YouSaid · the spoken record

Nelson Chu

lines on the record: 47
first: 2023-11-19
most recent: 2023-11-19
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Absolutely, it is. Thanks so much for having me. Love these types of spirited conversations. So we are pretty easy to find. It's just percent.com. And so like I mentioned, there's a lot of educational resources on there. Our customer success team, always happy to chat with you. And that's just at hello at percent.com. Or you can always use a little chat bot on the bottom right. And I'm pretty easy to reach as well, Nelson at percent.com if you ever want to learn more and hear from me directly. Always happy to chat with anybody, everybody who's interested in me and what we do.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“We definitely try and educate as best we can. So there's a lot of education material on our site alone. But I think just keeping up the news, you'll start to see a lot of different things. And obviously, you know, it is KKR Blackstone, Aries in most frequently in the news, but just understanding the types of transactions that they're doing, understanding where they're placing their bets. That's all going to be super, super helpful. But I would say most platforms have some sort of like research capabilities or resource capabilities. And just dig into it, understand the terminology, understand sort of why things were structured a certain way. And then you'll be better off because of it and you can start to make your own decisions. But yeah, it's never been easier, I would say, to invest in private credit. It's also never been easier to learn about private credit given how much it's been in the news recently.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Ended up performing extremely well for the investors who took that risk. But they didn't want 10, 11, 12 percent. They wanted 17, 18% to make it worth their while, which makes total sense even in a zero interest rate environment. So it really is, I think, just be able to educate yourself on sort of how it's been structured, be able to have your own theses around where the economy is headed and pick a sector that's interesting for you.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Just really trying to try to understand that I would not invest in any platform that doesn't provide recurring reporting capabilities around the underlying asset performance. We try and provide that. Again, weekly, monthly where possible. But look at those reports and see if you can understand how is the actual underlying asset performing as a result of that. Do you understand the trends that have happened and like, you know, be able to spot that to see where it's headed? And then in many ways, private credit, because it's so broad and diverse, is a bit of a blessing and a curse. But at the same time, you can actually then have almost like a bet on it, right? Like, do I have a macro bet here? So we had a lot of investors that double down on e-commerce financing and a lot of factoring of digital transactions during COVID, like peak COVID, right? Because that was their macro bet. We had a very, very hard time with small business lending during peak COVID, which I don't blame investors, right? Like if all businesses are shut down, there's no cash flows, why would you invest in it?”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“I would say you should not make private credit the only thing in your portfolio. I think that goes without saying, right? But at the very least, there's a lot of information out there these days on these opportunities, especially on platforms like ours and others as well, that we try and make it as transparent as possible so you can better understand what you're investing into. I would encourage most investors to understand the structure behind it, right? Because that's going to be essentially what protects them. There's a lot of terminology there, like DACA accounts, advance rates, over collateralization levels, like trailing 12-month default rates, like things like that. Some of it's, I think, second nature to some people and definitely brand new for others. Understand what that means and understand what the impact is on your potential returns as a result of that. So just really kind of getting better well versed on that front would be super, super important. And on the corporate side, there's a lot of different covenants. You have like leverage capabilities, whatever it is, those are all things that, again, might be new terminology for a lot of people.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“There's not traditionally much of a secondary market, to be frank, on the smaller side of the market. There's definitely a secondary market that happens in the larger institutional side, right? A lot of those transactions definitely have secondaries associated with it once certain lock-up periods expire. On the lower middle market segment that we play in, investors obviously would love liquidity. And we kind of build in inherent liquidity by the fact that there's a lot of refinancing capabilities from the borrower. There's a lot of shorter duration products. So while you can't get out of positions, if you know you invested into a deal that is, let's say, 24 months, but there was a refinancing option within three months, you're probably going to be able to see opportunities to get in and out of that through that timeframe, basically.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Mid teens naturally. Once you diversify down, you're going to get mid teens, right? So the weighted average APY of the platform right now is about 18 and change, roughly. And that's being, I think, skewed slightly by corporate debt. And so corporate debt risk or obligor of single obligore risk. And that means that they're going to be in like the 20s right now. We have a lot of family offices who said, I only want the asset-backed deals. That's going to be closer to like 14, 15% roughly, right? So mid-teens is kind of where you can expect a lot of the basket products to shake out at because there's just so much diversification underneath it all.