KKR & Co. Inc. (KKR) Earnings Call Transcript & Summary

The taking of photographs and the use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. All right. With that out of the way, good morning, everyone. Thanks for staying with us here on day 1 of Morgan Stanley Financials Conference. I'm Mike Cyprys, equity analyst covering brokers, asset managers and exchanges for Morgan Stanley Research. And welcome to our hybrid fireside chat with KKR. And we're excited to have with us Adam Smith, Partner and Co-Head of KKR's Credit business and Capital Markets business. As you know, KKR is a global investment firm that offers alternative asset management, capital markets and insurance solutions and today manages over $664 billion of assets under management. Adam, thank you for joining us today. Appreciate you coming over here. It's been, I think, 5 years since you were last here. And I think you're going to kick off with a little bit of a presentation, and then we'll jump into a fireside chat.

Great. Well, thank you for having us. We really appreciate the opportunity to tell our story and interact on a stage with you. I will go ahead and start maybe talking a little about our Capital Markets platform to provide some context for the fireside chat. I think your questions are going to be more interesting than my presentation, so I'll try to run through this pretty quickly. There's 3 big things that I think you're going to hear run through this presentation in our chat today, and that's the following. One, we have the largest and most specialized Capital Markets platform with any asset manager out there. Two, we help drive investment performance for the firm, and we're also an attractive and meaningful revenue stream for the firm. And thirdly, we have a growth orientation, and that comes from 2 sources. One, we grow as the firm grows. And secondly, there's a third-party business that we engage in that has a large addressable market and opportunity for us to grow and take share on that. So with that in mind, our Capital Markets platform is the centralized financing arm inside of KKR, and it's responsible for arranging all the debt and equity financing that our firm consumes across all of our investment strategies, all of our investment businesses globally. We also provide the same capabilities and services to independently owned companies, whether they're sponsors or family-owned or privately backed companies or even public companies. And we do that across 4 main product areas. One would be debt capital markets. So I think about that as a corporate credit markets. Second would be equity capital markets. I would think about that as our IPO and follow-on business. Third is our structured Capital Markets business, which is one of our newer businesses. That's engaged in structured finance and asset-based financing transactions. And third -- or sorry, fourth is our co-investment partnership business. This is actually where we began. This is the syndication of excess investment opportunities that we have where our funds don't take them down entirely. We figured out a way to commercialize that. What do we do? We have the ability to both structure and distribute transactions into the markets. And we are able to do that across both private markets and broadly syndicated markets. So not only do we put transactions together but we're able to place them to investors such as you. That is a tremendously powerful thing in a platform like ours. And then the final thing I'd say is that we do this in large scale. On average, we're completing around 400 transactions a year. That's 400 different fee opportunities that we're able to complete. And we do that across all these different asset classes and it accumulates in a really big number. So last year, we generated -- we participated over $400 billion of debt and equity financings. And since we began this, that number is $2 trillion. We're also a very strategically connected part of the firm to our Credit business. And that's why you introduced me as the Head of our Credit and Capital Markets business or Co-Head of that. We've been able to integrate our capital markets capabilities and our credit capabilities together to approach borrowers and offer them essentially a one-stop shop to provide financing solutions that are tailored to what they want. So we can provide them with private credit, we can provide them with the capital markets opportunity or financing or we can combine those 2 things together. And that makes us more relevant. It makes us more likely to win a transaction, maintain incumbency, get ball control and ultimately convert that into an investment opportunity or a fee or both. There's very few people that can do that, and I don't think anyone can really do that in as an integrated of way. And as I mentioned before, we're really a revenue center for the firm. When we started the business, we made $1 million in 2007. Last year, we made $1 billion of fees doing the exact same thing. And that growth has really been driven by 2 things. Firstly, it's been driven by the growth of the firm. As KKR scaled, as KKR added new investment strategies, as KKR's funds grew, as our portfolio accumulated more companies, those all presented more opportunities to finance transactions. Secondly, we also extended the same