Private Credit
Global Direct Lending: Navigating Volatility, Seizing Opportunity
Bryan High joins the Streaming Income podcast to help put recent private credit headlines and market volatility into perspective.
Transcript
Greg: [00:00:00] Private credit has garnered a tremendous amount of media attention and market focus. In recent weeks. Artificial intelligence and its potential impact on software companies has of course been at the center of the storm, but how much of what's being written and talked about is actually signal and how much might just be noise.
Bryan: Of course we're seeing headlines about AI risk conflicts globally and, and we're ab absolutely taking all that into account. But really what matters is sticking to what we've always done, which is just fundamental core underwriting and building really diverse portfolios for our clients.
Greg: That was Bryan High head of Global Private Finance at Barings, and this is Streaming Income, a podcast from Barings.
I'm your host, Greg Campion. Coming up on today's show, Bryan High helps us make sense of this current period of volatility and what it means for long-term investors in direct lending strategies. Before we get into the conversation, remember you can follow streaming income on Apple [00:01:00] Podcasts, Spotify, and YouTube.
You can also follow bearings on LinkedIn and while you're there, make sure to subscribe to our LinkedIn newsletter where credit is due, where we aim to recognize value across the people and portfolios shaping credit markets today. With that, please enjoy this conversation with Bryan High.
All right, Bryan, welcome back to the podcast.
Bryan: Thanks for having me, Greg. Good to see you.
Greg: Yeah, good to have you here. It's been a while, uh, since you've been, uh, on the show. So I thought maybe we would start, um, with an overview kind of, of the platform that you oversee. I think. For folks who maybe, who are less familiar with you and our global private finance platform.
It would be interesting just to hear about the size and the scope of that business. And then we can get into all fun stuff around software and volatility and everything else. But let's start there.
Bryan: Sure. Uh, people call it lots of different things, but our moniker is Global Private Finance. That includes our direct lending business [00:02:00] sponsor focused.
Our capital solutions business, which has a little bit of opportunistic credit and specialty a, b, f in it. Those two businesses combine, uh, as well as our BDCs, uh, equal a little over 65 billion of, of commitments. Um, we've got over 125 people working on that team. Uh, and it spans, you know, a, a nice array of investment opportunities for our clients.
Greg: Yeah, great. Very global platform. We can talk about that. So a big presence in North America, Europe, uh, and apac. And, uh, I think that's helpful just to, to understand the, the, the kind of size of the o operation that we're talking about in the, in the. The perspective, I guess, that you and the team kind of have across that whole platform.
So, um, let's get into it. Um, you know, let's, let's, let's get into the, the kind of software ai, whole volatility thing, just right off that sa
Bryan: apocalypse.
Greg: Sa apocalypse. Yes. So, um, obviously no shortage of headlines, uh, at the moment. Um. Lots of worries about, you know, what the development of AI means for [00:03:00] software companies and what that means for private credit portfolios.
The headlines are coming fast and furious and we're seeing a lot of volatility in markets. Of course, now we, we have the added component on top of that as a new conflict in the Middle East, uh, that we're witnessing, kind of unfold before our eyes, and that is adding even more volatility, um, to the mix. So I guess the question I have for you is, uh, I'd be interested in hearing if you can kind of put this.
Recent, most recent period of volatility into, uh, more kind of historical context for us, um, given the number of cycles that you've seen in your career.
Bryan: Sure, yeah. I guess first of all, to acknowledge what you said about what's going on in the Middle East, just thoughts with our, uh, clients and colleagues there actually.
We're we're recording this not too long after the, the attacks over there. And, and, and I did have a call with Waleed, um, and he, he's working from home, seems to feel safe.
Greg: Mm-hmm.
Bryan: Uh, and, and feeling like he's in a good spot, but just hoping that that ends quickly and peacefully.
Greg: Yeah, that's right. Yeah.
[00:04:00] Waleed Zeel, of course, uh, heads up our operations, uh, in, in the Middle East. And, uh, you know, obviously the Middle East is a really important, uh, region for bearings from a business perspective, but I think kind of in times like this, you know, it's, there's more important things in business and investments and, um, you know, you, you think about people and you think about their families.
So very much, very much on our minds at the moment.
Bryan: Yeah. Leaning on the team, but. Getting to your question. I mean, in terms of, of of headlines, I think we, we should sort of put this in, uh, context of big macro volatility.
Greg: Mm-hmm.
Bryan: Uh, impacting a market. Um, you can think about trade wars, you can think about COVID, you can think about a rate crisis, the oil crisis, all these different events that have happened over the last decade plus, um.
And in each one of those, sure there was some issues in whatever particular sector and in some instances across the board when we talk about rates, um, impacting portfolios, uh, but, and, and none of [00:05:00] them did. It just completely wipe out an industry. And, and I would, I would make the argument that. We're, we're sort of, uh, in a similar boat as it relates to AI and, and software and, and in some instances, services businesses that we're invested in.
Um, it's been a part of our underwrite for, for a while, and we can talk about that if you want to, but, uh, certainly the acceleration of the technology is a. Making you think again about exactly what the competitive moat that each one of your portfolio companies has? I think it does expose weaker business models, but the entire sector to just completely turn over and default, it seems hyperbolic a little bit.
Mm-hmm. In terms of, mm-hmm. Maybe it sells newspapers, or I guess that means clicks these days. Yeah. Uh, on the internet. But, um, you know, at the end of the day, I, I, I still believe fundamental underwriting and good companies will come out of this potentially even stronger with the benefit of ai.
Greg: Mm-hmm.
Mm-hmm. It seems like there's a gap between, uh, what we're seeing in the headlines, and maybe it is to sell [00:06:00] newspapers or, or, or, you know, website views or whatever. But that, um, what you see in the headlines and then, you know, when you talk to people on the ground in the industry, kind of what the reality is.
Uh, there's some nuance lost there and I feel like. This isn't necessarily just, um, specific to what we're seeing in software right now. It's, it's maybe broader, you know, we saw, you know, first brand, a lot of reactions to first brands last year, for instance, and then there was some more nuance, um, to that story.
Is that, is that would consistent with how you're thinking about it?
Bryan: Yeah, I mean, I look if, if, if you. I think everybody wants to lump all of these, these headlines into, you know, something that is, is all correlated. Um, I would argue first brands, when you sort of peeled back the onion, a lot of that was syndicated debt.
Certainly there was some aspects of private credit, but, but you know, most of, uh, most of the risk was held by syndicated loan. Participants. Um, and so, [00:07:00] but, and it was driven by fraud. Uh, so I, I don't necessarily think that, you know, the narrative that's out there is what we're seeing in our book. Certainly, uh, when we think about the risk and the performance of the underlying assets in our portfolios, I do think, you know, it, it.
It's, it's great reading. Um, and, and, and you see these headlines sort of drive behavior at the underlying investor, um, depending on the type of investor, some of our larger, sophisticated institutional investors. That this isn't, you know, new news to them. Mm-hmm. They, they sort of understand the difference in underwriting, uh, with different managers.
But, um, you know, when you're, when you're a retail investor and you're reading headlines, uh, you know you're gonna start asking questions because you're not in those weeds. You're not paid to be in those weeds.
Greg: Mm-hmm. Mm-hmm. Yeah, that makes sense. Now, you talked about the underwrite. Talk to me a little bit about.
Um, how you and the team have thought about AI risk, uh, when you've underwritten software companies in the past, and maybe like how you feel about the exposure that Barings has today. [00:08:00]
Bryan: Yeah, I guess I'll start with from a sector perspective. We're, we're relatively underweight to what we see and, and some of the publicly available information of some of our peers.
Um, we've, we've always been relatively conservative, really across all sectors, but software included in that, so. We, we haven't built a business on, you know, annual recurring revenue loans, uh, or a RR loans. We we're, we're not, you know, 8, 9, 10 times deep in a capital structure, uh, in the loans that that, that we're involved in.
And, you know, as we think, as we've underwritten these deals, typically, you know, number one key risk ai and what does it mean? Again, I, I'll, I'll be the first one to tell you. Three years ago when we were talking about that, it doesn't feel the same as it does today in terms of what that risk profile looks like.
But you know, I, I, I think the way that we've underwritten the fact that all of our companies, uh, have some sort of competitive moat, whether that's. You know, on the data side or [00:09:00] something else, we feel, and we've, we've gone back and looked at 'em and underwritten them again. Uh, we feel really good about the underlying risk.
I actually think from a services side of the business, there may be, um. You know, a, a, a, a larger risk that AI could eliminate certain roles. Um, you know, whether that be in accounting or, or, or legal or something like that. Uh, but some of that's around adoption as well. So, you know, it, it's, it's really making sure that you're partner with the right sponsors, that you have the right capital structure, that you've thought about all those risks and that those businesses are positioned, uh, to sort of deal with whatever comes, uh, in, in the next couple of years as it relates to ai.
