The Bridge Ep. 07: Private Credit Isn’t What You Think Anymore

The Bridge EP 07, Victor Khosla, SVP – Transcript

Sonali Basak (00:00:00 -> 00:00:38)
Welcome to the latest episode of The Bridge by iCapital. I’m Sonali Basak. I am the Chief Investment Strategist at iCapital, and today, I’m so glad to say that I’m joined by Victor Klosla. He is the founder and CIO of Strategic Value Partners. More than 25 years in the market, of course, with, uh, this one firm, but many years in the market before that, really seeing how credit markets have changed over a long period of time, 30 some years. Uh, when we think about the credit markets today, Victor, um, the private credit market, how much it has grown and what it looks like today is not the same as it looked like five years ago even. What would you say about how you would categorize the moment we’re in,

Victor Khosla (00:00:39 -> 00:00:53)
Uh, extraordinary, the growth you’ve seen in private credit, extraordinary and private credit today is such a broad category. The words private credit by himself itself, don’t even do it.

Sonali Basak (00:00:53 -> 00:00:54)
Just it doesn’t mean anything. Right.

Victor Khosla (00:00:54 -> 00:01:08)
It doesn’t. Right. So, so, you know, Sonali, you, you well know somebody like us. We describe ourselves as opportunistic credit. So, we are the, we’re the fun part of private credit. Okay.

Sonali Basak (00:01:08 -> 00:01:08)
So, explain what that means.

Victor Khosla (00:01:08 -> 00:02:17)
Yeah. So, it, 10 years ago, uh, opportunistic credit would’ve meant distressed debt. Today, when you look at a firm like ours, we are in the higher risk, higher return part of credit Sure. Distressed as part of the strategy, but distressed is a 2-year out of 10-year business. So, for somebody like us, yeah, we lend money to people at 15% sort of rates of return. Hybrid solutions is what we call it. We buy assets sometimes through debt, and by assets, I mean power plants, airplanes, real estate, infrastructure.

Sonali:
Mm-hmm .

Victor:
And, and then about a third of our business today is taking control of companies and actually improving them, Transforming them. So, from the old days, 10 years ago, somebody like us would’ve been distressed credit investor. And then when you look at the broad, the breadth of what we kind of cover, that’s kind of what we call opportunistic credit.

Sonali Basak (00:02:17 -> 00:02:28)
So, the reason I wanted to introduce you with that 25-year history of strategic value partners was just that the idea that you started with distress and then turned into opportunistic.

Victor:
right

Sonali:
…explain the evolution of that market.

Victor Khosla (00:02:29 -> 00:03:03)

Market. Yeah. You know, the, uh, what distressed is a very, a super cyclical business. If you see credit spreads blow out, if you see kind of a recession, you have these kinds of price moves, suddenly debt trading at 95 cents, trades at 60, 70 50 cents, right? That is distressed. It’s a paper investing business. Smart people, well connected with bankruptcy lawyers, bankruptcy advisors, and the process, right?

Sonali Basak (00:03:03 -> 00:03:06)
You have to be able to roll up your sleeves and kind of get into the nitty gritty, right?

Victor Khosla (00:03:06 -> 00:03:53)
No, no, no. Not roll up sleeves. Roll up your financial sleeves. Right because it’s not, there’s nothing operational about classic distressed investing. It’s really, truly a paper investing sport. Now what, what happened since 2008, 2008 was a great distressed paper investing sport, but over the course of these last 18 years, there’s been no sustained cycle. There’s been no sustained crash. Covid came close, but it was like all of three months long, right?

Sonali:
Right.

Victor:
So, as if you, so being a distressed investor has just been a really tough game.

Sonali:
Yep.

Victor:
You can’t make money kind of consistently.

Sonali Basak (00:03:54 -> 00:04:12)
So, can you explain then how opportunistic was really born? Yeah. Because to your point, it’s not quite distress, but is it something that has morphed out of distress in a lot of ways because of the lack of distress in the market? Um, and in some ways, you know, some investors might ask, is it a fancier word for distress, um, in the way we see it today?

