#5 - Brian Higgins: Risk, King Street, Outlook

29:21Why did that fit and why were you so confident or were you confident that you'd succeed in an industry that has generally low odds of success? When I was a kid, I mean, I had lots of odd jobs, but turned them into my own businesses. I had a long cutting business in high school where I had all these customers and I I employed a couple of my high school classmates. I had a car freshman year and so went to get beer and resell it in the dorm. And so I remember I did the purchase or sort of gift with purchase program where I printed up all these boxers with the college logo on it. And at the tailgates for football games, I would say, buy a beer, get a boxer.

30:14And so I had these boxers that would give out, but they would sell with beers. And so I always felt that I'd like to control my destiny, as it were. Again, being a product of the 70s, 80s, a lot of layoffs and insurer economies. And I said, well, if I'm going to work hard, I want to sort of be in better control of my destiny. And so that was sort of always the mindset, entrepreneurial mindset that I had as I approached business. And so at First Boston, when I went from the banking department down to – it was a newly formed group, this distressed securities group, part of the high-yield department, but we were our own self-contained business.

30:56And then within the firm, we left and started our own internal hedge fund. So in reality, being at a big firm, even within the first, say, seven years, I had started two businesses at First Boston. And so I had really a track record growing up. And then in my corporate life, even within a big firm, if you've been in a big firm and you know how bureaucratic and stilted they can be, to start a company within a large bank is no easy feat. And so I said, geez, this will be easy out of my own without all the regulatory rigmarole that was required to deal with a distressed security hedge fund within a large corporate bank, particularly one that was struggling with capital.

31:46about allocation issues. So from a, let's call it operational perspective, I didn't see it being much of a challenge relative to how I went through. And then we also were, you know, Fran and I, we started in the analyst training program together. So we've known each other since the beginning of our careers. We had worked together at this internal hedge fund. We had both been independently and collectively profitable. So there was also this belief that, that, hey, we can do this. And we felt comfortable with our ability to work hard and have a differentiated offering that was out there. And it still was, the credit hedge fund world wasn't as large as it is today.

32:35There's never any guarantee of success. We just felt that we We were good as any. And frankly, we were young. I mean, I was 29 years old. I'm like, OK, I'm single. It's you know, what's the worst can happen and just go get a job at a big bank if this thing doesn't work out. And, you know, I was in a rental apartment. And so let's give it a go. It's pretty exciting. And I guess it's it's really I'm sure you enjoy looking back on your journey and where you started and kind of where you've come. It's it's got to be very gratifying. that you know that it's not over. Obviously, you've got a long way to go.

33:13Yeah, it's funny. I remember years ago, I'm an okay skier, snow skiing. I prefer golf versus skiing. But back in the day, I took a rare vacation and said I'm going to hire an instructor, some young kid that's going to ski with me and ski with me for a week. And by the end, I liked to ski at the time. Logals, my body couldn't take it today. I would fall apart after the first couple of moguls. But at the time, I was pointing the skis downhill, and I wanted to be like the guys in that video. And so I'm sure I looked nothing like it, but inside I felt like, yeah, I was one of these guys in the ski videos.

33:56And I was doing the first couple of large moguls. And for me, I was doing it very well. And I then said to myself, hey, I'm doing this. And immediately, of course, I face planted, skis ripped off. You know, in fact, I ripped the binding from the ski. So I literally do the walk of shame, walk down the entire mountain the rest of the way and go sit at the bar and have to explain, you know, make up some really glamour story about, you know, I was doing some triple black diamond, whatever. But the reality was I let it get to me. I sort of said, oh, yeah, I'm doing this. I got this and immediately came crashing down.

34:39So I think that's sort of emblematic of how I approach life is I never want to look down, never want to look back. I always think about the new challenge and think about this is a 30-year-old startup. And I think having that mentality is critical because, you know, there's always someone new coming out there. and I have to approach it as, you know, there's new investors we're talking to all the time. There's new markets that we're entering, if you will. And it's all within the fixed income world. However, you know, new markets are being evolved and created. And so I think it's important that any company that wants to survive the test of time is to approach it like, you know, you're a startup.

