It’s Only a Bubble If You Panic

Summary

Podcast Summary: The Compound and Friends

Episode: "It’s Only a Bubble If You Panic"

Release Date: October 24, 2025
Host: Downtown Josh Brown
Co-hosts: Michael Batnick, Ben Carlson, John Duncan
Guest: Sonali Basak (Chief Investment Strategist, iCapital)

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Episode Overview

This episode takes a deep dive into the often-misunderstood world of private credit and private equity. With recent headlines drawing attention to potential risks—"cockroaches," bankruptcies, and concerns about illiquidity—the discussion aims to demystify the reality, identify where risks and opportunities truly lie, and provide practical guidance for investors and advisors. Sonali Basak, a former Bloomberg reporter and current investment strategist, joins the Compound crew to bring research, insider insights, and lively debate.

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Key Discussion Points & Insights

1. Private Credit’s Growth and Recent Concerns

• Context: There’s been a surge in pitches and products for private credit funds, raising anxieties around risk and potential bubbles—especially as some high-profile bankruptcies make headlines (Tricolor, First Brands).
• Dispersion, Not Volatility: The panel stresses that dispersion across managers and funds is the real issue, not volatility. Bad managers lose a lot, good managers perform well.
  • "I don't think volatility is a problem. I think dispersion is the problem." — Sonali Basak [19:29]
• Data-Driven Risk: Analysis of Business Development Companies (BDCs) shows exposure to bankrupt companies is generally fractional—typically 0.05% of any fund, rarely enough for systemic risk.
  • "We looked at more than 165 BDCs, and just over a dozen had any exposure at all. And most of the exposure within those funds was 0.05%." — Sonali Basak [14:16]

2. Transparency and Diligence in Private Markets

• Transparency Improvements: Private credit is now being opened to more investors, resulting in better, more frequent disclosures than before—though still not to the level of public bonds.
  • "Now we have monthly reporting for many funds. As availability increases, transparency has to increase." — Sonali Basak [17:32]
• Diligence is Key: The group repeatedly returns to the necessity for deep diligence on what funds hold, the robustness of underwriting, and manager track records.
  • "If you are invested in a public market manager, you are looking at their holdings ... Why wouldn't you do the same for private credit?" — Sonali Basak [16:11]
• Manager Experience: Institutional-scale managers with experience in distressed cycles are viewed as safer bets, especially when market stress emerges.

3. Risk Factors: Fraud, Defaults, and Systemic Worries

• Fraud vs. Recklessness: Some losses are due to outright fraud, which is different from reckless lending, and not always a sign of systemic risk.
  • "Fraud is just a part of ... it's a risk that every financial institution faces." — Ben Carlson [15:34]
• Asset Structure Limits Panic: The illiquid nature of private credit funds actually prevents investor panic-selling, making a "run" on the system unlikely—but limiting liquidity in a crisis.
  • "The investors can't panic, right? You can't get out of it quickly." — John Duncan [20:28]

4. Comparing Private to Public Credit and Past Financial Crises

• Not Another Mortgage Bubble: The big players—Ares, Blackstone, Apollo—are said to be more responsible and experienced than the cowboy mortgage days of 2007.
  • "This actually seems safer to me because ... nobody knew who owned what [in mortgages]. ... This is backed by Meta." — Ben Carlson [33:16]
• But the Rush to Allocate Is Real: A side effect of abundant fundraising is felt—funds flush with money need to put it to work, and the risk is that the quest for deployment trumps prudent underwriting.
  • "All these funds have raised so much money from investors. They have to do something. And all the best assets are already spoken for." — Ben Carlson [37:15]
• No Real Downturn Yet: The asset class hasn’t seen a harsh stress-test since 2008.
  • "We haven't seen a real market cycle here since 2008, not to a severe degree." — Sonali Basak [27:39]

5. Liquidity Trade-Offs and Behavioral Finance

• Liquidity in a Downturn: Advisors and clients value the ability to "do something" (sell) in a crisis, which private credit by design restricts. That can be both protective and frustrating.
  • "When things are not going well, people really value the ability to reach in and pull cash out for whatever reason." — Ben Carlson [44:48]
  • "I'm super bearish ... But like the average RIA has ... anywhere, the average RIA holds 2% aside mostly so they can bill their clients." — Ben Carlson [43:27]
• Proper Portfolio Design: The group advocates for barbell approaches and making sure illiquid alts represent a modest slice of a total portfolio.
  • "If you overdid on the private side with your clients and they're 40, 50, you are fired, you dumb asshole." — Josh Brown [45:51]

6. Institutional vs. Individual Investors and Democratization

• Access Is Expanding: Minimums are dropping, technology improving, and more investors can access alternatives than ever before. However, the best-performing funds are likely to stay out of reach for most.
  • "The best managers who have access to buy the best assets are not going to be accessible by every investor." — Ben Carlson [59:00]
  • "Now you could invest $25,000 in an alter with a fair degree of [liquidity]." — Sonali Basak [19:29]
• Democratizing Third Tier: Ben Carlson is skeptical that the greatest opportunities will ever be widely available.
  • "If something's amazing, are billionaires gonna let dentists get in? No way." — Ben Carlson [60:44]

7. Secondary Markets and Future Trends

• Rise of Secondaries: The panel predicts that secondary market funds—funds that buy assets from others in distress—will be a leading product in future cycles.
  • "I think the most popular category in this space is going to be secondaries." — Ben Carlson [47:46]

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Notable Quotes & Memorable Moments

• On the Illusion of Systemic Risk:

  • "People are talking about private. J.P. Morgan's private credit exposure ... but, like, they also just increased their provisions for loan losses to the entire economy." — Michael Batnick [51:14]

• On Bubbles and Fear:

  • "It's only a bubble if you panic." — Implicit theme and repeated sentiment throughout

• On Diligence as the Only Free Lunch:

  • "If there's anything to take away from all this—do the damn homework." — Michael Batnick [56:54]

• On Democratization:

  • "The universe of investments that only used to be for the ultra wealthy is now expanding." — Sonali Basak [62:59]

• On Dispersion:

  • "90% of everything is shit. That's what I think." — Ben Carlson [63:22]
  • "Most of these investments ... do you want to own the fifth best fund in a sector? You want to own number one or two or your returns will be radically different." — Ben Carlson [63:33]

• On Liquid vs. Illiquid in a Crisis:

  • "Can we all agree that investors prize liquidity in a crisis?" — Ben Carlson [43:03]

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Timestamps for Key Segments

• Opening Banter & Introductions: [00:00-11:56]
• Private Credit Mania - Constructing the Conversation: [12:35-14:41]
• Dissecting Risks and Headlines (Tricolor, First Brands): [14:41-16:33]
• Transparency, Diligence, & Manager Quality: [16:33-18:57]
• Private Credit’s Role Post-GFC and COVID: [17:32-18:57]
• Manager Selection, Dispersion, and Returns: [19:04-20:28]
• Illiquidity/Difficulty of Panic Exits: [20:28-21:30]
• Gate Redemptions & Fund Liquidity Design: [21:30-23:02]
• Real Estate & B REIT/Starwood Drama: [22:04-24:27]
• Private vs Public Credit, Competitive Dynamics: [24:27-28:23]
• Risks of Fund Inflows Outpacing Good Opportunities: [27:39-37:53]
• Bank Exposures & Systemic Fears: [48:54-52:06]
• BDC Risks and Spread Compression: [52:39-55:32]
• Investor Diligence and Democratization Limits: [56:54-62:59]
• Secondaries and Future Cycles: [47:46, 66:10]
• Fun Closings—Sports, Family, What’s Exciting: [67:03-71:26]

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Conclusion and Tone

The episode is spirited, fast-paced, and at times irreverent—blending sarcasm with genuine concern for investor outcomes. The guests—especially Sonali Basak—emphasize nuance: risks exist, but systemic disaster is unlikely if diligence is done and allocations are sensible. The democratization of alternatives is real, but access to the best remains limited. There's healthy skepticism about hype, and a clear consensus that thoughtful manager selection and portfolio construction are what matter most.

Final Takeaways

• Private credit is not risk-free, nor is it the next subprime—context, diversification, and transparency matter.
• As alternatives become more accessible, buyer (and advisor) beware: 90% is still "shit"—manager selection is everything.
• Illiquidity can dampen panic but frustrate clients in a downturn; have a balanced portfolio and set expectations.
• Secondaries and distressed funds may be the best place to capitalize on the next panic.
• Diligence is paramount—don't buy the pitch, buy the process.

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For more research and commentary from Sonali Basak and iCapital:

• iCapital Thought Leadership
• Sonali on LinkedIn and Twitter (search for real name).

Closing Words:
"We both want what's best for the investing public. That's pretty obvious." — Ben Carlson [67:03]

Transcript

[Josh Brown]

So I downloaded. Are you using the new. The ChatGPT or the OpenAI app or the web browser?

[Michael Batnick]

How is it?

[Josh Brown]

No, I just started using it, like, literally this morning. I haven't really poked around with it that much. I just said, like, what am I doing tomorrow? And it connects to your calendar and it tells you what you're doing, so.

[Ben Carlson]

It reads your tabs and it helps you, like, complete things.

[Josh Brown]

I don't know. I just started using it. But, like, for example, it gives you ideas, like, find movies and shows I recently viewed. So I clicked it, and it goes through your search history.

[Ben Carlson]

Oh, it's like, prompt now. It's basically full on mind control. It's like telling you what you should.

[Josh Brown]

Be doing to be told what to do.

[Ben Carlson]

I don't.

[Josh Brown]

I love it. This is like Shari 2.0.

[Ben Carlson]

Yeah, I already have that. I already have somebody who tells me what to do all day. All day.

[Josh Brown]

Have you watched the. The Marty Doc?

[Ben Carlson]

No. No. Should I?

[Josh Brown]

I haven't watched it yet.

[John Duncan]

I was too busy watching the John Candy one.

[Ben Carlson]

I don't have Ben, guys in my. In my headphones.

[Josh Brown]

Wait, can we have Ben say confident in his assertions? Over confident. A 1, 2.

[John Duncan]

Very confident.

[Ben Carlson]

All right. Shonali. I just got back from Las Vegas.

[Michael Batnick]

Oh, yeah? For fun or for work?

[Josh Brown]

For work.

[Ben Carlson]

All I do is work.

[Michael Batnick]

Las Vegas is my nightmare.

[Ben Carlson]

It's. You know what?

[Josh Brown]

I love it. I love all the depression and the tears.

[John Duncan]

36 hours, right?

[Ben Carlson]

I had fun. I was there 18 hours, and that's probably all right. I didn't. I was there on a Monday and a Tuesday. Or no, a Tuesday and a Wednesday.

