Credit Exchange with Lisa Lee

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Credit Exchange with Lisa Lee. Explore the latest trends in global credit markets with the biggest movers and shapers on Wall Street and the City, hosted by financial reporting veteran Lisa Lee.

  1. 1 HR AGO

    Apollo’s head of investments Europe says private credit is going through a rite of passage

    The current period is a “really important rite of passage” for retail access to private credit and direct lending, says Tristram Leach, head of investments Europe at Apollo Global Management, on the latest episode of Credit Exchange with Lisa Lee. “The five percent number is there for a reason,” says Leach, speaking about recent outflows from semi-liquid private credit funds that have seen a pickup in redemption requests (some firms have given back more than the agreed 5%; some have limited at 5%). “It’s important to protect remaining investors. It’s a level of liquidity that has been promised. And in general, we think the appropriate way to proceed is to do what you said you’d do.” Direct lending, he believes, will continue to grow – but it needs to go through a period where there are elevated redemptions in the marlet. “People want their money back. You have to see the products work as they were designed to work. And the way they’re designed to work is they give five percent. That, broadly speaking, is the appropriate design, and how it should function,” Leach contends. He adds that we are still in a fairly early period in the development of wealth access to direct lending. Consequently, it’s understandable that results in a “slightly flightier” asset base compared to institutions. Leach understands the argument that the central composition of the direct lending market does put it more in the crosshairs of this threat. “The very high software concentration, certainly among some of our peers in private credit, does create some additional risk when you think about AI disruption,” says Leach, who is also the co-head of European credit at Apollo. Across the firm, Apollo has around 2% software exposure. Even within direct lending, Apollo is “clearly at the bottom end of the range,” Leach says. Nonetheless, he believes the market was relatively slow to wake up to the potential of AI. “What’s surprising to me is that when Claude Code came out, the market suddenly noticed,” he says. “We’ve been watching the incredible pace and development of large language models for several years now.” On Europe, the Iran war probably represents more of a cyclical threat to Europe than the US because of the energy price dynamic and geographical proximity, Leach believes. “That is definitely a headwind to growth; it’s a headwind to cyclical industries. “Especially for companies exposed to growth in Europe, that’s going to be a challenge, because of the inflation impacts to energy prices.” Nonetheless, that doesn’t materially impact Leach’s expectations for greater infrastructure investment and defence investments on the continent. “There’s been a huge change in the attitude of European policymakers towards the need to spend money, become more productive, become more competitive. All these things are clearly felt viscerally within Europe because of how fragile the continent’s position seems. I think you’re going to see changes, and I think you’re going to see Europe seek to take advantage of the opportunity,” Leach says. Leach also shares why, in football, he is wholly committed to Atlético Madrid.

    36 min

  2. 13 MAR

    Napier Park’s CIO says firm has stockpiled cash to buy mispriced assets

    “We’ve never had more undrawn capital,” says Jonathan Dorfman, chief investment officer at Napier Park Global Capital, a $40bn alternative credit manager. Napier Park has been prepping for a repricing of financial assets that predates the Iran war and the software crisis, Dorfman said in the latest episode of Credit Exchange with Lisa Lee. Have ready cash and take advantage to buy assets that are going to come up for sale very soon, Dorfman advises. He says credit spreads should widen further: “We are going to see more and more problems occur, and more and more bad headlines.” While Dorfman believes people will look back and say the headlines over private credit’s software issues were overblown, it’s appropriate there’s been a dramatic repricing, because of the enormous uncertainty caused by AI. The more sophisticated software companies are not going to sit still, and they will figure out how AI benefits them, and come out stronger. But some won’t. On risk from the Iran war, Dorfman says history shows that markets usually have a short-term, very violent downward move with some type of capitulation to major geopolitical developments – but then they recover. Sustained high oil prices need to last at least a few months to meaningfully affect the real economy, and therefore financial markets. Right now, it’s too early to tell if this is a buy-the-dip moment. But it’s probably a fine strategy, he reckons. A pioneer of the credit default swap, Dorfman says the CDX index is saying there’s a lack of fear about a recession and/or a meaningful economic slowdown. Risk premiums are higher, but they’re not high in an absolute sense that would be consistent with a slowdown.