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“We have high yield only, we have US only, we have all these different things, right, that are like basically themes that investors can get access to. And we've seen definitely a lot of people invest in multiple different themes that just kind of fit their criteria. Or they invest in one theme that they know is going to anchor the portfolio. That's the bulk of their money. And then they have almost like a play account where they kind of invest a lot smaller stuff in things that they find interesting that could be like African credit or Latin American credit or leasing company for consumers for auto loans for consumers in Peru. We got some a lot of interesting stuff on here. The bespoke side is where it's a lot of control afforded to the investor. But those are tend to be more sophisticated investors who have almost like an investment mandate. And if it doesn't mean that mandate, they can't invest. So they tell us what that mandate is based on all those levers that we have at our disposal to create a custom product. And then we just essentially automatically algorithmically allocate as long as it meets the criteria.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“So there's two types of blender products. One is one that we essentially created on behalf of the regular retail credit investor to get access to. And that could be basically like $25,000 minimums essentially. And then we also have what we like to call bespoke products. And the bespoke products are created for individual family offices or investment advisors who want to kind of customize it their way. But that has like a $500,000 minimum, right? So obviously it makes sense. It's more work to do something fully custom. And for the ones that we create for the platform for the regular accredited investor, those are thematic. And so we have things that are like total market. Every single deal that goes out, it's going to go into it. So that is that guy who invested $500 in every deal, great product for him. We have the senior only ones. So senior is just sort of where you are in the capital stack. And so you ensure that you're basically the first to get paid back in the event of something going south. Senior only is obviously a little bit safer than juniors or senior and junior mix or anything.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“But in my mind, I was just like, give me a little bit. I'll launch you a diversified product that you can then not have to do this anymore. So it's something for everybody, really, is the way we look at it.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“For things that are shorter duration, right? Because I actually value liquidity. I have a big financial event coming up, whether it's to buy a house or whatever it may be. I just want to kind of make sure this earns something along the way while I'm waiting. We've seen people do that as well. We have a lot of different places and people that say, I don't want to manage this at all. And so just make a theme and I'll invest it that way. And then I never want to see as much money again for 36 months. So there's lots of different ways to play it. And our job is really just to provide access to provide information and to provide diligence capabilities to make the best decision that's suitable for you as an investor. And it really just comes down to risk tolerance, appetite, size, things like that. And we've seen a lot of people invest in different ways. There's one poor fellow before we actually launched this kind of like blended product where you get diversified exposure. He put, I think, like $500 in every single deal we ever launched, pretty much. And so that was his way of getting diversification, essentially. So props to him.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think obligatory disclaimer this is not financial advice, obviously, but we're going to try and give you as much context as possible here. So we provide a private credit marketplace that allows for investors to get access to what we like to think are pretty esoteric and interesting opportunities they wouldn't really find anywhere else in the private credit space, right? So you can get access to Latin America consumer credit. You can get access to factoring of mobile app gaming companies. You can get access to a lot of small business loans that are out to quality small businesses in various different parts of the country. Like it's all very, very available. And it really comes down to sort of what you're looking for at that point, right? You can say, I want to invest in only things that are high yielding because that's a small portion of my broader portfolio, but I need this one to earn a lot of return. And that's going to be almost like a barbell's like alternatives high yield strategy. You could say that I'm looking.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Up to the plate just because it is far easier to get a transaction done than it would be with a conventional bank institution.