Josh Scott: Hello, hello, hello everyone. Welcome to this webinar, "Evolving Alternatives Playbook." I'm Josh Scott, senior director at Pensions and Investments, and I will be moderating today's discussion.

To set the scene a little bit before we dive in: institutional investors have been navigating a more uncertain market environment, and many are reassessing how they build diversified portfolios, manage liquidity, and identify new sources of return. Today, we'll explore how allocators are approaching opportunities across global credit markets, evaluating flexible investment structures, and positioning portfolios to remain resilient amid geopolitical and economic uncertainty.

I'm excited to be joined today by Chris Martin from RBC Global Asset Management for what should be a timely and insightful discussion. Chris is an institutional portfolio manager focused on alternative investment strategies at RBC Global Asset Management, the asset management division of Royal Bank of Canada, managing more than $571 billion US dollars in assets, including the Blue Bay Alternatives Platform of $19 billion.

In his role, Chris leads all efforts in positioning alternative investment capabilities with investors across their suite of alternative solutions spanning hedge funds and private credit vehicles. Chris himself has 15 years of experience in the financial services industry with a strong background in manager research, alternative investments, hedge fund strategies, and portfolio construction. He joined the firm in 2025 from Pathstone, where he was director in the firm's Investment Management Research Group. In his nine years with Pathstone, Chris developed custom hedge fund programs and implemented alternative investment policies tailored to client objectives.

Chris, big welcome to you. Thanks for joining me today. How are things going?

Chris Martin: Thanks, Josh. Yeah, I'm doing great. I'm excited for the discussion today, and thanks so much for having me.

Josh Scott: Yeah, of course. I mean, we have a lot to cover, so let's dive right in. I wanted to kick off with some big picture items I think that are going to be on everyone's mind as they're watching the news and looking at their portfolios. Let's start with probably the biggest elephant in the room: the geopolitical events of 2026 thus far. I like to think sometimes about how institutional investors should be taking a long-term approach to their portfolios, but with all of the geopolitical headlines that have taken place so far in 2026 and seemingly have no end, how are you seeing that influencing investors' portfolios, if at all?

Chris Martin: Yeah, I think you're right to focus on the long-term perspective, and by and large what we've seen is that the long-term focus remains the case. But that doesn't mean that in the face of new information or an evolving market landscape, you can't make tweaks along the margin or slight changes to better position your portfolio for what could be as large as a new world order, or just small opportunities or risks that pop up along the way in any given year.

So what we've seen in terms of feedback and interest across our investable platform is an increase in the number of questions around: "OK, how can I diversify my portfolio away from some of the core allocations, or complement those core allocations that I don't necessarily want as much exposure to as I have in the past few years, given a few, maybe many, new geopolitical events? And what other opportunities are out there that maybe I haven't been aware of in the last few years, and I'm going to take a fresh look at in the face of adding those kinds of diversified or other sources of returns?"

Josh Scott: The other piece, and you know, headlines this morning already on the new inflation numbers, there's a lot of discussion around Fed policy. I hear it a lot from calls. How does the new Fed chair play into potential portfolio decisions that you're looking at or talking to clients about?

Chris Martin: I think it's an input, but not a driving factor. No matter where you're investing, whether that's US-centric or across the globe, what the Fed does is an important input into your overall evaluation of how your portfolio should be positioned and where the opportunities and risks lie in the marketplace. By and large, we're paying attention to it, and most allocators that we speak to are paying attention to it, especially when there are changes in terms of who is making those decisions. But at the end of the day, it's really about evaluating overall portfolio positioning in the face of what might be a tweak here and there from the Fed or any other central bank, market policymaker, or participant, to make sure that our clients, and really allocators at large, are positioned appropriately.

It seems like Fed decisions can make headlines, but in terms of how allocators are positioning portfolios, those decisions are merely an input into the overall evaluation of how portfolios should be positioned.

Josh Scott: Yeah, I think that's the other thing I hear a lot from allocators too and we’re seeing it in real time as well. The inflation numbers come out, people are anticipating changes in Fed policy or potential delays in cuts of rates, and the market reacts in real time. So it's not necessarily something that the allocators I talk to think about on an hour-to-hour basis, but more big picture, like you're outlining.