Greg: Yeah, that makes sense. I mean. I, I think that the concept of having some humility around this is, which it seems like you and the team really do, um, resonates with me because I think anyone trying to sit here today in 2026 and say, okay, this is exactly how AI is going to impact this industry. Right?
[00:10:00] Software happens to be the one really in focus right now, but like you're talking about some of these under industries and the reality is like. We all just don't know yet. Like, there we can, we can make really good, educated guesses around, you know, what's going to be disrupted, what's not. Where's this gonna be job growth, where there's gonna be job destruction, but they are, you know, somewhat guesses at the standpoint.
And so the, the, the idea of kind of sticking to your knitting, focusing on your traditional underwriting. Everything that you guys do in terms of diversification and um, uh, you know, really in depth credit underwriting, I think, uh, seems logical the, the way to handle it. One, one question I have for you is, you know, feels like for years now we've been talking about the next credit cycle, right?
So when does the credit cycle happen? Arguably, we haven't seen a real credit cycle since the GFC. Here we are today in 2026, and I don't know if you're prepared to answer this question or not, but is, [00:11:00] is AI the catalyst that kind of tips us over into seeing our actual credit cycle here?
Bryan: Probably every time I've come on this podcast, I've talked about how it feels like we're, we're, you know, towards the end of a credit cycle.
But, you know, um, the economy has, has sort of continued to hum along, I think, you know, whether or not. AI tips us into a credit cycle. I, I'm, I'm not sure, um, but, but what I am seeing and, and feeling I is, you know, you want to definitely be positioned in an appropriate way to the extent we are heading into that cycle and having a ton of exposure to the underlying consumer is probably not a great place to be, um, if that's where we're headed.
So again, constructing portfolios in a way that, um, you know. Has diversification not only by borrower, but by sector.
Greg: Mm-hmm.
Bryan: And thinking about your loan to value when you're underwriting these deals and you know, where your leverage metrics are and their ability to sort of service debt, um, in [00:12:00] a high interest rate environment.
I think all of those, uh, all of those things are, you know, just sort of core to what we do. Mm-hmm. And we, we underwrite every deal as if. We're gonna go through a cycle again, partnering, especially on the direct lending side where you're par dollars, you know, partnering with sponsors that you have seen go through tough times.
Whether that's idiosyncratic or a cycle is what you want to be doing in a time like this. Have a platform that has a track record. Mm-hmm. Has, um, has those relationships and has demonstrated their ability to, uh, you know. Recover as much as they can in those situations. And I think we have a really talented team and a lot of experience in various cycles, whether that be on the capital solution side or the direct lending side.
Greg: Mm-hmm. Mm-hmm. Okay. Yeah. I wanna get to the capital solutions in a minute, but let, lemme just ask you a little, a little bit more detail about the. Idea of portfolio construction here. So you're constructing portfolios. You said you're, you're kind of, your thought when you're underwriting credits is, is you're kind of [00:13:00] expecting to, to, for the investment to, to, you know, play out over the course of an entire cycle.
Um, so you're really thinking long term. You mentioned not wanting to have. Really exposure to the consumer, but just talk to me a little bit more about that. I think Barings probably has a reputation of being maybe a bit more conservative in terms of, you know, capital structures and leverage and things like that.
But just talk to me a little bit more about the idea of just building resilience into portfolios.
Bryan: Yeah. I think, you know, the, the simplest way to think about it, regardless of the geography that you're in, is. The, the, the more granular you can make a portfolio, the better. You're not gonna bat a thousand, nobody does.
There's gonna be something idiosyncratic or there's gonna be something cyclical that's gonna create issues within a portfolio, and you don't want any, any one specific issue. To drive the overall performance of your portfolio down. So it's, it's getting as granular as you can and, and finding as many good assets as you [00:14:00] can and thinking about each, each sector from what are the drivers and, and what are the potential issues that could push a sector or a company into stress or distress.
And then what are the levers that you can pull to ultimately get out on the backend if you don't have a sponsor that's supportive at the end of the day.
Greg: And so what are the sectors that you would avoid? No matter where, you know, no matter where we
Bryan: are. Yeah. I mean, I think most direct lenders say they, you know, restaurant retail.
Mm-hmm. Oil and gas, energy related, sort of commodity driven businesses. Those are the types of businesses that, that, in my opinion, don't really fit well going through a cycle. Mm-hmm. Um, and so those are, those are just industries, you know, on the direct lending side of the business that we, we tend to avoid.
Greg: Um, okay. And then diversification, which I think you've already kind of. Talked about, um, obviously hugely important, not wanting to have, you know, any large concentrated, um, allocations to any particular sectors.
Bryan: And I think that's, you know, easier said than done. It's, it's really difficult, particularly [00:15:00] in, in other geographies like Europe.
Um, you know, you see much more concentrated portfolios, but for bearings. We continue to have, you know, a hundred plus names in our portfolios, trying to make sure that, again, there's no one specific driver of performance within, within the book. It's driven by a consistent approach across a diverse number of, of borrowers.
Greg: Okay, now let me ask you this. So, if you take a more conservative approach through a cycle, and you're trying to avoid concentration risk in any given, um, any given sectors. Are you, um, at a competitive disadvantage ever? So meaning like, is bearings losing out on deals? Because let's take the last couple years, there's a ton of software deals in the market and, you know, maybe leverage is getting a bit more above where we're normally comfortable.
Do, are we, are we losing out on deals? And how does, how does that dynamic work?
Bryan: Um, are, are there deals that we could have in our portfolio that we don't? Yes. Um, and, and. We're okay with that. I think it's our job to make [00:16:00] sure that we're as patient capital as we can be. Obviously deploying in markets all the time because that's what our clients, it's a core allocation.
That's what they want us to do. But thinking about positioning those por portfolios appropriately for where we are in a given cycle. And again, for better or worse, you know, we're, we're. We're credit people, so we just believe around the corner is the next worst thing. Yeah. And we need to be prepared for that.
So that's sort of how we think about underwriting each one of these deals and trying to max out leverage to make sure that either A, we're deploying enough capital in a specific deal for it to make sense for the business side of what we do on our p and l. That's not necessarily the way that we think about it, because if we can perform well through a cycle.
We will survive that cycle and we will be stronger on the other side and there will be fewer competitors. And then yes, you'll see really attractive opportunities. We, we, we've seen that, you know, after COVID
Greg: mm-hmm.
Bryan: We saw that, uh, you know, a where you could invest at four times with six 50 over. There will be those times [00:17:00] again.
In the times where spreads are tighter and it's really competitive, you just need to stay disciplined so that you don't, um, wind up ruining your reputation so that when that next opportunity is there, you're still there to take advantage of it.
Greg: Mm-hmm. Mm-hmm. Uh, always looking at what could go wrong.
Credit investors, not, not necessarily the most fun people at. To have at parties, but, uh, good to have, uh, it's true. Investing your, uh, portfolio for you. Um, all right, so let's switch gears a little bit. I wanna talk a little bit about the, uh, kind of global landscape that we're seeing. So, Barings platform, as we kind of talked about upfront, uh, very global in nature, large teams on the ground in North America, Europe, and uh, apac.
Uh. Maybe before we talk a little bit about some of the specific opportunities in those, those regions, curious just what are, are there actual tangible benefits of having a global platform like that versus, for instance, being a regional player? I know you know, there's a lot of direct lenders that focus on one specific geography or one specific segment of the market.
Just talk a little bit [00:18:00] about that kind of concept of, of global.
Bryan: Sure. Yeah. I mean, I think the, the first thing that comes to mind, probably the easiest answer is relative value just. Thinking about where spreads are across the globe, where, um, you know, leverage levels are, are, are shaping up across the globe and being able to compare that in a setting with leaders talking about how we should be positioning portfolios and, and especially if we're thinking about a global mandate, where should we be allocating capital across the globe?
Um, you know, obviously that's very important. Mm-hmm. I think. You know, having 125 analysts instead of 45 analysts in one geography, those trends in software are true in, you know, the Nordics as they are and, you know, uh, the southern United States, it's, it's, it's, you know, all the same drivers and, and, and same sort of nuances that you would see in credit here in North America.
Will find its way into Europe and AsiaPac. And so, you know, being [00:19:00] able to sort of take lessons learned on credits here or sectors here or, or, you know, is, is super important. So that's, that's sort of the execution side of the tangible benefit, if you wanna think about it that way. Mm-hmm. The origination side is more and more sponsors are also thinking to themselves, where can I go find good value?
And sometimes that might not be in the US where there's a lot of lot of dry powder to put to work, or they have a portfolio company in the US and they want to expand globally.
Greg: Mm-hmm.
Bryan: And we can be that partner. Across the globe, Uhhuh. So if, if I own a, a sort of a, a platform here in North America, I wanna expand into Europe, there's an opportunity for me to go buy something there.