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“All that money and all that risk. So it did well during COVID. That's for sure. And not just on the things around the healthcare side, there was a bunch of growth that we saw in e-commerce that we saw in mobile gaming and all the mobile apps. And you saw a bunch of private credit lenders step up and basically factor and advance a lot of money to e-commerce merchants, right? Because they couldn't even meet their inventory demands from consumers. You had a lot of companies that are saying, yeah, I'll take your Apple and Google invoice risk because obviously that's like a zero percent default rate effectively just to be able to help you finance your growth, right? So great during that time. And then when SEB went under who had a huge venture debt portfolio and who had a lot of relationships in the space, you had a lot of people step in and basically say, I will take you, right? I will help you out. And it became something of a, that was very interesting to observe that someone who's kind of in the industry, that in times of need and in times of crisis, private credit tends to”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“I think it's actually been counter cyclical in many respects, right? It grew the most during the global financial crisis because they solved the liquidity need for a lot of different borrowers. It grew a lot during COVID as a result of the fact that everyone was absolutely scared and the only people still providing capital was private credit lenders, which is a great position to be in. Now, was it cheap? Definitely not. Absolutely not, but was it still kind of keeping the economy going for sure, right? Like even in to kind of put an actual statement on it, the PPE that people needed to kind of get into the door, right? Very few people have the ability to say, I'm going to essentially drop a couple million dollars upfront to basically get this stuff manufactured, get it distributed shipped back to me, and then I can then actually use it, you would take a private credit lender who could factor the invoice or purchase order that you have and then advance you the money to be able to get that PPE into the door, right? So you're not out.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“So it's always going to be low liquidity, high fees. I think that is the tailor-made attributes of a very, very nascent and opaque market. And part of the research that we have done as well was literally everyone was saying the fee is in private credit are way too high as of right now. So I think, to be honest, if the market is truly efficient, you are going to see the ability for getting more liquidity out on a quarterly or monthly basis. You are going to see the ability to actually drop the fees because you want to be competitive. And so that all comes with, I think, just in general a maturing market across the board. That's not going to be the case. What you're seeing right now is not going to be the case forever. That is for sure. And you are seeing more and more entrants into private credit across the board who are competing on price. And so it's going to be a race to the bottom at the end of the day. I fully expect that to be the case, in which case it's really going to”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Insurance companies, we need to deploy much larger sizes than what the private credit market can handle as of right now. Not going to be forever, right? I think the answer is if there is demand for it, then supply will naturally kind of emerge. And I do expect that to be the case going forward.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“No, not necessarily. I mean, so insurance companies is different. Insurance companies generally need to invest in rated instruments. And so that inherently leaves out a lot of the private credit market because much of it is unrated. But they also don't want to miss out on the party. So they're trying to find ways to essentially invest in rated deals that aren't necessarily by the big rating agencies, the big three. And so they're trying to find ways around it. There's definitely interest, but they just haven't been able to kind of deploy it at mask like they probably thought they would. From pension fund standpoint, they got to put a lot of money to work, right? So we're talking about a 1.3, 1.4 trillion dollar market and change. There's a lot more pension money than that. That's for sure. So there is actually right now, I think Bloomberg just came out with this article, which was like, there was a $500 billion private credit problem because there's not enough places to put the money, essentially. So that inevitably means that, you know, I think if they need to deploy at scale, you're going to leave out or ice out a lot of the pension funds.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Whose business it is to manage money. They haven't seen something like this in a long time where you can provide that level of uncorrelated alpha that you normally couldn't get access to before.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“They're growing to like it more and more. I think the latest, we actually did our own research on this alongside Coalition Greenwich, but the latest numbers we had was like 63% of family offices, asset managers, and investment advisors want to increase their exposure to private credit 2024, right? So that's pretty telling in the grand scheme of things. And they want that because they feel that private credit is going to either match or outperform every other asset class on the street. So that's a great situation to be in. I think in many ways, they're looking for probably more access, better liquidity, things like that, which private credit can do under certain circumstances. But they're also looking for more transparency into it as well, just because it's normally a black box where you put money in and then you get a statement every month or every quarter and you call it a day. It's like, what did I just put my money into? They're hoping for more details on that. So from a timing standpoint and from an interest level standpoint, I'd say private credit has never been higher, especially for the institutional investors.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Actually, have family offices come to us and say, I want these specific criteria and then everything that meets that criteria, I want you to algorithmically allocate into it up to a certain limit so that there's no one borrower that takes up a ton of the portfolio, right? And that's been a great success. And so you get that diversification, you get to penetrate a market or access to a market that you normally wouldn't be able to do yourself. And you get returns that are materially better in the broader market. But having said that, it's going to be lower than if you just went all in on the highest yielding stuff we have on the platform, obviously, because you are spreading yourself out a little bit wider just to be able to ensure that you have that diversification.