 00:00:28,775 [Introductory speaker] market works. 11 00:00:29,529 --> 00:00:31,449 [Bret Leas] The mortgage on your home, that's a fixed 12 00:00:31,449 --> 00:00:35,370 [Bret Leas] contract that pays something, has credit enhancement, has 13 00:00:35,370 --> 00:00:37,610 [Bret Leas] a tangible asset beneath it. I mean, by 14 00:00:37,610 --> 00:00:40,250 [Bret Leas] creating this and fostering this lending every single 15 00:00:40,250 --> 00:00:42,489 [Bret Leas] day, we help the economy grow and we 16 00:00:42,489 --> 00:00:44,135 [Bret Leas] help people get the access to the credit 17 00:00:44,135 --> 00:00:44,795 [Bret Leas] they need. 18 00:00:45,255 --> 00:00:48,375 [Introductory speaker] In a wide ranging conversation, Brett discusses why 19 00:00:48,375 --> 00:00:50,935 [Introductory speaker] asset backed finance can be resilient in turbulent 20 00:00:50,935 --> 00:00:54,375 [Introductory speaker] times, how new innovations are democratizing access to 21 00:00:54,375 --> 00:00:56,880 [Introductory speaker] the space, and the global growth he expects 22 00:00:57,120 --> 00:01:01,280 [Introductory speaker] as more markets embrace securitization. So without any 23 00:01:01,280 --> 00:01:03,140 [Introductory speaker] further ado, let's get started. 24 00:01:05,680 --> 00:01:08,480 [Brad Young] Hello, everybody. Welcome to another episode of The 25 00:01:08,480 --> 00:01:11,134 [Brad Young] View from Apollo. I'm Brad Young, the head 26 00:01:11,134 --> 00:01:13,935 [Brad Young] of client content strategy in Apollo's client and 27 00:01:13,935 --> 00:01:16,814 [Brad Young] product solutions group. I'm guest hosting this month 28 00:01:16,814 --> 00:01:19,455 [Brad Young] for Torsten Slock, and I know we always 29 00:01:19,455 --> 00:01:21,455 [Brad Young] like hearing from Torsten. I do too. But 30 00:01:21,455 --> 00:01:23,055 [Brad Young] I'm really glad to be here for this 31 00:01:23,055 --> 00:01:25,960 [Brad Young] conversation today. We're gonna talk about the dynamic, 32 00:01:26,100 --> 00:01:29,300 [Brad Young] fast growing asset backed finance market with the 33 00:01:29,300 --> 00:01:30,900 [Brad Young] person who's pretty much been writing the book 34 00:01:30,900 --> 00:01:33,140 [Brad Young] on it here at Apollo. Brett Lees is 35 00:01:33,140 --> 00:01:35,460 [Brad Young] a partner and Apollo's co head of asset 36 00:01:35,460 --> 00:01:37,875 [Brad Young] backed finance. And he's been running the firm's 37 00:01:37,875 --> 00:01:40,775 [Brad Young] asset backed business since two thousand and nine. 38 00:01:41,155 --> 00:01:42,835 [Brad Young] So a lot to talk about today, and 39 00:01:42,835 --> 00:01:44,354 [Brad Young] I'm looking forward to it. So thanks for 40 00:01:44,354 --> 00:01:45,075 [Brad Young] being here, Brett. 41 00:01:45,075 --> 00:01:46,915 [Bret Leas] Oh, Brett, thank you for for having me, 42 00:01:46,915 --> 00:01:48,675 [Bret Leas] and I'm excited to talk about asset backed 43 00:01:48,675 --> 00:01:49,075 [Bret Leas] finance. 44 00:01:49,075 --> 00:01:51,415 [Brad Young] That's great. A little level setting for listeners. 45 00:01:51,590 --> 00:01:53,670 [Brad Young] When we talk about asset backed finance, what 46 00:01:53,670 --> 00:01:53,750 [Brad Young] do 47 00:01:53,750 --> 00:01:56,310 [Bret Leas] we mean, and what exactly is it? Sure. 48 00:01:56,310 --> 00:01:58,550 [Bret Leas] So what we mean by asset backed finance 49 00:01:58,550 --> 00:02:00,230 [Bret Leas] is actually in the name. Right? So you 50 00:02:00,230 --> 00:02:02,170 [Bret Leas] have two ways to invest in this world. 51 00:02:02,310 --> 00:02:03,910 [Bret Leas] You can give your money to companies. You 52 00:02:03,910 --> 00:02:05,750 [Bret Leas] can make a loan or a bond, and 53 00:02:05,750 --> 00:02:08,125 [Bret Leas] you're backed by the operations of that company, 54 00:02:08,425 --> 00:02:10,185 [Bret Leas] the full faith and credit that company, and 55 00:02:10,185 --> 00:02:12,505 [Bret Leas] you rise and fall with that company. Well, 56 00:02:12,505 --> 00:02:15,465 [Bret Leas] asset backed finances is the opposite. You're going 57 00:02:15,465 --> 00:02:17,625 [Bret Leas] to invest back by a pool of things, 58 00:02:17,625 --> 00:02:19,890 [Bret Leas] and those pool of things cash flow, and 59 00:02:19,890 --> 00:02:21,890 [Bret Leas] they self amortize as a function of time. 60 00:02:21,890 --> 00:02:24,530 [Bret Leas] And so that distinction is actually very, very 61 00:02:24,530 --> 00:02:27,090 [Bret Leas] meaningful. And you why it's so meaningful and 62 00:02:27,090 --> 00:02:29,250 [Bret Leas] why people should really care about this is 63 00:02:29,250 --> 00:02:31,329 [Bret Leas] because it's the thing that you touch every 64 00:02:31,329 --> 00:02:34,004 [Bret Leas] day. You know it every day. It's what 65 00:02:34,004 --> 00:02:36,564 [Bret Leas] makes our economy it's what our economy goes 66 00:02:36,564 --> 00:02:38,564 [Bret Leas] around on. So for example, you know, you 67 00:02:38,564 --> 00:02:40,325 [Bret Leas] must live in some sort of dwelling. I 68 00:02:40,325 --> 00:02:41,765 [Bret Leas] have a house. You have a house? That 69 00:02:41,765 --> 00:02:43,605 [Bret Leas] house is probably financed with a mortgage? 70 00:02:43,605 --> 00:02:44,004 [Brad Young] Yes. It 71 00:02:44,004 --> 00:02:46,084 [Bret Leas] is. Okay. Well, that's asset backed finance. The 72 00:02:46,084 --> 00:02:48,345 [Bret Leas] mortgage on your home, that's a fixed contract 73 00:02:48,800 --> 00:02:51,920 [Bret Leas] that pays something, has credit enhancement, has a 74 00:02:51,920 --> 00:02:54,560 [Bret Leas] tangible asset beneath it. That tangible asset can 75 00:02:54,560 --> 00:02:56,720 [Bret Leas] be sold if you default, and there are 76 00:02:56,720 --> 00:02:58,640 [Bret Leas] millions and millions and millions of them. And 77 00:02:58,640 --> 00:03:01,280 [Bret Leas] by creating this and fostering this lending every 78 00:03:01,280 --> 00:03:03,605 [Bret Leas] single day, we help the economy grow, and 79 00:03:03,605 --> 00:03:05,205 [Bret Leas] we help people get the access to the 80 00:03:05,205 --> 00:03:06,105 [Bret Leas] credit they need. 81 00:03:06,245 --> 00:03:08,485 [Brad Young] That's great. And it's actually having a a 82 00:03:08,485 --> 00:03:09,925 [Brad Young] bit of a moment in the sun in 83 00:03:09,925 --> 00:03:11,845 [Brad Young] twenty twenty five and and been going for 84 00:03:11,845 --> 00:03:13,845 [Brad Young] a long time. But so why now for 85 00:03:13,845 --> 00:03:14,340 [Brad Young] ABF? 86 00:03:14,420 --> 00:03:15,940 [Bret Leas] Sure. So this has been around for a 87 00:03:15,940 --> 00:03:18,019 [Bret Leas] very, very long time, but you're right. Now 88 00:03:18,019 --> 00:03:20,420 [Bret Leas] it's the hot dot. Right? Like, everybody's talking 89 00:03:20,420 --> 00:03:22,819 [Bret Leas] about it. Asset backed finance, asset backed asset 90 00:03:22,819 --> 00:03:24,819 [Bret Leas] backed finance. And so the the the real 91 00:03:24,819 --> 00:03:27,635 [Bret Leas] reason is is twofold. Right? One is there's 92 00:03:27,635 --> 00:03:30,515 [Bret Leas] this big move among companies, you know, big 93 00:03:30,515 --> 00:03:33,635 [Bret Leas] and small to start shedding assets. They're finding 94 00:03:33,635 --> 00:03:35,875 [Bret Leas] that they run a more balance sheet light 95 00:03:35,875 --> 00:03:39,010 [Bret Leas] model. Right? Their valuation goes up, I e 96 00:03:39,010 --> 00:03:41,490 [Bret Leas] the equity markets are rewarding it. And those 97 00:03:41,490 --> 00:03:43,570 [Bret Leas] could be private equity markets or or public 98 00:03:43,570 --> 00:03:45,810 [Bret Leas] equity markets. And so they need buyers for 99 00:03:45,810 --> 00:03:47,490 [Bret Leas] these receivables they create, but they have to 100 00:03:47,490 --> 00:03:49,570 [Bret Leas] keep creating these things because that's part of 101 00:03:49,570 --> 00:03:52,595 [Bret Leas] their business. That's kinda step one. Step two, 102 00:03:52,655 --> 00:03:55,375 [Bret Leas] the stability of capital that has come with 103 00:03:55,375 --> 00:03:58,335 [Bret Leas] the private debt revolution has made people much 104 00:03:58,335 --> 00:04:01,475 [Bret Leas] better investors thinking long term, thinking about illiquidity 105 00:04:01,695 --> 00:04:05,280 [Bret Leas] premium, thinking about complexity premium. And so capital 106 00:04:05,280 --> 00:04:07,200 [Bret Leas] is finding its way to this market as 107 00:04:07,200 --> 00:04:09,200 [Bret Leas] well where you're matching up people who might 108 00:04:09,200 --> 00:04:12,340 [Bret Leas] be overweight, certain other types of of risk. 109 00:04:12,480 --> 00:04:14,980 [Bret Leas] And then third is there's been significant regulatory 110 00:04:15,040 --> 00:04:16,800 [Bret Leas] change that has occurred, not just at the 111 00:04:16,800 --> 00:04:19,120 [Bret Leas] banks, but also on a global basis where 112 00:04:19,120 --> 00:04:21,735 [Bret Leas] people have a vested interest adding more credit 113 00:04:21,735 --> 00:04:24,135 [Bret Leas] into their economy. And this market, by spreading 114 00:04:24,135 --> 00:04:26,535 [Bret Leas] the risk across a number of investors, is 115 00:04:26,535 --> 00:04:28,295 [Bret Leas] helping that all grow. And so as people 116 00:04:28,295 --> 00:04:29,975 [Bret Leas] spend more money and they buy more things 117 00:04:29,975 --> 00:04:32,135 [Bret Leas] and companies create more things, they need a 118 00:04:32,135 --> 00:04:34,295 [Bret Leas] broad and diffuse way to to finance it. 119 00:04:34,295 --> 00:04:36,390 [Bret Leas] The asset backed market solves that problem. 120 00:04:36,550 --> 00:04:39,270 [Brad Young] That's great. And you brought something there that 121 00:04:39,270 --> 00:04:40,630 [Brad Young] I wanted to touch on a little bit 122 00:04:40,630 --> 00:04:43,670 [Brad Young] more deeply, the regulatory environment. So as I 123 00:04:43,670 --> 00:04:46,310 [Brad Young] said at the outset, you started at Apollo 124 00:04:46,310 --> 00:04:48,150 [Brad Young] in asset backed finance in two thousand nine. 125 00:04:48,150 --> 00:04:49,670 [Brad Young] I believe it was June of two thousand 126 00:04:49,670 --> 00:04:51,855 [Brad Young] and nine. Yeah. So the world was a 127 00:04:51,855 --> 00:04:53,695 [Brad Young] pretty different place in June of two thousand 128 00:04:53,695 --> 00:04:55,235 [Brad Young] and nine, and a lot of the regulatory 129 00:04:55,375 --> 00:04:57,455 [Brad Young] environment that we have around this space was 130 00:04:57,455 --> 00:04:59,695 [Brad Young] actually set around the global financial crisis at 131 00:04:59,695 --> 00:05:02,655 [Brad Young] that time. So what was it like starting 132 00:05:02,655 --> 00:05:04,530 [Brad Young] this business in two thousand and nine? 133 00:05:04,610 --> 00:05:06,130 [Bret Leas] It was an amazing time to start a 134 00:05:06,130 --> 00:05:08,290 [Bret Leas] business because we had something very special here 135 00:05:08,290 --> 00:05:10,290 [Bret Leas] at Apollo. We had a clean balance sheet. 136 00:05:10,290 --> 00:05:12,530 [Bret Leas] We didn't own legacy issues. We didn't have 137 00:05:12,530 --> 00:05:14,610 [Bret Leas] problems with things that had gone from a 138 00:05:14,610 --> 00:05:16,850 [Bret Leas] hundred cents to to to fifty cents on 139 00:05:16,850 --> 00:05:18,295 [Bret Leas] a dollar. And so what you could do 140 00:05:18,295 --> 00:05:20,215 [Bret Leas] is you could sift through all that was 141 00:05:20,215 --> 00:05:22,535 [Bret Leas] out there, and you could separate fear from 142 00:05:22,535 --> 00:05:24,935 [Bret Leas] fact. You could decide what was good, what 143 00:05:24,935 --> 00:05:26,775 [Bret Leas] was cheap, and you could buy things from 144 00:05:26,775 --> 00:05:29,415 [Bret Leas] people who might be for sellers. At the 145 00:05:29,415 --> 00:05:31,735 [Bret Leas] same time, the regulators were clamping down on 146 00:05:31,735 --> 00:05:34,199 [Bret Leas] the banks. They were clamping down on cheap 147 00:05:34,199 --> 00:05:36,699 [Bret Leas] pools of capital and highly lever pools of 148 00:05:36,919 --> 00:05:38,599 [Bret Leas] capital. And so what you were doing is 149 00:05:38,599 --> 00:05:40,759 [Bret Leas] now you were providing much needed liquidity to 150 00:05:40,759 --> 00:05:44,199 [Bret Leas] the market. Now, unfortunately, you were just coming 151 00:05:44,199 --> 00:05:45,879 [Bret Leas] off a time of very high innovation in 152 00:05:45,879 --> 00:05:47,915 [Bret Leas] the mid two thousands to a time of 153 00:05:47,915 --> 00:05:51,195 [Bret Leas] low innovation. So products got simpler. They got 154 00:05:51,195 --> 00:05:54,155 [Bret Leas] easier to understand. They were delevered. They were 155 00:05:54,155 --> 00:05:56,395 [Bret Leas] cheap. So it was an amazing time to 156 00:05:56,395 --> 00:05:58,555 [Bret Leas] start a business because then as the markets 157 00:05:58,555 --> 00:06:01,290 [Bret Leas] restarted, as people started doing things again, as 158 00:06:01,290 --> 00:06:05,130 [Bret Leas] lending got unstuck and unfroze, right, you now 159 00:06:05,130 --> 00:06:08,330 [Bret Leas] had built in that that infrastructure. You've built 160 00:06:08,330 --> 00:06:10,090 [Bret Leas] in that expertise, and you were ahead of 161 00:06:10,090 --> 00:06:10,750 [Bret Leas] the game. 162 00:06:11,290 --> 00:06:15,105 [Brad Young] So now, sixteen years later, did you have 163 00:06:15,105 --> 00:06:17,665 [Brad Young] any sense that the market would be where 164 00:06:17,665 --> 00:06:20,225 [Brad Young] it is today or where it's projected to 165 00:06:20,225 --> 00:06:22,305 [Brad Young] go? Our estimates have it at about a 166 00:06:22,305 --> 00:06:24,945 [Brad Young] twenty trillion dollar global market. Could you 167 00:06:24,945 --> 00:06:26,865 [Bret Leas] have imagined then that we would be where 168 00:06:26,865 --> 00:06:28,385 [Bret Leas] we are today or where we expect to 169 00:06:28,385 --> 00:06:31,610 [Bret Leas] go? No. It's just not a chance. So 170 00:06:31,610 --> 00:06:33,130 [Bret Leas] we knew that the market would come back, 171 00:06:33,130 --> 00:06:34,410 [Bret Leas] and and the reason we knew it would 172 00:06:34,410 --> 00:06:36,810 [Bret Leas] come back is because it's necessary. Right? And 173 00:06:36,810 --> 00:06:38,890 [Bret Leas] and the you know, you'll say, oh, well, 174 00:06:38,890 --> 00:06:40,410 [Bret Leas] Brett, like, why, you know, why are you 175 00:06:40,410 --> 00:06:42,555 [Bret Leas] sure why Why would you think something's necessary? 176 00:06:42,615 --> 00:06:44,855 [Bret Leas] Well, if you close your eyes, right, imagine 177 00:06:44,855 --> 00:06:46,455 [Bret Leas] you go into a Ford dealership and you 178 00:06:46,455 --> 00:06:48,615 [Bret Leas] wanna buy a new car. You're not thinking 179 00:06:48,615 --> 00:06:50,375 [Bret Leas] about how you pay for that car. You're 180 00:06:50,375 --> 00:06:52,855 [Bret Leas] thinking, what's my payment going to be? Well, 181 00:06:52,855 --> 00:06:54,535 [Bret Leas] imagine a world where you walk in and 182 00:06:54,535 --> 00:06:56,315 [Bret Leas] you have to buy that car for cash. 183 00:06:56,849 --> 00:06:58,530 [Bret Leas] Imagine a world where you reach into your 184 00:06:58,530 --> 00:07:01,270 [Bret Leas] wallet and there are no credit cards there. 