Drew McKnight on Intersections Podcast

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2:05Thank you to the Brownlee team for all you're doing to support intersections. Well, Drew McKnight, head of Fortress, which is a bare knuckle private credit firm, was fascinating to not only talk about the business, but actually some of the deals and how they come together. We get deep into the deals, we talk deep into private credit, and credit really is their main business. Back on on Drew, he was a Goldman Sachs, he was a former all-American lacrosse player. Goldman Sachs, New York Samfarin, now in Dallas, and really he is the leader of one of the most prestigious, sultanative asset management private equity firms in the world. Fascinating episode and a great listen. Tune in. Welcome to intersections.

3:06We take a multi-generational look at the critical issues facing America. Tom, introduce our guest. Drew McKnight, Drew's with us today, he is the Co-CEO or Fortress investment, one of the higher profile private equity firms, 85% plus or minus of their 50 plus billion dollars worth of portfolio is in the credit side. They are known as a very aggressive, straightforward credit player, another 15% and a variety of different industries ranging from well, railway to restaurant and that. So we'll be fascinating. Drew, thanks for being with us. Thanks for having me, Tom. Tell us a little bit more about Fortress, just kind of that 50 billion dollars and we're all of it falls. Sure. This is my going on my 21st year at Fortress and I've been in New York San Francisco and now six years in Dallas. You hit it about 85% is in credit and that's everything from senior secured first-learn loans to second-learns to preferred and more junior securities and public and private markets. We have a big real estate business, both US, Europe and then we have a Japan business

4:10that's really a best of lending. It's really asset-based. We do cash flow as well. So all types of all types of lending and then our Japan business is an opportunistic, real estate equity business. We've been over there since 2008 and we've got about a hundred people in Tokyo, offices in Sydney, Australia, across Europe and then across the US. So with all the talk on private credit, you have a lot of fun right now. Get a pulse? Yeah. You know, we've talked a lot of, it's hard to tell a credit manager if a credit manager is doing a good job when there's no defaults because everyone's going to get paid, but you don't necessarily know if they're doing a good job lending. So we've talked about volatility will be a good opportunity to differentiate yourself. And I think we've definitely seen that since maybe third, fourth quarter of last year and some of this volatility, it's been a great opportunity to actually showcase the fact that our portfolio has held up very well. We have six, seven percent software versus the market at 25, 30 percent.

5:12And that wasn't an accident. It was by design over time as we saw those capital structures getting more aggressive. We pulled back. It allows us to lean into this environment quite well. And so I think as folks realize that credit is performing and if you have 50 percent of your portfolio and software, that's probably not a very good idea. But if you've got a diversified portfolio, we are seeing clients realize that they want to stay invested in credit. And while they took a little pause, the first part of this year and back half of last year, we're starting to see real engagement where clients are saying we feel like there's a place for that in our portfolio. Fascinating firm and we'll go deeper into that. But let's go back a little bit. You went in to, especially credit, distress credit, right out of school, Gropen Virginia Beach, Virginia. Talk a little bit about growing up and kind of what ended up being the attraction out of UVA to go into first investments then into the credit side of it. Sure. I grew up in Virginia Beach.

6:13My family moved there. They both actually, both my parents were born in West Virginia and they ended up in Virginia Beach just freely through jobs. Mom was a school teacher and my dad was working in real estate. She got a job teaching and then he ended up moving to Virginia Beach and there was a great place to grow up. He ended up going to UVA as you said and decided I want to try to go work on Wall Street. I played college athletics. I heard a lot about just the competitive fast pace, keeping score, environment on Wall Street and so it was attractive to me. I got a job, I got interned for a summer and then I got a job at Goldman Sachs out of undergrad and I remind people, I got hired into the fixed income group not because I necessarily said I wanted to work in fixed income. That was just a group that I got a job. I graduated in 2000. When we were starting, at the time they thought it was just a correction but by the time we actually got on the desk in September, the bubble had burst.

7:15I remind all of our summer interns and our new hires that the hottest group, my year at Goldman was in TMT banking and equity sales trading because they were doing all the hot IPOs in the recruiting cycle. By the time we got on the desk, the entire tech banking group was looking for a job. That was an eye opening experience. I initially was working in leverage capital markets and sales but then moved into distress just because they hadn't hired an analyst to stress. He mentioned he was in college athletic. This is where I want to go. Now we need to insert there lacrosse eighth grade played varsity, national champion at UVA, captain of the team. ACC player of the year. ACC player of the year. Not bad on the UVA campus. Long time ago. Do you still love the game? I do. Are you still involved? Do you still coach? I coached both my kids when they were younger and I kind of stepped away as my son got into seventh-eighth grade. It felt like it was time for him to have other coaches. Talk about coaches because in high school, you had a gentleman, Tom DeKhet, who had a

8:22polyfame type of coach. Then at UVA, you had Tom who was perceived as kind of the top of the lacrosse market. You had two pretty significant coaches in your field. What did you get out of them and how does that apply to what you're doing with your kids? Both those guys were super influential in my life. Way beyond sports. Coach DeKhet, I was actually best friends with his oldest son in first starting in first grade. When you got to spend the night. How would you got you to lacrosse? When you got to spend the night at the Duketts house, he also coached basketball. When you spent the night at the Duketts house, you got to sit on the end of the JV bench and keep score and hear all the high schoolers talk. Then in the spring, if you spent the night, you got to be a ball boy at the lacrosse game. It was always fun spending the night there. I actually ended up getting, Brian didn't play high school across. Brian ended up playing tennis because I played tennis growing up and got Brian to play tennis. He ended up playing tennis in college. We're still friends.

9:22We were on vacation last week together. But Coach DeKhet was very influential. He was a great teacher beyond just lacrosse. Any life lessons? Any takeaways from just such high level sports and athletics? I mean, different from Tom and Dom were different. I would say Coach DeKhetts' passion for the game. He taught me that passion and I just love it and his passion for the spirituality of the game. Just the love of the process, just the training and everything. You've got to really love it and he taught us that. Practice with him was never felt like practice because it was the most fun you had two hours of your day, all year round, whether it was pouring rain or whether it was beautiful. Dom equally had an amazing impact on my life and frankly everyone who I think went through Virginia and even Brown before that. He's one of those guys' same thing where he's teaching you way more about life than he is about sports and about just going hard at everything you do.

10:26I think as I try to take those lessons or you don't even realize you're getting those lessons as they're coming to you. I talk to Dyer interns and you talk about why people sometimes hire athletes. It's not because they can chore a stick or throw a football or hit a tennis ball. It's because they know how to compete. They know how to lose. They know how to get up off the mat. Those are the things that I think. Today you're one of the leaders in the private equity field leading a large firm. What lessons of leadership principles did you take from that time that you literally put into play today running a portfolio that's over $50 billion? It can be, I got a lot of lessons from sports. It doesn't have to be sports. I look at who are the most successful people that I know in business. Obviously, they're smart and they're competitive. One word that comes to mind is resilience because even if your fortress is a successful

11:27firm with $55 billion, but we've lost money every way you can lose money. We've had things go wrong. We've had to deal with hardships. I think a lot of people look at successful people or successful businesses and say, wow, man, everything's gone right. That's never the case. Even Elon Musk, you look at him, the richest person in the world. Most people would have folded in 2008 with Tesla or with SpaceX, but no one would have pulled both of them off. He just refused to lose, refused to give up. I look at the lessons I learned. It's not from the wins that you take away those lessons. I think it's from the losses and staying together as a team. Goldman Sachs in year 2000. What was it like to walk into that environment? Look, it is a still a great firm. Right then, it was just after they'd gone public and it was incredible.