If we’re to zoom in a little bit more onto the credit space, private credit in particular has been grabbing headlines so far this year around the BDCs and redemptions, the entrance of private wealth, and retail capital. How have those headlines affected the way folks you're talking to think about credit markets or private credit, and what are your reactions to some of those headlines?

Chris Martin: By and large, there's not massive concerns around the asset class as a whole. Private credit typically is associated with US direct lending, and while we've seen some hiccups there of late, there's not major concerns and we share that view. It seems like what BDC performance has reflected is more of an investor recognition of a liquidity mismatch or an asset-liability mismatch rather than an indictment of an asset class at large.

However, with that said, it does seem like we've seen an increase in allocators asking how to either complement or diversify that exposure and the next marginal dollar is not just automatically going to a direct lending allocation or a private credit allocation. They're saying, "OK, private credit as an asset class is much broader than direct lending. Where else might we look to get a similar sort of experience but not have it be directly tied to some of the software issues or some of the other things going on in terms of hiccups that we've seen in the US direct lending market specifically?" And so we've started to have more conversations around what kind of ancillary private credit exposures or what other areas of private credit have people maybe not paid as much attention to in the past few years.

Josh Scott: Yeah, I'm always surprised too, and maybe not, when I think about how diverse this private credit space is. When I'm moderating a panel or have put together a panel on private credit generally speaking, there's still so much time needed and spent at the beginning just defining what private credit even means for different allocators.

So, I want to ask you: what are all the assets that you would put into that bucket? Could you just give us a flavor of the diversity that exists within the private credit space?

Chris Martin: Yeah, absolutely. So you have the bellwether in the space, which as we mentioned is US direct lending, typically a core allocation in an allocator's portfolio if they have a private credit program. But you also have things like stressed and distressed credit, real estate debt, securitized on the private side, asset-backed finance, and emerging markets. So you have all of these different asset classes that fall under this broad private credit umbrella, which effectively just means credit that's not actively traded.

The differences, the attributes, the attractive attributes, and on the flip side, some of the risks inherent in all those other asset classes can be complementary to a US direct lending portfolio. So, like I mentioned earlier, we're having more conversations around those types of asset classes, some of which are in their infancy. You have an opportunity where there's not a lot of competition in the space. You can drive outcomes a little bit more and add alpha a little easier because there's less competition. So, there are some really attractive attributes of some of the other asset classes that fall in this broad private credit umbrella, where you're not necessarily doing a like-for-like for US direct lending. It can also be additive from a portfolio management perspective, not just producing attractive returns.

Josh Scott: I want to pause really quick Chris and just remind folks that are watching—you are able to submit questions. There should be a dialogue box in the bottom left-hand corner of everyone's screen. You can type your question in there, and don't forget to click send so we actually get it. We'll be reviewing them and answering them throughout the course of today's discussion.

Going back to what you were talking about, Chris: there's a lot of discussion now from allocators around looking at the total portfolio with a lowercase "t"—not necessarily the capital "TPA" that some folks talk about—but thinking about the lowercase sort of "total portfolio," where folks are starting to look at their portfolios from either a thematic lens or what are the underlying exposures, and not necessarily such strict asset buckets from a SAA perspective.

While that is still useful, I think sometimes in a space like private credit, like you were just mentioning, it can be a very diverse space with different types of exposures for folks and how those assets work within a portfolio. If we were to think about things from a geographic perspective, European credit has been a popular discussion recently. What's driving that opportunity set, and how sustainable do you believe it is?

Chris Martin: I think what's primarily driving the European credit discussion is coming off the back of recent geopolitical events, but also what we've seen transpire since really the onset of COVID. If you look at it from a six-year perspective, from when COVID started until now, you have a culmination of events that have made European credit more interesting.

Starting back when things reopened from the onset of COVID, European countries, by and large, with a couple of exceptions, did not experience the same GDP rebound that we experienced here in the United States. From that perspective, you started to see cracks emerge and dispersion in terms of the opportunity set in European credit.

Then fast forward a few years, and you have the Russian invasion of Ukraine, which, as we know, skyrocketed energy prices, especially in Europe. Yes, those have come down a bit, but from start to finish, where we are today, those prices are still 2 or 3 times higher than they were prior to that invasion. And that has a massive ripple effect across almost all industries globally, but we're talking about Europe here—across European industry.

