#14 – Glenn August: Oak Hill Advisors, Private Credit

33:06And so if you're smart and you work and you care a lot, you're likely to work hard. And again, there may be different ways to work hard. Maybe some people can actually work as well or more efficiently and better and have the same output in a different work environment. That's another discussion, perhaps another day. But the fourth piece is I want nice people, good people. And that's particularly important because we work in our firm and our whole approach for decades is we work in teams. And so that's the fifth piece. You have to want to be on a team. Now, I commented a moment ago and said that there's more than one type of successful organizational structure and values.

33:56There are a lot of super, super, super successful firms, I imagine many you've invested with, where they're dominated by just one person. And they reward, it's a superstar culture that rewards superstars and everyone else get the heck out. In many cases, those superstars compete with each other in the same firm, but it works. That's not our firm. To be successful at our firm, you have to want to be on a team. You enjoy being on a team more than purely individual success. Again, that's not to say that we don't differentiate. That's not to say that there aren't a lot of people here who are more individually successful, but they do it in a team construct.

34:50And then again, our culture is having good people, nice people, respectful people of everybody, not I'm too senior, I don't care about the junior people or the receptionist or the person who does the IT or puts coffee in the machine. We have a culture that we want people who respect everybody. And so to me, the way we've been able to build the organization is by really prioritizing and being incredibly discriminating on the people that we hire. That's number one. number two and again no order here but number two is you need to have a a structure that works in terms of decision making process where you're really going to invite people and to be part of the team you can't say hey we're a team culture and then one person makes all the decisions right you need you need to have that that desire to get more input again i happen to that's an incredibly valuable training tool.

36:02When you take a 25-year-old and you sit them in the same room as a 55-year-old who has 30 more years of experience, think about the learning. Again, it's not a hierarchical organization. It's a pretty flat organization in terms of access and learning. You need to have a comp structure where, at least in our firm, we don't create silos. We have more of an integrated model where, because we believe, and we'll get into our business, I imagine, in the not-too-distant future after I wax out on my philosophy of life. But you have to have a comp structure. We believe that our liquid loan and high-yield business helps our private credit business.

36:47We believe our distressed business helps our performing business. We believe having a performance business gives us a running start on anything that's distressed. We believe looking at relative value in Europe and the US is incredibly important. And so if you have that philosophy, then you want to have comp structures that incentivize collaboration rather than discourage it. And so there's 24 partners in the firm and nobody has a disproportionate share of the P &L from their business. The partners have a share across the business. Now, again, I'm not saying that's the only way, but it works for us.

37:33And then you need culture carriers. You need to do as you say. There's often a phrase, do as I say, not as I do. But really, do as I do. Lead by example. If you want people to work hard and you hope they're going to work hard, you can't call it in if you want people to be respectful of others you can't be disrespectful yourself and so i think we've been able to grow the firm and then and then i add another point which is we never let a goal of growth dictate our strategy we let our strategy and our culture culture and our clients determine our growth. And so there are a lot of firms that just say, I need to grow.

38:30I've got to raise more assets. I've got to do this. And when they do that, they can risk their culture and they can sacrifice on who fits and who wants to be part of that team. And again, they're great firms. I'm not critiquing anyone. But for us, it's been about how do we do what we do really, really well? How do we do it consistently? How do we genuinely do it better tomorrow than today or yesterday? And that's just not made up stuff. That's really how we think about our business. And I will tell you, I mean, I'm 62 today, whatever, I'm 63 in June. I want to get better tomorrow. And I want to challenge everyone in my firm to be better tomorrow.

39:19And so it doesn't just happen. I'm sure there are people at our firm would say, oh, it doesn't feel like it used to. But I will tell you, in my opinion, I'm probably meaningfully biased, but I will tell you, I think there is the fundamental values of teamwork, of partnership, of respect, of caring about our clients, our colleagues, our communities. you know i think those are fundamental principles and i don't think they've changed and i'll say one left one other thing and that is again you have you do have to grow to give people responsibility because everyone wants to grow and if you don't have the opportunity to grow then you leave right and so i remember in 1996 uh we had a presentation of one of my colleagues and i were we had a big presentation in Boston and our flight was delayed.