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“I think it's still important to be honest because at the end of the day, anything that's in private markets is inherently more opaque than public markets, right? And it's also more illiquid than public markets. So the last thing you'd want is a situation where even though you invested in like two things that you thought were very good, you're now in a workout. Workouts take a long time. You could be stuck there for two years, three years, right? And yes, you could be getting money back every single quarter, but still there's an opportunity cost to what you could have done with that money somewhere else, right? So I think diversification is 100% still the strategy here. And we do help people with that. It's been something that we've seen a lot of family offices and investment advisors want naturally because they definitely want more of a set-and-and forget it mentality versus a, I'm going to manage every single thing and look at every single product and make sure that I like all of them. Like that's definitely not their approach, right? So with the standardization that we've been able to create at the structural level, we can actually”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's been over slightly over 1% in terms of total default rate on the call at 1.5 billion that's been issued so far. So I think not bad in general across the board. I would caveat that to say that I think the default rate was higher earlier on in our company's life. And then we've learned along the way in terms of how to change our structure, how to better protect investors, adding more credit enhancements, things like that, which is natural and just, I think you grow up, right? You mature and then you learn. And the recent defaults that we've had, because less about default and more about recovery rate or just total loss rate, we've had the last three trends.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“How it works, but we still do credit review for all these transactions to ensure that they meet our level of standardization around deal structure. It meets our level of reporting requirements on a weekly and monthly basis. And those things are all kind of table stakes that have to be adhered to. Otherwise, we can't do a deal, essentially.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“No, it rarely makes it. So we actually effectively stopped the bulk of the underwriting this year. So we actually have relied upon other underwriters who are extremely savvy in the space to be able to bring their products to market, which is not a bad thing, right? Because if you think about it, let's say I'm a credit fund, I had like a $10 million position. I don't want to keep all 10 anymore. I want to downsize like $7 million or $6 million. I can then syndicate out that remaining position 2% and they can essentially have investors get access to things that they definitely would not have been able to get access to without the platform. And so everybody wins. The investors are investing alongside and established credit fund who did the underwriting and then also the underwriter themselves, the credit fund, has the ability to kind of redeploy that capital into something else and bring down their balance sheet exposure. So it is a win-win for everybody. And we have definitely a lot of those on the platform, but it really just, yeah, it depends on sort of.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Macro environment is trending. And so give me the stuff that probably will never default, right? So there's a wide mix there. And it really just depends on investor appetite. And as long as we have something for everybody and give them as much information as we know, then they can make their best decision.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“That is for us, at least, and this is not the case for everybody. We offer a little bit of something for everybody, right? Based on what they're looking for, we have high risk, high yield stuff, which you can make your own assumption around yield versus risk to low yielding stuff that some would argue is potentially a little bit safer. It really is their call. We have asset-backed offerings, which means that there is a pool of loans associated with that essential product versus corporate debt offerings, which you're essentially betting on the success of the single company and its single obligor risk. So all that's made available at fully disclosed, and it really just becomes an asset allocation strategy and approach, right? I will say we have some very savvy investors and retail investors on the platform. I've seen some of them pretty much bank on the fact that I go for the highest risk stuff, whatever issues may happen, if there's a default, if there's a workout, I'll have made enough money where it comes out to be okay. I've also had retail investors say, give me like the lowest yielding stuff possible in this environment because I don't like the way the”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, we try and basically give investors as much information as they would need. We try not to rush them either. So there's a lot of platforms that are first come, first serve. Definitely not the case with us. You do have pretty much ample time to look at anything and understand it really well. But we almost took like a public market lens to these private market transactions with, for example, like setting up a comparisons table where you can actually compare it against another deal that's on the platform for its structure, for its credit enhancements, for its asset modeling assumptions, things like that. You don't normally see