[Michael Batnick]

And it was still hopping.

[Ben Carlson]

Yeah, I mean, the encore. So the encore is always going.

[Michael Batnick]

Yeah. I'd go for the Sphere. I've never been to the Sphere.

[Ben Carlson]

The Sphere is insane.

[Michael Batnick]

Yeah.

[Ben Carlson]

It's one of the things that lives up to the hype. I saw you, too.

[Josh Brown]

All right.

[Ben Carlson]

I'm going back in May.

[Michael Batnick]

Okay.

[Ben Carlson]

For no Doubt. So I'm so excited.

[John Duncan]

Michael and I are going, like, two weeks to Vegas.

[Ben Carlson]

What are you. Are you gonna see at the Sphere?

[John Duncan]

We were gonna go. It's a Wizard of Oz, but just go.

[Ben Carlson]

Just go.

[John Duncan]

To go see a movie, it's beyond.

[Ben Carlson]

It's so much more than a movie. It's fully immersive experience.

[John Duncan]

I don't know.

[Ben Carlson]

Just go.

[John Duncan]

All right. You sound like a chamber of commerce person.

[Ben Carlson]

No, because why wouldn't. I mean, unless you have other cool things to do.

[John Duncan]

Blackjack.

[Ben Carlson]

How much blackjack can you really play.

[Josh Brown]

Better than likely 12 hours. Josh brought this back for me and Chris.

[Ben Carlson]

Yeah, Check that out. That's a Troy ounce of silver.

[Josh Brown]

You ever see this before? This is the top.

[John Duncan]

It crashed right as he bought it.

[Ben Carlson]

So can I tell you something? I walk. There's a guy, this guy with coins, gold coins, silver coins on a display at the event that I'm at.

[Michael Batnick]

And I go, better as a hard asset, good for alternative.

[Ben Carlson]

I want to buy a few of those. How much are they? He goes, well, it's an ounce of silver. I'm like, okay, well, I don't know offhand what that means. I don't know how much an ounce of silver is. He's like, no problem. I'll tell you how much it is. He looks on the Bloomberg app for the price of silver. He goes, It's 48. So I'm like, okay, two, please. He's like, no problem. No problem.

[Michael Batnick]

That's how he charged you.

[Ben Carlson]

That'll be $96. Yeah.

[Michael Batnick]

Huh. Go figure.

[Ben Carlson]

Like, right off the quote. Like, right off the quote screen. Cause it's an ounce of silver. I thought that was.

[Michael Batnick]

He wasn't comfortable with the Google pricing.

[Ben Carlson]

I think that was kind of cool.

[Michael Batnick]

Wait, can I send one of you a chart that I love?

[Josh Brown]

Yeah, yeah.

[Michael Batnick]

We don't need to use it. It's just kind of interesting and informative. What's your email?

[Josh Brown]

We want it Michaelitholz.

[Ben Carlson]

Are you crazy?

[Josh Brown]

I think people can figure it out. I got a lot of emails.

[John Duncan]

Ritholtz, you got hoes. It's already down to $42 an ounce.

[Ben Carlson]

Bellagio has a new Carbone restaurant. That's Carbone Seafood. You have to take a boat to get to it.

[Josh Brown]

Are you joking?

[Ben Carlson]

No, I'm not.

[John Duncan]

Wait, where are we. Where are we staying in Vegas?

[Josh Brown]

Well, we are staying at the casino. I don't know which I thought we're staying at. Ben and I are going for a night.

[Ben Carlson]

So I'll tell you the. I'll tell you what I've learned. I stay at the Tower Suites.

[Josh Brown]

Oh, we're at the MGM Grand.

[Ben Carlson]

Okay, so there are three of these.

[Josh Brown]

You say where there's no casino, right?

[Ben Carlson]

No, there is, but it's a separate building. It's connected. So there's the Waldorf, which is just a tower. It's like a Manhattan high rise. None of the bullshit in the lobby. Like, you don't hear, ding, ding, ding, ding, ding. None of the dregs of society.

[Josh Brown]

I need the bullshit. I need the stale cigarettes, smoke in the air. I need it all. I love it.

[Ben Carlson]

And then there's the.

[Michael Batnick]

Where are you from? Batnik.

[Ben Carlson]

The Encore Tower suite. Separate entrance. You pull up to. There's nobody there. There's a security guard and a few people working behind the desk. You check in in two seconds. You walk into your elevator, you go right up and you're like in a. You're almost like in an apartment building. Not in the house.

[Michael Batnick]

I was in la, sort of. I was in Nashville. Opryland. Have you been there?

[Ben Carlson]

Yes.

[Michael Batnick]

It's like Vegas.

[Ben Carlson]

Opryland.

[Michael Batnick]

Opryland. I've heard both.

[Ben Carlson]

Grand Ole Opry.

[Michael Batnick]

Grand Ole Opry, Yes.

[Ben Carlson]

I say an Opry.

[Michael Batnick]

I didn't like it.

[Ben Carlson]

You went to the wrong thing. You're supposed to go to the Ryman Auditorium. Can we do 10 seconds on this? It's important, actually. The original agent. Now, the original Grand Ole Opry was at this 1800s era church that became the Ryman Auditorium. That's where like, Dolly Parton became famous. Yeah, that's like for country music, maybe for all of American music. That is like the. That's like the Vatican. Okay, The Ryman Auditorium.

[Michael Batnick]

I gotta try it.

[Ben Carlson]

The Grand Ole Opry that they. They tape. They tape like a TV show that's 20. That's 20 miles outside of Nashville.

[Josh Brown]

Who is this for?

[Ben Carlson]

For Sonali. That's the tourist trap. You went to?

[Michael Batnick]

I went to. Well, it was very corporate, right? It was like the Delta Lounge this and like, you know, another.

[Ben Carlson]

So if you really want to see like a country music show in the heart of Nashville. Vandal Opry, that's the Ryman Auditorium.

[Michael Batnick]

I gotta check on my Nashville beyond that. Nashville's the most amazing place.

[Ben Carlson]

It really is.

[Michael Batnick]

I'd move there if I could.

[Ben Carlson]

We have employees there. It's pretty sick because you have Belmont, which is like one of the best music colleges in the country. Vanderbilt is right downtown. You have all of like Google and everybody is opened up and then you've got the whole music component to it. Like Broadway with all the honky tonks and all that.

[Michael Batnick]

So you've got good music taste. But, like, is Batnik, like, he doesn't like music. Just betting on the side. Like, what are you doing over there?

[Josh Brown]

Yeah, that is a cool smash.

[John Duncan]

There's live music everywhere you go. We used to like a band at a holiday in there, and it was amazing everywhere. Everyone was carrying a guitar down the street. It's so cool.

[Josh Brown]

So, Chanel, you're the perfect person. Taffy, this week we're going to be talking a lot about the cockroaches. And I want to say this before we get into the show, so I, relatively early on, probably two years ago, was like, why the. Am I getting so many emails from private credit companies? What is happening? Like, I. I've been on this corner for a long time now, right? It's been a minute. And I also think that a lot of the conversation that is happening, and I'm like, how did I turn into, like the voice, the spokesperson for the private credit industry? It was never. That's not like what I'm here to do. But I think a lot of the hyperbolic fears are just a way overblown.

[Michael Batnick]

You know, it's like any other asset class. Why would you paint it with a broad brush? It doesn't make sense to me. If you're picking fund managers in public markets, you would look at those fund managers. You would look at their track record. You'd see how they've been doing over time. You would see importantly, which to me, this drives me crazy. Nobody asks what they're actually invested in, what are they underwriting? So those questions, you've gotta ask them. And if you look under the hood, you know, today was a great example. One of the biggest alternative managers had published their report. Blackstone.

[Josh Brown]

Blackstone.

[Michael Batnick]

Did you see the results?

[Josh Brown]

I did. Phenomenal. I'm a shareholder.

[John Duncan]

So.

[Michael Batnick]

Blackstone's private credit business alone was up 13, almost 13%. Private equity also 13% over the last 12 months, are doing well, despite all the cockroach fears. So I had sent you that chart over there too.

[Ben Carlson]

Went down 4% today.

[Josh Brown]

Gives a shit.

[Michael Batnick]

You know, actually all year long, these managers have been reporting record assets and.

[Ben Carlson]

Sorry.

[Michael Batnick]

Boy, that laugh.

[Ben Carlson]

All right, that was Ben. All right, guys, they're doing the show. Before we start the show, I just wanted to.

[Josh Brown]

Because I want. I want to give. I want you to have the mic. It's enough of me. Three claps coming in.

[Ben Carlson]

Wait. Do you feel like you've spent the last week defending private equity? Private credit?

[Josh Brown]

Not def. A little bit.

[Ben Carlson]

I have.

[Josh Brown]

I feel like I have been and I don't. How did this happen?

[Ben Carlson]

How did you become? How did you become?

[Josh Brown]

I was the first person to say it's. It's bullshit. And now I'm defending it. All right, whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. Today's show is sponsored by Public. Public is the investing platform for those who take it seriously. You can build a multi asset portfolio of stocks, bonds, options, crypto and more.

[John Duncan]

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[Josh Brown]

Show is brought to you by Vanguard. To all the financial advisors. To all the financial advisors listening, let's talk bonds for a minute.

[John Duncan]

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[John Duncan]

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[Michael Batnick]

Welcome to the Compound and friends. All opinions expressed by Josh Brown, Michael Batnick and their castmates are solely their own opinions and do not reflect the opinion of Redholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

[Ben Carlson]

Ladies and gentlemen, welcome to the Joe Rogan Experience. My name is Downtown Josh Brown. Today is going to be one of the most epic episodes we have ever done. I could not be more excited. We have in the house John Duncan, Nicole, Rob, the Compound Crew. In addition. Joining us today, you know him, you love him from several other shows on this network and anytime he joins us in person, it's a battle of monkeys. Ladies and gentlemen, Ben Carlson. I don't have a bio written for you.

[Josh Brown]

Star of Broken Arrow and several other 90s action classics.

[Ben Carlson]

Ben is a collegiate football star. Well, you are.

[John Duncan]

I flamed out in high school.

[Ben Carlson]

You flamed? All right. That was. Oh, that was high school.

[Josh Brown]

High school.

[John Duncan]

I played in college for a couple years, but it didn't happen. I was too busy partying. All right.

[Ben Carlson]

More importantly, Ben is. Ben is the head of Institutional asset management here at Ritholtz Wealth. He is the author of A Wealth of Common Sense. He is the co host of Animal Spirits with Michael Batnik and just an all around gem of a human being. Welcome back, Ben. So happy you're here and first time guest. She is in my opinion, she was, in my opinion one of the best reporters covering high finance. That's what I call it, like the upper echelons of finance.

