00:00 Speaker A
sort of financial market spillover, right? And specifically, I’m asking about private credit. I was just looking at shares of Blue Owl. They’re down again this morning, right? We have seen this big sell off from this big um pure play in private credit or mostly pure play in private credit that uh, you know, reportedly has exposure to some of these software companies. And there has been renewed concerns that not only Blue Owl but a lot of the other companies that are involved in private credit that there’s going to be um, you know, some spillover there. This is something that Jamie Diamond of JP Morgan brought up once again in uh in public comments. How concerned are you about that and, you know, how how much does it remind you of the financial crisis for example? How big a deal is this?
01:05 Omar
Yeah, well, this is all part of the whole, you know, ecosystem of what has transpired over the last, you know, two or three years. uh, because of the capital expenditures increase that we saw and we saw a significant boom of CAPEX, you know, of, you know, software companies, you know, going in through, you know, financing for AI development. So we saw up to $100 billion increase just in the second part of 2025 for, you know, private, private and public, you know, financing of AI capital expenditures. Uh what that has translated is that in many cases, particularly in the private credit world, you know, that it’s created in tranches that basically generate different pieces and there’s certain, you know, investors and there are certain vehicles that use those tranches, particularly when it comes down to leveraged loans to basically increase yield and potentially make the data attractive for other investors. Now, that’s the part that is fairly risky. And I think what we’ve seen right now is we’re starting to see a little bit of those cracks as we’re starting to see increasing defaults, as we’re starting to see increases of risk, especially of those low quality tranches. And I think that as it it is in any other it doesn’t have to be in just in the private market, clearly is the same thing in public markets. When you’re starting to see a little bit of that increase in defaults, that’s where you’re starting to see the more concern that has to do in any parts of the market. So, you know, it’s still early to see, but, you know, clearly, you know, it’s a sign and certainly a concern that investors need to take a look at it and what kind of investments they have, whether it’s public, you know, a credit or pub or private, but try to make sure that the level of quality of those loans is clearly stipulated.
03:03 Speaker A
Um, how do they know, Omar? I mean, you know, do do the because are these companies that transparent with the quality of of what’s in people’s investments?
03:19 Omar
Yeah, the the big part of that, you know, obviously as as as in the public market, it’s a little more transparent and clearly, you know, you can stipulate what kind of tranches you have. You know, a lot of what, you know, the disclosures may have, especially if if it’s, you know, targeted towards retail, but if it’s even in a private fund, you know, you can actually, you know, try to get a sense of how much is in a CLO and a collateral leverage obligation. You know, how much of that is the level of leverage that you have on your fund and try to just, you know, be as specific about the kind of questions that you can ask, you know, the advisor or the manufacturer of these vehicles to understand, you know, what potential risk you have. You know, there’s also ways to monitor, you know, the the level of delinquencies that you have at as as the industry level, and that could give you a barometer on what you have. You know, the biggest, you know, um advice that we normally provide to our Schwab clients is, you know, try not to chase yield because, you know, when something is too good to be true, most likely has something between that takes too much risk and you don’t know about that risk until later on.