Chances are we can provide a financing solution for both sides of the pond in two different currencies for the exact same borrower. And not everybody can do that. I think that, that, that is relatively unique to our platform.
Greg: Mm-hmm. Yeah. Um, alright, let's talk a little bit about North America. So.
Obviously we're seeing a lot of the impact of the, all this rhetoric around software, uh, here [00:20:00] in in North America. Uh. Also have a big dynamic around, you know, retail money that's been, uh, raised in the asset class and seeing some volatility, uh, around there. So just talk to me a little bit about the, the competitive environment that you're seeing in North America and kind of what you're expecting in the months and years ahead.
Bryan: Yeah, I mean, if you look at. Where the North American market has come over the last five years. It's, it's, it's pretty amazing. But, you know, with that comes, you know, certain consequences. And you've seen the market expand into much larger businesses competing with the broadly syndicated market. You've seen, um, at that end of the spectrum, the, the, the spread premium compressed somewhat.
Mm-hmm. You've seen the terms and the documentation. So to merge a little bit more with what you see on the broadly syndicated side of the business. Um, but you know, that's, that's a, a function of the fact that all this money has been raised and it needs to be put to, to work in a relatively short amount of time.
Uh, you, you referenced some of the, the [00:21:00] noise and the market and the headlines around flows from the retail side. Sort of all this fear that's, that's taking place within that retail market. You've seen some redemptions take place in BDCs. Um, and I, and I think what that ultimately means for the North American market over time, I think retail will continue to exist.
It'll still be mm-hmm. The wealth channel will still be a, a, a good place for, you know, managers like ourselves to, to raise capital and put money to work in private credit. I just think that it could mean that they're. Uh, you know, from a spread perspective, there could be a lot of fits and starts, um, when everything's humming.
You know, it's sort of, uh, a relatively stable market, albeit competitive. Um, and then when things start to pull back, you may see that marginal buyer and the retail market drive spreads back up. And, and so it'll be interesting to, to sort of track how things price over the next couple of months, not just in the software.
Sector, for example, but across the market. Mm-hmm. Because [00:22:00] there'll be, um, fewer of those, of those marginal buyers in the market looking to put something to work in a given month because they just raised money in the retail channel.
Greg: Now, if that marginal buyer kind of is removed from the equation for a certain amount of time, w does that result in kind of a, a more rational market, so to speak, pricing wise?
And, and does that actually end up being an opportunity for managers like Barings?
Bryan: I think it, it is an opportunity. We're not solely driven by retail flows. We have, you know, over half of our business is, is built off a foundation of commingle fund and separately managed, managed accounts for institutional investors.
Um, we have, we have our BDC franchise, which, you know, is both institutional and retail in terms of our investor base, which makes up another 20% of the business. And the rest is, you know, uh, our, our sort of. Parent balance sheet as well as our CLO franchise, which continues to grow and is, is starting to issue in new geographies outside of North America, which, [00:23:00] um, you've, you've helped us sort of splash all around LinkedIn and other places.
So, so I think that that is, that having that stable capital base is a benefit to our platform to take advantage of. All the things we just talked about, where spreads may widen, where, you know, documentation is improved, where credit metrics are, are more conservative.
Greg: That makes sense. So yeah, if you have that really diverse capital base, even if retail pulls back, you don't need to necessarily pull back from the market if there's, if there's a chunk of opportunities.
Bryan: And that benefits our investors. It also benefits our, our sponsor relationships, because we're not in and out of the market. It's, you know. Deals take a while to close. You're not gonna see us change what we're saying, you know, in a, in a, in a two week period just because there were outflows from one of our vehicles,
Greg: for example.
Mm-hmm. Yeah. Yeah. Uh, that's kind of certainty of, of, uh, of, of capital that you're gonna be there through throughout the cycle. Um, I'm sure it's huge with sponsors. Um, alright, let's, let's, uh, let's shift gears. Talk a little bit about Europe for a second. So different market, [00:24:00] uh, different sort of. Structure and different competitive landscape.
Talk. Talk to me just a little bit about what you and the team are seeing in Europe today.
Bryan: Yeah, I think fundamentally it's, it's, um, it's just a different market. Most, most of the market is still traditional, you know, core middle market lending, although there are some larger cap deals that are starting to get done, and that's a growing part of, of the market.
Um. There are just fewer competitors that can take down an entire transaction in the European landscape. There are certainly participants in deals. Um, but in terms of the number of competitors that we see that can come in and say, we're gonna lead this deal, we can take the whole thing down more and more.
They want to club us together with a couple of lenders, um, you know, in, in a given deal. But the ability to actually speak for it, uh, is, is key in sort of winning a transaction. That market hasn't matured enough to a point where it's, it's as competitive as, as we have here in North America. Wealth is, you know, [00:25:00] starting to take hold there, um, as well.
But it, we're in the very early innings of that relative to what we've seen over the last five years here, here in North America. Um, you know, o other nuances I guess that I would point out as it relates to Europe versus North America, I think is, is around, you know, how you originate. Um. Being able to speak in, you know, whatever language that given country speaks
Greg: mm-hmm.
Bryan: Is, is important. Yeah. Your documentation in some instances is, is in French.
Greg: Mm-hmm. Mm-hmm.
Bryan: You better be able to, you know, speak and, and read French to, to effectively negotiate the documentation so it's a little bit more regional than what you would see here in North America, and therefore you sort of have to be able to both originate and execute in each one of those regions.
With, um, you know, a certain type of, of team. Mm-hmm. Uh, and so being able to be consistent across the region and approach I think is really important. But also, you know, [00:26:00] feel local, if that makes
Greg: sense. Yeah, yeah, yeah. Yeah. Same, same consistent approach globally, but you have to have that regional nuance and, um.
It's hard to, you know, originate these transactions, um, you know, in France, sitting in New York or even in London, right? You need the, the local teams in Paris, in, in Berlin, Frankfurt, and, and all these, uh, you know, um, locations around Europe. Um, so that makes a ton of sense. Um, all right, last one, Asia. Um.
Another different market, another set of competitive circumstances and, and market structure and all that. How, how are you and the team thinking about Asia today?
Bryan: Yeah, so we're, we're focused on the developed parts of Asia. Most of our business is based in Sydney, um, with some folks in Hong Kong as well, I think.
Having, uh, you know, an approach where we can, you know, lean on the, the legal in infrastructure, the jurisdictional, um, issues that are born out of Europe has, has allowed us to sort of [00:27:00] quickly grow in, in that market. And again, take a very consistent approach, um, in terms of the way that we underwrite the types of deals that we're looking for, the types of sponsors we wanna partner with.
Mm-hmm. That's just another arrow in our quiver again. Uh, if, if you, if you have a European business and you wanna expand in into Asia, we can, we can help you do that. Same with North America to Asia, all three in some instances. Uh, so I think the origination is global. Mm-hmm. And it can originate for. Any region, uh, and pockets of capital that we have across the platform.
Greg: Hmm. All right. So you talked a about, you know, looking at global relative value across regions. By the way, I should ask you, are there any of those regions that are jumping out today as particularly offering relative value?
Bryan: Yeah, I think there's still a premium, uh, from, from both a fee perspective and a spread per perspective in Europe.
And I would argue. Uh, that same spread premium exists in Asia-Pac and maybe slightly higher on the fee side in Asia-Pac. For, you know, the, given the given [00:28:00] transaction, Asia PACS is interesting, especially if you're focused in sort of Australia as, as one of your key jurisdictions. Most of the borrowers that are middle market, there are national champions.
They're large companies locally. So, you know, I would almost argue that the risk adjusted return of that region. Might even be more attractive than what we're seeing in, in, in Europe right now. But, you know, in general, I think those, those, you know, we're, we're seeing a lot of clients ask about, Hey, how can we get exposure to other places outside of North America?
And I think there's a good case to be made that, that you can pick up a little, a little premium in those geographies today.
Greg: So looking at, we're, we're talking about looking at, um, relative value across the globe from a direct lending standpoint, if you zoom out and you say, okay, let's look at relative value.
Across credit markets, full stop. Right. Including public and private credit market markets. Uh, you know, Barings obviously has a large global platform across public and private, including a $95 billion plus high [00:29:00] yield and CLO platform, one of the biggest in the business. Um, how does that affect how you and the team.
Kind of assess risks, find opportunities, curious kind of what some of the benefits are of being able to look across that whole entire credit spectrum?
Bryan: Yeah, I, that was a great question. I, I think, you know, I, earlier in my career, you know, I had a ton of exposure to that, to that franchise. And I think that the underwriting, uh, sort of.
Fundamentals that we have on the global private finance side mirror. What, uh, what we do on the, on the liquid side of the business too, obviously there are nuances, there's a lot of technicals and we're, we're purely focused on fundamentals on the global private finance side. You sort of gotta be in touch with where the technicals are on, on the, on the liquid side of the business.