[Josh Brown]

What happened to finance?

[Ben Carlson]

No, no, no. Yeah, high finance.

[Josh Brown]

I mean that's your beat.

[Ben Carlson]

Finance.

[John Duncan]

You changed him.

[Michael Batnick]

I went with finance.

[Ben Carlson]

You have interviewed. Before I even say your name, you have interviewed like every impressive person on Wall street, you would agree with that.

[Michael Batnick]

And even some not impressive ones.

[Ben Carlson]

Sure, sure, sure. That's true too. Sonali Basak is the chief investment strategist for iCapital, responsible for developing market views and research. Prior to joining iCapital, Shonali anchored Bloomberg television show Open Interest while serving as the network's chief global finance correspondent. Welcome to the show. You happy to be here?

[Michael Batnick]

I am so excited to be here. Longtime listener, long time fan, first time guests though.

[Ben Carlson]

Thank you. All right, my first question, how dare you defend private credit? All right, so this is gonna be, this is gonna be a show that's fairly focused on private equity, private credit, clearing up some of the misconceptions that I have been spreading in the media and. No, what we wanna do is get to the bottom of what somebody who is very connected within this world has to say. I know you've probably spent the last two or three weeks speaking to people at a very high level about this. Both investors and fund managers and corporate executives.

[Michael Batnick]

Yeah, we've been speaking to people about it, but we've also been doing a lot of research because we wanted to be so clear about what is and what isn't.

[John Duncan]

Okay.

[Michael Batnick]

And it's funny because private credit in particular, we were joking around, Batnik and I just a second ago about how you were getting pitches for private credit funds for years now and most of my career at Bloomberg was very much around the private markets because that's where so much of the activity was moving. So similarly, you couldn't avoid it. So where are we now? It's grown so many years.

[Ben Carlson]

So let's start there. Like, how much are we all about to lose?

[Michael Batnick]

Well, we did this analysis, you shared it. I have one bone to pick, but I'll pick it later.

[Josh Brown]

Okay, good.

[Michael Batnick]

And so because I know you like a little spiciness and so if you look at the exposure across the Business Development Corp. Universe. This is the private credit universe you'd really look at. Did you see how small the actual exposure was to two bankruptcies?

[Ben Carlson]

Yeah.

[Josh Brown]

Tricolor Zero.

[Ben Carlson]

Well, not only small, but so dispersed that no one player is really affected at all other than Jefferies.

[Michael Batnick]

We looked at more than 165 BDCs, and just over a dozen had any exposure at all. And most of the exposure within those funds was 0.05%.

[Ben Carlson]

We back up and tell the audience what. What we're talking about when you say exposure to first brands for people that aren't paying very close attention. What's like the synopsis of why all of a sudden everybody's worried about this.

[Michael Batnick]

So there's two companies in a row, First Band and Tricolor, that face bankruptcy, by the way. I would actually argue for different reasons. There was a third company that no one talks about, the Prima Lend company. Right. But because it wasn't tied to private credit, no one talked about it. Or because it didn't have a private credit.

[Ben Carlson]

Not salacious enough.

[Michael Batnick]

Exactly. The private credit world draws a lot of questions and attention. So when they went bankrupt, we did see losses tied to banks, and then a lot of questions around how exposed banks were to private credit firms, because you saw those types of losses within these two. What, you know, what Jamie Dimon is calling cockroaches, what people have heard for the last couple of weeks, what, you know, people are calling the idiosyncratic risks tied to certain private credit. But really, this was a banking problem. Ultimately, at the end of the day, these are bank lines that at the end of the day, I want to.

[Ben Carlson]

Be clear, also, in one of these cases, someone is alleging fraud.

[Michael Batnick]

Yes.

[Ben Carlson]

Which is not the same thing as, quote, unquote, reckless lending. It's its own. Fraud is just a part of. Unfortunately, it's a risk that every financial institution faces.

[Michael Batnick]

But even beyond that, there were a lot of questions about loans that were not disclosed to investors among those firms. Right. Fraud. But, you know, was there diligence enough? Was there not enough diligence? This is a big question among the firms that were exposed to each of those companies.

[John Duncan]

Don't you think that this is actually a positive for the industry, though? Because there's. People wouldn't talk about this stuff a few years ago. Now I think it's just gonna be more transparency. I think in the end, that's a good thing.

[Michael Batnick]

Yeah, I couldn't agree more. Because we were saying a little earlier, if you are invested in a public market manager, you are looking at Their holdings. You're looking at what they're invested in. You are asking about track records. Why wouldn't you do the same thing for private credit? If you call up your manager, I did it throughout the last two weeks. I called a bunch of managers and I said, what are you holding? What are you holding? And how sensitive is it to the broader economy?

[Ben Carlson]

You have the ability to do that. Everyone else doesn't.

[Michael Batnick]

You know the thing that's really interesting about private credit now, because it's opening up to a broader market of individual investors, you are seeing more managers be more and more clear with as many advisors that they could be really open the doors to the ability to.

[Ben Carlson]

I agree, I agree with that. But I also want to point out these things don't have Q sips. This is the fundamental difference. So when you own a public bond fund, the manager is buying all sorts of bonds, all sorts of loans in some cases, and for the most part, they tend to have a cusip, which means an end investor can look these things up, which is way more transparency than by definition you would get from private credit. From direct lending. There's no. There's no way to know what anything's worth until the manager files and says, here is the mark. This is what we think it's worth.

[Michael Batnick]

But don't you think it's interesting? You know, there is a story on Bloomberg today that's consistent with what we're seeing. As these products become much more available, these investments become more available, you're all of a sudden seeing, you know, what was impossible a few years ago, possible now. Now we have monthly reporting for many funds, for example. And so that transparency, it has to increase as availability increases. But with that said, like, let's talk about just private credit for a second. Shouldn't we just take a big step back here and say, why are we even talking about this? If you think about it, why did my. Why is it that I have spent so much time on private credit? It's because so much of my career was after the financial crisis. After the financial crisis, regulations really hamstrung the banks in certain areas. But then there's two other moments, arguably, that really accelerated this Covid, when the banking system froze up in a lot of ways during COVID it was actually private credit that moved a lot faster into many parts of the economy.

[Ben Carlson]

You saw that people still needed loans totally.

[Michael Batnick]

And so that was one thing. And then when Silicon Valley bank happened, right, you had seen that kind of regional banking crisis of 2023, and that was Another big moment for private credit to really expand its wings in a massive way because again, you saw the banking system freeze up in certain ways, especially among smaller and middle medium sized lenders. So private credit firms started to backstop many of those lenders and become what is now a more critical lifeblood to the American economy than it was a decade ago.

[John Duncan]

So you're still relatively new to the space. I'm curious, like what you've learned being on the inside now that we don't see from the outside.

[Michael Batnick]

I actually. The chart that I sent you of returns. Right. I think a lot of people are.

[Ben Carlson]

Asking, let's put that up. Yeah, we have it.

[Josh Brown]

John has it.

[Michael Batnick]

Yeah, it's really, really interesting chart here. And what you're seeing is that you have double digit returns in many parts of the private markets. I thought this was the most clarity.

[Ben Carlson]

Manager selection has been an important driver of return outcomes and alternatives.

[Josh Brown]

We're looking at dispersion and I think, Chanel, I wanna speak for you, what's your point? Cause I think I know this.

[Michael Batnick]

But you go, so a lot of people talk about volatility. I don't think volatility is a problem. I think dispersion is the problem. And if you are not in the better funds, if you're not doing the diligence that many people, as you were saying, Ben, are not doing, by the way, then you're not getting what is possible from this industry. And a lot is possible. Remember, this is also an asset class that institutions were more privy than individual investors. We had a great. I pulled this up for you, Josh Brown. You were asking how big of an opportunity the RIA channel is for alternatives. If you are an RIA with assets above 500 million, you could have, they have had much, much, much more exposure to alts. Makes sense. You might have bigger clients in that book and more money than to put aside to alts. You used to have bigger minimum ticket sizes, but now you could invest $25,000 in an altern with a fair degree of. I hate. This is a whole other topic which you get into liquidity. Right.

[John Duncan]

And so that's a, that's. I think that's the biggest tip. That's why we're never going to have a plane crash in private markets because it'll be like, let's say this really was. It would be a death by a thousand cuts because the investors can't panic, right? You can't get out of it quickly.

[Ben Carlson]

How would you panic? As a private credit investor, you would have to buy CDS against the basket of the loans that you. You're on the hook.

[John Duncan]

So because of the ill nature of the funds like that, that would make it worse if there was a credit problem. And everyone said, all right, get me out now. You can't do that. You literally can't because of the way the funds are structured.

[Ben Carlson]

So John, actually, but so just like a little bit of nuance there, we saw a small version, some would say if the people that said this is a canary in the coal mine ended up being wrong. But we saw an episode where blackrock has a semi liquid Blackstone. Excuse me, Blackstone Biweed semi liquid. And Blackstone had to gate redemptions because the alternative is allow people to have their money back and sell things at a depressed valuation.

[Josh Brown]

Wait, hang on.

[Ben Carlson]

And that's not good for anyone if the portfolio is forced to liquidate things at prices that they don't want to. So they gated redemptions. Eventually the redemption requests cooled off and B REIT is still trading and it's okay.

[Michael Batnick]

But if you go back to that time, it's such an interesting moment, right? Because it actually worked the way it was supposed to work. A gate is only a gate if you're not legal. Like they had limits. All of these funds, to Ben's point, have limits on how it's right. It's not full liquidity and it's also not a gate. And so to talk about these funds as though they're liquid is a big mistake too.

[Josh Brown]

But Starwood gated, right? Wasn't it Starwood that said there's no more money coming back? We could. People could fact check. I don't want to like spit a.

[Michael Batnick]

Message, but I thought it was all right.

[Josh Brown]

So, John, chart 10. So we're fast forwarding for a little bit here. This was going to be my ultimate take. I have been of the mind that the episode that we just experienced with Tricolor and First Brand, it's not nothing there. Is something happening. Is it systemic? I don't think so. I think that it ultimately blows over in a very similar way that B REIT blew over. And guess what? The stress in the real estate market, particularly the office space, which they don't have a ton of exposure to, at least not anymore. This was so much more significant and potentially systemic. Think about the stress in the real estate sector, the actual stress. And here we are a couple of years later and it's fine.

[Michael Batnick]

You know, I'm just going to call you on Tuesday nights now and just be like, let's talk about this I.

[Josh Brown]

Mean I think that's my point.

