Alan Waxman - Private Credit and the Modern Financial System - [Invest Like the Best, EP.466]

25:46And all of a sudden there started to be a proliferation where literally three years prior it was not in any conversation. Every conversation was SMAs. And what it is, It was just the industry starting to raise capital from the institutional channels. So not wealth, the institutional channels. So pension funds, sovereign wealth funds, to some extent endowments, raise as much capital as possible in the simplest form. Started on the institutional side with SMAs, but the growth in institutional SMAs started to really taper off. The next place where the industry started to go was the wealth space. and the wealth space in general, just from a historical perspective, it is typically the easiest to raise, the simplest to raise.

26:30It's typically the cheapest. That doesn't mean that they're not smart, just the cheapest. But the other characterization of the wealth space is that it's always easiest to raise in the pro-cyclical environments when things are going really well. But when things start to not go well, the wealth space or retail or individuals want their money back quickly. I just want to level set on that. It's an important concept. And that's where it started to go. And that got us to one of the symptoms that are here today. But the one thing I want to point out, and we'll talk about the current moment, is that the SMA was a symptom.

27:05What's going on in the wealth system? The wealth system is a symptom. When you think about some of the stuff you see in stuck private assets, where there's so many assets around the world in private real estate, private infrastructure, private equity that literally were companies or assets that were bought and really post-COVID sort of 2021, early 22 paid way too much. They're stuck assets. All that stuff is symptoms. The root cause of this is the change of behavior patterns of the factory model. That's the root cause. And again, one of the things that's not frustrating, but unfortunate is that everything that is covered in the media is just talking about the symptoms and not actually getting to the root cause.

27:49And again, when you think about history, people talk about the symptoms, but when you start to diagnose what happened and how we got there, it had to do with the root cause. And I think that's something that hopefully this conversation provides some greater clarity on. So if I think about this model and we've talked about, maybe you can mention the multiples that markets had been putting on asset management companies that we can look at public markets and see everything transparently, how much markets were willing to pay for the equity in multiple basis, what the multiple is of that drives the incentive to raise money.

28:23The story of the factory model starts to correspond with FRE multiples. What is FRE? FRE stands for fee-related earnings. Fee-related earnings is basically your management fee profit. So you raise a fund, it's got a management fee on it, you got a set of expenses, and what's left over, that is your fee-related earnings. These things for our industry started traded between, let's say, early 2010s, call it 10 to 15 times FRE. In 2018, when all this started, it stepped up to call it 15 to 20 times, obviously depends on the comp set. Before this current moment, we're at 25 to 30 times plus. That's where it is.

29:06And by the way, if you go back to their early passing of Basel III and Dodd-Frank, there was a massive secular opportunity to fill the gap that was left from commercial banks being constrained. Then the system found its sort of city-state place, but in order to keep growing, And again, it's the whole industry. What did they do? Many participants adopted the factory model. And is maybe the crass way to say this, in the factory model, the GP, the founder of the firm, stands to make a lot more money from the equity of their GP than from the carry they would earn through investing or something like this?

29:40What I'd say is that, look, to be a CEO of one of these larger, it's hard. You have a lot of different constituents. It's really hard. As an investment firm, sometimes it's good to grow and sometimes it's not good to grow. It depends on what's the investment environment, what's quality of your liability structure, what's the flexibility of your investment model to sort of migrate to where the best opportunities are. It just depends, but I think it boils down to what's your clarity of purpose. There are a number of people that are public that I would say have not adopted a factory model. There are a number of people that are not public that have adopted a factory model, maybe because they want to get bought by one of the larger guys, or maybe if you're a midsize firm and you want to be one of them.

30:27The issue is just because you're large and just because you're public, it doesn't mean that you've adopted the factory model. It's like, what is your clarity of purpose? Now, if your clarity of purpose is to be an investment bank, then maybe that is what you want to be, a factory model. But if you're going to do it, you better have really good risk management. And that's why if you look at commercial banks, Jamie Dimon is probably one of the best risk managers of all time. What he can do from a risk management perspective, and you saw in GFC and you've seen other times in his career, he's a better risk manager, but the rest of the industry that follows suit because they want to be Jamie Dimon, they might not be as good of risk managers as him.