40:16So we went for a drink at a hotel before we went out to the airport. And this guy was exceptionally and is exceptionally smart. He retired probably a decade ago. And he was at the time probably, let's just see, I might as well get it right. If I was 35, he was probably 29. And he said to me, so Glenn, when am I going to become portfolio manager? And we had probably 18 people at the time. And I said to him, I said, Scott, his name was Scott. I said, Scott, you'll become a portfolio manager. And we look at the same, if we were to look at the same company independently, that 90 % of the time we came to the same conclusion.

41:04And 5 % of the time you convinced me why you were right and 5 % of the time I convinced you why I was right. And then I joked and I said, and right now you're only at 60. Now, truth of the matter is he probably was at 80 at the time, but anyway, and he became one of the guys I promoted as partner in 1999 and had a great, great career here. Fast forward to today, if I was asked that exact question, and again, this is part of learning, maturing, growing myself, I would say I want to look at the same situation independently. And 75 % of the time, we agree. 10 % of the time, I convince you 10 % of the time, you convince me.

41:48And 5 % of the time, we agree to disagree. And I think it's somewhere in that range that you then have shared investment culture. Because again, when I think about culture, there is investment culture. Again, thinking about downside protection, owning the business, not just the security, conducting yourself in a way that you're proud of and respectful of others, whether it be restructuring or new issues. I think that's probably a better mix of how to build out a team where you can grow and scale the business and still maintain the culture. I mean, it's very complex. You're building a machine that's based on the people interacting and capable people who care and have all the qualifications.

42:35And that is far more complex than building a machine based on parts. Well, I often joke about, this may be a stray comment, but I often joke about how so many of us in the investment business say, well, it's not brain surgery. I often say there would be a great commercial for an investment firm if they had two brain surgeons sitting doing very intense brain surgery. say, wow, well, it's not investing. So yes, it's a people business. And there's certainly tools and the technology and a lot of things that can make us all better. And obviously, the difference of me running down to the M &A library in 1982, when I can hit one button on a Bloomberg and get years of financial history and stock prices and bond prices and yields, it's a different world.

43:23Why don't we focus on private credit a little bit? It's just so popular. And we can talk about other forms of lending as well. But you've been investing in private credit longer than most, early on in your career. Would you talk about the history of private credit and what has caused it to grow so rapidly recently? Sure. So I'm going to do the first 35 years of private credit very quickly. And I'm going to spend a lot more time on the last five and even in the last couple. But I do think that having that historical framework is really valuable. So we are part of an ecosystem of the private equity leverage finance universe.

44:09And the private equity leverage finance universe essentially consists of private equity firms who buy companies using leverage, and public companies that are below investment grade and access the capital markets, private or public. And the very quick 35-year history is, and I've been there from the beginning. I mean, really, the first buyouts, I mean, you know, Kate Carroll talked about buyouts in the 70s, but as a practical matter, it wasn't until the mid-80s. And then I joined, as I said, Again, I was there in 82 in M &A, but the leverage finance business really began in the mid to late 80s.

44:50And so I've had a front row seat as well as playing on the field for decades. And really quickly, in the early days, it was Mike Milken's origination and idea and execution of building a high yield bond market. And that was the dominant source of finance, that and big banks that held loans on their balance sheet. and when Drexel blew up, and Merrill Lynch and First Boston others tried to copy that, but when Drexel blew up in the 1990-91 recession, the banks had the S &L crisis, who also had a lot of high-yield exposure, there was a shortage of capital and the dumping of below-investment-grade debt, which has created the great distressed opportunity that I talked about earlier.

45:39And so the bank loans became HLTs and they had to sell them off the bank's balance sheet. And the high yield market kind of went into a pause mode. As we came out of the recession, the early 90s and into the late 90s, you started to have banks, JP Morgan bought chemical, uh b of a started to get more involved the the credit sweet spot dlj you started to have a bank dominated market where banks would not put stuff on their balance sheet but they sell a lot of it to clos the clo market emerged in the late 90s into the early 2000s and so as you go forward, fast forward, I'll make this 20 years from the mid 90s to 2008.