capabilities and services to a bigger client base, which is other companies that we don't own. And the accumulation of both the third-party business and the growth in the firm really has led to the steady growth over time. You'll see we present this chart with sort of these yellow lines that show you what the fee averages are over a 4-year period. We do that because we think it's important to understand that this business really operates across cycles, and you really want to think about what's the normalized business over time. There can be periods of time or a quarter where activity may be high or may be low. But over time, you start to see trends in the underlying business. I think the big trend that you see on this slide is the power of the diversification and scaling of our firm and how that rolls through in KKR. And what that really means in capital markets is we have a more granular, a more diversified revenue base, and we have more ways to win. And that diversification, you can see in comparing 2012 to 2015 to the period 2020 to 2024. In 2012 to 2015, we were largely driven by traditional private equity activities, whether it was for our flagship funds or for third-party clients. There, we were averaging about $170 million a year of revenue, and 91% of all our fees were generated from those traditional private equity activities. If you go look at the last 4 years, 2020 to 2024, we've averaged over $700 million a year. And private equity or traditional private equity activities really only accounted for 50% of that, which means that infrastructure, credit, asset-based financing, real estate, all those growth businesses and core strategies have provided more ways for us to generate revenue and really increase the size of the pie that we can go after. And so if you look at that on the right chart, you'll see this, how this plays out. 2021 was a record year in the capital markets, and it was a record year for our Capital Markets platform. We generated almost $850 million that year when the markets were at an all-time high and activity levels were at an all-time high. What I think is even more interesting is if you look at 2022 to 2023, you really saw a recession in the capital markets activity. You saw a massive falloff in deal flow and really decreased activity. And despite that, we were able to generate about $600 million a year. And those were our third and fourth best years ever. And so if 2021 showed you, you could have record performance in record years, 2022 and 2023 really showed you could have resilient performance in dislocated years. And what I think is really more interesting than that is you go look at last year. No one would say last year was an incredible year in the capital markets. It was good. You saw a resumption of activity levels. You saw more deal-making. That year, we made $1 billion of revenue. And that activity level didn't seem or feel like what 2021 presented. And I think that, that shows you the benefit of this accumulation of more revenue streams and more opportunities to go after. And it shows you what can happen when deal-making activity kind of picks up, which leads me to our final point here. And I think this will be a springboard for some of our conversation. We really do have a growth orientation in capital markets. And in some ways, I had the easiest job in the firm. The first pillar of our growth is that we grow when the firm grows. So if you think about the scaling of KKR across our diversified slate of businesses: private equity, infrastructure, real estate, credit; as those businesses get bigger, as their funds get bigger, as the capital structures we invest in get bigger, those are more opportunities for us to participate in financing transactions. And you can see that there's a correlation between the size of our AUM and the growth in our Capital Markets business. We have more ways to win. The other area of growth for us is our third-party business. This is a business that we started in -- really probably 2008 was where it really kind of grew, and it's grown steadily over the years. And what we're doing here is we're applying the exact same services using the exact same team with the exact same capabilities and the exact same pipes, but were just allowing us to provide those services to more people that are looking to get the same kind of quality of capital market services, their own investment teams and firms looking to get. And the accumulation of that can be meaningful. So over the last -- since we started this business, we generated over $1 billion of revenue from people that used to think of us as a competitor. To me, this is a big market to go after. There's a lot more companies that we don't own than that we do own. And this universe is also expanding into new places as you see in markets like private IG and some of the other financing areas start to grow as well. So we're really excited about where we are. So the 3 big things we talked about, largest and most specialized capital markets platform in our industry. Second, we're both a revenue driver and driver of investment performance for our firm. And thirdly, we have this great growth orientation that benefits from both the growth of the firm and the opportunities we have in third party. So with that in mind, maybe we'll have a fireside chat.