185 00:07:01,330 --> 00:07:04,849 [Bret Leas] Right? Imagine a world where you go home, 186 00:07:04,849 --> 00:07:06,930 [Bret Leas] you turn on the television, and there's no 187 00:07:06,930 --> 00:07:09,835 [Bret Leas] content to view. Right? Because nobody will finance 188 00:07:09,835 --> 00:07:11,275 [Bret Leas] the royalties that need to be paid for 189 00:07:11,275 --> 00:07:13,835 [Bret Leas] all these people. Nobody will finance production. That's 190 00:07:13,835 --> 00:07:15,675 [Bret Leas] the world we live in without asset backed 191 00:07:15,675 --> 00:07:17,915 [Bret Leas] finance. Now our government, in all of its 192 00:07:17,915 --> 00:07:20,574 [Bret Leas] wisdom, actually realized this during the financial crisis, 193 00:07:20,810 --> 00:07:22,730 [Bret Leas] and they also realized this during COVID. They 194 00:07:22,730 --> 00:07:25,930 [Bret Leas] set up programs to restart this market once 195 00:07:25,930 --> 00:07:28,410 [Bret Leas] it froze. And so they realized that the 196 00:07:28,410 --> 00:07:31,550 [Bret Leas] free flow of credit to consumers, small businesses, 197 00:07:31,610 --> 00:07:34,895 [Bret Leas] big businesses, banks, finance companies, like, is so 198 00:07:35,035 --> 00:07:37,515 [Bret Leas] necessary to what we do as economy that 199 00:07:37,515 --> 00:07:39,755 [Bret Leas] this market needs to exist. The question is 200 00:07:39,755 --> 00:07:41,595 [Bret Leas] just what's the size and scale. And the 201 00:07:41,595 --> 00:07:44,795 [Bret Leas] size and scale have now grown along with 202 00:07:44,795 --> 00:07:48,009 [Bret Leas] our GDP, along with our economy, along with 203 00:07:48,009 --> 00:07:49,530 [Bret Leas] the the the value of all of our 204 00:07:49,530 --> 00:07:52,169 [Bret Leas] assets has grown immeasurably, and it's not going 205 00:07:52,169 --> 00:07:54,729 [Bret Leas] to stop growing. So twenty trillion, I think, 206 00:07:54,729 --> 00:07:56,430 [Bret Leas] happily, is just the start. 207 00:07:57,289 --> 00:07:58,729 [Brad Young] So that's a great look back and a 208 00:07:58,729 --> 00:08:00,255 [Brad Young] great look at the journey to get us 209 00:08:00,255 --> 00:08:01,655 [Brad Young] to where we are today. But let's shift 210 00:08:01,655 --> 00:08:03,615 [Brad Young] a little bit to the current landscape. Pretty 211 00:08:03,615 --> 00:08:05,795 [Brad Young] much nobody roots for chaos in the markets, 212 00:08:05,855 --> 00:08:08,015 [Brad Young] and you and your team don't certainly. But 213 00:08:08,015 --> 00:08:09,935 [Brad Young] you're prepared for times like we've seen so 214 00:08:09,935 --> 00:08:12,495 [Brad Young] far in twenty twenty five. Such a volatile 215 00:08:12,495 --> 00:08:15,295 [Brad Young] year in the markets. Why is ABF so 216 00:08:15,295 --> 00:08:17,990 [Brad Young] well suited and well positioned for these kinds 217 00:08:17,990 --> 00:08:19,669 [Brad Young] of environments like we've seen so far this 218 00:08:19,669 --> 00:08:20,169 [Brad Young] year? 219 00:08:20,310 --> 00:08:22,150 [Bret Leas] Yeah. So it has a couple of features 220 00:08:22,150 --> 00:08:23,910 [Bret Leas] which are great in environments like this. So 221 00:08:23,910 --> 00:08:26,169 [Bret Leas] first, if you're backed by a harder tangible 222 00:08:26,229 --> 00:08:28,150 [Bret Leas] asset and you enter an environment that is 223 00:08:28,150 --> 00:08:30,634 [Bret Leas] inflationary, Right? The value of your assets are 224 00:08:30,634 --> 00:08:32,315 [Bret Leas] going up. The value of your collateral is 225 00:08:32,315 --> 00:08:35,435 [Bret Leas] increasing, which helps protect your land. Right? Costs 226 00:08:35,435 --> 00:08:37,195 [Bret Leas] aren't going up, but the value of your 227 00:08:37,195 --> 00:08:39,595 [Bret Leas] assets go up. The second is these assets 228 00:08:39,595 --> 00:08:42,660 [Bret Leas] are actually contractually paying you something, and they're 229 00:08:42,660 --> 00:08:45,380 [Bret Leas] self amortizing. So I'm not relying upon going 230 00:08:45,380 --> 00:08:48,100 [Bret Leas] back into the market to refinance something. I'm 231 00:08:48,100 --> 00:08:50,420 [Bret Leas] not taking refinancing risk in in the market. 232 00:08:50,420 --> 00:08:52,420 [Bret Leas] I actually know what I'm doing here in 233 00:08:52,420 --> 00:08:54,820 [Bret Leas] terms of of tenure. Third is the assets 234 00:08:54,820 --> 00:08:57,060 [Bret Leas] themselves are generally short. Most of the assets 235 00:08:57,060 --> 00:08:59,155 [Bret Leas] are three to five year assets. So that 236 00:08:59,155 --> 00:09:02,355 [Bret Leas] means, shortening my timeline. And so the amount 237 00:09:02,355 --> 00:09:03,795 [Bret Leas] of time I'm giving for the event to 238 00:09:03,795 --> 00:09:06,675 [Bret Leas] go long is also short. But finally, these 239 00:09:06,675 --> 00:09:10,035 [Bret Leas] are all held in a dumb box. And 240 00:09:10,035 --> 00:09:12,470 [Bret Leas] I say that, you know, not lightly. In 241 00:09:12,470 --> 00:09:15,190 [Bret Leas] other words, it's a rules based system once 242 00:09:15,190 --> 00:09:17,930 [Bret Leas] you own it, self advertising. There's a preset 243 00:09:17,990 --> 00:09:19,670 [Bret Leas] amount of rules for what it can do. 244 00:09:19,670 --> 00:09:21,350 [Bret Leas] It's not like when I give my money 245 00:09:21,350 --> 00:09:23,350 [Bret Leas] to a company and management can go off 246 00:09:23,350 --> 00:09:25,190 [Bret Leas] and do r and d and moonshots and 247 00:09:25,190 --> 00:09:27,634 [Bret Leas] build new corporate headquarters or build rockets or 248 00:09:27,634 --> 00:09:29,394 [Bret Leas] do whatever they're gonna do, which may or 249 00:09:29,394 --> 00:09:31,314 [Bret Leas] may not pan out because they're investing in 250 00:09:31,314 --> 00:09:34,375 [Bret Leas] enterprise value. Right? I know what I own. 251 00:09:34,915 --> 00:09:36,995 [Bret Leas] I know how it behaves. I know what 252 00:09:36,995 --> 00:09:38,675 [Bret Leas] my collateral is. If it doesn't do what 253 00:09:38,675 --> 00:09:40,530 [Bret Leas] we want, we can seize it, sell it, 254 00:09:40,770 --> 00:09:42,610 [Bret Leas] and liquidate it, and that gives us this 255 00:09:42,610 --> 00:09:45,490 [Bret Leas] nice modicum of control in more chaotic environments 256 00:09:45,490 --> 00:09:48,610 [Bret Leas] that actually has more value. Now it's possible 257 00:09:48,610 --> 00:09:50,530 [Bret Leas] that, you know, what we thought may happen 258 00:09:50,530 --> 00:09:53,090 [Bret Leas] could be worse. Right? But we have, in 259 00:09:53,090 --> 00:09:56,285 [Bret Leas] most cases, good credit enhancement. And when you 260 00:09:56,285 --> 00:09:58,045 [Bret Leas] have good credit enhancement, you have a nice 261 00:09:58,045 --> 00:09:59,265 [Bret Leas] amount of cushion too. 262 00:10:00,605 --> 00:10:02,925 [Brad Young] And talk a little bit about the role 263 00:10:02,925 --> 00:10:05,325 [Brad Young] for direct lending and asset backed in the 264 00:10:05,325 --> 00:10:07,565 [Brad Young] portfolio together because there might be a perception 265 00:10:07,565 --> 00:10:09,010 [Brad Young] of, like, do I need both? Like, talk 266 00:10:09,010 --> 00:10:10,450 [Brad Young] a little bit if you could about how 267 00:10:10,450 --> 00:10:12,930 [Brad Young] they work together in a portfolio. So we 268 00:10:12,930 --> 00:10:13,570 [Brad Young] tend to think of 269 00:10:13,570 --> 00:10:15,810 [Bret Leas] the world sometimes in this either or construct, 270 00:10:15,810 --> 00:10:17,410 [Bret Leas] right, or a zero sum. If I do 271 00:10:17,410 --> 00:10:19,410 [Bret Leas] this, I shouldn't be doing that. But the 272 00:10:19,410 --> 00:10:21,649 [Bret Leas] fact is, right, portfolios work well on the 273 00:10:21,649 --> 00:10:25,415 [Bret Leas] concept of diversification. Right? There is absolutely nothing 274 00:10:25,415 --> 00:10:27,415 [Bret Leas] wrong with private credit when done right. There's 275 00:10:27,415 --> 00:10:30,055 [Bret Leas] absolutely nothing wrong with with asset backed finance 276 00:10:30,055 --> 00:10:32,295 [Bret Leas] when done right. But when we think about 277 00:10:32,295 --> 00:10:34,935 [Bret Leas] investors out there, big and small, they've been 278 00:10:34,935 --> 00:10:37,495 [Bret Leas] moving toward private credit for the better part 279 00:10:37,495 --> 00:10:39,570 [Bret Leas] of a decade. Well, now they're making the 280 00:10:39,570 --> 00:10:41,490 [Bret Leas] same bet over and over and over again. 