I mean, we have a great team of, of analysts that do that. I think for us, it, we would be tone deaf if we didn't have this. Unbelievable resource that we could tap into and ultimately understand [00:30:00] where is risk being priced in the software market today based on all these headlines and how should we be thinking about the marginal next deal that comes in that might have some sort of AI risk relative to what, what an investor could get in in the liquid markets.
Um. We, we talk about the, the illiquid market typically being six to eight weeks behind from sort of a catching up as it relates to where things are pricing. Mm-hmm. And I think that has a lot to do with timing of closing of deals and when you've committed and all that type of stuff. Um, so you don't really see it hit the tape until a deal closes, but I think that that's an important.
Place for us to be thinking about pricing risk, thinking about how, um, your relative value across markets should be considered. And then you've got sector expertise. You know, Brad Lewis, who covers software, has been doing that for over a decade. He's very, very good at what he does. He's in the weeds. He knows everybody in the market.
He knows management teams, he knows sponsors that focus on that, both, you know, uh, at the lower [00:31:00] end and the upper end of the market. So just being able to sort of. Get in touch with him, compare notes on what we're seeing in our underlying portfolio companies, what he's hearing in the market. 'cause he lives it every day from both management teams, um, and industry experts is an invaluable resource that if it was just us mm-hmm on our, on our own, um, we wouldn't be able to, to take advantage of.
So I think that that is a, you know, again, a unique part of being. Part of a large platform, a global platform that sort of sees everything that's going on in the market.
Greg: Yeah. And of course we, we see credits migrated from public to, to private markets and, and, and vice versa. So you can kind of follow credits and management teams across that whole spectrum.
Uh, I want to talk about the, kind of the opposite end of. Spectrum from the public credit market and to what I think is kind of at the other end of the spectrum, which would be kind of highly customized, truly kind of bespoke. Structured Capital [00:32:00] solutions and that, and that's what we call a group called Capital Solutions.
Um, tell me about that. 'cause you're, you, as part of this global private finance platform, you're overseeing our Capital Solutions group as well. That's, that's under your umbrella. Tell me a little bit about that, how it's kind of, how you think about it, whether that's like a compliment to, to direct lending or how you're thinking about that business overall.
Bryan: Yeah. I, I do think about it as, as a. A compliment to, if you think about direct lending being a core allocation in, in, in portfolios these days for, for most institutional investors, this is sort of a satellite of that. So, you know, if you're, if you're building a book of, of private credit, I. The, the big chunk of it's probably gonna be direct lending.
Where else can I get private capital risk and return that is complimentary and a little less correlated to sponsor back, you know, LBOs, for example. Mm-hmm. Um. I, I think our capital solutions business is an interesting take on it in that a number of [00:33:00] platforms have that business. A lot of them, it just means junior capital.
Ours is, is about three-fourths of what we do is senior secured risk. Um, and we're, we're looking to sort of achieve. 250 to 500 basis points of a premium to what you would get in a direct lending. Mm-hmm. Deal. What is interesting risk adjusted return where we can put, um, you know, a structure around it to protect ourselves and deploy capital in a way that is, um.
Again, able to drive return. That's above and beyond what you can get in direct lending in a responsible way with a lot of structure. Uh, and, and again, that's why this business isn't necessarily as scalable as direct lending and why it's a satellite allocation. You're not gonna have a $50 billion fund that can do what I just described.
Mm-hmm. Mm-hmm. In, in a, in a. In a responsible manner. Um, but, you know, it's, it's evolved into more specialty a, BF financing specialty. Yeah.
Greg: I was gonna ask you, so this [00:34:00] is, this is both kind of corporate lending Yeah. As well as asset
Bryan: back. Yeah. Think about it as opportunistic credit to corporate issuers. Uh, and more and more.
A growing part of that book is, is sort of specialty asset backed finance, um, in, you know, more esoteric asset classes or financing specialty finance businesses. That's a, a. A very interesting part of the market that again, I think is, uh, sort of the next frontier mm-hmm. That an institutional investor could allocate to within private credit to generate a little bit different return and a little less correlated to what you already have in your book.
Greg: Okay. Okay. I'd love to go. I. Way deep with you down that rabbit hole. But I'm thinking maybe we'll do that in a separate podcast. Or maybe I'll bring Mike SALs on to, to go deep down that rabbit hole. Yeah. And talk all about that. But, um, and
Bryan: him in the hot seat.
Greg: That seems like a really interesting space right now.
Um, all right. Uh, I'm gonna bring this discussion to a conclusion here. Uh, I wanna ask you just a couple, um, finishing questions. One, what's clear to me is that the, the kind of disciplined [00:35:00] approach, the kind of global reach of the business. Across platform in insights, whether you're talking about, you know, across public and private, across the globe, et cetera.
It seems to be resonating because, um, your teams have, have had a lot of success raising capital, um, you know, even in the last two years alone. Talk to me about. What you think is driving that fundraising momentum?
Bryan: Yeah, look, I think, um, it's, it's a function of the team. Uh, we, we have a fantastic team that has demonstrated a consistent approach.
It's, it's, you know, driven results. Uh, we've been able to, um, work with, with work with our clients to create. In some, in some instances, bespoke, uh, mandates that meet their needs. Um, and then also we've been creative in terms of how we've, how we've wanted to partner with various institutions. And I think it's allowed us to, again, continue to be a.
Ever [00:36:00] present with our, with our sponsor relationships and, you know, uh, our, our various counterparty parties where we source deals. Um, and just continue to show up in a very consistent, you know, humble but thoughtful way, uh, and provide financing solutions. What we do isn't, isn't necessarily all that, uh, sexy, but, um, you know, people like working with people that they like working with and they wanna make sure that they can trust the capital providers.
And I think. The DNA of this institution and our parent company is, is, is exactly that and it's the type of capital partner that, um, a lot of institutions are looking for.
Greg: Mm-hmm. And do you think a lot of those institutions that we partner with, do you think, you know, I, I think a lot of them like us kind of take a long term through the cycle approach.
Are you, do you get the sense that they. Um, you know, they think of private credit and all the different flavors that we're discussing. Uh, talking about it, do you get the sense that they think about it as like a [00:37:00] really long-term core allocation? I mean the, the fundraising Yeah. Momentum would suggest so, but I'm just interested.
Bryan: Absolutely. I mean, yeah, this is now mainstream part of the portfolio. It's, it's, it's another element of fixed income where you can pick up a premium to, to. To what you can get in, in a more liquid asset class. I think it's here to stay. I think, um, you know, people wanna partner with scaled institutions. We happen to focus on the traditional middle market and one of the largest players in that, in, in that part of direct lending.
And I, and I think that gets us a lot of at bats. I think the fact that we're part of a large institution that can provide a number of different bespoke, um. Uh, sort of fund structures and or mandates to clients looking to partner with fewer, uh, asset managers. Again, is, is is sort of an enviable place for us to be talking to them just about direct lending, but also as part of a broader solution that Barings can offer [00:38:00] overall.
Greg: Yeah, makes sense. All right, last question. Uh, looking ahead, uh, over the next, let's say 12 months or at least through, through the rest of 26, what do you think investors should be keeping an eye on?
Bryan: I think it's gonna be really, I mean, you've already seen it, um, in some of the headlines that we were talking about, just the dispersion amongst managers.
Uh, so just watching performance and seeing how people behave and, and seeing, um, how. People deal with some of these headlines will be very interesting. But I think the more interesting thing that investors should be focused on is what's, what are those underlying portfolios actually doing? Um, how are they performing?
What, what are your non-accrual rates? How much pick do you have in your portfolio? Um, how, how are you dealing with issues that are needing to be restructured? What are the recoveries on those? Sometimes it takes years for all of that to play out, but mm-hmm. Frankly, our firm is built for this. Our parent company has been built for this for a very long time.
Mm-hmm.
Greg: Mm-hmm.
Bryan: Uh, and, and so [00:39:00] if, if we are heading into, um, some real credit cycle as a result of AI or a conflict or just, it's been 20 years,
Greg: yeah. Yeah. Probably a healthy thing for the market.
Bryan: I think so.
Greg: In the long run. Yeah. Okay. But, uh, I think as you point out, it's. You know, kind of to, to put a bow on this discussion, it probably is, is a lot less about the headlines and the sensationalism and it's more about, you know, pulling back the, the curtain and, and looking at the underlying portfolio and really understanding what you own and, and kind of sticking to your.
You're knitting, um, long term, even if it's not always super exciting. Yeah,
Bryan: exactly.
Greg: All right, Bryan. Uh, this has been awesome. Thanks for, uh, thanks for sharing some insights. I feel like we always get a really balanced, measured view from you, which I think is exactly the type of view you want, um, from someone operating in this asset class.
So I really appreciate it.
Bryan: Appreciate you having me on.