31:04And it's the same thing over here. So it's not just the larger guys, because remember, the industry always follows the larger guys, but it's not certain that just because you're public, just because you're large, that you've actually adopted the factory model. What are the most common in your mind, telltale signs of a firm that's in this model? What does a firm that's adopted the factory model look like that's distinct from an investment model-based firm? First of all, you know it when you see it. You can see it in the underwriting. We're in a bunch of different asset classes. You can see it. Particularly like if you're a fixed income investor, a credit investor, because you have capped upside, there's terms you just don't give.

31:42a lot of those terms have been given to facilitate deployment. You should not do those terms because it's all good when you're in a post-sickle environment. But if you have capped upside and you're earning a 10 % return and all the collateral that your 10 % is based on can literally be taken out of your collateral package overnight, or for that 10 % return, you can be levered up because let's say there's an AI disruption and some software companies reposition their business and they can basically lever you up. So you go from 50 % loan to value to 120 % loan to value. Those are just things that you shouldn't do for a 10 % trim.

32:19The first time we did this, we talked a lot about return per unit of risk. It basically sounds like the thing happening in the factory model is that that has fallen out of whack. The objective function becomes more deployment of capital because that ties to size of my business, multiple in the business, how much money I'm making as a shareholder or whatever. and it's fundamentally divorced from the investing equation, which is return units per unit of risk or something like that. So map this onto like the news cycle today. What is happening? Where are their asset liability mismatches? What are the nature of them?

32:52What's the implications? Again, go back post-COVID, that's when the wealth space took off. So the democratization of alternatives or private capital, which just to be clear, not against that. Some of the factory models that are out there have raised capital from the wealth channel in irresponsible ways. So first of all, in general, you're taking an illiquid asset and you're giving investors an ability to get their money back quarterly. They say semi-liquid. There's no semi-liquid. Okay. There's no such thing as semi-liquid. Anyone that's an investor that's been through a bunch of cycles. There's liquid and then there's illiquid.

33:34Because again, going back to the history of the wealth channel or individuals or retail, the one thing we know, it's very post-sickle. We're in a post-sickle environment. It's easy to raise money. And when you're not, and when there's problems or dislocation like there is today, they want their money back. So you basically had mismatching of illiquid assets and liabilities. So that's one part of it. The second thing is that they would raise these very narrow. What I mean by narrow is it's just direct lending. So it's not like you can invest in direct lending and real estate and infrastructure and asset-based finance.

34:08No, no, just very narrow, just direct lending or just asset-based finance or just this strategy. That's a narrow strategy. And maybe that's okay if you raise the right amount of capital, but if you raise an unlimited amount of capital where your investing is dictated, not on good investments in the market, but basically dictated by how much money you can raised. There's never a governor on how much money to raise. And the thing about these wealth vehicles, when they raise it, they have to invest it right away. We call it inflow investing. They have to invest it right away. So they raise as much money as they can.

34:38And if they don't invest it right away, it dilutes the return of that vehicle. To ground this in actual reality as much as possible. We've talked about all these guardrails, all these incentives, the three problems, all this stuff where the system structure begins to determine fate. What is fate? What is actually happening today? What's happening today is there are these vehicles called perpetual private BDCs. These have been raised in the wealth channel. So individuals, wealthy, massive flint, they've been raised. And again, in some cases, not all cases, in very narrow strategies, so just direct lending or just private equity.

35:18And really the catalyst was software and AI and also some of the market volatility, but started to question the quality of their portfolio. Or it could have just been market volatility because of what's going on outside of this, where people want their money back. There's a limit on how much money people can ask for. And basically a lot of in the perpetual private BDC space, the amount of money people have asked for has exceeded what is the 5 % limit. And that's creating all the noise that you're reading about. What's the range of so what's here? I can imagine one so what is like tough shit. You can't have your money back.

35:59And the world keeps spinning. Another is something dangerous and scary and systemic because past financial crises have tended to be downstream of some domino, you know, like private BDCs or whatever it is. Each time it's different. What do you think the range of implications of all this is? I don't think this is a systemic issue yet for two reasons. One, we're only five years into this, so it's early. And the second thing, at least for now, there's a pretty strong economic backdrop. There's definitely risk to it. And so I don't think this is systemic. It could turn out that way, but that's actually not what I think is going to happen.