281 00:10:41,490 --> 00:10:43,570 [Bret Leas] Right? And so you're fairly weight something, but 282 00:10:43,570 --> 00:10:46,930 [Bret Leas] you're completely underweight asset backed finance. So what's 283 00:10:46,930 --> 00:10:49,010 [Bret Leas] happening now is you're taking yourself out of 284 00:10:49,010 --> 00:10:50,850 [Bret Leas] balance. It's like walking through the world with 285 00:10:50,850 --> 00:10:53,965 [Bret Leas] one eye closed. Direct lending market's two trillion 286 00:10:53,965 --> 00:10:56,525 [Bret Leas] dollars, three trillion dollars. Asset back market is 287 00:10:56,525 --> 00:10:58,445 [Bret Leas] twenty trillion and and growing. So why would 288 00:10:58,445 --> 00:11:01,025 [Bret Leas] you ignore such a very, very large market? 289 00:11:01,085 --> 00:11:02,685 [Bret Leas] That's kind of the first piece. And the 290 00:11:02,685 --> 00:11:05,565 [Bret Leas] second piece is it's also diversification of cash 291 00:11:05,565 --> 00:11:08,130 [Bret Leas] flow. Right? You can tell your durations. It's 292 00:11:08,130 --> 00:11:10,690 [Bret Leas] not easily indexed or levered, and so it 293 00:11:10,690 --> 00:11:12,850 [Bret Leas] offers an excess premium yield. And for us 294 00:11:12,850 --> 00:11:14,850 [Bret Leas] in particular, we like to go up in 295 00:11:14,850 --> 00:11:17,250 [Bret Leas] credit into the investment grade space. You can 296 00:11:17,250 --> 00:11:20,115 [Bret Leas] still earn a very healthy return by moving 297 00:11:20,115 --> 00:11:21,875 [Bret Leas] up in credit. So not only you create 298 00:11:21,875 --> 00:11:23,875 [Bret Leas] a balance in your portfolio and asset type 299 00:11:23,875 --> 00:11:26,035 [Bret Leas] and cash flow, but now you're also changing 300 00:11:26,035 --> 00:11:27,895 [Bret Leas] your risk profile some as well. 301 00:11:28,035 --> 00:11:30,115 [Brad Young] That's great. And that actually speaks a little 302 00:11:30,115 --> 00:11:32,339 [Brad Young] bit, I think, to the flexibility and number 303 00:11:32,339 --> 00:11:34,660 [Brad Young] of options you have as you make investment 304 00:11:34,660 --> 00:11:36,820 [Brad Young] decisions in the asset backed space. A lot 305 00:11:36,820 --> 00:11:38,260 [Brad Young] of arrows in the quiver, it seems like, 306 00:11:38,260 --> 00:11:39,860 [Brad Young] as you're making these decisions. Can you talk 307 00:11:39,860 --> 00:11:41,779 [Brad Young] a little bit about how those options have 308 00:11:41,779 --> 00:11:43,220 [Brad Young] changed over the years and how you and 309 00:11:43,220 --> 00:11:45,140 [Brad Young] your team sort of think about what's available 310 00:11:45,140 --> 00:11:46,815 [Brad Young] to you and how you activate those different 311 00:11:46,815 --> 00:11:48,195 [Brad Young] things on behalf of investors. 312 00:11:48,415 --> 00:11:50,175 [Bret Leas] We sure can. So when you think about 313 00:11:50,175 --> 00:11:52,575 [Bret Leas] asset backed finance, the keyword is assets. Right? 314 00:11:52,575 --> 00:11:55,055 [Bret Leas] So everything begins and ends with the asset. 315 00:11:55,055 --> 00:11:56,895 [Bret Leas] How well do you know the asset? Do 316 00:11:56,895 --> 00:11:58,495 [Bret Leas] you create the asset for a living? Do 317 00:11:58,495 --> 00:12:00,279 [Bret Leas] you service the asset for a living? Do 318 00:12:00,279 --> 00:12:02,040 [Bret Leas] you work through the asset for a living? 319 00:12:02,040 --> 00:12:03,960 [Bret Leas] Or are you just a financial investor on 320 00:12:03,960 --> 00:12:06,200 [Bret Leas] the sideline? We like to bring ourselves as 321 00:12:06,200 --> 00:12:08,360 [Bret Leas] close to the asset as humanly possible. In 322 00:12:08,360 --> 00:12:10,680 [Bret Leas] fact, the more you can create the risk 323 00:12:10,680 --> 00:12:13,080 [Bret Leas] yourself, the better investor you are all across 324 00:12:13,080 --> 00:12:15,324 [Bret Leas] the world. And so though those arrows that 325 00:12:15,324 --> 00:12:17,245 [Bret Leas] you mentioned then take it where you say, 326 00:12:17,245 --> 00:12:19,805 [Bret Leas] okay. The simplest form of accessing something is 327 00:12:19,805 --> 00:12:21,644 [Bret Leas] to buy a bond. But what if I 328 00:12:21,644 --> 00:12:23,404 [Bret Leas] could do anything? What if I could buy 329 00:12:23,404 --> 00:12:25,485 [Bret Leas] the whole loans? What if I could make 330 00:12:25,485 --> 00:12:27,690 [Bret Leas] the loans myself? What if I could provide 331 00:12:27,690 --> 00:12:30,410 [Bret Leas] a warehouse, an accumulation facility for other people 332 00:12:30,410 --> 00:12:32,010 [Bret Leas] to do? What if I could do a 333 00:12:32,010 --> 00:12:33,930 [Bret Leas] public bond, a private bond? What if I 334 00:12:33,930 --> 00:12:35,690 [Bret Leas] could own the company? What if I could 335 00:12:35,690 --> 00:12:38,250 [Bret Leas] own just the residuals? You can do anything 336 00:12:38,250 --> 00:12:40,855 [Bret Leas] you want, and the form is not the 337 00:12:40,855 --> 00:12:43,415 [Bret Leas] limiter. It's the expertise on the asset. Once 338 00:12:43,415 --> 00:12:45,415 [Bret Leas] you know the asset, you go to the 339 00:12:45,415 --> 00:12:48,235 [Bret Leas] cheapest to deliver way to to access this, 340 00:12:48,375 --> 00:12:50,775 [Bret Leas] and that's the business that we've built. Right? 341 00:12:50,775 --> 00:12:52,615 [Bret Leas] It's finding the risk we like and then 342 00:12:52,615 --> 00:12:54,529 [Bret Leas] going to get it in the cheapest form 343 00:12:54,529 --> 00:12:58,010 [Bret Leas] you can. Very few markets offer that level 344 00:12:58,010 --> 00:12:59,830 [Bret Leas] of flexibility of access point. 345 00:13:00,130 --> 00:13:02,790 [Brad Young] With flexibility, though, also has to come discipline. 346 00:13:03,330 --> 00:13:05,250 [Brad Young] You have to be really disciplined about what 347 00:13:05,250 --> 00:13:07,965 [Brad Young] opportunities you are taking advantage of. There's a 348 00:13:07,965 --> 00:13:09,565 [Brad Young] lot you can choose from. So how do 349 00:13:09,565 --> 00:13:10,925 [Brad Young] you get it to sort of the discipline 350 00:13:10,925 --> 00:13:11,405 [Brad Young] side of that? 351 00:13:11,405 --> 00:13:13,645 [Bret Leas] Yeah. Like, we're professional hunters. Right? We're out 352 00:13:13,645 --> 00:13:15,645 [Bret Leas] there turning over rocks every day. We're at 353 00:13:15,645 --> 00:13:19,370 [Bret Leas] the bizarre kicking tires. All we do, right, 354 00:13:19,370 --> 00:13:21,450 [Bret Leas] all the time is we test and retest 355 00:13:21,450 --> 00:13:23,450 [Bret Leas] and test and retest. And so the way 356 00:13:23,450 --> 00:13:25,850 [Bret Leas] you build discipline, right, is you start by 357 00:13:25,850 --> 00:13:27,610 [Bret Leas] doing what I mentioned earlier is you get 358 00:13:27,610 --> 00:13:29,610 [Bret Leas] yourself close to the asset. You know how 359 00:13:29,610 --> 00:13:31,370 [Bret Leas] it behaves when you create it. You know 360 00:13:31,370 --> 00:13:33,495 [Bret Leas] what customer you're facing. You know how it 361 00:13:33,495 --> 00:13:35,975 [Bret Leas] behaves when things go wrong. You know the 362 00:13:35,975 --> 00:13:38,135 [Bret Leas] legal's ins and out. You know the asset. 