Great. Thank you.

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Well, why don't we start off talking about the capital markets backdrop. It's been a little bit volatile this year, a little bit of a pause in April. Now it appears that some of the activity is picking up. So just curious your take on the outlook for capital markets activity from here. What do we need to see in order to see a significant uptick in transactions? And what are some of the indicators you guys are tracking and watching on that front?

Sure. That's a great question. And I wish I had that crystal ball. The year started with a really positive outlook. We saw the market run-up after the election. I think people thought that the policies of the administration were going to lead to a resumption of that 2021 kind of feeling. We did see some concerns around inflationary pressures with some of those policy decisions. And then we saw a tremendous amount of volatility, as everyone knows, with the tariff announcements, and we've seen that play through. What's really been interesting for us has been that, that volatility was really in the equity markets. The credit market did experience volatility and things did kind of widen out but much less. And what was really important for us is all those markets remain functional. And we continued our deal-making activity. And Scott and Rob talked about this in our investor call recently. Throughout that period of time, we have a linear deployment model at the firm. So we stay investing throughout market cycles and invest through them. That really helps. We've seen a snapback, so valuations have gone back up. The S&P is up, I think, almost 20% from its low around Liberation Day. And so -- and you saw IPO windows open up. So there have been a number of IPOs that have happened. We participate in some of those IPOs on the capital markets side. So what are we looking at? We're looking at a couple of things. We're looking at the debt and liquidity in the capital markets, and we'd say it's strong. There's $7 trillion of cash on the sidelines that's waiting to be invested. There's a tremendous amount of capital out there in credit across all different asset classes so you can finance transactions. For the right businesses, the IPO market is open. So those businesses, what would we think about? We would think about businesses that are fairly insulated from tariffs. I think Aspen Insurance was the IPO that led the market open. That's an insurance brokerage business. Hard to get hurt by the current policies on that. And then so the real unlock, I think, will be when does the M&A pipeline really manifest to the levels that people are hoping for. There's been a feeling that M&A has been depressed really since 2021. Every year, people are saying it's about to unlock. And that's driven by a couple of things. There's certainly a lot of corporate activity that should be happening. There's also a lot of privately owned sponsor-backed companies that need to find a source of liquidity, and a sponsor-to-sponsor transaction is one of the sources of liquidity beyond the public market. So M&A, I think, will be the big question mark. And if you're really focused on what's the future state of deal-making, you really got to start with the M&A pipeline.

Why don't we dive into your KKR Capital Markets business, which you gave a nice overview. You helped build the Capital Markets business back from its roots in 2007. So maybe just how has the business evolved relative to your initial expectations that you had back many years ago? And looking out over the next decade, how do you see the business evolving from here over the next decade?

Yes. So -- and I should not -- I don't want to take credit for the business that Scott and my predecessor really had the idea to put it in place. I was around from the beginning of it. And what I think we got right was the business model. And the basic thesis of KKR Capital Markets is that there's a lot of value in being able to control deal flow. And there's a lot of value in being able to deliver people investment opportunities. And if you can figure out how to commercialize that, you have a way to capture a portion of that value. And so what we did is we took all of the consumption of capital that our firm has, which really meant opportunities to finance ourselves and said, "We're going to participate in that." And what we decided was you needed to have the right infrastructure, you needed to have the right product expertise and you needed to have a distribution capability so you could take that directly to market and provide it to the end user, which is the investor, which is the people in this room. And so we got that model right. What I think that we learned over time was that model was a really replicable model. And so we built it around traditional private equity. Remember that slide we talked about where you see that ramp. And 2012 to 2015, 91% of our revenues were driven by traditional private equity. We realized you can take that same principle, that same business model, that same strategy and you could do it in other areas like infrastructure. You could do it in things like securitization, ABS. And as the firm started to create more investing businesses and scaling those in large ways with large capital structures, we realized there's a huge fee stream associated with that. And we just employed the exact same model. We hired the right people with the right capabilities and we kept on replicating it. And so what we've been really pleasantly surprised by has been how you can take the simple model and just port it over and do the same thing in a slightly different area or market and commercialize it in the same way. And the adoption rate and the speed that you can do that is really high. Where are we going? Our view would be that we're going to continue to do what we do best, which is new issue financings. It's capture all these transactions that sit in front of us and then apply those same capabilities to third parties and just create more operating leverage in the system. We run a really tight ship. We have 70 people in Capital Markets, give or take. And we've been able to really scale up the revenue base without having a lot of head count growth. It's a very efficient model. So we like that. To me, the emerging areas -- it's funny we left the Global Atlantic case study on the screen for the people who will look at it. There's a huge growing market around private investment grade. You're probably talking about it a lot with the people that you talk to. I think that there's a huge opportunity in the market to take more transactions and place them in institutional private markets in the investment-grade capability. That is a core sort of pillar of what our future growth is going to look like. And our acquisition of CyrusOne, which we completed last year on a 100% basis, will help facilitate that.

Great. Why don't we talk about the mix of the business? Quite diversified, right, mix of debt syndication, various types of equity syndication, third-party-related transactions in there. I guess how do you think about the mix evolving over time?