46:27You had the evolution of the CLO market. So banks were syndicating to CLOs. You had the high yield market, which the banks, big banks consolidated, and they were now running the high yield business too, in leverage finance groups. And you had all this great backdrop and all this leverage on leverage and leverage. And then you had the global financial crisis. And part of the global financial crisis was a lot of the banks, while they weren't necessarily putting on their balance sheet, they were bridging a lot of debt before they sold it to the high yield market or to the bank loan market. And so when the global financial crisis came in 08, the regulators stepped in, we all know what happened then.

47:14And essentially, over the next decade, you had a real change in the evolution of the leveraged finance market. The CLOs actually proved that they worked, even though in 08 and 09, they looked terrible. Some of the best performing vintages of CLOs actually were done right before the GFC. And the banks, the regulators would not let the banks put stuff on their balance sheet. The high yield market was operating fine. The global backdrop for the economy was fine. And what really started to happen is you had the emergence of large alternative credit players. So Blackstone bought GSO. Apollo built out their business.

47:58ARIES became a bigger factor. And so you start to have these larger alternative asset managers who could do a lot of different things. The CLO business began to blossom. And if you fast forward to today, the CLOs represent 70 % of the bank loan market. So banks aren't taking down the assets in the US. In Europe, they take down more. CLOs are. Banks are just syndicating for a fee. The high yield market became a higher quality credit market because BB experience was a lot better than single B and triple C. And so investors flocked to BB high yield. And firms like Blackstone, Aries, Apollo, and O 'Kill started to raise a ton of money from large sovereign wealth funds and from large pension plans.

48:51And in the private credit space, you really had a middle market private credit And when GE capital kind of blew up and CIT blew up, you started to have the emergence of BDC. So the ecosystem pre-2018 was large cap deals were getting done in the high yield or loan market. Middle market deals were getting done in the BDC market. The backdrop was good in the economy for the decade post the global financial crisis up until COVID. and everything was working just fine. So then you ask, what happened? And during that period, private credit, depending on how you look at it, middle market private credit went from being nonexistent to$150, a couple hundred billion dollars.

49:43Again, it's a backdrop of a high-yield market that's over a billion, over a trillion, excuse me, a leveraged low market over a trillion. What happened in 1819, and to fast forward, which got accelerated over the last couple of years, is that the private equity business became more of a growth equity business because that's where the equity market went. And the ability to buy industrial companies that were undermanaged and split them up really was going away because all those deals had happened. and because private equity was now playing in growth equity the multiples of deals became higher the amount of equity needed to finance the deal became higher and if you pay 15 times ebitda for a growth equity company that's growing really nicely and it's not capital intensive software business, healthcare services business.

50:49And you have to put up 50 % equity instead of back in the early days, you'd put up 10 % equity or 20 % equity. But the banks didn't want to put it on their balance sheet, seven and a half times leverage, because that would get them in trouble. The CLOs want a very simple, high quality single B portfolio. And if it's seven and a half times leverage, even if it's 50 % loan to value, doesn't really work for them. It's not double B by the rating agencies because they just don't like the leverage and they're not willing to stick their neck out on making credit calls. And then you have these tens of billions, hundreds of billions of capital raised from the sovereign wealth funds and large pension plans who could basically write a check and say, wait a second, I can buy a high quality business that someone who I know and like and trust and respect is putting up 50 % of the money and I can negotiate a bilateral deal with them and be the first zero to 50 or many cases, zero to 40 % loan to value and get paid five, six, 700 basis points to spread over LIBOR and then SOFR.