12:27You had that partnership culture, but they'd just gone public. One thing that I observed was a lot of the partners, like Pete Brigger, who's the co-founder, Fortress and Chairman, he was a pre-IPO Goldman partner. There was a bit of a talent diaspora right after they went public. Unless you were a partner that was going to try to go become CEO, you just made a bunch of money. Why did you want to go work at Goldman Sachs and why did you want to go do your own thing? You know, Pete Brigger, Eric Mendic, you know, Dinnaker saying there was a big, big diaspora of Goldman partners that were very successful that then went out and started their own buy side firms. But then that, that begs the question because you joined in 2005, 2007, really the first firm, private equity, it goes public. So you go public. Draw the parallels then. Did you run into a situation with Fortress in 2007? And once you went public that you had that kind of drain, well, I mean, again, both at

13:29Goldman Sachs and at Fortress at the time, I was very far from the co-CEO at the time. It was understandable. So I was, you know, in the building, but not in the room, so to speak. But when we went public in 2007, when Fortress went public in 2007, Pete did a really, because Pete had been at Goldman and knew how to keep people and how not to keep people, I think all of the retention tools that you had in place, we were long term incentivized to stick around. And so outside of maybe two people that I can think of off the top of my head, and this is a firm of at the time, you know, two or three hundred people, no one left. So that was, it was not the same thing because it also, to be clear, you know, there were five people that owned Fortress. There were five people that owned Fortress when we went public and those five people had it, had a monetization. That's it. And 150 of us were still very motivated to keep building Fortress. So before we go deeper into Fortress, I want to talk about, there's a little period where you went to Fur and you were an early employee there and you kind of, in another conversation

14:32described yourself as kind of doing everything, you were all part of that organization and you made a lateral move really into Fortress. Talk about that time at Fur and what you learned seeing everything kind of under the sun at the organization and how you translated that into starting a Fortress and going with that investment thesis. Sure. So I joined Fur Tree in 2002 from Goldman Sachs and, you know, I was happy at Goldman. I had a job where the learning curve was super steep. But I got to know one person in particular at Fur Tree, they were a client of Goldman at the time, again, Andrew Friedman, who again, you talk about, you know, teachers, Andrew is one of those people that you could just tell had, truly brilliant, but also he really had a passion for teaching. And at Goldman, I was doing just bank, primarily bank debt, but distress bank debt. And obviously the investing landscape is much broader than just bank debt. And at Fur Tree, they were investing everything from debt to convertible bonds to equities to derivatives and some private equity.

15:33And so I was young. I was, you know, probably relatively naive. I didn't appreciate the risk I was taking leaving in place like Goldman Sachs to go to a $600 million fund that could theoretically go away much more easily than Goldman Sachs. But I was also, you know, I was a guy from Virginia Beach and if it didn't work out at Fur Tree, I would figure something else out. But I did know that Andrew Friedman at Fur Tree would really invest in me. And again, my learning curve would get right back to vertically steep again, learning much more than just debt. And that was exactly what it was. I was the fifth person on the investment team. So I tell people like that was everything from, you know, getting the coffee in the morning and sorting mail to, you know, coming up with investment ideas and pitching investment ideas and getting to put on risk. But short time after that, short time after that, you then move over to Fortress. Why? So I was at Fur Tree for three years and I was again, incredibly happy. We went from $600 million to over $2 billion.

16:35But at Fur Tree, I mentioned I was the fifth person on the investment team, but it was really clear unless those four people above me left, the infrastructure was in place. They were, you know, they were, they could do a lot of different things, but they weren't going to go expand and do a bunch of more. And so I don't want to say I was like, I mean, I guess it seems like I might have been itchy. I mean, those were two jobs in five years and I haven't left the third one since. But I did know Peter Goldman. He had started Fortress in 2002. I saw what he was building and he was really building something, you know, and not just Pete, but West Eden's and Mike Novigrats. They were really trying to build sort of an alternative asset manager for the future and and kind of skating where the puck's going. And they were able to do things not just, you know, buying debt, but issuing term, you know, issuing term loans and financing and people talk about private credit now. Pete was doing private credit in 2002 and he set the whole credit business up really around that. And so I saw that was where the world was going.

17:35And as I thought about like investing and being able to compete, you wanted to compete with a team that had this, you know, the abilities to do everything and the toolbox to do everything. And that was what Trula, what Pete was building. I say this anecdotally, but I joined Fortress and at the time the credit business was about $2 billion at Fortress. Fortress was about $2 billion. We had 18 people in the entire firm. Fortress had 150 people in credit alone, but it's because Pete was building the infrastructure to be able to do so much more. And it felt like, you know, again, thinking five and 10 years forward, that was something that I wanted to kind of hitch my wagon to. So 2005, 19 years later, you become the co-CEO. What happened during those 19 years that elevated you from being really a trader and an analyst to now being not only the CEO of Fortress, but one of the more high profile people in the private equity markets? It doesn't seem like it was 19 years, but I guess it is.

18:37But I mean, first, I was fortunate because I was sort of trading and running our distress book, Pete Brigger wanted me to sit next to him because he just wanted to hear when he was at the desk, he wanted to hear what was going on. And Pete has always had an office, but he's always had a desk on the trading floor. And unless he has people in his office or he's on a call that's sensitive, and even when he's on sensitive calls, he normally takes them from the desk. He likes to be on the desk. He likes to be hearing what's going on, hearing what other people are doing. And so I was number one, it was just Osmosis. I was fortunate to sit next to him my entire time in New York. He moved or he decided to move his family out to San Francisco or the Bay Area in 2011 and highly encouraged me to move as well. And so I moved out there in San Francisco, we sat back to back. And so part of it was he and I were developed a really close relationship and I learned a ton from him. And then part of it also was when you have those opportunities, you got to take them.

19:39And I think a big opportunity was the global financial crisis. That was sort of where I went from trader to moving into the investment committee and much more involved in everything we were doing just because again, a little bit of a battlefield promotion where you get those opportunities and you prove yourself and you find ways to make money and you end up moving up. And so that was really kind of where I went from just working in the distressed area to kind of across the business. Yeah, you mentioned he had to look up in 2007 when it went public. But you weren't looking up in 2017 when all of a sudden it goes from public now back to being private when soft bank comes in with a $3.3 billion acquisition of fortress. What was that like to go from public and not only to go private, but now you've got the big player being son who some people would say is a challenge to be around.

20:41We could probably do a whole separate session on that. But I guess first I'll kind of talk about the circumstances when we were public before we went private with soft bank. I mentioned West and Pete and Mike and overgrads running the business, the three different businesses. And I do think the three of those guys in particular along with Rob Kaufman and Randy Nardone deserve a lot of credit. Fortress was the first alternative manager to go public in February of 2007. And they were selling an alternative global alternative asset manager that had multiple products, private equity, macro and real and credit and real estate. In the way, the West didn't stop raising private equity funds in 2008. Mike Novigratz left in 2015. And so the business was shrinking, right? I mean, as a public company, as a public asset manager, it wasn't a particularly good story to say, hey, we're shutting these businesses down. And so, and again, Pete, West and Mike, I think would say this if they were here. So I'm not talking out of school.