[Ben Carlson]

The asset, the assets in this, the assets in this fund have been between 50 and 60 billion for the last two years straight. And that disruption that everyone said this is gonna be the death knell for these semi liquid real estate vehicles turned out not to be true. And to Michael's point, the hysteria cooled off.

[John Duncan]

But if there are real losses though, the clients are gonna have to eat them. Sure, that's the thing, that's the difference.

[Michael Batnick]

But that goes back to the dispersion chart too. It's not that people don't lose money in this asset class, but they lose, they also make a lot of money.

[John Duncan]

Those are going to be the story someday is like look at how terrible this fund did. The people were over promised or there's too much leverage or whatever it was. Those are going to be the story.

[Ben Carlson]

Okay, so, but my comment at the time was what you think you can't lose money in a publicly traded reit. Like what are we talking about here?

[Josh Brown]

So be read. The returns have not been great over the past couple of years. Yeah, real estate's been challenged, we know, but is it a catastrophe for investors?

[Michael Batnick]

No.

[Josh Brown]

Is it great? No, it's not great. It's basically flat for the last few years. But let's get back to Sonali's chart that she showed in terms of dispersion. Okay. I think this is really important when you are investing in things with highly idiosyncratic manager access risk like venture, like growth equity, the dispersion of returns are a mile wide. And if you're not in the top whatever decile quartile, you might as well.

[Ben Carlson]

The better managers versus the run of the mill managers or the bad managers.

[Josh Brown]

Direct lending is the opposite. We aren't, we, the industry is making loans and guess what? Most of the loans get paid back.

[Michael Batnick]

So this is an interesting. I talk like I said in the last week I've talked to a lot of managers about this and it's not like you know, if you're Stan Druckenmiller, right. Stan Druckenmiller is known for big concentrated bets. Right. That is the secret to his success. But Those are like 40% returns, right? Venture capital is like that too, but different, different type of asset. Direct lending, super diversified. There are hundreds and hundreds of loans that are being underwritten such that if one loan were to go bad, it's a typical.

[John Duncan]

What is the typical position size for one of these funds? I know there's a lot of different funds, but I mean what is it 1% to like how, how big are the position sizes in these funds?

[Michael Batnick]

Well, let's put it this way. When first brands the losses that we saw, like I said, it was 0.05% that was lost for most of these funds.

[Josh Brown]

So who is taking the, who has taken the losses?

[Ben Carlson]

So it's a half of 1%.

[Michael Batnick]

Those are just the decisions.

[Ben Carlson]

Okay.

[Michael Batnick]

Yeah.

[Ben Carlson]

So you'll, in a bankruptcy, you're taking.

[Michael Batnick]

Basically a total loss than.05%.

[Josh Brown]

And the problem with that is that the collateral, the liens were no good because there was fraud.

[Michael Batnick]

Yes.

[Ben Carlson]

Double count, double counting assets.

[Michael Batnick]

Even then how small that was relative to the overall portfolio. That's kind of the point. But with that said, I actually was pulling up an email because I asked our diligence team how they go about picking funds as well. And they said there are two rules. There are two rules when it comes to underwriting. Protect capital and don't forget. No, definitely not that. Have you ever heard protect your capital and don't forget rule number one. How do you ever finish a thought?

[Ben Carlson]

Josh, That's a Buffet. That's a Buffet quote.

[Michael Batnick]

Yeah.

[Ben Carlson]

Rule number one, don't lose money.

[Michael Batnick]

Let me give you an rule number.

[Ben Carlson]

Two, don't forget rule number one.

[Michael Batnick]

Who is the one that said don't ever hire an optimistic credit manager?

[Josh Brown]

Right.

[Ben Carlson]

I like that one too.

[Josh Brown]

So my take is there is. If you look at just rolling returns, not rolling returns, rolling like inflows, the institution has pulled back dramatically because they're good, they're full.

[John Duncan]

Right.

[Josh Brown]

And distributions on the private equity side have just not materialized. So they're not really allocating as much there on private credit or equity. And the flows have been replaced by wealth managers. We know the story. It's very, it's very transparent. But it's not as if the inflows have triple X. So even though I guess my skepticism would say there's so much money coming in that there can't possibly be this many good loans to make. And therefore the underwriting standards have probably come down. There's probably some sloppy behavior which we're seeing. And it's not going to be in my estimation, a systemic. Holy shit, I can't believe we were so blind to the risk. It'll probably be lower returns. Now. The counterpoint is, well, but it's so for plus six. And that's just kind of what it is. And so if rates come down, returns will come down. But let's say that there's a tick up in defaults, returns will come down. To it. So, fine, so it's not 9 to 11%. It's 7 to 9%.

[Michael Batnick]

And again, it depends on the manager, because the one we were talking about this morning is still double digits. Right. But with that said, yes, you're right. There is an element here. I call them tourists. There are a lot of people who have entered this space that don't know what they're doing. That's for sure. Right. And why do I believe Stop subtweeting, Michael. Is that, oh, my God, you used to be my favorite.

[Josh Brown]

I have a fund. I have a private credit fund taking investors now.

[Michael Batnick]

Well, you know, the thing about the tourists here is that we haven't seen a real market cycle here since 2008, not to a severe degree. And so a lot of people who are entering the industry have not experienced that pain. And, you know, a lot of people, when they look at their managers, say, okay, well, what kind of pain have you experienced? And have you navigated it to the point you were making? Ben ON it's not just the ability to withstand pain in the market. The bigger managers, because of scale, there is a benefit. Right. If you have management teams and big teams that can work with the portfolio companies, you're also at greater, you know, greater protection of even making it to a workout. And if you make it to a workout, by the way, a lot of these people have been through distress cycles before. They know how to work those.

[Ben Carlson]

For the listener, the workout is all right, we can't actually make these payments as currently structured. What else can we do so that the underlying company survives, and then the lender has all the incentive in the world? And a lot of times these are bilateral things. It's not a syndicated loan where it just gets adjudicated in court and there's nothing you could do about it. These are like phone calls between people who trust each other.

[Josh Brown]

When were we in Charlotte with Kim Harvey?

[Ben Carlson]

23.

[Josh Brown]

Okay. So in 23, I was talking to Cam, and this is back when I was like, why am I getting several emails, a dozen a week from private credit managers? And I spoke to Cam, and I said, does this worry you at all? And he's. I don't think. He's not. No. He's not known as a pessimist, but he's a risk guy, right? And he was like, no. And I said, really? Tell me more. And he said, well, because these loans were otherwise syndicated by a. By banks, and there was a million different investors and knife fights galore and lawsuits like, I'd much rather this go. I didn't say Blackstone per se, but I'd much rather the risk be in the hand of a single operator that can negotiate with these companies and work it out. And so there's like been a lot of talk about this payment in kind stuff. Oh, it's all just payment in kind. They're just adding to the end of the loan they're extended because they can't pay. And if you look at the data, that's actually just not happening. And if it were, I would be sharing it and people would be talking about it, but it's not. John Keith up, chart two. So this is from Houlihan Loki. And we. Next chart, please. I'm sorry, chart three. Like we're talking, we're just talking stories without like fundamentals and data and look at the top chart. Payment in kind.

[Ben Carlson]

Let's just slow down. Define for just did. No, but what, what does that, what does that mean? What does that mean for somebody?

[Josh Brown]

That's just because you aren't listening. So payment in kind.

[Ben Carlson]

I'm with you.

[Josh Brown]

Payment is missed and it is added to the end of the loan. It extends, it makes the principal payment.

[Ben Carlson]

In lieu of making a payment today. We'll just give you more money, we'll lend you even more money and you'll owe us later.

[Josh Brown]

So that is like the buzzword that people keep talking about.

[Ben Carlson]

That's what the Financial Times looks at and says, this is going to, this will end badly.

[Josh Brown]

Okay, but look at the data, please. So payment in kind as a percent of total interest income. It's steady. And if you look at non accrual investments, which are, which are borrowers that miss a payment, there's nothing, you know.

[Michael Batnick]

And I've got to say, I've tried to look at this in so many ways and stress test all these ideas because, you know, not only has this remained steady when you look at the markets, are you more worried at this juncture, honestly about public credit or private credit?

[Ben Carlson]

Private credit.

[Michael Batnick]

Why? Credit spreads are enormously, enormously tight.

[John Duncan]

Don't the yields have to come down though, if there's that many lenders out? Josh said, well, it's the SOFR plus whatever. Don't they have to come down if there's that much competition for the loans?

[Ben Carlson]

That's what I'm worried about.

[Michael Batnick]

Let me address this too. There's two things going on. The traditional way private credit used to be defined was direct lending. This was, you know, levered loans, by and large. That's estimated to be a $1.7 trillion industry. Broadly syndicated loans are actually less than that.

[Josh Brown]

What's the difference between those two? I thought they're like kind of the same thing.

[Ben Carlson]

Bilateral versus a syndicate where there's a million lenders and everyone has a tiny slice.

[Josh Brown]

Lever loans and bank loans aren't the same thing.

[Michael Batnick]

So broadly syndicated loans, levered loans are in the same bucket. But direct lending versus bsl.

[Josh Brown]

Okay, okay, got it.

[Michael Batnick]

That's what I'm talking about. Direct lending is now a bigger by many estimates industry than broadly syndicated loans. So it's kind of. How much bigger can it really get when they're kind of the same type of borrower? We'll see. The high yield market is, you know, different estimates, but just a little bigger. 2.6 trillion. So where now has private credit been going next? Why is it growing so much? It's not all direct lending data centers. There's a lot of data centers which are absolutely great.

[Ben Carlson]

More exposure to AI. I know what everyone's missing in their portfolio is more AI exposure.

[Michael Batnick]

There's so many funky things, right? Asset backed lending, music royalties. There's consumer finance, which is more weighted to the credit cycle. And so I think the industry is evolving in different ways. You're just seeing it's just lending, it's.

[Ben Carlson]

Just direct lending is. Aries raises a fund. Yeah, they raised $10 billion. Mid sized companies that are not going to issue bonds in the public market go to Aries and say we have a contract to supply X number of gigawatts of electricity to this AI, to this AI data center. Here's the contract Metta is paying. We know it's money. Good. Basically it's almost like factoring.

[Michael Batnick]

But let's go to the data center thing first.

[Ben Carlson]

So wait, wait, so Aries makes that loan in their fund? Yes, I'm comfortable with that because it's Aries on the hook for it.

[Michael Batnick]

I thought you hated private markets.

[Josh Brown]

He's talking himself into it.

[Ben Carlson]

I want to point this out. I think it's important a lot of people are making the comparison, myself included, to the mortgage bond. The mortgage bond era. Interesting the difference between this and that. This actually seems safer to me because in the mortgage bond era nobody knew who owned what. It was syndicated to death and tranched.