Victor Khosla (00:04:13 -> 00:05:02)
Uh, uh, so opportunistic did come out of distressed in terms of skills, right? The skillset to lend money to somebody at LIBOR plus 500 or SOFR plus 500 is so different than the skillset to kind of buy something at 60 cents, understand the value of the company, the resilience of it, and you’re trying to make 15% plus kind of returns, right? Two very different skillset. So, the opportunistic world wasn’t born out direct lending, lending, the opportunistic world was born out of distress. And when you look at the roots of kind of a lot of people who do opportunistic, you’ll often find it’s distressed.

Sonali Basak (00:05:03 -> 00:05:08)
So, what is opportunistic? It feels to me that across Wall Street, it’s defined differently.

Victor Khosla (00:05:09 -> 00:05:26)
Yeah, it, it is, uh, there are, there are people who, uh, there are people who focus on what we would call just hybrid solutions, working with sponsors, working with asset owners, looking to provide 15% kind of loans

Sonali Basak (00:05:26 -> 00:05:30)

And there they can be kind of debt and equity like instruments.

Victor Khosla (00:05:30 -> 00:06:40)
Uh, debt with equity, uh, equity upside sometimes in warrants or otherwise struck that way. So that piece of it, we would call opportunistic, right? And it’s become a very large piece in today’s markets where people are just kind of stuck, uh, being able to lend money, junior capital even to do that, right? It, that business has grown. It’s really, and, and it’s a multi-hundred billion dollars of AUM today in that business today. But to us, opportunistic for somebody like us is much broader. That first category of investing, my God, it it’s gotten, it’s gotten competitive, right? Anytime you have a business with a few hundred billion dollars, those returns can get start to get brittle down. We truly reimagined our business in 2008, we said, there’s a lot of value in buying assets or buying companies and fixing it, improve the, fixing the assets.

Sonali Basak (00:06:40 -> 00:06:42)
This is the actual rolling up your sleeve,

Victor Khosla (00:06:42 -> 00:06:43)
This is, now, now

Sonali Basak (00:06:44 -> 00:06:45)
Not just the financials,

Victor Khosla (00:06:45 -> 00:06:58)
Right. So, a third of our capital goes into businesses where we have majority equity control of a business,

Sonali Basak (00:06:58 -> 00:07:00)

So that you can control the outcomes of the success.

Victor Khosla (00:07:00 -> 00:08:55)
Yeah, you can control, uh, the outcome. Yes. But, but to create that outcome, we find we often have to substantially, dramatically strengthened management teams. There’s a reason the company’s in trouble. We go out and we rebuild new business plans with that new management team. There’s, it’s so far away from the paper investing distressed mode, right? So, you, you know, there is a little bit of brilliance in it, but if I could describe what we do, 95% of it is grinding. It’s to have the processes and the team and to grind away at that business once you’ve set that north star to kind of do it. So, a third of our capital goes into those kinds of control deals.

Sonali:
Mm-hmm .

Victor:
40%, four zero percent of our capital goes into buying real assets. And when we buy real assets like an airplane or a power plant, right? We own operating companies, which can actually manage the asset, improve the asset, fix the asset. It isn’t just about buying the debt on the asset and foreclosing or buying the asset. It’s to go fix it and improve it. So, the way we reimagined our business after 2008, distressed, super cyclical, hybrid solutions, providing 15% kind of money for people who want to extend out the runway. Owning assets, improving them, fixing businesses, not just buying into them because hey, it was a good investment, right? That, that mindset is what has created for us, though our opportunistic credit business.

Sonali Basak (00:08:55 -> 00:09:30)
So, we’ll get back to this, um, theme in a moment here on how you create value through, um, owning parts of businesses or outright owning businesses. But the reason I’ve been asking you so much about opportunistic is you recently wrote a piece that really describe the moment in time that we’re in as an extreme dichotomy. I would, I would categorize it as, um, after reading your piece that we’ve kind of seen the biggest, um, diversion in outcomes since 2008. Explain what you mean by that. Because on one hand, we’re still sitting at growth at around 2%, but there are seemingly some pockets of trouble that are under the surface.