52:03Wow, that's really great risk adjusted returns. Great. And if SOFR is five and the spreads was six, six 50, that's 1150 plus a little bit of fees on origination, that's 12 % unlevered. And if I lever that one-to-one, I make 15, 16, 17 plus that starts to look better than public equity and private equity. And so in the last five years, that risk-adjusted return profile, especially in, again, the big debate, and we'll come back to it in a minute, large cap mid-market, the opportunity to invest in world-class multibillion-dollar businesses at zero to 40, zero to 50 loan of value with 50 % to 60 % new money cash going in below on businesses that we have followed for decades.

52:58It's 50 % to the plus of things we do in private credit we've been an investor in before in the last decade. And so we know these companies. And so from an investor standpoint, and I'll get to the issuer in a second, from an investor standpoint, the opportunity to make double-digit returns in relatively modest risk is very compelling. And that's why the demand from pensions, from individuals, we get to that a little bit later, from sovereign wealth funds to invest in private credit has exploded. Now, why is it attractive for the issuer? Well, lots of things, but in no order. To me, when you borrow money from somebody, you're kind of inviting them into your house.

53:56so you really care who owns your debt and having some debt holders that you don't know or like or trust or respect if there's ever a problem is not so easy to restructure not that it's definitionally easy if you know the person but at least you have some common common values the ability to move very very quickly i know we've been in an incredible bull run market for the last number of months for sure and longer. But markets open and close. And private credit is a reliable source of capital. There's confidentiality. You don't want to necessarily print all your margins to your competitors. There's speed.

54:44There's certainty. And if you need more capital because you want to do an add-on acquisition, it works. If you have a business you want to sell in a year, you can build that into the structure. You can build flex. Again, to me, so much of what I think about is capital structures should get structured to meet a business. They shouldn't contort themselves and not fit the business. Private credit makes a ton of sense. for the issuer. And by the way, furthermore, if there's volatility because the bond market, the stock market went down and people see bond prices down 10 points, that's not good for their customers or their employees.

55:34I mean, and so doing this in a private setting, bilateral, a few people maybe in a club deal, I just think, and as all of us have gotten larger and have the ability to write multi-hundred million or multi-billion dollar checks with ourselves or with some co-investment partners, that's really very, very powerful. And so you've seen, you can look at lots of different tables, but one table I look at had private credit going from$150 billion to$600 plus billion. Again, it all depends how you define private credit in the last five years. 70 plus percent of all deals in the last five years have used private credit.

56:16and I just think it's here to stay. The banks in the US do not want to be in the business. There's scores of articles on Bloomberg saying the banks are getting back in. The banks aren't getting back in. The banks are just syndicating to the CLO market and the high yield market, which is hotter now than it was a year ago because the Japanese providers of AAA capital for CLOs have now repriced themselves from 200 to 150 over. And that has brought the bank market to new highs and so now lower spreads. And so you can reprice things and there's more demand. So again, that's what I love about our business is we have a giant CLO business too.

57:07I love the ecosystem of how what the Japanese banks are doing in AAA financing affects bank loan pricing and private credit pricing. I love the ability to look through CLOs and figure out what's the impact on distressed restructurings. Because CLOs have different rules than a private investor has. And so to me, this trend is real. Now, the last piece of the equation, two last pieces, one is the supply and demand of private credit or leveraged finance credit. And what is clear is that in the last two years, private equity activity has come down 40%, 50%. And that means there's fewer large deals that need to get financed.

58:01And that's part of the reason why spreads have come in as well. Now, my view is that with two plus trillion dollars of capital out there, dry powder for private equity and the LP community getting frustrated that their money that they commit isn't getting spent, that there's going to be a lot more deal activity in the next couple of years. And understandably, when stocks went from 4 ,800 on S &P into the high 3 ,000s, 4 ,000, there was a real disconnect between sellers' expectations and buyers' willingness to pay. Obviously, the financing costs are higher, which challenges returns. But I think we're getting into more equilibrium.

58:43There's obviously been geopolitical uncertainty, which I don't think is necessarily going away. but I do think that there's likely to be a lot more private equity activity. So I think that's here to stay. Private credit is here to stay. There will be windows when the syndicated markets take a bit more share, periods when the private credit markets take more share. But the ability to go to someone that you've worked with for decades and have them write you a billion-dollar check customized for what you need, that's really, really valuable. Yeah, and the system works efficiently in that way. There's need for capital.