36:40I do think there needs to be a major recalibration of behaviors in the way that people approach this wealth channel. because if you go back to what we talked about earlier, anytime society or finance system puts wealth or retail individuals next to principal risk-taphing, if you look throughout history, that's where problems start to happen. Most of it's been with commercial banks because that's been the primary pillar of the finance system. But now with this new pillar in private capital, it's starting to touch risk capital and it's starting to become more asset liability mismatched. But when you look at the quantum of the problem, as at least it specifically relates to this, it's pretty small in the grand scheme of things.

37:28So what's going on is in private markets, in the wealth channel, very small allocations to private investments, historically, 1%, 2%. And that channel is smart. They see that value creation and returns are happening without them in private markets. They want access to it. Seems fair. that 2 % is expected to go wherever, 10 plus percent in the decade to come. So I guess the question is, how can we do it responsibly? If you are going to raise a narrow strategy, just directly or just privately, you need to govern the amount of inflows that come in. So sometimes you just say, no, maybe you have a waiting list.

38:06But again, because flows come in in pro-cyclical times, if you only have a$100 million vehicle, maybe it's always a good time to invest. But if you have a much larger view, it just gets really hard because maybe it's a good time to invest, maybe it's not. And that's why I think where this will go responsibly, I think you're going to have to have very wide apertures because ultimately in every ecosystem, whether it's direct lending or private equity or real estate or infrastructure, they go through supply-demand dynamics. Sometimes there's supply of capital is really high and demand is low. That's probably not a good time to invest.

38:43and sometimes demand of capital is really high and supply of capital is really low. Again, not certainly, but probably a pretty good ton of this. And it oscillates within each ecosystem all the time. So I just think you want a wide aperture, but if you're gonna do that, you can't just all of a sudden show up, which is probably what's gonna happen after this week. Everyone's gonna show up and say, oh, I'm a multi-strategy private capital fund. I'm gonna do whatever. Well, yeah, you gotta be able to do it, but you also gotta have the capabilities to be able to do that. And there's a number of people that do, But you can't just all of a sudden do it.

39:15It's like a style of investing. And I think those are the key attributes that will make up responsible investing. But I think the biggest thing is just being very upfront. When you want your money back, you have to assume it's a 2008 crisis, 1929. And if you're comfortable keeping it invested, then you're probably a suitable investor. You said before that maybe System 3 could be like the Goldilocks scenario. I was always interested in around financial crises, moral hazard as a topic, and the socialization or spreading of this risk that one person takes to make more money and they'll be bailed out or something like this.

39:48It seems like this mismatch, this asset liability mismatch is something that in the current system, maybe it's cyclical and it waxes and wanes, but selfish people are gonna take advantage of the ability to raise more money forever unless the responsibility is mandated or regulated or more clearly laid out. Do you think we have some evolution still to do to create the Goldilocks scenario? I think that's what really needs to be thought about. I think that's going to happen as part of this recalibration process, but that is a much better outcome. There can be good legislation, but there's a risk that it's not the right guardrail and it's not good for competitiveness and it creates like the next crisis.

40:28The best answer is a market mechanism like you have within institutional investors, where if you do irresponsible things or you're not a good investor, if you change your business model, they're going to punish you by not giving you money for your next fund. If I turn all of this into ideas or guidelines for people running investment firms or who want to launch an investment firm or something, what are the right principles to take away? Obviously, one is keep your liabilities and your assets well-matched. That's a major one that anyone can do. And maybe you have to work a little harder to raise money, but you'll be thankful for it.

41:01A second is maintain an underwriting standard that's extraordinary or however you want to define it. Any other major advice that you'd give to people running investment firms or just principles you have for building Sixth Street that flow from all this history and thinking? First, what's your clarity of purpose? What's your day one clarity of purpose? Is that, say, consistent over time? Like, is your clarity of purpose to raise a bunch of liabilities, or is it to drive good returns for investors? Maybe it's both. Maybe you can do that. Maybe some firms can do that. But what is your clarity of purpose?