Fast forward to last year, and you started to see maybe some green shoots. European companies started to figure out how to manage these things as they got used to higher input costs, supply chains started to figure things out. Then 2026 happened, where, all of a sudden, the Iran conflict popped up, and you had a resurgence of an energy price shock. Now we're seeing again, European companies have to weather yet another storm.

The reason it's becoming particularly acute right now is the buildup of those things. There's only so long that especially, a corporate in Europe, can weather one thing after another before they just run out of levers to pull in terms of financing their businesses. We've seen it particularly acutely in the European middle market corporate space. They are going to have to get creative, this year and next year, to finance and refinance their businesses.

There's roughly between $43 and $45 billion in euros of debt that needs to be refinanced in the European middle market space annually this year and next year. If you're going to do that at rates significantly higher than what we saw when most likely this debt was originally raised, that is going to put serious pressure on margins and the ability to fund other parts of your business, to grow your business, etc.

What we've seen is a pretty material increase in outright defaults in European middle market corporates, but also LMEs and other transactions where corporations are having to get creative. If you have a sophisticated investor that can go to those corporations and say, "Let's figure out a way to get you as an ongoing concern and fund your business into the future," a lot of times you can end up generating pretty attractive returns and being compensated for being that provider of capital.

Josh Scott: Yeah the topic of Europe came up a lot at our private markets event in April, just a few months ago, particularly on the opening panel. There's just been this assumption or feeling in the market since Liberation Day last year that a lot of investors are starting to think about opportunities outside the US. Europe was mentioned a lot. I think folks at that event were saying, "You know, the US still has the capacity to take on the sort of private capital that folks want to put to work, but there are efforts in Europe to sort of grow that."

I think the other area that folks are starting to look at as well are emerging markets. On the public market side at least, it's been performing much better as of late. But in terms of emerging market debt, also benefiting from some of those capital flows and political developments, where are you seeing the most compelling opportunities in those markets?

Chris Martin: Yeah, it's a great question. We've seen obviously the European credit markets and emerging market debt markets are maybe still smaller than if you look at the US credit market as a whole. But I think people are underestimating their size. If you look at the emerging market debt landscape broadly, it's about a $4 trillion asset class, which is about a similar size as the US Treasury market. So, there is still plenty of opportunity there and plenty of depth. Especially if you're an investor who has spent 10, 15, 20 years in the space, there's still plenty of ways to put significant capital to work and so I think there's still plenty of opportunity there.

As we look at the emerging market debt landscape, and you mentioned flows, flows have actually been quite positive in emerging market debt this year. I don't know if that makes sense given the geopolitical events we've seen take place in 2026. You would normally think that some geopolitical tension and events that have destabilized some of those markets would have scared investors away. But it seems like the market is telling us that people are seeing that more as an opportunity than a risk, as we've seen in 2026 thus far.

We've seen Venezuela and Iran, both of those taking place in markets that have a pretty decent weighting in emerging market debt indices. So I think if you have expertise in the space and you're willing to be on the ground in some of these markets, there are plenty of opportunities to be had. The markets are deep enough and there's just so much dispersion. Emerging market debt is such a blanket characterization of an asset class that's separated by types of currency, sovereigns, corporates. You have all these different ways to invest in the space, which just provides opportunities and risks. If you have somebody that is well-versed in those asset classes, I think it provides a lot of opportunity, especially when you see volatility tick up in a year like 2026.

Josh Scott: You brought up a good point there that I hear constantly too. It's this seemingly dispersion. I don't know if that's even the right word but when there are all of these events happening, there's maybe a knee-jerk reaction from the markets, but then things kind of stabilize. And it's almost like sometimes LPs are kind of waiting for the other shoe to drop.

It seems that in emerging markets in particular, where there's such exposure sometimes to commodities, something like the Iran-Venezuela situation might impact it much more than it necessarily has. I think the other theme there too is this sort of regionalization or deglobalization that's been going on. Are there any particular regions or areas that are a bit more compelling to you than others, given some of the themes there—like even the semiconductor, AI sorts of plays?

Chris Martin: Yeah, I think it depends on the event and also the structural and political landscape as well. There’s a lot of factors that go into whether there's an attractive or unattractive opportunity set in emerging market debt. So, to appropriately evaluate those and figure out how you want to be positioned, you need a deep, well-resourced team that's not just doing bottom-up credit analysis—obviously you need that. But you're also going to need to be connected with policymakers in various jurisdictions in these markets. You're going to want to have a reasonable macro perspective in terms of how these global events, elections, or other inputs are going to shape policy moving forward, and how that might trickle down to some of the investments, whether that's sovereign or corporate, etc.