35:25And because in certain areas, they view the U.S. such because it's a new relationship to them. And ours is always about new relationships because, you know, we got to make sure that we're availing ourselves to any of the opportunities that present themselves around the world. Yeah. So you start this firm and you have an investment philosophy and core principles. Would you talk through that a little bit? Obviously, we've touched on a lot of it so far, but just your investment philosophy and how you think you differentiate yourself from the stiff competition in the space. Sure. So, KingShare has always been about looking at, as I said earlier, downside protection, looking at how do we create equity-like returns out of fixed income securities?

36:13How do we look at complicated situations and be able to distill the risk and the opportunities that are presented in those situations? I mentioned the short side. I think that's a powerful orientation differentiator because many times people wait for things to fall and then they go in and investigate. I think being early in that situation, being on the short side, then covering and going along is important to be able to risk manage and capture as much of the call alpha, although I hate that expression, you know, create much of the opportunity for profits as you can. And I also think, as I talked earlier about having the trading desk and being able to price illiquidity.

37:02I think people can price liquidity, but you've got to price illiquidity. Always look at the downside. I think that's an important differentiator. I think it's important to, as I said earlier, to manage both the macro and the micro as one looks at putting together these long-short portfolios. I think, again, the global participation to be able to analyze global markets. Many times we have a smaller allocation to Asia in terms of our long-short exposure. However, it factors importantly into our decision-making ability to analyze credit and opportunities. And we've seen opportunities that we source in the U.S.

37:46and Europe that have been sourced by our Asian team. So, you know, I think it's really a combination of things. It's also not one thing at a particular period of time because, you know, we're always thinking about tools in the toolbox. And to the extent we can, you know, grow that toolbox as big as possible. and you never know which tool you'll need to prosecute the opportunity at a given time in a particular market. But we believe having this agnostic view, not only long short, but as where we're going to deploy credit. And we've heard over the years, people say, oh, I'm going to up in Asia and I'm going to give them 500 million, a billion, what have you, allocate to them.

38:31And then it's just allocated. And then there's not a, hey, are things more interesting in Europe or U.S., should I even be investing in Asia? We roll everything up in terms of risk to our global investment committee, which then we're incentivized to find the best risk, relative risk, regardless of where you found it in the world. And that's important that people know that they're compensated on the overall book versus on their particular book. Because if you start the year and you say to the different regions and different products, high yield, IG, structured credit, you say, how do you think your year is going to be?

39:15They're going to say, oh, it's going to be great. You should allocate the entirety of capital to me because I'm going to make the most money. I wouldn't say that. They're competitive people. They believe in what they do. However, we would say, all right, tap the brakes. As you find ideas, let's look at them. And so one of the things we also do is we do what's called a buy-sell meeting. And we do that every four to six weeks as needed. And we look at every single line of risk in the portfolio, and everyone participates. It happens over two days. And it's important that the other people within the firm see about what's compelling in those different markets, in those different opportunity sets, and what kind of risk-reward is available.

39:57And if they're looking at some, they're saying, oh, mine's kind of cool. with an 8%. I think it's a little low, but I think it's super interesting. And everyone's like, yeah, I got this 12 % or, you know, and they're like, oh, wow. Okay. So that is the knowledge transfer. That is the ability to ensure that people are on the same page. They understand, you know, what we're striving for. Also, you know, we look at our house view. We look at what is our, what do we think the market's going to do? What do we think is going to happen? And we continue to evolve it. We have a three month view and a 12 month view, and we continue to say near term, And what do you think is going to happen?

40:27So if we're tactical, we can reposition the portfolio to capture that over the 12 month. Obviously, we're not going to day trade all our positions. So what do we think is going to happen to set up to make money? And that way, there's this common understanding. Now, again, I say to people in the house view, there's room for different views within the house. And so it doesn't have to be so prescriptive that it doesn't give room for a difference of opinion. And because, as I said earlier, right, we were approached as like paranoia and security. You know, you never know where that new information is going to come from.

41:01And, you know, oftentimes it can come internally when, you know, someone on your team is like, hey, you know, I've been reading this and I think this is kind of interesting. This is kind of a game changer, sediment changer, or I talked to this, you know, this person over here and they kind of got a different differentiated view on things. You want to encourage that information. So it's important that you don't have this group think where there's a ability to receive new information. And that's something that, frankly, you know, we all need to get better at. I just think it's, you know, endemic on, you know, so many levels that, you know, there's not as much open mindedness as need be.