59:22There are those who are willing to provide capital. And an asset class is born. Yeah. I mean, that's how it works. Our largest investor is a very large state pension plan. We have now over$6 billion of capital from them. And the demand from sovereign wealth funds, from large pensions, and from individual investors is growing pretty dramatically with non-traded BDCs. We have one, others have them. And again, I do think that the two next waves of capital are clearly the insurance community with all the insurance capital has been taken over by private equity and recognition that there's opportunities to increase yields in the insurance space.

1:00:06And we do a lot with insurance companies as well. And then the individual investor who has been dramatically underweighted alternatives is now saying, wait a second, how about me? And I like to make the comments very simple. Why should the dentist in California not have a private credit, not have private credit in their portfolio, but the teacher does? It doesn't make sense. And it is because the teachers have a giant pension plan and the dentist doesn't. And so that's where obviously RIA's product from people like us that is customized to have individuals have access is exploding. And again, I think that trend and whether individuals have 2%, 3%, 4%, 5 % of their capital today in alternatives, and certainly some of them have gotten ahead of the curve and maybe up to 10 or more, there's enormous capital that's out there that ultimately should have alternatives, should have private credit in their portfolio.

1:01:08And that's how we're working to design products that meet that need. You described the backdrop for private credit and why it's here to stay. As an investor, would you describe what an ideal tailwind looks like and also what a perfect storm looks like in terms of returns for investors? Yes. So again, remember we're talking about credit and we're talking about typically in private credit, the loan is callable at par or maybe 101 or 102 in the early years. And so there's not material opportunity for capital appreciation unless you buy it at discount. Typically, when it's newly issued, you might get a point or two of origination discount.

1:02:04And so ultimately, the pieces of private credit return are what is the base rate, what is the spread, and what are the fees and call protection? And then do you use leverage to enhance those returns or not? Yeah. And we've been in a world, obviously, where short rates have gone up dramatically. And there's been a lot of debate in the last couple of months of whether or not the Fed's going to do six cuts. And now it's down to three. We never thought they were going to do six cuts. And whether or not they do two or three, we'll see. But what we do think is that we're going to be higher for longer.

1:02:45And so whether it's 5 % or 4.5 % or 5.5%, You know, that's where the base rate is. The spreads have come in recently from 600 plus to 5 to 550. There'll be a couple of deals done below 500. But if we assume just to make the math simple that you're 5 on base rates and 5 on spreads or 450 on base rates and 550 on spreads, you're basically at 10 % plus a little bit of fees and a little bit of call protection if you're taking that early. that to me to be first dollar debt in multi-billion dollar companies is really really attractive and so from a tailwind standpoint there's not tailwind to enhance that return but you would like to have a reasonably constructive economic backdrop to earn that return now one of the things i like to say because i'll go to the other side now um so by what could go wrong in a good world is, again, if rates, I'm going to do a couple scenarios here.

1:03:50So let's just have a scenario where you have softening in the economy and short rates come down, your floating rate. So five becomes three. You still earn your spread of five on what you owned. So you made eight instead of the 10. The question then becomes, did you have credit impairment. And my view is that when you're investing in large world-class companies with hopefully world-class management and competitive positions with equity investors below you, you put up 50 or 60 % of the capital, that I'd like to think that you or we can pick credits that even if we go into a recession, that they're money good.

1:04:41There's a lot of cushion there, right? There's a lot of cushion. We did analysis of the S &P mid-cap index from 2000 to 2023. And the average EBITDA of the S &P mid-cap was$150 million, which is where$125 to$150 is our median of EBITDA. and only 5 % of the times did you lose more than 50 % of your value. And that was in 2001, 2003, post 9-11 tech bubble burst, 2008 when everything went down, and 2022 when the bubble popped in all the growth equities. If you pick your spots and don't buy zero one outcome credits, and we don't do that, we don't do Netflix. so we didn't make a little money on Netflix, but we don't do WeWork so we didn't lose a bunch.