that in private markets and we've kind of pushed for that standard. We also do reporting every week and every month on the underlying assets as well within potential borrowers portfolio. And so to that end, they can see reporting from historicals and see how it's been trending. That's something that's of interest for them. And then we also have the obligatory private placement memorandums to be able to kind of basically see how we've looked at the risk associated with it. And so I think the answer”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Now there is just a question of how long it's going to be for, how long it's going to take. But the Fed has, I think, signaled predominantly pretty much that they would want to see material recessionary indicators before they try and drop rates again. So there's going to be, I think, a world of hurt for at least another few quarters before it starts to come back again.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“You are absolutely. And it's almost like a waterfall, right? Where if the original source of capital is now more expensive, the lender then who needs to extend the capital out of the private credit lender needs to raise the rates on their underlying borrower, the small business or the consumer or whatever. And the underlying small business or consumer is going to feel the crunch in their profit margins or whatever it may be. They may raise prices to offset things. And you see the underlying client or customer that like, for example, one of us going to buy something is going to see prices go up, right? It is like a direct correlation across the board and you'll see it flow all the way through. So you have seen for sure the lenders themselves tried to raise their rates to their underlying borrowers and the reaction has not been great, right? So because we track all this information, definitely you're seeing repayment rates go down from these borrowers. You're seeing delinquency rates go up. You're seeing days pass due of a loan increase and kind of get further and further out, right? So this is all happening.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“It's like pretty simple supply and demand, right? I think it's, and that's how generally things are priced. If the trade-off from an investor or lender perspective is that I can earn 5% nowadays or, you know, whatever it is for doing absolutely nothing, then any risk that I'm taking better be way worth it, basically. That's the math that's going on in their head. For private credit”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“It's going to be less expensive. And we get bigger and bigger until finally a bank comes in and says, hey, I will give you the lowest cost of capital you can possibly ever imagine. And that's going to be a great day for them. But because the banks don't do it on the smaller side anymore, they have to go to somewhere else. And, you know, they are basically unbankable at the outset. And that's sort of where private credit has stepped in very nicely to fill that void. Used to be bankable, not bankable anymore.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“I think it used to be easier to get it from a bank. It used to be easier to get it at a level at the bank that was meaningful for you, right? These days, way, way harder just in general. And the regulators made it a lot harder intentionally. So it's much, much easier to get it from a nonbank lender. They're going to be more, I think, loose in terms of their covenants and restrictions and things like that. It really is actually much more beneficial, even if it's going to be to your point more expensive to do it privately. That optionality, that choice, that flexibility is definitely something that I think the private markets will benefit from. So from an issuer's perspective, it's definitely usually more advantageous to go to a private market lender. Having said that, everybody who's on the private market, who has taken capital from private markets, knows that their end goal, their holy grail, their dream is to raise money from a bank in time, basically. So they know that I want to start here. It's going to be expensive. I'm going to get a little bigger.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it depends on the segment of the market that you play in. So the larger, this is, I think, pretty intuitive, but the larger the size of the deal, the larger the size of the issuer, whatever you want to call it, it tends to be longer duration for a lot of reasons, right? The issuer doesn't want to keep doing this over and over again since they're so big, so it makes sense. The lenders they attract also don't want to keep doing this over and over again. And so it is inherently going to be longer duration. For the lower middle market, which is a space that we play in, it's significantly shorter to the point where we do have stuff that's just a few months. And that's by virtue of the fact that oftentimes these are growing companies. And so inherently they want to also grow as well. And the only way they can grow is to not have this loan sit out there for forever. Instead, they can refinance it, raise more money, and they keep continuing their path. So all that together makes for basically an easy way to think of it is like the smaller the deal, the smaller the issuer, the shorter duration, longer the deal, longer the duration, and larger the issuer.