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Q With these two sides of the need starting GFC on the lending side, and this capital that needs to find a home with this type of strategy, how did you think about what you wanted to put together in the asset management business?

A We came from a restructuring background. What we wanted to do was to make sure that we embedded the learnings of what goes wrong in credit, not just around the credit risk of your loans, but also around the structures that you're investing in, the structure risk, some of the other pitfalls that can happen through lending, so you put yourself in a good position if something inevitably does go wrong. The other thing that we saw Through the restructuring business was the importance of empowered process, good team structuring, good portfolio management, not just good credit selection. We spent a lot of time designing the infrastructure around the business as to how we were going to approach the market. The other thing that we thought was important was that if we were right on the thesis that you were going to see a significant amount of capital move off bank balance sheets or in a world where bankruptcy We're going to partner with institutions to provide capital. It's going to be a large space. It's not going to be a couple of trillion dollars. It's going to be tens of trillions of dollars. Your problem was not going to be AUM gathering. Your problem was going to be sourcing good quality loans and the ability to produce those loans through cycles. That's why we went down a path of proprietary origination. Everyone says they have proprietary origination, and what people often mean b…

AI assessment note: “That's why we went down a path of proprietary origination.”

Q What are your rules of thumb for the portfolio management team in building a credit portfolio?

A We've developed ways to think about units of risk, how risky is a particular position that we have exposure to based on some qualitative factors that we've been able to observe historically, but also some judgment factors that we've seen out there in the world. They don't just relate to credit risk, loan to value ratio against the enterprise or an asset. They relate to structural features of the loans, how Wide or loose. The covenants and baskets are how extensive they are. Some of the qualitative factors about the management of the counterparties and so on. You're trying to break these things down into what's my actual risk, not in volatility terms, but in probability of facing a problem. Then determining what are the correlating factors? What things cause that probability for each of these different segments? How do we create a book where the correlations are low? Something that's going to impact our exposure to, say, home loan portfolios. In our flagship book today, about 14% exposure to many different types of home loan lending. They're driven by interest rates and unemployment, and you've got the security of the asset if things go wrong. We have other exposures like our specialty finance books, legal disbursement funding, insurance premium funding that have almost no correlation to interest rates and unemployment. They're driven by totally different things. The idea is thr…

AI assessment note: “How do we create a book where the correlations are low?”

Q Which two people have had the biggest impact on your professional life?

A In the restructuring business, there was someone retired, and they wrote a book called Everything I Know in Life I Learned from Doing a Restructuring. They sent it to a bunch of people. It's almost a bit of legend around the industry now. You can't buy this book on Amazon, but I've got a copy of it. It has basically 50 funny anecdotes. One of them, page 41 I know is, if you want to be a Jedi master, find your Yoda. It's all about the power of mentorship, people backing you, collaborating with you, bringing you through the ranks. I've had that from Chris Weick, who's one of the co-founders of MA Financial Group. Today, our joint CEO. We've worked together since I was a baby banker. He's back to me, and he's got behind me as we've wanted to do things like build a credit business from a small idea into something that's quite large and scalable. The other one for me has been my dad. My dad had all these great anecdotes and sayings when I was growing up. He'd say things to you that gave you these good life lessons. One of the best pieces of advice he ever gave me was, you're only as good as your last game. I played a lot of sport growing up. It doesn't matter what you've done before. It's the next game is the one that matters. He used to use this anecdote of Australian rugby league player called Graham Langlands. Imagine it's a Derek Jeter or someone like that. This Graham Langlands…

AI assessment note: “I've had that from Chris Weick... The other one for me has been my dad.”

Q What does your portfolio construction look like compared to your peers?

A The main difference from a lot of our peers is that we have exposure to Asset-based finance, direct asset lending, and direct corporate lending, sponsor and non-sponsor backed in one place. We have 38 different sub-sectors of lending that we're exposed to. The reason is because we're trying to create that fixed income alternative style product where we're saying, choose your risk tolerance, we'll deliver product that will deliver that same profile as far as we can, but with a premium for the fact that there's some complexity, there's less liquidity, and there's a proprietary element of what we do. The difference is that we're not monoline. As a result, we've got this broad-based book, and we're wading up and down all the different sectors we're exposed to. That idea comes from the workouts history. It's about saying, at some point in the cycle, the marginal loan in a particular space isn't going to make sense. What you don't want is the moral hazard, which you're seeing in some parts of the global private credit market at the moment, especially with the exposure to sponsor-backed direct lending for software companies. Where people saying, well, hang on a minute. I lend in this particular area. That's my job. So I'm going to find ways to rationalize that the next leverage loan of this type is good. How do I do that? First, I'll start giving up on price. I can shave some pricing …

AI assessment note: “The main difference from a lot of our peers is that we have exposure to”

Q You mentioned credit frameworks you use. What are some of those frameworks?