41:33It's something we talk a lot about at Sixth Street is that if you look at all the great companies that have been around for a long time, they got one thing right. Is they never forgot what their purpose was, which is to serve their customers. It's enticing to raise a bunch of money. It's enticing once you raise it to invest a lot of money. That doesn't mean that you have to do it. Sixth Street, we're a multi-strategy private capital firm. We do a bunch of things. One of the things we do is direct lending. We have one of the best track records. We've been here longer than in direct lending. Like I started the direct lending business at 2001 when there was only two of us.

42:10So we've watched this. And we could have gone to the Wealth Channel and raised all the same vehicles because of our track record. and we have, you know how many dollars of perpetual private BDCs we have? Exactly zero. It's not that we couldn't have, we just didn't think it was the right thing and we didn't think it was consistent with our clarity of purpose. And that's why we didn't do it. It's easy to get FOMO. I just think you just got to block out that noise and it always comes back to first principles of clarity of purpose, what are your values? And if you stay consistent with that, judging by the best companies that have been around for a long time, that's your pathway to building a great company that's going to be here for a long time, not short-termism.

42:54Again, back to the news cycle, there's this thing of firms that manage lots of private credit strategies, SMA exposure, et cetera. Some of their stock prices are really hurting. And we've talked about all the reasons, ad nauseum for the mismatch, et cetera. What do you think happens in private credit land? I think and hope that this is going to be a recalibration people are going to re-adopt a more prudent underwriting. I think people in the industry will change behaviors. And by the way, in some cases, the market will change their behaviors because you may not be able to raise more capital. So the market mechanism, I think, will work.

43:35And then obviously, and this is a hopeful, I think it'll stabilize. And hopefully the best thing about the current moment is that this happened not in a deep recession. that happen when the economy is pretty relatively helpful. I mean, there's definitely risk out there to be worried about, but this would be a much different, if you think about redemptions on a lot of these wealth vehicles, if it were a distressed environment, the redemptions will be 2, 3x what they are. So to me, this is a gift to the industry to recalibrate. And there's a lot of smart people in our industry, a lot of great investors.

44:07And I think the industry will recalibrate. And then if you think stepping back for the American financial system, And commercial banks, you could have a really powerful system supporting economic growth with commercial banks providing one pillar, safer, good guardrails and private capital providing the risk capital. That's a pretty good system. And I think if we get that right, it's really going to set up America to be really optimize economic growth. That's what I'm hopeful about. Your finance team isn't losing money on big mistakes. It's leaking through a thousand tiny decisions nobody's watching.

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45:23Visit workos.com to skip the unglamorous infrastructure work and focus on your product. Ridgeline is redefining asset management technology as a true partner, not just a software vendor. They've helped firms 5x in scale, enabling faster growth, smarter operations, and a competitive edge. Visit ridgelineapps.com to see what they can unlock for your firm. You alluded to AI and software being one of the early dominoes that got this whole discussion rolling and people's redemptions and reactions and things. It seems like if you think about creative destruction as a force driving the U.S. experiment since its inception, talk about facing a tiger.

46:01We are facing a hardcore period of creative destruction. How do you think about that, given the open wide mandate of Sixth Street, your ability to go put your capital and your customer's capital in so many different places? Just talk to you like the opportunity set today. Of course, I want to hear what you think about like AI and software. I can't help myself. This just feels like such a time to be alive, but also opportunity and danger. There's lots of opportunity. I mean, I live on the LLMs. I play with them. And actually, my wife makes fun of me because I'm constantly playing with my friend Claude or my friend Chad or my friend Gemini.

46:39Not your friend, Grock? I actually play with them all because I like to ask them the same question to see how they answer it differently and just to try to get a feel for it. But big believer on the productivity opportunity. There's a lot of good with it, but there's definitely risk on the transition. You mentioned software. That was one of the catalysts that got us into the current moment. But everyone's so focused on software. I think having lived in Silicon Valley, I know you spend a lot of time there. This is not just software. This is every industry. Because once one company in any industry figures out how to actually use it as a tool and really figures out how to use your agentic capabilities and drive higher margins, if you're one of the companies that's a slow adopter and you're not active, you're going to have some of the same problems that people perceive.

