CHRISTIAN CHARLOT: Welcome, everybody, to this segment of Hard Hats and Quick Chats, where we unpack investment topics within the private assets world. Now I'm Christian Charlot, your host for this section. Some of you might be thinking, oh I don't know this guy. Oh, let me reassure you, I'm not David Tolman's AI replacement. I'll be your new host going forward from the segment where we continue to unpack investment topics within the private assets world. And today we're going to have a specific topic that's really interesting. We're going to talk about the evolving private lending landscape and also the launch of a global private credit strategy. And for this, we brought someone with a lot of experience - Louis Bélanger, vice president director of private debt and investments. Louis, welcome.
LOUIS BÉLANGER: Thank you. Happy to be here, Christian.
CHRISTIAN CHARLOT: Thank you. So let's unpack this. What are we trying to accomplish with the launch of this new global private credit strategy, we're trying to accomplish for investors?
LOUIS BÉLANGER: Yeah. So this new strategy aims to deliver a gross return of 8 to 10% our investors. And as opposed to most of the funds that are out there that are strictly focused on direct lending, this new strategy is going to include, many other parts of the private credit market. So it will include direct lending as well as infrastructure debt, real estate debt, and specialty finance asset back lending to offer clients a diversified strategy in terms of exposure to the private credit market.
CHRISTIAN CHARLOT: Interesting. You know, when you talk about 8 to 10%, that's really attractive for fixed income. Now, one thing that comes to mind, I'm sure, in the heads of the listeners, is are we talking about the distress debt pocket situation here?
LOUIS BÉLANGER: Not at all, Christian. We're going to be a very conservative lender in this market. At TD Asset Management, we already manage well over 80 billion in credit products. So that includes about 60 billion in investment grade credit or public credit, about 10 billion in below investment grade public credit, high yield bonds, year leverage loans. And then on the private side, we manage about 10 billion in commercial mortgages, as well as 5 billion in investment grade private debt. So we're going to put all these capabilities together, and we're going to seek the best opportunities for our investors in order to deliver a well diversified global private credit offering to our clients.
CHRISTIAN CHARLOT: Okay. Now I'm putting my investors lens in here... Why would I get into the private loans where I could easily get access to subgrade, high yield bond, or in syndicated loans to the public markets? Why would I go private?
LOUIS BÉLANGER: Yeah. Private lending or private direct lending has a couple of advantages. One, there's less leverage typically in these transactions. And number two, credit risk is well mitigated through comprehensive covenants and collateral. And what you do get for trading away liquidity, you get a higher coupon in these investments. And that's a value proposition.
CHRISTIAN CHARLOT: Okay. When you talk about the global private credit market, I know that market went from 400 billion in 2010 to $1.7 trillion today. That's a lot of zeros. Of course, that growth is going to bring definitely a lot of competition. You think that we are in a bubble in that space with all this capital being in that market?
LOUIS BÉLANGER: Not at all. I mean, if you look at what's happening in the market, there's these loans that in the past would have been done on banks balance sheet right now with regulatory constraints and cost of capital, these loans are transitioning into the private credit market because it's very onerous for banks to hold these loans on to their balance sheet. So that's what drives the growth of the market. And in addition, if you look at the amount of dry powder in private equity funds, that's going to fuel demand for loans as these private equity transactions typically come with, you know, some leverage. So we're quite optimistic about the market going forward.
CHRISTIAN CHARLOT: Of course when we're talking about that growth, it's going to bring competition. Now how would the global private credit strategy be different. What will be the edge that it has in this competitive landscape.
LOUIS BÉLANGER: Yeah our edge is our origination capabilities. If you look in the market, a lot of their private equity, or private debt firms are trying to associate themselves with a bank. We have the advantage of being a bank. We collaborate with our colleagues at TD Securities to originate transactions. And if you combine the origination capabilities and our ability to underwrite and structure transactions, we believe that it's going to give us a competitive advantage in the market in terms of delivering results for our investors.
CHRISTIAN CHARLOT: Now, unfortunately, every good thing has an end. I would love to kind of impact more topics and execution, the diversification aspect, but we'll keep it for another segment of Hard Hats and Quick Chats.
So if ever you have any questions in the strategy, please feel free to reach out to relationship Manager. It's Christian Charlot from Hard Hats and Quick Chats. Thank you.
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