41:37Yeah. And I think that goes back to what you said earlier, which is if your hit rate is 55 to 60 percent, if you're really good, you should recognize that you're wrong a lot, almost half the time. And I think if you're in the position where you don't want to listen to different perspectives, you're probably overconfident that you're right more than 55 to 60 percent. Yeah, and I do think that the more talented people are the more unsure people, if that makes sense. And I think it's because the more talented people are the people that can take in more information, can be able to understand many different scenarios.

42:18And they can understand that there are many factors that will influence valuations in markets and particular credits. you know the the the less talented the very one-dimensional uh individuals who are incapable of sort of synthesizing because that's what we do right we're we're pattern recognition and in order to see many different patterns and and what can occur the different uh probability weighting we we think about it you know all the time is is i talk about as proportionality and probability with any investment, right? Because, yeah, you could, one can convince oneself to not do any investment or convince oneself to do every investment, right?

43:03Based on the probability of proportionality. And you can say that will never happen in a million years and you could buy everything, right? Or, and it will only impact, you know, this particular fraction of the market or this particular part of the credit that you're investing in. But again, you flip that around and, make you bullish or bearish to extreme degrees based on probability and proportionality. So I think as we look at these situations, that's another thing that we try to keep in mind at all times. Yeah. Let's talk about building a great firm. You have 250 people. How do you find 250 great people?

43:43How do you continue to scale? And how do you mentor, inspire, and instill your principles as you scale up? Well, it's some of the things that we talked about in terms of the activities, our Monday morning meeting, something else we do, the buy-sell meeting I mentioned, the ability to collaborate on individual credits, the ability to come in, weekly trader meetings to say, all right, what do they see in different sectors? So if we're always talking about relative value, if we're always talking about how markets are interesting, differentiated, We have our team come in twice a year and work in New York with us on the investment side and the whole firm.

44:28We've had them come in in December to get together and have a lot of activities. One of the things we looked at and one of our more popular sessions that we put on during our King Street Week is the what went wrong. and it's, you know, taking some of the investment situations that, you know, did not go well. And, you know, why do we screw it up? And I think that's important for all to say, oh, okay, it's good because King Street can be, you know, self-facing, can be, have that humility, can actually, you know, if we don't create an environment where people can admit they're wrong, then, you know, you're going to have these disproportionate losses.

45:15Because you got to quickly recognize, you know, that you got to cut risk on situations where the thesis is not played out. And so, you know, that's something that we intensely focus on. We celebrate longevity. We have, you know, over 75 people that have been with us over 10 years currently at King Street. However, we're always bringing in new blood and we want to continue to our best people have been promoted from within and homegrown. I think that's important. And so as we look at the firm and look at how we structure both the front and the back office, we talk about the integration between the two.

46:01Many of our complicated situations are hand-in-glove process whereby the legal team works closely with the analysts and the traders and the operations team to make sure that everyone is diligencing and working together to analyze and structure the investment that best protects King Street. And so that spirit of collaboration, as I said earlier, if we're working towards one portfolio, that's important as well, is that when opportunities come into King Street, we call overlapping circles, which is like, OK, part of this investment can go in the hedge fund. Part of this can go in the drawdown funds, and we could share in that risk.

46:47And so the sourcing and the analyzing of that risk is shared, and the upside shared by the different teams within the firm. And that helps that spirit of collaboration. You know, there's always the events, whether it's charitable events that we work towards spending time together or just summer outings or things like that. I think it's, you know, we work very hard, but we try to enjoy ourselves as well and, you know, generally, you know, like each other and try to work together with that one common goal. And I think it's important to understand, you know, King Street, you know, we're always, you know, incredibly focused on doing the right thing, which, you know, I think it's there's no cutting corners on that.

47:32So that's all part of the ethos and part of the culture that we've built together. And it's really about the people and the camaraderie that it results from common goal and trying to do things the right way at all times. Yeah, I mean, there are countless examples of small firms growing too big. They lose quality as they scale up. The culture isn't what it was when it was a smaller firm. They get complacence. the competition eventually passes them up. So I guess to keep that from happening, your DNA has to flow through to every employee. And that has a lot to do with it's the messaging, it's leading by example, it's some of the policies and procedures you've established.