Greg: Thanks for listening to or watching this episode of Streaming Income. If you'd like to stay up to date on [00:40:00] our latest insights across alternative asset markets, including public and private credit, real assets, and more, please follow the show and leave us a review on your favorite podcast platform.
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Bryan: Of course we're seeing headlines about AI risk conflicts globally and, and we're ab absolutely taking all that into account. But really what matters is sticking to what we've always done, which is just fundamental core underwriting and building really diverse portfolios for our clients.
Greg: That was Bryan High head of Global Private Finance at Barings, and this is Streaming Income, a podcast from Barings.
I'm your host, Greg Campion. Coming up on today's show, Bryan High helps us make sense of this current period of volatility and what it means for long-term investors in direct lending strategies. Before we get into the conversation, remember you can follow streaming income on Apple [00:01:00] Podcasts, Spotify, and YouTube.
You can also follow bearings on LinkedIn and while you're there, make sure to subscribe to our LinkedIn newsletter where credit is due, where we aim to recognize value across the people and portfolios shaping credit markets today. With that, please enjoy this conversation with Bryan High.
All right, Bryan, welcome back to the podcast.
Bryan: Thanks for having me, Greg. Good to see you.
Greg: Yeah, good to have you here. It's been a while, uh, since you've been, uh, on the show. So I thought maybe we would start, um, with an overview kind of, of the platform that you oversee. I think. For folks who maybe, who are less familiar with you and our global private finance platform.
It would be interesting just to hear about the size and the scope of that business. And then we can get into all fun stuff around software and volatility and everything else. But let's start there.
Bryan: Sure. Uh, people call it lots of different things, but our moniker is Global Private Finance. That includes our direct lending business [00:02:00] sponsor focused.
Our capital solutions business, which has a little bit of opportunistic credit and specialty a, b, f in it. Those two businesses combine, uh, as well as our BDCs, uh, equal a little over 65 billion of, of commitments. Um, we've got over 125 people working on that team. Uh, and it spans, you know, a, a nice array of investment opportunities for our clients.
Greg: Yeah, great. Very global platform. We can talk about that. So a big presence in North America, Europe, uh, and apac. And, uh, I think that's helpful just to, to understand the, the, the kind of size of the o operation that we're talking about in the, in the. The perspective, I guess, that you and the team kind of have across that whole platform.
So, um, let's get into it. Um, you know, let's, let's, let's get into the, the kind of software ai, whole volatility thing, just right off that sa
Bryan: apocalypse.
Greg: Sa apocalypse. Yes. So, um, obviously no shortage of headlines, uh, at the moment. Um. Lots of worries about, you know, what the development of AI means for [00:03:00] software companies and what that means for private credit portfolios.
The headlines are coming fast and furious and we're seeing a lot of volatility in markets. Of course, now we, we have the added component on top of that as a new conflict in the Middle East, uh, that we're witnessing, kind of unfold before our eyes, and that is adding even more volatility, um, to the mix. So I guess the question I have for you is, uh, I'd be interested in hearing if you can kind of put this.
Recent, most recent period of volatility into, uh, more kind of historical context for us, um, given the number of cycles that you've seen in your career.
Bryan: Sure, yeah. I guess first of all, to acknowledge what you said about what's going on in the Middle East, just thoughts with our, uh, clients and colleagues there actually.
We're we're recording this not too long after the, the attacks over there. And, and, and I did have a call with Waleed, um, and he, he's working from home, seems to feel safe.
Greg: Mm-hmm.
Bryan: Uh, and, and feeling like he's in a good spot, but just hoping that that ends quickly and peacefully.
Greg: Yeah, that's right. Yeah.
[00:04:00] Waleed Zeel, of course, uh, heads up our operations, uh, in, in the Middle East. And, uh, you know, obviously the Middle East is a really important, uh, region for bearings from a business perspective, but I think kind of in times like this, you know, it's, there's more important things in business and investments and, um, you know, you, you think about people and you think about their families.
So very much, very much on our minds at the moment.
Bryan: Yeah. Leaning on the team, but. Getting to your question. I mean, in terms of, of of headlines, I think we, we should sort of put this in, uh, context of big macro volatility.
Greg: Mm-hmm.
Bryan: Uh, impacting a market. Um, you can think about trade wars, you can think about COVID, you can think about a rate crisis, the oil crisis, all these different events that have happened over the last decade plus, um.
And in each one of those, sure there was some issues in whatever particular sector and in some instances across the board when we talk about rates, um, impacting portfolios, uh, but, and, and none of [00:05:00] them did. It just completely wipe out an industry. And, and I would, I would make the argument that. We're, we're sort of, uh, in a similar boat as it relates to AI and, and software and, and in some instances, services businesses that we're invested in.
Um, it's been a part of our underwrite for, for a while, and we can talk about that if you want to, but, uh, certainly the acceleration of the technology is a. Making you think again about exactly what the competitive moat that each one of your portfolio companies has? I think it does expose weaker business models, but the entire sector to just completely turn over and default, it seems hyperbolic a little bit.
Mm-hmm. In terms of, mm-hmm. Maybe it sells newspapers, or I guess that means clicks these days. Yeah. Uh, on the internet. But, um, you know, at the end of the day, I, I, I still believe fundamental underwriting and good companies will come out of this potentially even stronger with the benefit of ai.
Greg: Mm-hmm.
Mm-hmm. It seems like there's a gap between, uh, what we're seeing in the headlines, and maybe it is to sell [00:06:00] newspapers or, or, or, you know, website views or whatever. But that, um, what you see in the headlines and then, you know, when you talk to people on the ground in the industry, kind of what the reality is.
Uh, there's some nuance lost there and I feel like. This isn't necessarily just, um, specific to what we're seeing in software right now. It's, it's maybe broader, you know, we saw, you know, first brand, a lot of reactions to first brands last year, for instance, and then there was some more nuance, um, to that story.
Is that, is that would consistent with how you're thinking about it?
Bryan: Yeah, I mean, I look if, if, if you. I think everybody wants to lump all of these, these headlines into, you know, something that is, is all correlated. Um, I would argue first brands, when you sort of peeled back the onion, a lot of that was syndicated debt.
Certainly there was some aspects of private credit, but, but you know, most of, uh, most of the risk was held by syndicated loan. Participants. Um, and so, [00:07:00] but, and it was driven by fraud. Uh, so I, I don't necessarily think that, you know, the narrative that's out there is what we're seeing in our book. Certainly, uh, when we think about the risk and the performance of the underlying assets in our portfolios, I do think, you know, it, it.
It's, it's great reading. Um, and, and, and you see these headlines sort of drive behavior at the underlying investor, um, depending on the type of investor, some of our larger, sophisticated institutional investors. That this isn't, you know, new news to them. Mm-hmm. They, they sort of understand the difference in underwriting, uh, with different managers.
But, um, you know, when you're, when you're a retail investor and you're reading headlines, uh, you know you're gonna start asking questions because you're not in those weeds. You're not paid to be in those weeds.
Greg: Mm-hmm. Mm-hmm. Yeah, that makes sense. Now, you talked about the underwrite. Talk to me a little bit about.
Um, how you and the team have thought about AI risk, uh, when you've underwritten software companies in the past, and maybe like how you feel about the exposure that Barings has today. [00:08:00]
Bryan: Yeah, I guess I'll start with from a sector perspective. We're, we're relatively underweight to what we see and, and some of the publicly available information of some of our peers.
Um, we've, we've always been relatively conservative, really across all sectors, but software included in that, so. We, we haven't built a business on, you know, annual recurring revenue loans, uh, or a RR loans. We we're, we're not, you know, 8, 9, 10 times deep in a capital structure, uh, in the loans that that, that we're involved in.
And, you know, as we think, as we've underwritten these deals, typically, you know, number one key risk ai and what does it mean? Again, I, I'll, I'll be the first one to tell you. Three years ago when we were talking about that, it doesn't feel the same as it does today in terms of what that risk profile looks like.
But you know, I, I, I think the way that we've underwritten the fact that all of our companies, uh, have some sort of competitive moat, whether that's. You know, on the data side or [00:09:00] something else, we feel, and we've, we've gone back and looked at 'em and underwritten them again. Uh, we feel really good about the underlying risk.
I actually think from a services side of the business, there may be, um. You know, a, a, a, a larger risk that AI could eliminate certain roles. Um, you know, whether that be in accounting or, or, or legal or something like that. Uh, but some of that's around adoption as well. So, you know, it, it's, it's really making sure that you're partner with the right sponsors, that you have the right capital structure, that you've thought about all those risks and that those businesses are positioned, uh, to sort of deal with whatever comes, uh, in, in the next couple of years as it relates to ai.
Greg: Yeah, that makes sense. I mean. I, I think that the concept of having some humility around this is, which it seems like you and the team really do, um, resonates with me because I think anyone trying to sit here today in 2026 and say, okay, this is exactly how AI is going to impact this industry. Right?