So, what we've seen this year is that Latin America is seemingly a beneficiary of geopolitical events but also of the US administration and some other inputs. It seems that Latin America is fairly well positioned in terms of the next few years' runway as an investable asset class. So we're reasonably constructive on some of the countries, sovereigns, and corporates in Latin America, while some other areas—maybe the Middle East is a good example—we're less constructive. And that's not necessarily entirely contingent on, "OK, Venezuela was an event, and now that changed everything," or "The Iran conflict is an event and that changed everything." Those are events or inputs, but there are some structural reasons and other characteristics why we feel like Latin America might be better positioned versus the Middle East.

But that also feeds into the ability to be flexible in emerging market debt. The ability to go into sovereigns and corporates or decide between the two, the ability to be in local currency or hard currency, the ability to be long or short, those are just added tools where it makes that addressable opportunity set more attractive. So I think that just gives you more tools and more ability to navigate what can be a pretty complex and diverse opportunity set, and sometimes what can be pretty catalytic events that you want to make sure you can either be positioned ahead of time for or reposition appropriately as those things unfold.

Josh Scott: All really good points. Now that we've kind of taken a trip around the world, maybe we'll dive in a little bit further into some of the asset-specific questions. You know, we kind of kicked off discussing how this space, private credit, is defined. Based on some of those assumptions and definitions, are there opportunities that investors may be overlooking because they sit outside of the traditional direct lending allocations? I think direct lending typically is that first port of call when allocators think of making an allocation to the private credit space.

Chris Martin: I think so. One example might be, and this is actually seemingly a close cousin of what happened with US direct lending coming out of the global financial crisis, we saw this massive increase and shift from bank lending to asset management lending, effectively in the growth of the US direct lending marketplace and the asset class in general.

Not to stay on the emerging market debt train too long, it seems like there has started to be some mirroring of that in the emerging markets. 90%+ of lending in emerging markets still happens through the banking system, but we're starting to see that appetite shift a bit both from the banks wanting to get some of those loans off of their balance sheet to secondary buyers, but also through primary origination.

So, I think if we continue to see that trajectory, you could see the growth of the illiquid loan market in emerging markets mirror somewhat what we've seen in the US direct lending market. It might not be a direct replacement for US direct lending exposure, but a lot of times in these emerging market loans, you end up with better protections and more attractive opportunities.

A lot of times you can get higher yields. A lot of times there's often better creditor protections because you can drive more of the covenant conversation. We've all heard of the Cov-Lite trend here in the US—that's not necessarily the case in the emerging markets. And you also tend to have lower leverage on these corporations' balance sheets because EM banks are just not as willing to allow those corporations to lever up as much as maybe a US corporate is able to because of the strength of the marketplace.

So, you have this culmination of things where it could be a very attractive asset class. We certainly think it's already a reasonably attractive asset class, even though it's somewhat in its infancy. But if that trend continues, I think you'll see a lot more allocators and honestly a lot more asset managers moving into that space.

Josh Scott: Yeah, I don't know if I actually finished that thought I had that I started to mention it earlier around the European market and some of the thoughts that came out of the event last April. But that was kind of it: these markets are sort of building up the capacity to take on more assets and I think those points that you raised are really great ones in terms of that supply-demand dynamic in lending within some of these markets that are up and coming versus a more mature US market in the private credit space, let's say at least.

You mentioned there, some great opportunities that exist, but not every opportunity comes without some sort of risk. So, what are some of the risks that investors need to be most mindful of when looking at something like emerging market debt? Or does it just add more complexity to the portfolio?

Chris Martin: Yeah, I think that can be the initial reaction: "This is more complex, right? You're adding in other factors that we're not used to having to incorporate into our due diligence process." But I think the main focus, or what I would focus on, is knowing what you own.

And to know what you own, I think really lends itself to transparency from the GP that you're partnering with. If you find a GP or an asset manager that is very transparent in terms of not just the portfolio but the process and people—letting you take a really granular look at how they do what they do, and if they are doing what they say they do—and if they are a true partner to their LPs, you will get a very good look-through into what you own. You can then take that back and compare it to the rest of the portfolio and see how that might be additive or potentially not additive to your existing allocation.