363 00:13:38,135 --> 00:13:41,035 [Bret Leas] You actually become the expert, not by reading, 364 00:13:41,175 --> 00:13:43,175 [Bret Leas] but by doing. Right? That's the first step. 365 00:13:43,175 --> 00:13:45,255 [Bret Leas] The second step is you build your own 366 00:13:45,255 --> 00:13:48,120 [Bret Leas] quantitative and structuring tools. And then you use 367 00:13:48,120 --> 00:13:50,600 [Bret Leas] those to test and retest because there's a 368 00:13:50,600 --> 00:13:52,680 [Bret Leas] wealth of data out there. There's decades and 369 00:13:52,680 --> 00:13:55,800 [Bret Leas] decades and decades of data on mortgages and 370 00:13:55,800 --> 00:13:58,680 [Bret Leas] consumer loans and commercial loans alike where you 371 00:13:58,680 --> 00:14:00,600 [Bret Leas] can go back and you can isolate the 372 00:14:00,600 --> 00:14:03,695 [Bret Leas] variables that affect performance, and then you create 373 00:14:03,695 --> 00:14:06,275 [Bret Leas] models, and then you validate those models constantly 374 00:14:06,655 --> 00:14:09,055 [Bret Leas] using new information that you're getting all the 375 00:14:09,055 --> 00:14:13,215 [Bret Leas] time. That makes us smarter investor. Not everybody 376 00:14:13,215 --> 00:14:15,295 [Bret Leas] can do that though because that requires a 377 00:14:15,295 --> 00:14:18,760 [Bret Leas] huge team. It requires centralized resourcing. It it 378 00:14:18,760 --> 00:14:21,480 [Bret Leas] requires a big investment in tech. It requires 379 00:14:21,480 --> 00:14:23,480 [Bret Leas] a very large business to spread all that 380 00:14:23,480 --> 00:14:26,920 [Bret Leas] across. If you're focused narrow, right, you're not 381 00:14:26,920 --> 00:14:28,520 [Bret Leas] gonna be able to build that level of 382 00:14:28,520 --> 00:14:31,435 [Bret Leas] expertise to exactly what you said. And discipline 383 00:14:31,435 --> 00:14:34,634 [Bret Leas] also means that if it's not there, it's 384 00:14:34,634 --> 00:14:36,714 [Bret Leas] okay to let whole asset classes with an 385 00:14:36,714 --> 00:14:40,334 [Bret Leas] asset back lie dormant until it is there. 386 00:14:40,394 --> 00:14:42,074 [Bret Leas] So you're right. It's not always gonna be 387 00:14:42,074 --> 00:14:44,175 [Bret Leas] a good time to buy something. That's okay. 388 00:14:45,980 --> 00:14:48,060 [Brad Young] If you look at your time here, a 389 00:14:48,060 --> 00:14:49,899 [Brad Young] lot of focus has clearly been on the 390 00:14:49,899 --> 00:14:52,699 [Brad Young] institutional space. We're also now really focused on 391 00:14:52,699 --> 00:14:55,180 [Brad Young] the wealth space and the individual investor. As 392 00:14:55,180 --> 00:14:57,645 [Brad Young] you look at asset backed for wealth, how 393 00:14:57,645 --> 00:14:59,245 [Brad Young] do you think about that, and how has 394 00:14:59,245 --> 00:15:01,245 [Brad Young] it had to sort of evolve to meet 395 00:15:01,245 --> 00:15:02,545 [Brad Young] the individual investor? 396 00:15:03,005 --> 00:15:06,925 [Bret Leas] So individual investors understand asset backed very, very 397 00:15:06,925 --> 00:15:08,845 [Bret Leas] intuitively because it's it's how you and I 398 00:15:08,845 --> 00:15:10,540 [Bret Leas] started. From when you wake up in the 399 00:15:10,540 --> 00:15:12,300 [Bret Leas] morning till you go to sleep, you're touching 400 00:15:12,300 --> 00:15:14,220 [Bret Leas] it. You're in your car. You're listening to 401 00:15:14,220 --> 00:15:16,860 [Bret Leas] music. You're using your gym membership. Maybe you 402 00:15:16,860 --> 00:15:18,459 [Bret Leas] took an airplane to go on a trip. 403 00:15:18,459 --> 00:15:20,540 [Bret Leas] You stay in the hotel. You know this 404 00:15:20,540 --> 00:15:22,834 [Bret Leas] market, but you don't think about it. Right? 405 00:15:22,834 --> 00:15:25,475 [Bret Leas] It operates that well that you never have 406 00:15:25,475 --> 00:15:27,575 [Bret Leas] to think about it. When you get the 407 00:15:27,714 --> 00:15:30,195 [Bret Leas] moment that, oh my, this thing's there, and 408 00:15:30,195 --> 00:15:32,355 [Bret Leas] I use it every day, you kinda have 409 00:15:32,355 --> 00:15:34,755 [Bret Leas] that Warren Buffett example, that moment where you're 410 00:15:34,755 --> 00:15:36,595 [Bret Leas] like, oh, man. Why don't I invest in 411 00:15:36,595 --> 00:15:39,069 [Bret Leas] what I know? But nobody's ever brought it 412 00:15:39,069 --> 00:15:41,389 [Bret Leas] to me before, and nobody's ever brought it 413 00:15:41,389 --> 00:15:42,829 [Bret Leas] to me where I don't have to make 414 00:15:42,829 --> 00:15:45,470 [Bret Leas] the decision, where they say, I'm gonna do 415 00:15:45,470 --> 00:15:46,990 [Bret Leas] the hard work for you. Right? I'm gonna 416 00:15:46,990 --> 00:15:48,829 [Bret Leas] give you a broad based exposure of this 417 00:15:48,829 --> 00:15:52,745 [Bret Leas] globally. Now that's required some education. Right? That's 418 00:15:52,745 --> 00:15:55,545 [Bret Leas] required some fighting against some narratives out there 419 00:15:55,545 --> 00:15:58,745 [Bret Leas] that exist. But the investor now realizes that 420 00:15:58,745 --> 00:16:00,584 [Bret Leas] this thing's been closed to them, that it 421 00:16:00,584 --> 00:16:03,910 [Bret Leas] wasn't available. Now that it is, they're seizing 422 00:16:03,910 --> 00:16:04,570 [Bret Leas] the moment. 423 00:16:05,510 --> 00:16:08,230 [Brad Young] We've talked about asset backed as sort of 424 00:16:08,230 --> 00:16:11,030 [Brad Young] the next evolution of a private credit. That's 425 00:16:11,030 --> 00:16:13,830 [Brad Young] out of some language that we use. What 426 00:16:13,830 --> 00:16:16,550 [Brad Young] innovations do you see coming to the space, 427 00:16:16,550 --> 00:16:19,514 [Brad Young] particularly for the wealth audience and their ability 428 00:16:19,514 --> 00:16:21,535 [Brad Young] to access the asset class? 429 00:16:21,595 --> 00:16:24,475 [Bret Leas] We see increasing levels of liquidity. Right? So 430 00:16:24,475 --> 00:16:27,435 [Bret Leas] evergreen funds and increasing levels of liquidity make 431 00:16:27,435 --> 00:16:29,355 [Bret Leas] the ability for the wealth investor to vote, 432 00:16:29,355 --> 00:16:31,035 [Bret Leas] you know, with their wallet, but also have 433 00:16:31,035 --> 00:16:33,460 [Bret Leas] their money in the ground quickly. We see 434 00:16:33,460 --> 00:16:36,180 [Bret Leas] different levels of risk return points where, you 435 00:16:36,180 --> 00:16:38,500 [Bret Leas] know, it's very rare, in my opinion, for 436 00:16:38,500 --> 00:16:40,420 [Bret Leas] the wealth investor to go into, like, very, 437 00:16:40,420 --> 00:16:43,060 [Bret Leas] very risky asset back. Right? They're gonna stay 438 00:16:43,060 --> 00:16:44,740 [Bret Leas] on the safer end of the equation. So 439 00:16:44,740 --> 00:16:47,324 [Bret Leas] it's much more like a fixed income instrument. 440 00:16:47,324 --> 00:16:49,824 [Bret Leas] They're gonna get away from really long duration 441 00:16:50,125 --> 00:16:52,204 [Bret Leas] where they're taking a lot of interest rate 442 00:16:52,204 --> 00:16:54,685 [Bret Leas] risk. And so it's tailored to somebody who's 443 00:16:54,685 --> 00:16:58,524 [Bret Leas] really looking for income and diversification. Right? The 444 00:16:58,524 --> 00:17:00,860 [Bret Leas] second is it allows them to then break 445 00:17:00,860 --> 00:17:03,500 [Bret Leas] into a place that was really wholly closed 446 00:17:03,500 --> 00:17:05,740 [Bret Leas] to them. You know? There is very little 447 00:17:05,740 --> 00:17:07,900 [Bret Leas] what I'll call public asset backed out there. 448 00:17:07,900 --> 00:17:09,820 [Bret Leas] The vast, vast majority of this market is 449 00:17:09,820 --> 00:17:12,380 [Bret Leas] private. And in particular for things like whole 450 00:17:12,380 --> 00:17:15,425 [Bret Leas] loans and warehousing, it is completely inaccessible to 451 00:17:15,425 --> 00:17:17,265 [Bret Leas] them. And what we're doing is we're actually 452 00:17:17,265 --> 00:17:21,025 [Bret Leas] democratizing credit here. We're actually opening up. Right? 