Victor Khosla (00:09:31 -> 00:09:39)
Uh, in, in high yield credit, it ain’t just pockets at this point, Sonali, right? It is, uh, you, you know, there’s

Sonali Basak (00:09:39 -> 00:09:39)
There’s more to it that meets the eye.

Victor Khosla (00:09:39 -> 00:09:46)
Oh my gosh. This is, this is, there’s no more pockets or little segments. This is just much broader now.

Sonali Basak (00:09:46 -> 00:09:47)
Tell me more. Yeah.

Victor Khosla (00:09:47 -> 00:10:40)
So, you know, and it is, it is exquisite that balance, which we see today, uh, I, the exquisite is the word, which comes to mind for me right now. On one side, as you said, you’ve got economic growth in the United States. Uh, you’ve got equity markets on a tear the last kind of couple of years. And then at the same time, side by side with this, these are Moody’s default rates. Default rates are 6% a year, last two years, 2024.

Sonali:
in high yield,

Victor:
In high yield. 2024, 2025, 6% default rates each year, even when the economy’s okay in the equity markets are okay. And, and as you said, I’ve been doing this for 25 years at SVP, never seen it.

Sonali Basak (00:10:40 -> 00:10:52)
Isn’t it kind of funny though that you see those 6% default rates?

Victor:
Yeah.

Sonali:
Private credit reported default rates are a lot lower than that. Yes. But everyone’s upset about private credit, but not high yield. Does that check to you or is there something we’re not, right?

Victor Khosla (00:10:53 -> 00:11:00)
Uh, there’s a, there’s a, there’s a lot there. like, can I tell you? Let’s just…

Sonali Basak (00:11:00 -> 00:11:01)
Let’s unpack that for a minute. Yeah.

Victor Khosla (00:11:02 -> 00:11:27)
No, but, but, but if I may.

Sonali:
Yeah.

Victor:
you know, you ask yourself, why do you have that in the first place, right? So, what we find is whether you’re a, if you’re a private equity investor, you’re a, or you are a real estate investor, you went out and did deals pre 2022 in a 0% rate world.

Sonali Basak (00:11:27 -> 00:11:28)
Also, pre-chatGPT,

Victor Khosla (00:11:29 -> 00:14:02)
Uh, pre-chat GPT, right? Uh, and, and we’ll come back, we’ll come back to that, right?

Sonali:
Absolutely.

Victor:
So, zero rate world, and in 2022 rates now, short term rates, now three and a half percent ideal, classic high yield spread. On top of that, you’ve got a problem. Now, uh, Sonali, you’ve heard about, uh, the credit business. There are these things called AEs -amend and extend. Uh, LMEs- liability management exercises. The documents were written very loosely. And, and what happened was people just extended out the runway starting in 2021, 2022, right, because they couldn’t service that higher interest rate.

Sonali:
Right

Victor:
Now, at the same time, you know, if you look at the real economy businesses like chemicals, consumer products, anything associated with home building, manufacturing for a lot of the last 12 months in the U.S. is in a recession. A lot of these businesses couldn’t grow cash flow, even as the demands on that flat or even negative cash flow were increasing with higher rates. Ala voila, you have 6% defaults, right? And, and again, never seen that, the, the, but I, but I think the, I, I’d just kind of kick it up even some more now, now, this was ‘24 and ‘25, right?

Sonali:
Mm-hmm .

Victor:
What’s happened in ‘26 has truly amped up the pressure a lot more. Yeah, because what you now have on this high yield market, this credit market, which was already troubled

Sonali:
right?

Victor:
In ‘24 and ‘25, all this stuff under the surface with problems. Now you’ve got software.

Sonali:
Mm-hmm .