21:43But it wasn't a particularly good public market story as you're talking about shrinking the business. You also, we also couldn't make some changes that needed to be made internally in the public eye. It's much harder to articulate that on a quarterly earnings call versus once you get private, you can kind of streamline the business and really focus on what we are now, which to your point is really a credit and real estate business. So, Masha had a guy working for him named Regif Mizra. Regif was sort of the number two. Masha's son is the head of the Suffank. Masha's off bank. Regif Mizra was sort of the vision phone was Regif's brain child. Yeah, he was kind of a CEO. Oh, exactly. And Regif had been a ran credit at Deutsche Bank, ran credit at UBS. We knew him at both those places. When he left UBS, he actually worked at Fortress for a hot second. We knew he probably, he was probably just a temporary spot, but he worked at Fortress in London and he got to know us and knew the business. And so as they were envisioning the vision fund and they were talking about it, they

22:44felt like they needed to credentialize themselves a little bit with some of the LPs, primarily the Saudis and Mubadala. And so Regif had this idea, well, Fortress is this orphaned public company. We were trading at a very low multiple because people looked at this as like, well, is it liquidating? Are they going to raise another funds? It wasn't, again, like I said, it wasn't a very good public market story. So Regif said, I think we can buy this at a very attractive price and I think it will help us. And it will solve something for Fortress because they, again, we weren't very good public company. They paid a big premium. I think it was a positive for our shareholders at the time. And so it solved that problem and it got us out of the public eye. Most of this week announced a year of credit guy. And now he's going to borrow $10 billion to put in to more AI infrastructure. He's borrowing $10 billion against his open AI stakes. So, right. Yes. He's leverage on leverage, but your thoughts about that. I mean, look, he has a, Masha has a vision, right?

23:46He's been singularly focused on both robotics and AI for a long time. One of the reasons that we've fast forwarding, we bought the business back from Softbank with management in Mubadala. A big chunk, a big reason of that was Masha said, I want to focus my entire balance sheet on robots. I want it out. Robotic. This is non-core. An asset manager doesn't really do anything for me. And so we were able to buy the business back. But look, I think, I mean, Masha's going to make a lot of bets and he can be wrong on a lot of them, but when he gets the ones right, he's really right. He's seen to... So, internally 2017, when that transaction was going down, what were the conversations like, were we hoping Softbank was going to bring to the firm? We kind of exposed her globally and outlets, did you all kind of consider as the future of fortress? Sure. So, again, I was closer to the room at the time, but I was still not in the room. And that was really a Pete and West decision because they were the co-ceos and they had the biggest economic stakes.

24:47And Pete was very specific with Masha that you can't mess with my business. You cannot mess with my investment process. You can't tell me to go invest in we works. We need to have an independent process. Sure. And Masha 100% lived up to that. They never once got involved in our investment process. But it was really, get us out of the public, which was a positive, and then leave us alone. Let us do what we know to do. And that was when we had to go to all our own peace and tell them that, right? Because they received headlines and they say, what's this mean? What's this going to change? And the truth was, what Softbank bought was the shares that the economics at the public guardian. Right? So those were not economics within the building, within the partners that were investing. And so we were able to look at our own peace and say, my economics aren't changed at all. I still only make money when you guys make money. And that was something that was very important to us. And I think we were able to deliver. And part of the deal with Moon Dollar came in, which is Abu Dhabi-based.

25:51When they came in, 32% of the ownership went back to management. Yeah. And I think different than some of these strategic transactions where management's bringing someone in or doing this, it didn't go back to us. We wrote a check. I mean, I wrote the biggest check of my life and back into that to buy the business. And so it was another thing where we could look at our own peace and say, we're as committed to this game. As committed to this business, as we ever have, the other thing that was great with that was it wasn't just the sea suite. It was 150 plus of our partners that also wrote checks. And so, and that was the same time Pete announced the CEO transition at that same time. And any CEO transition, particularly from a founder, can be very difficult. But I do think Josh and I had a big advantage that we had that ownership, that owner operator culture, where we were able to look at our partners and say, hey, we own this now. For the first time ever at Fortress, I mentioned when we were private the first time, the

26:55economics were the equity was owned by five by the five founders. This was one where the equity was much more widely dispersed. And you and Joshua Pat became co CEOs in 23 and then the transaction back in 24. That's right. The bio was announced was when we announced the co CEO and then it didn't close because of regulatory, it took a moment. Talk about co CEO. I mean, not many organizations have co CEO. There's been some in the financial industry. That's been a mixed bag. Probably. Yeah. Talk about being co CEO. Yeah, I mean, it was Pete and West were co CEOs before. Pete probably brought in Goldman Sachs for a long time had co CEOs or they had a CEO in co presidents. But there was, you know, Weinberg, and there's a lot of over the history at Goldman, they had co CEOs a lot. I do think within the financial services industry, co CEOs is a little more frequent. I mean, the way I, the way I tell people is it allows us to just be more effective as

27:55CEOs because we can be in two places at once. One person can't be in two places at once, but this allows us to really leverage our goals. But how do you communicate on decision making? I mean, Josh and I and now Jack and I, I mean, we talk a lot. We email a lot. You just communicate. I mean, you're just talking a lot. We don't divide. We don't really divide. But like all of us, whether it was Josh or now Jack and I, we have different backgrounds. We are our, our, the way we got to this, these positions was different ways. But we, we try not to divide the world up and say that's yours, but it's not like you were brought back to me. Yeah, it's really more of, hey, let's make decisions. The other, you know, I talk about Pete and the sort of succession plan. The one thing that I think, and I, I noticed this from the beginning, what, back when I talked about the redundancies, what the Pete built from the beginning, he's always had, you know, co heads of this and co heads of that, which I think is, is just good business.

28:57But I also think he always tried to build a business that would outlast him. And so one of the things that I think we are very fortunate is we have Pete that is actually, he views our success as a direct reflection on him. He has zero, like, you know, there's some founders who have this sort of, they don't want to let their finger off. And they can't, and then, well, this place just couldn't work without me. And, and, you know, I really need to be here. And Pete is, I mean, he truly is like, thinks about how he can empower us. And at the very beginning, he would talk about things like, hey, I'm not going to be in that meeting, not because I don't want to be there, but because if I'm in the room, they're going to look at me. And it's really important that that they don't, if they look for me, I'm not there. And they're, they got to look at the two of you. And it was very deliberate. And it was deliberate to try to help us be successful. And I think he constantly is doing that. And again, I do, I look at other people in a similar seat with founders that aren't quite his as maybe unselfish as Pete is. And I, I just am thankful for that.

29:59Okay. So we've talked about Pete Bergerla. Give us two kind of on the personal side for you, open up to personal side of your life. Two just takeaways from sitting with him for so long, really learned. And also what have you then passed down because of his teaching to you? Wow. You know, one thing that, that from the very beginning with Pete was at, my analogy was like he was that, he was that leader or that general that was, you know, on his horse at the front of the army, blood all over his uniform, like leading the charge. And, and, you know, William Wallace, he was not the guy in the back. You know, sitting there smoking a pipe directing, directing the troops. He was the guy that was leading the charge. And, you know, people, when I was joining Fortress, I had a former, my kind of first boss at Goldman's again in Kevin Orrick, who founded Anchorage and Kevin built, built an amazing business. Kevin was like, and by this point, I'm obviously not at Goldman anymore. I'm at Furtury and Kevin calls me and he says, true congrats.

31:01It's great. He's like, you know Pete. He's like, do you know what you're signing up for? Because Pete had this reputation at Goldman of just being this work, like just, you know, working around the clock. You know, he really, he was a partner already, but he really made his name, made his career at Goldman in the Asia crisis, doing a bunch of, buying up a bunch of distressed assets over there. And Kevin at the time was like a 28 year old associate and in New York and interviews with Pete, Kevin had gone to law school. And he, so he was, you know, kind of a distressed analyst, really smart guy. And Pete interviews him and talks about, you know, getting to come over to Asia and Kevin's like, I think I'm going to do this. Sounds amazing. I'm single. I'm 28. Asia. It's going to be fun. I'll learn. And, and, you know, his, his, Kevin's boss at the time was in the high yield desk, I got him John Savitz. And John, of course, you're trying to convince Kevin to stay in New York and you've got this great career. And Kevin's like, I think I'm going to go. And Kevin says he has one more meeting with Pete and Pete's like, this is going to be amazing. I've got an, I'm going to have a place in Tokyo.