48:19You make it sound very easy, but from my experience in seeing a lot of managers, they don't pull that off very well. Well, I mean, nothing's easy. I think it's important too, when people come on board, I always say to them, hey, you've worked at, you know, these great firms. You know, what did you learn? Okay, Goldman Sachs or Blackstone, I mean, BlackRock or, you know, these are massive firms. You know, what did they do there? And I think that's important to be, there's a King Street way, however, it continued to evolve if there's a better way. And, you know, we don't have some, it goes back to that, you know, arrogance, right?

49:01You can't have this arrogance that this is the only way to do it. It's our way or the highway. And I think that is important to keep in mind. And we continually focus on is, you know, we've got new people coming in all the time. But this is core group of people that's with us for quite some time. And I think, you know, there's that something old, something new. And how do you think about scaling as it relates to returns? You know, is getting bigger good for returns? Is it bad for returns? How do you think about that tension? I think in the markets, well, as I see, the markets we operate are massive, right?

49:41There's multi-trillion dollar markets. So the important thing from our perspective to monitor is, are we big enough to be relevant? Which we are. plenty big enough. And then to your point is, are we too big? You know, some of these funds, they're, you know, raise funds as big as our total AUM in a single go. And they'll say, oh, and we see all the opportunities. And I'll say, yeah, but you have to do all the opportunities. And I think that ability to be selective yet see the opportunity set is an important distinction. And so I've always felt that, you know, we're not, at least King Street has never been, and I don't foresee us ever being in an asset gathering mode.

50:23And that's, you know, we want to be relevant. We want to be able to, you know, compensate the best people and be able to offer the best risk adjusted return for our clients. And that's an art, not a science. Obviously, if the markets go straight up and you're long, you know, you're a genius. If they're dislocated and you try to reduce risk, but you have too much in a particular subsector, then, you know, you're too big. So, but I think I've been doing this long enough to know what sizes and, you know, we have quite large markets. It also helps who've been around for a long time. Many of the relationships that I forged when I first started are now very senior levels.

51:05So our counterpart relationships are quite broad and deep around the world. And that's, you know, those are important differentiators that enable us to source interesting risk. And again, to offer our perspective on markets and situations because there's always this partnership aspect, whether it's with clients or it's with counterparties that are looking to move risk. They want to make sure that they're dealing with some of the experienced hands that are also incentivized the right way. I think we've seen at times that businesses, they get too big, their incentives are not aligned because they're not able also to be solution providers to the clients as we can.

51:54Yeah, in our industry, in the investment management industry, if you're too small, you can't really attract the best people and keep them. If you're too big, your universe of available investment options shrinks. And there's a kind of a not too hot, not too cold right in the middle. And that's subjective. But generally speaking, it seems like that's how you think about it as well. Yeah, that's fair. Why don't we talk about the market and your outlook? If you kind of start from a very high level and you zoom out, you had 40 years of falling inflation, falling interest rates. And, and it's very possible we hit a major inflection point, and we're in a higher for longer environments.

52:39And that's still yet to be seen, but it seems that way, at least to this point. So how do you think about from a very big picture, where are we headed? And then, and then we'll zoom in a little bit on maybe some specific opportunities that you're saying. Sure. So, obviously, as you pointed out, we've had 82, 40 years forward. There's been massive one-way, jagged downward trend, but generally downward trend towards rates and then zero rates and then pandemic, et cetera. And, you know, we all know. And part of this stuff is people underestimated, you know, how quickly rates could go up. And then I think they're overestimated how quickly they go down.

53:23And you look at the performance in the last couple of months, it's been stunning, right? You had IG, you know, down one and a half in October, you know, really not much in stocks, et cetera. And then just, you know, November, December, been massive. And some would say pull forward of returns from 94 into 2023. Certainly, you saw that in some of the high-yield situations as they retraced to begin 2024. And we're seeing dispersion increase where the have and have-nots continues to increase. Certainly, there's still a lot of liquidity out there. financial conditions index continues to improve, particularly when you see asset prices reflate as quickly as they have.