453 00:17:21,025 --> 00:17:23,345 [Bret Leas] We've democratized it both for the source of 454 00:17:23,345 --> 00:17:25,665 [Bret Leas] credit where we're allowing lending the flow more 455 00:17:25,665 --> 00:17:27,780 [Bret Leas] freely because there's long term homes for risk. 456 00:17:27,780 --> 00:17:29,620 [Bret Leas] But now we're democratizing on the other way 457 00:17:29,620 --> 00:17:32,040 [Bret Leas] where we're allowing you to access those things 458 00:17:32,580 --> 00:17:35,320 [Bret Leas] very, very freely that you know about intuitively. 459 00:17:36,420 --> 00:17:40,805 [Bret Leas] What are some of the harder questions that 460 00:17:40,805 --> 00:17:42,425 [Bret Leas] you get in the market? 461 00:17:42,485 --> 00:17:44,985 [Brad Young] You talked about their skepticism. There's always skepticism 462 00:17:45,125 --> 00:17:46,725 [Brad Young] regardless of the asset class. What are some 463 00:17:46,725 --> 00:17:48,325 [Brad Young] of the harder questions that you and your 464 00:17:48,325 --> 00:17:50,245 [Brad Young] team get about the space, and how do 465 00:17:50,245 --> 00:17:51,765 [Brad Young] you go about trying to answer them? 466 00:17:51,765 --> 00:17:53,684 [Bret Leas] Sure. So there's a bunch of questions. They're 467 00:17:53,684 --> 00:17:55,410 [Bret Leas] like, okay. How do I know that this 468 00:17:55,410 --> 00:17:57,090 [Bret Leas] thing actually behaves the way you say it 469 00:17:57,090 --> 00:17:58,850 [Bret Leas] will? Right? How do I know that a 470 00:17:58,850 --> 00:18:01,170 [Bret Leas] pool of ten thousand auto loans isn't perfectly 471 00:18:01,170 --> 00:18:03,570 [Bret Leas] correlated? That if we hit a recession, everybody 472 00:18:03,570 --> 00:18:05,330 [Bret Leas] stops paying their loans and the prices of 473 00:18:05,330 --> 00:18:07,665 [Bret Leas] used cars falls off a cliff. Well, we 474 00:18:07,665 --> 00:18:09,825 [Bret Leas] know because we have millions and millions and 475 00:18:09,825 --> 00:18:12,065 [Bret Leas] millions of data points. We know because the 476 00:18:12,065 --> 00:18:14,465 [Bret Leas] metal and used cars trades very, very freely. 477 00:18:14,465 --> 00:18:16,465 [Bret Leas] We know because we own giant fleet leasing 478 00:18:16,465 --> 00:18:18,865 [Bret Leas] businesses, and we're buying and selling cars at 479 00:18:18,865 --> 00:18:21,870 [Bret Leas] auctions all the time. And we know that 480 00:18:21,870 --> 00:18:24,429 [Bret Leas] even during times of recession when unemployment goes 481 00:18:24,429 --> 00:18:27,490 [Bret Leas] up, right, it's not that everybody becomes unemployed 482 00:18:27,549 --> 00:18:29,470 [Bret Leas] and not every bill doesn't get paid. And 483 00:18:29,470 --> 00:18:31,070 [Bret Leas] so we have a good idea of what 484 00:18:31,070 --> 00:18:33,485 [Bret Leas] the value proposition is. But the reason that 485 00:18:33,485 --> 00:18:35,404 [Bret Leas] we know this is because we've done the 486 00:18:35,404 --> 00:18:37,965 [Bret Leas] work. Right? The reason we know this is 487 00:18:37,965 --> 00:18:39,965 [Bret Leas] because we're in this business. We didn't just 488 00:18:39,965 --> 00:18:42,225 [Bret Leas] come to it yesterday. That's one hard question. 489 00:18:42,445 --> 00:18:45,085 [Bret Leas] The the second hard question is, how do 490 00:18:45,085 --> 00:18:47,404 [Bret Leas] we know that this isn't just a giant 491 00:18:47,404 --> 00:18:50,660 [Bret Leas] pile of fraud? Consumer lending, for example, is 492 00:18:50,660 --> 00:18:52,660 [Bret Leas] fraught with fraud. How do we know that 493 00:18:52,660 --> 00:18:55,060 [Bret Leas] we're aligned with the people creating this? Well, 494 00:18:55,060 --> 00:18:57,460 [Bret Leas] the answer is, right, you start to then 495 00:18:57,460 --> 00:18:59,380 [Bret Leas] create risk sharing with the people that are 496 00:18:59,380 --> 00:19:01,365 [Bret Leas] creating the assets so that they're on the 497 00:19:01,365 --> 00:19:03,525 [Bret Leas] hook for those things which you can't control 498 00:19:03,525 --> 00:19:06,005 [Bret Leas] from a credit perspective. The third is Didn't 499 00:19:06,005 --> 00:19:07,605 [Bret Leas] this blow up the world in two thousand 500 00:19:07,605 --> 00:19:09,685 [Bret Leas] and eight? Right? People ask that question still. 501 00:19:09,685 --> 00:19:12,485 [Bret Leas] Here we are seventeen years later, and people 502 00:19:12,485 --> 00:19:14,165 [Bret Leas] can buy homes and cars, and they feel 503 00:19:14,165 --> 00:19:16,000 [Bret Leas] pretty good about the world. But they're like, 504 00:19:16,000 --> 00:19:18,400 [Bret Leas] what happened? This is scary to me. You 505 00:19:18,400 --> 00:19:21,120 [Bret Leas] know, it's opaque. It's I just don't understand 506 00:19:21,120 --> 00:19:23,760 [Bret Leas] it. Okay. Well, you know what? Let's break 507 00:19:23,760 --> 00:19:25,200 [Bret Leas] it back down the basics, and that's why 508 00:19:25,200 --> 00:19:26,880 [Bret Leas] we keep going back to the whole loan. 509 00:19:26,880 --> 00:19:28,655 [Bret Leas] Right? Let me talk to you about your 510 00:19:28,655 --> 00:19:30,575 [Bret Leas] mortgage. Right? You went through the process. You 511 00:19:30,575 --> 00:19:32,975 [Bret Leas] know that somebody underwrote your income. You know 512 00:19:32,975 --> 00:19:34,895 [Bret Leas] that somebody came out and they appraised your 513 00:19:34,895 --> 00:19:36,655 [Bret Leas] home. You know that somebody looked at your 514 00:19:36,655 --> 00:19:38,655 [Bret Leas] payment history and your prospects, and they really 515 00:19:38,655 --> 00:19:40,415 [Bret Leas] did your credit. You know, you've probably got 516 00:19:40,415 --> 00:19:42,030 [Bret Leas] it from the bank that you bank with. 517 00:19:42,270 --> 00:19:44,590 [Bret Leas] Somebody actually did the real work, and you 518 00:19:44,590 --> 00:19:47,090 [Bret Leas] know the utility you get from that thing. 519 00:19:47,150 --> 00:19:51,070 [Bret Leas] Right? Now multiply that by fifty thousand of 520 00:19:51,070 --> 00:19:53,390 [Bret Leas] those same examples and tell me what we're 521 00:19:53,390 --> 00:19:54,990 [Bret Leas] getting into. And so I think people are 522 00:19:54,990 --> 00:19:56,785 [Bret Leas] actually a lot more into it than we 523 00:19:56,785 --> 00:19:58,145 [Bret Leas] give them credit for. They know when there's 524 00:19:58,145 --> 00:20:00,785 [Bret Leas] a bubble in certain types of lending, but 525 00:20:00,785 --> 00:20:03,425 [Bret Leas] these are all questions we still get. One 526 00:20:03,425 --> 00:20:05,825 [Bret Leas] thing I point everybody to, though, is look 527 00:20:05,825 --> 00:20:08,085 [Bret Leas] at the difference in the experience of Europe 528 00:20:08,305 --> 00:20:10,980 [Bret Leas] versus the US as a consumer. Europe has 529 00:20:10,980 --> 00:20:14,260 [Bret Leas] shunned this asset class since two thousand eight. 