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“You give them that optionality and that customization capability to do it the way they want it, it becomes supremely powerful. So all those things tied together is really, really helpful and interesting for an investor. And you hit on duration as well. Public market bonds, super long duration generally, private market bonds way shorter duration. So you can go as low as a couple months, really. And so that in and of itself is interesting. But it also means that because it's so short duration, it actually reacts faster to general market changes, right? Because it's going to have to repric in a few months time. At that point, then the private credit market ended up spiking their yields significantly faster than the public markets did because most of the public market just held on for dear life and said, I'm not going to go back out to market right now because it's been more expensive than the last time I did it. So let's just sit tight. Private markets don't have that luxury. They got to go. And if that's the case, then you've seen the yield spike. I would say, you know, several hundreds of basis points as a result of Fed raising rates.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“But in terms of what makes it so interesting, it's an asset class that historically has generally been quite uncorrelated to the broader markets, if only for the fact that it's pooled or it's anchored by a bunch of collateralized assets underneath it, right? Could be small businesses, could be consumer loans, could be student loans, you name it. And much of that can be essentially directly not, indirectly or almost not at all associated with public market activity, which is great. If the assets perform, if you picked great small businesses to lend to, whether the macroeconomy goes down or up, it doesn't really matter. You'll still be fine, right? So they like that level of uncorrelation. On top of that, the protections afforded by this is actually pretty interesting. So even for us, like we provide products that have almost like 52 different levers an investor can choose from to be able to actually structure the product in a way that suits what they're looking for. People have different risk thresholds. People have different size thresholds. People have different just in general demands for what they expect.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think everybody wins in many respects, right? Because the borrower actually also wins. Everyone knows going public is very complicated on the equity side, right? There's a lot of work involved. There's a lot of cost involved, things like that. The same is true on the debt side as well. Issuing a publicly rated instrument is not as taxing, I would say, as like trying to go IPO, but it's still a lot of strings attached to it. Why not just do it on the private market, right? And so a lot of borrowers are saying, why would I issue a public bond when I could just do it on the private markets, raise it faster, don't have to go through all those challenges and essentially get what I need from a very, I think, liquid market that's becoming even more liquid by the day, right? In terms of just demand. So borrowers naturally see that as a great option. And they're seeing it as a great option.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“That was definitely 100% the largest driver of the growth. You're seeing it too even more recently with the demise of like SVB and sort of that whole debacle earlier this year. The fact that the regulators are now looking at their activity and their behavior and saying, yeah, you can't really do that anymore. You can't, you know, for example, tie the interest rate that you're giving someone for a loan to the fact that they give you deposits. Like that is quite a bit of conflict of interest there. You don't want to make sure it doesn't happen again. Whenever regulators come in and regulate the banks, you're going to have a natural reaction from the private markets that tries to fill that need, right? And so you're going to see probably another wave of private credit come through in terms of interests, in terms of capital flowing into it. And it's going to be a really interesting time be in the space.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's about a trillion and change. I think about last time it came out was like 1.3, 1.4, somewhere around there, but growing very quickly. It was only a couple hundred million pre-global financial crisis. So you can kind of see how fast it's accelerated. You can thank the likes of like KKR, Apollo, Blackstone Aries in bringing a lot of attention to the space. And they've been doubling down on private credit because especially in this market, whereas this hard and difficult to get returns, private credit has been almost like a safe haven or safe harbor in terms of just being able to find yield in places that is arguably slightly more predictable than the broader markets.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Investors through, for example, like advancing them a lower percentage than the total amount that's outstanding. So, for example, if there's one million in loans outstanding, they could only provide $800,000 worth of capital. The other 200 has to come from the lender. So like there's things like that that you can control. So think of it as like a very, very structured, heavily, I think, financially engineered product to be able to better protect the person who's providing the capital. That's kind of the best way to look at it.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“To these non bank lenders in the form of credit funds, or it could be like asset managers or even insurance companies. But slowly but surely, in recent years, there's been the ability to kind of access this asset class through startups and other kind of alternative investment platforms. And so consumers, regular retail accredited investors, family offices can get access to private credit through these types of platforms that just really wasn't possible before. So what do they look for? I think it's more complicated than a traditional corporate bond, that's for sure. There's a lot of kind of bells and whistles associated with it. But the bells and whistles associated with it are almost like a necessity because you're investing in a pool of different assets, right? It could be have a pool of student loans, a pool of consumer loans, a pool of small business loans. So the natural diversification from a pool means that you'll be able to actually ensure that hopefully the product performs that you invested in because if one defaults you're not totally out. But even still, there's ways to essentially protect.