54:12There was this, oh, Fed said, you know, three and market price in six rate cuts. And now the market's like, well, maybe it's not that much, right? Because from our perspective, looking at this six rate cuts, well, geez, it's can't, how are you going have a no landing, soft landing, right? Or stick the landing, whatever they want to call it. Now, I'm not saying it's going to be a hard landing, but I could see a soft landing and then gradually going into a harder landing as the economy goes on, principally because of the debt loads that are out there. And I do think if, well, observing some of the predictions on GDP growth globally.

54:55They're not talking about robust, you know, real or nominal growth here. And so the challenge is going to be also from a liquidity perspective, if you think about the funding needs, because a lot of this has been central bank propagated because not only on monetary, but fiscal policy, a lot of the large assets incurred. And finally, they've done some So you had a 6 % fiscal deficit in the United States, and we've blown up the debt loads. And going forward, there's going to be a competition for capital in our mind as you look at both on the government side competing against the funding that is going to be required on the corporate side as this maturity wall is hit on real estate and corporate bonds.

55:48Now, it's come off the wides recently in the last couple months, as you saw this big rally in credit that we talked about and equities. And so people are refinancing and they're racing to refinance now. So there's a mash. Now, there's still two and a half trillion or whatever the number is of equity needs to be spent by private equity. And so they're getting a lot of pressure and they're like, use it or lose it. So they have to price. And so there's going to be more debt issued from that. And so I just look at the different pockets of funding that will be required, which I think is going to be difficult for this price to perfection market that we have in terms of spread and rates.

56:27I just find it difficult. And again, if you're going to have all these rate decreases and have the market still be OK, I just think you're going to ignite inflation again. So I would say on the markets overall, I think it's going to be sort of a middling year. I think it's going to be a bifurcated year. I think the stronger names and high yield, which are higher quality and investment grade, will be fine. And then the question is going to be the weaker names because you look at, say, private credit, for example. A lot of those names are struggling with interest coverage. And so that is going to be problematic.

57:10And so to sustain the cash flow as we have higher for longer in these rates and, you know, the growth picture on top line revenues, I think, is going to be challenged. And, you know, it's been surprising if you think about all geopolitical difficulties in the world today that oil would be where it is. I think that's surprising. That's been a pretty good tailwind for markets. I think unemployment, again, price to perfection. You see some of the temporary staffing businesses. And they're sort of the early warning signal. They are slowing. And so I think hours worked are going up. And people look at the fact that they laid off a bunch of people during the pandemic.

57:57It was hard to bring them back because it was all this fiscal support that was out there, unemployment insurance and people have to pay their student loans or their apartment bills or, you know, mortgage, all this sort of stuff that was, you know, pushed out or forgiven outright. And I think that's going to be difficult to have happen again if we have another downturn. So I definitely think there will be further dislocation. And again, this dispersion continue to increase where, you know, on the wider, more difficult, highly levered names are are going to suffer disproportionately. Yeah, I think of it as you kind of had the tailwind for decades.

58:38And then there was the shockwave. And first you had COVID, and then you had the response to COVID. And then you had the higher interest rate hikes in response to the highest inflation in 40 years. And you had this massive shock to the system. And there's going to be shockwaves that are going to reverberate for years. And I think many people, they just look at the recent past and they extrapolate that into the future. But unless you zoom out and you look at that big picture shock, I think you may be missing some major dislocations that'll happen. Is that how you think about it? Yes. And many investors today, they've lived under the auspices of the Fed covers, you know, all the issues.

59:24Everyone gets the trophy, right? We're that kind of generation. And so I think that, I mean, we haven't, many people haven't lived through a recession ever. You could say, oh, different points, GFC, et cetera. But it really wasn't a, you know, you didn't live in the 70s, right? You didn't live, you know, and so 90s and, you know, parts of the 80s. I mean, so I think there was, you know, this complacency. There has been this complacency that has come into the market where the Fed is able to, I mean, And like their job before was monetary policy, and then it became fiscal and monetary policy. And so now we just – everyone has too much debt, and everyone can't pay it.

1:00:07So you got two choices when you have too much debt, right? You can inflate your way out of it or default your way out of it. Well, we tried the inflate thing, and all that did was give us more debt. And now, that being said, the better companies have still a pretty good coverage ratio in terms of their debt-to-interest coverage ratio. But again, it goes back to this bifurcated situation. I always say the worst go first. So I think it's incumbent upon investors to look at what scenarios in prior cycles. Because, you know, people look at the last 20, 30 years, and to your point about, okay, you've been a bull market for bonds for 40 years.