47:28the overall software industry to have today. So it's not just software, it's across everything. But look, it's one of the best things about the American project is creative destruction because it allows for prudent allocation of capital to the right places that are gonna drive the right outcomes. If you think about the unfolding set of opportunities that it creates, one of the categories that you and I always talk about that I'm so interested in is one's own development. And the highly adaptable people seem like they're going to be set up for lots of success in this environment. How do you think about your team?

48:02And I know you have a team that's very long tenure that tends to be at Sixth Street for a career. How do you think about their development and new things that you can do as the leader to make sure that they are all dynamic as things change really fast? Like I know you're playing with the LLMs all the time, but this is an important part of your job, your team. How are you thinking about it? When we hire someone, we're looking for a lot of things, but two of the things that we're looking for. Are they an open architecture person? Like, can they play tennis, what we call playing tennis, balance different ideas even when you disagree with someone?

48:35And the second thing is, are they a learner? Surprisingly, we track all the AI usage on the LL models. Our usage across our entire firm is off the charts. One, because of the types of people we hire, but I just think in general, in stepping away from Sixth Street, is that if you're not adaptive in this environment and you're not a learner, you're literally committed to learning every day and improving yourself every day, you have the risk of getting lost in what's happening and about to happen in a more accentuated way. I have an off-the-wall one for you. It's been deeply impactful on me. Can you explain this paper one-sheet system for how you get everything done and track what you do?

49:18I actually did a presentation to our entire firm on personal organization systems. Because I think as an investor, as a business person, the scarcest thing you have is time. And one of the most important skill sets is your dynamic prioritization of that time on the highest impact things. So we always talk about return on time. And what my personal organization system does, I call it the brain, is I literally try to get the way my brain is structured on one sheet of paper. so all my important priorities, people, businesses, investment themes, I made changes over time based on what's needed for me because my job changes every year because I have to evolve.

50:03I try to get my brain on paper and it allows me to dynamically prioritize where the highest return on my time is. That's number one. And the second thing it allows me to do is I capture so that I never have loose ends. I try to always follow up on everything, be proactive about things. I just think proactive is a key thing. It's very clear what my top five strategic priorities, all the tactical stuff, and I'm constantly looking at it, updating it. I do it all by hand. Because for me, I have to actually put pen on paper. Once my sheet fills up of all my tactical stuff, the small stuff I have to do, I start a new sheet, and then I write literally all of it.

50:43It takes me like an hour. I generally do it on a Sunday. And there's never a time I actually go through that process on a Sunday where I don't connect two or three dots or think of a new idea. That's my left brain. And that's why on the second sheet, which I can't remember if I should do. Yeah, we did the right brain, right? And then on my right brain sheet, which is the second page, which is all my creative ideas, themes, business building ideas, people, better leadership, just whatever comes to mind, thinking about the current moment. I literally start thinking about why are we here? How do we get here?

51:16That's kind of how I started to really dive into history. And I just write stuff down and I track it. And I've done that for 25 years. So I have all my right brain thoughts over 25 years. And what happens is I'll go back and I'll look at them every year. At the end of the year, I go back and read all my right brain thoughts. And sometimes there are ideas that I had from 10 years ago, from 15 years ago, that surface today and become relevant today. So I try to get my left brain on the first page, my right brain on the second, and then I try to get them working together. And again, it just helps me see things I want to just to clear thinking on so I can try to see the world, not only for what it looks like today, what it's been, but also where it might go and how can Sixth Street be part of that.

52:01One of the things that stuck out to me seeing the actual sheet, I'm thinking about the left brain sheet, where there's different boxes. I'm curious what the different boxes are. And one of the things that I found very powerful was that one of the segments is a list of people to call. It was a crazy list. It was like a shitload of people and then like tons of strikeouts. And when you run out of space, you then copy it to another page, but you also copy over all the stuff that is lower turnover, I guess I would call it. And that act is like a big part of just embedding it in your brain. The process of that.