[Josh Brown]

And it was backed by the strawberry farmer who had eight houses.

[Ben Carlson]

Right.

[Josh Brown]

This is backed by Meta.

[Ben Carlson]

So that's so not the same. So I'm saying something very constructive here, which is that I feel pretty confident. The guys running Blue Owl and Ares and Apollo, they're not complete insane Maniacs that are just randomly spitting money at, at lending opportunities and, and hoping for the best.

[Michael Batnick]

And they all have seen a credit cycle.

[Ben Carlson]

These guys were all, these guys all.

[Michael Batnick]

Came out of Drexel.

[Ben Carlson]

Yeah, they've seen it all. So I, I'm comfortable with that aspect of it. This is what I, this is what I've been saying. They're not the only players in the market. Yeah, that's one.

[Michael Batnick]

Mm.

[Ben Carlson]

Now you have a second tier.

[John Duncan]

Yeah, because those big firms, they can.

[Josh Brown]

Short up so much money and they're.

[Ben Carlson]

Not the ones pitching.

[Josh Brown]

Michael, wait. Okay, so this is a very important point. So all of this bullshit in my inbox, these, these, these funds are nonsense, right? Even if it's like a third tier asset manager that we know. No chance, buddy, sorry, not going to happen. But the Blackstone, Aries, KKR, Carlisle of the world, there is only like six of them that can make this $5 billion loan. So they're not fighting for scraps with all of these fourth tier entrants. They're going to get smoked. The lower ones, I'm pretty sure, to Josh's point, that the contracts with Oracle, at least for now, they're going to, they're going to be okay.

[Michael Batnick]

The, the contracts that you have with the hyperscalers are some of the most interesting ones. And why one is because those are between 15 and 30 year loans. They are so long. And yes, you know, if you're worried about public market valuations of those kinds of companies, that's one thing. They have to pay their lease. Right. That needs to happen.

[John Duncan]

And wait, why are those loans so long?

[Michael Batnick]

Because they're leases, they're data center leases. That's where I think that the confusion around what's actually happening here. You're talking about what has traditionally been known as direct lending and private credit. Yes, fine. But the way the industry is going is also these massive data center leases too, that are very long leases. And so they're not just that. Some of these are also, you know, because of rent. Right. It's, it's data, it's adjusted to inflation. So they actually, the cash flows grow every year. So that's the other pretty interesting.

[Ben Carlson]

All right, so now let me tell you though, the second half of what I'm saying, this is what I'm worried about. And I have firsthand knowledge of this.

[Josh Brown]

Because he's very old.

[Ben Carlson]

No, no.

[Michael Batnick]

Do you lose money in a private credit fund?

[Ben Carlson]

No.

[Josh Brown]

Yeah, show me on the doll where the private credit touches.

[Ben Carlson]

No, but I have an analog that I think is Very apropos of. I think could I actually think this, my firsthand experience, could be emblematic of what's happening all over the country, maybe all over the world. In my industry. Yes, the wealth management industry. Every single day there's another article in the trades about a private equity deal.

[Josh Brown]

That's the bubble.

[Ben Carlson]

Hold on, hold on. For a firm that I already know is a piece of shit, okay, Every day. Not every week, every day, they are taking other people's money. They are buying firms that have no real enterprise value at absurd multiples, 20 times cash flow. They are retiring the boomer who started the firm 20 years ago, and they're basically smashing this acquisition together with a whole pile of firms just like that. And they're calling it a business. In reality, they're buying salespeople and those salespeople's relationships with their clients. And they're counting on the fact that they're only gonna have to sue a few of these people who try to leave. These are horrendous. Horrendous. Now I know this.

[Michael Batnick]

Not everything. Again, dispersion. But to your point, of course not everything.

[Ben Carlson]

But I have to overgeneralize because the question is, why is this happening? I will tell you why. All of these funds have raised so much money from investors. They have to do something. And all of the best assets are already spoken for or not for sale. Because they're good assets. So what's left?

[Josh Brown]

Like us?

[Ben Carlson]

What's left is making mediocre investments in mediocre companies at bad valuations, competing with 50 other funds. There's just no way on the equity side that that's good business. How could it not be similar on the credit side? It's the same firms. Whoa, whoa, whoa, whoa, whoa, whoa, whoa.

[Michael Batnick]

Not. First of all, it's actually not the same firms often. Because you know what's grabbing headlines? Sometimes it is. When it's the same firms, you're looking at a big buyout and maybe the direct lender is exposed. But they're downside protected. Right. That's another aspect of this.

[Ben Carlson]

Why? Because they're at the top of the capital.

[Michael Batnick]

It's loans versus equity. Yeah, that's a big difference.

[Josh Brown]

It's not even the closest.

[Ben Carlson]

But it's the same industry competitive dynamics. If there are. But they would have to thousands of players find loans.

[Josh Brown]

Loans versus equity. Loans versus equity.

[Ben Carlson]

But don't you see?

[Josh Brown]

I do see.

[Ben Carlson]

It's the same competitive dynamic. If we don't put this money to work, we're going to lose. We're Going to lose the.

[Josh Brown]

I understand. But to Sonali's point earlier, the equity dispersions of managers. Yeah. Obviously I agree with you with what we're seeing in our industry. I don't want to invest in those.

[Ben Carlson]

But don't you. Every industry is the same thing.

[Michael Batnick]

No, not.

[Josh Brown]

But loans and equity, they're so different.

[Michael Batnick]

That is like. We'll get back to that because that is the most important part of this. But on private equity, to the point that you're making, it's even beyond the bad companies being bought. It's the fact that you have. They call it the DPI issue. Right. Have you heard of this a lot? It's a. Basically that private equity firms have been sitting on.

[Josh Brown]

They're not paying. They're not giving investors money back.

[Michael Batnick]

Investors money back. And so when people say that they just mean that it's. They're. They're stuck. It's a complete clog right now. Not complete. It's starting to open up. You saw that in the results.

[Josh Brown]

Well, cause valuations got so silly. There's no more buyers.

[Michael Batnick]

And you know what's happened? This is the problem when it. As it pertains to private credit. There is a controversial thing going on right now in the way that people are keeping companies going via debt just because they can't exit in the private equity universe. So yes, I don't disagree with you. But if you are a credit firm, remember the risk profile is this. Josh Brown, I'm going to lend you money. I'm going to lend you money. You're not that good of a borrower. It comes to me at 15% to 20% because you're not a good borrower. And so I'm. But what I'm betting is you're not going to default. What I'm betting is you're not going to go bankrupt on me. You're not going to miss your payments. So it has to be a much worse of a borrower than. Wait, the competitive dynamics are bad. Because if the competitive dynamics are bad, then your equity valuation just sucks.

[Josh Brown]

So the equity dumb schmucks that are investing in these companies, that's stupid valuations. They're not going to get money because there's no growth.

[Michael Batnick]

It is.

[Ben Carlson]

The equity holding may not intend to default. But in an economic downturn. I know we haven't had one in.

[John Duncan]

A very long time. That's the point. We're not gonna know any of this until there's a recession.

[Ben Carlson]

Some companies just. The cash flow isn't there to support the loans they've taken out. And the smart thing to do is to default and clean the slate or liquidate. And we just. To Ben. What Ben's saying is what I think, which is that, okay, we don't have a dry run.

[John Duncan]

Yeah, we, we don't have recessions anymore though. So.

[Ben Carlson]

You had a seven minute recession five years ago in 50.

[John Duncan]

That's the thing. Ending all these systemic risks we're always talking about. We're never going to know until we get another recession. We're.

[Ben Carlson]

How could you. We can't do a rehearsal.

[John Duncan]

Right.

[Ben Carlson]

So that's my only point is. And now the industry has made more loans than they've ever made. The dollar amounts have gone up and the amount of people in this ecosystem borrowing from direct lenders has gone up. And look, there will be losses in public credit too.

[Josh Brown]

Yeah. I was about to say everything you're saying is obviously true.

[Ben Carlson]

Yeah.

[Josh Brown]

And when the tide comes out, people, people eat shit.

[John Duncan]

Like, well, me and him were talking about this.

[Ben Carlson]

But here's the difference. Wait, wait. No, this is really important. Here's the difference. As a financial advisor, I call my clients and I say the economy looks really bad. You got auto companies spitting the bit. You got banks reporting losses. You got credit card companies starting.

[Josh Brown]

Heads are falling off. Hold on, hold on. Let's.

[Ben Carlson]

Let's sell and go to cash. I can do that in h Y G whenever the I want. I can't do that.

[Josh Brown]

Yes, I know. That is good. That's not all good.

[Ben Carlson]

That people could panic, not panic, decide that they don't want to take as much risk in the credit market after. I can't do that. I can't do that. Not after maybe in the early innings. You don't know how long that goes on for.

[Josh Brown]

To me that's like the least offensive part of it.

[Michael Batnick]

But also remember, this is going to last.

[Ben Carlson]

I've been around a long time. Do you understand? I drank out of glass Snapple bottles. Do you this. I was around. I'm just saying as an advisor, if you say to a client, we're down in this bond fund because some, some of the credits are blowing up and we're just going to take a little bit less risk. We're going to trim. You can't do that.

[Michael Batnick]

What are you going to sell first if things are really going poorly?

[Josh Brown]

Equity.

[Michael Batnick]

You sell your equity.

[John Duncan]

No, but you're right that people are going to change their allocation preferences. They're going to want more of this.

[Josh Brown]

Don't you see that? Yes, they are.

[John Duncan]

There's going to be a lot of.

[Josh Brown]

People who that just happened happened in 2022 when people got their asses kicked because their bonds duration killed them. That's why they flooded into the floating rate nature of private credit.

[Ben Carlson]

And also floating rate good. Illiquid floating rate not as good.

[Michael Batnick]

Wait, but that's, that's, that's what it is. Not less than the double digit returns, but also even beyond that.

[Ben Carlson]

I get it, I get it.

[Michael Batnick]

In 2020 and 2023 when we were talking about when credit ultimately people didn't feel so good about it then. Right. You still saw private credit being able to step in in this massive way and buy things. That's when the things are, those are the best investments.

[Ben Carlson]

Can we all agree, can we all agree that investors prize liquidity in a crisis?

[Michael Batnick]

Yes, we can all agree that.

[Ben Carlson]

Well, what you are saying is the 180, 180 degree opposite of that.

[Josh Brown]

I'm saying that if you are, if you have a normal responsible portfolio and 10% of your portfolio is illiquid, you're going to be fine.

[Michael Batnick]

But also how much of your portfolios are in cash right now? Because 100%.

[Josh Brown]

I'm super bearish.