A I mentioned this what you have to believe framework earlier. The other thing that we like to do in our process is Every time we're taking a deal to an investment committee, we assign some people to be our red team. This is basically taking someone from the investment portfolio team, importantly, not working on the deal. They haven't met the management, worked all weekend, stayed up all night, haven't fallen in love with the deal. They're going to look at this deal before the investment committee. They're going to go through all the raw information, the data, all the credit docs. They've got to come to IC and articulate The contrarian perspective. Why would you not do this deal? What's been missed? Is there something that we're not properly calibrating? Are we thinking that scenario X is more remote than it actually could be? Sometimes this might feel belligerent. It's not intended to be. We want to thoroughly elicit where the risks are so that we can then monitor for those things in the real world. Once we've made the investment, because we're in the private markets, we can't exit our positions as easily. You want to make sure you've understood that downside framework up front. The other thing that it does is that it sharpens your thinking about origination when that person who was the red team yesterday is now doing their own deal flow. So you get a symbiosis out of this. We'v…

AI assessment note: “We do these things called war games now every quarter where we simulate recessionary scenarios”

Q What are some of the phrases that you use internally to allow the blue teams and red teams to have that vigorous debate, but then still be on the same team without Egos getting involved?

A One of them I really like is the only certainty is uncertainty. You always hear this idea that Trump did this, something happened in the UK, there's a lot more uncertainty now. I always laugh, last week, before you knew that there was going to be war in the Middle East, you might have felt comfortable, but that was an illusion because there was huge uncertainty, you just didn't know it. I've always believed that the future is a constant level of uncertainty. What you're grappling with is always investing under uncertainty. How do you do that? How do you avoid, especially in credit, taking these high conviction views on one thing where you expose your investors, your LPs to catastrophic risk of loss because you believed you knew you could predict the future. The other one sounds like a Buffettism. It's predicting rain doesn't count. Building the arc does. It goes to this same idea of we can't crystal ball what's going to happen tomorrow. Got no idea where interest rates will go, what could happen, what could come out of left field that we're not thinking about today. We have to think about the spectrum, a distribution of risk. Build as much protection mechanisms as we can to Types of security, asset backing, defensive features, things that give us the really long runway before a problem hits us when something goes wrong. And that's again, we're in the credit business. We're not …

AI assessment note: “One of them I really like is the only certainty is uncertainty.”

Q When you bring those credits into the book, and then you're running your analysis on things going wrong, what have you learned about running that effectively to improve the portfolio?

A One of the things that we've done is that we've had to make the war games process more than just the macro stress testing. The macro stress testing, we thought about it a lot at the time of deal inception. How far can things fall in the world or the bad things happen before our capital is going to face an issue? Has the underlying business collateral or asset changed so that that sensitivity has moved a long way? That's a good exercise, but it doesn't change that much unless there's been fundamental changes in the underlying borrower. The other thing that does change often and that comes up are these discrete risks. It could be behaviors of competitors, industry dynamics, changes in technology. We look at a range of these other discrete non-macroeconomic risks, fraud and inter-creditor dynamics if you see certain banks decide they're going to exit the market. We look at all those different things as well. We've also made it a lot more practical where there are loads that seem to have risks being elevated. How do we crack open the debt documents? Is the security structure as robust as we thought? What's the social issues around this dynamic? Are we in a club or a syndicate? Will we have to deal with others or are we bilateral? How are the management team going to respond? Are they appropriately incentivized? Is there some regulatory overlay to this that we need to be thinking ab…

AI assessment note: “we've had to make the war games process more than just the macro stress testing”

Q How do you think about those trade-offs of having a partnership where there's deal flow to acquiring the team?

A It's horses for courses. There are times where it makes sense to be in a partnership model if it's smaller scale, or if there's something unique that that partner can bring particular access that it wouldn't make sense for us to develop. You usually want that to be complimentary. Ideally, we can bring more than capital. We might be able to bring certain types of our data analytics, some of our credit frameworks, some of the terms and structurings that we put into our deal flow. That might be different from what is standard in that particular sector or market, and we can do something together. That's how we've thought about it. We want the partner to bring something we don't have, usually access to a certain part of the market that we don't have directly, and it wouldn't make sense yet for us to own.