But I think really, partnering GPs and LPs together to make sure that everyone understands what they own, what they're doing, what they're investing in, what those risks are, and obviously the opportunity, and hopefully what you're getting compensated for, for taking those risks, that is, ideally in my mind, where the focus should be. So that everyone's on the same page, and if there is a new opportunity or there is a performance hiccup down the road, you're partners through that. You understand what's going on, you can get on the phone with the GP and understand what's happening in the marketplace and in the portfolio.

As long as those things are clear between the two parties, I think that goes a long way in terms of getting comfortable with either a new asset class that you haven't invested with before, or a new investment strategy, or a complementary investment strategy in an asset class that maybe you do know reasonably well, but there's one or two added things that you haven't had to look at in the past that you want to get a better understanding of so you can go back and feel comfortable with that allocation at the end of the day.

Josh Scott: Yeah, another really good point. You know, what we're talking about here are some of those long-term structural trends that are starting to drive some of these opportunities. But I wonder, when you're looking at the space broadly, how much of the opportunity is being driven by some of those long-term structural trends, and how much of this is more temporary noise based upon more short-term dynamics?

Chris Martin: That's a difficult question to answer, but in fairness, I think it's going to be a little bit of both. But it seems like, at least on the temporary side—which you might categorize some geopolitical events in, especially these headlines that seem to go back and forth every day—it does seem like these events are going to continue happening and are happening at a more frequent rate than we've seen in the past.

And so even if each individual event or disruption, however you want to categorize it, is reasonably short-lived, maybe you categorize short-lived as a few months, it seems like, you know, every few months we get another one. So if you are—again, not to harp on this partnering thing—but if you're partnering with somebody who has been in a market for 20 years, has been through cycles, has shown an ability to adapt to different market environments, then I think you can be more comfortable that you can lean into those more structural changes and have that long-term mindset, but know where your capital is—the hands your capital is in—have been through it and have shown an ability to be resilient through some of those short-term noises and short-term shocks. That allows you to either live through a downdraft or just keep that long-term mindset and hopefully pick up some added performance along the way and really be on the front foot for some of these shorter-term events rather than being on the back foot.

So I guess again, that partnership angle, that's certainly something that we try to emphasize with our clients, but that's always been important to me in my career: showing that partnership angle and really being able to have that two-way transparency and two-way communication to understand how the asset manager is navigating that, how the GP is repositioning, how the GP is building a resilient portfolio to keep an eye on that long-term focus.

Josh Scott: Yeah, it's such a good point that I always bring up, how relationship-based this industry is, and just underlines again why manager selection is so important when approaching some of these more different sorts of strategies within the private credit space.

Now that we've spent some time defining what private credit means in these contexts and some of the opportunities, if we were to move into some of the portfolio construction dynamics around these assets and how they fit within an allocator's portfolio, one of the topics that comes up consistently over the past month, is the need for liquidity. Thinking about liquidity within a portfolio, where is that coming from? Private markets, not necessarily the most illiquid asset class, but when we're thinking about credit, what are the portfolio implications, whether that be yield, cash flow, etc., of having a broader set of assets within private credit than just direct lending in your portfolio?

Chris Martin: Yeah, I think we touched on it briefly with the BDC comments we had at the beginning of the call. In general, especially within credit, there needs to be a focus on the liquidity match, hopefully, and or mismatch between the underlying assets in an investment strategy and the terms or the structure of the fund as a whole or the strategy as a whole. As long as those things are not completely mismatched, then you can have great attractive credit allocations in relatively liquid structures, and we've seen that for many years.

So, you can have a broad credit allocation from daily liquid vehicles all the way through to draw-down. I think on the closed-end fund side, one thing I would say is that the benefit in credit, especially in certain credit asset classes within private credit, is contrary to private equity: you can get regular distributions, especially on the income side. That can shorten the duration of capital and shorten maybe not necessarily the all-in fund life, but the weighted average life of your capital in terms of your return of capital.

So not to hark back to the emerging market illiquid loan opportunity set I was speaking about earlier, but those are reasonably short-duration loans paying regular quarterly coupons, especially in the performing space. So yes, you might be investing in a closed-end draw-down vehicle that has an investment period, a harvest period, and a fund life. But the effective duration of your capital, in terms of the time between you give it to the GP and they return it to you, can be much, much shorter than even other credit asset classes, but most certainly than many private equity asset classes.