[00:10:00] Software happens to be the one really in focus right now, but like you're talking about some of these under industries and the reality is like. We all just don't know yet. Like, there we can, we can make really good, educated guesses around, you know, what's going to be disrupted, what's not. Where's this gonna be job growth, where there's gonna be job destruction, but they are, you know, somewhat guesses at the standpoint.
And so the, the, the idea of kind of sticking to your knitting, focusing on your traditional underwriting. Everything that you guys do in terms of diversification and um, uh, you know, really in depth credit underwriting, I think, uh, seems logical the, the way to handle it. One, one question I have for you is, you know, feels like for years now we've been talking about the next credit cycle, right?
So when does the credit cycle happen? Arguably, we haven't seen a real credit cycle since the GFC. Here we are today in 2026, and I don't know if you're prepared to answer this question or not, but is, [00:11:00] is AI the catalyst that kind of tips us over into seeing our actual credit cycle here?
Bryan: Probably every time I've come on this podcast, I've talked about how it feels like we're, we're, you know, towards the end of a credit cycle.
But, you know, um, the economy has, has sort of continued to hum along, I think, you know, whether or not. AI tips us into a credit cycle. I, I'm, I'm not sure, um, but, but what I am seeing and, and feeling I is, you know, you want to definitely be positioned in an appropriate way to the extent we are heading into that cycle and having a ton of exposure to the underlying consumer is probably not a great place to be, um, if that's where we're headed.
So again, constructing portfolios in a way that, um, you know. Has diversification not only by borrower, but by sector.
Greg: Mm-hmm.
Bryan: And thinking about your loan to value when you're underwriting these deals and you know, where your leverage metrics are and their ability to sort of service debt, um, in [00:12:00] a high interest rate environment.
I think all of those, uh, all of those things are, you know, just sort of core to what we do. Mm-hmm. And we, we underwrite every deal as if. We're gonna go through a cycle again, partnering, especially on the direct lending side where you're par dollars, you know, partnering with sponsors that you have seen go through tough times.
Whether that's idiosyncratic or a cycle is what you want to be doing in a time like this. Have a platform that has a track record. Mm-hmm. Has, um, has those relationships and has demonstrated their ability to, uh, you know. Recover as much as they can in those situations. And I think we have a really talented team and a lot of experience in various cycles, whether that be on the capital solution side or the direct lending side.
Greg: Mm-hmm. Mm-hmm. Okay. Yeah. I wanna get to the capital solutions in a minute, but let, lemme just ask you a little, a little bit more detail about the. Idea of portfolio construction here. So you're constructing portfolios. You said you're, you're kind of, your thought when you're underwriting credits is, is you're kind of [00:13:00] expecting to, to, for the investment to, to, you know, play out over the course of an entire cycle.
Um, so you're really thinking long term. You mentioned not wanting to have. Really exposure to the consumer, but just talk to me a little bit more about that. I think Barings probably has a reputation of being maybe a bit more conservative in terms of, you know, capital structures and leverage and things like that.
But just talk to me a little bit more about the idea of just building resilience into portfolios.
Bryan: Yeah. I think, you know, the, the simplest way to think about it, regardless of the geography that you're in, is. The, the, the more granular you can make a portfolio, the better. You're not gonna bat a thousand, nobody does.
There's gonna be something idiosyncratic or there's gonna be something cyclical that's gonna create issues within a portfolio, and you don't want any, any one specific issue. To drive the overall performance of your portfolio down. So it's, it's getting as granular as you can and, and finding as many good assets as you [00:14:00] can and thinking about each, each sector from what are the drivers and, and what are the potential issues that could push a sector or a company into stress or distress.
And then what are the levers that you can pull to ultimately get out on the backend if you don't have a sponsor that's supportive at the end of the day.
Greg: And so what are the sectors that you would avoid? No matter where, you know, no matter where we
Bryan: are. Yeah. I mean, I think most direct lenders say they, you know, restaurant retail.
Mm-hmm. Oil and gas, energy related, sort of commodity driven businesses. Those are the types of businesses that, that, in my opinion, don't really fit well going through a cycle. Mm-hmm. Um, and so those are, those are just industries, you know, on the direct lending side of the business that we, we tend to avoid.
Greg: Um, okay. And then diversification, which I think you've already kind of. Talked about, um, obviously hugely important, not wanting to have, you know, any large concentrated, um, allocations to any particular sectors.
Bryan: And I think that's, you know, easier said than done. It's, it's really difficult, particularly [00:15:00] in, in other geographies like Europe.
Um, you know, you see much more concentrated portfolios, but for bearings. We continue to have, you know, a hundred plus names in our portfolios, trying to make sure that, again, there's no one specific driver of performance within, within the book. It's driven by a consistent approach across a diverse number of, of borrowers.
Greg: Okay, now let me ask you this. So, if you take a more conservative approach through a cycle, and you're trying to avoid concentration risk in any given, um, any given sectors. Are you, um, at a competitive disadvantage ever? So meaning like, is bearings losing out on deals? Because let's take the last couple years, there's a ton of software deals in the market and, you know, maybe leverage is getting a bit more above where we're normally comfortable.
Do, are we, are we losing out on deals? And how does, how does that dynamic work?
Bryan: Um, are, are there deals that we could have in our portfolio that we don't? Yes. Um, and, and. We're okay with that. I think it's our job to make [00:16:00] sure that we're as patient capital as we can be. Obviously deploying in markets all the time because that's what our clients, it's a core allocation.
That's what they want us to do. But thinking about positioning those por portfolios appropriately for where we are in a given cycle. And again, for better or worse, you know, we're, we're. We're credit people, so we just believe around the corner is the next worst thing. Yeah. And we need to be prepared for that.
So that's sort of how we think about underwriting each one of these deals and trying to max out leverage to make sure that either A, we're deploying enough capital in a specific deal for it to make sense for the business side of what we do on our p and l. That's not necessarily the way that we think about it, because if we can perform well through a cycle.
We will survive that cycle and we will be stronger on the other side and there will be fewer competitors. And then yes, you'll see really attractive opportunities. We, we, we've seen that, you know, after COVID
Greg: mm-hmm.
Bryan: We saw that, uh, you know, a where you could invest at four times with six 50 over. There will be those times [00:17:00] again.
In the times where spreads are tighter and it's really competitive, you just need to stay disciplined so that you don't, um, wind up ruining your reputation so that when that next opportunity is there, you're still there to take advantage of it.
Greg: Mm-hmm. Mm-hmm. Uh, always looking at what could go wrong.
Credit investors, not, not necessarily the most fun people at. To have at parties, but, uh, good to have, uh, it's true. Investing your, uh, portfolio for you. Um, all right, so let's switch gears a little bit. I wanna talk a little bit about the, uh, kind of global landscape that we're seeing. So, Barings platform, as we kind of talked about upfront, uh, very global in nature, large teams on the ground in North America, Europe, and uh, apac.
Uh. Maybe before we talk a little bit about some of the specific opportunities in those, those regions, curious just what are, are there actual tangible benefits of having a global platform like that versus, for instance, being a regional player? I know you know, there's a lot of direct lenders that focus on one specific geography or one specific segment of the market.
Just talk a little bit [00:18:00] about that kind of concept of, of global.
Bryan: Sure. Yeah. I mean, I think the, the first thing that comes to mind, probably the easiest answer is relative value just. Thinking about where spreads are across the globe, where, um, you know, leverage levels are, are, are shaping up across the globe and being able to compare that in a setting with leaders talking about how we should be positioning portfolios and, and especially if we're thinking about a global mandate, where should we be allocating capital across the globe?
Um, you know, obviously that's very important. Mm-hmm. I think. You know, having 125 analysts instead of 45 analysts in one geography, those trends in software are true in, you know, the Nordics as they are and, you know, uh, the southern United States, it's, it's, it's, you know, all the same drivers and, and, and same sort of nuances that you would see in credit here in North America.
Will find its way into Europe and AsiaPac. And so, you know, being [00:19:00] able to sort of take lessons learned on credits here or sectors here or, or, you know, is, is super important. So that's, that's sort of the execution side of the tangible benefit, if you wanna think about it that way. Mm-hmm. The origination side is more and more sponsors are also thinking to themselves, where can I go find good value?
And sometimes that might not be in the US where there's a lot of lot of dry powder to put to work, or they have a portfolio company in the US and they want to expand globally.
Greg: Mm-hmm.
Bryan: And we can be that partner. Across the globe, Uhhuh. So if, if I own a, a sort of a, a platform here in North America, I wanna expand into Europe, there's an opportunity for me to go buy something there.
Chances are we can provide a financing solution for both sides of the pond in two different currencies for the exact same borrower. And not everybody can do that. I think that, that, that is relatively unique to our platform.
Greg: Mm-hmm. Yeah. Um, alright, let's talk a little bit about North America. So.