Yes. So what's -- I went and I looked at a lot of our historical data. And if you've been in the business for 18 years and you've seen market cycles that go from the GFC all the way through today, you've seen a lot of different things. There's been a tremendous amount of stability in some of the underlying trends. So I'll hit some of those, and then we'll talk about maybe what that business mix looks like. On a pretty normalized basis, debt financings end up being, call it, 60% to 70% of what we do. And that makes sense for 2 reasons. One, debt is generally a larger percentage of a capital stack, if you look at some of our levered transactions. And secondly, debt is a very transactable instrument. You put it in place, you can reprice it, you can extend it, you can add to it, you can refinance it, you can amend it. Every one of those moments is an opportunity for us. Equity, you tend to buy it once and you sell it once. And so the mix tends to be pretty stable over time that debt tends to be a bigger part of our business than equity. And our head count would sort of reflect that as well. I think on a pretty normalized basis, the U.S. is always a little over a majority of what we do, which makes sense. It's one of the largest markets out there. It's one of the most robust and transactable markets. And if you think about where our AUM is, there's a healthy percentage in the U.S. What I really like about that, though, is that it means that 40% or so is also things that aren't in the U.S., right? So Europe and Asia. I think Europe and Asia will kind of balance each other out. One area may be more active than the other. What we're really looking to achieve in Capital Markets is a large diversified business where we have a lot of different markets to win in so we're not reliant on any one market. Geography would be one of those things. Debt equity would be one of those things. And then you see things like infrastructure, you see things like securitization, private IG asset-based lending, those are all part of it in that if we go back to the diversification slide I talked about, you do see this increasing diversification for things that are outside of what I call traditional private equity financing, meaning that fees that aren't generated just by LBOs, just by IPOs. In infrastructure, securitization, those are the types of things that are coming. So I would hope that we're going to have a continued diversification. And over time, I think that you'll see a pretty nice balance. When you get to $1 billion of revenue, it's hard for any -- the large number starts to come into play and you have a hard time swinging a thing around too much.

Great. Why don't we shift and talk about the outlook for transaction fees this year? First quarter was pretty strong despite the backdrop, so impressive there. I think 2/3 were more debt focused to your point on sort of the debt mix, about 80% or so driven by portfolio company activity. So I guess how do you see capital market fees trending this year and the mix of activity?

Yes. I think that you're going to see a continued pacing like we've seen. And I think it gets into what does the market activity really look like? We have so many ways to win. New deal activity is part of it, portfolio work is part of it, third party is part of it. I tend to focus the business not on a quarter-by-quarter or fiscal year basis, I tend to look at it on what's the normalized period of time. I think that's the best way to look at it. And we really benefit from this resiliency and durability and stability in the tougher periods that's been driven by the diversification. And we also benefit from in upswings, the opportunity to capture a lot of transaction volumes.

And how should we think about the monetization take rate for your transaction fees? I think the overall sort of cumulative revenue you had on your slide here implied around 30 basis points take rate on the overall volume. I guess what are some of the areas that are higher when you think about the different types of transactions? Which ones are lower? And how do you see that take rate evolving over time?

Sure. So I think just to understand the business, it's a really simple economic model. It's a price times volume business. The prices are the fee rates that we're able to charge, and those are all market driven, and there's a lot of transparency in that. And so how a U.S. IPO gets priced from a fee perspective or how a high-yield transaction gets priced from a fee perspective or investment grade deal gets priced, it's all pretty stable, it's very transparent, it's all market driven. The real question around what our transactions look like is the volumes. And volume is going to be a factor of 3 things. One is, how many deals are we doing a year in those different fee classes? How big are those deals, right? Bigger capital structures would tend to have bigger fee opportunities associated with them. And then what's our participation rate in those transactions? And the business mix will drive a lot of what the ultimate number looks like at the end of the year. What's really kind of interesting, I would tell you, 10 to 15 years ago, we were much more sensitive to large transactions. One or two fee events would be noteworthy and they could drive things. Today, we have a really granular underlying business, and that was because of the diversification that we've talked about so far. And so I'll give you 2 numbers, for instance. If you look at 2020 to 2024, almost 40% of our transactions were modest to small fees, say, $5 million or less, and 1/4 of the transactions were fees of $3 million or less. So it's really, at the end of the year, an accumulation of a lot of stuff and often a lot of very small granular things. And what I like about that is it creates the ability to win in a lot of places. And it also creates a level of redundancy and resiliency in your underlying business. So you're not sort of tied to the fate of a transaction or not.

And how do you think about the longer-term growth opportunity for the Capital Markets business? What sort of growth algo should we be thinking about here and some of the key drivers, aspirations to doubling the business would you say over time?