So, if you're looking at it from a portfolio construction standpoint, especially within a private portfolio, credit can be an advantage from a liquidity perspective because you're getting that return of capital along the way or that income along the way. And then sometimes you're also getting that return of principal along the way, which can drastically reduce the duration of your capital and allow you to just be more opportunistic. It doesn't mean that you have to leave those assets in private credit. Fund a distribution for private equity if there's a great dislocation or a great opportunity that you see on that side of the private portfolio.

So yes, we see the same thing that you mentioned in terms of the need for liquidity, and a lot of times I think credit can be an asset from that perspective instead of a liability, as long as you keep in mind the few things that I said at the onset of this answer, which is that the underlying and the structure—the fund structure as a whole—are well matched enough and you have a GP that can manage that liquidity well enough so you're not going to run into a drastic mismatch along the way.

Josh Scott: Yeah, I'll come back to your comment there, Chris, in a second. I just want to remind folks as well that we have some questions coming in, but folks can still submit questions by going down to that dialogue box in the bottom left-hand corner of the screen and typing it in. But don't forget to hit send so we can actually get it on our end.

You touched on fund structures though, and I think that's a space I wanted to move to next. There's been a lot of exciting developments, or at least innovative things happening, as this space continues to evolve. I would say even more broadly in private markets, as GPs work with LPs to meet sort of the needs, whether that be liquidity issues or otherwise. As we've seen some of these new fund structures develop outside of the traditional closed-ended fund, what have been some of the most exciting ones that you've seen?

Chris Martin: Yeah, I think the ETF space, to go all the way on the opposite side of the spectrum, is doing some interesting things on the actively managed fixed income side. You're not going to jump to put private credit assets in an ETF of course, but there are some interesting public fixed income and public credit asset classes that can go in an ETF wrapper.

We've also seen the growth of the interval fund structure, which I think allows for slightly less liquid instruments to be put into that structure and have the terms and the tools available to manage that liquidity. Again, not to just say the same thing over and over again, you want to make sure that when you're underwriting those strategies or when you're launching those strategies, you're looking at not just what is the liquidity of the underlying today, but hopefully you can stress test it or look back through various market environments and say, "OK, when liquidity tightens, is this still an appropriate structure where you can live through some of those more difficult periods along the way?" And make sure that you're on the front foot to try to take advantage of those rather than being on the back foot, trying to fund redemptions or find liquidity and things of that nature.

So, we have seen these kinds of innovation in fund structures and what to put in them. But I think again, it just harks back to allocators needing to be focused on the match between the underlying and the structure to see if that asset class, that fund structure, and that investment strategy is appropriate for the structure in general, but appropriate for their portfolio, for their goals, for their time horizon, and for their risk appetite. Because you want all of those things to come together to make sure that again, that partnership is going to be able to be long-term in nature, you're going to be able to live through not everything going up and to the right all the time. Those are all the things that you want to take into account as you try to figure out: is this the right investment strategy for my portfolio? The right investment partner? The right investment structure? All of those things I think are important to take into account when you're evaluating whether to make an allocation or not.

Josh Scott: Yeah, it's also interesting to think about another big theme that comes up a lot in this space—and you know, we touched on it just briefly with the discussion around BDCs and the entrance of potential retail capital, whether that be from 401(k)s or defined contribution plans or private wealth or otherwise. I wonder how much of this innovation is being driven by some of that—trying to capture some of that capital as well.

I mean, you mentioned the ETF piece, a product that was originally designed for retail investors, but now institutional players, we see a lot more picking up on. I wonder if something similar might happen in the private market space for some of these products that are sort of developed for potential retail clients, but institutional clients end up benefiting from, or there's just new innovative fund structures that come out of some of that entrance of new capital into this space.

Chris Martin: Yeah, I think it remains to be seen. But there is certainly demand for more liquid structures across the board. One thing that our product group is focused on is kind of doing that research. Looking at the marketplace, seeing where demand is, and then making sure that as an asset manager we are meeting demand but doing it in a way that is well thought out and well researched in conjunction with investment teams to say, "Does the strategy make sense in the structure? What is the underlying liquidity look like? What happens if something goes wrong?" All of those things I think are important.