Obviously we're seeing a lot of the impact of the, all this rhetoric around software, uh, here [00:20:00] in in North America. Uh. Also have a big dynamic around, you know, retail money that's been, uh, raised in the asset class and seeing some volatility, uh, around there. So just talk to me a little bit about the, the competitive environment that you're seeing in North America and kind of what you're expecting in the months and years ahead.
Bryan: Yeah, I mean, if you look at. Where the North American market has come over the last five years. It's, it's, it's pretty amazing. But, you know, with that comes, you know, certain consequences. And you've seen the market expand into much larger businesses competing with the broadly syndicated market. You've seen, um, at that end of the spectrum, the, the, the spread premium compressed somewhat.
Mm-hmm. You've seen the terms and the documentation. So to merge a little bit more with what you see on the broadly syndicated side of the business. Um, but you know, that's, that's a, a function of the fact that all this money has been raised and it needs to be put to, to work in a relatively short amount of time.
Uh, you, you referenced some of the, the [00:21:00] noise and the market and the headlines around flows from the retail side. Sort of all this fear that's, that's taking place within that retail market. You've seen some redemptions take place in BDCs. Um, and I, and I think what that ultimately means for the North American market over time, I think retail will continue to exist.
It'll still be mm-hmm. The wealth channel will still be a, a, a good place for, you know, managers like ourselves to, to raise capital and put money to work in private credit. I just think that it could mean that they're. Uh, you know, from a spread perspective, there could be a lot of fits and starts, um, when everything's humming.
You know, it's sort of, uh, a relatively stable market, albeit competitive. Um, and then when things start to pull back, you may see that marginal buyer and the retail market drive spreads back up. And, and so it'll be interesting to, to sort of track how things price over the next couple of months, not just in the software.
Sector, for example, but across the market. Mm-hmm. Because [00:22:00] there'll be, um, fewer of those, of those marginal buyers in the market looking to put something to work in a given month because they just raised money in the retail channel.
Greg: Now, if that marginal buyer kind of is removed from the equation for a certain amount of time, w does that result in kind of a, a more rational market, so to speak, pricing wise?
And, and does that actually end up being an opportunity for managers like Barings?
Bryan: I think it, it is an opportunity. We're not solely driven by retail flows. We have, you know, over half of our business is, is built off a foundation of commingle fund and separately managed, managed accounts for institutional investors.
Um, we have, we have our BDC franchise, which, you know, is both institutional and retail in terms of our investor base, which makes up another 20% of the business. And the rest is, you know, uh, our, our sort of. Parent balance sheet as well as our CLO franchise, which continues to grow and is, is starting to issue in new geographies outside of North America, which, [00:23:00] um, you've, you've helped us sort of splash all around LinkedIn and other places.
So, so I think that that is, that having that stable capital base is a benefit to our platform to take advantage of. All the things we just talked about, where spreads may widen, where, you know, documentation is improved, where credit metrics are, are more conservative.
Greg: That makes sense. So yeah, if you have that really diverse capital base, even if retail pulls back, you don't need to necessarily pull back from the market if there's, if there's a chunk of opportunities.
Bryan: And that benefits our investors. It also benefits our, our sponsor relationships, because we're not in and out of the market. It's, you know. Deals take a while to close. You're not gonna see us change what we're saying, you know, in a, in a, in a two week period just because there were outflows from one of our vehicles,
Greg: for example.
Mm-hmm. Yeah. Yeah. Uh, that's kind of certainty of, of, uh, of, of capital that you're gonna be there through throughout the cycle. Um, I'm sure it's huge with sponsors. Um, alright, let's, let's, uh, let's shift gears. Talk a little bit about Europe for a second. So different market, [00:24:00] uh, different sort of. Structure and different competitive landscape.
Talk. Talk to me just a little bit about what you and the team are seeing in Europe today.
Bryan: Yeah, I think fundamentally it's, it's, um, it's just a different market. Most, most of the market is still traditional, you know, core middle market lending, although there are some larger cap deals that are starting to get done, and that's a growing part of, of the market.
Um. There are just fewer competitors that can take down an entire transaction in the European landscape. There are certainly participants in deals. Um, but in terms of the number of competitors that we see that can come in and say, we're gonna lead this deal, we can take the whole thing down more and more.
They want to club us together with a couple of lenders, um, you know, in, in a given deal. But the ability to actually speak for it, uh, is, is key in sort of winning a transaction. That market hasn't matured enough to a point where it's, it's as competitive as, as we have here in North America. Wealth is, you know, [00:25:00] starting to take hold there, um, as well.
But it, we're in the very early innings of that relative to what we've seen over the last five years here, here in North America. Um, you know, o other nuances I guess that I would point out as it relates to Europe versus North America, I think is, is around, you know, how you originate. Um. Being able to speak in, you know, whatever language that given country speaks
Greg: mm-hmm.
Bryan: Is, is important. Yeah. Your documentation in some instances is, is in French.
Greg: Mm-hmm. Mm-hmm.
Bryan: You better be able to, you know, speak and, and read French to, to effectively negotiate the documentation so it's a little bit more regional than what you would see here in North America, and therefore you sort of have to be able to both originate and execute in each one of those regions.
With, um, you know, a certain type of, of team. Mm-hmm. Uh, and so being able to be consistent across the region and approach I think is really important. But also, you know, [00:26:00] feel local, if that makes
Greg: sense. Yeah, yeah, yeah. Yeah. Same, same consistent approach globally, but you have to have that regional nuance and, um.
It's hard to, you know, originate these transactions, um, you know, in France, sitting in New York or even in London, right? You need the, the local teams in Paris, in, in Berlin, Frankfurt, and, and all these, uh, you know, um, locations around Europe. Um, so that makes a ton of sense. Um, all right, last one, Asia. Um.
Another different market, another set of competitive circumstances and, and market structure and all that. How, how are you and the team thinking about Asia today?
Bryan: Yeah, so we're, we're focused on the developed parts of Asia. Most of our business is based in Sydney, um, with some folks in Hong Kong as well, I think.
Having, uh, you know, an approach where we can, you know, lean on the, the legal in infrastructure, the jurisdictional, um, issues that are born out of Europe has, has allowed us to sort of [00:27:00] quickly grow in, in that market. And again, take a very consistent approach, um, in terms of the way that we underwrite the types of deals that we're looking for, the types of sponsors we wanna partner with.
Mm-hmm. That's just another arrow in our quiver again. Uh, if, if you, if you have a European business and you wanna expand in into Asia, we can, we can help you do that. Same with North America to Asia, all three in some instances. Uh, so I think the origination is global. Mm-hmm. And it can originate for. Any region, uh, and pockets of capital that we have across the platform.
Greg: Hmm. All right. So you talked a about, you know, looking at global relative value across regions. By the way, I should ask you, are there any of those regions that are jumping out today as particularly offering relative value?
Bryan: Yeah, I think there's still a premium, uh, from, from both a fee perspective and a spread per perspective in Europe.
And I would argue. Uh, that same spread premium exists in Asia-Pac and maybe slightly higher on the fee side in Asia-Pac. For, you know, the, given the given [00:28:00] transaction, Asia PACS is interesting, especially if you're focused in sort of Australia as, as one of your key jurisdictions. Most of the borrowers that are middle market, there are national champions.
They're large companies locally. So, you know, I would almost argue that the risk adjusted return of that region. Might even be more attractive than what we're seeing in, in, in Europe right now. But, you know, in general, I think those, those, you know, we're, we're seeing a lot of clients ask about, Hey, how can we get exposure to other places outside of North America?
And I think there's a good case to be made that, that you can pick up a little, a little premium in those geographies today.
Greg: So looking at, we're, we're talking about looking at, um, relative value across the globe from a direct lending standpoint, if you zoom out and you say, okay, let's look at relative value.
Across credit markets, full stop. Right. Including public and private credit market markets. Uh, you know, Barings obviously has a large global platform across public and private, including a $95 billion plus high [00:29:00] yield and CLO platform, one of the biggest in the business. Um, how does that affect how you and the team.
Kind of assess risks, find opportunities, curious kind of what some of the benefits are of being able to look across that whole entire credit spectrum?
Bryan: Yeah, I, that was a great question. I, I think, you know, I, earlier in my career, you know, I had a ton of exposure to that, to that franchise. And I think that the underwriting, uh, sort of.
Fundamentals that we have on the global private finance side mirror. What, uh, what we do on the, on the liquid side of the business too, obviously there are nuances, there's a lot of technicals and we're, we're purely focused on fundamentals on the global private finance side. You sort of gotta be in touch with where the technicals are on, on the, on the liquid side of the business.
I mean, we have a great team of, of analysts that do that. I think for us, it, we would be tone deaf if we didn't have this. Unbelievable resource that we could tap into and ultimately understand [00:30:00] where is risk being priced in the software market today based on all these headlines and how should we be thinking about the marginal next deal that comes in that might have some sort of AI risk relative to what, what an investor could get in in the liquid markets.