1:00:51So go back 100 years. You know, what sort of, you know, can happen in these markets? And they can say, well, it's different now, right? It's how many times you heard that? And that's like sort of the death knell for opportunities. Someone said it's different now. You know, I get it. You know, it's different because there's more liquidity, which is double-edged sword, right? I mean, people get used to – I remember them talking about high-frequency traders and say, oh, no, they're good for the markets. I said high-frequency traders are providing liquidity when it suits them. It's not like the old-school, you know, specialists on the floor exchange, if you remember those, and they sat there and they made markets and, you know, they end up, you know, getting carried out, right?

1:01:34Right. So, you know, I think it's important that one should put this liquidity and the markets in perspective of what can happen and where the incentives are. You know, the incentives are for them to long term capital. Right. It's like, oh, yeah, it's great. And they went and leveraged a balance sheet with everyone. Look at Olympia and York. Right. I mean, they pledged their balance sheet, their real estate to everyone. Right. So I think we're better today in terms of the structure, but there's still a fair amount of levers that's predicated on functioning liquid markets that at times can get dislocated.

1:02:16Yeah, that's for sure. One thing that I think is interesting, if you look at the last 30, 40 years, when you're in a falling interest rate environment, so I mean for until 2022, we're either in a falling interest rate environment or near zero interest rate environment. And it's easy to refinance when rates are falling. Yet, if you're in a period where rates are either rising or they just stay higher for longer, and maybe the economy slows more like the 70s, that's not so easy to refinance. So that's a very different credit backdrop. Yeah, I mean, you look at today as well, and you see the collateral and the banks continue to get squeezed.

1:02:56And so as you look at the private markets, they're getting larger and larger as the QSIP market. And so, you know, we've always had a very active and deep capital markets and always seems to be solutions. But, you know, if you look at, say, you know, the private markets, they're not regulated by the feds as, you know, in the central banks as the public markets are. And so, you know, there's just risks of excess that occur as a consequence. And, you know, refinancing, yeah, I mean, people take it for granted. And also, let's be clear, if there's an existing amount of debt that's out there and new debt becomes issued and, say, another credit, maybe that's, you know, something that's interesting.

1:03:49And the people who own that say, I'm going to sell mine and buy that because that's a bit more interesting, maybe a bit more asset coverage or covenant protection or, you know, interest rate, what have you. So you can have those orphaned existing, and then it becomes difficult to refinance. And again, these are fluent markets. They're not static markets. So you hit these maturity walls and might have been interesting when it was issued. But as I said, as the issuance and the profile, credit profile can evolve, one can hold some security that is challenged in terms of refinancing because of its lack of investor protection.

1:04:36Yeah, let's talk about this historic tightening that we had, rates from zero to five plus in a very short period of time. And when that happened, there was broad consensus. Almost everybody was thinking, okay, a massive recession is next. You had an inverted yield curve. Yet here we are, the economy seems to be holding up just fine. Is your sense that it's just a lag response because of all the, maybe the stimulus beforehand? And how are you thinking about this? And is the reckoning down the road? I definitely think it's a lag response. The government, the Fed is still paying on balances, which was a, you know, GFC response.

1:05:18And so, banks are still receiving money on deposit, the Fed. There was obviously the savings that was out there. There's a tremendous amount of private market response that was able to bail out a number of these companies. And then, you know, as, and I do think, you know, technology, innovation, and continue to control costs. You know, it continues to be amazing how markets have been able to evolve. Again, look at Europe versus the U.S. and our response. And, you know, they always say that Europe, 75 % funded by banks, 25 % markets in the U.S., 25 % funded by banks, 75 % markets. So there's a lot more flexibility in the United States in terms of access to financing and ability to refinance, to your point, than, say, Europe.