And so even though there may be demand in an area, we don't want to just blanket rush to meet it. We want to make sure there's a thoughtful approach to say, "OK, there is demand, but does it make sense? Does it fit in our core competencies? Is this asset class the right fit for this market demand?" And so all of those things go into product development and figuring out where that supply-demand dynamic meets in any given asset class.

Josh Scott: No, that's super helpful. I want to touch a little bit more on the portfolio construction piece but maybe from a different angle—the diversification that we've been talking about, but sort of the correlating piece around different assets in the portfolio. We've kind of touched on this across today's call. I think investors are thinking a little bit more holistically about their portfolio. When we look back to 2022, there was this positive correlation between equity and fixed income that I think spooked a lot of investors around where diversification was going to come from within their portfolios if it wasn't going to be what traditionally had that sort of diversification.

So how can investors think about diversification within a credit portfolio today, or even more broadly?

Chris Martin: Yeah, that's actually the benefit of this "private credit" umbrella or "private credit" nomenclature, which is there's such a diverse opportunity set underneath what is such a broad definition for an asset class. You can look at it by asset type, you can look at it by structure—like if you look at securitized, it fits in there, so you have different structures versus more plain vanilla private credit. You can look at it by geography, by sector, by industry, and then by situation.

The reason I mention situation is because, for example, we talked about the European stressed and distressed landscape in particular and just the difficulty that middle-market corporates there are facing in terms of running their businesses. You have these very idiosyncratic situations popping up that are not correlated to the macro environment that I just walked through.

So, you have situations caused by the macro environment from COVID until now, and then you have, I heard the other day that in France, there's potential that they're pulling back on subsidizing some of the education industry there, and so you saw a sell-off in the bonds in that industry in France. That is reasonably, I would argue, uncorrelated to the Iran conflict.

So, you have these little bubbles and little pockets of situational diversification, if you will, especially in the distress and restructuring space where you have different parts of a distressed or restructuring lifecycle that different companies can be going through. And you can populate a portfolio with these various situations in various industries, geographies, and asset types. Even if the outcome of your process or the design is not to have an uncorrelated portfolio, the breadth of opportunity set can kind of create this incredibly uncorrelated and diversified and idiosyncratic portfolio of situations where it ends up uncorrelated to the broader markets, even if that wasn't the original design.

And so sometimes you just find a really ripe opportunity set that can diversify your existing allocation, even if you didn't take this top-down view that said, "OK, this asset class is diversifying versus my current asset class." Sometimes it's just talking with managers, understanding what's going on, and saying, "Wow, this just seems like a very interesting opportunity set that will have some runway and will be diversifying," even though the core opportunity is really return-driven.

Josh Scott: Yeah, it's interesting—you've mentioned a number of times around just understanding what the fit is in the portfolio, but also what the underlying assets are, is kind of what I'm hearing. Yeah, it's interesting to me because some of these things we've touched on across today's call—whether that be geopolitics, AI, or otherwise—AI, for example, I was on a call the other day where someone mentioned, I think, they were hearing around 16 to 20% of all private credit is kind of like some sort of AI-related exposure. You know, so it just underlines that fact around understanding where the diversification is coming from, what sort of themes sit within the portfolio, where the exposures lie, and kind of what you've been mentioning here.

I want to move to a question that we had come in, which is a little bit more execution-based in terms of investing in the space. The question is: if you're investing in SMAs, what are some of the parameters around strategy size, etc., that should be considered when approaching the space?

Chris Martin: Yeah, I think it's a great question. SMAs can be a really advantageous way to access an asset class for an allocator. Of course, the size question will depend on the strategy question itself. So, I think when looking at that, the best course of action, and typically the one that we take with prospects that are asking us about a potential SMA in a given investment strategy, is: what is the potential allocation? What is the appetite? And then we'll go back and say, "Can we do it? Does it make sense in this asset class? Do we already have SMAs of that size investing with this mandate?"

A lot of times SMAs want to get custom in terms of how they allocate to an asset class versus maybe a commingled strategy in that same universe. And so you know, it's not a perfect answer to the question, but it is that partnership thing again: just have the discussion with the asset manager and say, "Let me understand your investment strategy. Let me understand the liquidity. Let me understand the execution. A lot of times, especially from an SMA perspective, let me understand your execution in this asset class. Let me talk to your traders or your risk department and understand your execution in this asset class." And then let's go back and forth and figure out if there might be a way for both GP and LP to have a great outcome and building an SMA and a custom mandate to allocate to an attractive opportunity set.