Victor:
Software, give or take, is about 20% of kind of high yield markets. You’ve got an oil and gas shock. We know what they have done to the economy and to high yield spreads multi, many times over the last 40, 50 years, right? These are truly trees falling on the high yield market. This is no longer just kind of stick, more sticks, right? So, to our point of view, where we are right now, we started with two >. Tough years in credit

Sonali:
mm-hmm .

Victor:
Now we’ve just seen an explosion from that with software, with the oil and gas.

Sonali Basak (00:14:02 -> 00:14:23)
So, we’ll get to software in just a second, but how do you reconcile what’s happening in private credit versus the high yield market?

Victor:
Yeah.

Sonali:
Which is true, right? Yeah. Is the 6% default rates in high yield versus closer to 3% in private credit, is the private credit market just holding up better? Or do you think that there’s a little bit more pain under the surface than meets the eye?

Victor Khosla (00:14:24 -> 00:15:15)
Look, uh, there is a lot of pain under the surface, and it’s best reflected uh, if you look at the redemption lines now in these open-ended funds, and they ain’t going away. It wasn’t just one quarter, right? We expect for the next year, the next 18 months for these redemption cues to kind of persist. You look at BDCs, which are a public representation of those open-ended funds, right? Your average BDC today, uh, the price where the equity trades is 85% of NAV, a 15% discount, right? So, this anomaly between high yield and private credit, well, it, it, it’s been corrected pretty quickly in the public markets, right? And you see that,

Sonali Basak (00:15:15 -> 00:15:42)
But do you think at the same time, two things can be true at once? You know, I want to be clear about how I, um, described this before when I said everyone’s upset about private credit. Actually, no, they’re not. Institutional fundraising has been enormously strong still this year, even with the redemptions that you’re talking about and, and some of the wealth channel for the, for the private credit firms. But, um, what does this mean in the end, right?

Victor:
Yeah.

Sonali:
Does this mean that, um, the institutions are seeing something that maybe others are not?

Victor Khosla (00:15:44 -> 00:16:15)
You know, uh, I don’t want to overstate the case, right? I, I think our point of view would be none of this is systemic. So please, let’s not, let’s not take it up to the, there’s nothing systemic about this. Uh, you know, the older private credit funds, which were doing 8, 9, 10% sort of rates of return, showed they got more problems in their portfolio, maybe now they’ll end up producing four or five.

Sonali Basak (00:16:16 -> 00:16:16)
You think that low?

Victor Khosla (00:16:16 -> 00:16:24)
Yeah. You, you, you know, if you, if you have 20% defaults, 20% is software and you get 25% of soft

Sonali Basak (00:16:24 -> 00:16:28)
But that’s an extreme outcome, right? Or do you think that, that there’s more than

Victor Khosla (00:16:28 -> 00:16:49)
That’s our, our view.

Sonali:
Okay.

Victor:
There’s nothing, there’s not, you, you know, the telecom crash in two, in the early two thousands, the oil and gas crash in 2014, you had 25%, 35% of companies default over multiple years. Software, we don’t think is that different.

Sonali Basak (00:16:50 -> 00:16:52)
Interesting.

Victor:
Right?

Sonali:
So, so that’s the proxy to use.

Victor Khosla (00:16:52 -> 00:17:25)
Yeah. That, that I, that I think it’s a good proxy. The oil and gas crash and what it is doing to consumer confidence and growth add to that. So, so I think these historic funds, look, but, you know, we can all debate, is it, it’s no longer going to be nine or 10, it’s going to be five historic funds. New funds being raised today, or actually going to do, okay, yeah, right? Because they’re investing in this new world, the old funds which invested in the old world. Ooh, not so good, right?

Sonali Basak (00:17:26 -> 00:17:38)
That’s what concerns me about 2026, that people are kind of missing, um, you know, the forest for the trees here.

Victor:
Yeah.

Sonali:
And thinking about what happened in software but not realizing that actually 2026 might be one of the better vintages that we’ve seen.