1:05:35And so you can pick your spots on the risk curve where you really believe that even if the world got a lot uglier, you still are covered. I tell this story a lot often that in 2008, if you looked at our portfolio on July 1st, 2008, and you went away for two and a half years, and you had no communications and you came back on December 31st, 2010, you looked at the July 08 portfolio and the December 31, 2010 portfolio. You'd basically say, hey, I guess it was pretty quiet while I was away. Yes, things got marked down, but we picked good companies. It's all about credit selection. Then some people say today, well, you know, all you guys look the same.

1:06:21How do I pick? There's no differentiation. It's just a commodity. And I don't believe that. And I say that, sure, with bias. But we don't know what the world is going to bring. There could be geopolitical. There could be macro. Where you find out, as Warren Buffett said, who's wearing a bathing suit when the tide goes out. And to me, what I say to people is, don't just look at the private credit records of us and our competitors for the last five years. Look at our last 20, 30 years of how did we navigate 2008? How did we navigate 2001? How did we navigate 1994 when rates went up? How did we navigate the early 90s?

1:07:03How did we navigate 2011 when Europe went bad? How did we navigate 2014 when energy, which represented 20, 25 % of the high yield market, crashed when the Saudis changed pricing? So there's history. And I believe that today's private credit market is really the successor or the evolution of the bank loan and high yield market, syndicated markets of the last 20, 30 years. So I think there's a heck of a lot of data for investors to evaluate managers. And again, there's lots of great managers out there, but we have hundreds of billions of dollars of experience through these cycles. And it really is about picking credit.

1:07:43So I think that the opportunity is really attractive. And one last thing on the leverage side, when there is the ability to leverage one to one, pretty comfortably one and a half to one, some leverage two to one, banks are levered 10 plus to one. And that leverage moves up and down as well when spreads come in. So you still, when private credit spreads were 650, it might have cost 300 or more to get financing. Now that pricing, that private credit spreads are lower, the financing spreads are lower, which makes sense. And so, again, the opportunity to generate low double-digit net returns in private credit as an asset class, I think, really fits a lot of people and a lot of institutions.

1:08:32And that's why we continue to be so bullish and positive on the space. One thing you just said reminds me of an analogy I often use is if you had the ability to pick the pilot that's going to fly your plane, you don't want to just look at their historical track record when the skies are clear. right you want to know how have they done and in some ways that's all you care about is how have they done during the severe storms of the past and those are the people you want to get on the plane with i use that analogy too when i talk about 2008 you could not be on autopilot in the fall of 2008 or the spring of 2009 you won an experienced pilot you know to to to quote a few good men.

1:09:13You need me on that wall. But anyway, you need experience. You want experience. And there's no substitute for it. And one of the things I've also commented recently, which is, again, another sign of my age. But I was thinking about how important the 2008-9 experience was. And what's crazy is that that's 16 years ago. Okay. Almost 16 years. It's a year at 16. in September, it'll be fully 16. So if it was 16 years ago, and you graduate, most people graduate college at 22. If you're less than 38 years old, you never experienced it all. And as a practical matter, while I got the great experience, when I was 21, 22, 23, a lot of people in their early 20s, don't have that kind of hands on experience, certainly today, as the business is institutionalized.

1:10:08And so arguably, you'd want somebody to have at least 10 years of experience by the time they got to 2008. That means they have to be 48 years old to have really experienced the GFC. Forget about 9-11. Forget about the early 90s. I mean, 48 years old. And we all know, and I'm not critiquing people who are younger. There are a lot of smart people. And I know when I was 30 years old, I thought I was really smart too. But there's no substitute for experience of navigating up and down markets. And again, we all get caught up in the trend of a positive market. Everyone feels great if they're long equities today.