Josh Scott: Another question here around portfolio construction kind of touches on another theme that we've been hearing a lot about: the convergence of sort of public and private assets. You were mentioning earlier when we were talking about fund structures, sort of the nature of some of these private credit investments—coupons, distributions—sounds very similar to their public market peers. A lot of times, are some of those distinctions coming down between private and public markets? And you know, is it changing the way that portfolio construction might be looked at by some allocators?

Chris Martin: Definitely. And I think it goes back to our earlier conversation about are allocators asking about diversifying away from US direct lending? I didn't touch on it in the reasons I gave in terms of why allocators might be wanting to have that conversation, but you just added another one to the list, which is: "Hey, the premium for allocating to private direct lending versus their public market, their public loan counterparts, has compressed."

As base rates have come up since 2022, between 2020 and 2022, the spread between public and private has compressed. And so you're not being compensated as much—you're still being compensated, but you're not being compensated as much for that illiquidity that you're adding by doing US direct lending as you might have been in, call it, the late 2010s.

And so it's another reason why we've seen allocators asking, "What else is out there? Where might we be able to get similar compensation in terms of premium in an asset class that we lock up for versus public market counterparts?" And that's some of the opportunities that we've already talked about today. But certainly, that spread in particular has come in.

Then one other thing—not a direct answer to your question, but you mentioned the public-private and you also mentioned the AI exposure within the loan universe. We've had a lot of discussions around not necessarily the AI-specific exposure, but the software exposure, because that's really what was getting disrupted when all of the AI headlines were coming out. And you have a big difference in software exposure in private versus public loan markets.

So, you have private markets, which is roughly 30% software, whereas their public market counterparts are down in the 10 to 15% range. That's a big difference. And especially if you're a public market investor and you can be underweight software in the face of a difficult period, the difference between that and what is a private market universe that is almost a third software-related names can make a huge difference in terms of weathering some software disruption that we've seen take place in the last 6 to 12 months.

Josh Scott: Chris, I have, as we're sort of approaching the top of the hour here and running short on time, one more big picture question for you. I originally put this down as something to the effect of: "What do you think the biggest story will be about this current environment if we look back now, say, in five years in the future?" But I guess another element—not to pile on too much to it—is: where do you think that some of these opportunities will continue if some of this current volatility subsides?

Chris Martin: I think that harks back to the structural opportunity set, where there are a couple of areas where we see structural changes that are going to persist. So, we talked about the EM liquid loan universe and how that might be mirroring US direct lending. On the public side of EM debt, we've also seen a lot of what I might call "self-help stories," where you have countries that historically have either been serial defaulters or heavily reliant on IMF and other kinds of external support, starting to make, whether it's via elections or otherwise, some serious progress in terms of self-sustaining fiscal situations in their countries. That will benefit both from a sovereign perspective and a corporate perspective and really a foreign investor flow perspective into those markets.

And so that's just the one that pops into my head as the most relevant to your question: look, you don't always have to be reliant on what's the newest disruption or the newest geopolitical event. Sometimes there are these kinds of "slow burns," where they can get lost in the shuffle and they're not making headlines on a regular basis, but there's some real material progress happening in an asset class that is making it more and more attractive to be an investor there. It might be getting overlooked by investors because it's not, you know, on the front page of the Wall Street Journal or Financial Times or name your publication.

And so I think that's just one that we're seeing that seems to have some real durability in terms of structural changes that make it an attractive place to look at over the next few years.

Josh Scott: Chris, great answer. I think it touched on both of those pieces—what do you think is going to be the biggest story, sort of looking back, and from now moving forward? I really appreciate the time today. It was a really great conversation—some really specific opportunities that folks can sort of look at within their own portfolios, but also some bigger picture discussion around some of the themes and questions they should be asking managers. And you know, it always underlines that piece around the relationship and the relationship nature of this business and how important it is to establish good connections with your managers within the portfolio.

Thanks so much for joining me today.

Chris Martin: Yeah, thank you, Josh. I really enjoyed the conversation.

Josh Scott: And I want to thank everyone for watching as well. We'll look forward to seeing you next time.