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, for sure. So let's like, I gave a little bit of a primer for it because banks stopped lending, private credit, non-bank lenders came in. That's all well and good. But what exactly is it, I guess, right? Because it is sort of a catch-all for all things credit that I would argue, I think powers a lot of the global economy just doesn't get a lot of credit for it. No pun intended. So you have things like small business lending. You have things like consumer loans. You have things like factoring invoices for a granola bar company at Whole Foods. You have like equipment leasing for Could be like aircraft engines, it could be like heavy equipment, heavy machinery. You have litigation finance. So all these things touch so much of the broader population, they just don't realize it ultimately. And so it used to be done by banks. Now it's being done by these nonbank lenders. And because non-bank lenders in their name don't have a balance sheet because they're not a bank, they have to raise this money from other places. So historically, there's been a lot of different lenders that actually provide capital.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“So the consular credit has changed a lot over the years. There's always been like waves, I guess, because you had the high yield market that really transformed how things were done in the 80s. I think you had obviously CDSs, derivatives, and those types of products coming out to market, which changed a lot of things. But those weren't necessarily, I think, like retail oriented in some respects. It was very much like institutional paper trading hands among institutions, which is fine. And they became very, very big markets in their own right. It really took the global financial crisis in 08 to really kind of change the way credit is perceived in a lot of different respects. So back in the day, pre-08, there was a whole lot of banks and bank activity around small business loans, consumer loans. That was sort of their bread and butter, right? Ultimately. And now, ever since the OA crisis came into effect, the regulations came in as”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“It's an interesting time, I think, especially in the equity markets. They don't really behave the way you'd expect it to. And so it's never been harder to just try and predict where the general public markets are going to go. And you're seeing that. I'm not the only one that said that, right? Some very intelligent people that are far more successful than me have also said that it's becoming a very choppy and unpredictable market just in general across the board. So I think that's really more indicative of sort of where people's heads are at, especially since you have this like retail trading population that definitely doesn't abide by 60-40, definitely doesn't abide by buy and hold. They're actually causing a lot of ruckus in the market, which is, I guess, kind of their intent. That's what they wanted, but it makes for more conventional investors. It's a much more difficult path for them, and which means that it's all the more important to find yield and alpha from somewhere else when this game that they used to play doesn't really, the rules aren't the same anymore.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“To find things that are either counter cyclical or just in general uncorrelated to the broader market. That's a great place to be.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Day, you'd be missing out on so much alpha, and you would have for the last or so, give or take. So with that in mind, I think in this new world that we live in today, where you have a lot of different financial services companies, fintech companies, really pushing the envelope on providing access to what once was considered an alternative investment, you're seeing a world where I think optionality has never been higher for all these different investors and the ability to essentially diversify across a bunch of different things has never been easier than ever before. And so if that's the case, why stick with 60-40 given all those things in the back of your mind? And you mentioned like corporate bonds. Obviously, yeah, the long-dated corporate bonds are going to get hammered. They're going to get hammered. In this type of market, and market volatility on the public market side is going to continue to remain very, very high. And with all that being said, then I think it's time to look at alternatives. It's time to look at private markets to really bolster the portfolio.”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, absolutely. And I think 6040 was made a very, very long time ago. Let's be perfectly honest here. And I think the entire premise of financial market efficiency is that you're going to see more and more products come to market naturally, right? So before it was just individual instruments, and then you can invest in mutual funds and then it became ETFs. And now there's a slew of private market activity in terms of just investing in things that aren't nearly quite as liquid, but can give you a lot of premiums that you couldn't really get anywhere else. And so with that as the backdrop, the reality is that I think 6040 has been dead for quite a long time, actually, especially, I think, in light of even like ETFs, for example, you can get some really weird esoteric concentrations into certain commodities or certain sectors or certain geographies that just change the game, I think, in terms of how you do asset allocation. And so if you just were to buy S&P for your 60%, the 40% of corporate bonds and call it”
2023-11-19 · We Study Billionaires · TIP588: Lucrative Opportunities in Private Credit w/ Nelson Chu · IDENTIFIED FROM THE TRANSCRIPT