32:02I have a place in Singapore. He's like, we are going to work seven days a week. We are going to absolutely crush it. We're going to make so much money. We're going to make all these investments. And Kevin said he went back to John Savitz and he was like, John, you know, you've really been good to me. I just can't leave you. I'm going to stick with you because Pete, let me, Pete was a really hard worker. But my analogy around the, you know, the William Wallace of the front is he never asked anyone to do anything that he wasn't going to be doing, working just as hard or harder. The show will tell him the real William Wallace story. That's good. But September of next last year, the unexpected happens. Yeah. When the Co CEO dies, talk about that from a personal standpoint of thinking all of a sudden, I've been clearly invested a lot. We've got an organizational structure set up that's moving forward with some, a lot of things that are happening. You lose that CEO. You're the one, both from a personal standpoint, but then also how you communicate to an organization,

33:03we're going to continue to move forward. Yeah. You know, that I, without a doubt, was the hardest thing professionally. And one of the hardest things personally I've dealt with. And Josh was, you know, Josh was a day one partner. I mean, before I was there, Josh was there. Before Pete was there, Josh was there. And so he really, you know, his DNA, he helped build this place. And so that was a huge loss. But this is, you know, it's hard to express. But because Josh, just like Pete was such an amazing business builder, he had a great business. And Josh built our net lease business, which is one of our top tier franchises. Josh's deputy, his guy named Hassan A. Jazz, Hassan was the CEO of our net lease business that Josh trained and had empowered, just like Pete empowered us. And so, you know, while Josh was and still is a loss for us immensely, a testament to Josh and the business person he was, that he, the business that he had helped build

34:08did have all those redundancies, did have the infrastructure to be able to survive, even though it's, you know, obviously it's a huge, a huge loss. Yeah. Let's talk a little bit about the portfolio and some of the transactions and recent deals that have gone into it. Because I think that's fascinating. I think people understand the organization fortress much better when you do that. As I said, it's got a reputation for being very aggressive. So, so let's talk and maybe a good transaction to start with is talk the restaurant business to two big transactions that started out on the credit side, but have ended up being on the private equity, the equity side. One of those was crystal, which is a southern slider and people from the south, it's an iconic name. And then Red Lobster. Both of those you went in on the debt side very aggressively.

35:09And then they ran into problems and you converted that to taking an ownership position. Walk us through those two. Well, I would say crystals we went in and we purchased the debt at a deep discount and we sort of knew it was a distress. It wasn't. And when was this? 2020? Oh no, crystals was early. Crystals was, yeah, it was mid teens. I'd have to, it's been a little much. And $48 million. Yeah. That was 21. 21. So some of you, you, you, you was just liable. That was a, and that was, that was a much more buying the debt at a discount, knowing it was going to get restructured. It was a, it was a small, it was a small lender group. So it wasn't like some big syndicated facility where you could buy, you know, a few tranches and you controlled it and you could restructure it. And crystals, not going what has been a good trend, and it's been a very good trend to actually bought it right. It has gone well. You know, I would push back a little one on Red Lobster. That did not go as planned. We definitely didn't plan to own that. And there's been, there's been some recent litigation from some other folks that firm

36:09that bought Red Lobster before we owned it also happened to be a, sell shrimp. And they're now, there's now litigation that the whole endless shrimp was a stuffing the channel where they were, where they were selling the shrimp to Red Lobster and Red Lobster was happy to do as much as they could. Ultimately, that was not very profitable and that's why we ended up, that's why we own that business now. And you jumped in on that $275 million equity and another 100 million worth of dip. That's right. Financing. Alongside two other, alongside two other primary lenders. And we brought on a CEO who's working his tail off, you know, trying to restructure it. I think we underestimated the amount of CapEx we were going to have to put in the stores. You know, some of those stores are pretty tired. They had some pretty difficult real estate deals. Yeah. And we, the first restructuring, you know, one of the, one of the things about bankruptcy is you can reject contracts and leases or contracts.

37:12The problem is if you have an individual lease, I can, I can, I can reject an individual, that, an individual store that's not profitable. If you have a master lease, either have to reject all the leases or, all the stores or, none of them or take all of them. You can also negotiate harder, you can threaten and we, you know, again, in hindsight, we probably should have done a better job in negotiating harder, the first restructuring to either reprice the master lease or get some, get rid of some of the, the, unprofitable stores. We have, I think, now turn the corner where Demole has really got a handle and, and we're now figuring out, you know, what we, what we need to invest in each of these different stores to kind of put just a little refresh. You know, the one thing that is just amazing in it, from the second we actually took ownership, is the loyalty in red lobs from, you know, red lobsters clientele. It's just like, there's people that needs the first place they ever had seafood and, you know, it's, it's got, it does have a, a fan base that's, that's pretty, that's pretty remarkable. We even had a, a famous, I'm not sure, I mean, a lot of the sales, a rapper that like,

38:15volunteered to start just doing free press because he loved, he loved red lobsters so much. But then he ended up getting his wrist slapped because he'd signed, you know, some sponsorship with another restaurant that said, you can't, you can't do that. But he was just doing it because he was so passionate about, about the actual brand. So is English shrimp coming back? We've been, no, we just, we just, they just, just announced it, right? They just did a little, like, we're doing, we're doing what's different about English shrimp, about it. What's the price and price? They really put them bankrupt. See, first time. What's the price? What's the price? And when you offer it, and there's, you know, there's different ways to try to, you do it. Yeah, how you do it. And, and it's, you know, it's, it's, again, it's, it's an iconic brand that I think we still really believe in. It just got to get it right. I mean, one of the things that I, I, I, I, I go back to that, the word resiliency, right? And it's a lot of people, you know, we love to talk about the investments that go well from the beginning. And those, you know, happen occasionally. But, but a lot of our, you know, investments that have, that end up, that I think one of the things our investors appreciate with us is it's when things don't go right that

39:20we, that we really roll our sleeves up. Yeah. And again, sometimes it's making, you know, lemons out of lemonade or lemonade out of lemons. Sometimes it's just saving, but it, it's making sure we value every, you know, every one of their dollars and maximize every one of their dollars, both in the wins, but also in minimizing the losses. So let's talk about a local one, Arcus golf. Yeah. Talk to us about where you see lifestyle kind of activity brand like Arcus is, the history of getting into kind of bed with Blake Walker and that team. And where you see Arcus going. Yeah, Blake, who I know has been on, on your guys show. Yeah, it's great. He's, he's fantastic. And he, so Blake has worked in golf really, his entire professional career, you know, post business school. And, and so because of that, he's been, you know, he knows every single asset in the space. You know, now over 10 years ago, he came to us. There was a portfolio of golf assets that he knew was owned by a reat that we're going to come for sale and, and kind of came to us and said, hey, we should go buy these. And, you know, we, we traditionally don't do like pure play operating private equity.