1:10:50And everyone feels great for any exposure they've had. But experience really matters. And it's very different living through it than reading about it. And there's also another side to it is I know a lot of investors who've been around 40, 50 years and they feel like they've seen everything. But there's going to be things that happen in the future and possibly in the near future that are very different. None of us, we all know, none of us ever saw COVID. Right. I mean, the world economy shut down. And so, again, you want someone that has a ton of experience because you don't know. I don't sit here today and say I've seen everything because I haven't.

1:11:31But I know that the different experiences I've had make me in my firm more able to at least think about what could be. And certainly, I do have memories of 1994 when rates went up a lot and high yield was down. And we outperformed like 700 basis points that year because we had all short duration and yield took all paper. And just how you think about duration is important. And again, you learn a lot as you do this over a long time. And is the focus on larger companies related to risk management and just how you think about protecting the downside? Yeah, it's a great and important question that gets asked a lot because there obviously is a very large middle market private debt business.

1:12:16And we as a firm generally focus on upper middle, larger cap companies. And we have focused on larger cap companies for years because we like multi-billion dollar franchises. We like the quality of management, information systems, access capital markets, the visibility of businesses a lot more than some smaller family-owned business that has generational issues or might not have the reason to exist five, ten years from now. That's not to say that middle market is bad because there are a lot of people who do middle market really well. But here's what I know. I know that larger cap companies have higher margins.

1:12:54That's just fact. I know that larger cap companies in general have less volatility in their margins. I know they have higher interest coverage. And I know they default less. Those are all really, really powerful things. Now, the comeback on that, some middle market competitors, is we have covenants. you guys have no covenants and i'm like a few things one good covenants don't help a bad company they just get you in control earlier but which is good and and i just feel and and so the second thing is i've spent my career my team has in the loan and high yield markets leveraged finance markets where there were not covenants in those deals either.

1:13:49Now, when I talk about covenants, not all covenants are the same. Obviously, you need certain protections on restricted payments. You need protection that they can't sell you a can of Coke and be able to have a straw that takes all the soda out of the Coke can and you just own a can. and we are vigilant on protecting ourselves in documentation but i don't need it'd be nice to have i don't need to have a minimum ebitda covenant to necessarily protect me i i am comfortable i say this not in any kind of cavalier way because we make mistakes too but i am comfortable in our credit judgment that we're going to be able to pick the companies that have good business models and that while they may underperform our expectations from time to time, that our debt is money good.

1:14:47And again, when you have 40, 50, 60 % equity in businesses that we followed for decades, that's really valuable. I mean, in our leverage loan business, which again, I think is a great indicator of our credit skills, we have like 30 basis points of default record versus 220, 230 for the market, one-seventh. And that's because we are disciplined in the credits we pick. And if we pick a company and the performance is deteriorating, we will get out. We don't always get out. We make mistakes too. But I think that credit picking, just like stock picking, really matters. And again, if you go back to the thesis that there's limited upside, there's a lot of downside.

1:15:35The whole key is making few mistakes. And institutionalizing that as an approach to how you analyze companies is what we've tried to do for decades. And instilling that culture and that DNA through the company. And again, if you touch something, you own it. And so there is that taking it personally is just very important. That's the caring piece that I talked about earlier in terms of the values in our firm. That's wonderful. Glenn, you've been very generous with your time. You've shared very interesting stories about your formative years and how that's shaped your investment principles and just your core tenets.

1:16:19And I appreciate listening to it. And I hope our listeners did as well. Thank you. Well, I appreciate it. And thanks for all that listened. And I hope it was helpful and I look forward to the opportunity to engage in the future. Thanks. All right. Thank you. Thanks for listening. We hope you enjoyed this episode. Please visit our website at insightfulinvestor.org to access past shows and learn more about our podcast. If you have questions, feel free to email us at info at insightfulinvestor.org. And if you enjoyed the discussion, please subscribe to this podcast to ensure you don't miss future episodes.

1:16:57And don't forget to forward today's conversation to others you think would enjoy listening. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of Evoque Advisors, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. and listeners are reminded that securities trading, commodity trading, and alternative investments are complex and carry a risk of substantial losses.

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