Victor Khosla (00:17:39 -> 00:18:28)
Uh, it, it, it should be you, you know, when you, uh, look as you can well appreciate, uh, when you invest, when things have kind of gotten a lot tougher, right? Uh, direct lending spreads today have kind of just widened out and in our view, they’re going to continue to widen out some more. These are good vintages – good time to be deploying money. Just worry about what you got on the ground though, right? And, and don’t worry about it thinking of you. It’s something systematic and horrible. Uh, Sonali, you’ll laugh, okay? Crypto. In crypto, people generally have lost $2 trillion over the last four, six months mark to market, right? Nobody cares. , have you noticed .

Sonali Basak (00:18:28 -> 00:18:31)
Right, right. People are still trucking along and not thinking about it.

Victor Khosla (00:18:31 -> 00:19:27)
No exactly. So, and we are not telling you, uh, so I’m not telling you today that five and a half trillion in high yield credit, broadly, no, we aren’t losing $2 trillion. don’t, not at all, right? but just, there’s just a toughness to these. What we are now is in just this protracted cycle where we got to fix, we got to extend, we got to work out, and this is all, and, and the economy itself, we think, yeah, there’ll be more pressure on it, but the US economy is an extraordinary flexible, uh, economy, right? We, our, our view would be, yeah, more pressure is a little slower growth. Things will keep trucking along there. It’s just credit. And worry about credit, but don’t worry about it to the extent of saying, oh boy, it’s systemic. We don’t think it is at all.

Sonali Basak (00:19:27 -> 00:19:49)
So, talk to me about the software industry. Uh, I can’t believe I’ve waited so long to get to it, but it it was worth drawing out the backdrop before we got into software. Um, you, you are, you’re estimating 20% of portfolios in software.

Victor:
Yeah.

Sonali:
Um, do you really believe that that entire 20% bucket is, uh, exposed to AI turmoil, right?

Victor Khosla (00:19:50 -> 00:22:04)
No. No, not at all, right? We, uh, so for the last two years, because there have been software businesses which have gone broke in the last couple of years. What we have found is, and, and you know, and we, we look for stuff which is breaking. It’s kind of our DNA. So, for the last few years we have been steadying. We’ve had a small team of people. We’ve hired consultants on the side. We’ve been steadying these businesses, and all the ones which kind of broke got, went broke. We did not, we think the businesses weren’t just kind of going down 10%, 20%. They were falling off a cliff, because the changes which happen in software, it isn’t like your, is, hey, we’ve got little lower growth or little lower volumes. It’s, I’m being supplanted. Somebody’s killing my business model. So you go, right? So, for us, we walk in today, having done quite a bit of work on the sector with 0% exposure. When we look forward from here, our, our, our view, and I can’t quite take credit for this word, somebody very smart said it, and I’d agree with them. What’s happening in software is a hiss not a pop. What you saw happen with the oil and gas crash in 2014, it was like oil prices fell, oil valuation multiples fell. It was like boom. Software, we are still trying to figure out the winners and the losers. And by the way, some of the winners are going to be huge winners, right? Uh, with, with ai. So, so I think, but our point of view would be parts of software are going to get really damaged, and those parts which get damaged, it isn’t going to be just like, you know, hey, it’s down 10%, 20% in enterprise value. It’s like, do I have any enterprise value after this is all over? So, so I, so I think to us software, uh, and I think you can hear it from me, uh, there are no hurry to go invest in software

Sonali Basak (00:22:04 -> 00:22:14)
I was going to say, do you see any opportunity to start investing?

Victor: Not yet.

Not yet.

Sonali:
What would make you optimistic about picking your spots into the businesses that you think can make it through?

Victor Khosla (00:22:14 -> 00:22:56)
You know, I’ll give you one business model, which would be really interesting for us. A software business, which has three different kinds of divisions, three businesses. One of them is falling off a cliff going to zero. The other two are okay. A business like that gets into trouble because of just too much leverage. And it’s a business like that, which we would like to start to kind of go make investments in. I I, I, I think to our point of view, and, and we think we’re the one of the largest people focused in terms of kind of reworking companies and reworking businesses like this, we just think, uh, just wait.