52:33So looking as part of it, but the best ideas come out of actually the process when I'm writing it all down. Physically writing. So what are the other segments of that first page? So there's a list of people to call. There's like five or six boxes. I can't remember what they are. What are those boxes? I think I told this last time. We have everyone affirmed to our personal business plan. My personal business plan at the end of the year, I've done for, I don't know, 25, 30 years. It takes me three weeks to do my personal business plan. And that's why I said to you last time, we spend all this time evaluating companies.

53:01Do they have a business plan or not? And then most people, do you have a business plan for yourself? They don't have one. That's why we make everyone in our firm do personal business plans. But from that personal business plan I do at the end of the year, I get a lot of clarity just from reading, going back to stuff I wrote. What are my top five priorities of how I can drive the most impact to our firm, our investors? What are the absolute complete clarity on what those five things are? And I have a box for each of those five things. So that's five boxes on each of those things. Then I have high priorities because again, those have different cadence to them.

53:35Everything has a different cadence, which is why I think you have to see everything together. The boxes on the page change every year, just like our themes every year change. Everything has to change every year because it goes back to adapting because the world's always changing so quickly. If you're not adapting yourself, then you're going to get lost in this world. So I'll have my five strategic priorities, my time. I'll have people I really want to focus on. This could be internal, external. I also have on there my health because despite drinking this, I think about it because I actually think I have to be healthy to be able to do my job.

54:10What would be an example of something that gets written down in health? I've got on there vitamin D. I'm very focused on vitamin D. I've got my left hip. I had an old soccer injury, so I'm focused on left hip mobility. But it's something you just see every day. I see it every day. Yeah, everything. Like there's different things. It's also the personal side. So I keep balance. It is an intention system, but it's also return on time system and an ability to dynamically prioritize. You talk to younger people who are just coming up to the business, even some older people still don't know how to prioritize their time.

54:45It's really hard to do because literally you could spend all your time on one thing. So how to manage the time and just being able to see that in your brain or in the matrix, That's kind of how I think about it. Another thing that the last time we talked really stuck in my head was I just turned 40, and we were talking about the opportunity you have from age 40 to 50, which got me wondering about 20 to 30 and 30 to 40. If you think back on the major eras of building and managing a life's work and a career tied to specific ages, what have you learned? 20 to 30 for me was education, learning just as much as I could, asking as many dumb questions as possible.

55:2523, you think you know stuff, but if you haven't been through cycles or made a lot of mistakes and seen other people make mistakes and see people make good decisions and good long-term decisions, short-term decisions, you don't really know anything from your 20 to 30. 30 to 40, you're incredibly ambitious. You're still learning, but you're trying to prove yourself. I started Sixth Street with my partners when I was 33 or 34. So I didn't know what I didn't know. I mean, I knew a lot, but it's like, you're going through that, but you haven't made enough mistakes yet to like refine everything. And you get to 40 or 50 and 40 or 50, it's like, if you've spent time learning again, continue to learn, you've made enough mistakes.

56:07You really know who you are at that point, know who you are as an investor and how you approach things. It's prime time. You get to 50 and then you're trying to really focus on being a mentor, for developing the next generation and just trying to provide that voice in the room, not only in terms of investing, but also leadership, management, and really just trying to be a teacher to your team, but also a learner because I still learn a lot from them. But 40 to 50, that's go time. In go time, one of the questions that I've been asking everybody, because I'm just selfishly curious about it at this age, feels like the right time to ask, is around the measurement of success.

56:45Kevin Kelly, one of the founders of Wired Magazine, has this amazing idea, which is like your success definition should be extremely bespoke to you. Traditional measures of success are traps, money, power, fame, et cetera. And I heard a founder recently say something like he measures success through the degree of radical self-respect. Success means complete self-respect. And obviously that then means lots of other things. But I'm so curious how if I'm going into primetime or something. I don't want to waste that. So the objective function of primetime needs to be success. That's good wisdom. Let's hit the mistake that people fall into is this whole idea of money, fame, fortune.

