What's Actually Going On With Private Credit

Craig Manchuck (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:23)

Joe, I think it's fair to say that if we didn't have the situation with Iran, we would be talking a lot more about private credit.

Joe Weisenthal (0:31)

Yeah, yeah, for sure. Jamie Dimon, he talked about the cockroaches. We keep getting these headlines over the last several weeks, maybe months, various, many, you know, not blowups per se, but many, something between a hiccup and a blowup. In some cases, you hear about redemptions being slowed down, et cetera, not great headlines and not great charts often too, when you look at the various publicly traded instruments that one would associate with private credit.

Tracy Alloway (0:59)

Right, so I love that you said something between a hiccup and a blowup, because this is the difficulty I have in talking about the private credit space at the moment, which is you either find people who are often very close to the private credit industry or in it, who will argue that this is just, you know, a tiny bump in the road, this is maybe a few cockroaches, like nothing to worry about, although a single cockroach would worry me in my own household. But anyway, or you get doomsayers who are like, this is financial crisis 2.0, right? And it's very difficult to find nuanced commentary in between.

Joe Weisenthal (1:34)

Yeah. And we were always looking for nuanced commentary. So this is a problem for the Odd Lots podcast.

Tracy Alloway (1:40)

That's right. Okay. So we're trying to rise to the occasion with some nuanced commentary on private credit. And trust me, I have watched and seen and read a lot of things on this topic. And one thing that stood out in particular to me was a particular seminar or lecture that came out from a firm called Osterweis recently.

And we had a couple of old school bond hands talking about the rise of private credit and how to think about it in the context of the history of the bond market. And this is something that I think is often missed, is what exactly is private credit's role when you think about overall corporate credit?

Joe Weisenthal (2:20)

That's a good way to put it, right? Because we can look at the various funds, et cetera. But within the broad history of the evolution of the bond market and within the current just sort of landscape of fixed income, like, what is private credit? The way I like to frame a lot of questions is from the perspective of the investor, what problem does the existence of private credit solve for their portfolio needs, right? Because that is the consistent thing. We talk to endowment managers, we talk to investors, et cetera. Every instrument, in theory, like it solves some sort of problem. Maybe you have a lot of money that's locked up for a long time. It's like, okay, you're willing to trade that away for some extra premium, et cetera. What problem does private credit solve?

Tracy Alloway (3:05)

Well, I was going to say also from the perspective of the issuer.

Joe Weisenthal (3:08)

And from the issuer, yeah.

Tracy Alloway (3:09)

Because the issuer, if you're a company looking for finance, you have a bunch of different choices and one of the ones that has become very popular in recent years is private credit. And in fact, I mean, there's a dynamic here where both investors are demanding it, but issuers are also very, very happy to lend into that market for various reasons that they are about to get into.

Joe Weisenthal (3:29)

Let's do it.

Tracy Alloway (3:30)

All right. So we do in fact have the perfect guest. We're going to be speaking with John Sheehan. He is a portfolio manager for the Strategic Income Fund at Osterweis. And Craig Manchuck, he is also a portfolio manager at the Strategic Income Fund. So thank you so much, John and Craig, for coming on Odd Lots.

Craig Manchuck (3:48)

Thank you for having us.

Tracy Alloway (3:51)

So maybe just to begin with, how long have you guys been in the bond space?

Craig Manchuck (3:56)

The firm has had a fixed-income strategy for 20...

coming up on 24 years, actually. Started by one of our other partners, Carl Kaufman. Originally, the firm here was started as an equity-only firm. And as the firm's clients started to get older, founder John Osterweis wanted to expand into the fixed-income space, brought Carl in, and the fund has been in operation since April of 2002