40:23Usually some sort of asset, uh, base business. And so golf, you know, obviously you have real estate attached to it. And, and so it's kind of a harder asset, something that we could wrap our, our arms around. And we went, we went and purchased it. And so that was, that was the beginning. Um, you, if you look at what Blake's done, you know, he's, I mean, and it was, those were under managed, mismanaged, not managed. I mean, there was a lot of war. The early days where he had to really restructure the portfolio and restructure the operations. He then sort of rationalized and he, we were buying, we were buying some courses. We were either shutting down courses or selling courses to kind of rationalize the footprint. And that took a while. We brought on a partner, a tarot's, um, um, Michel Angelakis, who I guess is now going back to Comcast, you know, Michael was at Comcast. He left Comcast and ran a private equity firm, private equity firm with Comcast's money. He's a fantastic partner and also a big golf fan. And so he, he was, we brought him in as a 50, 50 partner, um, which allowed us to really

41:25keep investing in the business, um, and keep growing the business. But really over the past three years, I feel like we, and Blake, Blake had already hit his stride. But I think we now understand the business better. And I think we really got to a place where we've been able to pick up some more assets. We bought, um, we bought some assets in Houston that are amazing assets. We brought some assets in Atlanta that are amazing assets where Blake was really able to say, I want those assets. And, and then plugging them into our infrastructure and the Arches infrastructure that Blake has built, um, you really, he's really seen how to deliver, frankly, a better, uh, a better experience for the members, um, but also profitable, a really profitable business, just understanding what they value and like the food and beverage around a golf club. And obviously golf, you know, for a lot of golf clubs, if you play golf, you love that club, but if your spouse is the one that's playing golf, the rest of the family is like, where's mom or where's dad? Um, but, you know, Blake has really delivered the club experience to where everybody, they, you know, whether it's fitness, whether it's so like no one's complaining that dad

42:29or mom are playing golf, they're, they're just saying, hey, let's go meet dad for, for dinner at the club after he finishes golf, um, or let's go to the pool and, and hang out and he'll meet us afterwards. And, and that's where I think Blake has really, um, hit his stride. And you look at what's happened with golf. Obviously there was a bump at COVID and we were worried, well, is this temporary? And I think really you've seen it stuck out, you've stuck out. And I think, you know, like I've got a 16 year old son and, I mean, the golf and Dallas has a lot of big golf culture, but like every 16 year old, I know, I mean, all of his friends are playing golf, I mean, you know, not necessarily on the golf team, but it's, it's really become a much more cool sport. I mean, I'd played golf when I was growing up and I played occasionally, but I, you know, I, it, it seemed like a old boring sport to me when I was growing up. And now, of course I wish I'd paid a little more, just spent a little more time back then. Let's go from light to dark, though. 2017, you put in a hundred million dollars into a third firm by the name of Theranos. To remind people Theranos was Elizabeth Holmes.

43:31She's spending about 11 years, um, federal prison, uh, in federal prison right now, probably one of the largest frauds as people judge. You came in pretty late, though. She announced that you were dissolved, she was dissolving it in 2018. You would come in the tail end of 2017 with a hundred million dollars. And you had a board of George Schultz, former secretary of state, a former secretary of defense, three star, three stars, pretty impressive board, all viewed at least from a retrospective standpoint as having been taken. The concept was, I've got one machine, I can get one blob, one drop of blood and I'll tell you everything. Yep. Never never came to be. You put a hundred million dollars into it, though, at the tail end of it, took a four percent equity, which clearly wasn't worth anything. But you came out of that deal clean, walk us through it.

44:32I don't think anybody else came out of that clean. We came in, like once the fraud had been exposed. We were not in a show. One of my good friends was actually one of the investors that actually kind of smelled out the fraud. But in fairness of those people, it's like the problem is when someone hand you a device that you prick your finger and you put it in there and they just give you false numbers, unless they let you keep the device and let you take it apart, it's hard to really detect that level of fraud because it's so devious and duplicitous. But we came in, eyes wide open, knowing what the situation was and we actually made that investment out of our intellectual property group. So they were investing in, while there was about 700 patents, which was a lot of trash. So despite a lot of what they were doing that didn't work, the concept of being able to test on the spot and all those 700 patents, there was validity to some of those patents

45:33even though Theranos couldn't deliver the end product that they purported to deliver. And that was what we invested in. We did, COVID wasn't what was delay for us in that monetization of that because there were folks that we were pursuing those patents. We were pursuing it and then all of a sudden you were vilified as the bad guy because we're blocking COVID. Yeah. Yeah. And so we just had to make a decision to say, okay, this isn't true. But this is not a political, we're not going to win this in the summer of 2020 or fall up and up. So we were just like, okay, we're not going to, you guys go do what you need to do, we're not going to do anything until that COVID got, we got through the COVID scare and then we pursued the patents. But how do you deal with it? That's a great example because your firm is built on trust and those client relationships. You go into Theranos, clearly a reputational question. You deal with the situation, COVID, another reputational question.

46:36How do you build that equation in to people who are used to doing spreadsheets and having every number in front of them, but to say there's some qualitative things like reputation that may or may not be important? I mean, look, we've, you talk about, you know, we enter into some situations like Theranos that people refer to as pyrotechnic, right, where it seems like, wow, now what we, the way we like to describe it is perceived risk is high, but actual risk is, if structured right is very low. And so what we, you know, sometimes when people are running away from those situations, there's an opportunity. And so, you know, one thing that is important to us when we do these deals and people talk about, wow, like, you know, forges will do some, you know, harder, harder loans, harder structures. You know, we always try to be really direct and really honest up front, like exactly how it's going to work with, with Elizabeth Holmes, for instance, right? We knew where that was going. We said, look, we'll give you a lifeline, but here's how, here's how the loans going

47:40to be structured. And if this goes into restructuring, we're going to, we'll take 4% if you can save this company, but if you don't save this company, we're doing this at that point, you're in the senior position. That's right. But we went into that deal with Elizabeth Holmes, like, you know, we're going to be in the same position. You know, looking right in the fit and we were trying to be there to help. There's a lot of those situations that we get involved in. And I, you know, Harry Maclose is a New York Real Estate guy that we've done a lot with. And when we did a deal with Harry, he bought the New York assets out of equity office properties EOP back in the financial crisis. Before the financial crisis, but it let us into the financial crisis. And he did, he bought the, if you remember, Blackstone bought those from Sam Zell and then they went and sold kind of all the different kind of trophy assets in different cities at these trophy prices. Harry bought the New York City assets and, you know, he was, and this was when I'm going to, I think it traded it like a four and a half cap or something like that. Five cap. I mean, very, very, the whole EOP.

48:41And then Blackstone said, okay, we're going to go, we're going to pay four and a half or five for the whole, all the assets. But then we're going to flip the trophies at even tighter caps and I want to say the New York, again, this is in 2007. So I have three, three and a half. It was very, very tight, which obviously you couldn't cover the interest with that. And so, so we actually provided a junior piece of paper to Harry. So there was CMB at commercial mortgage back securities loans at the top. And then we bought, we provided a meds junior to the mortgages, but we got a personal guarantee from Harry. And so while the mortgages had a first on the, on the real estate assets and we had it, you know, an ad junior equity interest in the real estate, we had, we were, the mortgages didn't have any of the, didn't have the personal guarantee, we had the personal guarantee. The transaction went sideways, mortgages got, you know, they had to sell it, he had to sell buildings. Same thing. We got all our money back and we had to have tough conversations with Harry. But he knew exactly what he, he had an art collection that was incredibly valuable.