57:25Once you start to prioritize that, that's a cup that will never get filled. Keep trying to fill the cup and the cup keeps getting bigger and bigger. That cup never gets full. So I think that's one of the problems I think people make in our industry is that they I think the cup, even people say, oh, it's easy for you to say where you are now. This is something my dad taught me when I was 10 years old. So this is not new. It was never the thing. For me, it's like, I just want to do great things, be excellent, and do it with great people that share my values and do things the right way. That's on the business side.

57:59And I want to do all that in a way and be excellent, not competing against anyone else, competing against ourselves, but do so in a way where I'm the best dad, the best husband, and it's getting one without the other. I just think you're going to be 80 years old, you're looking at your mirror and what was the purpose of life? There's no purpose. The purpose of life for me, and again, it's certainly not about the cup. That's definitely never been it. It's about all those relationships you form and those experiences you go through with people. when you're 80, 85 years old, you're looking back. Hopefully I'm healthy because I looked at my sheet a lot of times.

58:36And it's those relationships and those experiences that I think drive to a fulfilled life. And obviously it starts with your family, but I have a lot of Hawaiian friends. You're Hui. Hui is the term for your group, your posse, having those experiences of climbing up the mountain together. And that's to me what it's all about. And if you are around the right people, you have the clarity of purpose, you have the right values, you have the right culture and you're going up the mountain together, it's so fun. And you never have to question first principles, how you're going to do business, trying to do the right way.

59:07And it's what we call clean living. But again, doing that at the expense of not spending time with your family, I think that would be pretty unfulfilling to me. Last time I got to asking my traditional closing questions, I have to come up with a new one this time. One of my favorite things from our first discussion, you sent us the visual, which I love is the concept of facing the tiger. Maybe you can remind us what that means. I thought you were kidding in the conversation, but like literally off the elevator is a giant tiger in your office, which is so funny. I like the principle a lot, but I'm also curious what it means to apply that principle for you and Sixth Street today in this fascinating dynamic environment.

59:42Face the tiger, it's one of like the core ethos of Sixth Street, which is there's hard things in this world. We're going to make mistakes. We're going to have problems. But when those problems happen, instead of pointing fingers, We have just a saying from day one of our firm is that we look at the problems head on. We look at them together and we don't run from them. We run to them. We run right at them. And that's what Face the Tiger is. For the environment we're in, and this is what I told our entire firm, is that we're in a world that the pace of change is rapidly accelerating. And if you think the pace of change is accelerated now, it's going to just continue and continue to accelerate, which is why, by the way, from an investing standpoint, going back to what we said earlier, the idea that you're going to have a narrow investment strategy when the world's changing so much, you're going to have oscillating supply-demand dynamics of good time, bad time.

1:00:41It's just crazy to raise too narrow a strategy unless you put a governor on the amount of capital to raise it. But I think the biggest thing when you look at the human being is human beings in general don't change. There are small percentage that thrive in chaos and love it and step up like Michael Jordan. He loved chaos. His heart rate's low and hit a game-winning shot. But most human beings don't like change. And as we start to go through this pace of change, there's obviously a lot of anxiety. Is AI, is it going to take my job? Is it not? And our whole thing is you can sit there and be anxious about things or worry about things.

1:01:14You can be like, hey, this is what it is. The world's changing. We got to face the tiger. It's going to change. Whether we like it or not, it's going to happen. And yeah, there's stuff from AI, but what are you going to do about it? And that's what we say to people. It's like, look, we got to face the tiger. And just remember, you get one life. Do you want to be average or do you want to be excellent? And that's how we talk to our people. You keep talking about it enough and they get in the right headspace. So when change happens or their disruption or something goes wrong, they've got the tool that they can use.

1:01:43Let's say face the tiger to be able to approach it. And we try to just get that in our firm. I think I said this last time when problems happen. We're like, good, let's go. Game time, let's go. And that's the way we've been since day one. And I think to some extent, the way we are as people. I wish I could do this with you every year. I hope we do. Thank you so much for your time. Thank you so much, Patrick. Appreciate it. If you enjoyed this episode, visit Colossus.com. You'll find every episode of this podcast complete with hand edited transcripts. You can also subscribe to Colossus, our quarterly print, digital, and private audio publication featuring in-depth profiles of the founders, investors, and companies that we admire most.

1:02:19Learn more at Colossus.com slash subscribe.

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