[Michael Batnick]

Well, but like the average RIA has what I've heard anywhere, the average RIA.

[Ben Carlson]

Holds 2% aside mostly so they can bill their clients.

[Michael Batnick]

Wait, can you say 2%?

[Josh Brown]

But one other thing that we mentioned we glossed over on the way. Would you rather be private credit, public credit? Again, not to be the defender here, but on the private side, what you are getting in exchange for the illiquidity is a relatively constant spread over SOFR, 5, 600, whatever, which is meaningful. That's the source of return markets right now granted you could say that the quality in hygie is higher than it used to be because all the bullshit is going to the private direct lending. Fine. I'll grant you that. But right now credit spreads are so tight in public credit like I don't know, is that better? Why is that better?

[Ben Carlson]

Right. But, but in general, in general, in a, in an economic downturn, people very highly value. And I'm gonna tell you something about the financial advice business because there was a time where we were all told hedge funds got to be in hedge funds. Hedge funds avoided the dot com blow up. Hedge funds made money in the last decade for stocks, hedge funds, there's a.

[Michael Batnick]

Lesson, there's a huge lesson in that.

[Ben Carlson]

And then the illiquidity of a lot of those hedge funds had private market assets.

[Michael Batnick]

Yeah.

[Ben Carlson]

They had to side pocket Them you couldn't get. And that pissed people off. Even if the returns five years later were good, it was beside the point. When things are not going well, people really value the ability to, to reach in and pull cash out for whatever reason.

[Michael Batnick]

Don't disagree by any stretch of the. Imagine.

[Ben Carlson]

Well, you're. Well, advisors who have very illiquid portfolios for their clients unfortunately are going to have a lot of difficult conversations. If we ever have a recession.

[Michael Batnick]

It shouldn't be. You should have a reasonable amount of alts in your portfolio that are not. It's not. You have to still have a liquid part of your. You know it's interesting, Goldman came out with a survey the other day and a few. A fifth. A fifth of the respondents in the survey were holding. Actually, no. Out of the survey, one fifth of all the total assets that were surveyed for were in cash. A fifth. A fifth. Still today, when you say in cash.

[Josh Brown]

Like all in cash, what do you mean?

[Michael Batnick]

So a fifth of the total portfolios, that. Right.

[Josh Brown]

So Morgan Stanley said that on one of their calls recently, 20% of their. Yeah.

[Michael Batnick]

So if you look at the wealth community writ large, there's a lot of money in cash. So the liquidity question has clearly been on everybody's mind, especially at these levels. You know, where are we in the market? So on and so on.

[Josh Brown]

Josh is right. Josh is right. If you, if you overdid on the private side with your clients and they're 40, 50, you are fired, you dumb asshole. I don't. You're fired.

[Ben Carlson]

I don't hate a barbell.

[Michael Batnick]

You're allowed to curse on here.

[Ben Carlson]

Do whatever we want. I don't hate a barbell of I'm 10% cash and I'm 10% illiquid high yielding assets. And I can make sense of that because it's a total portfolio approach. It's not what I personally.

[John Duncan]

Michael's right. That's an advisor problem, not a client problem.

[Ben Carlson]

It's an advisor problem. Yeah, no, but it's a real one.

[Michael Batnick]

It is a real problem. And, but that's the thing. Thinking about it from a total portfolio is the only way to think about it. Right. You can't just like dump all of your assets into illiquid.

[Ben Carlson]

People do. But here's the problem though, people. This is called mental accounting. People do this all the time. A client looks at their portfolio, they have a conversation with the advisor. 80% of the portfolio is going up, 20% is going down. What do you think the client has questions on. Yeah, should we still own this. What are we doing with this? Do you still like this as much as you liked it when you told me to buy it? They'll fixate on the part that's down now. They shouldn't, because that's probably the part that's about to outperform. I'm just telling you the difference between data and how things actually go. When you're, when you're helping people with.

[Michael Batnick]

Their money, things are going wrong. Think about it this way. Let's just draw out that scenario. Because 2008 and the market structure today for private assets are different. Yes. If I'm holding a hedge fund where you think they're in a bunch of liquid stuff and turns out they're not, that sucks. That totally sucks. It's also not what they really sold you. Right. But now what you're looking at is a market that's meant to be illiquid. Right. And so it's like, wait, okay, to your point, I know I can't pull this money out. And when things do go bad, it's more likely that those public assets have been facing that decline than your private credit, which is, you know, supposed to be less volatile than what's happening in the public markets and not because of liquidity.

[Ben Carlson]

But you know what I'm bullish on for that reason. I think the most popular category in this space is going to be secondaries.

[Michael Batnick]

Yeah, that's huge.

[Ben Carlson]

Because that's how you take advantage of all the problems I'm pointing out is you're invested in a fund that's waiting for people to choke. And then when those other funds are choking on assets and have to sell things, the secondary fund is there to get that discount.

[Michael Batnick]

Are you a distressed investor?

[Ben Carlson]

I might be. Holy shit. I'm definitely distressed.

[John Duncan]

The thing is, there's going to be so many.

[Ben Carlson]

I'm definitely distressed.

[John Duncan]

There's going to be so many overreactions in the next recession.

[Ben Carlson]

Oh, hell yeah.

[John Duncan]

Right.

[Ben Carlson]

That's no matter what.

[John Duncan]

It's been so, so long since we've had a real one that wasn't shored up immediately. I think the like knock on effects of whatever the next recession happened is going to be enormous.

[Michael Batnick]

Well, let me ask you a question. You know, we were talking so much about privates. To your point on Total Portfolio, how vulnerable is the stock market to that?

[Josh Brown]

It'll be fine.

[Ben Carlson]

Very.

[John Duncan]

Oh yeah.

[Michael Batnick]

What does, what does a recession. You know, people are saying bubble this, bubble that. But realistically speaking, if something actually goes wrong with the macro, if the loans.

[Josh Brown]

Go bad, could you Imagine what the equity is going to look like. Like could you even imagine?

[Ben Carlson]

It'll be way worse.

[Josh Brown]

So I want to just. I know we've gone long, but I want to. We can't not talk about the banks, especially because Moody's just put out a big report yesterday that is really important and they talk about the big picture. And I would agree with everything that they said here in terms of this risk is rising, especially for smaller banks. They talk about growth and competition. They said concentration risk is a concern with banks. Specifically, the true risk can be hard to assess. Of course, we all know that. And then lastly, transparency and bank loans exposure isn't proven, but new light exposes gaps. So they have these great charts that I want to talk about. They showed that banks help, ironically, Jamie Dimon. I mean there's, there's a love hate relationship. So banks is so wrong though.

[Michael Batnick]

The data's wrong.

[Josh Brown]

Go ahead please.

[Michael Batnick]

Sorry, this kills me because they said there's 300 billion.

[Ben Carlson]

Moody's is never wrong about anything.

[Michael Batnick]

No comment.

[Ben Carlson]

Say more.

[Michael Batnick]

This data is not here. Maybe not wrong, but at least a little misleading for this topic. So 96 billion is really what's in private debt funds. They're saying it's 300 billion. What they're counting for.

[Josh Brown]

No, that's percent growth.

[Michael Batnick]

Well, no, but in total what they're counting, it's percent growth. But what they're counting is up to $300 billion in loans outstanding that happened to be the same for no reason. But it's actually when you look at the total, that's the growth off of a almost non existent base that you're looking at. And then on top of that it's actually 96 billion, not 300 billion. And out of the entire universe of a non bank financial credit which is getting big, private credit is only 4% of that.

[Josh Brown]

So this will bother you. This. So is, is this a better, this is better representation? The NDFI on the bottom is kind of.

[Michael Batnick]

But the NDFI is a real non.

[Ben Carlson]

Deposit financial institution or shadow bank like.

[Michael Batnick]

Online lenders that is like all sorts of specialty lenders, you name it.

[Josh Brown]

All right, fine, forget that bullshit. Here's the important part. Here's the important part. John, chart nine. I'm trying one more time. All right. The rise of. The rise of private credit. So Bloomberg took the data from Moody. So tell me if this is wrong too. It might be. So this is the amount of loans and private credit from the banks and.

[Ben Carlson]

J.P. morgan, uh oh, they wait, they, they, they found a way Around Dodd Frank.

[Josh Brown]

Yes. So Matt Levine wrote about this yesterday.

[John Duncan]

Jamie Dimon's eating chocolate cockroaches.

[Josh Brown]

But look. Well, Fargo, $60 billion in exposure to private debt firms. J.P. morgan, they're not making the loans, but they're making the loans to the people that are making the loans.

[Ben Carlson]

They're lending the money to the lenders.

[Josh Brown]

Genius. Exactly.

[Michael Batnick]

But. But they've all. But they've always done that, right? I know. J.P. morgan's biggest customer is what, like, mostly regional banks. Right. How many do they bank? 4,000 of that's their business. And so when you look at this number with what I just said, that it's. The private credit definition that they gave is a little misleading because it's those online lenders, it's the specialty lenders, it's all sorts of lenders. So it doesn't actually show what their private credit exposure is here. It's a lot less than that. And, you know, you think about it, people are talking about private. J.P. morgan's private credit exposure, but, like, they also just increased their provisions for loan losses to the entire economy. Right. That they have underwriting that suggests that loans, just regular way, consumer loans, could start to sour a little bit.

[Ben Carlson]

What do you think of this, though? Nothing has happened yet. And people are this vigilant. Is that a good thing or a bad thing?

[Michael Batnick]

You know, I'm with Ben. I like it.

[Ben Carlson]

You have delinquencies in real life and people are like. People are like, suspect everyone.

[John Duncan]

Let's be honest. If this really were a systemic risk, everyone's getting bailed out.

[Josh Brown]

Come on.

[Ben Carlson]

Well, that's true. That's true, too. That's the. That's the funny part, is that no one will actually have any consequences. But do you feel like that's a good sign that we're all, like, who? Jamie Dimon? We're scouring all of our books. That's kind of good. It's very good that we're doing that now before there are actual losses.

[Michael Batnick]

Never hire an optimistic credit finder.

[Ben Carlson]

I like that. Next topic.

[Michael Batnick]

Yeah.

[Ben Carlson]

BDCs.

[Michael Batnick]

Yep.

[Ben Carlson]

How do you sleep? No, I'm just kidding. I wrote it. So I know you wanted to take interest. Take issue with one of the things I wrote. I wrote about BDCs.

[Michael Batnick]

You called me biased.

[Ben Carlson]

Not to.

[Michael Batnick]

Well, I'm coming after you.

[Ben Carlson]

I'm biased, too. Wait, Shonali. I'm biased. I'm biased toward the stock market. So we all have our.

[Michael Batnick]

Fair enough.

