Private credit resilient, AI data centers in demand (with Francine Lacqua)

Private credit is performing well despite headlines about distress. Companies are growing 8-12% per year, and non-accrual rates are lower than historically. AI data center demand exceeds supply, requiring $2 trillion in investment over five years. Wealth channel concerns are overblown; institutional support remains strong.

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Ares Management 7.8
Asset Manager $200.00B
Blair Jacobson 9.0

Private credit resilient, AI data centers in demand (with Francine Lacqua)

ndx

The guest is bullish on AI data centers, which are a key driver of tech and NDX. The demand for AI infrastructure supports continued growth in the tech sector.

rut

The guest notes that smaller public companies might struggle to access capital and could consider going private, suggesting limited upside for small caps in the near term.

yields

The guest says rates are down 200 bps from highs and are at a 'mathematically comfortable position,' implying no strong directional move expected in yields.

Francine Lacqua

What is the pain threshold we are seeing now and will see in the next couple of quarters?
Blair Jacobson

There is a disconnect between headlines and what we see in our portfolios. Our 3,000 companies are growing 8-12% per year, and non-accrual rates are lower than historically. The broader macro picture is a tailwind for businesses.
Francine Lacqua

There is a large amount of dry powder. At some point, does it have to be handed back to LPs?
Blair Jacobson

Dry powder is available for 4-5 years, which is the right amount of time to put it to work. Deployment has been strong. Less capital coming into the wealth channel means less competition, allowing us to charge higher interest rates and have more conservative documentation.
Francine Lacqua

Are data centers overdone?
Blair Jacobson

We are big believers in this trend. Demand for data centers exceeds supply. Industry forecasts $2 trillion of investment needed in the next five years. We focus on specific assets in major metropolitan areas with long-term contracts with hyperscaler clients.
Francine Lacqua

Do these mega IPOs change the nature of public markets? Does it matter to your world?
Blair Jacobson

There is a definite trend for businesses to be private. The number of companies on major stock exchanges keeps declining. There is so much capital available through private equity and private credit that companies want to stay private longer to invest for the long term.
Francine Lacqua

Do you worry about rates going up?
Blair Jacobson

Rates are down 200 basis points from their highs. We are at a mathematically comfortable position for our companies. We invest in floating-rate assets, so if rates are a bit higher, our investors make a higher return.
Francine Lacqua

How worried are you about retail investor retreat for private credit funds?
Blair Jacobson

Wealth is not broken. Our wealth business will grow this year. Investors understand that to access institutional quality illiquid loans, they need a structure that reflects that. As long as underlying funds meet high single-digit to double-digit returns, there is a bright future.
Francine Lacqua

Will rating agencies reviewing BDCs make institutional investors more risk-averse?
Blair Jacobson

Institutional investors are less concerned about how private credit is moving. They are looking at the next opportunity. Rating agencies will take their view, but focus on fundamentals. Institutions are continuing to back these funds.

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