Um. We, we talk about the, the illiquid market typically being six to eight weeks behind from sort of a catching up as it relates to where things are pricing. Mm-hmm. And I think that has a lot to do with timing of closing of deals and when you've committed and all that type of stuff. Um, so you don't really see it hit the tape until a deal closes, but I think that that's an important.
Place for us to be thinking about pricing risk, thinking about how, um, your relative value across markets should be considered. And then you've got sector expertise. You know, Brad Lewis, who covers software, has been doing that for over a decade. He's very, very good at what he does. He's in the weeds. He knows everybody in the market.
He knows management teams, he knows sponsors that focus on that, both, you know, uh, at the lower [00:31:00] end and the upper end of the market. So just being able to sort of. Get in touch with him, compare notes on what we're seeing in our underlying portfolio companies, what he's hearing in the market. 'cause he lives it every day from both management teams, um, and industry experts is an invaluable resource that if it was just us mm-hmm on our, on our own, um, we wouldn't be able to, to take advantage of.
So I think that that is a, you know, again, a unique part of being. Part of a large platform, a global platform that sort of sees everything that's going on in the market.
Greg: Yeah. And of course we, we see credits migrated from public to, to private markets and, and, and vice versa. So you can kind of follow credits and management teams across that whole spectrum.
Uh, I want to talk about the, kind of the opposite end of. Spectrum from the public credit market and to what I think is kind of at the other end of the spectrum, which would be kind of highly customized, truly kind of bespoke. Structured Capital [00:32:00] solutions and that, and that's what we call a group called Capital Solutions.
Um, tell me about that. 'cause you're, you, as part of this global private finance platform, you're overseeing our Capital Solutions group as well. That's, that's under your umbrella. Tell me a little bit about that, how it's kind of, how you think about it, whether that's like a compliment to, to direct lending or how you're thinking about that business overall.
Bryan: Yeah. I, I do think about it as, as a. A compliment to, if you think about direct lending being a core allocation in, in, in portfolios these days for, for most institutional investors, this is sort of a satellite of that. So, you know, if you're, if you're building a book of, of private credit, I. The, the big chunk of it's probably gonna be direct lending.
Where else can I get private capital risk and return that is complimentary and a little less correlated to sponsor back, you know, LBOs, for example. Mm-hmm. Um. I, I think our capital solutions business is an interesting take on it in that a number of [00:33:00] platforms have that business. A lot of them, it just means junior capital.
Ours is, is about three-fourths of what we do is senior secured risk. Um, and we're, we're looking to sort of achieve. 250 to 500 basis points of a premium to what you would get in a direct lending. Mm-hmm. Deal. What is interesting risk adjusted return where we can put, um, you know, a structure around it to protect ourselves and deploy capital in a way that is, um.
Again, able to drive return. That's above and beyond what you can get in direct lending in a responsible way with a lot of structure. Uh, and, and again, that's why this business isn't necessarily as scalable as direct lending and why it's a satellite allocation. You're not gonna have a $50 billion fund that can do what I just described.
Mm-hmm. Mm-hmm. In, in a, in a. In a responsible manner. Um, but, you know, it's, it's evolved into more specialty a, BF financing specialty. Yeah.
Greg: I was gonna ask you, so this [00:34:00] is, this is both kind of corporate lending Yeah. As well as asset
Bryan: back. Yeah. Think about it as opportunistic credit to corporate issuers. Uh, and more and more.
A growing part of that book is, is sort of specialty asset backed finance, um, in, you know, more esoteric asset classes or financing specialty finance businesses. That's a, a. A very interesting part of the market that again, I think is, uh, sort of the next frontier mm-hmm. That an institutional investor could allocate to within private credit to generate a little bit different return and a little less correlated to what you already have in your book.
Greg: Okay. Okay. I'd love to go. I. Way deep with you down that rabbit hole. But I'm thinking maybe we'll do that in a separate podcast. Or maybe I'll bring Mike SALs on to, to go deep down that rabbit hole. Yeah. And talk all about that. But, um, and
Bryan: him in the hot seat.
Greg: That seems like a really interesting space right now.
Um, all right. Uh, I'm gonna bring this discussion to a conclusion here. Uh, I wanna ask you just a couple, um, finishing questions. One, what's clear to me is that the, the kind of disciplined [00:35:00] approach, the kind of global reach of the business. Across platform in insights, whether you're talking about, you know, across public and private, across the globe, et cetera.
It seems to be resonating because, um, your teams have, have had a lot of success raising capital, um, you know, even in the last two years alone. Talk to me about. What you think is driving that fundraising momentum?
Bryan: Yeah, look, I think, um, it's, it's a function of the team. Uh, we, we have a fantastic team that has demonstrated a consistent approach.
It's, it's, you know, driven results. Uh, we've been able to, um, work with, with work with our clients to create. In some, in some instances, bespoke, uh, mandates that meet their needs. Um, and then also we've been creative in terms of how we've, how we've wanted to partner with various institutions. And I think it's allowed us to, again, continue to be a.
Ever [00:36:00] present with our, with our sponsor relationships and, you know, uh, our, our various counterparty parties where we source deals. Um, and just continue to show up in a very consistent, you know, humble but thoughtful way, uh, and provide financing solutions. What we do isn't, isn't necessarily all that, uh, sexy, but, um, you know, people like working with people that they like working with and they wanna make sure that they can trust the capital providers.
And I think. The DNA of this institution and our parent company is, is, is exactly that and it's the type of capital partner that, um, a lot of institutions are looking for.
Greg: Mm-hmm. And do you think a lot of those institutions that we partner with, do you think, you know, I, I think a lot of them like us kind of take a long term through the cycle approach.
Are you, do you get the sense that they. Um, you know, they think of private credit and all the different flavors that we're discussing. Uh, talking about it, do you get the sense that they think about it as like a [00:37:00] really long-term core allocation? I mean the, the fundraising Yeah. Momentum would suggest so, but I'm just interested.
Bryan: Absolutely. I mean, yeah, this is now mainstream part of the portfolio. It's, it's, it's another element of fixed income where you can pick up a premium to, to. To what you can get in, in a more liquid asset class. I think it's here to stay. I think, um, you know, people wanna partner with scaled institutions. We happen to focus on the traditional middle market and one of the largest players in that, in, in that part of direct lending.
And I, and I think that gets us a lot of at bats. I think the fact that we're part of a large institution that can provide a number of different bespoke, um. Uh, sort of fund structures and or mandates to clients looking to partner with fewer, uh, asset managers. Again, is, is is sort of an enviable place for us to be talking to them just about direct lending, but also as part of a broader solution that Barings can offer [00:38:00] overall.
Greg: Yeah, makes sense. All right, last question. Uh, looking ahead, uh, over the next, let's say 12 months or at least through, through the rest of 26, what do you think investors should be keeping an eye on?
Bryan: I think it's gonna be really, I mean, you've already seen it, um, in some of the headlines that we were talking about, just the dispersion amongst managers.
Uh, so just watching performance and seeing how people behave and, and seeing, um, how. People deal with some of these headlines will be very interesting. But I think the more interesting thing that investors should be focused on is what's, what are those underlying portfolios actually doing? Um, how are they performing?
What, what are your non-accrual rates? How much pick do you have in your portfolio? Um, how, how are you dealing with issues that are needing to be restructured? What are the recoveries on those? Sometimes it takes years for all of that to play out, but mm-hmm. Frankly, our firm is built for this. Our parent company has been built for this for a very long time.
Mm-hmm.
Greg: Mm-hmm.
Bryan: Uh, and, and so [00:39:00] if, if we are heading into, um, some real credit cycle as a result of AI or a conflict or just, it's been 20 years,
Greg: yeah. Yeah. Probably a healthy thing for the market.
Bryan: I think so.
Greg: In the long run. Yeah. Okay. But, uh, I think as you point out, it's. You know, kind of to, to put a bow on this discussion, it probably is, is a lot less about the headlines and the sensationalism and it's more about, you know, pulling back the, the curtain and, and looking at the underlying portfolio and really understanding what you own and, and kind of sticking to your.
You're knitting, um, long term, even if it's not always super exciting. Yeah,
Bryan: exactly.
Greg: All right, Bryan. Uh, this has been awesome. Thanks for, uh, thanks for sharing some insights. I feel like we always get a really balanced, measured view from you, which I think is exactly the type of view you want, um, from someone operating in this asset class.
So I really appreciate it.
Bryan: Appreciate you having me on.
Greg: Thanks for listening to or watching this episode of Streaming Income. If you'd like to stay up to date on [00:40:00] our latest insights across alternative asset markets, including public and private credit, real assets, and more, please follow the show and leave us a review on your favorite podcast platform.
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