[Ben Carlson]

Okay. I wrote about BDCs because I think they are the exposed part of the wound, if there is a wound in the way that they behave. People are worried about two things with BDCs. The first is very banal. As interest rates come down, obviously the yields that these companies are able to pay have to come down with them. Nobody should be alarmed by that. That's the way interest rates work. So we know that dividend distributions will come down and these stocks are selling off in that expectation. We had the first rate cut of the cycle in September. Maybe we get another one in a month or two. Okay, no problem. But then the second part of that is, oh, wait a minute. There's fraud at some. With some of these loans, how much more fraud might there. Okay, what if there's three? What if there's four? Zion's bank came out and said they're suing somebody they lend the money to.

[Josh Brown]

More than four?

[Ben Carlson]

No, there's going to be more than two. So I'm not saying it has to be 2,000. But a lot of the things people are saying in defense of the BDCs were the same things that they were saying in defense of the mortgage funds 15 years ago. And I know because I was there, and it's not terribly different in terms of rhetoric, the reality might be different. What do you make of the panic, minor panic, that we saw in the publicly traded BDCs, and would you agree that this is a better gauge of credit risk right now than what we would traditionally look at, which would be junk spreads relative to Treasuries?

[Michael Batnick]

There's such a massive difference. I think.

[Ben Carlson]

I know, I know.

[Michael Batnick]

No, no, no, no. Between credit risk and. Between. Between spread compression and credit risk. Right. Credit risk. We're talking about whether you're lending to a worthy borrower. Spread compression. You're saying returns are going to come down over time. Okay, fine, maybe. But if returns come down in private credit, to the point Michael Batnik was just making, it would come down in public credit, too, and the spread for private would still be higher than that. So the wound. Which. Which wound are we talking about? I think is what my question is. Right.

[Ben Carlson]

I'm not worried about spread compression. I don't think that's an emergency.

[Michael Batnick]

And so are you worried about widespread fraud?

[Ben Carlson]

I'm worried about the rush to put money to work.

[Michael Batnick]

Okay.

[Ben Carlson]

That we all have to acknowledge has been a big part of this era. What are. What are the ramifications that will stem from that if and when we have a credit cycle?

[Josh Brown]

So, Josh. Right. The only question that I have for. For private credit managers, as we talk to Them is what if you get $10 billion in funds tomorrow? How quickly deploy it and how. What are your controls? Is it just cash in? Gotta make loans, cash in. Because you can't. It can't possibly work that way. And if it does, and people are doing business that way, and I know a lot of people are, you're going to be in trouble.

[Michael Batnick]

Yeah. And not just for credit for private equity too. The biggest mistake many managers made the last few years is they made all of these acquisitions in 2021. That doesn't look so pretty today. You know, things felt really good. So people put a lot of money to work and look at where we are now. But you know, if, I don't think. If we saw a scenario in which Ben was talking about, which is a widespread recession, who's safe in that scenario? Like what is safe?

[Josh Brown]

You're right. And nobody. In 2021, when the music was playing and all of these giant mega growth funds were investing in these companies and insane valuations, I remember that there was very few people calling it out and saying, this is crazy. And one of them was our friend Howard Lindsay, who was like, I have cash and I'm not investing because the prices that I keep seeing are stupid.

[Michael Batnick]

They spent it too fast.

[Josh Brown]

And when they stop being stupid, I will start investing again. And that's who you want to give your money to in periods of complacency. And there's no doubt that there is too much lending and it's too much, it's too fast.

[Michael Batnick]

Hey, you know, I mean, if there's anything to take away from all this. Right. Is do the damn homework. Right? Don't put your money just because there's a promise of something interesting in an industry that's a hot asset class. Do the work and say, okay, what does this actually invest in?

[Josh Brown]

And put it in your 401k, for God's sakes.

[Michael Batnick]

I was waiting for that to come up today.

[Ben Carlson]

Do you think investors should be biased toward the larger players in the space as a just in case? Yes, because I do. I think brand and size scale matters.

[Michael Batnick]

Scale really matters for a lot of reasons. But not in every asset class. Right? Because things like private equity actually middle market and lower middle market have much more attractive return profiles than you would have in like those large scale buyouts.

[Josh Brown]

Right now it's the opposite. I feel like in venture and with hedge funds, smaller managers tend to do better because scale is the enemy at that, at that. In that space.

[Ben Carlson]

I think we're the opposite.

[Michael Batnick]

I would agree with, I would agree with that.

[Ben Carlson]

Okay, so that's. So you're asking people to do their homework. Due diligence. Most people listening to this, who are being recommended.

[Michael Batnick]

I mean, like, you, like the advisor.

[Ben Carlson]

Oh, I'm doing zero diligence. So this is gonna be. This is gonna come off as, like, overly cynical and sardonic, which is right on brand for me. But somebody asked me, what's your private equity private credit strategy? And I said, I'm just gonna wait for the disappointment and then take everyone's class.

[Michael Batnick]

Do you own a house?

[Ben Carlson]

Yeah. Is that my private credit strategy?

[Michael Batnick]

You own a hard asset. You own a private asset. Right. And so, you know, what you're asking someone to do in a private fund is to buy assets that you know you're gonna buy hard assets you could buy infrastructure you can get into.

[Ben Carlson]

Yeah, Shonali, I don't have enough money to be able to buy the things that are private assets that I actually think I would buy.

[Michael Batnick]

You have $25,000.

[Ben Carlson]

Yes.

[Michael Batnick]

That. That's.

[Ben Carlson]

How will that move the needle for me?

[Michael Batnick]

But that's what I.

[Ben Carlson]

The thing is, I don't have a billion dollars and I can't buy an NFL team. And that's what I. That's the private asset that I am interested in.

[Josh Brown]

You need a financial planner.

[Michael Batnick]

I can't really help you there, but I know some athletes. Made you an intro.

[Ben Carlson]

I don't think every market. Yeah, I don't think every market makes sense for every person.

[Michael Batnick]

That's true.

[Ben Carlson]

Okay, so in the private market, the best managers who have access to buy the best assets are not going to be accessible by every investor. That's my point.

[Michael Batnick]

That is true. But I would also argue that because there have been. There's a lot going on. The operational efficiency is getting better. The documents are getting more fluent to access, and the technology is getting better. The fund structures are changing very meaningfully. The minimums are coming down. That's why we're even talking about this. Honestly speaking, it used to be impossible to access many of these types of.

[Josh Brown]

Assets even 10 years ago. Wealth managers couldn't do it even two years ago.

[Ben Carlson]

I agree with that. And those are all good things. Anything that you do that makes these things more accessible and makes. So you can actually research them and more transparent and lowers the fees and adds. Transparency is unequivocally good. But that means unequivocally good.

[Josh Brown]

Lower returns, lower returns, lower returns.

[John Duncan]

It has to be.

[Michael Batnick]

It depends. I actually don't agree necessarily on that because these are, you know, when You. Just because you open up something to a wider array of investors doesn't mean like your 401k plans. That's scale, that's pricing power, and that's net of fees. A better return. Now I will say this. The liquidity trade off, that's where the return compression comes in. You're seeing a lot of products come to market that are like, oh, yeah, you know, we're private, but we're liquid. You go one level deeper, disaster. Well, but it's also not private. It's blended.

[Ben Carlson]

The more liquid something is, right. By definition. It's not.

[Michael Batnick]

It's not liquid. It's not.

[Ben Carlson]

It's not private.

[Michael Batnick]

It's not private. And so a lot of these funds are like, okay, well, we're part this and part that. And like, really, the private allocation is like this big. And yes, you're going to have a trade off there where you're not getting paid for that illiquidity premium.

[Ben Carlson]

Human nature. Okay, just answer me this. If something is an amazing investment, whether it's an asset class or a particular property or a particular whatever. If something's amazing. Are billionaires gonna let dentists get in? No way. Right?

[Michael Batnick]

Well, the billionaires. You know, it's funny. Tony James wrote a book about this.

[John Duncan]

The billionaires need the dentist though, now.

[Michael Batnick]

Yeah.

[Ben Carlson]

The billionaires need the dentist as exit liquidity.

[Michael Batnick]

Dude, stop.

[Josh Brown]

What are you talking about? Who's saying this is an amazing investment? Private loans do 8 to 10% a year.

[Ben Carlson]

No, no, no. We're talking about private equity now. I'm saying if something is like an incredible opportunity and Mark Cuban buys. Mark Cuban buys 20% of it. And. And someone else buys 20%. And someone else. And all these wealthy, well connected, famous, brilliant people.

[Michael Batnick]

Josh, what team do you want to buy?

[Ben Carlson]

Wait, wait.

[Michael Batnick]

Just let us know.

[Ben Carlson]

And then there's 10% of it left. Why would there be 10% of it left? For the public.

[Michael Batnick]

Let's put it this way.

[Ben Carlson]

Why. Why wouldn't they just buy?

[Josh Brown]

You're right. You're right. Of course, the best investments are for the. For the ultra wealthy that will never, ever.

[Ben Carlson]

So anytime you're democratizing something, you're telling me this is third tier.

[Michael Batnick]

First of all, are sports teams always good investment?

[Ben Carlson]

Yes. Name one that isn't.

[Michael Batnick]

I don't know. It's funny. I once asked Mark Lasry why he got out of the bucks. Right?

[Josh Brown]

Best trade ever.

[Michael Batnick]

Well, he said he bought it for.

[Ben Carlson]

$400 million and sold it for billions. That's a good enough reason.

[Michael Batnick]

But he he then went to other kind of more esoteric sports like pickleball. Right. Because the return profile was better there. And yes, these are not available to everybody.

[Ben Carlson]

But I would say, you know, the jets are Pro be worth $5 billion.

[Josh Brown]

Oh, I'm so glad you mentioned that.

[Ben Carlson]

Sorry, no sports franchise that goes down in value.

[Josh Brown]

So last night I went to the.

[Michael Batnick]

Nick, but the return rate can slow. That's what I'm saying.

[Josh Brown]

Last time I went to the Nick game and I was genuinely thinking about this. What are the Knicks worth? I don't know, 6 billion, 8 billion? 10. Whatever it is.

[Ben Carlson]

5015 in real life.

[Josh Brown]

Okay, whatever. Fine. Let's just, let's say it's 10. Oclo is worth like 25 billion. Like all of these like nonsense pre revenue companies are like when you put it into that context, and I know it's apples and computers, like it's not the. But it is kind of hilarious.

[Michael Batnick]

But by the way, I don't think we're that far off from having individual investors being able to be in sports teams too because they're there.

[Josh Brown]

Private equities.