Yes. So I think that if you're bullish on KKR, you should be bullish on our Capital Markets business. We grow when the firm grows. You can go look at a couple of correlations. We had a slide we put up earlier that had attracted -- as the AUM of the firm went up, you could see our Capital Markets fees go up. And that's pretty one for one -- not one for one, but it's very correlated. The driver of that is a couple of components. One would be just transaction activity or new deal activity. So you think of probably the word deployment. The second part of that is the portfolio, right, the accumulation of a bunch of portfolio companies. And what we saw last year was a lot of portfolio work was involved during parts of the year when new deal activity was less involved. So there's kind of offsetting factors there. We tend to be pretty well positioned to capture revenue when the firm deploys. So if you look at maybe since 2012, so the last 53 quarters, there's like an 80% correlation of our fees and deployment activity. What I like about that correlation in a firm like ours, you probably heard Pete Stavros or Henry McVey talk or Scott talk about our linear deployment model. We've prided ourselves since the financial crisis on really trying to make sure that we're investing through cycles. Other firms tend to invest a lot when they feel comfortable, which generally means a bull market; and they pull back when they feel uncomfortable, which means market dislocations. We try to stay invested through all of those things. If you sit in my seat, what that means is we have fee opportunities in all of those moments. And we're not limited to just open syndicated markets. Go back to that 2022-2023 slide that we talked about, we're making a lot of money by putting in place private credit in our portfolio of companies, right? That's not a fee stream that a lot of people have access to. We are making money syndicating private equity and infrastructure co-invest during those markets. That's not a fee stream a lot of people have access to. And so our goal in Capital Markets is really to do 2 things. It's to make sure that we are able to secure capital for our investment teams so they can get deployed and having access to capital in bad markets is a competitive advantage, and we look to drive investment performance as part of that. And the second goal is to make sure that we're commercializing all of those opportunities. And that means having the infrastructure in place. It means having the teams in place. It means having the capabilities together to be able to kind of do that.

Great. And with the GA slide on here, why don't we shift and talk about the build-out of the Capital Markets business now with Global Atlantic alongside? How do you see this contributing over the next couple of years? Talk about some of the steps that you're taking here. What do you need to do in order to best capture the opportunity set?

Yes. So the business model that we will use inside of Capital Markets is you want to build a team that is deep in product capabilities. You want to build a distribution capability. That means you're able to not only sort of think about the corporate finance, the capital structure, but you're able to take that to market and form your views by market. And you need to be able to sync that up with your origination. If you can do that, you can unlock new revenue streams. We started building this team. This would be our structured capital markets team that's responsible in many ways for these types of transactions. We really noticed that the infrastructure business was growing and starting to get really kind of large. And as part of that, we also reflected on the fact that infrastructure financing, for instance, is very specialized. So you can't take someone that's a leveraged finance person and port them over and say, "You're now going to do project finance and you're going to be getting an A+ in that." And so we started to bring in specialized capabilities and resources for infrastructure. At the same time, we saw our asset-based financing business start to get big. We're a leader in that. We're probably one of the earlier firms to start to build that in a really diversified way. I said you need to have people that could do securitizations if you want to be in that business. And so we added those people. And so most of the head count growth that we added inside of Capital Markets between 2018 and today has been to build up this capability and this team. And through that, we've now got a platform inside that is as big as our debt capital markets business in the same jurisdictions. And so we've got the capacity and the throughput to handle that and we've got the ability to do what I talked about earlier, which is structure things and take them to market and marry that up with our origination. I'll talk to that in a second. Our acquisition of Global Atlantic fundamentally expanded the way our firm can invest. And a lot of the investment activity of Global Atlantic is really symbiotic with the structured capital markets business. And that's what's exciting for us. This CyrusOne case study, I think, is a great example of how all that can come together. I realize that Scott and Rob spent a little time on the earnings call about this, but I think diving into this really kind of shows you what we can unlock here. So CyrusOne is a hyperscale data center business. We own it actually in our infrastructure fund, our private equity fund, our real estate fund. We own it with a partner. It's in the business of building and operating data centers, and part of what you have to do is you have to have a lot of CapEx to build your data centers. CyrusOne traditionally would have funded the build-out and the development until stabilization of a data center through like a bank-driven facility. We were looking at those and advising CyrusOne of those types of financings over time. And what we realized once we had internalized this insurance capability and this insurance mentality and how to structure things for insurance capital, we said you could actually take that same financing and you could just maybe change it in slightly different ways. And that would be a really interesting investment for an insurance company. And so we got Global Atlantic involved, and we designed for Global Atlantic an institutional tranche of the same bank facility. And actually, Morgan Stanley was involved in this as well. We got an institutional tranche put together, and then we raised additional capital around that. So Global Atlantic helped us think about what the insurance market wanted. It provided an anchor order for those transactions. And then we were able to then further commercialize it by bringing in other insurance companies, pension funds and asset managers into that transaction. And for us, this is a real win. CyrusOne had more capital to do more data center development. Global Atlantic was able to make an anchor order of the size that it wanted, an investment opportunity it otherwise wouldn't have access to. And we're able to generate Capital Markets revenues around that. And that was half of our $50 million that we made in 2024 in that market. And so that's sort of the playbook that I think illustrates just one use case for this team and how we interact with Global Atlantic.