49:45But he paid us back. That was, and then what I'm, what I'm, I think we are proud of is Harry borrowed from, has borrowed from us multiple times since then. And so that's something that is important as much as, because I think, I think sometimes we get this unfaithing unfair reputation of being, you know, we're willing to give him money when other people weren't, but we do it in a, you know, another fascinating one to me. And again, kind of completely different is the real way side. You own a railway that is Orlando. Yeah. It's, it's in Florida, private passenger runs. And you're now looking at through that entity, the Nevada or Las Vegas Southern California link on that. Yeah. Talk a little bit. I mean, we're here in Dallas and people have talked a lot about, and now we're used to, yeah, we're going to Houston. Is there a way to have a private railroad that works in, you know, two major hubs,

50:46Nevada, Los Angeles, Houston, Dallas, Orlando, it seems like it's working. Is that a, is that a play? Yeah. So, so that's the investment that West Eden has really led. And so I'm not day to day or point on that. You know, I give West a lot of credit because that, that, that Florida investment is a, is an O7 investment, pre financial crisis. And it was, obviously the financial crisis happened. It was over levered. You know, West has fought tooth and nail to try to maximize that asset. I think, and I think when he started talking about, you know, passing to a, short line passing to rail, people thought he was crazy. I do think if you talk to people in Palm Beach and Miami now, the bright line is something that particularly with all the, you know, with the influx of folks post COVID, you know, there's sometimes when people would say it's the only way to get from, you know, Palm Beach to Miami. And so that, that, that line is working very well and is, and is cash flowing. I think, you know, our investment has been a long time and I don't, it may will not be

51:48a good investment for for sure. You know, from, from 2000 over 20 years. But West has been working as a bout off to try to salvage and maximize that investment. And I think ultimately has built a, a, a business that, that will survive. Make sure reaction to all the discussion of the Houston Dallas, you know, speed rail. I've talked to friends who were, who've been very involved. Yeah. And look, my sister and I, brother and I live in Houston and, and that drive is just long enough to really stink sometimes. Yeah. You would love to be able to, you know, and like the bright line, the great thing is you can, you know, pull your computer up. Wi-Fi works great. I would, I would, I would love it. Vaughn Lane, you know, Vaughn Lane is great. JSX. Yeah. So I think the, you know, the economics, I mean, I will say that Department of Transportation is very focused on finding, you know, ways to, to, to help incentivize it. And so I, I just, I don't know if the, I don't know enough about the Dallas, Houston.

52:50Let's look at the economy today. And, by and large this year, surprisingly, jobs outside of today's report and losing 3,000 jobs and having June and maybe downsized, reverted. But by and large jobs have really stayed pretty stable, even if not sometimes even pretty good. Where do you see the economy today? And where do you see the economy going? I know there's a lot of intrigue around Kevin Worsh and we're not doing for guidance anymore and what does that mean for, for rates. What do you all look at? It's benchmarking on the economy today. And where do you see the economy at the end of this year? Look, it, I mean, this is one of the more difficult geopolitical macro environments in, in recent memory just because there is a lot of noise and a lot of things going on, whether it's geopolitics and wars or AI and disruption. So there, there's a lot to unpack. Generally, the economy we're seeing in the US in particular is, as quite strong and resilient, right? I mean, I, I do think gas prices are, are a, a, a real stress for, for a lot of, a lot

53:54of folks. I think that's offset by, by some of the tax incentives that kind of came through this year from the one big beautiful bill last year. So I would say those are a little bit, you know, kind of neutralized. I also think the resilience of the American economy and, you know, capitalism and free markets. I mean, you know, as much as we can complain about what's wrong in the US when I, you know, when we go around the globe, I mean, everyone wants to be in the United States. And so I do think. You know, we, we should continue to try to be better, but I do think we, you know, we still have the best economy in the world. I think you look at the number of companies and the, the ability to, to, you know, create wealth and build companies. So I want to go one step to you. Let's, let's look at AI. So really, S&P, up wildly this year, gone, done very well, but multiples have retreated. And you've also seen in the tech value issue side, given seeing tech value issues just absolutely balloon like you saw in the dot com area.

54:54But recently you've got a lot of AI firms that are getting hammered over the fact that, you know, their capital cost of making these things happen in the future are exorbitant. Can these AI companies go in and make good on the promises to develop and, and support the infrastructure that's going to be needed for the economy over the next decade or so? And how do you all view this? Do you all get into this game of digital infrastructure AI? How do you view being part of playing in that investment world? I'll give you my perspective and as a, as a definitely not an expert in AI. Look, I think you're already seeing it, right? There's not going to be, I don't think 15 AI winners in terms of, you know, and you're starting to see models, right? I mean, there's, there's two that really seem to be, you know, leaps and bounds and those two are making money, you know, maybe not operating profit, but they're making, you know, generating cash. They seem like they've got, they're starting to get a lead just like there weren't, you know, there were one point there were 10 or 15 search companies. Those two are. And, and, and you mean who it just opened up an AI and then, and then, and then, and then

56:00and then, but, you know, there was a lot of search firms and Google ended up kind of taking market share. And so I do think there's going to be very few winners. I think the, I think the hard part with all these different projects is the, I mean, the capital needs are immense. Yeah, they're huge. You know, we, we, and I'm not saying we're right, but we have been more cautious on actually financing the data centers just because we look at some of these companies that, you know, like Microsoft, right? The Microsoft has a lot of money. Yeah. If they wanted to build a data center, they could do that. The fact that they're leasing three years, five years, what are they going to do in year six? What are they going to do in year four? There's a reason that, that they're not doing that. And so we have been very cautious not to be on the, you know, taking that residual risk. The way we've, you know, we sort of say picks and shovels. We bought 30 gas turbines about two years ago, which believe it or not was before the real run up with the thought that, hey, these gas turbines, at the time they were on a public

57:02company's balance sheet and actually none of them released. And that was for a whole host of probably just different reasons. But we had the, you know, had an idea that, hey, these, these are going to be in demand. And you can, they're behind the grid. You can put them up as you're building a data center. You can power it right away. And you can build the data center, but powers the part that's going to take, might take, you know, permanent source of power might take longer. And so we had this idea. We bought those, we actually closed, I think December 31 of 24. And then leased them all up last year. We ended up buying eight. We're able to buy eight more turbines. So ended up having 38 turbines. And then we did another deal where we made an investment in actually a Goldman Sachs lead company called Boyd Corporation that does heating and cooling around the data center and engineering solutions, which before data centers for all different types of, you know, industrial use, but data centers needed a lot. And they had two different businesses. We provided a, a, a preferred to allow Goldman to refinance their capital structure. And then, and this was, this was again in 24.

58:04And then they, they sold the, the one business, you know, at, at 5X, what we put our preffen. Those are how we've kind of played around the periphery. And I think in like power sources is something we, we continue to, to be, I think, finding ways. And we look at all those different data center opportunities. We just really struggle with like what the residuals are going to look like. You know, I think, I think firmies are really interesting company. We don't have any stake in it right now in terms of really interesting asset. A lot of, you know, a lot of positives about where it is, but a very complicated situation. So those types of situations are things that the natural are interesting to us. In your career, private credits gone from fundamentally zero, very low numbers, estimated today between 1.7 and 2 trillion dollars. Lot of bank lending has pulled out of that market. Private credit has come into it. There's a lot of discussion now and you've raised the issue of the great financial crisis back in the 7, 8, 9 period that there's a bubble here and that private credit too much

59:10money has gone after too few deals. How vulnerable is private credit today? And when you listen to a Jamie Diamond say there's a bond bubble coming and private credit is going to run into a wall, put your reaction being one of the big players in the industry. Well, private credit is just credit, right? It's just loans and so, and you hit on it. Private credit has grown a lot, but it's not growing out of thin air. It's really growing. You think about a pie, a pie chart. It's really growing its percentage of the pie and banks have pulled back, right? So it's not like private credit is providing loans that banks would never do. Private credit is providing loans in a format that's easier and quicker instead of having to do a syndicated facility with 25 different lenders. You can do a facility with one or two or three lenders that might be more attractive to a sponsor or more attractive to a corporate. So do I think private credit as an asset class is a bubble that's going to be a disaster?