530 00:20:14,260 --> 00:20:16,900 [Bret Leas] Europe has an almost fifty trillion dollar bank 531 00:20:16,900 --> 00:20:20,500 [Bret Leas] balance sheet. Their economy has sputtered. Their insurance 532 00:20:20,500 --> 00:20:23,220 [Bret Leas] companies have fewer investment options, and the flow 533 00:20:23,220 --> 00:20:25,825 [Bret Leas] of credit is not nearly the same as 534 00:20:25,825 --> 00:20:28,705 [Bret Leas] it is here. Now look at the US, 535 00:20:28,705 --> 00:20:31,424 [Bret Leas] growing rapidly. The banking system is delevered at 536 00:20:31,424 --> 00:20:34,145 [Bret Leas] the mid twenty trillions. It has a asset 537 00:20:34,145 --> 00:20:36,730 [Bret Leas] backed market that is massive, and people can 538 00:20:36,730 --> 00:20:38,570 [Bret Leas] get the credit they need for the things 539 00:20:38,570 --> 00:20:40,250 [Bret Leas] they want. And we actually have a very 540 00:20:40,250 --> 00:20:42,970 [Bret Leas] healthy financial and credit system. This doesn't say 541 00:20:42,970 --> 00:20:45,370 [Bret Leas] Europe's bad and the US is good. It's 542 00:20:45,370 --> 00:20:48,750 [Bret Leas] to say that this market existing has created 543 00:20:48,809 --> 00:20:51,605 [Bret Leas] differential outcomes in the way countries grow and 544 00:20:51,605 --> 00:20:53,764 [Bret Leas] run and the way people access the things 545 00:20:53,764 --> 00:20:54,504 [Bret Leas] they need. 546 00:20:54,965 --> 00:20:56,485 [Brad Young] Does that make Europe a bit of an 547 00:20:56,485 --> 00:20:58,725 [Brad Young] opportunity then too if the worm terms a 548 00:20:58,725 --> 00:21:00,164 [Brad Young] little bit there in terms of the outlook 549 00:21:00,164 --> 00:21:00,644 [Brad Young] for this? 550 00:21:00,644 --> 00:21:02,565 [Bret Leas] It makes it a giant opportunity. And in 551 00:21:02,565 --> 00:21:04,804 [Bret Leas] fact, it's starting to happen. Right? Draghi's on 552 00:21:04,804 --> 00:21:07,050 [Bret Leas] the tape saying we need to make changes. 553 00:21:07,050 --> 00:21:09,870 [Bret Leas] The ECB is starting to promulgate new rules 554 00:21:09,930 --> 00:21:13,370 [Bret Leas] to make securitization more accessible. This allows for 555 00:21:13,370 --> 00:21:16,330 [Bret Leas] more cross border lending. This allows for more 556 00:21:16,330 --> 00:21:19,450 [Bret Leas] competition. This allows for lower prices and lower 557 00:21:19,450 --> 00:21:22,765 [Bret Leas] credit spreads, and that's exactly where they felt 558 00:21:22,765 --> 00:21:25,164 [Bret Leas] the need to go. And we're not seeing 559 00:21:25,164 --> 00:21:27,085 [Bret Leas] it only in Europe. We're seeing in the 560 00:21:27,085 --> 00:21:29,885 [Bret Leas] Middle East. We're seeing in Asia. Anywhere where 561 00:21:29,885 --> 00:21:33,345 [Bret Leas] people are having a highly mobile, burgeoning population 562 00:21:33,565 --> 00:21:35,930 [Bret Leas] that is well employed, we're starting to see 563 00:21:35,930 --> 00:21:38,570 [Bret Leas] asset backed markets grow up because you simply 564 00:21:38,570 --> 00:21:40,330 [Bret Leas] can't put all this risk on the bank's 565 00:21:40,330 --> 00:21:42,570 [Bret Leas] balance sheet. It needs to be spread in 566 00:21:42,570 --> 00:21:44,750 [Bret Leas] the economy to stable long term holders. 567 00:21:45,850 --> 00:21:48,170 [Brad Young] What else about the space beyond what you 568 00:21:48,170 --> 00:21:52,025 [Brad Young] just articulated globally excites you? What what what 569 00:21:52,025 --> 00:21:53,145 [Brad Young] gets you out of bed in the morning 570 00:21:53,145 --> 00:21:53,725 [Brad Young] these days? 571 00:21:53,865 --> 00:21:55,865 [Bret Leas] Oh my. Well, it's nice to actually have 572 00:21:55,865 --> 00:21:57,145 [Bret Leas] our day in the sun. I'm not gonna 573 00:21:57,145 --> 00:21:58,665 [Bret Leas] lie. I've been doing this for twenty five 574 00:21:58,665 --> 00:22:00,585 [Bret Leas] years. And, you know, for a bunch of 575 00:22:00,585 --> 00:22:02,345 [Bret Leas] those, people are like, you do asset backed? 576 00:22:02,345 --> 00:22:04,710 [Bret Leas] Seriously? Like, what's that? But it is nice 577 00:22:04,710 --> 00:22:05,790 [Bret Leas] to have your day and some but the 578 00:22:05,790 --> 00:22:08,130 [Bret Leas] real thing that excites me is the level 579 00:22:08,590 --> 00:22:11,150 [Bret Leas] of variety and innovation that we get to 580 00:22:11,150 --> 00:22:12,990 [Bret Leas] access every day. And it takes us to 581 00:22:12,990 --> 00:22:15,390 [Bret Leas] places that we never thought we would be, 582 00:22:15,390 --> 00:22:17,565 [Bret Leas] and therefore, we're learning things. So for example, 583 00:22:17,565 --> 00:22:19,884 [Bret Leas] we have a big business financing music royalties 584 00:22:19,884 --> 00:22:21,004 [Bret Leas] for a second. I, you know, I don't 585 00:22:21,004 --> 00:22:23,325 [Bret Leas] know about you. I enjoy music. Okay. Well, 586 00:22:23,325 --> 00:22:24,845 [Bret Leas] now you really get to learn the business. 587 00:22:24,845 --> 00:22:26,205 [Bret Leas] You get to, you know, you get to 588 00:22:26,205 --> 00:22:29,085 [Bret Leas] help finance artists and songwriters and help them 589 00:22:29,085 --> 00:22:31,184 [Bret Leas] monetize their life's work and their life dream. 590 00:22:31,279 --> 00:22:33,519 [Bret Leas] We we finance the media contracts for many 591 00:22:33,519 --> 00:22:37,120 [Bret Leas] European football clubs. We do player transfers. We 592 00:22:37,120 --> 00:22:40,000 [Bret Leas] do these really interesting things all day every 593 00:22:40,000 --> 00:22:41,519 [Bret Leas] day, and they allow you to learn these 594 00:22:41,519 --> 00:22:44,320 [Bret Leas] businesses, which have these giant holes in funding, 595 00:22:44,320 --> 00:22:47,125 [Bret Leas] which are not easy to finance. That really 596 00:22:47,125 --> 00:22:48,885 [Bret Leas] keeps me going because I know that the 597 00:22:48,885 --> 00:22:52,405 [Bret Leas] technology can be applied far and wide. We 598 00:22:52,405 --> 00:22:54,325 [Bret Leas] can apply the technology far and wide. We 599 00:22:54,325 --> 00:22:56,005 [Bret Leas] come back to what you said. Do you 600 00:22:56,005 --> 00:22:59,429 [Bret Leas] have the discipline to come into it? And 601 00:22:59,429 --> 00:23:01,029 [Bret Leas] for the last piece of it, I'm sure 602 00:23:01,029 --> 00:23:02,630 [Bret Leas] you've spoken about it with other folks. Right? 603 00:23:02,630 --> 00:23:06,409 [Bret Leas] The digital economy is hot. Digital infrastructure, chips, 604 00:23:06,549 --> 00:23:08,950 [Bret Leas] content, media, you know, all of it. Well, 605 00:23:08,950 --> 00:23:11,350 [Bret Leas] that's coming to asset backed as well because 606 00:23:11,350 --> 00:23:13,110 [Bret Leas] most of these things are under long term 607 00:23:13,110 --> 00:23:15,894 [Bret Leas] lease, under long term rent, under long term 608 00:23:15,894 --> 00:23:19,174 [Bret Leas] contract that makes them tailor made for asset 609 00:23:19,174 --> 00:23:19,914 [Bret Leas] backed financing. 610 00:23:20,215 --> 00:23:22,855 [Brad Young] It really is remarkable when you phrase it 611 00:23:22,855 --> 00:23:24,774 [Brad Young] that way and you put it that way. 612 00:23:24,774 --> 00:23:27,174 [Brad Young] It really is kind of everything that we 613 00:23:27,174 --> 00:23:29,310 [Brad Young] touch every single day. That was great, Brett. 614 00:23:29,470 --> 00:23:32,030 [Brad Young] Great overview of the market, and I certainly 615 00:23:32,030 --> 00:23:35,470 [Brad Young] appreciate your enthusiasm for it. We always end 616 00:23:35,470 --> 00:23:37,870 [Brad Young] our show. Torsten always ends our show with 617 00:23:37,870 --> 00:23:40,350 [Brad Young] a tradition where we give every guest an 618 00:23:40,350 --> 00:23:43,165 [Brad Young] opportunity to make a personal recommendation. Could be 619 00:23:43,165 --> 00:23:45,825 [Brad Young] a book you're reading, a movie you've seen. 620 00:23:46,205 --> 00:23:48,045 [Brad Young] So in other words, what are you into 621 00:23:48,045 --> 00:23:50,045 [Brad Young] these days when you're not running our ABF 622 00:23:50,045 --> 00:23:50,545 [Brad Young] business? 