Great. We have a few minutes left. I wanted to turn to global initiatives. I think that's a major differentiator for KKR. You have a large presence in Asia. So I guess how do you see the capital markets there developing, the areas sort of with greatest demand and tailwinds now? And what are some of the other regions around the world that you see as having some of the most meaningful growth opportunities?

Yes. And we started this conversation, I said about 50% to 60% of what we did over the last few years has been -- in capital markets has been in the U.S. The rest has been in Europe and Asia. Asia is a really interesting market from both a capital markets perspective and from a credit perspective, frankly. So our firm has got probably one of the biggest and most developed Asia footprints out there. We're in 9 different cities. We have truly local teams, which you have to have local teams if you want to source good investments and really understand how to invest. And Asia has got the biggest growth prospects in terms of global GDP growth, and it's also got a capital market that is largely bank driven. And what does that mean? It means that the rate of capital formation that needs to assist that GDP growth or enable that GDP growth just won't be able to be served entirely by banks, which means there's a need for institutional capital. And that means that there is an opportunity for providers of that to be able to participate in that. And as an investor, you really want to go figure out where the supply-demand imbalances are in capital. We personally think that Asia will go through an evolution like the U.S. went through over the last 25 years in terms of a further institutionalization of credit markets beyond investment grade. You saw Europe follow America's approach on that. Today, 85% of all deals are financed on bank balance sheets in Asia. That's not sustainable. So we're building credit investing businesses in Asia to take advantage of that, and our Capital Markets business is certainly focused on that. Japan is, for us, a really big opportunity as you see value unlock happen through the corporate governance reforms. India has got structural growth associated with large service-based economy. So there's a lot of interesting stuff there. And then near term, there's a lot of kind of focus on Europe. Europe has announced different stimulative policies. You can go look at what Germany did, for instance, that should lead to more growth opportunities in Europe over the near term. And certainly, there should be financing opportunities around that.

Great. We have maybe about 2 minutes left. So just maybe a question on private credit, you co-head that as well. KKR manages over $100 billion of private credit. That's grown meaningfully over the past year. I guess where do you see some of the biggest opportunities right now across direct lending, sponsor finance, asset-backed and across different geographies?

So private credit has just been a market that has continued to grow. Direct lending has had the largest, longest growth that we've seen. The direct lending market is almost the same size as the syndicated loan market in the United States today. And so that's just a big scale and opportunity set. We're active in there. I think the really exciting and emerging opportunity is in private investment grade and asset-based financing. We're seeing 2 things. One, we're seeing a lot of investor interest in allocating to that space. So LPs went through an education process around what is asset-based lending. And now they're in that process of putting that in their portfolio allocations. We're also seeing issuers or borrowers saying, "I saw what happened in direct lending. I see you can go access capital directly. I have asset-based needs. Can we do the same thing?" And when you have scaled capital and you have issuers that are looking for what private credit provides, which is, frankly, more flexible financing structures than syndicated bank markets that have to fit certain boxes, they're willing to pay a little more for that. And when those 2 things come together, you can experience real growth. And I think this asset-based world is now reaching a place where it's got critical mass. I mean there's critical amount of capital. There's a critical amount of consumers of that capital, and they're figuring out how to come together. To us, that should follow the same trajectory as direct lending. But our perspective in mind, in particular, would be that the adoption rate should happen much more quickly because you have a direct lending model that you can follow through. And so we're spending a lot of time there. And I think if you look at what we're doing in structured capital markets, it's really meant to capitalize that alongside our asset-based lending business and credit. And that's super synergistic with our insurance company balance sheet.

Great. I'm afraid we'll leave it there. Thank you, Adam.

Well, thanks very much. I appreciate your time.

Please join me in thanking Adam Smith.

Thanks.