1:06:16Also, you have demographics. There's also this regulatory morass that the eurozone suffers under and then Brexit in the UK. And a lot of the banks have these floating rate mortgages. So people – the transmission system happens through refinancing. If you think about these higher rates, that's generally how it occurs or refinancing, resetting. And so short duration or floating rate, it transmits more quickly. And so if you think of a homeowner in the United States, what they'll tell you is their best hands-down asset they own is their 30-year 3 % mortgage. Because it's like, you know, I nailed that one.

1:07:04Now, what's happening is it's technicals are such where you're not getting many people sell, right? Because they're like, no, I got to go refinance. I can't afford, you know. So to unlock that value, that's the high prices. And so prices have stayed high. So rental markets stayed high. Supplies stayed low. And so, you know, it's kept those asset values higher. Now, compared to the Eurozone, which more bank financing, more variable rate and mortgages, there's been a more pronounced slowdown. Now, refinancing is starting to occur because people are saying, oh, this tightening in the U.S. from 23 to 24 plus the 25 maturity wall.

1:07:50But these are some of the companies that we had felt that, geez, they're not going to get financing. They're going to hit the wall hard. They're able to refinance at the moment, not all will. So it's going to be, again, the better quality credits are going to be disproportionately enabled to have access to cap markets versus some of the weaker credits. We like to say the worst go first. And so that's an important distinction to make. So I think it's just, we'll take time in these markets. And, you know, it's due to a confluence of different events that has enabled this economy to continue to be robust, despite, you know, what would many times historically.

1:08:33I mean, if you had said to somebody, there's going to be a war in the Middle East, there's going to be a war in Russia, Ukraine, where do you think oil is going to be? I don't think anyone would have picked, oh, it's going to be 60 to 80 in terms of – it's got to be over 100, 120, 200, whatever. So I think that there has been this compartmentalization that has gone on in many markets and, you know, a function of, you know, basically, you know, it's the banks are in better shape. Private market solutions, some more liquidity associated, more dispersion has increased. But it's in the main, the bigger quality companies have done OK.

1:09:20And obviously, we're late in the economic cycle. oh, we haven't had a recession for some time. You had this historic rise in interest rates. How do you think about maybe the lag effects of that affecting credit? And are there any specific sections or segments within credit that you're finding dislocations currently? Well, I mentioned commercial real estate. So real estate, that's certainly one of the areas we do what's called LME, liability management exercises, where we take whether it's loans or private credit situations where we're able to go into as a solutions provider to a company, maybe sponsor, private equity sponsored, and provide a liquidity solution very specialized to these companies.

1:10:09But there's a number of these opportunities out there. We have a CLO business, collateralized loan obligation business, where in structured credit, we see a lot of companies and have relationships. We've been investing for quite some time, both in the U.S. and Europe, and we're able to identify these mispriced opportunities and come in and help bridge the liquidity gap that is occurring due to an in-depth analysis of these companies. You've been very generous with your time, Brian. I want to end with one insight that you feel is unique that you've learned throughout your career that many may not have heard elsewhere?

1:10:55Is there one unique insight you'd like to share to close? Yeah, it's hard. I mean, I think over the years, we've always talked about different ways to approach markets. I've always felt that But being able to be flexible in the mandate and being able to think about the first, second, third derivative of what influences a company is critical. And so I see many times there's a simplistic approach. approach. However, as I continue to learn, I've learned that it's not only sort of the research edge, it's the trading edge, it's looking at, I think, as I was saying earlier, in terms of how we approach risk, but it's also operational risk, right?

1:11:52Do we structure this covenant and we see, based on pattern recognition, some of the pitfalls that can occur with the improper documentation? So I guess, you know, the insight is really a culmination of insights and putting it together and understanding that organizations are important. I think as we've observed that it's not just one part, and that's why having this ability to bring it all together is so critical as we look at what investment is suitable to be in our portfolio. It has to be, you know, a number of different traps, both macro and micro, you know, trading research and operational.

1:12:39Is this something that is suitable and what can go wrong? And so having and then rolling that forward continuously. So I don't know that it's a particular differentiated, but it's, I think, differentiated in the sense of it's a amalgamation and a culmination of this, you know, experience that continues to evolve. That's great. Brian, I really enjoyed our conversation. I hope you and our listeners did as well. Thank you. It was great being with you, Alex. Thank you. And always loved to chat with you and always love to talk about the opportunities in market and King Street's ability to take advantage of it.

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1:14:36Thank you.