623 00:23:51,325 --> 00:23:53,325 [Bret Leas] Yeah. So I love history. I I said 624 00:23:53,325 --> 00:23:55,165 [Bret Leas] history in school, I think it has lots 625 00:23:55,165 --> 00:23:57,299 [Bret Leas] and lots to teach us. But most importantly, 626 00:23:57,299 --> 00:23:59,620 [Bret Leas] history is about storytelling. And you start to 627 00:23:59,620 --> 00:24:02,100 [Bret Leas] look at your daily life differently when you 628 00:24:02,100 --> 00:24:03,860 [Bret Leas] read history. So I I recently finished a 629 00:24:03,860 --> 00:24:05,620 [Bret Leas] book, which I highly recommend. It's called The 630 00:24:05,620 --> 00:24:08,260 [Bret Leas] Brothers. And The Brothers is about the Dulles 631 00:24:08,260 --> 00:24:10,805 [Bret Leas] brothers. And the Dulles brothers were Americans in 632 00:24:10,805 --> 00:24:12,965 [Bret Leas] the early part of the twentieth century who 633 00:24:12,965 --> 00:24:16,485 [Bret Leas] simultaneously were secretary of state and ran the 634 00:24:16,485 --> 00:24:20,005 [Bret Leas] CIA, which has never happened since, across multiple 635 00:24:20,005 --> 00:24:23,380 [Bret Leas] presidents. And they had tremendous impact in the 636 00:24:23,380 --> 00:24:26,580 [Bret Leas] wars we fought both overt and covert in 637 00:24:26,580 --> 00:24:28,740 [Bret Leas] many of the institutions we have today in 638 00:24:28,740 --> 00:24:30,580 [Bret Leas] building them and founding them and how our 639 00:24:30,580 --> 00:24:34,195 [Bret Leas] presidents interact with them. So, obviously, Dulles Airport 640 00:24:34,195 --> 00:24:35,875 [Bret Leas] is named after one of them, not named 641 00:24:35,875 --> 00:24:37,235 [Bret Leas] after both of them because their last name 642 00:24:37,235 --> 00:24:39,975 [Bret Leas] is Dulles, not Dulles is. But the brothers 643 00:24:40,355 --> 00:24:41,475 [Bret Leas] would be my top pick. 644 00:24:41,475 --> 00:24:43,794 [Brad Young] That's great. That's great. For my recommendation, I'm 645 00:24:43,794 --> 00:24:45,715 [Brad Young] gonna go with sports. You love history? I 646 00:24:45,715 --> 00:24:48,270 [Brad Young] like history. I love sports. And August is 647 00:24:48,270 --> 00:24:49,790 [Brad Young] actually a really good time to be a 648 00:24:49,790 --> 00:24:52,270 [Brad Young] sports fan for football in both of its 649 00:24:52,270 --> 00:24:55,070 [Brad Young] forms. So I'm a Penn State grad, and 650 00:24:55,070 --> 00:24:56,750 [Brad Young] I think they're actually set up to have 651 00:24:56,750 --> 00:24:58,270 [Brad Young] their best team in many years here in 652 00:24:58,270 --> 00:25:00,910 [Brad Young] twenty twenty five. They should be preseason top 653 00:25:00,910 --> 00:25:02,645 [Brad Young] five, and they're gonna be really fun to 654 00:25:02,645 --> 00:25:05,365 [Brad Young] watch. So my number one recommendation is watch 655 00:25:05,365 --> 00:25:07,765 [Brad Young] the Nittany Lions this fall. My number two 656 00:25:07,765 --> 00:25:11,525 [Brad Young] recommendation is football, the soccer version. My sixteen 657 00:25:11,525 --> 00:25:14,005 [Brad Young] year old daughter has gotten me hooked on 658 00:25:14,005 --> 00:25:17,129 [Brad Young] watching FC Barcelona. Great club. So much fun 659 00:25:17,129 --> 00:25:18,570 [Brad Young] to watch. I heard we were talking a 660 00:25:18,570 --> 00:25:21,049 [Brad Young] little bit about some asset backed work that 661 00:25:21,049 --> 00:25:22,889 [Brad Young] we do in the soccer space in Europe. 662 00:25:22,889 --> 00:25:24,809 [Brad Young] Their season is set to start in the 663 00:25:24,809 --> 00:25:29,129 [Brad Young] next few days. So other recommendation, watch FC 664 00:25:29,129 --> 00:25:31,345 [Brad Young] Barcelona. You will fall in love with soccer 665 00:25:31,345 --> 00:25:34,785 [Brad Young] if you don't already. So thanks, Brett. Really 666 00:25:34,785 --> 00:25:37,184 [Brad Young] appreciate you being here today for the great 667 00:25:37,184 --> 00:25:39,684 [Brad Young] conversation. We will have you back again soon. 668 00:25:39,745 --> 00:25:42,145 [Brad Young] The ABF space is only continuing to expand. 669 00:25:42,145 --> 00:25:43,985 [Brad Young] We'll always be dynamic, so we'll love to 670 00:25:43,985 --> 00:25:46,380 [Brad Young] keep tabs on it with you. Amazing. Thank 671 00:25:46,380 --> 00:25:51,200 [Brad Young] you. This podcast was recorded on August seventh 672 00:25:51,340 --> 00:25:52,400 [Brad Young] twenty twenty five. 673 00:25:54,220 --> 00:25:56,780 [Voiceover] Thanks for listening. A quick reminder that you 674 00:25:56,780 --> 00:26:00,154 [Voiceover] can subscribe to this podcast on Spotify, Apple 675 00:26:00,154 --> 00:26:03,674 [Voiceover] Podcasts, and Audible, or by visiting apollo academy 676 00:26:03,674 --> 00:26:07,294 [Voiceover] dot com, our educational website dedicated to alternative 677 00:26:07,434 --> 00:26:09,790 [Voiceover] investing, where you can also sign up up 678 00:26:09,790 --> 00:26:12,830 [Voiceover] to have Thorsen's daily spark economic blog delivered 679 00:26:12,830 --> 00:26:15,870 [Voiceover] directly to your inbox. Once again, thanks for 680 00:26:15,870 --> 00:26:16,370 [Voiceover] listening. 681 00:26:16,670 --> 00:26:20,050 [Voiceover] Apollo Global Management Incorporated, together with its subsidiaries, 682 00:26:20,350 --> 00:26:23,870 [Voiceover] Apollo, makes no representation or warranty expressed or 683 00:26:23,870 --> 00:26:27,705 [Voiceover] implied with respect to the accuracy, reasonableness, or 684 00:26:27,705 --> 00:26:29,945 [Voiceover] completeness of any of the statements made during 685 00:26:29,945 --> 00:26:33,385 [Voiceover] this podcast, including, but not limited to, statements 686 00:26:33,385 --> 00:26:37,005 [Voiceover] obtained from third parties. Opinions, estimates, and projections 687 00:26:37,145 --> 00:26:39,304 [Voiceover] constitute the current judgment of the speaker as 688 00:26:39,304 --> 00:26:41,700 [Voiceover] of the date indicated. They do not necessarily 689 00:26:41,920 --> 00:26:44,160 [Voiceover] reflect the views and opinions of Apollo and 690 00:26:44,160 --> 00:26:46,080 [Voiceover] are subject to change at any time without 691 00:26:46,080 --> 00:26:48,800 [Voiceover] notice. Apollo does not have any responsibility to 692 00:26:48,800 --> 00:26:51,220 [Voiceover] update this podcast to account for such changes. 693 00:26:51,600 --> 00:26:53,440 [Voiceover] There can be no assurance that any trends 694 00:26:53,440 --> 00:26:56,515 [Voiceover] discussed during this podcast will continue. Statements made 695 00:26:56,515 --> 00:26:58,995 [Voiceover] throughout this podcast are not intended to provide 696 00:26:58,995 --> 00:27:01,335 [Voiceover] and should not be relied upon for accounting, 697 00:27:01,475 --> 00:27:04,215 [Voiceover] legal, or tax advice and do not constitute 698 00:27:04,275 --> 00:27:08,200 [Voiceover] an investment recommendation or investment advice. 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This podcast does not constitute 705 00:27:26,125 --> 00:27:28,525 [Voiceover] an offer to sell or the solicitation of 706 00:27:28,525 --> 00:27:31,405 [Voiceover] an offer to buy any security, product, or 707 00:27:31,405 --> 00:27:34,765 [Voiceover] service, including interest in any investment product or 708 00:27:34,765 --> 00:27:37,825 [Voiceover] fund or account managed or advised by Apollo. 709 00:27:38,179 --> 00:27:40,420 [Voiceover] Certain statements made throughout this podcast may be 710 00:27:40,420 --> 00:27:43,559 [Voiceover] forward looking in nature. Due to various risks 711 00:27:43,620 --> 00:27:47,299 [Voiceover] and uncertainties, actual events or results may differ 712 00:27:47,299 --> 00:27:50,660 [Voiceover] materially from those reflected or contemplated in such 713 00:27:50,660 --> 00:27:54,425 [Voiceover] forward looking information. As such, undue reliance should 714 00:27:54,425 --> 00:27:56,985 [Voiceover] not be placed on such statements. Forward looking 715 00:27:56,985 --> 00:27:59,065 [Voiceover] statements may be identified by the use of 716 00:27:59,065 --> 00:28:03,325 [Voiceover] terminology including, but not limited to, nay, will, 717 00:28:03,465 --> 00:28:09,411 [Voiceover] should, expect, anticipate, target, project, estimate, intend, continue, 718 00:28:09,791 --> 00:28:12,591 [Voiceover] or believe, or the negatives thereof, or other