[Michael Batnick]

That's what I'm saying. So actually the universe of investments is just getting a lot bigger. So I don't disagree that there's exclusive investments that are maintained for the ultra wealthy. But I'm saying the universe of investments that only used to be for the ultra wealthy is now expanding.

[Ben Carlson]

So I think that's good. I do think people should leave room in a portfolio. People who are wealthy.

[John Duncan]

Did we win you over the boxing judges?

[Ben Carlson]

I was already there. But I also know. So I'm a firm believer, I'm a firm believer that 90% of everything is shit. That's what I think.

[Michael Batnick]

OK. You know I will actually agree with you.

[Ben Carlson]

So most of these, so most of these investments, most of these investments, they don't have to go bad? I wouldn't say that. I would just say like do you want to own the fifth best fund in a sector? And you just showed us dispersion is really a big deal in this space. You do not want to own the fifth best manager. You want to own number one or two or your returns will be radically different. That from my perspective, I think that's why I Capital has been so successful. People need someone to tell them this is the good one, that's the bad.

[Michael Batnick]

One, you know, and it's, it's the beauty of my job. And it's so funny because I asked my husband, I'm like, how do I fight with Josh Brown? About the bias comment.

[Ben Carlson]

We're not. So we're. We agree on it. We agree on almost everything we do.

[Michael Batnick]

And I would say it's not about. There's no interest in being biased. The interest is same for both of us in being. Right. Right. And being able to do as much diligence as humanly possible on behalf of everyone else. Right. That's what I got to do as a journalist and it's what I get to do.

[Ben Carlson]

So my last question then. Is it realistic for somebody who has $200,000 in a 401k to be able to take 25,000 of that and put it into a top tier private equity manager?

[Michael Batnick]

Wouldn't you?

[Ben Carlson]

Or private credit manager. Do you think that's actually what's going to happen?

[Michael Batnick]

I do.

[Ben Carlson]

You do?

[Michael Batnick]

I think it'll take a minute to get this ironed out properly. But private assets writ large, you think.

[Ben Carlson]

The better managers will make themselves available to inflows? Oh, that's definitely happening from a 401k.

[John Duncan]

Yeah. Don't they have to? Because if they, if they go into four 1Ks and it's a disaster, then like this is gonna, that's gonna be really bad. They're gonna have to put some decent funds forward, don't you think?

[Ben Carlson]

Yeah, they'll get kicked off the, they'll get kicked out of the plans if they blow up right out of the.

[Michael Batnick]

Yeah, they have to do that. It has to be top tier quality. And also, I mean that idea of putting assets in a forum, you're holding that for a long time.

[Ben Carlson]

Yeah.

[Michael Batnick]

That's one of the best possible structures for private assets.

[Ben Carlson]

Yeah. So I don't think Schwab and Vanguard will work with terrible firms or dodgy. I agree with that. I do think there will be marquee names in private assets working with the marquee names that manage most of the country's 401ks. So I don't think it's a case where bad product is gonna be shoved down people's throats. I guess I just question. It's probably not bad, but is it even good? Is it even. Will it be materially better than what they could do with low cost index bonds and stocks? I don't know the answer. I don't know the answer, but that's the question.

[Michael Batnick]

You know, a couple months ago, remember, made a lot of news when Goldman came out with their assumptions for where the S and P and 500 is headed in the next 10 years. And just because of valuations where we are today. I Mean, that is one of the big problems, right? It's just capital markets assumptions where we are in valuations and the expected returns over 10, 20, 30, 40 years.

[Josh Brown]

Right. Why overpay in public markets? You could overpay in private markets, but.

[Michael Batnick]

Hopefully nobody's overpaying with us. Right?

[Ben Carlson]

Sonala, you're so good at this, it's scary. I want to thank you so much for coming here and pointing out all of these things that are getting lost in the conversation. Did you have fun on the show?

[Michael Batnick]

I love the show. I'm your neighbor.

[John Duncan]

Can we do a Rocky versus Apollo for the thumbnail of YouTube?

[Michael Batnick]

We.

[Ben Carlson]

But we, like, agree on, like, 90% of this, I think. I think we both want what's best for the investing public. That's pretty obvious. Yes.

[Michael Batnick]

1,000%.

[Ben Carlson]

All right, all right.

[Michael Batnick]

Optionality.

[Ben Carlson]

And I think I'm in on secondaries because I like buying other people's pain. I like.

[Michael Batnick]

I'm just gonna call him Vulture.

[Josh Brown]

I almost forgot to mention this. We have to disclose this. We are a shareholder of I Capital.

[Michael Batnick]

You are.

[Josh Brown]

So you.

[Ben Carlson]

Technically, Michael's your boss. I don't know if you know that.

[Michael Batnick]

That's scary.

[Ben Carlson]

Go get me a glass of water. I Capital bought one of our.

[Josh Brown]

Bought one of our companies. So we have shares in your company. Look at that.

[Ben Carlson]

Don't screw up our investment, kids.

[Josh Brown]

529 is counting.

[John Duncan]

That's why he's a spokesman for.

[Josh Brown]

Exactly.

[Michael Batnick]

No kidding. I love that he threw that at me at the end. There would have been nicer to you guys.

[Ben Carlson]

All right, so we always end the show asking people what they're looking forward to. And I'd love to. I'd love to hear from you guys what's. What's hot in your world? What's going on in the horizon? What are you excited about? Chanel, you can start.

[Michael Batnick]

All I can think about is the CPI print tomorrow. Is that horrible?

[Josh Brown]

Are we even gonna get.

[Ben Carlson]

Are we even gonna get one?

[Josh Brown]

You and Callie both?

[Ben Carlson]

Yeah, Callie's excited, too.

[Michael Batnick]

It's the only. Like, it's a data starvation for the last three weeks.

[Ben Carlson]

I guess I'm sort of excited about it, too. I think, just in general, I think we'll just get one more rate cut at the end of the year, no matter what the CPI print is.

[Michael Batnick]

Just one, you think? Definitely just one.

[Ben Carlson]

Not two. Maybe more, but I think we're definitely getting one.

[Michael Batnick]

Yeah, I would agree.

[Ben Carlson]

I would agree with that. What are you excited about? What economic data point. Can you not sleep until we get.

[John Duncan]

So I'm excited. This weekend, my son plays third and fourth grade football in his last game.

[Ben Carlson]

Of the year, following in his old man's footsteps.

[John Duncan]

He's on the line. He's not like me. They're playing their last game of the year at the big house in Ann Arbor.

[Ben Carlson]

Oh, wow.

[John Duncan]

It kind of came out the end.

[Josh Brown]

Is Raznick gonna be there?

[Ben Carlson]

Yeah. Is Jason Rosnick gonna have a front row seat for that?

[John Duncan]

So something about football was my sport, so watching one of my children play football has been, like, so gratifying for me. It's. It's unbelievable. So much fun.

[Ben Carlson]

What do you think of the Lions season this year? I thought they'd be better.

[John Duncan]

They're not bad.

[Ben Carlson]

They're good. I just thought they'd be better.

[Josh Brown]

Yeah, but everybody thought we'd lose their coaches.

[Ben Carlson]

Ben's from Detroit.

[Michael Batnick]

I'm a Packers fan, so I think we're not friends.

[Ben Carlson]

Okay.

[Josh Brown]

No, wait. They lost their offensive and defensive coordinate, and they're still kicking ass.

[John Duncan]

Yeah. We have the best running back in the league.

[Ben Carlson]

Yeah.

[John Duncan]

Yeah.

[Ben Carlson]

Oh, that guy's freakishly fast, too.

[John Duncan]

Gibbs. Yeah.

[Ben Carlson]

Yeah. All right, so. But overall, it's not a terrible season. It's just. I guess I thought they'd be more dominant.

[Josh Brown]

Aren't they 4 and 2? What's their record, 5 and 2 or something? No, they're going to the Super Bowl.

[Ben Carlson]

You think so?

[Josh Brown]

Yeah.

[Ben Carlson]

Okay. I don't know.

[Josh Brown]

Who's better than them in the nfc? Nobody.

[John Duncan]

I have very low expectations for the Lions every year.

[Josh Brown]

Grand Rapids Hedge.

[Michael Batnick]

When were they last in the Super Super Bowl?

[Josh Brown]

Never.

[John Duncan]

Never.

[Michael Batnick]

I was gonna say.

[Ben Carlson]

Yeah, they should have been last year.

[Michael Batnick]

Sorry.

[John Duncan]

Yeah. They had so many injuries.

[Ben Carlson]

Yeah, they should have been. So he's gonna play. So he's gonna play in front of 100,000 seats?

[John Duncan]

100,000 seats?

[Ben Carlson]

Yeah, seats.

[John Duncan]

They're playing. They give him an hour to play this game. So they got, like, no halftime. Like, we got it. Because there's all these games, but he gets to finish the season. He's eight.

[Ben Carlson]

Eight. That's. He'll remember that. He'll remember that for the rest of his life.

[John Duncan]

Yes.

[Josh Brown]

Can I say what I'm excited for? I'm excited for tomorrow. If somebody told me 15 years ago that I'd be interviewing Jim Cramer with Josh, I would have thought Smoking dust.

[Michael Batnick]

Oh, is he on the pod?

[Ben Carlson]

Yeah, he's on the pod. Tomorrow night, we're gonna do it live. Uh, it won't. It won't air until next week. Um, I don't know how long we have him for, but we're gonna do, like the Jim Cramer on the Compound Experience.

[John Duncan]

Where are you guys doing it at?

[Ben Carlson]

Uh, we have a venue, holds about 120 people. It's fairly exclusive, and custom cocktails in the financial district. I don't know about. That's a Nicole question. We're going to do it. We're going to. I don't know, Rob. We're going to do it. Right.

[Josh Brown]

And thank you, kkr, for sponsoring the show tomorrow.

[Ben Carlson]

All right, anyway, something to look forward to, guys. We want to thank our guest, Shonali Basak. Where can people learn more and get more of your insights? Because I feel like you just absolutely lit it up on the show tonight.

[Michael Batnick]

Yeah. We keep it real on LinkedIn. We are on Twitter. We try to share as much as we can.

[Ben Carlson]

Okay.

[Michael Batnick]

And on icapital.com your Twitter as your.

[Ben Carlson]

Real name, icapital.com, people can subscribe to the. The research that you guys put out.

[Michael Batnick]

Yep. Yeah, we have a newsletter where we share a lot of that research, and we have a tab under Thought Leadership where we publish every week.

[Ben Carlson]

All right. You're the best. Thank you so much for being here. Appreciate it. Thanks to all the listeners like and subscribe. See you soon.

[Michael Batnick]

Oh, man. You guys, that's a long show.

[Ben Carlson]

That.

[John Duncan]

It.