1:00:15I personally don't. Do I think, we talked about at the beginning, do I think if you're a lender that has 50% of your portfolio and software right now, that doesn't seem very diverse. And it's not just because of the disruption from AI, but if you think about, you think about why we pulled our software exposure back, starting when we started really taking our exposure down in 2019, it wasn't some top down get out before AI comes in. It was seen capital structures get more and more aggressive. And I do think the software space, like I want to say in 25, software was the highest sector of issuance in both the leverage loan market and the private loan market. I think the average loan was eight times leverage and the average interest coverage is one times, which means literally you have enough cash flow to just cover your interest and nothing more. And so you're betting on either cost cutting or growth or both. And if you have neither of those happen or you actually have revenue declines, obviously,

1:01:16you have a problem. And so there were some folks that were speeding in capital structures that were very aggressive. So I think within a sector, you can have problems. Now again, when you're a senior lender, the positive is you're the first dollars in. And so even if you have defaults, if you get your money back or you get 80 cents back, you're a portfolio can do okay. The problem is if you have 50% in the sector that's going to have that, you're going to have problems. So where again, I think what's going to come from this is, I think credit, again, we're hearing from people that are saying we still like private credit. And if you think about private credit, if private credit isn't trouble, private equities really is trouble. Because we're at least, you know, and this is why I do think private credit will, when people come back and the, in the stories told after, after the fact, when we say we're going to earn you 10 to 12%, we're paying you 10% a year and you're getting a coupon or a dividend. And so even when things go wrong, you have a tail, your cash flow, you've been getting cash. So five years out, you've got, you know, 50 or 60 cents of your capital back, just the

1:02:19likelihood that those funds are going to be a real problem is just much different than private equity funds, which have had, you know, very little DPI distributions. And that's where I think, when I, when we talked a lot of our own piece, particularly institutional piece, if they could wave a magic wand and take half their private equity portfolio and move it into private credit, they would do that. Yeah. Because on a sheet of paper, they were told by their private equity sponsors, hey, we're earning you 15 to 18%, but that was a sheet of paper that they got in seven or eight or 10 years that hasn't materialized. When, when we said, hey, we'll earn you 10 to 12%, it's not as high as theirs, but we're getting it to you. And you think about endowments and pensions, you know, their spending ratio is 4, 4 and a half percent. You don't need to earn it substantially above the bond market. So, so I, so I, I personally, and again, this is talking my book maybe, but I actually, I do think credit's going to, when the dust settles, it's going to, the, the, the good players are going to actually end up taking market share and, and you started that response though by contrasting private credit in the banking, the pie shifting, that's where

1:03:21that. But there is a difference. The bank side is regulated. The private credit isn't. How important is that to banks and to our banking system going forward? Well, and I think Scott Besson's been very focused on, on regulatory issues and, and, and his focus has said, the banks have regulations that restrict them, that limit them from lending. And I personally, we don't see that and I don't, we don't hear that from bankers who say, you know, maybe right after the financial crisis, you had some bankers say, well, we're being held back from what we can do, but this is literally 2009, 10, 11, but I'm getting more to a bank has regulators that come in that looks at those loans and says, hey, hold it folks, you're underwriting standards, et cetera, they're way out. Well, we're going to pull you back. Private credit, you don't have that. So those standards can go a long ways out without, well, I would, I would point out that

1:04:22private credit is generally are closed and funds, right? So, so, and they're limited at generally one to one leverage, right? So if you think about it, where is alone, what, where is there more credit risk? If you have a pool of loans that if we make a billion dollars of loans, we've got 500 million of equity, it's, you know, and it's all within a closed end fund. There's no chance of a run on a bank. There's no chance of any situation where we have to sell those loans. Contrast that to a bank that has deposits that can leave, I mean, look at what happened with Silicon Valley Bank and for the public. Yes, they have regulators, but even, you know, pre financial crisis, there were 40, some of them were 40 to one leverage. Now they're 10 to one leverage. Number one to one leverage, but the redemptions in a number of funds now have increased to the point where they can't be met and those funds are having to contract back to be able to meet investors needs. That's the redemptions have gone over the 5% threshold, which was in the document, right? Like the, I do think when the dust settles there, I think there's some folks that were

1:05:25growing in that BDC space and and and and and we are in that market, but we have not, we've chosen not to grow the same way. One thing I would point out is those funds have a 5% gate on the way out, meaning they have a 5% limit on redemptions on the way out and that's what you're on a quarterly basis. That's what you're referring to. Because it's a liquid and that's that that that that gate is there to protect the investors. The one thing I would point out is they didn't have a 5% gate on the way in and they would take all your money on the way in. So, so do you think on the private credit side that there's been so much money come in that it has forced other firms to make loans that you not have the the underwriting standards that you want. And I don't know if it's just underwriting standards as much as I also think they were, they became price tag priceless, right? Because because you just they just had like I think they ran a process and they said, okay, we want to do what are the best loans out there? And they said, these are the best loans in the market and we just had inflows on August 1st and we're going to go buy the best.

1:06:26And so that's where I think there was just a lack of maybe pricing discipline, structure discipline. And so I do think the performance, but I still go back to because leverage is limited, I don't think there's some systemic risk to, oh my gosh, this is a disaster. But Kyle mentioned our new Fed chairman. It looks like rates could go up. In fact, now you've got seven presidents that have kind of stood back and said, I think they should go up. If rates continue to go up, you have on the private equity side, a number of funds that are going to have turnovers, private credit side, you're going to have to have refinancings. Those who were made in largely a zero rate environment five years ago, what happens to all of that credit and or equity that has to be refinanced in one way or another? The higher rates is, we're earning more. We've actually got that protection, but does it pencil out for the borrower?

1:07:26Oh no, it's a higher rate. If people are worried about private credit, we're going to be earning more along the way, private equity is going to be more and more expensive. And so I still think when, and again, private equity must have really good either lobbyist or PR people because because the fact that there's so much focus on private credit, when private credit is performing and our investors, like our DPI's are great. You're asking money back. Private equity is not returning capital. Again, the good guys in private equity are great. But I think there's a whole host of some of the returns of the past book. There's zombie private equity funds, zombie private equity firms out there. They might not admit it yet and they might not know it yet. But if you don't raise your next fund, if you're not able to reinvest, you're essentially in wind down. And I think there's, I don't know the numbers, but I think there's a lot of firms out there. They can still be very profitable along the way. But I do think that stress is going to be borne by the junior security holders or the equity holders, not the first lean holders. So let's focus on North Texas.

1:08:27You move fortress down here. You've got a great office in kind of the uptown Knox area. And really, I think the focus is, is you brought a lot of investment professionals down here, which has been great for North Texas. You've been very optimistic towards the Texas stock exchange, which I think just opened their trading. It's trading. Last week. Talk to us about what you've seen in Dallas, what you're excited about. Obviously, you've been in New York. You've been in SF. And now you're here. What do you see in Dallas? What do you see about the future of North Texas in the region? And you sit on one of the Fed advisor boards. Yeah. Dallas Fed advisor board. So you kind of see a lot of different companies talking. Yeah. So my wife is tech grew up in Houston and went to SMU. So we've, we've, we've been, we've been, I've had ties. I got married in Houston. And fortresses, we've had an office here since 2002. It was much smaller. When I moved here in, in 2020, at the time, it was just, I was moving here, you know, because fortresses had an office here and I was moving here, you know, a big part family.