Sonali Basak (00:22:56 -> 00:23:05)
The economics are changing too with the token economics now. Yeah. Rather than seat-based pricing. So, it feels like the business model itself has a lot to shake out.

Victor Khosla (00:23:05 -> 00:23:22)
It does. Yeah. But it’s not a, it’s not a quick shakeout, right?

Sonali:
Right.

Victor:
Uh, there are people who we think are still growing revenues, right? And, and, and we think, and they are just, and the cliff’s coming.

Sonali:
Yeah.

Victor:
But, but for right now, some of them are still growing revenues and the cliff is coming.

Sonali Basak (00:23:22 -> 00:23:40)
So, when you think about the overall issue when it comes to software private credit, there’s a lot of people who will say, well, wait a minute. A lot of these deals have a cushion that is 60% to 70% equity before you get to the credit.

Victor:
Yeah.

Sonali:
So, then what becomes of the private equity industry that is very exposed to software.

Victor Khosla (00:23:40 -> 00:23:44)
It’s tough. It is really tough.

Sonali Basak (00:23:44 -> 00:23:46)
Paint me a picture and how it plays out over the next year or so.

Victor Khosla (00:23:46 -> 00:24:41)
Uh, you know, if you are a, if you are a software focused firm with a lot of those kind of investments, uh, you’re trying to figure out is 20% of your investments going that way? Are 30% of your investments going that way, right? And, and to us, uh, the software private equity industry much more impacted than the debt part, because equity goes first, as you so rightly said, right, it truly is first loss. And, and, you know, and you can, you can imagine the shakeout it creates in that business, right? every time you go through one of these cycles, whichever industry you figure out at the, you’ll figure out at the end of two, three years, who in software was truly swimming naked , right?

Sonali Basak (00:24:41 -> 00:24:42)
Yeah, when the tide goes out, right?

Victor Khosla (00:24:42 -> 00:24:43)
It is coming, right.

Sonali Basak (00:24:43 -> 00:25:17)
Classic Warren Buffet.

Victor:
Yeah.

Sonali:
So, when you think about the software trajectory, now, the reason I’m asking so much about this is because, you know, we started with distress, and when you think about software, it’s, it’s not like other assets, right? You can’t go and seize the real estate necessarily.

Victor:
Yeah.

Sonali:
You know, and so how do these shakeouts work out at the end, you said, yes, there, there could be some number of companies that go to zero, but not everything will go to zero.

Victor:
Yeah.

Sonali:
Right. What do you think it means in terms of the recovery? Yeah. Going down the road here, because ultimately, it’s going to matter for returns…for the industry?

Victor Khosla (00:25:17 -> 00:27:16)
Sonali, I’ll give you a little twist to your question.

Sonali:
Sure.

Victor:
Right. So, what we found, uh, like, you know, you heard me describe what happened with the telecom bust

Sonali:
mm-hmm .

Victor:
Or the oil and gas bust in 2014, right?

Sonali:
Mm-hmm .

Victor:
Oil and gas was 10% of the high yield business. Oil and gas high yield spreads went to 2000, uh, on that 10% oil and just high yield at the same time, high yield, the broad high yield category, high yield spreads went up 500 basis points from 335 to 850 or so. Same time. The taint, which comes with this, it’s not like, oh, this part of the sector is having problems and the overall, and it’s only 20% and it’s okay. It’s not okay, right? We’ve seen this kind of time and time again where if you do get, if I’m right, you get those 20%, 25% cumulative defaults in software, the taint of that flows into everything else and creates what we believe is a really good opportunity and an opportunity for somebody like us. You know, we are all about, you know, it’s really hard to go invest in a business where you’re not sure if it’s going to zero or not. It’s a lot easier to go invest in a business which has just gotten blasted with the market sell off, created a little bit by software, a little bit by the oil and gas shock, which is coming through today. Much easier to go focus on all those real economy businesses, right? Because that, that is to us, that’s where our opportunity’s going to be over the next couple of years.