    35 min

  3. 6 MAR

    CVC’s head of credit sees dislocation, and private credit ready to deploy

    “Private markets and private credit can be very, very helpful,” says Andrew Davies, in reference to the emerging dislocations he sees in financial markets, on the latest Credit Exchange podcast with Lisa Lee. Davies is the head of credit at CVC Capital Partners, a global private markets manager with more than EUR 200bn in AUM. That help could be in the form of helping banks that are struggling to offload underwritten debt, scooping up publicly trading debt that’s priced too low, or providing to financial sponsors who find banks pared back, Davies says. “We’ve seen it every time there’s a period of volatility,” he adds. CVC and private credit is still deploying, despite increasing geopolitical risks, fears of AI disruption, and negative headlines around the industry, particularly in the US. European private credit is different, Davies contends, with more stability in capital flows that are more reliant on institutional investors rather than affluent individuals. The opportunity in Europe is to access a fragmented market that is less mature and has less competitive tension. “It’s been somewhat immune from that over the last year or so, in terms of what you’re sensing coming out of the news flow in the US,” Davies says. His biggest worry is around a heightened risk environment in the geopolitical landscape. There has already been short-term price action in energy markets, which Europe is very exposed to. “Does that flow into inflation? Does that flow into rates? Does that flow into a number of things?” he asks.

    24 min

  4. 27 FEB

    Ares’ co-head of alternative credit says AI will hit a bit of a wall due to “sheer capital” need

    “You are going to hit a little bit of a wall because of power. You’re going to hit a little bit of a wall, because of the sheer capital that’s supposed to be there to finance that piece,” says Joel Holsinger, co-head of alternative credit at Ares Management, on the latest edition of Credit Exchange with Lisa Lee. Holsinger expects to see a slowdown, because the current level is “probably unsustainable” for the sheer amount of capital that is required for all these projects, along with the amount of power generation that needs to be built. Already, banks are trying to reduce their exposure across some of their data centre names, Holsinger says – not due to risk or fear, but because they want to buy more. “They’re already at capacity issues, because the opportunity set is so big,” he says. Holsinger adds that there are emergent signs of concern for troubled credits. “Right now, we’re in the situation where the tide has not gone out. That’s very clear,” he surmises, referencing Warren Buffett’s famous line. “Underlying fundamentals are generally good. But you’re seeing some random nudity on the beach.” This said, Holsinger contends there are not yet huge cracks emerging in underlying credit markets, either on fundamentals or spreads. But he believes we are at the end of the cycle, and there is more news to come. Holsinger, who is co-head of the Ares Charitable Foundation, also discusses philanthropy and “Promote Giving”, an innovative method to commit at least 5% of fund performance fees to charity.

    36 min

  5. 20 FEB

    KKR’s co-head of credit says “it’s adult swim only” in markets

    The investing environment has gotten hard, says Christopher Sheldon, co-head of credit and capital markets at KKR, on the latest episode of Credit Exchange with Lisa Lee. “It’s adult swim only.” There’s a lot of uncertainty in the market, and much of the investor community is trying to figure out what playing field they’re on, explains Sheldon. He discusses KKR’s latest investor letter, titled CTRL + ALT + CREDIT, intended to reboot how investors are approaching credit. Sheldon contends that you have to be well-versed, have scale, and create your own origination, because elevated defaults and downgrades along with spreads tightening results in a “tough recipe”. “The more flexibility you have, the more ways to win. The more scale and breadth and origination you have, the more ways to win,” he says. Sheldon worries about lack of new supply in debt markets, that may cause spread tightening. He also notes the growing concern around outflows from certain markets. Right now, the private credit market is starting to see some flows come out on the wealth side, which is fine as redemptions are often capped. But if that is sustained for long periods of time, there may be a little bit more volatility in the market, he warns. On AI, the technology is moving so quickly that there is a need to be thoughtful, be able to pivot, and re-underwrite these businesses. In the liquid market, it’s important to have the flexibility to buy or sell, and to get out of situations where that thesis might have changed. In illiquid markets like private credit, he advises to focus more attention on structures that protect from assets being stripped out, from cash leaking out of the system. “Even if you do worry that maybe it’s a little less resilient, having that structure could be the key differentiator of having ball control,” he says. “Even if you do worry that maybe it’s a little less resilient, having that structure could be the key differentiator of having ball control,” he says. Sheldon also reiterates that the private credit market is not just the direct lending market any longer. The bigger part of the private credit market is asset-based finance, which is financing the real world economy, whether it be consumer loans to hard assets like aircraft or commercial lending, or music intellectual property. ABF is a huge growing market and is a great diversifier to portfolios today, he reckons. KKR credit investor letter: https://bit.ly/4aYV4pN