AI assessment note: “There are times where it makes sense to be in a partnership model”

Q If you turn from thinking about risks to the opportunity set, how do you look at the opportunity set in Australia, in the rest of Asia, and the rest of the world?

A I'll start with Australia versus the rest of Asia. The opportunity we like exists because the There are these areas where it's more sensible for banks to not do things directly or to partner up. We love that model where we can be arbitraging these things where banks used to do them, but it's not efficient, and we can be a solution provider in that area where we can capture some premiums. In other parts of Asia, that dynamic doesn't exist. We're often looking, the ambit of what banks can do in that market is wide, and whenever you're trying to compete with someone with such a low cost of capital, you just have to step up the risk curve. It's not that it's bad loans, but it's just not our business. We're not in that opportunistic credit business. We're seeing globally that those same thematics around banks changing the way that they approach real world lending, not just sponsor finance, is gaining pace. We were fortunate when we were expanding our US presence that happened to coincide with the time when there was the regional banking crisis. My CEO, Chris Weich, and I, we were on a plane over to the US literally that weekend of Silicon Valley Bank That has also shifted the dynamic where you're seeing this whole tale of regional banks here in the US looking for different ways to approach the markets as they deal with managing the rest of their balance sheets and the regulatory imp…

AI assessment note: “I'll start with Australia versus the rest of Asia. The opportunity we like exists”

Q I'd love to dive through those various aspects of how you do it. You mentioned the origination, the importance of platforms and relationships. What does your team look like at that level of the investment process?

A We split into two basic cohorts, then there's a whole series of support functions around them. The two main cohorts in the asset management business are our investment team and our portfolio management team. The investment team, by their nature, they're there to source investments, underwrite loans and positions. They're not originators. We've banned that word. We don't want them to just originate, throw it over the fence, and it's someone else's problem now. We want them to own those positions for the life of them. That's their job. The thing about the incentives that people have, if you grew up in a commercial bank, you think about your client in that bank as the borrower, the CFO, or the sponsor, MD, or whatever. You do the deal. When you're bringing the deal in, next thing you do is you're beating up credit to get the deal done. Then you're funded. It's over at Treasury's problem now. Then, oh no, it's gone bad. Well, it gets moved from you to the bad bank, and you're out, and then the bad bank guy comes out, and he's dealing with the work out, Never in that value chain do you think about your job as being a fiduciary of the deposit holders. I hear a lot in so many firms, this idea of I'm an originator there. I've got to get deals done. How do we get this deal done rather than should we do this deal? Then you have this other cohort called the portfolio management team. They…

AI assessment note: “We split into two basic cohorts... our investment team and our portfolio management team.”

Q How do you think about your right to win the right loans in the US, a much more competitive market relative to your positioning compared to Australia, where you're clearly one of the big players in the market?

A In this area of asset-based finance, we can do that. We're not trying to do direct sponsor-backed lending here in the US. What we've done is to apply an asset-based finance way of thinking to get some exposure to that sector. We've publicly announced some strategic partnerships in that space that enable us to do that, so we can be applying an asset-based finance facility to get diversified exposure into the sector in a private way, but where we still get to curate what's actually in the book. That works Well, for us, the rest of the asset-based finance market, we see as an emerging space, and we think there's just going to be tens of trillions of dollars of capital that move into that area. We're investing early, and we're bringing this way of thinking to the market, hopefully leveraging some IP, structuring technology that is a little bit different to what's here in this market.

AI assessment note: “We're not trying to do direct sponsor-backed lending here in the US.”

Q What are some of the rules of thumb in your portfolio construction that allows you to build that arc?

A One of the core things is making sure that the correlations between different sectors are understood. In the portfolio management sense, we want to know what drives each of those different sectors of lending and be able to map the differences in them. Some of them are more basic. Do you have the right level of diversification? Not just I've got low position sizes, but I have carefully thought about what my target Ranges of different sectors, asset-backed commercial, asset-backed consumer, asset-backed real estate, corporate, non-sponsor, sponsor are within the book, how you're managing those up and down through a cycle. It's a balance of art and science. The important thing is that framework around, we need to understand risk. We need to be able to evaluate what drives credit performance. That we're building the right structural protection so we get what we think we're exposed to. When you've gone and restructured a debt facility, and you've pulled these things apart, you get appreciation for here an indenture and a facility agreement in our market. Why are things there? What's that clause for? There's a whole bunch of clauses. People never think about it. Oh, I've got this covenant. I'm seeing you're secured in this basket. Okay, but what are all the other terms? What do they say? We want to know that stuff and make sure that we In our portfolio have a range of different thing…

AI assessment note: “making sure that the correlations between different sectors are understood.”