1:09:27And so I actually didn't want to, I didn't make anyone move. I said, look, we're moving for, for these reasons, partially family, partially business. But I think, you know, this office is going to be bigger. And then there were a lot of people that kind of raised their hand to say, hey, you know, maybe we could come look and, and, and that's been, which, which I'm happy about. It was really more of a ground swell of, hey, we want to come, as opposed to, hey, pack your stuff, you're going to move. And so that's, that's been great. And obviously, you know, we're 150 plus people. We, we, it's been fantastic. And it is, I tell people like, you have to come here, but it is palpable, the, the energy here. And I know I'm six years in, in to Dallas. And people like, how much it's changed. I mean, I, and how much it's grown. I personally look forward and see, I don't see it slowing down. And, and, and I think that particularly Dallas, and I think Texas in general, but I think particularly Dallas, because the infrastructure, because the ability to get around, because the ability to explain, there's, there's, as we go, you know, as we've developed north,

1:10:28and each of those different, you know, you talk to people that say, you know, 30 years ago, we were hunting here and, and now it's, you know, whether it's fresco or plain out, it's, it's, it's pretty remarkable. And you go there and, and you talk to people in just the, the ease of life, you know, I'm involved in a, in a company called MP Materials. That's out in Fort Worth. And Alan, the name, the name of the, our head of our robotics division, that guy named Alan Lund, he was in Cambridge at MIT. And I mean, he's truly like one of the, you know, maybe the, like, preeminent, you know, robotics, you know, kind of, uh, uh, magnetics, uh, scientists in, in the country. And when he was coming here, he talked about, you know, living his life in, in Boston in Cambridge versus Fort Worth, where, you know, his ease of commute, um, his ability to, you know, to, to get to the office, to be home, his kids schools. Um, and that's been something that I think is, is really palpable when we, when, when, when, when the fact, when MP was, was looking at building a, uh, magnetic facility, um, they

1:11:31talked about running a nationwide search. And our, our, our, our rare earth, mine is in kind of the desert of California. The office was in Las Vegas, but it was 45 minutes, uh, the mine was actually 45 minutes west, um, but they talked about where they were going to build the magnetic facility. And they, the, the, the board meeting, they were talking about, they kept saying academic hub. It's got to be an academic hub because you're going to have all these PhDs, like, literally, the only plant in North America in the Western hemisphere to do this. Um, and at the meeting, I said, look, you should just make sure the RFP goes to Texas. Just, and I, I got a little bit of laughs. Um, the next board meeting, Jim Lutinsky, who now also lives in Dallas, uh, Jim says two of the five finalists are in DFW. And then the next board meeting, he was like, we don't have two recommendations. There, you know, alliance was purpose built for something like this. And now we've got this facility. We're, and now we just, we just broke ground on, so that was, that first facility was, was going to be, uh, primarily for GM. Um, and now we just broke ground, uh, this summer on the facility with, um,

1:12:34with you at the US government Department of War building, uh, what's called 10x to 10x our capacity. Um, which is, it's pretty remarkable. An MP is building, I mean, it's, it will reshape American infrastructure, possibly. I mean, there is an incredible business. If Jim Lutinsky should be, he's much more interesting than me. I should, it's unbelievable. He should be on, he should be on this, this show because he is true. Like what he's done, people talk about, oh my gosh, this overnight success. Yeah. I mean, Jim's a guy who, you know, who shut his hedge fund down and in Chicago and move to Las Vegas and slept on the factory floor with this vision of like rare, earths, um, 10 years ahead of his time, but he's done pretty well. Your enthusiasm for Dallas is a marvelous setup for my next question. There is a public official, a little bit east and north of here who you have criticized. The mayor of New York, talk about that criticism and the contrast between what you see in New York, where you've got 300 people versus here in Dallas, the business environment, talk about

1:13:36those and where you think the two go. I'm going to try to say positive, can take constructive on what's great about Texas. But, but what I, what I, you have, you have, you have, you have, you've decided policy matters, right? Like this is not, this is not about politics. This is not just policy matters and, um, and it is palpable when you come here, where politicians, they can't say yes to everything, but they, they want to hear, how can we help? How can, like, we want you to bring jobs to Texas, right? That's, that shouldn't be offensive to anyone right or left, right? That's, wow, that seems really smart. Like, like, how can we make it easier to do business? I look at Texas Stock Exchange and people, you know, there was, I was at the, um, at the event at, at Governor Abbott's, man, it's him when they kind of, they'd already announced it, but they were sort of a, a launch and, and they talked about, they're like, this is the most apolitical stock exchange, this is not political. We are not going to politicize a board. We're not going to politicize who you have to put on the board or who you can't. We're going to try to make it easier for companies to get listed. We're going to try to make it cheaper to trade on our exchange, like, make it easier to do business.

1:14:38And, and that's what I think is, is great. Again, I look at the policy in that, the mayor in New York and, uh, scarily, seemingly more, more places around our country. The, the policy around rent controls, I don't think it's going to make housing cheaper. I think it's going to make housing, you know, more expensive and, and, and we're more or at least less available. Um, and, and so I think it's more about like what, what works? And, and I think, you know, I, I, you talk about, you know, Governor Abbott and, and, and just not, not, not just Governor Abbott, but everyone in Texas. It's, how can we, how can we make this better? You know, you look at, you look at Ross Perot when he was pitching Jim on, on, Alliance. It's like, we're going to make, like, how can we, how can we win this business? And, and obviously Ross is a businessman and he's, make, you know, he's, he's going to make money, but he's also, he's, I mean, he's think playing the long game. And that's what I also think going back to Dallas is like investing in the infrastructure. You think about the, you know, the, the, the, the, the way, I mean, just 75, the way, I mean, the fact they're talking about, you know, McKinney's going to build another

1:15:40airport, just again, not like thinking about 10 years, 20 years, 30 years, Tom Luce just passed away and, you know, Texas 2036 is an amazing, you know, just the fact that it exists and that it, that it, that he, that people thought to say, hey, we have to think about our 200, like, like, we have to actually think about how can we keep making Texas better? And, and, and that's what I think is, is the part that is great. It's not just saying like, hey, Texas is great. Let's sit here and rest on our laurels. It's, hey, why is Texas had, had the run its hat and how can we keep, keep it going and, and if anything, and maybe improve on it? Torifix, great. You have had quite a career. You have, as we've talked about, had some very interesting transactions you've gone through. You've been at the forefront of an industry that's jumped to 2 trillion, which you believe can get to 6 trillion when you look at what's happening on the private credit markets, the banking and that sort of thing, been in the forefront of that. If you had to go back to the Droomek night that was walking into Goldman Sachs 26 years ago now,

1:16:45what would you tell him that would help him now? Well, that's a, that's a great question. Um, I mean, look, I would say, in, and I think I have, but, but, enjoy the ride. I also think when you think you've hit some sort of failure or, or roadblock, um, when you get on the other side of it, you realize, you know, it can be a roadblock or it can be a failure. If you let it define you, you let it be that failure. And I think, you know, my lessons, again, the, the darkest day is the hardest things. It's, you know, just keep going and find your way through it. And so, um, you know, I, I frankly wouldn't change a, change a lot because even the things that have gone wrong and there've been plenty of investments that I wish we didn't make or, you know, we didn't, we didn't do. Um, but, but getting through those, you realize you come out better and come out stronger. And I, and I do

1:17:50think like right now we look at our business and, and we've, you know, been through ups and downs and, and, and where we are right now, um, I feel like our, our, the current portfolios is performing great. Well, our process, I feel like is, is as good or as strong as it's ever been. And that's because we keep harping on, okay, what went wrong and how are we going to make sure it doesn't happen again? What's, and how do we change our process? And so I personally think I wouldn't change anything because all those failures have been really, um, what I think make us stronger today. You used the word earlier resilience. It's a good one. Yeah. Drew, thanks for being with us. Thank you so much. Thank you. Appreciate you. Appreciate you. Appreciate you. Appreciate it. Thanks a lot.