    32 min

  6. 13 FEB

    Arini president Mathew Cestar says Europe’s missing AI boom provides opportunities

    Europe has mostly missed the AI boom that’s driven a large part of US economic growth, says Mathew Cestar, president of Arini Capital Management, on the latest episode of Credit Exchange with Lisa Lee, taped in the London offices of the alternative asset manager. But that actually makes European credit more appealing, because while the intersection of technology and AI is an exciting equity story, that intersection in credit can involve “a lot of risk.” Cestar, who was once the co-head of investment banking at a large global bank, expects to see a broadening of M&A deals in terms of size, sectors and geographies, given the supportive interest rate and anti-trust environment. He also sees continued interest in Europe from global investors. And he welcomes more regulatory scrutiny for private credit, predicting that will result in better players in the market. “We’re super-embracing the fact that regulatory folks are now focused on private credit,” says Cestar. “If you want a market to grow sustainability and consistently, the regulatory framework is critical.” On the private credit market, Cestar forecasts troubles, that will lead to more dispersion of returns among shops. “We’re expecting an uplift in some of the private credit defaults,” he says. Defaults in the space have so far been relatively muted, but “that will start to change, because they can’t defy gravity,” Cestar believes.

    27 min

  7. 6 FEB

    Carlyle's co-president says AI’s improvements to workflow will be felt in months, not years

    “We have this great tool out there called AI, and we haven’t 100% figured out how to implement it yet,” says Mark Jenkins, co-president and head of global credit & insurance at Carlyle, on the latest edition of ‘Credit Exchange with Lisa Lee’. Jenkins predicts that the next stage is going to be how corporates implement AI into their workflows, and that the process is “really in the first innings of implement”. OpenAI, Anthropic, and many others are developing tools for workflow, and Jenkins predicts they will take “not years, but several months” to impact systems. Carlyle, for example, is already using AI to help its investment group be more efficient, and to consume massive amounts of data in ways that would be difficult without AI, says Jenkins. But one has to use AI appropriately, he adds. “It’s not going to make the decision for you.” While change has been a constant feature during Jenkins’ 35-year career, nothing has been like AI in the past three years. Embrace the change and incorporate it into what you do, because typically, those are the ones that prosper, he counsels. On the broader investing climate, Jenkins is positive about the macroeconomic environment for the next 12 months. But moving out to 2027 and 2028, inflation may rear its head again.

    33 min

  8. 30 JAN

    Significant downside risk for credit sectors impacted by AI – BlackRock co-head of leveraged finance Mitch Garfin

    “Whether it be in the high yield bond market or in the leveraged loan market, even the hint or threat of AI impeding on really any sector – you see pretty significant downside,” says Mitch Garfin, co-head of leveraged finance at the world’s largest asset manager BlackRock, on the latest episode of Credit Exchange with Lisa Lee. Garfin is constructive on the market generally, with growth continuing to “chug along” and inflation currently well-contained. He also identifies significant opportunities from AI, including ongoing data centre build-outs contributing to a significant uptick in supply in the high yield market that is likely to continue. But, he notes, there have also been situations where bonds and loans are down anywhere from a couple of points, and in some cases 5 or even 10 points, on “the immediate sort of threat” from AI. “It’s something to keep an eye on,” he says. Discussing the high yield market specifically, Garfin observes that consumer and retail continue to lag. “We’ve been underweight retail, consumer products, restaurants, leisure – a lot of the sectors that are going to be more impacted by a declining or weaker low-to-middle-class consumer,” he says. He also gives advice to younger industry hopefuls, including staffers and investors.

    35 min
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Credit Exchange with Lisa Lee. Explore the latest trends in global credit markets with the biggest movers and shapers on Wall Street and the City, hosted by financial reporting veteran Lisa Lee.

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