Sonali Basak (00:27:16 -> 00:27:18)
What does the next credit cycle look like?

Victor Khosla (00:27:20 -> 00:29:05)
Uh, it very different than the previous ones, right? now remember the previous ones and, uh, you know, whether it is 2002, you literally saw high yield spreads, or 2008, you see recessions, you see high yield spreads gap out, and then you kind of see all that kind of come to kind of rest after a year or two years, right? Of going through that down cycle things kind of stabilize. The, the new high yield cycle you are living right now. Right now, in, in the old days, if you, if you had everything going on, high yield spreads would be wider by two, 300 basis points. They haven’t budged, right? They have not budged.
the new high yield cycle barring a recession is what you’re living through kind of today, uh, supposedly decent overall markets, lots of problems under the surface in high yield, way more than pockets or anything like that. You, you look, all this kind of changes, you know, that paradigm I just described, it does change if the US gets into a recession, we are carrying so much tail risk today in these markets, right? and our base case is we manage all those tail risks. But, but, but I, but I, so I think what’s the new high yield market? You’re living it today, barring kind of a recession.

Sonali Basak (00:29:05 -> 00:29:11)
the pockets of trouble underneath, uh, overall broad healthy market. Yeah. And being cognizant about where those pockets are, uh,

Victor Khosla (00:29:12 -> 00:29:56)
Uh, in high yield credit software is 20%. That is 80% of other stuff , right? And a lot of the stuff which deals with the real economy, all those businesses I was describing problems, problems. Uh, a third of the high yield market is in Europe, deeper problems. Germany expected to be in a recession again, perhaps in the next quarter, uh, struggling with kind of higher energy prices once again, right. Deeper problems. So, so, uh, so I, I, you know, so the part where you and I probably you, you see every time you say pockets, I kind of flinch. This is no pocket .

Sonali Basak (00:29:56 -> 00:29:58)
There’s more, it’s quite widespread

Victor Khosla (00:29:59 -> 00:30:19)
Actually. Like, like a third of this stuff in Europe, right? Like, what do you, what do you have kind of coming there’s no magnificent seven in Europe. There’s no huge data center build out like what we are seeing here, at least yet in Europe, right? Think, think, think. There is think there’s a lot of stuff to kind of look at.

Sonali Basak (00:30:19 -> 00:30:37)
So, in closing, you know, I think the reason that it’s so interesting to see your view of the world and how you look at not pockets of trouble.

Victor:
Yeah.

Sonali:
Even widespread trouble in some, in some instances. In the end, what do you do about it, right? Because you’re a man that’s able to find opportunity in that dislocation.

Victor Khosla (00:30:38 -> 00:32:19)
We have a really good sense of our limitations, right? And what we are really distinctly good at. You know, when the, when the world gets overall really distressed, there are these five, 10, $20 billion capital structures which trade at distressed prices. That’s a world which a lot of people can do. A hundred plus people can do. 150 people can do, working on businesses, which are a billion dollars, 500 million, $2 billion, really getting your arms around the business, improving it, really making a difference with it. Buying assets, not just as a paper investor, improving the assets. The number of people who can do that has really shrunk. So, to our way of thinking, you know, in this kind of cycle, which is coming, which doesn’t feel like the liquid trading cycle, right? In this cycle for, for somebody like us, that opportunity set where there are, there used to be more people doing this 10 years ago than there are today. Today. We think there are just very, very few people with our kind of skills. That’s our focus. It’s to kind of in a disciplined way. Uh, and discipline is a word. You know, we, we, we, we, we don’t just say we, we do it well, right? In a disciplined way to make investments in these kind of places and, and work them out.

Sonali Basak (00:32:19 -> 00:32:29)
Victor, it’s been so lovely to have this conversation with you today. That is Victor Khosla. He is the founder and CIO of Strategic Value Partners. And you have been watching the Bridge by iCapital.

END